Can a breach of trust claim defeat an indefeasible title under the Transfer of Land Act, 1958?

The Supreme Court of Victoria recently had to determine whether a Barnes v Addy claim fell within the exceptions to indefeasibility of title under the Transfer of Land Act 1958. 

In Mathieson Nominees v Aero Developments & Ors [2016] VSC 131, Vickery J dealt with this interesting issue.

Background

The Plaintiff (“Mathieson”) claimed that it was entitled to an equitable charge over subdivisional land at Point Cook in Victoria (“the Property”) and that, as a result, it had an interest in the land capable of supporting a caveat.

The Property was vacant land, although a town planning permit had been issued which permitted a 22 lot subdivision of the Property, including 21 townhouse allotments and a larger allotment which was proposed to include 125 apartments.

Sprint Homes Pty Ltd (“Sprint Homes”) planned to purchase the Property from the Victorian Urban Development Authority (“VicUrban”). The Property was undeveloped at that time. It needed to borrow funds to proceed with the purchase and develop the Property.

Mathieson agreed to advance the necessary funds for the deposit, as well as an additional amount to be put towards the working capital of Sprint Homes. The loan (in the sum of $250,000) was effected by a deed made on or about 18 April 2008.

Around 18 April 2008, Sprint Homes executed a fixed and floating charge in favour of Mathieson over all of its present and future property (the “Charged Property”) as security for the repayment of the Advance.

On or about 21 April 2008, Mathieson advanced to Sprint Homes $250,000.

By the contract of sale dated 16 June 2008 (the “Contract”), Sprint Homes purchased the Property from VicUrban for $4.5 million plus GST. The Contract provided for payment of a deposit of $225,000, with settlement of the balance falling due for payment within 9 months.

The deposit under the Contract of $225,000 was paid to the VicUrban on or about 22 July 2008 out of the proceeds of the loan.

Sprint Homes failed to pay the residue of the purchase price by 30 March 2009 and fell into default under the Contract.

On or about 15 June 2009, VicUrban served a notice of rescission of the Contract.

Negotiations then ensued with the result that on or about 29 June 2009 VicUrban agreed to further extend the settlement date under the Contract to 31 July 2009 and withdraw the notice of rescission dated 15 June 2009. A clause in the Contract as amended also entitled the purchaser to a discount of $500,000 on the purchase price if the Contract was settled on or before 31 July 2009.

On 3 July 2009, the First Defendant, Aero Developments Pty Ltd (“Aero Developments”), was registered as a company. Mr Joe Katz (“Mr Katz”) was appointed as solicitor for Aero Developments.

By a nomination in writing dated 3 July 2009, Sprint Homes nominated Aero Developments as substitute purchaser under the Contract. The nomination was executed by Mr Evans as the director of both Sprint Homes and Aero Developments and was effected without notice to Mathieson.

On or about 17 July 2009, a Mr Tenuta, Aero Developments and Mr Evans executed a written agreement. The principal objective of the 17 July Agreement was to secure funding for Aero Developments, to facilitate completion of the Contract.

On 21 July 2009, VicUrban agreed to amend the Contract by adding Aero Developments as nominee.

However, Aero Developments failed to pay the residue of the purchase price by the varied settlement date of 31 July 2009.

On 3 September 2009, VicUrban issued a second notice of rescission.

Settlement of the sale of the Property to Aero Developments finally took place on 17 September 2009. To facilitate the purchase, a net amount of $3,600,000 was loaned to Aero Developments by the Bank of Queensland. A further sum of $818,448 was provided at settlement by Mr Tenuta and Mr Plevritis.

Aero Developments became registered as proprietor of the Property on 16 October 2009, with a first mortgage in favour of the Bank of Queensland being registered on the same day.

On 11 January 2010, administrators were appointed to Sprint Homes.

On 22 January 2010, Mathieson lodged a caveat over the title to the Property claiming an interest as chargee.  

On 22 January 2010, Mathieson appointed a receiver and manager of Sprint Homes pursuant to the Instrument of Charge.

On 10 February 2010, Sprint Homes was wound up pursuant to a resolution of creditors.

