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AG(CQ) Pty Ltd v A&T Promotions Pty Ltd

 

[2010] QCA 83

Reported at [2011] 1 Qd R 306

 

SUPREME COURT OF QUEENSLAND

 

PARTIES:

FILE NO/S:

SC No 9586 of 2008

Court of Appeal

PROCEEDING:

General Civil Appeal

ORIGINATING COURT:

DELIVERED ON:

13 April 2010

DELIVERED AT:

Brisbane 

HEARING DATE:

12 November 2009

JUDGES:

McMurdo P, Holmes JA and McMeekin J

Separate reasons for judgment of each member of the Court, each concurring as to the orders made.

ORDERS:

  1. Appeal allowed
  2. Set aside orders 3, 5, 6, 7 and 8 of the judgment below, substituting different declarations and orders in their place:

IT IS DECLARED THAT –

  1. AG(CQ) Pty Ltd has an interest as equitable mortgagee in Lot 1 on SP 209449, in the County of Carlisle, Parish of Howard, being all of the Land contained in title reference 50753455 ("the Land");
  2. A&T Promotions Pty Ltd has an interest as equitable mortgagee in the Land;
  3. AG(CQ) Pty Ltd’s interest in the Land as equitable mortgagee takes priority over A&T Promotions’ interest in the Land.

IT IS ORDERED THAT –

  1. Alan Leslie Ikin, whether by himself, his employees or his agents or otherwise howsoever, be restrained from dealing with the Land in a manner which is contrary to the interest of AG(CQ) Pty Ltd and/or A&T Promotions Pty Ltd set out in 1 to 3 above;
  2. A&T Promotions Pty Ltd, whether by its officers, employees or agents or otherwise howsoever, be restrained from dealing with the Land in a manner which is contrary to AG(CQ) Pty Ltd’s interest as declared at 1 and 3 above;
  3. A&T Promotions Pty Ltd pay AG(CQ) Pty Ltd’s costs of and incidental to the proceedings at first instance and of this appeal.

CATCHWORDS:

REAL PROPERTY – TORRENS TITLE – UNREGISTERED INTERESTS – EQUITABLE ESTATES AND INTERESTS – PRIORITY BETWEEN EQUITABLE INTERESTS – GENERALLY – where second respondent held equitable title in a parcel of land – where the parcel of land was awaiting sub-division and was incapable of registration – where second respondent granted the first respondent an equitable mortgage in the land – where second respondent granted the appellant a separate later equitable mortgage over the same land – whether the rule of priority for the equitable interest first created is one of first or last resort – whether equitable interests of the first respondent and appellant equal – whether the first equity in time should triumph

Property Law Act 1974 (Qld), s 199

Abigail v Lapin (1934) 51 CLR 58; [1934] AC 491; UKPCHCA 1, considered

Barnes v James (1902) 27 VLR 749, considered

Butler v Fairclough (1917) 23 CLR 78; [1917] HCA 9, cited

Cash Resources Australia Pty Ltd v BT Securities Ltd [1990] VR 576, cited

Clark v Raymor (Brisbane) Pty Limited [No 2] [1982] Qd R 790, considered

Heid v Reliance Finance Corporation Pty Ltd (1983) 154 CLR 326; [1983] HCA 30, applied

J & H Just (Holdings) Pty Ltd v Bank of New South Wales [1970] 3 NSWR 372, considered

Lapin v Abigail (1930) 44 CLR 166; [1930] HCA 6, considered

Latec Investments Ltd v Hotel Terrigal Pty Ltd (In liq) (1965) 113 CLR 265; [1965] HCA 17, applied

Rice v Rice (1853) 2 Drew 73; 61 ER 646; [1853] EngR1102, considered

Union Bank of London v Kent (1888) 39 Ch D 238, considered

COUNSEL:

P J Dunning SC, with S A McLeod, for the appellant

D J Campbell SC, with G J Handran, for the first respondent

No appearance for the second respondent

SOLICITORS:

Bernays Lawyers for the appellant

Hemming and Hart Lawyers for the first respondent

No appearance for the second respondent

[1]  McMURDO P:  The appeal should be allowed for the reasons given by Holmes JA. 

[2] This case required a determination as to which of the parties' competing equities was the better in all the relevant circumstances: Latec Investments Limited v Hotel Terrigal Pty Ltd (In liq);[1] Heid v Reliance Finance Corporation Pty Ltd[2] and Clark v Raymor (Brisbane) Pty Limited [No 2].[3]  In my view, that determination was not straightforward.  Holmes JA, however, persuasively demonstrates that, despite the fact that the equitable interest of the first respondent pre-dated the creation of the appellant's equitable interest, the appellant had the better equity.

[3] I agree with the orders and declarations which Holmes JA proposes.

