FEDERAL COURT OF AUSTRALIA

Perpetual Trustee Company Limited (ACN 000 001 007) v Smith [2010] FCAFC 91

THE COURT ORDERS THAT:

1.                  The appellant’s application for an extension of time within which to file and serve a notice of appeal against the orders made on 2 December 2008 be dismissed.

2.                  The appellant’s application for leave to amend further the notice of appeal be allowed with respect to orders 3, 5, 7, 9, 11 and 13 made on 4 May 2009 and the application be otherwise dismissed.

3.                  The respondents’ objection to the competency of the appeal be dismissed.

4.                  The appeal be dismissed.

5.                  The cross-appeal be dismissed.

6.                  The appellant is to pay the respondents’ costs of and associated with the appeal including reserved costs.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.

REASONS FOR JUDGMENT

Moore and Stone JJ:

Introduction

1                                             It is now commonplace for elderly people to use the equity in their home to generate an income stream during retirement.  This appeal concerns arrangements of this type.  A scheme ostensibly for this purpose was operated by Money for Living (Australia) Pty Ltd and Money for Living Property Holdings Pty Ltd (MFLPH). The scheme involved elderly retirees selling their homes to MFLPH in return for a lump sum, an annuity for a fixed period and a life tenancy over the property.  A number of these transactions occurred before MFLPH ceased trading in late 2005. 

2                                             Representative proceedings were commenced on behalf of the retirees against 19 respondents seeking, amongst other things, to protect their leasehold interests in the properties they had sold.  Mostly, the claims were settled.  However Perpetual and some of the retirees have not resolved their differences.  Perpetual made a number of loans to MFLPH entities to finance the purchase of properties and took first registered mortgages over them.  The retirees have claimed that the registered mortgages held by Perpetual were subject to their interests as lessees.  Perpetual’s position was that it was an innocent third party mortgagee, and that upon registration of its mortgages it obtained indefeasible title.  Middleton J gave a series of judgments in the matter generally in favour of the retirees: see Haslam v Money For Living (Aust) Pty Ltd [2008] FCA 1536 (the first judgment, given 16  October 2008), Haslam v Money For Living (Aust) Pty Ltd (No 2) [2008] FCA 1832 (the second judgment, given 2 December 2008) and Haslam v Money For Living (Aust) Pty Ltd (No 2) [2009] FCA 468 (the third judgment, given 4 May 2009).

The orders of the primary judge

3                                            The orders made on 16 October 2008 were procedural only, requiring the parties to bring in short minutes of order in the light of his Honour’s reasons.  However, on 2  December 2008 and on 4 May 2009, his Honour made substantive orders determining the rights of various parties to the proceeding.  These orders will be referred to respectively as the 2 December orders and the 4 May orders.

4                                            In his reasons of 16 October 2008 (principal reasons), his Honour concluded at [107] that “[i]n all instances, the interest of the retiree came into existence prior to the creation and registration of the mortgage, and the interest of Perpetual was subject to the interest of each retiree as tenant in possession”.  Accordingly the 2 December orders included the following orders in relation to named parties:

1.                  It is declared that the land situate and known as 32 Saywell Street, Geelong North in the Sate [sic] of Victoria being the land more particularly described in Certificate of Title Volume 7027 Folio 383 (‘the Smith land’) is subject to the interest of the fifth applicant, Estell Sylvia Smith, as a tenant in possession pursuant to s 42(2)(e) of the Transfer of Land Act 1958 (Vic), namely a lease for the life of Estell Sylvia Smith or until Estell Sylvia Smith vacates the Smith land for a period longer than six months.

…

4.                  It is declared that Estell Sylvia Smith has an equitable vendor’s lien in respect of the unpaid balance of the purchase price (together with interest thereon) under the contract of sale for the Smith land between Estell Sylvia Smith and the second respondent dated 9 December 2004.

…

7.                  Costs be reserved for determination after judgment has been handed down concerning the entitlement of the group members represented by the fifth to ninth applicants, namely William Burton and Annette Burton, Albert Walter Dally and Lorraine Joy Dally, Shirlee Davey, Raymond John Debenham, Anna Rose Kocsis and Leslie Luspia Kocsis and Joyce Doris Orchard (‘the Affected Group Members’) to obtain declarations regarding their proprietary interests in their relevant properties.

8.                  In accordance with s 33ZB(a) of the Federal Court of Australia Act 1976 (Cth), I declare that the judgment given in this proceeding affects the Affected Group Members.

9.                  Pursuant to s 33Z(1)(g) and s 33Q(1) of the Federal Court of Australia Act 1976 (Cth), I make the following directions in relation to the manner in which an Affected Group Member may establish his, her or their entitlement to declarations that:

a.         the land of which he, she or they were registered proprietors and which was subsequently sold by him, her or them to the second respondent and mortgaged by the second respondent to the seventh respondent is subject to his, her or their interest as a tenant in possession pursuant to s 42(2)(e) of the Transfer of Land Act 1958 (Vic), namely a lease for his, her or their life or until he, she or they vacate the said land for a period longer than six months;

b.         he, she or they have an equitable vendor’s lien in respect of the unpaid balance of the purchase price (together with interest thereon) under his, her or their contract of sale of the said land to the second respondent:-

(i)         Each of the Affected Group Members file and serve an affidavit in support of his, her or their alleged entitlement to the declarations on or before 4:00 pm on 22 January 2009.

(ii)        The seventh respondent file and serve any affidavits in opposition to the declarations being made on or before 4:00 pm on 22 February 2009.

(iii)              The solicitors for the Affected Group Members and the seventh respondent file and serve by way of exchange any written submissions by 4:00 pm on 14 March 2009.

5                                            The 2 December orders also included orders similar in effect to orders 1 and 4 in relation to the properties of Edward James Gainsford, the estate of Elaine Mavis Gainsford, Athol Easterbrook and Yvonne Gray, although the interests of Mr Easterbrook and Mrs Gray concerned property in Tasmania and the orders referred to the Land Titles Act 1980 (Tas).

6                                            The 2 December orders reflect his Honour’s conclusion that the retirees were tenants in possession for the purposes of s 42(2)(e) of the Transfer of Land Act 1958 (Vic) (TLA), or s 40(3)(d) of the Land Titles Act 1980 (Tas) and each retiree held, as vendor, an equitable vendor’s lien in respect of the unpaid balance of the purchase price.  It should be noted that his Honour also made orders concerning the procedure to be followed in determining what orders should be made in relation to other retirees whose cases had not settled, being those defined in order 7 as the ‘Affected Group Members’, to establish their claims for relief.

7                                            The 4 May orders were as follows:

1.                  The following persons constitute the group members of this representative proceeding (the ‘Affected Group Members’):

a.                   William Bruce Burton;

b.                   Annette Marion Burton;

c.                   Albert Walter Dally;

d.                   Lorraine Joy Dally;

e.                   Shirlee Esther Davey;

f.                    Raymond John Debenham;

g.                   Anna Rose Kocsis;

h.                   Leslie Luspia Kocsis; and

i.                     Joyce Doris Orchard.

2.                  The land situate and known as 36 Kiewa Street, Doncaster in the State of Victoria being the land more particularly described in Certificate of Title Volume 8673 Folio 913 (‘the Burton land’) is subject to the interest of William Bruce Burton and Annette Marion Burton as tenants in possession pursuant to s 42(2)(e) of the Transfer of Land Act 1958 (Vic), namely a lease for the life of  William Bruce Burton and Annette Marion Burton or until William Bruce Burton and Annette Marion Burton vacate the Burton land for a period longer than six months.

3.                  William Bruce Burton and Annette Marion Burton have an equitable vendors’ lien to the extent of the unpaid balance of the purchase price (together with interest thereon) under the contract of sale for the Burton land between William Bruce Burton and Annette Marion Burton and the second respondent dated 8 December 2004.

[Declarations 4-13, similar in effect to declarations 2 and 3, were made in respect of the interests of Albert Walter Dally and Lorraine Joy Dally, Shirlee Esther Davey, Raymond John Debenham, Anna Rose Kocsis and Leslie Luspia Kocsis and Joyce Doris Orchard in their respective properties.]

14.             The seventh respondent’s [Perpetual] mortgages are not subject to the equitable vendors’ lien of each of the fifth to ninth applicants and the Affected Group Members over their respective former properties.

…:

15.             The seventh respondent pay the costs of the proceedings of the applicants and Affected Group Members (including the costs of the hearing of 31 October 2008).

16.             Costs of the application for an extension of time to appeal be reserved for the Full Court.

…

17.             Pursuant to s 33Z(1)(g) and s 33Q(1) of the Federal Court of Australia Act 1976 (Cth) any Affected Group Member, together with Athol Easterbrook and Yvonne Gray, may apply for a determination of their entitlement (if any) to orders for damages against the third, fourth and fifth respondents.

18.             In respect of any such application for damages:

a.                  Each applicant must provide written notice of any proposed application for damages to the third, fourth and fifth respondents by 28 May 2009 at their address for service.

b.                  Each applicant must file and serve on the third, fourth and fifth respondents any affidavit material in support of the application for damages by 24 June 2009.

c.                  The third, fourth and fifth respondents must file and serve any affidavit material in opposition to any application for damages on the relevant Affected Group Member, Athol Easterbrook or Yvonne Gray by 15 July 2009.

d.                  The parties must file and serve any further submissions in relation to any application for damages by 4.00pm on 22 July 2009.

e.                  Such application be heard at 10:15am on 31 July 2009.

19.      The application for an extension of time within which to institute an appeal against the orders made on 2 December 2008 be heard and determined by a Full Court.

20.      The seventh respondent file and serve any notice of appeal on or before 4.00pm on 18 May 2009.

8                                            In summary, the 4 May orders reflect his Honour’s conclusion in the third judgment that the interests of the Affected Group Members as tenants in possession of the relevant properties (all in Victoria) enjoyed priority over Perpetual’s interests as registered mortgagee of the respective properties.  His Honour held, however, that Perpetual’s mortgages were not subject to the equitable vendors liens held by, what the order describes as, “either the fifth to ninth applicants and the Affected Group Members” (emphasis added).  The scope of this order is a little unclear because in order 7 of the 2 December orders, the retirees who constituted the group defined as the “Affected Group Members” were the fifth to ninth applicants.  His Honour also ordered that Perpetual’s application for an extension of time within which to institute an appeal against the 2 December orders (which was filed on 16  April 2009) be determined by a Full Court. 

