Re Kimberley NZI Finance Ltd v AR Barr Investments Pty Ltd; Aaron Ronald Barr; R & Y Crofts & Staff (A Firm); Roderick John Crofts and Trayda Pty Ltd [1990] FCA 54 (2 March 1990)

FEDERAL COURT OF AUSTRALIA

Re: KIMBERLEY N.Z.I. FINANCE LTD
And: A.R. BARR INVESTMENTS PTY LTD; AARON RONALD BARR;
R. & Y. CROFTS & STAFF (A FIRM); RODERICK JOHN CROFTS and
TRAYDA PTY LTD
No. WA G94 of 1985
FED No. 61
Equity - Vendor and Purchaser - Torrens System - Liens

COURT

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
French J.(1)

CATCHWORDS

Equity - equitable charges and liens - right of purchaser paying deposit for land - payment to stakeholder - release to vendor - purchaser's lien - default by vendor - Torrens system land - registered mortgage - right of purchaser as against mortgagee - prior notice by mortgagee - whether fraud - caveat protecting lien - effect of - mortgagee paying money into court to lift caveat - entitlement to moneys in court.

Vendor and Purchaser - deposit - payment to stakeholder - later released to vendor - purchaser's lien - breach by vendor - rescission of contract - rights of purchaser against registered mortgagee exercising power of sale - caveat.

Torrens System - equitable estates and interest - purchaser's lien - registered mortgage - caveat - effect of - indefeasibility - notice - fraud - prior notice of unregistered equitable lien.

Liens - equitable lien - sale of land - payment of deposit - purchaser's lien - origin and general principles - rights against registered mortgagee.

Transfer of Land Act 1893

Mackreth v Symmons (1808) 15 Ves Jun 336

Shaw v Foster (1872) LRHL 321

Lysaght v Edwards (1876) 2 Ch D 499

Burgess v Wheate 1 Blacks 123

Wythes v Lee (1855) 3 Drewry 396

Rose v Watson [1864] EngR 300; (1864) 10 HLC 672; 11 ER 1187

Whitbread & Co. Ltd v Watt (1902) 1 Ch 835

Rodger v Harrison (1893) 1 QB 161

Whitbread & Co. Ltd v Watt (1901) 1 Ch 911

Frankcombe v Foster Investments Pty Ltd (1978) 2 NSWLR 41

Hewett v Court [1983] HCA 7; (1983) 149 CLR 639

Combe v Swaythling (1947) 1 Ch 625

Ex parte Lord (1985) 2 Qd R 198

Re Gray (1949) 15 ABC 49

Beeby v Official Assignee (1953) NZLR 832

Re Murrell [1984] FCA 314; (1984) 57 ALR 85

Mills v Stokman [1967] HCA 15; (1967) 116 CLR 61

Regent Insurance Limited v Murden (1964) NSWR 109

Bahr v Nicolay (No. 2) [1988] HCA 16; (1988) 164 CLR 604

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

Kerabee Park Pty Ltd v Daley (1978) 2 NSWLR 222

Barry v Heider [1914] HCA 79; (1914) 19 CLR 197

Groongal Pastoral Co. Ltd (In Liquidation) v Falkiner [1924] HCA 54; (1924) 35 CLR 157

Frazer v Walker (1967) 1 AC 569

Logue v Shoalhaven Shire Council (1979) 1 NSWLR 537

Story - Commentaries on Equity Jurisprudence (1884) para.1222

Sykes on Securities 4th Edition

Francis - Torrens Title in Australasia Vol. 1

HEARING

PERTH
2:3:1990

Counsel for the Appplicant: Mr B. Wheatley

Solicitors for the Applicant: Corser & Corser

Counsel for the Respondent: Mr N.P. Hasluck QC

Solicitors for the Respondent: Grant Milner & Associates

ORDER

The cross-claim by A.R. Barr Investments Pty Ltd and Aaron Ronald Barr against Kimberley N.Z.I. Finance Limited be dismissed.

The cross-claimants to pay the cross-respondents costs of the cross-claim to be taxed.

It is hereby declared that Kimberley N.Z.I. Finance Ltd is entitled to the following moneys paid into the Supreme Court in Action No. 1814 of 1986:
(1) $18,000 paid pursuant to the order of Franklyn J.

made 27 August 1986;
(2) $18,000 paid pursuant to the order of Rowland J.
made 22 October 1986;
(3) $9,000 paid pursuant to the order of Master Seaman
QC made 18 December 1986;
(4) $9,000 paid pursuant to the order of Master Staples
made 20 January 1987
and that the said Kimberley N.Z.I. Finance Ltd is also
entitled to any interest accrued on the said moneys
since they were paid pursuant to the above orders.