On 15 February 2010, Aero lodged an application under s 89A of the Transfer of Land Act 1958 (Vic) in respect of the Caveat, supported by a certificate signed by Mr Katz.

By letter dated 15 February 2010 the Registrar of Titles advised Mathieson that the Caveat would lapse unless proceedings were issued.

By Writ dated 24 March 2010 Mathieson commenced these proceedings against Aero Developments, Cash Flow King and Mr Evans.

Mathieson sought (among other things):

A declaration that the registration of Aero Developments as proprietor of the Property was affected by fraud within the meaning of ss 42 and 44 of the Transfer of Land Act 1958 (Vic); and

A declaration that it was entitled to an equitable charge over the Property.

By Counterclaim dated 13 July 2010, Aero Developments sought:

A declaration or order to the effect that the caveat lodged by Mathieson is taken to have lapsed and is no longer of any force or effect pursuant to s 89A(5)(b) of the Transfer of Land Act 1958 (Vic); and

An order or direction requiring the Registrar of Titles to remove the caveat from and against the Property.

Neither the Original Loan, nor any part of it, was repaid to Mathieson.

A preliminary question arose as to whether the Deed gave rise to an equitable charge or an equitable mortgage.

After analysing various textbook definitions and cases, the Honourable Justice Vickery concluded (at paragraph 80):

… a charge does not assign or convey to the chargee any of the charged property. Rather, it secures the debt against the charged property. It provides this security by empowering the chargee, in the event of default or other defined event under the instrument of charge, to seek orders from a court for a judicial sale and the appointment of a receiver, or whatever other remedies are permitted by the charge.

Vickery J also noted (at paragraphs 81 to 82) that (emphasis added):

Whether the instrument in question is an equitable charge or an equitable mortgage, both have a characteristic in common, namely that a proprietary right is created in the charged property, as distinguished from a bundle of contractual rights.

Further, if the charged property the subject of the security is real property, the transaction will give rise to an interest in land sufficient to support a caveat under the Transfer of Land Act 1958 (Vic).

After that analysis, and looking at the terms of the Deed, Vickery J concluded that the Instrument of Charge which gave rise to the security claimed by Mathieson, when read as a whole, gave rise to an equitable mortgage and not to an equitable charge.

Mathieson submitted that Sprint Homes became, upon execution of the Contract, the equitable owner of the Property, by reason that the Contract was specifically enforceable by Sprint Homes. At that point, Mathieson had a security over Sprint Homes’ equitable interest in the Property pursuant to the Instrument of Charge. The interest obtained by Sprint Homes pursuant to the Contract, it was submitted, passed to Aero Developments when it became the substituted purchaser under the nomination.

At paragraph 106, Vickery J concluded that Aero Developments gained no enforceable right to enforce the Contract against the vendor, VicUrban. Nor did it gain a purchaser’s lien, or any right to compel specific performance of the Contract in its favour.

Next Mathieson argued that the nomination transaction gave rise to an interest in the Property under the Instrument of Charge in favour of Mathieson. It was submitted that this interest survived the nomination clause and the subsequent registration of Aero Developments as the registered proprietor. As a consequence, it claimed that the Instrument of Charge is presently enforceable by Mathieson and gives it a caveatable interest in the Property.

Vickery J rejected that argument. He concluded that (emphasis added):

Even if Aero Developments became a substituted purchaser of the Property through the nomination transaction pursuant to a novated contract, upon registration it took a transfer of the Property free from any other interests by operation of the indefeasibility provisions of the Transfer of Land Act 1958 (Vic).

In the circumstances of this case, Aero Developments acquired an indefeasible title upon becoming the registered proprietor of the Property.

At paragraph 123, the Honourable Justice Vickery noted:

As is plain from these authorities, except in cases of fraud or other instances provided for in s 42, ‘there is immediate indefeasibility of title by the registration of the proprietor named in the register’ with the result that a registered interest prevails over an encumbrance not recorded on the Register and prevails unaffected by notice of the unregistered interest (Breskvar v Wall (1971) 126 CLR 376, 385 (Barwick CJ)).

