This blog concerns an application for costs by registered proprietors against a caveator, and a consequential application for costs by all against the caveator’s solicitor, and his application for costs against them

 

Sekhon & Anor v Chandyoke and Ors [2018] VSC 327 (19 June 2018) T Forrest J.

The plaintiffs were a married couple.  The first defendant was the wife’s mother who caveated over a property owned by the couple.  The first defendant’s solicitor was separately represented on an application that he personally bear costs.  The judge had previously ordered removal of the caveat.  The first defendant had been advised by previous counsel that she had no caveatable interest and by her solicitor that there were issues with the caveat, including that there was significant doubt about the caveatable interest and her right to impugned funds.  The defendant conceded that there was no proper basis on which she could have defended the application for removal of the caveat but blamed her solicitor.

His Honour held –

1.      The defendant was made aware on numerous occasions, by both counsel and her solicitor, that she probably had no caveatable interest over the property, but refused to instruct her solicitor to remove the caveat.  Her conduct in the litigation was obstructive and sharp – she demonstrated contemptuous disregard for the litigation.  She persisted with a near hopeless case for the collateral purpose of recovering funds she believed to have been stolen from her but which she knew or ought to have known were unrelated to the property.  There were special or unusual circumstances sufficient to warrant an order that she pay the plaintiff’s costs of the litigation on an indemnity basis. [39]-[40], [42]

2.      To justify an order that the solicitor bear the costs it was unnecessary to establish dishonesty, obliquy or similar – misconduct, default or serious or gross negligence sufficed.  Although the solicitor was at times dilatory he acted for a very difficult client, who directly or indirectly obstructed the fair hearing of the caveat withdrawal application.  The solicitor on several occasions advised the client in effect that it was very likely she would lose and warning of the consequences.  It was also doubtful that the defendant would have taken advice no matter how forceful.  The principles applying to the application, whether under r 63.23 of the Supreme Court Rules or s 29 of the Civil Procedure Act showed that a non-party costs order was prima facie unjust, required caution and should only be made in a clear case.  This was not such a case. [41]

 

Sekhon & Anor v Chandyoke and Ors [2018] VSC 435 (7 August 2018) T Forrest J

 

This case was related to the previous application by the plaintiffs and the first defendant that the first defendant’s solicitor pay costs, which failed in the case referred to above.  The solicitor sought indemnity costs based on two offers before the costs hearing: 

(a) An offer to the plaintiffs on 23 March 2018 open for five days that the solicitor pay the plaintiffs’ costs of the proceeding fixed in the sum of $7500 within two business days;

(b) An offer to the plaintiffs and the defendant on 14 May 2018 open for five days that the application for costs against the solicitor be dismissed and the plaintiffs and defendant pay his costs of the application fixed in the sum of $6000 with a stay of 30 days.

His Honour held –

1.      The general rule that costs followed the event applied and so the plaintiffs and the first defendant were liable to pay the solicitor’s costs on a standard basis.  These costs would be awarded against the plaintiffs alone from 28 March, being from when it was reasonable for the solicitor to commence preparations for his defence, to 5 April, and against the plaintiffs as to half and the first defendant as to half from 6 April, being the date the first defendant filed a notice of waiver and intention to participate in the costs proceedings.   Notwithstanding that the solicitor was dilatory at times this did not justify application of any exceptions to the normal costs rule.  His Honour noted – “Solicitors cannot pick and choose their clients and ought not be judged too harshly when the sins of their clients are sought to be visited upon them”. [9]-[11], [16]-[18]

2.     Indemnity costs would not be awarded because rejection of the:

(a)   first offer was not unreasonable because it preceded any affidavit from the solicitor explaining his conduct; [13]

(b)   second offer was not unreasonable because, being an offer to undertake joint liability, neither party could accept the offer alone: they were an unlikely coalition and it would be unfair to penalise one for the unreasonableness of the other. [14]

 

Injunction against future caveating

 

Lendlease Communities (Australia) Ltd v Juric & Anor [2018] VSC 107
(8 March 2018)  T Forrest J.