Liberty to the parties to apply within 14 days for consequential orders.

NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules

DECISION

Introduction
Between August 1986 and January 1987 Kimberley NZI Finance Ltd ("Kimberley") paid into the Supreme Court of Western Australia a total of $54,000. Kimberley was the registered mortgagee of land in Maylands on which there stood a ten unit residential development. The mortgagor was a company called Trayda Pty Ltd ("Trayda"). Following Trayda's default Kimberley, in the exercise of its power of sale sold the units over a period of some months. In respect of six of the units it was required to pay into court a sum equal to the deposit paid on them to Trayda by a purchaser A.R. Barr Investments Pty Ltd ("ARBI") which had subsequently rescinded the contracts as a result of Trayda's non-performance. In the substantive proceedings in which judgment was given on 1 September 1989, Kimberley unsuccessfully sued ARBI in respect of alleged misleading or deceptive conduct concerning the nature of its contracts with Trayda. In this cross-claim, brought subsequently by leave, ARBI seeks to establish as against Kimberley its entitlement to the moneys paid into the Supreme Court.
Factual Background

2. The principal proceedings arose out of the advance of some $820,000 by Kimberley to Trayda to finance the acquisition of land at Lot 105 Kirkham Hill Terrace, Maylands and the construction of ten home units on that land. In making the advance which was secured by a registered mortgage Kimberley relied upon representations that the proposed units had been pre-sold at prices well in excess of their likely market value. When the ultimate end purchasers did not complete, Kimberley had to exercise its mortgagee's power of sale over the units and suffered a loss, including interest of $422,044.

3. Subsequently it sued the prospective purchaser of six of the units ARBI and its principal Mr A.R. Barr, together with R. & Y. Crofts & Staff, the firm of real estate agents acting for the developer of the units which was initially a company called Ermay Pty Ltd ("Ermay") and later Trayda. ARBI had initially signed 6 contracts with Ermay on 29 February 1984. On or about 22 June it signed 6 fresh contracts dated 20 June with Trayda which replaced those entered into with Ermay. ARBI and Barr were sued for misleading or deceptive conduct, fraud and negligence for representing that the price which ARBI had agreed to pay Ermay and later Trayda, was $90,000 for each unit. In truth the relevant contracts were each subject to a discount of $15,000 recorded in letters which were not disclosed to Kimberley.

4. In the event the application was dismissed as against ARBI and Barr, but judgment was given in favour of Kimberley against R. & Y. Crofts & Staff and Crofts in the amount of $422,044 inclusive of pre-judgment interest. As between ARBI and Trayda a declaration was made on ARBI's cross-claim that on 31 July 1985 it had rescinded the 6 contracts dated 20 June 1984 between itself and Trayda for the purchase of the six units.

5. As appears from the findings on the principal judgment, ARBI had paid to R. & Y. Crofts & Staff under the Ermay contract a total of $54,000 representing a deposit of $9,000 on each of the units. The payments were $600 on 7 March 1984, $26,400 on or about 20 March and $27,000 on 19 April. In each case it was a term of the contracts that:

"The Vendor and the Purchaser agree that the deposit
money be released to the Vendor less the agent's
fee once deposit moneys have been received."

This special condition written into the contracts had to be read in conjunction with cl.2 of the Real Estate Institute of Western Australia (Inc.) General Conditions for the Sale of Land (1982 Revision) which provided:

"The deposit payable pursuant to the Contract shall
be paid by the Purchaser in accordance with the
Contract to the Vendor's agent as stakeholder who
shall forthwith pay the same into his trust account
and such deposit shall not be withdrawn except for
the purpose of completing the purchase or otherwise
in accordance with these conditions and if
withdrawn for the purpose of completing the
purchase shall be applied in payment of expenses,
selling fee and other authorised charges of and
incidental to the sale. If the deposit is placed
in an interest bearing account, any interest earned
thereon shall be credited to the Purchaser..."