[4]  HOLMES JA:  The appellant, AG(CQ) Pty Ltd, appeals a judgment by which it was declared that the interest of the first respondent, A&T Promotions Pty Ltd, as equitable mortgagee in a lot at Mackay had priority over AG(CQ)’s interest, also as equitable mortgagee, in the same lot.  The learned judge held that A&T Promotions’ interest, the first in time, should prevail, the competing interests being equal in merit and A&T Promotions having been guilty of no act or omission that would make that result unfair. 

The agreed facts

[5] The parties proceeded at first instance on a statement of agreed facts which forms the basis of the following outline:

1.                  The second respondent, Mr Ikin, owned and controlled a company, Maccaral Developments Pty Ltd, which in July 2005 entered a loan agreement with A&T Promotions, pursuant to which Maccaral was advanced $3,000,000.  Ikin gave a guarantee in respect of the loan agreement.

2.                  On 26 March 2007, Ikin, as trustee for the Mackay Trust, executed a Success Fee Deed with AG(CQ) by which AG(CQ) covenanted to pay him, as trustee, a success fee for procuring the sale of two parcels of land to AG(CQ).  The amount of the success fee was $3,800,000, which was payable on the land’s being sold to AG(CQ).  $2,000,000 of that amount was to be paid on settlement of the sale, with the balance met by transfer from AG(CQ) to Ikin, as trustee, of a proposed lot to be created by subdivision from the two amalgamated parcels of land.  The lot was to be transferred to Ikin within 14 days of the registration of the survey plan of the land creating the lot.

3.                  AG(CQ) completed the purchase of the land on 31 May 2007 and $2,000,000 was paid to Ikin or at his direction. 

4.                  On 5 June 2007, the Maccaral loan not having been repaid when it fell due, A&T Promotions, Maccaral and Ikin entered a Deed of Variation extending the repayment date to 30 July 2007.  Maccaral and Ikin failed once again to make payment by that date.

5.                  In September 2007, Ikin provided A&T Promotions with a copy of the Success Fee Deed, together with a letter sent by facsimile from AG(CQ)’s solicitors to Ikin which confirmed the terms of the Success Fee Deed as to the reward he was to receive and as to how and when he was to receive it.  (The letter, dated 2 May 2007, was written some four weeks before the anticipated settlement date for the purchase of the two parcels of land, on 31 May 2007.)  It went on to confirm that Ikin had given authority for repayment of $500,000 with interest, owed to another company, from the funds payable under the Deed, and it advised that AG(CQ) sought reimbursement from those funds of $30,000 on account of monies it had paid elsewhere. 

6.                  Two weeks later, A&T Promotions, Maccaral, Ikin and Ikin as trustee entered into a second Deed of Variation, pursuant to which: the repayment date was extended to 2 October 2007; Ikin as trustee granted a mortgage over the proposed lot to A&T Promotions; and Ikin personally and as trustee entered into a guarantee and indemnity in relation to the second Deed of Variation.  By cl 5.1(c)(ii) of the Deed, Ikin agreed:

“Upon request, and where the New Mortgage has not registered with the Queensland Department of Natural Resources and Water, [to] assign the Success Fee Deed to [A&T Promotions] on terms acceptable to [A&T Promotions].”

Ikin further agreed that he would not vary the terms of the Deed without obtaining the written consent of A&T Promotions and that he would immediately notify A&T Promotions when the lot was created and provide its description and title reference.  He irrevocably authorised A&T Promotions to complete and register the mortgage which he had executed.  Ikin warranted (although what follows were expressed as “covenants”) that the Success Fee Deed was a valid and existing document; that he had power to assign his rights under it; that there had been no breach of it which would entitle AG(CQ) to terminate it; that it comprised the whole of the agreement between him and AG(CQ); and that there were no outstanding mortgages, charges or other encumbrances relating to the Success Fee Deed and the proposed lot.

7. On 17 March 2008, Ikin as trustee granted AG(CQ) a mortgage over the proposed lot to secure an advance of $627,000 together with a further sum of $700,000 to be paid as headworks charges on the lot.  He, with AG(CQ), executed a transfer, settlement notice and authority to complete in respect of it, none of which contained a title reference, since the lot had yet to be created and registered.

8. Subsequently, in April 2008 and May 2008, Ikin as trustee charged the proposed lot in favour of two further creditors, both of whom acknowledged that the priority of their respective interests ranked behind that of A&T Promotions and AG(CQ).

9. A&T Promotions did not make any request for the assignment of the interest of Ikin as trustee in the Success Fee Deed until 4 August 2008, and it did not notify AG(CQ) of its interest as a mortgagee until 26 August 2008.

10.             The lot was created on 24 December 2008.  It has not been transferred to Ikin.

The judgment

[6] The learned judge referred to a number of authorities – Rice v Rice,[4] Heid Reliance Finance Corporation Pty Ltd,[5] Lapin v Abigail,[6] and Cash Resources Australia Pty Ltd v BT Securities Ltd[7] – to distil the relevant principles.  It was necessary, she said, for the Court, applying broad principles of right and justice, to examine the conduct of the parties and all the circumstances to determine whose was the better equity.  Where those merits were equal, the first in time prevailed.  The Court had to:

“consider whether by reason of some act or omission by the plaintiff it would be inequitable for it to have priority over the second defendant.”[8] 

A prior equity holder who allowed a borrower to retain evidence of title, enabling him to lead another lender to believe its security would be a first charge on the borrower’s property, could be postponed to the second equity holder.