9                                            In this appeal Perpetual challenges his Honour’s order that the interests of the Affected Group Members as tenants in possession have priority over its mortgages.  For their part the cross-appellants challenge his Honour’s order that their equitable liens do not have priority over Perpetual’s mortgages.

Procedural issues

10                                         We have before us a number of applications including procedural applications that must be resolved before addressing the priority of the parties’ interests.  The applications before us are:-

1.                  An application by Perpetual dated 16 April 2009 to extend the time within which to appeal against the 2 December orders;

2.                  An amended notice of appeal by Perpetual dated 1 July 2009 (the initial notice of appeal was filed on 11 May 2009) seeking that the 4 May orders be set aside, declarations that Perpetual’s registered mortgages have priority over any interest of the retirees and costs;

3.                  A notice of cross-appeal filed on 25 May 2009 by the retirees against part of the judgment of 4 May 2009, namely the declaration that Perpetual’s mortgages were not subject to the equitable vendors' liens of the retirees;

4.                  A notice of motion dated 25 May 2009 of the retirees seeking orders dismissing the appeal on four grounds, one of which was that the appeal of 11 May 2009 was not competent;

5.                  A notice of motion of Perpetual dated 25 September 2009 seeking leave to further amend the notice of appeal in order to contend that the relevant retirees did not have vendors' liens.

11                                         The first procedural issue is whether time should be extended to allow Perpetual to appeal against the 2 December orders.   The second is whether Perpetual should be allowed to amend further the notice of appeal to raise the question of whether there was a vendor’s lien.   The last is whether the notice of appeal filed on 11 May 2009 is competent.

Extension of time to appeal against the 2 December orders

12                                          The 21 day period in O 52 r 15 of the Federal Court Rules to appeal against the 2  December orders expired on 23 December 2008.  It had not been suggested that the 2  December orders concerning the retirees were interlocutory.  Order 52 rule 15(2) provides

Notwithstanding anything in the preceding subrule, the Court or a Judge for special reasons may at any time give leave to file and serve a notice of appeal.

13                                          A ground will be a ‘special reason’ where it takes the case out of the ordinary, and the expression ‘for special reasons’ does not imply something narrower than this: Jess v Scott (1986) 70 ALR 185 at 193.  The principles guiding the Court’s discretion were discussed by a Full Court in Parker v The Queen [2002] FCAFC 133 per Spender, O'Loughlin and Dowsett JJ at [6]:

1.         Applications for an extension of time are not to be granted unless it is proper to do so; the legislated time limits are not to be ignored.   The applicant must show an “acceptable explanation for the delay”; it must be “fair and equitable in the circumstances” to extend time;

2.         Action taken by the applicant, other than by way of making an application for review, is relevant to the consideration of the question whether an acceptable explanation for the delay has been furnished;

3.         Any prejudice to the respondent in defending the proceedings that is caused by the delay is a material factor militating against the grant of an extension;

4.         However, the mere absence of prejudice is not enough to justify the grant of an extension; and

5.         The merits of the substantial application are to be taken into account in considering whether an extension of time should be granted.

14                                         Perpetual explained the delay in the following way.  First, while a decision to appeal was not made within time, this was because nobody within Perpetual directed their minds to making a decision.  No decision was made that it was not in Perpetual’s interest to appeal at the time.  It is common ground that in the period after the time to appeal had expired and before the application for an extension of time was made, Perpetual was dealing with third parties in an attempt to resolve the matter.  If those attempts had been successful, the appeal would have been rendered unnecessary.  Perpetual did, however, accept that in such circumstances a prudent solicitor would have lodged an appeal, admitting that it was “a mistake in context where we are talking to the other side, where there were orders relating to the balance of the proceeding and it was overlooked, for good reason… being that Perpetual should not be criticised for endeavouring to resolve matters in circumstances where the other side were told”.

15                                         Secondly, there was a “without prejudice” meeting between the parties on 25  February 2009, at which the respondents were informed that Perpetual would appeal.  Perpetual submitted that the period for which they are required to explain the delay is 24  December 2008 to 25 February 2009.

16                                         Thirdly, Perpetual contended that the issues purporting to be common issues addressed in the second judgment were not truly common issues, or at least that at the time of the second judgment there remained the potential for the evidence in relation to the remaining retirees to establish different permutations of fact.  Finally, Perpetual submitted that the substance of the appeal should be considered as a factor in favour of granting the extension, namely that the questions of law which it seeks to agitate are potentially relevant to all Australian states and territories.

17                                         In our opinion, Perpetual has failed to establish that special reasons exist justifying an extension of time.  The rules requiring an appeal to be lodged within a specified time serve a number of purposes.  One is to create certainty shortly after judgment for those who have gained a judgment in their favour.  Another is to require a party adversely affected by judgment to address promptly the question of whether the party wishes to appeal.  In substance, Perpetual simply ignored the requirement to file an appeal within the prescribed time while embarking on settlement discussions which might have rendered an appeal unnecessary.  In taking this approach, it was plainly assuming a risk that the settlement discussions might not bear fruit and an application for an extension of time in which to appeal might need to be lodged.  That can scarcely be a special reason warranting the extension of time. 

18                                         The respondents submitted that the individuals to whom the 2 December orders directly applied were carefully selected to cover all the factual permutations that could arise in the dispute between all the group members and Perpetual, and on the material before us, this appears to be correct.  Indeed Perpetual did not suggest otherwise.  After the 2 December orders were made, the claims of the residual Affected Group Members were then considered and separate orders, the 4 May orders were made.  This arrangement was obviously a sensible one to deal, in a structured way and sequentially, with the rights of all group members whose claims had not, by then, been settled.  However this arrangement also meant that the rights of the selected individuals would be determined in accordance with the reasons given on 16  October 2008.

19                                         The 2 December orders determined the principal issues relating to particular individuals.  Having regard to the issues determined (that, in practical effect, several elderly people were entitled to remain in their homes notwithstanding the failure of a scheme which led to the sale of their homes) it was obvious, one would have thought, for Perpetual to act promptly so as to make it clear to those individuals that their victory was conditional in the sense that it would be challenged in an appeal. 

20                                         It is true that the litigation, overall, was still on foot after 2 December 2008 but this did not prevent Perpetual doing what the rules required.  Obviously, had an appeal been lodged within time, it would have been case managed within the Court, having regard to the possibility that other appeals from later adverse judgments might also be lodged and that it would be prudent for all such appeals to be dealt with in a coordinated way.  It is inconceivable that had Perpetual turned its mind to this question it would not have been advised that an appeal from the 2 December orders almost certainly would be managed in this way. 

21                                         For these reasons Perpetual’s application for an extension of time to appeal against the 2 December orders is dismissed.

Amending the notice of appeal - the vendor’s lien?

22                                         Perpetual applied to amend the notice of appeal to agitate the issue of whether the respondents have a vendor’s lien over the relevant properties.  The respondents oppose the application, and in their cross-appeal filed on 25 May 2009 contend that the vendors’ liens over the relevant properties have priority over Perpetual’s interests. 

23                                         The trial judge found that vendors’ liens existed over the relevant properties: see orders 4, 5 and 6 of the 2 December orders and orders 3, 5, 7, 9, 11 and 13 of the 4 May orders.  His Honour found that the vendors’ liens held by the respondents did not enjoy priority over the interests held by Perpetual: see order 14 of the 4 May orders.

24                                         On the material to which we were taken it is difficult to discern with precision how the issue of the existence and effect of the vendors’ liens arose and was approached by the parties during the course of the litigation.  The trial judge noted in his reasons of 2 December 2008 that during the trial “Perpetual never positively contended that the vendor’s lien did not exist” (though that finding is, itself, challenged by the proposed amendment).  However, the ultimate determination of the interests of the parties in relation to the lien appears to lie in the declaration made in order 14 of the 4 May orders which is the subject of the respondents’ cross-appeal.  Given that the respondents have challenged, in their cross-appeal, this dispositive declaration, it does not appear to us, on balance, to be unreasonable to allow Perpetual to challenge, in its appeal, the anterior question of whether a lien exists at all, at least in relation to the Affected Group Members as embodied in orders 3, 5, 7, 9, 11 and 13 of the 4 May orders.  However, for the reasons given in relation to the application for an extension of time, Perpetual should not be permitted to challenge, by the amendment, orders 4, 5 and 6 of the 2 December orders.

Is the amended notice of appeal competent?

25                                         The respondents contended that Perpetual’s appeal is incompetent.  This point is a little obscure however it  appears to be that order 8 of the 2 December orders determined the rights of Perpetual in relation, not only to the retirees directly and expressly the subject of the orders made that day, but also in relation to the Affected Group Members to whom the later 4  May orders applied.  Order 8 declares that, “In accordance with s 33ZB(a) of the Federal Court of Australia Act 1976 (Cth), ... the judgment given in this proceeding affects the Affected Group Members”.  Treating judgment in its narrow technical sense as distinct from the reasons (see the definition of “judgment” in s 4 of the Federal Court of Australia Act 1976 (Cth)), the judgment given on 2 December 2008 consists of the orders made on that date.  Those orders expressly referred to the rights of a number of named individuals, none of whom was an Affected Group Member within the definition of that term given in the 2  December orders or in the 4 May orders. 

26                                         The precise legal effect of order 8 was not the subject of any detailed submissions in this appeal.  It is difficult to see what legal effect it could have, however, whatever its legal effect, it could not have been that the 4 May orders were other than final orders concerning the rights of the Affected Group Members.  Perpetual is entitled to appeal against those orders.   

27                                         Given our conclusion that Perpetual’s appeal should be dismissed it is unnecessary for us to grapple further with the legal consequences of order 8 of 2 December 2008.  If Perpetual had been successful in challenging any of the orders made on 4 May 2009 then it may have been necessary for us to consider those legal consequences.  The respondents’ objection to the competency of the appeal should be dismissed.