Of the total sum of $54,000 paid by ARBI, $37,100 was released by Crofts to Trayda at Kimberley's insistence and used to make progress payments to the builder between 14 August 1984 and January 1985. The balance representing the agent's commission was retained by R. & Y. Crofts & Staff. That sum was paid into this Court on 20 November 1986 pursuant to an order of Toohey J. made on 7 November 1986. By the terms of the judgment in the principal proceedings it was ordered that it be paid out to ARBI, having grown with interest to a total of $24,802.01.

6. It was further held in the principal judgment that the contracts between ARBI and Trayda being rescinded by reason of Trayda's failure to complete, ARBI was entitled pursuant to cl.13.2(ii) of the General Conditions for the Sale of Land (1982 Revision) which governed the contracts, to the return of the balance of the deposit, that is to say the sum of $37,100. Trayda being an empty shell that judgment was unlikely to bring forth any fruit. The real question that remained to be determined after the principal judgment was whether or not ARBI was entitled to recover the balance of its deposit out of moneys paid into the Supreme Court by Kimberley as a condition of the lifting of a caveat lodged by ARBI to allow the sale under Kimberley's mortgage of the six units at Lot 105 Kirkham Hill Terrace which were the subject of the ARBI contracts.

7. Kimberley's mortgage had been registered on 22 August 1984. On 24 August, Mr Brian Spurge of Soobry Settlements acting for ARBI lodged a caveat on the land to protect ARBI's interests under the Trayda contract relating to unit 3. That caveat however asserted an interest in fee simple as purchaser. On 16 April 1986 a dummy mortgage was lodged by Kimberley at the Titles Office to activate the statutory processes under the Transfer of Land Act whereby a notice would issue to ARBI requiring steps to be taken within fourteen days to justify the continuance of the caveat. On 22 May 1986 a fourteen day notice issued accordingly and on 5 June ARBI applied to the Supreme Court for an order restraining the Registrar of Titles from removing the caveat. On 6 June Olney J. enjoined the registration of the dummy mortgage until the matter could be fully argued. The case came on on 25 June before Rowland J. and on 8 July his Honour discharged the injunction. In doing so he said:

"The plaintiff (ARBI) has a strong argument on the
facts to support its claim to an interest in the
land. That interest is capable of supporting the
registration of a caveat. The plaintiff has not as
yet lodged a caveat for that purpose. It seems to
me that it would be contrary to principle to
restrain dealings under the Transfer of Land Act to
support a prior interest in land not supported by a
caveat which discloses that interest in the way
contemplated by the Act. To allow the present
caveat to remain would be to allow an encumbrance
to be notified which is positively misleading and
does not disclose the interest claimed or the land
specifically, the subject of that interest."

In the meantime on 2 July 1986, ARBI lodged a fresh caveat over the strata titles to units 3 to 8 inclusive protecting an interest described in the caveat as "...purchaser's lien for the portion of the land being units 3-8 on Strata Plan 12893...". On 11 July 1986 Kimberley took out an originating summons seeking an order for the removal of the new caveat. On 27 August 1986 Franklyn J. ordered the removal of the caveat as against units 7 and 8 subject to payment into court of $9,000 in respect of each. The terms of the order were as follows:

"1. Caveat number D277454 lodged against Portion
of Swan Location 2039 and being Lots 7 and 8
on Strata Plan 12893 and being the whole of
the land comprised in Certificate of Title
Volume 1725 Folio 928 and 929 respectively
("Units 7 and 8") be removed forthwith by the
Second Defendant (the Registrar of Titles)
upon service of this Order upon him.
2. The Plaintiff pay the sum of $9,000.00 in
respect of each of Lots 7 and 8 into the
Supreme Court of Western Australia in this
action to remain there until further order
with liberty to apply for release of the fund
to an interest-bearing account to abide an
order under paragraph 5 hereof.
3. The extraction of this Order be conditional
upon the Plaintiff paying the said sum of
$18,000 into Court.
4. The First Defendant do file an application
within 48 hours to amend its Statement of
Defence and Cross Claim in Federal Court
action WAG 94 of 1985 in the terms of or
substantially in accordance with the terms of
the Minute of Proposed Amendment in the
Schedule hereto.
5. Unless otherwise ordered that the sum of
$18,000.00 be paid into Court by the Plaintiff
whether held in Court or in an interest
bearing acount pursuant to paragraph 2 hereof
and the interest moneys if any produced
thereby (subject to the rights of appeal) be
paid out as the Federal Court in such action
shall direct following its decisions in the
aforesaid action, or as the parties shall
otherwise agree.
6. There be general liberty to apply.
7. The costs of these proceedings abide and
follow the result of the issue in Federal
Court proceedings no. WAG 94 of 1985 as to the
First Defendant's right to repayment of the
said sum of $18,000.00."