[7] The learned judge summarised the respective positions of the parties.  A&T Promotions had taken its mortgage at a time when the proposed lot was not yet in existence, and AG(CQ) was the registered proprietor of the parcels of land from part of which the proposed lot was to be created.  Ikin was the mortgagor, the mortgage being predicated upon the proposed lot’s being transferred from AG(CQ) to him; under the Success Fee Deed, AG(CQ) was required to transfer it within 14 days of registration of the survey plan.  A&T Promotions knew that the proposed lot was the subject of the Success Fee Deed.  It also knew that part of the $2 million component of the success fee had been paid to a third party.  It had agreed to a confidentiality clause.

[8] All of those features, bar those relating to A&T Promotions’ knowledge and agreement, also existed when AG(CQ) took its mortgage.  Further features peculiar to it were that it took possession of: the transfer from itself to Ikin signed by it and Ikin; the authority from Ikin to complete the bill of mortgage or “any other document I sign in relation to that Mortgage or the transfer of the land to me”; and a settlement notice relating to the transfer, signed by Ikin as transferee.

[9] The learned judge made this observation:

“Both [A&T Promotions] and [AG(CQ)] were willing to lend money against the risk that for some reason title to the proposed lot would never issue.  Because the proposed lot had not yet been created by subdivision of the larger parcel, neither of them could caveat to protect its interest.”[9]

[10]  Her Honour continued,

“Under the Success Fee Deed [AG(CQ)] was obliged to deliver a properly executed transfer capable of immediate registration to Mr Ikin.  That presupposed registration of the relevant plan of survey and creation of the proposed lot.  Even if a completed transfer having those qualities could properly be described as an indicium of title, albeit inferior in quality to a certificate of title, a transfer that was incomplete because it did not bear the title reference number and incapable of immediate registration for that reason and because it was not stamped, could hardly be so described.  Of course the fact that [AG(CQ)] held the incomplete transfer and an authority to complete it did not prevent Mr Ikin from granting two further equitable mortgages.

[A&T Promotions] knew that [AG(CQ)] was obliged to transfer the proposed lot to the first defendant within 14 days of registration of the plan of survey in part payment of a substantial success fee for facilitating its purchase of lots 5 and 6 from the Deguaras.  It did not know, and it was not reasonably foreseeable, that [AG(CQ)] would advance moneys to Mr Ikin against the security of the proposed lot.

In the circumstances I am unpersuaded that a prudent lender in the position of [A&T Promotions] would have taken possession of an executed transfer of the proposed lot from [AG(CQ)] to [Ikin], an authority to complete it, and a settlement notice.

In this case the merits of the competing interests are prima facie equal.  There was no act or omission by [A&T Promotions] which would make it unfair or unjust to accord it priority as the first in time.”[10]

[11]  The learned judge also rejected a submission that a prudent lender in the position of A&T Promotions would have exercised its right to have Ikin assign the Success Fee Deed to it and then have given notice to AG(CQ) pursuant to s 199 of the Property Law Act 1974 (Qld).

The appellant’s contentions

[12]  AG(CQ) argued that the learned judge erred in holding that both A&T Promotions and AG(CQ) were willing to lend money against the risk that, for some reason, the title to the proposed lot would never issue.  AG(CQ), it said, faced no risk, because it owned the parcels of land from which the proposed lot was to be subdivided; if the lot did not issue, it retained ownership of the land. 

[13]  Secondly, AG(CQ) argued that the learned judge erred in regarding AG(CQ)’s possession of the instrument of transfer, authority to complete and settlement notice for the proposed lot as insignificant because they did not amount to title documents.  Those documents, AG(CQ) contended, were all the available evidence of title which could be obtained; and, given the authority to complete in favour of AG(CQ), it had the capacity to perfect the transfer into registrable form once the lot issued. 

[14]  Thirdly, AG(CQ) said, the learned judge’s reliance on the fact that AG(CQ)’s holding of the instrument of transfer and authority to complete had not prevented Ikin from granting two further equitable mortgages was erroneous.  The fact that two subsequent lenders had acted in such a way could not determine what a prudent lender would have done, and in the absence of any evidence about the circumstances surrounding the creation of the subsequent equitable mortgages, no rational inference could be drawn.