The Registrar was directed to remove a caveat lodged by the first defendant who had no possible interest in or connection with the land, but claimed an interest as “adverse possession by exclusive occupation” – he had lodged the caveat because of a long-standing grudge against the plaintiff and others.  In 2015 a court had ordered that a previous caveat lodged by him over land owned by entities in the Lendlease group, on the same untenable ground as the current caveat, be removed.  The plaintiff also obtained an injunction restraining the defendant for 5 years from lodging any further caveat over the land, over any titles derived from its titles and over any other land of the plaintiff.  The Judge observed that “the impugned caveat was lodged as some type of pre-emptive bargaining strike in his claim for one trillion dollars plus prime city real estate”.

 

 

Caveat removed because nothing remaining after discharge of prior registered mortgage

Glenis & Anor v Ikosedikas & Ors [2018] VSC 278 (30 May 2018) T Forrest J.

The defendants alleged that in 2011 the first plaintiff entered into a loan agreement consolidating previous loans with a then balance of about $250,000.  The agreement gave the lender had the right to caveat over certain residential land owned by the plaintiffs if the loan was not repaid that year.  The first plaintiff said that his signature on the agreement was forged but did not dispute a debt which by April 2018 had with compound interest risen to between $450,000 and $690,000.

In March 2018 the plaintiffs entered into a contract to sell that land for $1.995 m.  It was subject to a registered mortgage securing loans with current balances of over $2 m. though apparently another property owned by the second plaintiff was linked to this
mortgage.    

In April 2018 the defendants caveated on the grounds of “part-performed oral agreement with the registered proprietors”, the estate or interest claimed being “interest as charge”. 

The plaintiffs applied to remove the caveat.   Counsel for the plaintiffs was prepared to assume for the purposes of argument on this application that the loan agreement was genuine.  He also argued that the caveat was defective: in its reference to oral agreement; because it was over the whole property; and when the charge was allegedly created the plaintiffs did not have legal estate in the land.

His Honour held –

1.      The existence of the loan agreement sufficed to establish a serious question to be tried.  Assuming the authenticity of the agreement, the first plaintiff intended to grant the defendants a charge over the property as security for a loan already advanced.  The fact that the first plaintiff possessed no proprietary rights as at the date of the agreement was not fatal as the parties understood that the charge related to future property which at the time of enforcement could be identified.  Questions of a carve out of the second plaintiff’s interest and whether the caveat ought be struck down as defective or amended to reflect the assertedly misleading ‘oral agreement’ grounds of claim were unsuitable for determination in an interlocutory proceeding. [13]

2.      Where a caveator establishes a serious question to be tried, the balance of convenience tilts in favour of that caveator. [14]

3.      However notwithstanding the substantial debt intended by the first plaintiff to be secured over the property the balance of convenience favoured the registered proprietors because of delay in lodging the caveat until after the contract of sale and the fact that the registered mortgage rendered the caveat worthless.  To allow the caveat to remain in place would frustrate the sale without benefit to the caveator. [14]-[15]

Comment: The statement by his Honour that the balance of convenience tilted in favour of the caveator was supported by him with citation of interstate authority.  This is more commonly expressed in Victoria in other authority cited by his Honour, namely that the caveator must establish that the balance of convenience favours maintenance of the caveat until trial and the stronger the case is in the evaluation of the serious question issue, the more readily the balance of convenience might be satisfied.  

 

 

Caveats lodged over NSW land based on Muschinski v Dodds constructive trust – Under Real Property Act 1900 (NSW) s. 74K(2) caveat not to be extended unless caveator’s claim has or may have substance – claim without substance

D’Agostino v Zandata Pty Ltd and Ors [2018] VSC 115 (15 March 2018) McMillan J. 

This case is novel for a Victorian court, being an application of NSW law, but the caveat would equally have been removed under Victorian law.