This appeal

28                                         As a consequence of our decisions on the procedural applications discussed above, this appeal is against the 4 May orders of the primary judge and is limited to the grounds of appeal set out in the amended notice of appeal dated 1 July 2009, the notice of cross-appeal filed on 25 May 2009 and the further additional right of Perpetual to raise the issue of the existence of the vendors’ lien as explained in [24] above. Unless otherwise indicated henceforth a reference to an order or orders in these reasons is a reference to an order or orders of 4 May 2009. 

29                                         The issues raised in the appeal are:

1               whether each persons named in orders 2, 4, 6, 8, 10 and 12 had an interest as tenant in possession, within the meaning of s 42(2)(e) of the TLA, of the land identified in the respective order at the time the appellant acquired its interest as mortgagee; and, if so

2               whether the interest of the appellant in the land identified in the respective order is subject to the interest of the tenant in possession of that land pursuant to s 42(2)(e) of the TLA.

3               whether each person named in orders 3, 5, 7, 9, 11 and 13 has an equitable vendor’s lien in the land identified in the respective order;  and if so

4               whether the equitable vendor’s lien in the land identified in the respective order has priority over the appellant’s interest in that land.

30                                         The respondents to this appeal are those persons described in order 1 as the Affected Group Members; see [7] above.  For their part the cross-appellants challenge his Honour’s order that their equitable liens do not have priority over Perpetual’s mortgages.

31                                         The primary judge’s reasons for judgment published on 4 May 2009 (Haslam v Money for Living (Aust) Pty Ltd (No 2) [2009] FCA 468) relied on his principal reasons (published on 16 October 2008; Haslam v Money for Living (Aust) Pty Ltd [2008] FCA 1536).  In his reasons published on 4 May 2009, his Honour said at [6]-[7]:

No point was made by Perpetual that the Affected Group Members did not come within one or other of the factual circumstances giving rise to the declarations and orders made on 2 December 2008 in respect of the named applicants therein specifically mentioned and considered.  I should mention that no party sought to identify specifically which category of factual circumstances previously identified in the Court’s earlier reasons covered each Affected Group Member, and no distinguishing feature was sought to be relied upon by Perpetual.  This approach of the parties may have ramifications depending upon the result of any appeal, but does not impact upon the appropriateness of making the declarations and orders now sought by the Affected Group Members. 

On the basis of my previous reasons, the affidavit material before me and the approach taken by Perpetual, I will make the declarations and orders now sought by the Affected Group Members.

32                                         The primary judge’s failure to identify which factual circumstance applied to which of the Affected Group Members would have created difficulties in this appeal had we not concluded that the differences between the circumstances of the individuals who were the subject of the 2 December orders are not material.   Had this not been so it may have been necessary for the proceeding to be remitted to the primary judge for consideration of the individual circumstances of each Affected Group Member.  It is clear from his Honour’s comments above that no point as to the materiality of different circumstances was made at the trial and Perpetual did not seek to depart from that position in the appeal.  That being so we see no occasion to remit the matter.

33                                         The principal reasons discussed in some detail, the transactions entered into between a number of applicants who sold properties to MFLPH as well as the subsequent mortgages of those properties to Perpetual.  The interests of all of these applicants were the subject of the 2 December orders and are therefore not subject to the present appeal.  Despite this, because the 4 May orders relied on the analysis of the factual circumstances of these applicants some consideration of the transactions into which they entered is necessary.  There was no challenge to the primary judge’s findings of fact and the following summary draws on the principal reasons as well as the submissions of the parties.

34                                         In the case of the applicants considered in the principal reasons, each applicant (or in the case of a couple at least one of the couple) was the registered proprietor of land on which the applicant(s) had a home.  Stripped of the inessentials the main transactions were as follows:

1.         The applicant(s) as vendor(s) entered into a contract to sell the land to MFLPH.  The contract provided for payment of the purchase price in a specified sum; payment of a deposit within 21 days unless otherwise agreed; payment of the balance of the purchase price in monthly instalments commencing one month after the date of the contract; and a condition that the parties would enter into an irrevocable lease agreement prior to settlement.

2.         The vendor executed a Deed of Agreement concerning the lease which included a term that MFLPH would use its best endeavours to obtain the consent of any mortgagee to the lease and the terms and conditions of the deed.

3.         The vendor, and the vendor’s spouse if not a vendor, executed an undated Residential Tenancy Agreement with MFLPH.  The Agreement contains an additional term that “the parties agree that the intention of this lease is to allow the Tenants to remain in the property until their demise or until they vacate the property for a period of greater than six months whichever occurs earlier”. 

4.         Settlement of the contract of sale.  

5.         Execution of the mortgage by MFLPH to Perpetual.

6.         Payment of the principal under the mortgage.

7.         Registration of the transfer of land.

8.         Registration of the mortgage.

35                                         The competing analyses of all parties rely heavily on the order in which the transactions between them occurred.  Three series of transactions were analysed by the primary judge. They involved Elaine and Edward Gainsford, Estell Smith and Athol Easterbrook & Yvonne Gray.  Mrs Gainsford died during the course of the proceeding and was succeeded by the Estate of Elaine Gainsford.  As all relevant transactions occurred before Mrs Gainsford’s death, the analysis of the rights of the parties is not affected.  The dates on which the main transactions occurred are set out in the following table:

* The principal reasons at [13] state that the date of execution of the Gainsford transfer was 18/11/04 however a copy of the transfer in the appeal papers is dated 9/12/04.  Similarly, a copy of the Smith transfer is dated 10/12/04 rather than 9/12/04 as in the principal reasons.

**The principal reasons give the date of this settlement as 13/12/04 however the joint table of transactions filed by the parties refers to affidavit evidence of an accountant, Mr Coyne who states that the date was 17 March 2005.  Nothing seems to hang on this discrepancy.

36                                         The table above shows that in all cases the agreement as to the continuing occupation of the vendor as tenant after the purchase by MFLPH was entered into before execution of the mortgage to Perpetual, before payment under the mortgage, and before registration of the transfer and the mortgage.  It also shows that in the case of Smith, registration of the transfer of title to the fee simple occurred before execution and registration of the mortgage and payment under it.  Similarly, in relation to Easterbrook & Gray, the table shows that settlement of the sale occurred before execution and payment under the mortgage and that registration of the transfer and the mortgage occurred on the same day, although not the order of registration.  What the table also does not show is, in the case of Gainsford, the order of events which occurred on 9 December 2004 and the order of registration of the transfer and mortgage.  The relevance, if any of these factors is discussed below.

37                                         In these reasons it is not necessary to discuss the Tasmanian legislation as all of the properties relevant to this appeal are located in Victoria.  Perpetual therefore holds its interest as the registered proprietor of a mortgage over each of the properties under the provisions of the TLA.  Section 42 is the key indefeasibility provision of the TLA.  It is the exception to indefeasibility in s 42(2)(e) which is of present interest however the exception is best considered in the context of the whole of s 42 which provides as follows:

(1)       Notwithstanding the existence in any other person of any estate or interest (whether derived by grant from Her Majesty or otherwise) which but for this Act might be held to be paramount or to have priority, the registered proprietor of land shall except in the case of fraud, hold such land subject to such encumbrances as are recorded on the relevant folio of the Register but absolutely free from all other encumbrances whatsoever, except ─

(a)          the estate or interest of a proprietor claiming the same land under a prior folio of the register;

(b)          as regards any portion of the land that by wrong description of parcels or boundaries is included in the folio of the Register or instrument evidencing the title of such proprietor not being a purchaser for valuable consideration or deriving from or through such a purchaser. 

(2)               Notwithstanding anything in the foregoing the land which is included in any folio of the Register or registered instrument shall be subject to ─

(a)          the reservations exceptions conditions and powers (if any) contained in the Crown grant of the land;

(b)          any rights subsisting under any adverse possession of the land;

(c)          any public rights of way;

(d)          any easements howsoever acquired subsisting over or upon or affecting the land;

(e)          the interest (but excluding any option to purchase) of a tenant in possession of the land;

(f)           any unpaid land tax, and also an unpaid rates and other charges which can be discovered from a certificate issued under section three hundred and eighty-seven of the Local Government Act 1958, section 158 of the Water Act 1989 or any other enactment specified for the purposes of this paragraph by proclamation of the Governor in Council published in the Government Gazette.

Issue 1: Was each respondent a tenant in possession when Perpetual acquired its interest?

38                                         The exception to indefeasibility found in s 42(2)(e) is only available to a “tenant in possession”.  If that criterion is satisfied the protection of the section, the exact nature of which is in dispute, extends to all of the tenant’s interests in the land.  The first issue in the appeal is to determine if the respondents, with the exception of Joyce Doris Orchard, are tenants in possession.  It is not necessary to consider the position of Ms Orchard as Perpetual accepts that she is a tenant in possession.

Nature of a tenancy in possession

39                                         In its written submissions Perpetual states that “none of the interests claimed by the respondents (ie interests under the tenancy agreements, vendors’ liens, deeds of agreement, contracts of sale and estoppels) created a possessory interest separate from ownership and antecedent to the relevant mortgage”.  There are two elements to this submission. The first relates to the nature of any tenancy interest created.  The second concerns the time at which any such tenancy arose and the time at which each mortgage was created.  Perpetual submits that each mortgage was created before any tenancy could have arisen and therefore s 42(2)(e) does not apply.  Perpetual’s submission is best tested by a careful examination of each step in the chain of transactions. 

40                                         For ease of consideration we will first examine the transactions involving Mrs Elaine Gainsford and her husband, Mr Edward Gainsford.  On our analysis of these transactions the difference between the sequence of the transactions involving Smith, and Easterbrook & Gray (also the subject of the principal judgment) and the sequence of the Gainsford transactions is not material.  Our consideration of the primary judge’s reasons and the parties’ submissions with respect to the Gainsfords should be taken as applying to Smith, and Easterbrook & Gray except where the contrary is expressly stated.  As all the properties the subject of the 4 May orders are in Victoria, the provisions of the Land Titles Act 1980 (Tas), which applied to the property of Easterbrook & Gray are not relevant to this appeal.  The transactions involving Easterbrook & Gray are relevant only for the order in which they occurred; see [36] above. 