This left Mathieson with only one argument: The in personam exception to indefeasibility. It was said by the Privy Council in Frazer v Walker that indefeasibility ‘in no way denies the right of a plaintiff to bring ... a claim in personam, founded in law or equity, for such relief as a court acting in personam may grant’ [1967] 1 AC 569, 585. However, such claims must be brought under established causes of action, whether legal or equitable (Grgic v Australian & New Zealand Banking Group Ltd (1994) 33 NSWLR 202, 222–3).

The in personam exception, as it is called, operates so that the registered proprietor is not protected from the consequences of his own actions where those actions give rise to a personal equity in another. In Bahr v Nicolay (No 2) Wilson and Toohey JJ observed [1988] HCA 16; (1988) 164 CLR 604, 638 (emphasis added):

The point being made by the Privy Council [in Frazer v Walker [1967] 1 AC 569, 585] is that the indefeasibility provisions of the Act may not be circumvented. But, equally, they do not protect a registered proprietor from the consequences of his own actions where those actions give rise to a personal equity in another. Such an equity may arise from conduct of the registered proprietor after registration: Barry v Heider [1914] HCA 79; (1914) 19 CLR 197. And we agree with Mahoney JA in Logue v Shoalhaven Shire Council (1979) 1 NSWLR 537, 563 that it may arise from conduct of the registered proprietor before registration.

Vickery J concluded (at paragraph 131) that there was no conduct on the part of Aero Developments, either before registration of its interest or after that time, which gave rise to any personal equity in Mathieson such that the interest of Aero Developments as the registered proprietor ought to be rendered subject to the Instrument of Charge.

Aero Developments only acquired its rights on settlement of the Contract when it took the transfer from VicUrban in its favour on 17 September 2009. Vickery J concluded (at paragraph 133) that when it did so, it took title without any knowledge of any intention on the part of Mr Evans or Sprint Homes to defeat the claims of Mathieson, if ever that was their intention, which in any event was not accepted on the evidence.

At the time of settlement of Property in favour of Aero Developments on 17 September 2009, the Honourable Justice Vickery accepted that the company and its directors had no knowledge of any prior dealings between Sprint Homes and Mathieson (including the Loan Agreement and the Instrument of Charge). There was no dishonesty on their part, or through them, on the part of Aero Developments. Accordingly, he found that Aero Developments took the transfer of the Property without notice, whether actual or constructive notice, of the equitable mortgage comprised in the Instrument of Charge.

Vickery J observed that when Aero Developments took its transfer of the Property, it did so without any caveat having been lodged against the title to the Property by Mathieson. Such a caveat, had it been lodged, would have served to give notice to Aero Developments of the interest in land under the equitable mortgage comprised in the Instrument of Charge, and it would have taken the Property subject to that interest.

It was further submitted on behalf of the Plaintiff that Mathieson had a claim under one or other of the equitable causes of action in Barnes v Addy. This was said to be an enforceable personal equity of the type contemplated in Bahr v Nicolay (No 2).

In Barnes v Addy Lord Selborne said: (1874) LR 9 Ch App 244, at 251–2 (words in brackets added):

Strangers are not to be made constructive trustees merely because they act as the agents of trustees in transactions within their legal powers, transactions, perhaps of which a Court of Equity may disapprove, unless those agents receive and become chargeable with some part of the trust property, [knowing receipt] or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees [knowing assistance].

A claim for knowing receipt arises where a person knowingly receives property in breach of trust. A claim for knowing assistance arises where a person has knowingly assisted a trustee to carry out a ‘dishonest and fraudulent design’. Barnes v Addy liability has been applied beyond breaches of express trusts to breaches of fiduciary duty on the part of directors and other persons standing in a fiduciary relationship Farah Constructions v Say-Dee [2007] HCA 22; (2007) 230 CLR 89, 140 at [113]; Consul Development v DPC Estates Pty Ltd [1975] HCA 8; (1975) 132 CLR 373.

Knowledge is an essential requirement to be assessed by courts in governing the boundaries of liability under both limbs.

Vickery J conducted an analysis of the High Court’s unanimous joint judgment (of Gleeson CJ, Gummow, Callinan, Heydon and Crennan JJ) in Farah Constructions Pty Ltd v Say-Dee Pty Ltd (‘Farah Constructions’), [2007] HCA 22; (2007) 230 CLR 89, and concluded (at paragraph 165) that the tests as to knowledge under limbs of Barnes v Addy appear to be the same.