A similar order was made by Rowland J. on 22 October 1986 in respect of units 3 and 5, by Master Seaman QC on 18 December 1986 in respect of unit 4 and by Master Staples on 20 January 1987 in respect of unit 6. And it was under these orders that Kimberley paid a total of $54,000 into the Supreme Court.

8. The amendment to the ARBI cross-claim effected pursuant to para.4 of the order of Franklyn J. was by way of an additional claim for relief in the following terms:

"... A declaration that the First Respondent is
entitled to maintain a Purchaser's lien against the
said land in respect of the sum of $54,000.00 or
Purchaser's lien in the sum of $9,000.00 each in
respect of each of the contracts of sale entered
into by it with Trayda paid to Trayda by way of
deposit pursuant to the Trayda contracts such lien
being an interest in the said land sufficient to
support caveat D277454."

As was pointed out in the principal judgment, this cross-claim faced the fundamental problem that the land in question had been sold. No lien now exists in respect of it. However ARBI's claim to the moneys paid into the Supreme Court was not developed in argument at the trial and liberty was allowed to the parties to apply for further orders in relation to the deposit moneys. When the matter came on pursuant to that liberty on 25 October 1989, ARBI and Barr were given leave to institute a cross-claim against Kimberley in terms of a minute then filed. Kimberley was directed to file and serve its defence on or before 1 November. No further evidence was required and the cross-claim was argued on 23 November.
The Pleadings

9. In the new cross-claim ARBI and Barr repeated their defences and added the factual allegation that the sum of $37,100 was paid to Trayda out of a total deposit of $54,000 at the request and with the knowledge of Kimberley to help finance the construction of the units. Kimberley's exercise of its power of sale as mortgagee was pleaded, as was the contention that Kimberley owed fiduciary duties to ARBI in respect of the $37,100 to ensure that it was available to meet ARBI's lien against the land as purchaser in the event that its contracts for the purchase of the units were rescinded. The payment into Court by Kimberley was pleaded followed by the assertion, in para.27(d), that:

"(d) The First Respondent has an interest in the
said fund under and by virtue of a
constructive trust or, alternatively, is
entitled to trace into the said fund to the
value of $37,100 together with interest
thereon."

The relief sought was a declaration that ARBI had an interest in the fund to the value of $37,100 and an order for payment out of that amount together with interest or such other amount as the Court shall determine.

10. By its defence Kimberley denied that the sum of $37,100 was paid to Trayda at its request and pleaded the condition of the Ermay and Trayda contracts whereby ARBI agreed that the deposit moneys once received could be released to the vendor less the agent's fees. The registration of Kimberley's mortgage on 22 August 1984 was pleaded, as was the lodgement of ARBI's caveat on 24 August claiming an estate in fee simple as purchaser, its lapse on 8 July 1986 under an order of Rowland J. and the lodgement of a further caveat on 2 July 1986 claiming an interest by way of purchaser's lien. Kimberley pleaded further:

1. The amount of $54,000 which it paid into the
Supreme Court represented part of the proceeds
of sale of the units and did not represent a
profit, benefit or advantage to Kimberley
which in the event suffered a loss of
$422,044. Kimberley claimed in any event that
it was entitled to $16,900 plus accrued
interest representing the agent's commission
recovered by ARBI under the principal
judgment. The balance sum of $37,100 paid by
ARBI represented a loss caused by its entry
into the contract and was not the result of
Kimberley's conduct.
2. The claimed fiduciary duties were denied.
3. The sum paid into the Supreme Court by
Kimberley should not, it was said, be paid out
until the disposition of an appeal by
Kimberley against the dismissal of its claim.
This plea has become academic as the appeal
which was instituted has now been withdrawn.
4. The equitable interest asserted by ARBI under
a constructive trust was denied, it being
contended that Kimberley's interest was prior
to any interest of ARBI.

11. The primary submission put on behalf of ARBI was that as a simple matter of construction of the orders made in the Supreme Court the moneys paid in are in trust to abide the outcome of the proceedings and the Federal Court is at liberty to deal with them according to the outcome of the case as though they were the deposit moneys. Alternatively it was put that Kimberley, having exercised its power of sale under the mortgage, stands in Trayda's place and is a party which took with notice of and is bound by the purchaser's lien. As a matter of equitable principle it is said ARBI is entitled to trace into the funds held in the Supreme Court.