41                                         On 18 November 2004 Mrs Gainsford entered into a contract for the sale of her property.  On the same day she also executed the Deed of Agreement and, with her husband, Edward Gainsford, signed the Residential Tenancy Agreement.  As noted above the contract for sale provided for the payment of the purchase price by way of a deposit and subsequent instalments.  The deposit was to be paid within 21 days or as otherwise agreed.  We accept that at contract MFLPH acquired a proprietary interest which would, for example, be capable of competing with the proprietary interest of a third party however, as between the contracting parties the contractual requirements are determinative of their obligations; Chang v Registrar of Titles (1976) 137 CLR 177 at 190 per Jacobs J. 

42                                         The contractual arrangements between MFLPH and Mr and Mrs Gainsford are clear.  The Contract of Sale, the Deed of Agreement and the Residential Tenancy Agreement were all executed by the Gainsfords on the same day, 18 November 2004.  These agreements establish that it was the intention of the parties that MFLPH’s right as owner of the land was to be subject to the right of Mrs Gainsford and her husband to remain in possession as tenants for the duration of their lives or until they vacated the property for a period exceeding six months.  Mrs Gainsford’s evidence in her affidavit of 24 March 2007 was that the “Settlement Date was to be the date upon which the deposit of $30,000 was paid by MLFPH to me, and MLFPH subsequently accepts title”.  The settlement statement annexed to Mrs Gainsford’s affidavit confirms that settlement occurred on 9 December 2004 and, although Mrs Gainsford stated that she did not insert the date of 9 December 2004 in the Residential Tenancy Agreement as the commencement date for the lease, it is clear that as between the Gainsfords and MLFPH the lease was to commence at the latest on that date.  

43                                         In its submissions in the appeal Perpetual argued that MFLPH could not grant a tenancy in respect of land in respect of which, in this case, Mrs Gainsford was the registered proprietor.  The primary judge rejected this submission saying that “the fact that the retirees were registered proprietors of the properties at the time of entering into the agreement for lease or at the time of the grant of lease is irrelevant”.    We also reject the submission.

44                                         As between vendor and purchaser the right to possession is governed by the terms of the contract between them.  Whether the vendor is to provide vacant possession at settlement or is to be permitted to remain in possession, and if so under what terms, depends on the terms of the contract.  In this case the contract specifically provided that the vendor was to remain in possession and, in conjunction with the Deed of Agreement and the Residential Tenancy Agreement, it provided that the lease was to commence at settlement.  These provisions impliedly recognise that at settlement MFLPH obtained the right to possession subject only to the more limited right which it immediately granted to Mr and Mrs Gainsford.  In other words, the capacity in which Mrs Gainsford occupied the property shifted from occupation as owner to occupation as tenant with Mr Gainsford. 

45                                         From the time of entering into the contracts executed on 18 November 2004 Mrs Gainsford was entitled to specific enforcement of MFLPH’s contractual obligations, including the obligation to grant her a lease. That obligation was, of course, subject to the performance of the contractual obligations that she owed to MFLPH.  On her part those obligations were fully performed at settlement and she had a specifically enforceable right to a lease; Walsh v Lonsdale (1882) LR 21 ChD (CA).  In addition to the lease in equity that arises under the specifically enforceable contract, the occupation under the agreement to lease also brings into existence an implied tenancy at common law; Chan v Cresdon Proprietary Limited (1989) 168 CLR 242 at 248 per Mason CJ, Brennan, Deane and McHugh JJ.  On settlement, MFLPH acquired an equitable interest in the fee simple estate in the land and, in equity, was able to carve out of that estate, an equitable lease in favour of the Gainsfords.  The fact that Mrs Gainsford was the registered proprietor at the time was, as the learned primary judge held, irrelevant.

46                                         The appellant cites the High Court decision in Partridge v McIntosh & Sons Ltd (1933) 49 CLR 453 as authority for the proposition that “Where a person purports to lease an interest in land which that person does not own, all that is created is a tenancy by estoppel”.  The case is distinguishable from the present circumstances in a number of ways. 

47                                         Partridge v McIntosh concerned a mortgagor who had attorned tenant to the registered mortgagee of land under the Torrens system.  The mortgagor defaulted under the mortgage and the mortgagee levied distress upon goods on the premises including goods belonging to the mortgagor’s wife who was not a party to the mortgage.  The issue before the High Court was whether the mortgagor had committed a trespass to her goods.  The crucial point was that the mortgagee, having only a charge on the land (as is the case with Torrens title land) did not have a reversionary interest capable of supporting a lease or entitling the mortgagee to levy distress against the goods of a stranger to the mortgage agreement.  The Court held however, that the mortgagor was estopped from relying on the absence of the reversion but that the estoppel would bind only the parties.  The case has nothing to say about the right of the purchaser of the fee simple estate (MFLPH) to grant a lease in equity.

48                                         Before the primary judge Perpetual argued that any lease which would otherwise have been granted to the Gainsfords would be void for uncertainty because it offended the rule that, to be valid, a lease must be for a term certain; Lace v Chantler [1944] KB 368.  His Honour rejected this submission for a number of reasons.  His Honour said, at [23]:

I see no reason to depart from the views expressed by Gobbo J in Greco v Swinburne Ltd [1991] 1 VR 304 that a lease for life or lives is not void for uncertainty.  Whilst the essential characteristic of a fixed term lease is that it must be of a specified maximum duration, this rule may not apply to periodic leases or leases for life (see Re Midland Railway Company Agreement v British Railways Board [1971] Ch 725 at 731-2; Bradbrook, MacCallum & Moore, Australian Real Property Law (4^th ed, Lawbook Co, 2007) at [14.100]; and Foa’s General Law of Landland and Tenant (8^th ed, Thames Bank Publishing Co, 1957) at [150]-[154] although see Prudential  Assurance Co Ltd v London Residuary Body [1992] 3 WLR 279 and Peter Sparkes, Certainty of Leasehold Terms (1993) 109 LQR 93).

49                                         In addition his Honour said that the arrangement could be construed as creating a freehold life tenancy such as was accepted in Burke v Dawes (1938) 59 CLR 1 as falling within the words of s 72 of the Transfer of Land Act 1928 (Vic), a predecessor to s 42(2)(e).  See also Black v Poole (1895) 16 ALT 155. 

50                                         We agree with his Honour’s conclusions.  The duration of the lease in question was for the lives of Mr and Mrs Gainsford albeit that it was determinable earlier if they vacated the property for more than six months. We are satisfied that there was a lease, albeit existing only in equity and in the circumstances it is not necessary for us to decide whether that interest was actually a determinable life estate or a lease for a term of years measured by the life of the survivor of Mr and Mrs Gainsford.  See The Commercial Bank of Australia Limited v McCaskill (1897)  23 VLR 10 at 15 where a similar approach was taken. 

Were the respondents tenants in possession before the appellant acquired its mortgages?

51                                         Perpetual also submitted that the Gainsfords were not tenants at the time the mortgages were created.  This submission relies on the primary judge’s finding, at [18] of the principal reasons, that the mortgages, including the mortgage of the Gainsford property, “were entered into and created on, and intended to be effective from and on, the date which each mortgage document bears”.  In the case of the mortgage of the Gainsford property this was 9 December 2004, which was also the date of settlement.  We agree with his Honour that, irrespective of settlement, there were binding contractual relations between MFLPH and Perpetual from the time they entered into the contract of mortgage.  However, we would make two points in relation to this claim.  First, the reasoning that leads Perpetual to claim that it acquired a mortgage from the time of contract, also leads to the conclusion that the Gainsfords acquired a lease from the prior date of their contracts with MFLPH.  Moreover, in so far as the mortgage was intended to convey a proprietary interest in the Gainsford land to Perpetual, it depended on the contract with Mrs Gainsford; without that contract, MFLPH could give Perpetual no more than a future interest in property to be acquired by MFLPH or, in other words, an interest commensurate with the specific enforceability of the contract between Perpetual and MFLPH; Chan v Cresdon per Mason CJ, Brennan, Deane and McHugh JJ at 252 and per Toohey J at 261.   The contracts between MFLPH and Mrs Gainsford logically and chronologically preceded the mortgage contract and so any tenancy created before settlement was created before the mortgage. 

52                                         This order was not varied at settlement.  As completion of the contract of sale and completion of the mortgage both occurred at settlement on the same day, in the light of the above analysis, the only sensible way to view the chronology is that the sale was completed immediately before the mortgage.  That being so, any tenancy created on completion of the the contract of sale was created before the mortgage.

53                                         Assuming the usual practice was followed, at settlement MFLPH would have received a registrable transfer from the vendor, a registrable discharge of the pre-existing mortgage to the Commonwealth Bank and a Certificate of Title.  At settlement, these documents and the registrable mortgage executed by MFLPH would have immediately been passed to Perpetual in exchange for payment of the principal under the mortgage.  At that point, Perpetual had all the documents necessary for it to register the mortgage.  It should be noted, however, that a mortgage executed by MFLPH could not have been registered without Perpetual also having the transfer from Mrs Gainsford to MLFPH.  Without this transfer, the mortgage from MFLPH would, in terms of registered interests be a document executed by a stranger to the title. 

54                                         As Barwick CJ pointed out in Breskvar v Wall (1971) 126 CLR 376 at 385-6, the Torrens system is a system of title by registration:

That which the certificate of title describes is not the title which the registered proprietor formerly had, or which but for registration would have had.  The title it certifies is not historical or derivative.  It is the title which registration itself has vested in the proprietor. 

55                                         Until registration of the transfer to MFLPH from Mrs Gainsford, MFLPH did not appear on the register and there was no entitlement for the mortgage to Perpetual to be registered.  As far as the system of registration was concerned the mortgage was executed by a stranger to the land in question.  Consequently, even if only by an instant, registration of the transfer to MFLPH must logically precede the registration of the mortgage to Perpetual.  This conclusion accords with s 34(3) of the TLA which provides:

If two or more instruments which affect the same land are lodged and are awaiting registration, the Registrar may register those instruments in the order which will give effect to the intentions of all the parties, as expressed in or apparent to the Registrar from those instruments. 