The claim under Barnes v Addy in this case was put on the basis of an alleged breach of s 180 of the Corporations Act 2001 (Cth), being an alleged breach of fiduciary duty owed by Mr Evans to his company Sprint Homes arising from his position as a director of the company.

The conduct said to amount to a breach of Mr Evans’ fiduciary duty was essentially that the conduct relied upon amounted to a contention that Mr Evans orchestrated a transaction pursuant to which Sprint Homes parted with the Property in favour of Aero Developments for no valuable consideration, effectively providing them with a windfall.

Vickery J was not satisfied that any such claim as alleged under Barnes v Addy could possibly be established on the facts of this case. He concluded that there was no breach of any relevant fiduciary duty on the part of Mr Evans to his company Sprint Homes.

The transaction in question was designed to rescue Sprint Homes from a serious commercial predicament.

The surrounding circumstances all pointed in one direction — Sprint Homes was unable to secure loan funds to enable it to settle the Contract with VicUrban. It was facing not one, but a second successive rescission notice, and was likely to not only lose the purchase, but also face the loss of its deposit and be exposed to a claim for damages and additional costs of a re-sale in the event that the Property was put up for a further sale by VicUrban and a lower purchase price achieved.

In the circumstances, Sprint Homes was compelled to extricate itself from the Contract in order to avoid loss of its deposit and exposure to a damages claim if the notices of rescission had been acted upon by the vendor, VicUrban.

The outcomes of the transaction comprised in the Share Sale Agreement dated 15 September 2009, pursuant to which the purchasers of the shares in Aero Developments, Mr Tenuta and Mr Plevritis purchased Mr Evans shares in the company for $1.00, included an obligation on the part of the purchasers to refund to Sprint Homes the deposit of $225,000 which it had paid to VicUrban under the Contract, together with interest.

Sprint Homes secured significant commercial advantages for itself by the Share Sale Agreement.

Vickery J was satisfied that by the means described, Mr Evans acted responsibly as a director of Sprint Homes by extricating it from a disastrous Contract which it could not settle, securing the return of its deposit together with interest, and putting in place a structure which facilitated settlement of the Contract with VicUrban on 17 September 2009, thereby avoiding any exposure of Sprint Homes to damages. In these circumstances a finding cannot be made that Mr Evans breached any fiduciary duty he owed to Sprint Homes as its director.

It follows that, at the time of receiving the Property, Aero Developments, its directors and relevant agents, including its solicitor Mr Katz, could not have known of any relevant trust arising from any breach of fiduciary duty owed by Mr Evans to Sprint Homes — simply because there was no such breach. Similarly it could not have known of any misapplication of the trust property as this never occurred.

Vickery J concluded on the facts of the case that Aero Developments did not knowingly receive the Property in breach of any trust. The Plaintiff’s claim under the first limb of Barnes v Addy must fail on this basis.

Further, even if the case of the Plaintiff was advanced on the basis of the second limb of Barnes v Addy, being knowing assistance, the same considerations apply, with the result that it has not been established that Aero Developments knowingly assisted in any breach of trust.

Of most interest to readers is the conclusion by the Honourable Justice Vickery (at paragraph 198) that (emphasis added):

… it has been authoritatively determined that a claim under Barnes v Addy is not a personal equity which defeats the indefeasibility provisions of the Transfer of Land Act 1958 (Vic) (Macquarie Bank v Sixty-Fourth Throne [1998] 3 VR 133, 156-157; Farah Constructions [2007] HCA 22; (2007) 230 CLR 89, 169–71).

The argument that a claim based on Barnes v Addy would be inconsistent with the principle of indefeasibility and would undermine the certainty of the Torrens register and hence the system of title by registration was accepted by the majority of the Court of Appeal of Victoria in Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd [1998] 3 VR 133 where Tadgell JA held (and Winneke P agreed at 156–7):

 [T]o recognise a claim in personam against the holder of a mortgage registered under the Transfer of Land Act, dubbing the holder a constructive trustee by application of a doctrine akin to “knowing receipt” when registration of the mortgage was honestly achieved, would introduce by the back door a means of undermining the doctrine of indefeasibility which the Torrens system establishes. ... In truth, I think it is not possible, consistently with the received principle of indefeasibility as it has been understood since Frazer v Walker and Breskvar v Wall, to treat the holder of a registered mortgage over property that is subject to a trust, registration having been honestly obtained, as having received trust property. The argument that the appellant is liable as a constructive trustee because it had “knowingly received” trust property should in my opinion fail.