12. Kimberley submitted in reply that it is entitled to so much of the money as represents the agent's commission recovered by ARBI. It also contended that it is entitled to the taxed costs of the original Supreme Court proceedings relating to the caveat, which remain unpaid. Mere notice of a competing claim did not give rise to a constructive trust or a right to trace where to do so would be to defeat the terms of the registered mortgage.
The Purchaser's Lien

13. It has been settled doctrine for more than 300 years that upon the formation of a valid contract of sale, the vendor becomes in equity a trustee for the purchaser of the estate sold but retains a charge or lien on the estate as security for the unpaid balance of the purchase price - Mackreth v Symmons (1808) 15 Ves Jun 336 at p 337 (Lord Eldon)[1808] EngR 393; , 33 ER 778; Shaw v Foster (1872) LRHL 321 at pp 333, 338, 349 and 356; Lysaght v Edwards (1876) 2 Ch D 499 at p 506 (Jessel M.R.). The concept of the vendor's lien so called has its origin in Roman law - Mackreth v Symmons (supra) at p 344. Story - Commentaries on Equity Jurisprudence (1884) para.1222 noted that by Roman law the vendor of property had a privilege or right of priority of payment in the nature of a lien on the property for the price for which it was sold not only against the purchaser but also against his creditors and subsequent purchasers:

"This close analogy, if not this absolute identity,
of the English doctrine of the lien of the vendor
with that of the Roman law of privilege on the same
subject, seems to demonstrate a common origin..."

14. The existence of an equitable lien in favour of a purchaser was foreshadowed by Sir Thomas Clarke M.R. in Burgess v Wheate 1 Blacks 123 as a corollary of the vendor's lien. That judgment, its apparent approval by Lord Eldon in Mackreth v Symmons and considerations of "natural justice" and "general law and principle" led Kindersley V.C. to conclude in Wythes v Lee (1855) 3 Drewry 396 at 403 [1855] EngR 924; (61 ER 954):

"when a contract is made, and then goes off, ... in
principle and justice, the equity of the purchaser
to a lien on the estate ought to stand on as good a
footing as the lien of the vendor after
conveyance."

Conceived in Burgess v Wheate (supra) and quickened in Wythes v Lee (supra) the infant equity was delivered to full life by the House of Lords in Rose v Watson [1864] EngR 300; (1864) 10 HLC 672; 11 ER 1187. Despite "elaborate arguments" mounted against it by the Attorney-General, Sir Roundell Palmer, their Lordships were not moved to call upon his opponents. Lord Westbury L.C. saw the part payment of the purchase price as conferring in equity ownership of a corresponding proportion of the estate and the lien so arising, as a species of "partial ownership". Lord Cranworth at p 683 (ER p 1192) agreed and said:

"There can be no doubt, I apprehend, that when a
purchaser has paid his purchase-money, though he
has got no conveyance, the vendor becomes a trustee
for him of the legal estate, and he is, in equity,
considered as the owner of the estate. When,
instead of paying the whole of the purchase-money,
he pays a part of it, it would seem to follow, as a
necessary corollary, that, to the extent to which
he has paid his purchase-money, to that extent the
vendor is a trustee for him; in other words, that
he acquires a lien, exactly in the same way as if
upon the payment of part of the purchase money the
vendor had executed a mortgage to him of the estate
to that extent."

Dismissing contentions that there was no authority for the proposition he "rejoiced" at the opportunity "to lay down a rule that may conclusively guide such questions in the future". The metaphors of "partial ownership" and "mortgage" generated by their Lordships' creative exuberance were later to be played down by the Court of Appeal which saw them as "merely verbal vehicles to carry the rights which justice demands that the purchaser should have" - Whitbread & Co. Ltd v Watt (1902) 1 Ch 835 at p 838 (Vaughan Williams L.J., Stirling L.J. agreeing).