A man died survived by various family members including his de facto partner and the plaintiff who was her son.  The deceased was a director of and held controlling interests in the three defendant companies.  The plaintiff lodged caveats with the NSW Registrar-General over land owned by the companies, claiming an interest in each under a constructive trust.  The Registrar-General served lapsing notices requiring the caveator to apply for order extending the caveats.  He applied to the NSW Supreme Court for an order under s. 74K(2) of the Real Property Act 1900 (NSW) which provided that the court may, if satisfied that the caveator’s claim has or may have substance, extend the caveat.  The proceeding was cross-vested to Victoria. 

 The caveator alleged that over a period of 38 years he acted to his detriment in reliance on the encouragement of the deceased by contributing to the acquisition, maintenance and/or improvement of the properties, and this encouraged an expectation that he and his mother would eventually own those properties. 

 McMillan J held –

1.     The application was to be determined in accordance with the law of New South Wales.  An application for the extension of the operation of a caveat was treated as analogous to an application for injunctive relief. Her Honour cited conventional authorities. [20], [22]  

2.   A constructive trust claim may form the basis for a caveatable interest in real property.  The plaintiff relied on a trust of the type enunciated by the High Court in Muschinski v Dodds.  There was however no sufficient prima facie case giving rise to a serious question to be tried that there was a constructive trust here.  There was substance in the defendants’ submission that even at their highest the promises were not to the effect stated nor did the plaintiff rely on them as alleged.  Further, the properties were owned by the companies and there was not allegation that the deceased made any representation as an officer or representative of the companies. [26], [27], [36]-[39]  

3.      The balance of convenience was also against extension of the caveats.  There was no immediate risk of dissipation of the land.  The injury caused to the plaintiff by non-extension did not outweigh the injury the defendants would suffer through extension. [48] 

4.      The lower risk of injustice was for the operation of the caveats not to be extended. [49]

 

 

 

 

Caveat lodged to protect priority of equitable mortgage but badly expressed – Caveat not amended but interlocutory injunction granted to protect priority

TL Rentals Pty Ltd v Youth on Call Pty Ltd and Ors [2018] VSC 105 (8 March 2018) Derham AsJ.

This interesting case demonstrates that a badly drawn caveat can be rescued
– not under the TLA caveat provisions but by an interlocutory injunction.
The case is also a good discussion of general caveat principles and priorities
between equitable interests

Katherine and Damian Shannon were the joint proprietors in equal shares of land mortgaged to a bank.

The chronology was –

12 October 2016  Plaintiff (TL) leases equipment to first defendant whose obligations are guaranteed by Katherine.  Guarantee provides that she mortgaged her interest in the land and would on request execute a registerable mortgage. 

12 December 2017 Lessee in default.  TL serves notices on it and Katherine seeking payment. 

21 December 2017 TL lodges caveat claiming a “freehold estate” pursuant to an agreement with the “registered proprietor(s)” dated 12 October 2016.

7 January 2018   Permanent Custodians Limited (PCL) enters loan agreement with the Shannons. 

22 January 2018  Relying on an old title search predating the caveat, PCL advances the funds due by paying out the existing mortgage with the balance to the Shannons.  Mortgage lodged for registration. 

23 January 2018  Pursuant to the Transfer of Land Act (TLA) s. 90(1) Registrar gives notice to TL of lodgment of an inconsistent dealing and that its caveat would expire in 30 days.

20 February 2018 TL commences proceeding claiming a declaration that it had an equitable mortgage or charge over Katherine’s interest in the land securing payment of the sum owed. 

21 February 2018 TL applies the court pursuant to TLA s. 90(2) for an injunction directing the Registrar to maintain the caveat until registration of a mortgage in favour of the plaintiff or further order.

22 February 2018 Interim court order directing the Registrar to delay registration of any dealing.  TL foreshadows application to amend caveat to limit it to a claim for an equitable mortgage over Katherine’s interest in the land.  

2 March 2018      Hearing.  TL abandons argument for amendment and maintenance of caveat but seeks amendment of summons to claim an interlocutory injunction to protect the priority of its mortgage against defeat by registration of PCL’s mortgage.

