Latec Investments Ltd v Hotel Terrigal Pty Ltd

Latec Investments Ltd v Hotel Terrigal Pty Ltd
Latec Investments Ltd v Hotel Terrigal Pty Ltd
Court	High Court of Australia
Full case name	Latec Investments Limited and others v Hotel Terrigal Pty Limited (in liquidation) and others
Decided	12 April 1965
Citation(s)	[1965] HCA 17, (1965) 113 CLR 265
Case opinions
	A mortgagee fraudulently exercised the power of sale. The sale was void against the mortgagee, but the fraud did not affect an equitable charge subsequently granted to a bona fide purchaser.
Court membership
Judge(s) sitting	Kitto, Taylor and Menzies JJ

Last updated November 17, 2020

Latec Investments Ltd v Hotel Terrigal Pty Ltd^[1] is a 1965 property law decision of the High Court of Australia. It contains a discussion of the principles upon which the priority of competing equitable interests in land is to be determined.^[1]^:266

Facts

Latec was the mortgagee of land owned by Hotel Terrigal. Hotel Terrigal fell into arrears in repaying the loan and Latec, purporting to exercise its mortgagee’s power of sale, sold the property. It conducted an auction on an unfavourable day of the week with little time for proper advertisement (to make sure that the property could not be sold at the auction). The highest bid was 58,000 and later Latec sold the property to its wholly owned subsidiary, Southern Hotels for 60,000. Southern became the registered proprietor.

Subsequently, Southern granted a floating charge over all its assets as security for the debenture issued to the public to the trustee of the debenture holders, MLC Nominee. The prospectuses for the debentures offered explicitly stated that the Hotel Terrigal was owned by Southern.

Five years later, Hotel Terrigal argued that Latec had fraudulently sold the property to Southern, giving rise to an equitable right to rescind and set aside the sale of the property.

Issues

The issue is about the priority between Hotel Terrigal's and MLC's interest in the property.

Hotel Terrigal has the right to apply to the court to have the sale (from Latec to Southern Hotels) set aside.

MLC, being the trustee of the debenture holders, is the chargee of the subject property.

Previous authorities

Rice v Rice: between two equities, the first in time prevails

In Rice v Rice,^[2] Kindersley VC said:

As between persons having only equitable interests, if their equities are in all other respects equal, priority of time gives the better equity; or, qui prior est tempore potior est jure.

Competing authorities: purchasers for value without notice

There was a conflict of opinion between Lord Westbury and Lord St Leonards concerning the availability of the defence of purchaser for value without notice in the case of competing equitable interests. Lord St Leonards maintained that the defence was always available.

In Phillips v Phillips^[3]^[1]^:281 Lord Westbury said:

[E]very conveyance of an equitable interest is an innocent conveyance, that is to say, the grant of a person entitled merely in equity passes only that which he is justly entitled to and no more ... where there are circumstances that give rise to an equity as distinguished from an equitable estate—as for example, an equity to set aside a deed for fraud, or to correct it for mistake—and the purchaser under the instrument maintains the plea of purchase for valuable consideration without notice, the Court will not interfere.

This obiter establishes a new category of equitable interests, mere equity, against which the defence of purchase for value without notice is available.

In Stump v Gaby,^[4]^[1]^:290 Lord St Leonards held that "when a decree is made for setting aside a conveyance it relates back, and the grantee is to be treated as having been, from the first, a trustee for the grantor, who therefore has an equitable estate, not mere right of suit."

Decision

The court unanimously held that MLC's equitable interest prevailed over Hotel Terrigal's interest. However, Kitto, Taylor and Menzies JJ each gave separate judgments.

Kitto J

Mere equity is an equity which must be made good before an equitable interest can be held to exist. It is distinct from, because logically antecedent to, the equitable interest.

The defence of bona fide purchase without notice can only succeed against the equity not the consequential equitable interest. If successful, the "first in time" rule does not apply for it only applies as between equitable interests.

In this case, Hotel Terrigal's right to set aside the fraudulent sale made by Latec was a mere equity, and must be postponed to MLC's equitable interests.

Menzies J

Each line of authorities applies in different circumstances. "if Terrigal were a person instead of a company and the question were whether that person had a devisable interest in the hotel property by virtue of his equity to have the conveyance to Southern set aside, Stump v Gaby applies and Terrigal had an equitable interest in the hotel property."

"where the question arises in a contest between Terrigal and MLC Nominees, the holders of an equitable interest in the hotel property acquired without notice of Terrigal's right, the authority Phillips v Phillips applies. Terrigal's equity is not entitled to priority merely because it came into existence at an earlier time."