[15]  Fourthly, the learned judge was in error in holding that the merits of the competing interests were prima facie equal.  In Heid[11] Mason and Deane JJ referred to a statement by Fry LJ in Union Bank of London v Kent,[12] to the effect that a mortgagee was not obliged to assume that everyone he dealt with was likely to be a knave, so that a mortgagee ought not to have his interest postponed on the ground that he had not taken precautions against a future fraud by a mortgagor.  Mason and Deane JJ went on to say:

“But this comment does not deny that in some situations a person may be under a duty to take care to avoid or minimize the risk of fraudulent or deceptive conduct by others or that a person may be negligent in placing another in a position in which he can readily misrepresent to a third party that he is the owner of property.”[13]

Here, counsel for AG(CQ) argued, such a duty existed because of the nature of the transaction, which involved taking an equitable interest in land which did not exist.  It followed that in such circumstances the first lender should be on its guard.

[16]  A&T Promotions was aware of the fact that Ikin and his company had twice failed to make repayment of the large amount borrowed.  In the circumstances, it was foreseeable, given that it was evident from the facsimile from AG(CQ)’s solicitors that there were subsequent transactions between it and Ikin, that AG(CQ) might take an equitable interest.  The solicitors’ letter, at the time A&T Promotions received it, was four months old.  But A&T Promotions did not inquire of AG(CQ), or of its solicitors, whether the Success Fee Deed continued in effect, whether any encumbrances had been created, and whether and when AG(CQ) proposed to create and transfer the lot. 

[17]  AG(CQ) relied on a number of statements in English and Australian authority to the effect that where an equitable mortgagee allowed the mortgagor to retain possession of the title deeds, a person dealing with the mortgagor on the faith of that possession was entitled to priority, in the absence of special circumstances to account for his conduct: Butler v Fairclough,[14] J & H Just (Holdings) Pty Ltd v Bank of New South Wales,[15] Abigail v Lapin,[16] and Heid.[17]  Particular reliance was placed on this statement by Brooking J in Cash Resources Australia Pty Ltd v BT Securities Ltd:[18]

“But a secured creditor who fails to obtain and retain possession of the documents of title may find his equity postponed.  This may happen where the creditor never takes control of the certificate …”

The reference to documents, rather than deeds, of title, it was suggested, indicated that any available evidence of title should be obtained.

[18]  A&T Promotions did not seek any of the available evidence of title.  AG(CQ), on the other hand, was the owner of the land, and when it agreed to lend money on the security of a mortgage over the proposed lot, it had done so only in exchange for all of the then available documents of title.  That was the act of a prudent lender in protecting its interests and ensuring that subsequent interests would not be created fraudulently or otherwise.  It did all it might reasonably have done; A&T Promotions did not. 

[19]  Finally, AG(CQ) argued, the learned judge had identified the correct test, but had erred in its application when she decided the matter on the basis that there was:

“no act or omission by [A&T Promotions] which would make it unfair or unjust to accord it priority as the first in time.”[19] 

That was to proceed by asking whether there was any disentitling conduct on the part of the interest holder who was first in time, rather than taking into account only as a last resort the order in which the interests were given.  In a case where it was concluded that the merits were otherwise equal, that was, in effect, to look for the worse equity, not the better equity.  The question was not one of whether the holder of the first equity in time was guilty of disentitling conduct, but whether the subsequent equity holder should be regarded as having a better equity because it had been more diligent in protecting itself.

The respondent’s contentions

[20]  Counsel for A&T Promotions argued that the relevant inquiry was not one of balancing the conduct of the parties to determine who had the better equity, but of considering whether the conduct of the holder of the earlier interest made it inequitable for it to assert priority.  Where a fraudulent holding out was involved, it was only where the prior equity holder’s conduct had enabled or armed a rogue to hold out the title as being unencumbered that it was guilty of such an act or default.

[21]  It was necessary that any such act or default be done in a context where it was reasonably foreseeable that a later equity would be created and that the holder of that interest would assume the non-existence of A&T Promotions’ interest.  It was not reasonably foreseeable that Ikin would act as he did.  While A&T Promotions was aware that he was a credit risk, there was nothing to suggest that he was dishonest or was likely to act as he had done.  Nor was it foreseeable that AG(CQ) would operate as a lender.  A&T Promotions had not armed Ikin with anything, nor failed to take from him anything to which he was entitled (such as a transfer), so as to allow him to represent himself as the holder of unencumbered title to the proposed lot.

[22]  The test was what a prudent lender would have done in order to give notification to the world of its interest.  In the present case, there was no evidence to show what a reasonable and prudent person in the position of A&T Promotions should have done to protect itself against Ikin’s acting as he did.  The best evidence of what lenders actually did in that situation, where no title was yet created, was to be found in the fact that two subsequent lenders had seen fit to lend on the strength of the Success Fee Deed.

[23]  There was no reason for A&T Promotions to notify AG(CQ) of its interest.  It had the comfort of the facsimile, which had been provided by AG(CQ)’s solicitors, confirming the status of the Success Fee Deed.  It was not entitled to seek an assignment from Ikin of his rights under that Deed: cl 5.1(c)(ii) should be read as taking effect only once the lot was registered and registration of the mortgage was possible.  There were no indicia of title which A&T Promotions could obtain.  A&T Promotions had no capacity to seek a transfer document because Ikin was entitled to one only when the lot was created, and in any case, until it was, AG(CQ)  could not provide a transfer capable of immediate registration.  A&T Promotions had done all it could in requiring of Ikin the various covenants set out in the second Deed of Variation.  Once Ikin advised, as his covenant obliged him to, that the lot had been created and gave the property description, A&T Promotions could immediately register its mortgage.