At paragraph 206, Vickery J notes:

Although this outcome has been the subject of academic criticism, Farah Constructions on the issue of indefeasibility has settled the law in Australia.

As a result, Mathieson’s alleged in personam claim against the registered proprietor of the Property (Aero Developments) failed.  

The issues to take away from this decision are:

1. Lodge a caveat early – as soon as your entitlement to make a claim arises. In this case, if Mathieson had done so, Aero would have been on notice of its interest and Aero would not have been able to settle the purchase of the Property without Mathieson’s agreement (or a payment being made to Mathieson); and
2. Any claim under Barnes v Addy based on alleged knowledge of a breach of trust will not override the principles of indefeasibility established under the Torrens system of title by registration.  

WG Stark

Hayden Starke Chambers

What are the 2016 verification of identity provisions for non electronic land transactions in Victoria?

Further to my post about Verification of Identity on 17 December 2014, there is now a proposal to require the same level of verification for paper transactions as well as electronic transactions.

For consistency between paper and electronic conveyancing, Land Victoria has introduced a new verification of identity process for any paper instrument or dealing lodged with Land Victoria.

Lawyers, mortgagees and conveyancers must take reasonable steps to verify a client's identity. 

The Verification Process Simplified

A person must have their identity verified if they are a party to a paper dealing to be lodged with Land Victoria. 

The verification process comprises three key elements:

1.   Verification of a person's identity

2.   Verification that the person is a legal person

3.   Verification that the person has the right to enter into the transaction.

The Verification Of Identity Interview may be with the lawyer, the mortgagee or with a third party Identity Agent authorised by them. 

At the Interview, the client must produce original identification documents (Identity Documents) to formally verify their identity (Acceptable forms of identity documents include a passport, driver's licence and a birth or citizenship certificate).

The person conducting the interview is required to take a copy of these documents, which will be retained for nine years from the date of the Interview.

Once completed, an Interview remains current for two years.

Verification of Persons Overseas

Presently there is no formal process to verify the identity of a person residing out of Australia. I expect that Australian Consular Officials may be called upon to undertake this task (more details below).

More than one Paper Dealing

Standard sales and acquisitions of land generally involve more than one paper dealing to complete the land transaction. For example, a purchaser of land who borrows money to pay for the purchase will be need to sign a mortgage and a land transfer. 

In that case, both the purchaser's lender and the purchaser's lawyer will have separate verification requirements that will need to be satisfied. 

I would expect that the lawyer and the lender would co-ordinate their efforts to minimise unnecessary duplication of the Interview process.

Who May Perform the Verification of Identity?

The lender, a lawyer or a third party Identity Agent authorised to undertake the verification (such as Australia Post) may conduct the Interview.

Mortgagees may use reasonable steps or safe harbour procedures to identify mortgagors in all jurisdictions for both paper and PEXA mortgages.

ARNECC Participation Rules – version 3

1.   Verification Of Identity is required for all PEXA dealings as specified in Model Participation Rules version 3.

2.   Mortgagees must take ‘reasonable steps’ to identify mortgagors (see previous blog on this issue). 

3.   If a Subscriber (such as a panel lawyer) is lodging mortgages on behalf of mortgagees, the Subscriber must be reasonably satisfied that the mortgagee has taken reasonable steps to verify the identity of each mortgagor – cl 6.5.1(b).  As a result, Subscribers will need to ask mortgagees what steps are taken.  This enquiry can relate to the procedure used by mortgagees as distinct from asking for details of the steps taken on a case by case basis.