56                                         The transfer to MFLPH and the mortgage to Perpetual were lodged for registration on 4 January 2005, presumably at the same time.  They affect the same land and, for the reasons given in the preceding paragraph, the order of registration that would have been apparent to the Registrar would be for the transfer to MFLPH to be registered before the mortgage from MFLPH to Perpetual.  On this analysis, MFLPH was, however briefly, the registered proprietor of the land before the registration of Perpetual.  Accordingly we hold that at the time the mortgages were created each persons named in orders 2, 4, 6, 8, 10 and 12 of the 4  May orders had an interest as tenant in possession of the land identified in the respective order within the meaning of s 42(2)(e) of the TLA.

Issue 2: Priority as between the tenants in possession and the mortgagee

57                                         We have concluded that all the persons concerned were tenants in possession at the time the appellant acquired its interest as a mortgagee of the relevant properties.  It follows that, as provided in s 42(2)(e) of the TLA, the relevant land is subject to those tenancies.  While it might be thought from the plain meaning of the section that this means that those tenancies take priority over the subsequent mortgages, the decisions of the High Courtindicate otherwise.  In Burke v Dawes all members of the High Court other than Latham CJ proceeded on the basis that the effect of the statutory protection was to deprive the registered proprietor of the indefeasibility otherwise accorded to it, leaving the competition between the registered proprietor and the tenant in possession to be resolved by the application of common law principles as if between two unregistered interests.  Burke v Dawes was followed in Barba v Gas & Fuel Corporation of Victoria (1976) 136 CLR 120. 

58                                         The appellant relies on these two High Court decisions, both of which held that the later interest took priority over the interest of the tenant in possession.  Careful consideration of both cases shows that there are relevant differences between their circumstances and those currently before this Court such that they should be distinguished.  

59                                         Burke v Dawes was concerned with the rights of Emily Cummins who had been a housekeeper to Thomas Waller.  In his will Waller devised a house and land with all furniture and effects to Mrs Cummins “for her lifetime only”.  Dawes, who was appointed sole executor and trustee for the residue of the estate, was granted probate of the will on 17 December 1918 and, more than 11 years later, on 14 January 1930 was registered as proprietor of the land in his capacity as executor.  Dawes subsequently granted a mortgage to the appellants and converted the money to his own use.  When the mortgage interest fell into arrears, the mortgagees claimed possession of the land pursuant to the mortgage.  During the whole of this period Mrs Cummins remained in possession of the property with the consent of the executor. 

60                                              In the High Court, Starke, Dixon, Evatt and McTiernan JJ all held that the effect of the statutory exception was to strip the registered proprietor of benefits of registration so that the competition between interests was to be decided on general law principles.  On that basis Evatt J held that the tenant’s interest prevailed because the mortgagee had constructive notice of her interest.  Starke, Dixon and McTiernan JJ held that the mortgagees’ interest prevailed over that of Mrs Cummins.  Their Honours held that as Dawes was registered as proprietor of the fee simple in his capacity as executor and that this capacity was noted on the register, the mortgagees dealt with him in good faith and had neither express nor constructive notice that he was not acting in exercise of his duty as executor.  Latham CJ took a much broader view of the statutory protection which, his Honour held, was such that Mrs Cummins’ equitable interest as tenant in possession took priority over the interest of the mortgagees without the need to resort to general law principles. 

61                                         In Barba v Gas & Fuel Corporation of Victoria (1976) 136 CLR 120, the competition was between tenants in possession as purchasers from Craigie (Clays) Pty Ltd under a terms contract of sale and the holder of a registered easement.  Title to the land had not passed to the purchasers and at all times the vendor remained the registered proprietor of the fee simple The contract of sale contained the following condition 8:

The Vendor warrants that it has received notice from the Gas and Fuel Corporation Ltd calling for the creation of a pipeline easement in favour of the Gas and Fuel Corporation.  The Vendor has concurred in the granting of the said easement and the Purchaser acknowledges having read a true copy of the proposed creation of easement document prior to the signing of this Contract and it is hereby acknowledged by the parties hereto that all monies paid by the said Gas and Fuel Corporation by way of compensation in respect of the granting of the easements shall be paid to and shall belong to the vendors herein.

[Emphasis added]-

62                                         Gibbs J, with whom Stephen and Jacobs JJ agreed, held that the analysis of s 42(2)(e) should be regarded as settled by Burke v Dawes.  Consequently, the priority of the competing interests should be determined without reference to the registered status of the respondent.  Gibbs J followed Chesterfield v Pitisano [1964] VR 709 where Smith J said at 713 that a mortgage granted pursuant to a right reserved to the vendor by a contract of sale prevailed over interests of a purchaser.  Applying that principle his Honour said, at 141-142:

The question therefore is whether special condition 8 did make the sale subject to the easement to be granted.  It is true that it did not in terms reserve the right to grant an easement, nor did it state that the sale was subject to the easement to be granted.  However, the clause expressly stated that it was proposed to create an easement, and that the vendor should be entitled to the compensation paid when the easement was granted, and in my opinion these provisions plainly implied that the easement when granted was to be effective.  The clause would be meaningless if the rights of the purchasers prevailed over the easement when it was created.

63                                         The learned primary judge discussed the decision in Barba at some length saying that it was “convenient to deal with the competing interests issue by reference solely” to that decision.  His Honour quoted significant passages from Barba including extracts from Burke v Dawes quoted by Gibbs J and also including the extract we have quoted in the previous paragraph.  At [83] of the principal reasons, his Honour referred to the fact that Perpetual relied upon Barba “and the principle that s 42(2)(e) … [does] not give a tenant in possession any greater protection than he or she would have had if the land were under the general law”.  His Honour then stated his view as follows:

My view is that if the retirees come within the terms of s 42(2)(e) or s 40(3)(d), then no comparison of the competing interests is required of the type suggested by Perpetual.  In Downie v Lockwood [1965] VR 257, Smith J undertook no comparative examination of the equities, as submitted by Perpetual should occur in this proceeding.  Barba, in reliance on comments in Burke v Dawes, merely decided that effect had to be given to special condition 8, and to that extent the application of the general law applied, and the person claiming to come under the exception to indefeasibility could have no greater rights than he or she would have under the general law.  It will be recalled that special condition 8 made the sale subject to the easement to be granted, which special condition the High Court gave effect to by applying the general law.

64                                         With respect, we cannot agree.  Downie v Lockwood is not relevant to the question of competing interests.  It is concerned with the ambit of the phrase, “the interest … of a tenant in possession of the land” in s 42(2)(e).  The issue was whether the tenant in possession could enforce a claim for rectification of a lease against a registered proprietor who was a successor in title of the original lessor.  The argument that the equity of rectification was not “an interest” of the tenant was based on the common law position that an equity of rectification, as distinct from a covenant that touches and concerns the land, does not run with the land so as to bind an assignee of the landlord; Smith v Jones [1954] 2 All ER 823.  Smith J held that this principle did not define the interest of a tenant within the meaning of s 42(2)(e) and followed the more expansive meaning given to the phrase by Dixon J in Burke v Dawes at 17.  In Smith J’s view the plaintiff’s possession was notice to the defendants, “of his equitable interest with all its incidents”.

65                                         In our view Barba and indeed, Burke v Dawes, establish the following two propositions:

(a)                the interest of a tenant in possession does not, merely by virtue of the tenant being in possession, take priority over a subsequent registered proprietor;

(b)               a registered proprietor in competition with a tenant in possession, cannot rely on the indefeasibility of title that would, were it not for s 42(2)(e), otherwise accrue to the registered proprietor.

Together, these two propositions must lead to the conclusion that the competition between the two interests can only be resolved by a comparision of the kind that his Honour rejected.  For reasons given below our conclusion as to the priority of the retirees’ interests does not depend on whether the Perpetual’s interest is legal or equitable.  In this regard we note that while s 40(1) of the TLA provides that “no instrument until registered … shall be effectual to create … any interest or encumbrance in on or over any land” subject to the TLA, s 42(2)(e) does not invalidate registration, it merely deprives the registered proprietor of indefeasibility.

66                                         Despite his view as to the operation of s 42(2)(e), the learned primary judge did in fact consider the respective merits of the two entities and, on that basis also, concluded that the retirees’ interests took priority over Perpetual’s mortgages.  Understandably, his Honour’s observations are somewhat sparse presumably not only because his preferred view as to the operation of s 42(2)(e) but also because it is clear no issue was raised in the pleadings concerning Perpetual having notice (actual or constructive) of the retirees’ interests. 

67                                         In this case the tenants were the vendors.  It was a condition of the contracts of sale that there be an “irrevocable” lease agreement between the parties prior to settlement.  No right to create a mortgage that competed with the vendors’ rights as tenants was reserved in the contract.  The only relevant provision in the transaction documents was clause 1.9 of the Deed of Agreement which merely referred to MFLPH using its best endeavours to obtain the consent of any mortgagees to the lease.  As the primary judge commented at [52], “clause 1.9 did not refer specifically to Perpetual or to any existing mortgagee”.  His Honour added that he did not consider that “cl 1.9 could be construed as a consent by the retirees that a later mortgage could override the interests of the retirees as tenants in possession”.  We agree.  The whole purpose of the arrangement was that the retirees could continue to live in their homes for the remainder of their lives.  It would take very clear words indeed to indicate that they were prepared to subordinate their rights to remain in their homes to the interest of a mortgagee.

68                                         Similarly, we are of the opinion that Burke v Dawes should be distinguished from the present circumstances.  The priority accorded to the mortgagees in that case critically depended on the fact that they dealt with an executor whom it was reasonable for them to believe was acting in the course of his duties.  Moreover, the tenant had only a beneficial interest arising under the will of Mr Waller and consequently was a mere volunteer. No such complication exists here.

69                                         In the case of all the respondents, the equitable interest of the tenants preceded the interests of the mortgagees.  If the equities between the retirees and Perpetual were equal then the retirees’ interest, being first in time would take priority.  That principle does not apply where the merits as between the parties are not equal.  In this case it might be argued, although Perpetual made no such argument, that by giving MFLPH a registrable transfer and certificate of title, the retirees had armed MFLPH with the ability to enter into the mortgages, without Perpetual having any knowledge of their interests.  Thus, it might be argued, although Perpetual did not, that the retirees had an obligation to correct the impression so created by lodging caveats to protect their interest.  While Perpetual’s failure to raise the question of notice might be regarded as fatal to its claim (see Barclays Bank plc v Boulter [1998] 1 WLR 1) we propose to consider the question. 