[24]  In the present case, notifying AG(CQ) of A&T Promotions’ interest would, as it happened, have provided warning to that entity so as perhaps to make it reconsider advancing money on the security of the lot, but the world at large would not have been informed of the position.  It could not be assumed that if AG(CQ) were given the information it would relay it to any other person who might acquire an interest. 

[25]  Although AG(CQ) would retain title to the original land if the proposed lot did not issue, it still remained the case that it bore a risk: if the lot remained un-issued, it had no security for its lending.  AG(CQ) had, the learned judge found, made no searches or inquiries itself in relation to the proposed lot.  It had armed Ikin with the Success Fee Deed, which enabled him to represent himself as the holder of an unencumbered title to the proposed lot.  It could have registered a caveat over the parcels of land, but it did not do so until after it was notified of A&T Promotions’ interest.  The documents obtained by AG(CQ) – the transfer, settlement notice, authority to complete and mortgage – were not in registrable form and were in fact ineffective to prevent later mortgages being given in respect of the proposed lot. 

The test

[26]  Underlying the parties’ submissions was a divergence as to whether the rule of priority for the interest first created was one of first or last resort.  Certainly, both approaches may be found in the authorities.  In Rice v Rice,[20] cited by the learned judge at first instance, Kindersley V-C identified the rule:

“As between persons having only equitable interests, if their equities are in all other respects equal, priority of time gives the better equity; or, qui prior est tempore potior est jure.”[21]

He went on to explain it as meaning

“that, in a contest between persons having only equitable interests, priority of time is the ground of preference last resorted to; i.e. , that a Court of Equity will not prefer the one to the other, on the mere ground of priority of time, until it finds upon an examination of their relative merits that there is no other sufficient ground of preference between them, or, in other words, that their equities are in all other respects equal; and that, if the one has on other grounds a better equity than the other, priority of time is immaterial.

In examining into the relative merits (or equities) of two parties having adverse equitable interests, the points to which the Court must direct its attention are obviously these: the nature and condition of their respective equitable interests, the circumstances and manner of their acquisition, and the whole conduct of each party with respect thereto.  And in examining into these points it must apply the test, not of any technical rule or any rule of partial application, but the same broad principles of right and justice which a Court of Equity applies universally in deciding upon contested rights.”[22]

[27]  But in Lapin v Abigail also cited by her Honour, a different approach was taken, both in the High Court and the Privy Council.  Mr and Mrs Lapin, the registered proprietors of land, had given transfers by way of security to creditors who fraudulently mortgaged it.  The majority in the High Court held that the unregistered security of the subsequent lender did not take priority over the Lapins’ equitable right to redeem.  Knox CJ and Dixon J, in the majority, and Gavan Duffy and Starke JJ, in the minority, agreed that prima facie the equitable interest of the prior equity holder took priority of the later.  That position could be disturbed by disentitling conduct on the part of the holder of the prior equity which warranted its postponement to the subsequently acquired equity.[23] 

[28]  In passages relied on here by A&T Promotions, Knox CJ said that he regarded a number of earlier decisions as establishing that there would be no such postponement unless there was an act or omission proved against the prior equity holder which had contributed to a belief on the part of the subsequent claimant at the time he acquired his equity that the prior equity was not in existence,[24] while Gavan Duffy and Starke JJ posed the relevant question as whether the words and actions of the person having the prior equity had caused another to alter his position.[25]  Dixon J was less definitive in his language; he said that the act or default of the earlier interest holder must be such as to make it inequitable as between him and the subsequent interest holder that he should retain his priority, which, he said,

“generally means that his act or default must in some way have contributed to the assumption upon which the subsequent legal owner acted when acquiring his equity.”[26] 

The use of the word “generally” allows, of course, for other possibilities. 

[29]  Isaacs J approached the question more broadly, suggesting that one party might have a better equity independent of any act or omission on the part of the other.  While there was a “working rule” applicable in most cases – that priority in time would govern unless there had been some act or omission on the part of the owner of the prior interest such as to cause it to be postponed – it did not state the principle, which was that the court sought:

“…not for the worst, but for the best equity.  And the best equity – for there may be several claimants – is that which on the whole is the most meritorious, it may be because the others are, by reason of circumstances indicated in the passages quoted, lessened in relative merit, or because one is, by reason of some additional circumstance, not attributable to any act or omission of the others, rendered in the eye of equity more meritorious than the rest.”[27]

(The reference to “circumstances indicated in the passages quoted” was to previous cases dealing with an act or omission on the part of one of the claimants justifying postponement of its title.) 