4.   The rules prescribe a ‘safe harbour’ procedure that can be used called the ‘Verification of Identity Standard’ – cl 6.5.2.  This standard requires the mortgagee or an approved ‘Identity Verifier’ (such as lawyers, finance brokers and Australia Post) to conduct a face-to-face interview.  If documents containing photographs are produced, the mortgagee or Identity Verifier must be satisfied that the person being identified is a reasonable likeness to the person in the photographs – Schedule 9.

5.   Often mortgagees will not know whether a mortgage will be registered through PEXA or paper. As a result, mortgagees normally also need to comply with the rules for paper dealings.  It is therefore good news that paper and PEXA processes should be aligned from May 2016.

6.   There is no safe harbour prescribed for Verification Of Identities conducted overseas.  However, ARNECC and the Department of Foreign Affairs and Trade (DFAT) have developed a new arrangement to assist. The VOI service will be provided by an Australian Embassy, High Commission or Consulate – see MPR Guidance Note #2 – Verification of Identity (Updated).  The service can be used for both electronic and paper conveyancing.

Procedures

1.   Verification Of Identity for paper dealings now applies to most dealings for land located in Victoria.

2.    Evidence supporting the Verification Of Identity must be retained for seven years from the date of lodgement of the mortgage.

3.    In Victoria, mortgages lodged through PEXA are void if the mortgagee ceases to retain a copy of the mortgage signed by the mortgagor – s 74(3) Transfer of Land Act 1958.  The copy can be retained electronically.  PEXA mortgages can also be signed electronically.

4.    Mortgagees who title insure should ensure that their insurer’s cover will apply given the process used for VOI.

Conclusion  

It seems that we are edging ever closer to the day when all conveyancing transactions will be conducted electronically. For now, it seems that the requirements for conducting paper and electronic transactions are being aligned, to the point where eventually the procedures will be identical. Then, the inevitable question will be: "Do we need paper transactions any more?"

WG Stark 

Hayden Starke Chambers

Are there any recent cases in 2016 about PPS leases and the PPSA?

Hammerschlag J in the Supreme Court of New South Wales recently considered the impact of the Personal Property Securities Act 2009 (Cth) ("the PPSA") in Forge Group Power Pty Ltd (In Liquidation) (Receivers and Managers Appointed) v General Electric International Inc [2016] NSWSC 52. 

Background

The dispute arose out of the installation near Port Hedland, Western Australia, of four model TM 2500+ mobile gas turbine generator sets (“the Turbines”) as part of a temporary power station established by Regional Power Corporation (“Horizon Power”).

Under a written Design Build Operate and Maintain Contract dated 23 January 2013, Horizon Power retained the plaintiff, Forge Group Power Pty Ltd (in liquidation) (receivers and managers appointed) (“Forge”), to design the power station and supply, construct, test and commission all equipment installed.

On 5 March 2013, Forge, in turn, entered into a written contract for Rental of Power Generation Equipment and Supply of Associated Services (“the Lease”) with the first defendant, General Electric International Inc. (“General Electric”), under which General Electric agreed to rent the Turbines to Forge for a fixed term, and provide to Forge certain services including the installation, commissioning and demobilisation of the Turbines.

On 11 February 2014, not long after the Turbines had been installed, pursuant to s 436A of the Corporations Act 2001 (Cth), Forge appointed voluntary administrators. On 18 March 2014, Forge went into liquidation. 

The PPSA

As readers will know from previous posts, the PPSA establishes the Personal Property Securities Register (PPSR). 

Security interests may be “perfected” on the PPSR by registration, giving those interests priority. 

General Electric failed to register its interest in the Turbines on the PPSR. 

If General Electric’s interest in the Turbines was a ‘security interest’, there was no dispute that the security interest became vested in Forge immediately before administrators were appointed (s 267(2)), meaning that General Electric ‘lost’ its interest in the Turbines (which had a value of approximately $60m). 

The ultimate question for the Court’s determination was whether the PPSA was engaged. 

This in turn required the court to determine whether the Lease was a 'PPS lease'.

General Electric claimed the Lease did not have to be registered on the PPSR on two separate bases:

• First, it was not regularly engaged in the business of leasing goods (s.13(2)(a) makes this an exception to the requirement for registration); and
• Secondly, the Turbines had become fixtures (s.8(1)(j) provides that an interest in fixtures is not subject to the PPSA).

