Break Fast Investments v C & O Voukidis [2011] NSWSC 871

A caveator lodged a caveat which described the interest claimed as arising from contributions to the purchase price of properties and the facts supporting the interest as other associated payments. The resulting trust argument arising from contributions to the purchase price was not pursued in proceedings for substantive relief as the properties were purchased prior to the conduct in issue. As such, the relief claimed was that of a constructive trust arising from breach of fiduciary duty and knowing receipt of trust property belonging to the caveator derived from such breach, used to pay the mortgage debt and renovate the properties. The caveator sought an extension of the caveat which was opposed by the registered proprietor on the basis that the caveat failed to disclosure the nature of the caveatable interest.

Caveat Law

Section 74L of the Real Property Act provides that if any question arises as to the validity of a caveat in any legal proceedings, the Court shall disregard any failure of the caveator to strictly comply with the requirements of the Act. However the court held that protection does not permit any non-compliance and has been applied where a caveat fails to state the amount secured by a charge or misdescribes the chargee but not where the essential facts underlying the claim for a constructive trust have not been disclosed as here.

The court held that the caveat substantially failed to disclose the nature of the caveatable interest claimed which was an interest arising under constructive trust by virtue of monies from the caveator used to renovate the properties and reduce the mortgage debt on the properties in breach of the registered proprietor’s fiduciary duty and its knowing receipt of fund derived from that breach. The court noted that the caveator abandoned the resulting trust arising from purchase price contributions and now relies upon moneys used to renovate the properties to establish a constructive trust.

The court dimissed the application for an extension of the caveat. The court noted that it did have a caveat interest given the registered proprietor admitted an arguable case for a constructive trust but that was not the interest claimed.

Balance of convenience

The court found that the balance of convenience weighed in favour of the caveator had it been able to establish its caveatable interest, which it did not. 

The court did not find that the caveat prevented refinancing and that this matter alone weakened any claim to an extension of the caveat. The court noted that the registered proprietor would need to properly disclose the cirumstances to any potential lender. A potential lender would have regard to the fact that the court may make orders removing the caveat if necessary for a refinancing.

The court also found that the terms of the existing freezing order and the proposal put to the caveator that an undertaking would be given to the court that the refinance would only pay out the existing mortgage, with prior notice given to the caveator, provided the caveat were removed was not sufficient to protect the caveator’s interest given the registered proprietor’s history of non-compliance with consent orders.

The court also found that the caveator has sufficient assets to support its undertaking as to damages.

Fresh Caveat

Section 74O of the Real Property Act requires court leave for a further caveat to be lodged where a caveat based on the same facts lapses or is withdrawn. For leave to be gratned, the caveator must show that there is a serious question to be tried that it is presently entitled to an interest in those properties and the balance of convenience favours leave being granted. The court held this was satisfied given the concession made in the proceedings but noted that leave was not necessary because the fresh caveat was not based on the same facts but different facts giving rise to a constructive trust. 

The court granted leave to the caveator to lodge a fresh caveat.

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