[30]  On appeal to the Privy Council,[28] the decision in Lapin v Abigail was reversed on the basis that the Lapins’ conduct in arming their creditors with the capacity to become the registered proprietors was disentitling conduct.  The Judicial Committee rejected Kindersley V-C’s position that priority in time was the test only where the equities were otherwise equal.  It was, they said, clearly established that prima facie priority in time would decide the matter unless there was something “tangible and distinct having grave and strong effect” to warrant taking away the pre-existing equitable title.[29] 

[31]  But in Latec Investments Limited v Hotel Terrigal Pty Ltd (In liq),[30] Kitto J restated Kindersley V-C’s formulation: 

“In all cases where a claim to enforce an equitable interest in property is opposed on the ground that after the interest is said to have arisen a third party innocently acquired an equitable interest in the same property, the problem, if the facts relied upon as having given rise to the interests be established, is to determine where the better equity lies.  If the merits are equal, priority in time of creation is considered to give the better equity.  This is the true meaning of the maxim qui prior est tempore potior est jure: Rice v. Rice. But where the merits are unequal, as for instance where conduct on the part of the owner of the earlier interest has led the other to acquire his interest on the supposition that the earlier did not exist, the maxim may be displaced and priority accorded to the later interest.”[31] (citation omitted)

[32]  In Heid,[32] the High Court endorsed Kitto J’s explanation of the rule in Latec Investments.  Having discussed estoppel as a rationale for postponing an earlier equity, Mason and Deane JJ went on to express a preference for:

“…a more general and flexible principle that preference should be given to what is the better equity in an examination of the relevant circumstances.  It will always be necessary to characterize the conduct of the holder of the earlier interest in order to determine whether, in all the circumstances, that conduct is such that, in fairness and in justice, the earlier interest should be postponed to the later interest.”[33]

In Latec Investments, Kitto J, had, they said, explained Dixon J’s test in Lapin, of whether the prior owner’s conduct had led the later owner to acquire his interest on the supposition that the earlier interest did not exist, as just one instance of a case in which the merits were unequal.  That was consistent with what Isaacs J had said in Lapin.

[33]  Mason and Deane JJ continued:

“To say that the question involves general considerations of fairness and justice acknowledges that, in whatever form the relevant test be stated, the overriding question is ‘…whose is the better equity, bearing in mind the conduct of both parties, the question of any negligence on the part of the prior claimant, the effect of any representation as possibly raising an estoppel and whether it can be said that the conduct of the first or prior owner has enabled such a representation to be made …’”.[34] 

(citing Sykes, Law of Securities, 3rd ed. (1978), p.336).  They went on to observe that an equitable interest would not necessarily be postponed to one created later in time merely because there was a causal nexus between an act or omission by the prior equitable owner and an assumption on the part of the later equitable owner that no such prior equity existed.  Fairness and justice demanded focus on:

“acts during the carrying out of which it is reasonably foreseeable that a later equitable interest will be created and that the holder of that later interest will assume the non-existence of the earlier interest.”[35]

[34]  AG(CQ) here relied on Isaacs J’s approach in Lapin v Abigail and on Barnes James[36] to argue that the question was not whether the prior equity holder was guilty of disentitling conduct, but whether one of them had been more diligent than the other.  In Barnes v James, James agreed to transfer to Barnes, from whom he had borrowed money, a mining lease about to be issued.  After the lease was issued and registered, James sold it to a company and executed a transfer to it.  The company lodged a caveat against any dealings with the lease, having no notice of Barnes’ rights.  What a'Beckett J described as “accident” prevented the company from registering the transfer.  a'Beckett J resolved the matter thus:

“I think there is a better right on the part of the defendant company, and I think that better right consists in this, that no step was omitted by it by which it could have ascertained the existence of a prior interest in any other person.  I cannot say that the plaintiff was negligent, but he might have done more than he did to protect his title by entering a caveat when he ascertained that a lease was issued.”[37]

[35]  In Clark v Raymor (Brisbane) Pty Limited [No 2],[38] purchasers of land who had received the certificate of title had been unable to register themselves as proprietors before the holder of an equitable charge on the property given prior to its sale lodged a caveat.  The first instance decision, that the purchasers’ equity to have their transfer registered took priority, was upheld on appeal.  Thomas J, with whom the other members of the Court agreed, cited the passage already set out from Kitto J’s judgment in Latec Investments and observed that in determining the question of priority:

“The fact that one interest was created before the other is a factor of last resort only.  The correct function is ‘to determine where the better equity lies.’”[39]

The application of the test

[36]  Judges in such cases at first instance and on appeal have not generally regarded it as necessary that evidence be called in order to establish what a reasonable equity holder would have done.  I do not think that there is anything about this case requiring a different approach.  One can accept as correct these propositions advanced by AG(CQ) on the strength of the more recent authorities: the question is as to which is the better equity, and in determining that question the conduct of both parties will be relevant.  But one can also say that it is proper to look for both meritorious and unmeritorious (or disentitling) conduct as, in my respectful view, the learned judge did in this case; and it is legitimate to determine the worse of the equities in order to establish the better.

