“First come, first served” VS “You snooze, you lose”: How a Missed Caveat and Procrastination Cost a Lender Priority | KKJA Investments Pty Ltd v Yan Shi [2025] VSC 583

Background

In KKJA, advanced $600,000 to the owners of a Camberwell property in December 2021. The loan was secured by a mortgage however the mortgage was not registered nor was the interest protected by a caveat for almost a year. Only a few months later, in March 2022, the same borrowers approached Yan Shi a retired quantity surveyor and family friend for another $600,000 loan, assuring her that the property was unencumbered apart from the main bank mortgage. Relying on title searches that did not show KKJA’s interest, Yan Shi advanced the funds and lodged a caveat over the property. When the property was eventually sold, the leftover proceeds were insufficient to satisfy both lenders, creating a priority dispute over whose unregistered equitable interest would prevail.

The Legal Question: “First come, first serve”?

When answering questions relating to equitable interests, the maxim ‘first in time, first in right’ (in Latin ‘Prior in tempore, potior in iure’) usually applies. However, this rule does not operate when the earlier interest holder’s conduct makes it unconscionable to insist priority over the latter interest holder. This is known as postponing conduct.

Associate Justice Daly held that the principles of this case fit right in with the principles in Jacobs v Platt Nominees [1990] VR 146, Mimi v Millenium Developments PhJ Ltd [2003] VSC 260, and Double Bay Newspapers Phj Ltd v AW Holdings Phj Ltd (1996) 42 NSWLR 409. The Court reaffirmed that simply failing to caveat does not automatically postpone a prior interest. However, when that failure is paired with additional circumstances showing that the later interest holder relied on the absence of a previous claim, postponement becomes justified.

Several critical factors pointed towards why KKJA’s conduct was fatal to its interest taking priority:

1. Unlike in Jacobs, where parties’ closeness explained why the first interest holder trusted the registered proprietors, KKJA had no such relationship. It loaned the sum of $600,000 at a commercial rate, on a short-term basis, with high default interest, and took no steps to protect its interest by caveat or mortgage;

2. KKJA provided no explanation for failing to register a caveat for 11 months. In relation to high-risk lending, failing to protect an interest is not just considered careless but unconscionable when it causes harm to third parties who obtained their interest in good faith.

3. KKJA’s failure to lodge a caveat allowed the misrepresentation by the borrowers to Yan Shi. Had KKJA lodged a caveat, the borrowers could not have presented the title to the property as unencumbered;

4. Yan Shi at the time it acquired the interest relied on title searches which did not record KKJA’s interest as a mortgage or caveat. The Court found that, rather than relying blindly and solely on the borrowers, this obtaining an independent title search, showed her reliance on the Register; and

5. The Court accepted that had a caveat been lodged on title, Yan Shi would not have advanced the loan. This was textbook detriment. Yan Shi entered the transaction believing the property held enough equity and it was unencumbered, when in truth, a prior equitable interest had existed.

The Court found that KKJA’s failure to protect its interest contributed directly to the detriment suffered by Yan Shi. The earlier interest held by KKJA was therefore postponed, and the later interest held by Yan Shi was prioritised.

Why does this matter

This decision is a powerful reminder that unprotected interests in Torrens title land is a gamble where, the house usually wins. Lenders or their practitioners must:

• Register the mortgage immediately or, at minimum, lodge a caveat putting the world on notice of the lender’s interest in the property.
• Not assume borrowers won’t further encumber their property.
• Not rely on “paperwork later” when dealing with short-term or high-risk loans.
• Understand that Courts will protect later lenders who act diligently and rely on the land register.

The irony?

Yan Shi, a private individual lending to family friends, conducted thorough due diligence than KKJA, a commercial lender with a registered mortgage form available. Yan Shi’s vigilance secured her priority; KKJA’s silence on the Register sealed its fate