Just when you thought you had secured your rights by taking security and lodging a caveat on title ahead of others, think again, as your expectations may be dashed.

In the recent Victorian Supreme Court case of KKJA Investments v Yan Shi [2025] VSC 583, the parties were fighting over who had right to the surplus funds arising from the sale of a property. Each party had taken security for amounts lent.

However, neither of those security interests were registered on title other than by way of lodgement of caveats. This situation required consideration by the Court of competing equitable interests to determine which party had a right to the surplus funds.

Whilst the starting position with competing equitable interests is the first in time will prevail, the prior interest may be deferred if the conduct of the holder of the first interest makes it unconscionable for their interest to prevail over a subsequent interest.

Key Takeaways

The decision underscores the importance of promptly and properly securing interests over land.

Registration on title of security interests over land provide better protection of security interests. Mere registration of a caveat invites the risk of a subsequent equitable interest gaining priority. In all cases, registration of interests or caveat should occur without delay.

This decision is a reminder that prior to taking any security interest you should undertake a title search and keep evidence that you have done so. Such may prove invaluable in the event a prior equitable interest only becomes known to you later.

Facts

The Plaintiff, KKJA Investments (KKJA), advanced monies to the former registered proprietor (Feng) and obtained a mortgage to secure the advance over a property in Camberwell, Victoria (Property). The mortgage was signed on 6 December 2021.

Yan Shi (Defendant) also advanced monies, but under a subsequent loan agreement dated 3 March 2022 (YS Loan Agreement). The YS Loan Agreement secured the advance by way of a charge over the Property. 

There was no dispute between the parties that they each held valid equitable interests in the Property. When the Property was sold and following the discharge of a mortgage with the Commonwealth Bank of Australia (CBA), a surplus balance of $255,338.65 resulted which was claimed by each of KKJA and Yan Shi.

Despite having obtained the mortgage, KKJA took no steps to register the mortgage on the title to the Property. Although, on around 10 November 2022, KKJA lodged a caveat - some 11 months after executing the mortgage. There was no evidence led that explained the delay in KKJA’s registration of the caveat, or the nature of the relationship between KKJA and the then registered proprietor.

By contrast, Yan Shi provided evidence such as:

• In around 27 January 2022 Feng asked Yan Shi to lend about $600,000 to her husband for business purposes. Yan Shi, a retired quantity surveyor, was familiar with the company Longriver Group Holdings Pty Ltd (Longriver), a ‘famous’ developer, and Ms. Feng’s husband was its director
• Feng asked Yan Shi not to lodge any instrument on the title of the property, because she was in the process of financing her mortgage with the ANZ Bank with the CBA
• Feng showed Yan Shi and her daughter (a mortgage broker) the documents associated with the remortgaging facility and the certificate of title disclosed no encumbrances (aside from the original mortgage with ANZ)
• The YS Loan Agreement was prepared by solicitors and executed on 3 March 2022
• Prior to advancing the amount of $598,000, on 4 March 2022, Yan Shi obtained a title search of the Property. Following a refinance of the ANZ loan, a further title search was shown to Yan Shi by Feng which showed CBA as the new financier
• None of the title searches seen by Yan Shi disclosed KKJA’s interest in the Property, either by registration or caveat
• On 21 November 2022, Yan Shi issued a default notice under the YS Loan Agreement and lodged a caveat on the Property.

The evidence established had Yan Shi been aware that, in addition to the refinancing with CBA, there was ‘another loan behind the scenes secured by the property’, she would not have agreed to enter into the YS Loan Agreement.  And, moreover, that she had relied upon the title searches of the Property during the period between KKJA executing the mortgage and the execution of the YS Loan Agreement and had advanced funds on that basis.

Decision

Yan Shi succeeded in claiming the surplus funds.

Despite the security interest of KKJA being first in time, the failure of KKJA to either register its mortgage or lodge a caveat prior to Yan Shi entering into the YS Loan Agreement, amounted to postponing conduct. There was also no evidence of any relationship between the director of KKJA and Feng which might have provided a relevant reason for the delay in lodging its caveat.

And, significantly, Yan Shi had relied on the various title searches prior to advancing funds none of which had disclosed KKJA’s interest. It was accepted that Yan Shi would not have entered into the YS Loan Agreement had she been made aware of KKJA’s mortgage over the Property and would suffer detriment, if not given priority.

KKJA received nothing. This was notwithstanding it had taken a prior security interest and had even lodged its caveat on the title to the Property before the caveat lodged by Yan Shi.