Priorities(LAWS2385)

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This article is a topic within the subject Equity and Trusts.

Contents

Required Reading

M.W. Bryan & V.J. Vann, Equity and Trusts in Australia (Cambridge University Press, 2012), pp. Textbook Chapter 8 (from 8.8)).

Dearle v Hall (1828) 38 ER 475

Moffett v Dillon [1999] 2 VR 480 ([22]-[49])

Personal Property Securities Act (extracts on Moodle).

Priority disputes and the doctrine of notice

[1]Duality of property ownership (legal and equitable) can produce disputes as to entitlement over property. The enforceability of equitable interests in property under general law depends on the doctrine of notice:

Equitable interests in or over property are binding on all persons except good faith purchasers for value of the legal estate in the property without notice of the equitable interest.

  • Therefore the equitable interest will prevail over a squatter on land or a donee of property (a person who has received it as a gift).
  • If consideration is valuable it is irrelevant that consideration is inadequate.
  • The purchaser bears onus of showing that they are not affected by the equitable interest.
  • The ‘good faith purchase’ defence destroys the equitable interest; it cannot be revived even against a subsequent purchaser who has notice of the equitable interest.
  • Notice can be actual, constructive or imputed.

Registration

Land is governed by registration, not by the doctrine of notice. Indefeasibility of title means the register is the definitive record of all land interests, and thus, the registered proprietor is immune to claims contrary to the register unless one of the so-called ‘exceptions’ to indefeasibility applies.

  • The idea of Torrens Title was to create a 'register' which reflected all current proprietary rights on a piece of land.
  • The register, which is run by the state, 'guaranteed' its own accuracy, and thus put an end to the need to investigate the chain of title.
  • Because the state guarantees the registered proprietor's title, he has indefeasible title, thus creating the 'principle of indefeasibility’.
  • A beneficiary under an express trust of land will be unable to enforce the trust against a later registered proprietor of the land unless that proprietor was party to fraud committed by the trustee or where the trust is protected by entry on the register.
  • Legislation provides a procedure for depositing declarations of trust with the Registrar for safekeeping but trusts of land are more commonly protected by entry of a caveat on the certificate of title.
  • The Personal Property Securities Act 2009 (Cth) creates a statutory system for enforcing security interests in personal property.
  • Where an interest is required to be registered in order to be enforceable against third parties, priority is generally determined by date of registration rather than the doctrine of notice.

Equities and equitable interests

[2]If a transfer of property is voidable in equity, the party entitled to set aside the transaction has an ‘equity’ to have the transaction rescinded and the property returned (sometimes described as a mere or personal equity).

  • The plaintiff must elect to have the transaction rescinded, if this is not done within a reasonable time after transferring the property, they will be held to have affirmed the disposition.
  • Once election to rescind is made, the defendant holds the property received (or its traceable proceeds) on constructive trust for the plaintiff, subject to the application of the equitable bars to relief.
  • Before election, the plaintiff has an equity to have the property returned, after election they hold an equitable interest in the property under the constructive trust. Priority disputes can arise in respect of these rights as well.
  • Under Latec, the equitable interest prevails but the equity holder may still be entitled to an award of equitable compensation.

Latec Investments Ltd v Hotel Terrigal Pty Ltd[3]

Facts: A mortgagor of a hotel applied to have the sale of the hotel by the mortgagee set aside on the ground that the power of sale had been exercised fraudulently. Before the mortgagor elected to rescind, however, the purchaser of the hotel from the mortgagee created an equitable charge over it in favour of a financier.
Issue: Does the mortgagor’s equity to rescind prevail over the later equitable charge?
Held: It was unanimously held that the equitable charge prevailed over the earlier equity. The usual rule in priority disputes is that the first equitable interest prevails unless there is a good reason for preferring the second. A different rule is applies when the right is an equity, rather than an equitable interest. Equities require the assistance of the court to be enforced and are therefore considered weaker than an equitable interest.


End

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References

Textbook refers to M.W. Bryan & V.J. Vann, Equity and Trusts in Australia (Cambridge University Press, 2012).

  1. Textbook, pp 126-7.
  2. Textbook, pp 127-9.
  3. (1965) 113 CLR 265.
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