Milenkovic v Belleli [2015] VSC 349

This case concerned competing equitable claims for residue funds paid into court from a mortgagee sale. The wife of the former owner claimed earlier equitable interests by way of trust as to one half of her husband’s interest and an interest by way of loan and charge in respect of the other half. The other competing claims were from the solicitors who had the benefit of a charge for unpaid legals and were the purchaser of property at a sheriff’s auction. The solicitor argued that the wife’s claimed interests were shams or if they were proved, should lose the priority they would otherwise have from being created earlier in time. The wife only lodged a caveat the day before the sheriff’s auction to satisfy the judgment for unpaid legals against the husband. The solicitors did not conduct a title search immediately prior to the auction.

The court did not believe either the wife or solicitor and found that neither disclosed their respective interests in the property. The court found that the wife did have a half interest in the property, by way of trust created prior to the charge or auction despite the fact that she did not disclose this interest. The court denied her second interest allegedly created by way of  loan and charge on the basis that the husband and wife did not intend this to be legally enforceable. The court also found that the husband gave the later charge which secured his solicitor’s fees.

The court noted that the mere failure of the holder of a prior equitable interest to lodge a caveat does not of itself mean they lose priority, even if the personal acquiring the later equitable interest searches the register before acquiring the interest. It is just one of the circumstances taken into account. Critically, the court took into account the wife did not know of the charge given by the husband, was not asked about any interest she had by the solicitors and was not present when the solicitors requested the charge and even if she failed to lodge a caveat to facilitate business borrowings, that was not sufficient to justify her losing priority to an interest that was not conventional business borrowing. The court also found that her untruthfulness now in relation to disclosure of her interest to the solicitors did not justify postponement because it played no role in relation to the creation of the charge. The court also found that the wife’s interest should not be postponed to that of the solicitor as purchaser at the sheriff’s auction because the wife did nothing to justify postponement and the purchaser being an experienced solicitor could have have searched the title on the day of auction and took the risk of unregistered equitable interests.

In summary, the court found that wife’s interest pursuant to the trust should not be postponed to the interests of the solicitors pursuant to their charge or as purchasers and ordered that half of the funds be paid to the wife and the amount still owed to the solicitors under the charge be paid from the remaining half, with whatever was left over being paid to the solicitor as purchaser.

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