15. Two other elements of significance in the judgment of Rose v Watson (supra) were the application of the lien to secure interest on moneys paid when the vendor failed to perform the contract (at p 686, ER p 1191) and its operation in any case where the contract, without any fault on the part of the purchaser, cannot be performed (P 679, ER P 1190). In a later decision of the Court of Appeal in Rodger v Harrison (1893) 1 QB 161, Kay L.J. suggested at p 173 that a purchaser is only entitled to a lien where the sale goes off by default by the vendor and then only from the moment that the default happens and when he can no longer obtain specific performance. But that dictum was firmly repudiated by Farwell J. at first instance in Whitbread & Co. Ltd v Watt (1901) 1 Ch 911 and his judgment given an unqualified endorsement in the Court of Appeal where it was described as "extremely clear" and "extremely forcible" (at p 839 per Vaughan Williams L.J.). Farwell L.J. said that on authority and in principle, the purchaser has a lien both when the contract goes off for want of title and when it is rescinded under a condition which enables the purchaser to rescind. On the dictum of Kay L.J. he observed (at p 916):

"With every respect to the Lord Justice, that is not
accurate. It is directly in the teeth of the
decision in Rose v Watson, in which the lien was
anterior to the default;..."

The position was put succinctly in the Court of Appeal by Cozens-Hardy L.J. (at p 840):

"I think the lien for the deposit exists so long as,
and in every case in which, the right to recover
the deposit has not been lost by reason of the
misconduct of the purchaser. In other words when
the contract goes off either by reason of the
default of the vendor, or without any default on
the part of the purchaser, the lien becomes
operative."

In Frankcombe v Foster Investments Pty Ltd (1978) 2 NSWLR 41 at p 57, Holland J. went further and suggested that it was at least arguable that if, after rescission by a vendor for default by the purchaser, the purchaser had a right in law to recover money paid on account of the purchase price then the purchaser would have a lien on the land for that money.

16. A recent and authoritative discussion of the topic in Australia is found in Hewett v Court [1983] HCA 7; (1983) 149 CLR 639, where the High Court gave consideration to the nature and operation of a purchaser's lien arising in connection with the construction of a pre-fabricated house. While the case turned in part on the question whether the contract was for work, labour and materials (as was held) or sale of goods, two general propositions relating to the equitable lien of a purchaser under a partly paid contract emerged:

1. The lien may be exercised if the sale has gone off
through no fault of the purchaser (at p 645 per
Gibbs C.J. and p 653 per Wilson and Dawson JJ.). The
proposition is not stated exhaustively however and
there is room, especially in the approach taken by
Deane J. at p 668, for the operation of the
principle even where a purchaser defaults - see
Frankcombe (supra).
2. The lien is available to a purchaser although the
contract is not specifically enforceable (at p 650
per Gibbs C.J., 651 per Murphy J., 654 per Wilson and
Dawson JJ. and 666-676 per Deane J.).

In his extensive analysis of the law relating to the purchaser's lien and equitable liens generally, Deane J. made the distinction, somewhat elided in Rose v Watson (supra), between the equitable lien and the equitable estate that passes in anticipation of the performance of a promise for valuable consideration to make a present transfer of property by way of sale or mortgage (at p 666):

"The maxim that equity regards as done that which
ought to be done combined with the availability of
specific performance of the contractual promise
provides a rational basis for the passing of the
equitable estate or interest in property in
anticipation of the performance of a promise to
assign it or, for that matter of the performance of
a promise to grant a charge over it....the
combination of that maxim and the availability of
specific performance of a promise to do something
other than grant an equitable lien does not provide
the basis for the implication of an equitable lien
which, as has been said, arises independently of
any express or implied promise to grant it."

17. Turning to the facts of the present case, no lien arose on the payment of the deposits under the Ermay contracts as they were paid to the agent as stakeholder under the General Conditions rather than to the vendor - Combe v Swaythling (1947) 1 Ch 625 at p 628. There was, under those contracts, no disposition of the deposits or appropriation to agent's commission. Upon the execution of the substitute contracts in June 1984 the agent retained the money as stakeholder until sometime after 14 August 1984 when $37,100 was released to Trayda to use in meeting progress payments on the building contract. That payment and the retention of a proportion of the deposit for agent's commission were consistent with the special condition inserted into each contract authorising their release, less agent's fee, to the vendor. No purchaser's lien existed prior to that time. I am satisfied however that a lien arose in respect of each contract when the money was paid over - Ex parte Lord (1985) 2 Qd R 198, at p 202 (Williams J.). Each such lien attached initially to the whole of the land to the extent of one sixth of $37,100, the liens together securing the whole amount. Upon the completion of the subdivision liens attached to each of the six lots, securing in each case $6,183. They could not be enforced until the contracts were rescinded but the equities came into being upon the release of the deposit moneys.