Taylor J

The mere equity argument misconceives the significance of Lord Westbury's observation.

The Stump v Gaby line of authority established that where the owner of property has been induced by fraud to convey it the grantor continues to have an equitable interest therein and that the interest may be devised or assigned inter vivos and that the grantor's interest in the property does not come into existence only if and when the conveyance is set aside. These cases however has nothing to say concerning the principles upon which the priority of competing equitable interests is to be determined. If such equitable interest is to be postponed, there must be some other reasons than being mere equity.

The defence of purchaser for value without notice of a prior equitable interest cannot be generally maintained but it does appear that it has always been allowed to prevail where the person entitled to the earlier interest required the assistance of a court of equity to remove an impediment to his title as a preliminary to asserting his interest. It is because a plaintiff in such cases will be denied the assistance of the court to remove the impediment to his title.

Criticism

Mere equity may have proprietary characteristics.

Many equitable interests rest on curial discretion.

Adoption

The approach of Menzies J has since been approved by Meagher, Gummow and Lehane in Equity Doctrines & Remedies at [427]–[435]. Bradbrook, MacCallum and Moore criticise the distinctions between mere equities and equitable interests. Most academics favour the judgment of Kitto J.

Related Research Articles

Maxims of equity are legal maxims that serve as a set of general principles or rules which are said to govern the way in which equity operates. They tend to illustrate the qualities of equity, in contrast to the common law, as a more flexible, responsive approach to the needs of the individual, inclined to take into account the parties’ conduct and worthiness. They were developed by the English Court of Chancery and other courts that administer equity jurisdiction, including the law of trusts. Although the most fundamental and time honored of the maxims, listed on this page, are often referred to on their own as the 'maxims of equity' or 'the equitable maxims',The first equitable maxim is 'equity delights in equality' or equity is equality Like other kinds of legal maxims or principles, they were originally, and sometimes still are, expressed in Latin.

A lien is a form of security interest granted over an item of property to secure the payment of a debt or performance of some other obligation. The owner of the property, who grants the lien, is referred to as the lienee and the person who has the benefit of the lien is referred to as the lienor or lien holder.

A mortgage is a legal instrument which is used to create a security interest in real property held by a lender as a security for a debt, usually a loan of money. A mortgage in itself is not a debt, it is the lender's security for a debt. It is a transfer of an interest in land from the owner to the mortgage lender, on the condition that this interest will be returned to the owner when the terms of the mortgage have been satisfied or performed. In other words, the mortgage is a security for the loan that the lender makes to the borrower.

A bona fide purchaser (BFP) – referred to more completely as a bona fide purchaser for value without notice – is a term used predominantly in common law jurisdictions in the law of real property and personal property to refer to an innocent party who purchases property without notice of any other party's claim to the title of that property. A BFP must purchase for value, meaning that he or she must pay for the property rather than simply be the beneficiary of a gift. Even when a party fraudulently conveys property to a BFP, that BFP will, depending on the laws of the relevant jurisdiction, take good (valid) title to the property despite the competing claims of the other party. As such, an owner publicly recording his or her own interests protects himself or herself from losing those to an indirect buyer, such as a qualifying buyer from a thief, who qualifies as a BFP. Moreover, so-called "race-notice" jurisdictions require the BFP himself or herself to record to enforce his or her rights. In any case, parties with a claim to ownership in the property will retain a cause of action against the party who made the fraudulent conveyance.

A security interest is a legal right granted by a debtor to a creditor over the debtor's property which enables the creditor to have recourse to the property if the debtor defaults in making payment or otherwise performing the secured obligations. One of the most common examples of a security interest is a mortgage: a person borrows money from the bank to buy a house, and they grant a mortgage over the house so that if they default in repaying the loan, the bank can sell the house and apply the proceeds to the outstanding loan.

The Land Registration Act 2002 is an Act of the Parliament of the United Kingdom which repealed and replaced previous legislation governing land registration, in particular the Land Registration Act 1925, which governed an earlier, though similar, system. The Act, together with the Land Registration Rules, regulates the role and practice of HM Land Registry.

An equitable interest is an "interest held by virtue of an equitable title or claimed on equitable grounds, such as the interest held by a trust beneficiary." The equitable interest is a right in equity that may be protected by an equitable remedy. This concept exists only in systems influenced by the common law tradition, such as New Zealand, England, Canada, Australia and the United States.

The Home Equity Theft Prevention Act is a New York State law passed on July 26, 2006, to provide homeowners of residential property with information and disclosures in order to make informed decisions when approached by persons seeking a sale or transfer of the homeowner's property, particularly when homeowners are in default on their mortgage payments or the property is in foreclosure.

Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218 is a landmark English contract law, restitution and UK company law case. It concerned rescission for misrepresentation and how the impossibility of counter restitution may be a bar to rescission. It is also an important illustration of how promoters of a company stand in a fiduciary relationship to subscribers.

Williams & Glyn's Bank v Boland [1980] is a House of Lords judgment in English land and trusts law on an occupier's potentially overriding interests in a home.

Easements in English law are certain rights in English land law that a person has over another's land. Rights recognised as easements range from very widespread forms of rights of way, most rights to use service conduits such as telecommunications cables, power supply lines, supply pipes and drains, rights to use communal gardens and rights of light to more strained and novel forms. All types are subject to general rules and constraints. As one of the formalities in English law express, express legal easements must be created by deed.

Re Bank of Credit and Commerce International SA [1998] AC 214 is a UK insolvency law case, concerning the taking of a security interest over a company's assets and priority of creditors in a company winding up.

Breskvar v Wall (1971) 126 CLR 376, was an Australian court case, decided in the High Court of Australia on 13 December 1971. The case was an influential decision in Property Law, specifically in which equitable interests take priority, and also the application of Frazer v Walker in Australia.

Westdeutsche Landesbank Girozentrale v Islington LBC[1996] UKHL 12 is a leading English trusts law case concerning the circumstances under which a resulting trust arises. It held that such a trust must be intended, or must be able to be presumed to have been intended. In the view of the majority of the House of Lords, presumed intention to reflect what is conscionable underlies all resulting and constructive trusts.

National Provincial Bank Ltd v Ainsworth [1965] is an English land law and family law case, concerning the quality of a person's interest in a home when people live together, as well as licenses in land.

FHR European Ventures LLP v Cedar Capital Partners LLC[2014] UKSC 45 is a landmark decision of the United Kingdom Supreme Court which holds that a bribe or secret commission accepted by an agent is held on trust for his principal. In so ruling, the Court partially overruled Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd in favour of The Attorney General for Hong Kong v Reid (UKPC), a ruling from the Judicial Committee of the Privy Council on appeal from New Zealand.

Solle v Butcher [1950] 1 KB 671 is an English contract law case, concerning the right to have a contract declared voidable in equity. Denning LJ reaffirmed a class of "equitable mistakes" in his judgment, which enabled a claimant to avoid a contract. Denning LJ said,

... a contract will be set aside if the mistake of the one party has been induced by a material misrepresentation of the other, even though it was not fraudulent or fundamental; or if one party, knowing that the other is mistaken about the terms of an offer, or the identity of the person by whom it is made, lets him remain under his delusion and concludes a contract on the mistaken terms instead of pointing out the mistake.... A contract is also liable in equity to be set aside if the parties were under a common misapprehension either as to facts or as to their relative and respective rights, provided that the misapprehension was fundamental and that the party seeking to set it aside was not himself at fault.

Holroyd v Marshall (1862) 10 HLC 191, 11 ER 999 was a judicial decision of the House of Lords. In that case the House of Lords affirmed that under English law a person could grant a mortgage or other security interest over future property, ie. property that they did not actually own at the time of granting the charge. Prior to decision, the generally accepted principle under English law was that pursuant to the nemo dat rule it was impossible for a person to convey a security interest in property which they did not own at the time of granting the charge.

Akers v Samba Financial Group[2017] UKSC 6, [2017] AC 424 is a judicial decision of the Supreme Court of the United Kingdom relating to the conflict of laws, trust law and insolvency law.

Bunny Industries v FSW Enterprises is a decision of the Supreme Court of Queensland.

References

1 2 3 4 ''Latec Investments Ltd v Hotel Terrigal Pty Ltd [1965] HCA 17 , (1965) 113 CLR 265(12 April 1965), High Court.
↑ Rice v Rice(1853)2 Drew 73, 61 ER 646 , High Court (England and Wales).
↑ Phillips v Phillips(1861)4 De G F & J 208, 45 ER 1164.
↑ Stump v Gaby(1852)2 De G M & G 623, 42 ER 1015.

This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.

[clr-1] 1 2 3 4 ''Latec Investments Ltd v Hotel Terrigal Pty Ltd [1965] HCA 17 , (1965) 113 CLR 265(12 April 1965), High Court.

[rice-2] Rice v Rice(1853)2 Drew 73, 61 ER 646 , High Court (England and Wales).

[3] Phillips v Phillips(1861)4 De G F & J 208, 45 ER 1164.

[4] Stump v Gaby(1852)2 De G M & G 623, 42 ER 1015.