70                                         We disagree with the primary judge’s comment that the failure to caveat was “of no moment” because the only purpose of a caveat would have been to prevent registration.  His Honour’s comment overlooks the capacity of a caveat to give notice “to all the world that the registered proprietor’s title is subject to the equitable interest alleged in the caveat”; Butler v Fairclough (1917) 23 CLR 78 at 91 per Griffith CJ.  This purpose is not inconsistent with the capacity of a caveat to give notice as the following comment of Barwick CJ in J & H Just (Holdings) Pty Limited v The Bank of New South Wales (1971) 125 CLR 546 at 552, indicates: 

Its purpose is to act as an injunction to the Registrar-General to prevent registration of dealings with the land until notice has been given to the caveator … The purpose of the caveat is not to give notice to the world or to persons who may consider dealing with the registered proprietor of the caveator’s estate or interest though if noted on the certificate of title, it may operate to give such notice.

[Emphasis added]

71                                         The conduct of the retirees in giving MFLPH the ability to create the subsequent mortgages to Perpetual would indicate that the merits would be with Perpetual unless Perpetual had, at the very least, constructive notice of the retirees’ interests.  While a caveat may give notice of an unregistered interest there is no obligation to caveat.  To hold otherwise would be to convert a facility that the TLA provides into an obligation.  If the circumstances are such as to give notice in some other way, so that the later interest holder is, or ought to be, aware of the prior interest, the failure to caveat, in so far as notice is concerned, will be immaterial.  In the absence of a caveat it is necessary to consider all the relevant circumstances in determining the issue of notice; Heid v Reliance Finance Corporation Proprietary Limited (1983) 154 CLR 342 per Mason and Deane JJ. 

72                                         In the present circumstances, it beggars belief that the appellant did not have notice, at the very least constructive notice, of the retirees’ interests. In the absence of clear evidence to the contrary (and there was none) the inescapable inference is that Perpetual did have notice.  Perpetual entered into many mortgages with MFLPH and made extensive funds available to it.  In the normal course of events a lender in Perpetual’s position would approve a loan facility on which MFLPH could draw in respect of the individual mortgages.  Whether or not this was the case here, it is inconceivable that Perpetual would have agreed to make extensive funds available to MFLPH without having any idea of the nature of their business.  There were in the appeal book extracts from various affidavits which indicated that the personnel in charge of settlement of the mortgages were not aware of the retirees interests or even, as least in some cases, that they were in possession.  This is hardly surprising given the comparatively mechanical nature of settlement procedures however no evidence was apparent or was drawn to our attention as to the arrangements pursuant to which the loan moneys were made available.  The absence of evidence on the point suggests that there was no evidence that would have assisted Perpetual in this regard.  In any event, the very name of the company granting the mortgages, Money for Living Property Holdings Pty Ltd, would or should have alerted the mortgagee to the need to make enquiries.  Furthermore, the fact that the mortgaged properties were residential premises occupied by an elderly person or an elderly couple should have alerted a potential purchaser or mortgagee of the need to make enquiries. 

73                                         The situation here is quite different from that pertaining in cases such as Caunce v Caunce [1969] 1 WLR 286 and Williams and Glyn’s Bank Ltd v Boland [1980] 2 All ER 408.  In both these cases the prior unregistered interest in the matrimonial home being claimed was that of the wife whose husband had created the later interest.  In Caunce v Caunce it was held that the wife’s occupation was not notice of her unregistered interest (arising from her contributions to the purchase price) because it was consistent with the title offered to the bank by the husband.  In Williams and Glyn’s Bank the issue was whether the wife was “in actual occupation” of the matrimonial home within the meaning of s 70(1)(g) of the Land Registration Act 1925 (UK).  The Court rejected the view that the wife’s occupation should be regarded as a ‘shadow’ of her husband’s and held that because the wife was physically present on the land she should be regarded as being in actual occupation.  Occupation by the retirees cannot be so explained in relation to title offered by a company such as MFLPH. 

74                                         It was not necessary for the retirees to caveat their interests in order to alert any future purchaser or mortgagee to their interest in the property.  The fact of their occupation was constructive notice of their interest which would thus prevail even against a bona fide purchaser of the legal interest; Barnhart v Greenshields (1853) 9 Moo PCC 18, 14 ER 2004; Hunt v Luck [1902] 1 Ch 428.  Irrespective of whether Perpetual’s interest is regarded as legal or equitable the result is the same.  In the absence of an obligation to caveat and in the light of their actual possession, there was no postponing conduct on the part of the retirees.  As such the merits did not lie with Perpetual and therefore, in a competition between the two equitable interests the prior interest of the retirees would prevail; Rice v Rice (1854) 2 Drew 73, 61 ER 646; Lapin v Abigail (1930) 44 CLR 166 at 204 per Dixon J, quoted with approval by Barwick CJ in J & H Just (Holdings) Pty Ltd v Bank of New South Wales (1971) 125 CLR 546 at 555.  The protection afforded by s 42(2)(e) strips the registered mortgagee of the indefeasibility that would otherwise protect it.  In the competition between Perpetual and the tenants in possession the interests of the tenants must take priority over those of Perpetual.

Issue 3: Existence of vendor’s liens

75                                         The Notice of Cross-Appeal filed on 25 May 2009 states that the primary judge erred in declaring that Perpetual’s mortgages have priority over the equitable vendors’ liens as set out in order 14 of the 4 May orders.  Order 14 is set out in [7] above.  As already discussed in [8] above the precise scope of the order is a little unclear however it is clear that his Honour’s holding as to the priority of Perpetual’s mortgages applies to the retirees named in orders 3, 5, 7, 9, 11 and 13 of the 4 May orders. 

76                                         For reasons given in [24] above we have permitted Perpetual to challenge the existence of the vendors’ liens but not in respect of orders 4, 5 and 6 of the 2 December orders.  The fact that the cross-appellants were challenging the primary judge’s finding that Perpetual’s mortgages had priority over the vendors’ liens was central to those reasons. 

77                                         We have considered the primary judge’s reasons for that finding and, as explained below, we are in agreement with his Honour.  It is therefore not necessary to reconsider the existence of the vendors’ liens as, irrespective of any finding we might make, the position of neither party could be improved by such a finding.

Priority of vendors’ liens

78                                         It is not in contention that a vendor’s lien is an equitable interest.  More to the point in the present circumstances, it is an unregistered interest.  In this case the unregistered interests are competing with Perpetual’s registered mortgages.  There is no suggestion that these mortgages were acquired and registered other than in good faith; there was no fraud.  There is no suggestion that any other exception to indefeasibility applied.  In the absence of any such exception (as for instance the exception that s 42(2)(e) provides in favour of a tenant in possession) the registered interest must prevail. 

79                                         Section 42(2)(e) does not apply to the vendors’ liens as it is independent of the retirees’ tenancies.  As the primary judge observed:

A vendor’s lien does not grow out of, and is severable from, the retiree’s right to continue in occupation as a tenant; it is not an interest to which the retiree’s occupation as a tenant is incident.

80                                         In this regard the vendor’s lien may be contrasted with the claim for rectification considered in Downie v Lockwood [1965] VR 257.  The plaintiff’s unregistered lease included rates and insurance premiums as outgoings to be paid by the tenant.  The court accepted that, as against the lessor, the tenant was entitled to have the lease rectified by deleting the reference to rates and premiums.  The issue was whether the tenant could exercise this remedy against a purchaser for value of the lessor’s reversionary interest.  The court held that although the tenant’s equity of rectification did not touch and concern the land and thus under general law principles would not be enforceable against a purchaser of the legal estate for value and without notice, the interest fell within the exception in s 42(2)(e) of the TLA.  It was an interest to which his occupation as a tenant in possession was incident; see Burke v Dawes at 17.

Costs

81                                         Without going into details of the interlocutory and ancillary processes, the position at the conclusion of this appeal is that, substantively, the appellant has failed in its attempt to have the orders made by the primary judge set aside.  Although the appellant has succeeded in having the cross-appeal dismissed this has not made any difference to the respective positions of the parties.   It is our view that there would be no benefit to any of the parties in attempting to apportion the cost and therefore we will order that the appellant pay the respondents’ costs of and associated with the appeal.

Conclusion

82                                          It follows for the reasons given above that:

1.        The appellant’s application for an extension of time within which to file and serve a notice of appeal against the orders made on 2 December 2008 is dismissed.

2.        The appellant’s application for leave to amend further the notice of appeal be allowed with respect to orders 3, 5, 7, 9, 11 and 13 made on 4 May 2009 and the application is otherwise dismissed.

3.        The respondents’ objection to the competency of the appeal is dismissed.

4.        The appeal is dismissed.

5.        The cross-appeal is dismissed.

6.        The appellant must pay the respondents’ costs of and associated with the appeal including reserved costs.

Associate:

Dated:         21 July 2010

REASONS FOR JUDGMENT

DOWSETT J:

83                                          I have read the reasons prepared by Moore and Stone JJ.  I gratefully adopt their Honours’ statement of the relevant facts.  In so far as their reasons deal with the operation of s 42(2)(e) of the Transfer of Land Act 1958 (Vic) (the “TFL Act”) I am in general agreement with them.  However there are a number of areas in which I have reservations which I should express. 

84                                          The operation of s 42 deprives the appellant (“Perpetual”) of the benefit of registration of its mortgages.  As a result we must consider the respective priorities of each of the interests held by the relevant respondents (the “retirees”) as against the respective competing interests held by Perpetual pursuant to its notionally unregistered mortgages.  Below, I discuss considerations relevant to the resolution of the question of priority as between competing equities.  As will be seen, if competing equities are equal in merit, priority will depend upon the respective dates upon which they arose.  See Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) (1965) 113 CLR 265 at 276 (quoted below).  Thus it may be necessary to determine those dates.  In the case of Perpetual, the relevant equities are its interests under the notionally unregistered mortgages.  There may have been a pre-existing agreement to advance money on security, but I do not understand Perpetual to rely upon any such agreement.  Prima facie, the equitable mortgages will date for priority purposes from their respective dates of execution. 