18. On this analysis the registration of the Kimberley mortgage antedated ARBI's equitable interests. The question to be decided is what, if any, entitlement it could assert against Kimberley in relation to the six lots and ultimately in relation to the proceeds of their sale. For completeness the possibility is also considered that the special condition had the effect that the agent received the deposits from the outset as agent for the vendor.
Liens v Mortgage

19. The provisions of Torrens title statutes apart, an equitable lien over land subject to a prior mortgage where the power of sale is exercised will attach to the surplus proceeds of sale after satisfaction of the mortgage debt and costs - Re Gray (1949) 15 ABC 49 at p 53 (Clyne J.); Beeby v Official Assignee (1953) NZLR 832 at p 839 (Hall J.); Re Murrell [1984] FCA 314; (1984) 57 ALR 85 at p 91 (Smithers J.). The relationship of the equitable lien to interests registered under the Torrens system is governed by the Torrens Title statute which, in Western Australia, is the Transfer of Land Act 1893. The paramountcy of registered interests in land under the Act is established by s.68 which provides in the relevant parts:

"68. Notwithstanding the existence in any other
person of any estate or interest whether derived by
grant from the Crown or otherwise which but for
this Act might be held to be paramount or to have
priority the proprietor of land or of any estate or
interest in land under the operation of this Act
shall except in case of fraud hold the same subject
to such encumbrances as may be notified on the
folium of the register book constituted by the
certificate of title; but absolutely free from all
other encumbrances whatsoever except the estate or
interest of a proprietor claiming the same land
under a prior registered certificate of title and
except as regards any portion of land that may by
wrong description of parcels or boundaries be
included in the certificate of title or instrument
evidencing the title of such proprietor not being a
purchaser for valuable consideration or deriving
from or through such a purchaser..."

This should be read with the indefeasibility provision s.134 which gives protection to the purchaser of registered interests in the following terms:

"134. Except in the case of fraud no person
contracting or dealing with or taking or proposing
to take a transfer or other instrument from a
person who is or becomes the proprietor of any
registered land lease mortgage or charge shall be
required or in any manner concerned to inquire or
ascertain the circumstances under or the
consideration for which such proprietor or any
previous proprietor thereof was or becomes
registered or required or in any manner concerned
to inquire or ascertain the circumstances under or
the consideration for which any mortgage or other
encumbrance was or is discharged or removed from
the register book at any time prior to or
simultaneously with the registration of such
transfer or other instrument or to see to the
application of any purchase or consideration money
or shall be affected by notice actual or
constructive of any trust or unregistered mortgage
any rule of law or equity to the contrary
notwithstanding; and the knowledge that any such
trust or unregistered interest is in existence
shall not of itself be imputed as fraud."

The statutory scheme is consistent with the existence of equitable liens over Torrens title land - Sykes on Securities 4th Edition at p 331. But as the learned author observes:

"...they are not protected by the doctrine of notice
and can derive protection only from the caveat
system."

The characterisation of the purchaser's lien as an interest in land capable of protection by caveat was recently acknowledged in Ex parte Lord (supra) at p 202 per Williams J.

20. The person who acquires an interest in land whether as mortgagee or otherwise knowing that its registration will defeat an existing unregistered interest is not guilty of any fraud for the purposes of s.134 - Mills v Stokman [1967] HCA 15; (1967) 116 CLR 61 at p 78 (Kitto J.), also 72-73 (Barwick C.J.; Taylor J. agreeing). And see Regent Insurance Limited v Murden (1964) NSWR 109 where, in striking out the defence filed by the holder of a vendor's lien against an action for enjectment by a registered mortgagee, Taylor J. said:

"I am prepared to assume that the mortgagee had
notice of the vendor's equitable lien before its
mortgage was registered, but this in my opinion
does not affect the matter. The vendor had not
protected his interest by caveat and the mortgagee
is entitled to ignore this unregistered equitable
interest."

The principle was recently reaffirmed in Bahr v Nicolay (No. 2) [1988] HCA 16; (1988) 164 CLR 604, where at 613 Mason C.J. and Dawson J. said:

"There is no fraud on the part of a registered
proprietor in merely acquiring title with notice of
an existing unregistered interest or in taking a
transfer with knowledge that its registration will
defeat such an interest."

A similar statement is found at p 630 in the joint judgment of Wilson and Toohey JJ.