The TLA s. 90(2) in substance provided, a notice under s. 90(1) having been given, that if within a particular period the caveator appeared before a court, the court may direct the Registrar to delay registering any dealing with the land or make such other order as was just.  Section 90(3) provided that any person adversely affected by a caveat may bring proceedings for the removal of the caveat and the court may make such order as it thought fit.

Derham AsJ  held –

1.     An application under s. 90(3) was in the nature of a summary procedure and analogous to the determination of an interlocutory injunction.  The caveator had the burden of establishing a serious question to be tried that it had the estate or interest in land as claimed and that the balance of convenience favoured maintenance of the caveat until trial.  In an application under s. 90(2) the same burden rested on the caveator. [29]-[30]

2.     The interest or estate claimed in a caveat could probably be amended but only in special or exceptional circumstances, as it effectively substituted a different caveatable interest.  In this case it would have been substitution of a claim to a freehold estate in respect of the registered interests of both proprietors with a claim to an interest under an equitable mortgage granted by one proprietor. Although TL’s mortgage was not in registerable form it was entitled to an unregistered (equitable) proprietary interest over Katherine’s share of the land that was capable of supporting a caveat.  Whilst remaining unregistered it was an agreement to mortgage.  [9]-[10], [20], [31]

3.     TL was granted leave to amend its summons to claim an interlocutory injunction.  The caveat procedure was essentially a statutory injunction granted upon consideration of the same factors applied when granting interlocutory injunctions in equity. [34]-[36] 

4.     PCL was entitled by subrogation to the rights of the mortgagee (NAB) whose mortgage it had paid out.  This gave PCL priority over TL for this part of its loan.  Otherwise approximately $130,000 was secured by TL’s equitable mortgage and $271,000 by PCL’s equitable mortgage. The interest first in time would prevail but that may change where the prior equitable interest holder had so acted that it would be unconscionable if its interest were to prevail. However, mere failure by the prior holder to caveat was insufficient to postpone that interest, even where the subsequent interest has been acquired bona fide and for value without notice and on faith of the title.  The latter interest holder must show a change of position and prove detriment as a necessary element of any claim for postponement. [21]-[22], [44]

5.     It was not unconscionable for TL’s equitable mortgage to be afforded its usual priority.  PCL should have conducted title searches later than six weeks before advance of funds.  Further, having regard to evidence that the market value  of the property sufficed to cover all monies secured against it, PCL had not proved detriment if postponed. [23]-[25]

6.     There was accordingly at least a prima facie case that TL’s mortgage had priority.  Whether this prima facie priority would justify the restraint sought depended on: (a) the practical consequences likely to flow from the interlocutory order sought; (b) whether if the injunction was not granted the plaintiff would be likely to suffer injury for which damages would not be an adequate remedy; (c) whether the balance of convenience favoured the granting of an injunction, as to which the strength of the case on serious question to be tried was relevant; (d) whether other discretionary considerations militate against the grant of the injunction.  TL met these tests.  The grant of an injunction until trial carried the lower risk of injustice if it should turn out to have been wrong. [26], [33], [37]-[38], [46]-[48]

7.     Due to doubt whether TL could satisfy the undertaking as to damages required for an interlocutory injunction, it would be made a condition of the grant of the injunction that the ultimate holding company or another company in the same group join in giving the usual undertaking as to damages. [53]-[54]

 

 

RECENT SUPREME COURT CASES DEC 2017 – FEB 2018 (6 of 6)

Costs

Toh & Anor v Wu & Anor [2018] VSC 36 (12 February 2018) Daly AsJ.

The chronology was –

 

2017                            First defendant commences family law proceeding in Federal Magistrates Court
against her husband.  The plaintiffs in the subsequently issued Supreme
Court proceeding are her in-laws and are registered proprietors of a
property.  Application (not yet determined) to join plaintiffs as parties
to the family law proceeding and to restrain sale of property or have proceeds
of sale retained in trust pending determination of
proceeding.   

28 November 2017   Caveat lodged by first defendant over the property, grounds of claim being “court order under the Family Law Act 1975”.