[37]  The position advanced by A&T Promotions, that there must have been conduct on its part to arm Ikin to hold out the title to the proposed lot as unencumbered before postponement of its interest could be justified, is too restricted.  Negligence in putting another person in a position in which he can misrepresent his interest to a third party may be sufficient to cause the holder of the first interest in time to lose his priority, but it is not essential.  On the other hand, notwithstanding the broad formulations of the rule by Isaacs J in Lapin v Abigail and a'Beckett J in Barnes James, I doubt the correctness of AG(CQ)’s argument that the mere fact of greater diligence on the part of the subsequent interest holder in protecting its interest should give it priority.  That proposition is difficult to reconcile with the emphasis which Mason and Deane JJ in Heid[40] placed on characterising the conduct of the earlier interest-holder.  I reject the submission that AG(CQ)’s actions, in obtaining and retaining those documents necessary to complete a transfer once the lot issued, per se created an imbalance in the respective merits sufficient to give it the better equity. 

[38]  It may be accepted, however, that AG(CQ) did what it could to secure its position.  A&T Promotions’ argument that AG(CQ), by giving Ikin the Success Fee Deed, armed him with the capacity to represent the title to the proposed lot as unencumbered is entirely unconvincing.  The further inquiries A&T Promotions suggested AG(CQ) might have made were not identified, and a search of its own title would seem to have been entirely pointless.  Nor is it obvious that it should have lodged a caveat over parcels of land registered in its own name, any more than the bank in J & H Just (Holdings),[41] where the High Court rejected just such an argument.  There, the bank held a duplicate certificate of title without which further dealings could not be registered, and was entitled to rely on those circumstances for protection.

[39]  I should say here that I do not think the learned judge’s allusion to AG(CQ)’s possession of the incomplete transfer documents as not having prevented Ikin from obtaining further advances on the security of the proposed lot indicates any error in reasoning.  Her Honour’s statement was literally correct.  She did not go on to draw the inference which AG(CQ) attributes to her, and for which A&T Promotions here contends, that the later mortgagees’ conduct was indicative of the response of a prudent lender. 

[40]  The learned judge in the present case was correct in identifying a risk to both A&T Promotions and AG(CQ) that title to the proposed lot would not issue, leaving them both without security for the moneys lent by them.  But in practical terms, the risk run by AG(CQ) was entirely different from that of A&T Promotions, because if the lot did not issue it had an advantage which offset the loss of its security: it remained the owner of the land.  A&T Promotions was vulnerable, having taken security over an unregistered lot.  There was no register to search and there was no means of general notification of its interest.  As counsel for AG(CQ) submitted, it was inherent in that type of transaction that Ikin could repeat the transaction without the knowledge of either A&T Promotions or any subsequent lender.

[41]  Ikin had twice defaulted on repayment of the Maccaral loan, and had already, as the solicitors’ letter showed, committed a large proportion of the funds payable under the Success Fee Deed to two creditors, one of them AG(CQ).  It was entirely foreseeable that he might seek to raise more money on his prospects in relation to the land.  Only the most unworldly would regard his covenants as any real guarantee against his dealing with his interest in the lot.  It was not reasonable, in my view, for A&T Promotions to rely on its arrangements with Ikin.

[42]  A&T Promotions says, correctly, that it had no right to demand incomplete transfer documents of the kind which AG(CQ) had in readiness.  But it could have asked AG(CQ) to provide it with a signed transfer of the lot to Ikin.  It might well have been refused, but it was a possible and simple step to securing its position.  It could also have sought an assignment of Ikin’s rights under the Success Fee Deed.  Clause 5.1(c)(ii) of the second Deed of Variation, on its proper construction, conferred an immediate right to require an assignment; indeed, in the event, A&T Promotions sought such an assignment in August 2008, well before the lot was created.  Having obtained an assignment of Ikin’s rights, A&T Promotions could have notified AG(CQ) accordingly and thereafter dealt with it directly.

[43]  A&T Promotions could have inquired of AG(CQ) if and when the transfer was expected, and could have advised AG(CQ) of its interest.  Instead, it chose to rely on a four month old facsimile from AG(CQ)’s solicitors, without inquiring as to whether its contents remained current, and on Ikin’s undertaking to notify it when the lot issued.  It was imperative to A&T Promotions’ protection and the protection of others that it know when the lot was created so that it could register its mortgage.  But it did nothing to give itself any independent means of knowing when the survey plan of the land creating the lot was likely to be registered, and, accordingly, when the lot would be transferred to Ikin; although it was obvious that once Ikin obtained the transfer he could use it to deal with others unaware of A&T Promotions’ interest. 