21. The lodgment of a caveat, which is provided for in Part V of the Act, has the effect of a statutory injunction and prohibits the registrar for so long as the caveat remains in force from entering in the register any transfer or other dealing on the land - Francis - Torrens Title in Australasia Vol. 1 p 334. The caveat does not create any additional interest in the land - Butler v Fairclough [1917] HCA 9; (1917) 23 CLR 78 at p 84. It merely provides an opportunity for the caveator to establish the interest claimed before any further dealings adverse to it - Kerabee Park Pty Ltd v Daley (1978) 2 NSWLR 222 at p 228.

22. On the findings of fact already made the purchaser's liens in favour of ARBI came into existence after the Kimberley mortgage was registered. The mortgage represented a registered legal interest protected by ss.68 and 134 of the Act. ARBI was entitled under its liens to an interest in any surplus proceeds of the sale of the units by Kimberley but in the event there was no surplus. The orders made by the Supreme Court in relation to the payments into that Court of the deposit equivalents by Kimberley were clearly intended to enable the mortgagee sales to proceed without any adverse impact on ARBI's interest. The orders did not involve the creation of any new interests. In my opinion thereefore, there being no surplus proceeds of the mortgagee's sales, ARBI has no right to any of the money paid into Court and the money should revert in its entirety to Kimberley.

23. Such is the effect of s.134 that even if ARBI's lien had come into existence prior to the registration of Kimberley's mortgage the position would not be affected. That is not to say that a proprietor of a registered interest in land may not be affected by personal obligations at law or equity. As Isaacs J. said of the Torrens title statutes in Barry v Heider [1914] HCA 79; (1914) 19 CLR 197 at p 213:

"They have long, and in every State, been regarded
as in the main conveyancing enactments, and as
giving greater certainty to titles of registered
proprietors, but not in any way destroying the
fundamental doctrines by which Courts of Equity
have enforced, as against registered proprietors,
conscientious obligations entered into by them."

And later at 216:

"The Land Transfer Act does not touch the form of
contracts. A proprietor may contract as he
pleases, and his obligation to fulfil the contract
will depend on ordinary principles and rules of law
and equity, except as expressly or by necessary
implication modified by the Act."

The preceding passages were cited with approval by the High Court in Groongal Pastoral Co. Ltd (In liquidation) v Falkiner [1924] HCA 54; (1924) 35 CLR 157 at p 163, see also Frazer v Walker (1967) 1 AC 569 at p 588; Logue v Shoalhaven Shire Council (1979) 1 NSWLR 537 at p 542. The principle was recently reaffirmed in Bahr v Nicolay (supra) at 613 where discussing the operations of ss.68 and 134 of the Transfer of Land Act, Mason C.J. and Dawson J. said:

"Neither the two sections nor the principle of
indefeasibility precludes a claim to an estate or
interest in land against the registered proprietor
arising out of the acts of the registered
proprietor himself: Breskvar v Wall ((1971) [1971] HCA 70; 126 CLR
376 at pp 384 - 385). Thus, an equity against a
registered proprietor arising out of a transaction
taking place after he became registered as
proprietor may be enforced against him: Barry v
Heider ((1914) [1914] HCA 79; 19 CLR 197). So also with an equity
arising from conduct of the registered proprietor
before registration (Logue v Shoalhaven Shire
Council), so long as the recognition and
enforcement of that equity involves no conflict
with ss.68 and 134. Provided that this
qualification is observed, the recognition and
enforcement of such an equity is consistent with
the principle of indefeasibility and the protection
which it gives to those who deal with the
registered proprietor on the faith of the register."

But even on the assumption that ARBI's equity as lien holder arose prior to the registration of the mortgage and that Kimberley had notice of it, it does not follow that the granting to Kimberley of the mortgage over the land and its subsequent registration involved any fraud within the meaning of s.134 or gave rise to any fiduciary obligation on the part of Kimberley to ARBI. It was after all, only by the mortgage of the land that Trayda could borrow the moneys necessary to acquire and develop it.

24. In the circumstances I am satisfied that even on the alternative basis that the liens arose before registration of the mortgage they could not prevail against it.
CONCLUSION

25. In the event the moneys paid into the Supreme Court by Kimberley in August, October and December 1986 and January 1987 must be paid out to Kimberley. It follows that ARBI has lost that part of the deposits which was paid over to Trayda. In that regard it joins Kimberley as a victim of Trayda's duplicity and incompetence and that of its agents.