Regularly engaged in the business of leasing

As there were no relevant Australian cases on point, the Court referred to various Canadian and New Zealand authorities. Based on those authorities, the Court decided that the question was whether or not, at the material time, leasing goods was a proper component of General Electric’s business.  Regarding the word “regular”, the Court concluded that ‘the correct approach is to recognise that frequency or repetitiveness of transactions is a factor relevant to, and in an appropriate case may be the critical factor in, the assessment of whether the leasing business being engaged in is regular.’

The Court decided that:

• Whether a person is regularly engaged in the business of leasing goods, consideration should be given to activity wherever it occurs, not only in Australia.
• The test applies when the lease was entered into.
• When the lease was entered into and at all material times after that, General Electric was regularly engaged in the business of leasing goods in Australia.

The Court went on to say that engaging in the business of leasing is a concept of wider reach than merely entering into leases.  For example, a business that does not actually enter into any leases could still be considered to have regularly engaged in leasing if it has the infrastructure, ability and willingness to enter into leasing transactions.

Fixtures

The court’s view was that the words “affixed to the land” in the definition of fixtures in s 10 of the PPSA means 'affixed according to common law concepts'. 

The PPSA did not introduce a ‘bespoke’ meaning of ‘affixed’, being a non-trivial attachment (General Electric’s argument).

Common law factors generally taken into account when trying to determine if something has been ‘affixed to the land’ are as follows:

• whether removal would cause damage to the land or buildings to which the item is attached;  
• the mode and structure of annexation;  
• whether removal would destroy or damage the attached item of property; and 
• whether the cost of removal would exceed the value of the attached property.  

The terms of the Lease made it clear that the Turbines were not designed to be affixed to land in a way that would give rise to them being considered a fixture. 

The following factors assisted the court to conclude that the turbines were not fixtures:

• the turbines were designed to be demobilised;  
• the power station was only a temporary power station; and 
• Forge was contractually obliged to return the turbines at the end of the rental term.   

Conclusion

The court decided that the lease of the Turbines by General Electric to Forge constituted a PPS lease. As General Electric did not register its interest on the PPSR, due to s.267(2) of the PPSA, General Electric’s interest in the Turbines vested immediately before the appointment of the administrators in Forge.

The insignificant cost of registration, compared to the loss of a $60m security in this case, confirms the overall importance of registering PPS leases and the significant consequences of failing to do so. 

The decision also provides some insight into how the courts will analyse several sections of the PPSA.

W G Stark

Hayden Starke Chambers

Solicitor's Certificates - Tips and Traps 2016

Yesterday, I presented a paper to the annual Leo Cussen Centre for Law 'Property Law Intensive' entitled: "Solicitor's Certificates - Tips and Traps". 

A copy is available from: 
Leo Cussen - see www.leocussen.vic.edu.au and 
Greens List - see www.greenslist.com.au

W G Stark
Hayden Starke Chambers

Taxation issues relating to leasing transactions - follow up 2016

Further to my post of 2 September 2015, over the weekend I presented an updated paper about "Taxation issues relating to leasing transactions". 

A copy of the paper is available to subscribers at www.greenslist.com.au

W G Stark 
Hayden Starke Chambers

Does a right to purchase an apartment off the plan in an undeveloped site create a caveatable interest?

The Supreme Court recently had to determine whether a person who claimed to have a right to purchase an apartment ‘off the plan’ had a caveatable interest in the undeveloped site. 

In Yuksels Nominees Pty Ltd v Nguyen & Anor [2015] VSC 763, Justice T Forrest concluded that in the circumstances of that case, the purchaser did not have a caveatable interest.

Background

The plaintiff (“Yuksels”) was the registered proprietor of land at Sun Crescent, Sunshine, Victoria, which it was proposing to develop.

The first defendant (“Nguyen”) was suing various parties (including Yuksels, its director and a related company) in the County Court. In that proceeding, she made a number of allegations, including:

(a)              that her former employer (the related company) and the director (of both companies) breached various terms of a contract that she had entered into whilst she worked for them between 2008 and 2014; and

(b)              that Yuksels would (assuming certain preconditions were met) grant to her the right to –

(i)              purchase a penthouse in the Sun Crescent development at cost price; and

(ii)              full listings of the Sun Crescent property upon plans being approved for the development.