15 January 2018       Plaintiffs notify intention to issue and issue s. 90(3) application. 

16 January 2018       Service of application and material in support.

18 January 2018       Hearing at which caveat ordered to be removed.  Order that net proceeds of sale be held in trust.  Costs reserved.

29 January 2018        Settlement of sale of property due.

Daly AsJ ordered that each party should bear their own costs of the s. 90(3) application.  Her Honour reasoned –

  1. In removing the caveat the court had not considered whether there was a serious question to be tried.  Although the interest claimed in the caveat was not prima facie a recognized proprietary interest the underlying documents tolerably revealed claims pursuant to a resulting or constructive trust, and the suddenness of the application severely compromised the caveator’s ability to respond.  However, the balance of convenience overwhelmingly favoured removal because of settlement and finance difficulties.  The removal was also influenced by the fact that, having regard to the existing Federal Magistrates’ Court proceedings, it was in the parties’ interests for property interests to be determined in one proceeding, not fragmented across jurisdictions.
  2. Special circumstances warranted the plaintiffs not receiving their costs, namely their failure to warn the caveator of the intended application.  While it would often be unnecessary or impractical to warn of an application, the application here was made some 7 weeks after lodgement of the caveat and only 7 business days before settlement of the sale was due.  The caveator was ambushed.
  3. The caveator’s alleged impecuniosity was irrelevant to the costs decision.

 

RECENT SUPREME COURT CASES DEC 2017 – FEB 2018 (5 of 6)

Whether related VCAT proceedings rendered an application under s. 90(3) an abuse of process. 

Van Klaveren v Otelta Pty Ltd and Ors [2018] VSC 10 (23 January 2018) Daly AsJ.

Save for several interesting ancillary points this was a simple case of a caveat being removed under s. 90(3) because of no serious question to be tried that the caveator still had a leasehold interest claimed in the caveat, nor did the balance of convenience favour relief.  The ancillary points were –

  1. A reminder that the application was interlocutory. Accordingly objections to the admissibility of a solicitor’s affidavits were rejected.  Under Rules of Court evidence in an interlocutory application may be given on information and belief and it “would be unusual, albeit not unheard of, for cross-examination to be permitted on what is really a summary procedure”.
  2. The judge grappled with the argument that the application under s. 90(3) was an abuse of process because there was a proceeding on foot elsewhere. This argument was based on Yuksels Nominees Pty Ltd v Nguyen & Anor [2015] VSC 663 where T. Forrest J had stated that if there is already a proceeding on foot to substantiate the caveat an application to remove the caveat is prima facie vexatious and will likely be stayed.  In that case the caveator had commenced a County Court proceeding not to establish a proprietary interest but for damages and accordingly that application was not stayed.  In this case the lessee while still in possession had commenced a VCAT proceeding in 2016, not yet heard, disputing the right of the landlord to terminate the lease and prematurely claiming relief against forfeiture.  In 2017 the lessor re-entered but the lessee did not seek a hearing for relief against forfeiture although this relief remained in the Points of Claim.  At interlocutory hearings, in one of which an application for an injunction to restrain sale of the property was refused, VCAT members treated the claim as being only for damages and refused leave to amend to assert the lease was still on foot.   Her Honour held that the VCAT proceeding was not one to substantiate the interest claimed in the caveat, noted that T Forrest J only used the expression prima facie, and that unlike the County Court VCAT had no jurisdiction under s. 90(3)

Finally, insofar as the caveator argued that the caveat should remain as security for payment of any damages ordered by VCAT, this amounted to the impermissible use of the caveat as a bargaining chip.

 

Commentary: Yuksels must be read with authority that it is permissible for a registered proprietor both to take the procedure for caveat removal under the Transfer of Land Act s. 89A and also to commence an application under s. 90(3): eg Nineteenth Jandina Pty Ltd v Hijim Pty Ltd [2004] VSC 298 at [21] per Osborn J –“The fact that proceedings by a caveator are on foot to enforce the interest which the caveat has been lodged to protect, is not a bar to the exercise of the Court’s discretion under s. 90(3)”.