CFHW v Burness [2014] VSC 451

A corporate trustee bought property on behalf of a family trust. The director of the company paid the deposit and the balance was borrowed from a bank. That director later became bankrupt. The company purported to sell the property and the trustees in bankruptcy lodged a caveat claiming an interest in the land pursuant to a constructive trust. The company sought to remove the caveat.

The court noted that applications to remove caveats should be treated like applications for interlocutory injunctive relief. The court noted that an equitable interest arising under a trust can give rise to a caveatable interest.

The trustees in bankruptcy argued that the registration of the company as proprietor was a charade in circumstances where the bankrupt was the apparent purchaser. On this basis they argued that the company held the property as trustee for the bankrupt.

The court preferred the company’s submissions to those of the trustees in bankruptcy. The company was able to show and successfully argue that there was a loan agreement between the company and the bankrupt and that there was no evidence of a contrary intention. As there was no common intention there could be no constructive trust between the parties.

The court noted that in order for the trustees in bankruptcy to rely on equitable tracing and a subsequent constructive trust, they would have needed to show a breach of fiduciary duty by the company in its dealings with the bankrupt. They did not.

As an aside, the court said that arguments alleging the invalid appointment of new directors to the company and invalid execution of the contract for sale (the bankrupt had signed it) were not relevant to caveat proceedings.

As the trustees in bankruptcy were unable to make out a prima facie case of having had a caveatable interest there was no need to determine the balance of convenience.

The court ordered the caveat be removed.

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