On 7 November 2014, Nguyen lodged a caveat on the title to the Sun Crescent property with the grounds of the claim stated to be ‘Oral Agreement with Yuksels and [its director], part performed’.

Yuksels sought the removal of the caveat pursuant to s 90(3) of the Transfer of Land Act 1958 (‘the Act’). Its director swore that Yuksels could not borrow to finance the development unless the caveat was removed.

Nguyen opposed the removal of the caveat, alleging among other things that the proceeding to remove the caveat was an abuse of process as the substantiation of the caveat was a component of the County Court litigation. 

Justice T Forrest had to determine a threshold issue:  If there was already a proceeding on foot to substantiate the caveat, the caveat removal proceeding was prima facie vexatious and would likely be stayed.  T Forrest J analysed the allegations in the County Court proceedings, and concluded that they were not ‘a proceeding in a court to substantiate the claim’ of Nguyen within the meaning of s 89A(3)(b). 

The County Court Writ did not seek declaratory relief that Nguyen had a caveatable interest in the property; there was no reference in the entire 27 page document to the caveat or to s 89(3)(b) of the Act. 

In his analysis, the Honourable Justice T Forrest set out various paragraphs of the Amended Statement of Claim and the prayer for relief. He concluded that in the County Court proceeding, Nguyen did not seek to establish any proprietary interest in the Sun Crescent property, but rather sought to claim damages for breach of an alleged agreement.

As a result, T Forrest J concluded that the s 90(3) proceeding was not prima facie vexatious. Another proceeding was not being maintained in another court in respect of the same subject matter. 

In analysing the merits of the plaintiff’s application, the Honourable Justice T Forrest noted the usual legal principles that are applicable in caveat removal cases. He noted (in paragraph 10) that a “critical and perhaps decisive consideration is whether damages will provide an adequate remedy in the event the caveat is removed". Further, the contractual, equitable or statutory right asserted must attach to the caveated property and not simply lie against the proprietor of that property.

The learned judge concluded that Nguyen did not have a prima facie case to justify the maintenance of the caveat. 

In the caveat case, Nguyen argued that there was a serious issue as to whether the County Court would impose a constructive trust in her favour, or recognise her interest in some other manner.  Nguyen’s counsel, relying on the dicta of Deane J in Muschinski v Dodds, argued that a constructive trust is available in any case where some principle of equity calls for the imposition upon the legal owner of property of the obligation to hold or apply the property for the benefit of another. 

T Forrest J noted that the difficulty he had with this argument was that Nguyen did not seek that the property be held or applied for her benefit; she sought damages. The Honourable Justice T Forrest concluded that it was inappropriate to hypothesise as to whether and how her claim may mutate in the future.

T Forrest J concluded that it was impossible for Nguyen to maintain that damages were an inadequate remedy in the caveat proceeding when the only remedy claimed in the County Court action was damages.

Conclusion and commentary

Whilst the case turns on its unique facts, it is interesting for 2 reasons:

First, it points to the usual practice of the Registrar of Titles to refuse to look behind an allegation that a proceeding is on foot to maintain a caveat, once a lawyer on the record makes a statement to the Registrar to that effect; and

Secondly, it confirms that it is unlikely in the extreme that a right to purchase an apartment off the plan in an undeveloped site will create a caveatable interest.

In my experience, most developers will include a specific clause in ‘off the plan’ sales contracts to the effect that the purchaser has no right to lodge a caveat over the title to the Property before the Plan of Subdivision has been registered on title. The practical reason for such a clause is that the lodgment of a caveat by a purchaser will possibly prohibit and will definitely delay the registration of the Plan of Subdivision. 

Most contracts for sales ‘off the plan’ in Victoria also contain a sunset clause, and if a developer does not register the Plan of Subdivision by a certain date, the purchaser can walk away from the purchase and obtain a full refund of their deposit.

Any prohibition or delay in registering the Plan of Subdivision may impact on the developer’s ability to retain purchasers if the time period for registration of the Plan of Subdivision is running out.

W G Stark
Hayden Starke Chambers