85                                          Because of the way in which the matter was argued at first instance and on appeal, there has been little consideration of the relevant priority dates for the retirees’ equities.  Prima facie, as between the retirees and the purchaser and mortgagor to Perpetual (“MFLPH”) the retirees’ interests would date from their creation.  However only a tenant in possession has the benefit of s 42(2)(e).  It seems at least arguable that for the purpose of determining the priority of such an equity as against a party deprived of the protection of registration by s 42(2)(e), the tenant’s equity should take priority from the date upon which he or she goes into possession in that capacity.  Choice of the date of possession (ie in this case, the date of completion of each contract of sale) as the priority date of an interest protected by s 42(2)(e) would reflect the assumption which, I infer, underlies that section, that the registered interest holder will have had adequate opportunity to discover that the tenant was in possession and to make appropriate enquiries as to the basis for such possession.  As I consider that this matter should be remitted to the primary Judge for reconsideration of the priority question, I need not express a final view concerning the effective priority dates of the retirees’ equities.  Further, as the question seems not to have been addressed at first instance, and was not addressed on appeal, it is better that I express no concluded view.  I have referred to the various transactions collectively but, of course, in resolving questions of notice and priorities, each case must be assessed individually. 

86                                          I should make one other comment at this stage.  As I understand it, an enquiry as to the respective merits of competing equities arises only where the holder of the later equity took without notice of the former.  If the later equity holder took with notice of the former equity, he or she would take subject to that equity, and no reference to the merits would generally be appropriate.  This question is discussed in Meagher, Gummow and Lehane’s Equity Doctrines and Remedies (4th ed) at sections [8-015] – [8-025].  In particular the authors refer to the discussion of the question in Moffett v Dillon [1999] 2 VR 480.  As far as I can ascertain the primary Judge did not proceed upon the basis that Perpetual took with notice of any prior equity.  His enquiry was as to whether the competing equities were such as to displace the priority otherwise attaching to each of the retirees’ equities as against Perpetual’s mortgages.

87                                          It is in this context that I take issue with some of the propositions contained at [43] to [45] in the reasons prepared by Moore and Stone JJ.  However it is not necessary that I identify the specific areas of disagreement.  As to the matters addressed at [51] to [56] in those reasons, I consider that registration could not affect the time at which any relevant equitable interest arose for the purpose of determining priority.

88                                          Moore and Stone JJ have demonstrated that s 42(2)(e) deprives Perpetual of the protection of registration but otherwise leaves questions of priority between conflicting equitable interests to be resolved by reference to general principles.  It is appropriate that I now examine those principles.  In Rice v Rice (1853) 2 Drew 73; 61 ER 646, in the latter reference at 648, the Vice-Chancellor discussed various formulations of the relevant rule as to priority between competing equities, concluding that:

And I think the meaning is this: 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 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.

Now, in the present case, each of the parties in controversy has nothing but an equitable interest; the Plaintiff’s interest being a vendor’s lien for unpaid purchase money, and the Defendant Ede having an equitable mortgage.  Looking at these two species of equitable interests abstractedly, and without reference to priority of time, or possession of the title-deeds, or any other special circumstances, is there anything in their respective natures or qualities which would lead to the conclusion that in natural justice the one is better, or more worthy, or more entitled to protection than the other?

89                                          At 649, his Lordship observed:

One special circumstance that occurs is this, that the equitable mortgagee has the possession of the title-deeds. 

90                                          The Vice-Chancellor then discussed various authorities and continued:

We have here, then, ample authority for the proposition or rule of equity that, as between two persons whose equitable interests are of precisely the same nature and quality, and in that respect precisely equal, the possession of the deeds gives the better equity.

91                                          I should observe that in the last paragraph on 649 his Lordship points out that there are certain exceptions to the proposition concerning possession of the title deeds.  However those exceptions are not relevant for present purposes.

92                                          In Avco Financial Services Ltd v Fishman [1993] 1 VR 90, at 93, Tadgell J said:

Even without temporal priority, an equity which is supported by possession regularly obtained of title deeds, or their equivalent, will generally enjoy priority over a competing equity not supported by such possession: Rice v. Rice.  A claimant of an equitable security who is not only first in time but who relies in competition with another such claimant also on possession of title deeds, or the equivalent, is likely to be in a very strong position as against the other; and the position must be yet stronger if the equitable claimant second in time knew, when he obtained his equity, that the legal proprietor through whom he claims it was not in possession of the title deeds or an equivalent.

93                                          This paragraph is cited with apparent approval by the learned authors of Meagher, Gummow and Lehane at [8-015].  It seems that possession of indicia of title has long been a major consideration in the ranking of competing equities.  The principle of competing equities has been discussed in numerous High Court cases.  In Latec Investments at 276, Kitto J said:

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”.

94                                          Gibbs CJ adopted this statement in Heid v Reliance Finance Corporation (1983) 154 CLR 326 at 333 and continued:

In the present case the interest of the appellant was first in time.  The question therefore is whether his conduct in handing to Gibby a completed memorandum of transfer, containing an acknowledgement of payment and accompanied by the certificate of title, thus enabling Connell Investments to represent itself to Reliance Finance as having a title free from outstanding equitable interests, has the consequence that Reliance Finance has the better equity, and that the appellant’s interest should be postponed to that of Reliance Finance.

95                                          His Honour then referred to other cases in which a proprietor had armed another with “the means of dealing with the estate as the absolute legal and equitable owner, free from every shadow of incumbrance or adverse equity”, citing Rice v Rice. 

96                                          At 339, Mason and Deane JJ said:

Where the merits are equal, the general principle applicable to competing equitable interests is summed up in the maxim qui prior est tempore potior est jure– priority in time of creation gives the better equity.  But where the merits are unequal and favour the later interest, as for instance where the owner of the later equitable interest is led by conduct on the part of the owner of the earlier interest to acquire the later interest in the belief or on the supposition that the earlier interest did not then exist, priority will be accorded to the later interest … .

A common illustration of conduct on the part of the owner of an equity which postpones his interest is the arming of a third party with the indicia of title, such as the delivery of title deeds and an instrument of transfer of the property containing or accompanied by an acknowledgement that the third party has paid the consideration for it in full.  Generally speaking in this situation a person who acquires an interest from a third party for value without notice of the prior interest takes in priority … .  To use the words of Lord Selborne L.C. in Dixon v Muckleston …, words which have often been repeated in the cases to which we have referred, the owner of the first equity is said to have “armed” the third party “with the power of going into the world under false colours”.

97                                          Much has also been said in the cases about the relevance to the question of priorities of failure to lodge a caveat notifying an earlier equity.  The decision of the High Court in J & H Just (Holdings) Pty Ltd v Bank of New South Wales (1971) 125 CLR 546 is often cited as authority for the proposition that failure to lodge such a caveat “cannot properly be said necessarily to be such an act or default” (per Barwick CJ at 555).  However it is relatively clear that Barwick CJ was saying only that as the relevant party (the “Bank”) had possession of the indicia of title, it was entitled to rely on such possession as protecting its position.  On the other hand, at 553 Barwick CJ observed, concerning the conduct of other parties:

The lodgement of a caveat by the respondents even whilst they were still registered proprietors might well have been thought appropriate, once the duplicate certificates of title and executed memoranda of transfer had been given to the mortgagee.  This would be a means of safeguarding themselves against an abuse of the authority which they had given their mortgagee.  The respondents in this respect were in a very different situation to that of the Bank.  The holder of the executed memoranda of transfer and the duplicate certificate of title was in a position to have the transferee registered as proprietor.  Once that person was registered the legal estate in the land would vest in the transferee.  But in the case of the Bank no change in the register could properly take place without its concurrence.  The difference in the need of the parties for protection against the registration of dealings is thus quite clear.

98                                          At 552 his Honour observed, concerning the nature of a caveat:

Its purpose is to act as an injunction to the Registrar-General to prevent registration of dealings with the land until notice has been given to the caveator.  This enables the caveator to pursue such remedies as he may have against the person lodging the dealing for registration.  The purpose of the caveat is not to give notice to the world or to persons who may consider dealing with the registered proprietor of the caveator’s estate or interest though if noted on the certificate of title, it may operate to give such notice.

99                                          In Osmanoksi v Rose [1974] VR 523, Gowans J considered that the caveat system in force in Victoria differed from that in New South Wales, with which the High Court was concerned in Just.  After referring to various sections of the Act his Honour observed at 528:

In my view, the presence of these provisions distinguishes the situation dealt with in the New South Wales cases that have been cited.  In my opinion, where these and other provisions are taken into account, it cannot be said that the purpose of the caveat system under the Victorian Act is solely to provide protection for the person lodging the caveat by providing for an injunction against the Registrar until notice is given.  That may be one of the purposes, but it is not the sole purpose.  And it is not the effect of the system.  The lodging of a caveat under the Victorian Act operates, whether a “cloud” or a “blot” or by whatever name it is called, as an obstacle to a registered proprietor making title to a purchaser and to a purchaser obtaining title from the registered proprietor. 

100                                       His Honour then continued:

In the present case there are four relevant circumstances operating as between the parties:  (1) that the possessors of the prior equity did not lodge a caveat, notwithstanding the fact that the vendors retained the certificate of title;  (2) if they had done so it would have resulted under s.89(2) of the Act in a memorandum of the caveat being entered on the certificate of title and in its preventing a dealing by the vendors, as registered proprietors, being registered until the memorandum of the caveat had been cancelled or the caveat had expired;  (3) a search was made for a caveat by the possessors of the subsequent equity before they acquired their interest; and (4), they were induced to acquire their interest and pay the balance of their purchase moneys by the absence of any caveat affecting the certificate of title.

101                                       The Appeal Division of the Supreme Court of Victoria has doubted the correctness of the decision in Osmanoksi v Rose.  See Jacobs v Platt Nominees Pty Ltd [1990] VR 146 at 151.  However the Court there observed:

But it is only necessary to say at this point that Just’s Case does not exclude the possibility that mere failure to lodge a caveat may suffice providing all other relevant circumstances are considered.