[44]  And although it could not be assumed that AG(CQ), if advised of A&T Promotions’ interest, would pass that information on to others inquiring, it was, in the absence of the register of titles, the only way of communicating A&T Promotions’ position to those who might be affected by it.  Its failure to inquire and notify meant that it failed to take the only means by which it could attempt to ensure that Ikin could not encumber his interest further or do as he pleased with the evidence of title when it became available.  It did not take sensible and obvious steps to protect itself, let alone others.  Its failure to make its interest known to AG(CQ) in any way was a failure to act as a prudent lender and led directly to AG(CQ)’s position.  AG(CQ) could reasonably assume in the absence of notice from any party of any interest in the Success Fee Deed or the proposed lot that Ikin had not assigned or encumbered his rights in respect of either.

[45]  Those deficiencies in A&T Promotions’ conduct went unrecognised by the learned primary judge.  AG(CQ) has succeeded in showing that her Honour erred in her assessment of the relative merits of the respective interests, and that it had the better equity.  Its interest should take priority.  I would allow the appeal, set aside orders 3, 5, 6, 7 and 8 of the judgment below, substituting a different declaration and orders in their place, so that the declarations and orders are as follows:

IT IS DECLARED THAT –

1.AG(CQ) Pty Ltd has an interest as equitable mortgagee in Lot 1 on SP 209449, in the County of Carlisle, Parish of Howard, being all of the Land contained in title reference 50753455 ("the Land");

2.A&T Promotions Pty Ltd has an interest as equitable mortgagee in the Land;

  1. AG(CQ) Pty Ltd’s interest in the Land as equitable mortgagee takes priority over A&T Promotions’ interest in the Land.

AND IT IS ORDERED THAT –

4.Alan Leslie Ikin, whether by himself, his employees or his agents or otherwise howsoever, be restrained from dealing with the Land in a manner which is contrary to the interest of AG(CQ) Pty Ltd and/or A&T Promotions Pty Ltd set out in 1 to 3 above;

5.A&T Promotions Pty Ltd, whether by its officers, employees or agents or otherwise howsoever, be restrained from dealing with the Land in a manner which is contrary to AG(CQ) Pty Ltd’s interest as declared at 1 and 3 above;

6.A&T Promotions Pty Ltd pay AG(CQ) Pty Ltd’s costs of and incidental to the proceedings at first instance and of this appeal.

[46]  McMEEKIN J:  I have read the reasons for judgment of Holmes JA.  I agree with her Honour’s reasons and with the declarations and orders that she has proposed.

Footnotes

[1] (1965) 113 CLR 265, Kitto J at 276.

[2] (1983) 154 CLR 326, Mason and Deane JJ at 339-341.

[3] [1982] Qd R 790, Thomas J at 795.

[4] (1853) 2 Drew 73; 61 ER 646.

[5] (1983) 154 CLR 326.

[6] (1930) 44 CLR 166.

[7] [1990] VR 576.

[8] A & T Promotions Pty Ltd v Ikin & AG (CQ) Pty Ltd [2009] QSC 119 at [19].

[9] At [21].

[10] At [25]-[27], and [29].

[11] (1983) 154 CLR 326 at 343.

[12] (1888) 39 Ch D 238 at 248.

[13] At 343.

[14] (1917) 23 CLR 78 at 91.

[15] [1970] 3 NSWR 372 at 375.

[16] (1934) 51 CLR 58 at 71; [1934] AC 491 at 502.

[17] (1983) 154 CLR 326 at 335.

[18] [1990] VR 576.

[19] [2009] QSC 119 at [29]

[20] 61 ER 646.

[21] At 648.

[22] At 648.

[23] At 183, 186, 196, and 204.

[24] At 183-184.

[25] At 196.

[26] At 204.

[27] At 186.

[28] Abigail v Lapin (1934) 51 CLR 58; [1934] AC 491.

[29] At 68; 504.

[30] (1965) 113 CLR 265 at 276.

[31] At 276.

[32] (1983) 154 CLR 326 at 333, 339, and 348.

[33] At 341.

[34] At 341.

[35] At 342.

[36] (1902) 27 VLR 749.

[37] At 752.

[38] [1982] Qd R 790.

[39] At 795.

[40] (1983) 154 CLR 326 at 341.

[41] [1970] 3 NSWR 372 at 375.

Close

Editorial Notes

  • Published Case Name:

    AG(CQ) P/L v A&T Promotions P/L & Anor

  • Shortened Case Name:

    AG(CQ) Pty Ltd v A&T Promotions Pty Ltd

  • Reported Citation:

    [2011] 1 Qd R 306

  • MNC:

    [2010] QCA 83

  • Court:

    QCA

  • Judge(s):

    McMurdo P, Holmes JA, McMeekin J

  • Date:

    13 Apr 2010

Litigation History

Event Citation or File Date Notes
Primary Judgment [2009] QSC 119 18 May 2009 -
Appeal Determined (QCA) [2010] QCA 83 13 Apr 2010 -

Appeal Status

{solid} Appeal Determined (QCA)