New Contract of Sale of Real Estate now in use in Victoria (from August 2019)

As all Victorian property lawyers and conveyancers will know, from August 2019 there is a new standard form of Contract of Sale of Real Estate by the Law Institute of Victoria and the Real Estate of Victoria. 

You should now discard all of your old forms of contract and commence using the new form of the Contract. 

The updates incorporate a number of the previously drafted special conditions into the Contract as General Conditions, as well as other minor changes. 

The changes have resulted in the renumbering of a number of the previous General Conditions. However, the substance of the General Conditions remains the same.  

WG Stark
Hayden Starke Chambers

What is necessary to make an equitable charge over real estate in Victoria valid?

I have appeared in a number of cases in which caveats lodged on the basis of an equitable charge have been upheld as creating a caveatable interest. 

The authorities make it clear that the wording required to create an equitable charge is minimal. An agreement to lodge a caveat is sufficient to grant an equitable interest in the Property. 

Gillard J held in Avco Financial Services Ltd v White [1977] VR 561, at p. 567

Having regard to the width of language contained in s. 89 it is difficult to understand how it can be said that a grantee of an equitable mortgage or charge did not have sufficient estate or interest in land to protect to protect by lodging a caveat.

At page 564, His honour adopted what was said by Romer J in Craddock v Scottish Provident Institution (1893) 69 LT 380 at p. 382:

To constitute a charge in equity by deed or writing it is not necessary that any    general words of charge of charge should be used. It is sufficient if the court   can fairly gather from the instrument an intention by the parties that the property therein referred to should constitute a security.

In King v AGC (Advances) Ltd and anor [1983] VR 682, the full court of the Supreme Court of Victoria (Marks J, with whom Young CJ and Murray J agreed) stated (at page 686):

It is, I think, clear enough that A.G.C. as grantee of an equitable charge, had sufficient estate within the meaning of s. 89 of the Transfer of Land Act to obtain protection of it by lodging a caveat. I agree in the reasons of Gillard, J. when he held that was so in Avco Financial Services Ltd v White, [1977] VR  561, at p. 567. In that case Gillard, J. was concerned with a charge of a similar kind, even similarly expressed … 

In Re Carter Holt Harvey Woodproducts (Australia) Pty Ltd (No 1) [2017] VSC 499, Robson J of the Supreme Court of Victoria had to determine whether the terms of a guarantee and indemnity were enforceable to give an equitable charge of the guarantor/chargee’s property, or whether the terms were ambiguous so as to make the charging clause vague for uncertainty. 

The clause in question included the phrase: ‘will charge’. The question for the Court to determine was whether that wording was sufficient to demonstrate an immediate intention to create a charge? The Court in that case also considered whether future acquired property can be subject to a charging clause and whether an equitable charge gives  a chargee a right to vacant possession of real property? 

The chargee was the registered proprietor of several real properties located in Victoria. 

The validity of the charge referred to in clause 2.6A of the guarantee was disputed in three separate, but related, proceedings.

The preliminary question to be determined was: is the charge valid and enforceable?

The charging clause in issue was clause 2.6A, which under the heading ‘Property as Security’ stated:

The Guarantor will charge in favour of [the creditor] all estates and interest in any land and any other assets whether tangible in [sic] intangible in which they now have any legal or beneficial interest or in which they later acquire any such interest, with payment of all monies owed by the customer and agree upon request, to execute a registrable instrument transferring to [the creditor] the Guarantor's estate and interest by way of security. 

At paragraph 40 of the judgment, Robson J noted that the creation of a charge does not require any specific wording.  It is sufficient if the grantor of the charge manifests an immediate intention to create a charge by using words that create a present intention to charge land specified as security. The property specified need not be in existence at the time the charge was granted but must be so when the charge is sought to be enforced. Accordingly, the existence of a present intention to create a charge does not require relevant property over which the charge is to be created to be owned by the person granting the charge. 

At paragraph 41, the Honourable Justice Robson noted there are additional requirements, such as the requirement that where the charge is over land, there is the presence of writing, and that where consideration is necessary, it must be valuable, executed consideration.

Further, at paragraph 43, Robson J noted that in Cradock, Romer J concluded that it was not necessary for certain formalities to be present in the creation of a charge in equity if the Court can ascertain an intention on the part of the parties that the relevant property should constitute security.

At paragraph 59, Robson J concluded that ‘will charge’ conveys the manifestation by the person granting the charge of an immediate intention to charge and does not involve a promise to charge in the future. The fact that the charge may not be enlivened until credit was extended to the person granting the charge by the lender does not mean that the person granting the charge did not manifest the present intention to create a charge.

At paragraph 63, Robson J concluded that the promise to execute a registrable instrument of transfer is a separate and distinct promise made under the clause from the person granting the charge creating a charge.

At paragraph 94, Robson J noted that an equitable charge does not give the holder an automatic remedy.  The person obtaining the charge must seek a court order.  Clearly, if the debtor was not in default, the Court would not allow the person obtaining the charge to realise the security.

The person granting the charge argued that the provision permitting the creditor to request the execution of a registerable interest of transfer was vague and uncertain as the circumstances in which it could be requested were not set out.  At paragraph 85, Robson J rejected this submission; he noted that it may be requested at the election of the creditor. The system or registration depends on the interest sought to be registered.  So far as Torrens registered land is concerned, the registrable instrument must be a legal mortgage. 

At paragraph 93, Robson J found that the charging clause was valid and enforceable and enlivened the Court’s power to make appropriate orders in the realisation of the security.

The creditor sought to enforce its rights by lodging caveats over the titles of the properties, registering its security interests and requesting the person granting the charge execute mortgages.  While the creditor did not contend that it had priority over the prior registered mortgagees, it did assert priority over all other creditors of the person granting the charge. 

At paragraph 99, the Court noted that the creditor's claim, as an equitable chargee and mortgagee, are proprietary in nature.  The creditor’s equitable interest created by its charge and mortgage were created in 2003, prior to the events alleged to give rise to a Trust in 2008 to 2010, as alleged in the defence of the person granting the charge. 

Robson quoted from the decision of Kitto J in Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) (1965) 113 CLR 265 (at CLR 276): 

... if the merits [of equitable interests] are equal, priority in time of creation is considered to give the better equity.

The Honourable Justice Robson noted that in such a case, ‘the onus rests on the holder of the later equitable interest to demonstrate why the ordinary rule should be displaced and why that interest should prevail over the earlier one.’

The creditor submitted (and the Court accepted) that this was not a case which comes within any of the recognised exceptions to the general rules about priority between competing equitable interests, and that there is nothing in its conduct to cause its prior equitable interest to be postponed to those other equitable interests claimed.

In the circumstances, it is clear that a caveatable interest  in real estate in Victoria can be readily created by a debtor agreeing (in writing) to charge their real property with repayment of a debt. 

WG Stark

Hayden Starke Chambers