102                                       I turn to the way in which the primary Judge dealt with the question of conflicting priorities.  It is curious that the pleadings seem to say nothing about the issue.  However it is clear that it was raised and considered.  As I have said his Honour concluded that the effect of s 42(2)(e) was to give absolute priority to the interests of a tenant in possession so that any consideration of conflicting equities was irrelevant.  We have rejected that view. 

103                                       On the question of conflicting equities, Perpetual focusses primarily upon the failure to caveat.  However that conduct must be seen in light of the fact that the various retirees supplied MFLPH with the indicia of title and memoranda of transfer necessary to put itself in the position of registered proprietor and to charge the land in favour of Perpetual.  There can be little doubt that Perpetual made advances in the expectation that it would receive the benefit of those charges.  The actual events have not been canvassed in detail, transaction by transaction, as would be necessary in order to deal properly with this matter.  I suspect that, in the context of a class action, necessarily different cases have been treated in a generic way.  Whilst it may be true, as Moore and Stone JJ suggest, that Perpetual has not fully developed the arguments available to it concerning conflicting equities, there is a real risk that this context has caused the proceedings to miscarry.  In my view reliance on failure to caveat inevitably raises for consideration the retirees’ conduct in equipping MFLPH with their indicia of title and memoranda of transfer.  The points are inextricably connected.

104                                       Below, I set out the various factors taken into account by the primary Judge in considering the competing equities.  After each factor I insert my comments.

(i)         (T)he earlier equitable interest in the property of the retirees I have generally regarded as a stronger claim than the later interest of Perpetual … .

105                                       As can be seen from the above authorities, that proposition will be true only where the equities are equal.  As I have said, if one equity holder takes with notice of a pre-existing equity, he or she will generally take subject to it.  The present case seems not to have been conducted on the basis that Perpetual took with notice, or at least his Honour seems not to have proceeded on that basis. 

(ii)        (F)airness and justice does not require or indicate the earlier equitable interest of the retirees should be postponed …. .

106                                       This is a conclusion rather than a reason for reaching a conclusion.

(iii)       (A)ny lack of notice by Perpetual is only one aspect of the circumstances I have taken into account, which does not displace the earlier interest of the retirees;

107                                       This seems to mean that any lack of notice to Perpetual of the existence of the retirees’ interests is only one aspect of the circumstances to be taken into account.  The proposition may be correct, but it offers no basis for concluding that one equity should be preferred to another.  As I have observed above, if Perpetual had such notice, it would have taken subject to the relevant retiree’s equity, and no question of competing equities would have arisen.

(iv)       (P)erpetual knew by itself, or its agents, that the properties were occupied, or at the very least expected that the properties would be tenanted, even if Perpetual did not know the exact terms of the Contract of Sale or Agreement for Sale of Real Estate or of the lease.  If I am wrong in this regard as to knowledge or expectation, this would still not alter my view as to the competing position.

108                                       It is important to note that this is a reference to knowledge of which somebody was, or might be in possession, not knowledge of the nature of that person’s right to possession.  Thus his Honour was not considering the position of a party taking with knowledge of a prior equity.  Rather, the suggestion is that Perpetual, if it knew, or ought to have known that the retirees were in possession, ought to have inquired as to the basis of such possession.  I am not sure of the meaning of the last sentence in the above extract from the judgment at first instance.  In my view the only factor (other than temporal priority) militating in favour of the retirees’ equities having priority is the assertion that Perpetual knew that the premises were, or might be occupied.  If neither proposition is proven, then I would have thought that the retirees’ position was, at the least, seriously undermined.  His Honour’s apparent ambivalence about the issue seems to suggest that the state of Perpetual’s knowledge was unclear.  The question is not referred to elsewhere in the reasons.  However the primary Judge may have been referring to a passage in the evidence to which we were referred by counsel for the retirees as follows:

And I take it you make no inquiry of whether the property that’s sought to be purchased with the loan funds, if there is a property to be purchased with the loan funds, is tenanted or not?--- No. 

No.  In fact you accept that it may be tenanted at that point in time?  It could be tenanted?--- Yes.

Yes, it could be and you accept the risk that it could be tenanted?--- Yes.

109                                       This evidence, taken in isolation, is a little difficult to evaluate.  However there appears to have been other evidence pointing towards Perpetual’s solicitors, Galilee and Associates, having had access to the contracts of sale, or some of them.  The solicitors appear to have obtained copies of some of the relevant documents on or about 15 November 2004.  However the consequences of this fact seem not to have been identified or evaluated in the reasons for judgment.  It is not clear to me that the learned primary Judge made any findings as to Perpetual’s state of knowledge save that it knew, by itself or its agents, that the properties were occupied “or at the very least expected the properties to be tenanted” and, as appears below, that it had “constructive notice of the retirees’ rights”.  His Honour does not decide whether Perpetual had actual knowledge or was to be taken to have the knowledge of its “agents”.  The words “even if Perpetual did not know the exact terms of the Contract of Sale or Agreement for Sale of Real Estate or of the lease” suggest that the only finding is that Perpetual knew that somebody was, or might be, in possession, presumably at some time prior to the grant of each of the relevant mortgages.

110                                       Much depends upon whether Perpetual knew, or ought to have known that the respective retirees were to remain in possession of the premises after settlement (as opposed to their being in possession prior to settlement).  The distinction between possession by an owner who has agreed to sell, and possession by a third party may also be important.  Whilst there is substantial authority for the proposition that knowledge that a tenant is in possession may fix a purchaser with knowledge of the terms of the tenancy, that proposition says nothing about the possession of a vendor under an uncompleted contract of sale.  See Williams & Glyn’s Bank Ltd v Boland [1981] AC 487 at 504-5.  The distinction reflects common sense.  Whilst occupation by somebody other than the owner may suggest a tenancy, presence of the owner suggests occupation pending completion of the contract of sale, which almost invariably provides for vacant possession on completion.  I am unable to discern from the reasons for judgment the factual basis upon which it was asserted that Perpetual had any relevant knowledge as to occupation or the extent of that knowledge.  In its submissions in reply on appeal Perpetual refers to AB 1905 at para 8(h) and the evidence of Mr Wingate at AB 2784-2786, paras 28 and 29.  Whether this evidence was challenged or accepted, and how it may have inter-related with other evidence in the case is not clear.  However it suggests due inquiry and limited information.

(v)        (T)he retirees were in fact in possession of the property which I regard as significant, although not “decisive” … .

111                                       For reasons which I have given, the significance of this factor may depend upon whether Perpetual knew that anybody was in possession, and whether or not it knew that the persons in possession were the vendors.

(vi)       (P)erpetual had constructive notice of the retirees’ rights and it took its interest subject to them, and this occurs even if the tenant is in possession pursuant to additional entitlements … .

112                                       I am not sure why it is said that Perpetual had constructive notice of the retirees’ right or as to the meaning to be attributed to that expression.

(vii)      (P)erpetual in failing to investigate the interest of the retirees did so at its “peril”.

113                                       Such a general proposition cannot be used as a basis for assessing conduct for the purpose of determining respective equities.  It may be that the circumstances of a particular case would justify that view, but it is not clear to me that it is so in this case.

(viii)     (W)hilst the retirees did not lodge timely caveats, the failure of the retirees to lodge a caveat is explicable.  They were in fact still registered proprietors.  In any event “the exception in s 42(2)(e) makes the failure to lodge a caveat of no moment, because it takes away from the registered proprietor the paramountcy which actual registration confers; and the only purpose of a caveat is to prevent such registration.

114                                       This proposition begs the question in two respects.  First, it depends upon his Honour’s view (which we have rejected) that s 42 confers absolute priority on the interests of lessees in possession. That the primary Judge was considering the question of conflicting equities was the result of his acceptance of the possibility that he was wrong on that point.  Secondly, the proposition fails to deal with the fact that as registered proprietors, the retirees passed the indicia of title and memoranda of transfer to MFLPH without protecting themselves against their misuse.  Even if a failure to caveat, by itself, could not be a basis for preferring Perpetual’s interests to those of the retirees (a proposition which appears to be inconsistent with the observation concerning Just in Platt Nominees at 151), that is not the present position, given that the retirees had armed MFLPH with their indicia of title and memoranda of transfer. 

(ix)       (F)urther, I do not regard the failure to lodge a timely caveat as sufficient to postpone the retirees’ interests, particularly as there was no evidence that Perpetual relied on the registration or absence of caveat … .

115                                       If the failure to caveat is taken in isolation, the comment may be valid.  However it does not deal with the consequences of arming MFLPH with the indicia of title and memoranda of transfer.  It must be at least arguable that Perpetual dealt with MFLPH upon the basis that the latter was entitled to be registered as proprietor.

(x)        (N)o retiree consented to or ratified the mortgage to Perpetual.

116                                       Had there been a consent or ratification, it may have amounted to conduct which led to Perpetual’s equity being preferred to that of the relevant retiree.  The absence of such consent or ratification says nothing.

117                                       In my view, determination of the respective priorities of the interests of the retirees and those of Perpetual necessitated clear findings of fact justified by reference to the evidence.  With all respect, the findings appear to be at best ambiguous.  More important is the failure to address the real issue in this aspect of the case – namely the effect of the retirees’ conduct in arming MFLPH with indicia of title and memoranda of transfer.  Had the retirees established that Perpetual took with notice, it would not have been necessary to consider the respective merits of the competing equities.  However the case seems not to have been decided on the basis that Perpetual took with notice, but rather upon comparison of the merits.  In my view the primary Judge failed to address the true significance of the retirees’ failure to caveat.

118                                       Given that if the equities are equal, the first in time will prevail, Perpetual bore the burden of establishing that its interests should have priority.  However I am unable to determine from the facts, as they are presently before the Court, how the question of priority should be resolved.  It is difficult to identify the facts which were raised and relied upon by the parties as being relevant to its resolution.  However my views concerning the learned primary Judge’s conclusions lead me to conclude that he erred.  The appeal should be allowed and the relevant orders set aside, the matter being remitted for further consideration, limited to the question of priority.  However, as I am in dissent, the actual orders which I favour are of no importance.  In all other respects I agree with the reasons of Moore and Stone JJ and with their conclusions.

Associate:

Dated:  21 July 2010