25. Delinquent lodging of caveat through PEXA – Contrite conveyancer dodges discipline.

Guirgis v JEA Developments Pty Limited [2019] NSWSC 164 (26 February 2019), Kunc J (Supreme Court of New South Wales)

This is the first NSW case dealt with in the caveatsvictoria.blog.  It is a reminder of the care needed in lodging a caveat, specifically here in the context of the Electronic Conveyancing National Law, as denoted in the opening words of the judgment –

“Lodging a caveat is not a trivial act to be undertaken lightly.  It has immediate legal effect and can have significant commercial and financial consequences.  Legal practitioners and licensed conveyancers who advise on, prepare and certify caveats that are lodged electronically have an important role to ensure that obviously unmeritorious caveats are not lodged.  This judgment arises from a failure by a licensed conveyancer to perform that role properly”.

The facts were –

  • The plaintiff and his wife were engaged in Family Court litigation. She was the sole director, secretary and shareholder of the defendant.
  • In December 2018 he entered into a contract for the sale of a property owned by him, with settlement due on 25 February 2019.
  • On 11 February 2019 a caveat was lodged over the land electronically through PEXA. The caveat had been prepared, certified, electronically signed and lodged on behalf of the defendant by a licenced conveyancer, whose company was described on the caveat as the “Responsible Subscriber”.  The estate or interest claimed was a charge, by virtue of an agreement between the defendant and the plaintiff.  Under “Details Supporting The Claim” was “Outstanding loan”.  The caveat also stated certain things to the best of the knowledge of the Subscriber including that the caveator had a good and valid claim to the estate or interest claimed.
  • After his solicitor unsuccessfully attempted to obtain evidence of the alleged agreement from the conveyancer, the plaintiff commenced this proceeding seeking orders under ss. 74MA and 74P of the Real Property Act 1900 (NSW) for the removal of a caveat and for compensation against the defendant.
  • At the hearing on 20 February the plaintiff asserted that he had never entered into any agreement of the kind alleged in the caveat. Mrs Guirgis, who appeared in person, stated that there was no written loan agreement and insofar as there was any agreement it was “a husband and wife agreement” containing nothing giving the defendant a mortgage, charge or other interest in the property.  She acknowledged that the caveat was a negotiation tactic for a Family Court hearing.  The defendant was ordered to remove the caveat with costs.
  • The judge questioned Mrs Guirgis about her dealings with the conveyancer. Mrs Guirgis stated that: she phoned the conveyancer and asked that caveat be lodged; the conveyancer gave no advice about this; and the conveyancer asked whether there was an agreement between the plaintiff and the defendant to which the answer was yes, but the conveyancer did not ask whether it was in writing or oral.
  • His Honour formed a prima facie view that the conveyancer had been delinquent, required the conveyancer to appear to explain why the papers should not be referred to the appropriate body to consider disciplinary action, and on the  conveyancer appearing and apologizing etc (under the heading in the judgment  “The Conveyancer’s contrite explanation”, including “It is the first caveat I have ever put on” [36]) decided to take no further action, but also published his reasons “to make clear how seriously the court viewed the obligations of those who advise  on, prepare and certify caveats” ([5]).

 

His Honour –

  1. Set out at length the NSW statutory provisions on caveats and electronic conveyancing (ie the Electronic Conveyancing National Law). [19]-[28]
  2. Held that the caveat and the conveyancer’s purported certification of it were deficient in at least five respects. [29]
  3. As to the conveyancer’s representation that –

“The Caveator, to the best of the knowledge of the Subscriber identified in the execution of this Caveat document, has a good and valid claim to the estate or interest claimed as specified in this Caveat”.

held that “to the best of the knowledge” conveyed a representation that the conveyancer had a suitable level of knowledge about how an interest in land can arise and had taken reasonable steps to inform himself or herself of the relevant facts so as to be able to express a properly informed opinion. This was also true of the other statements in the caveat said to be “to the best of the knowledge of” the person or entity electronically signing it.   Such statements did not, however, amount to an unqualified warranty of the existence of the relevant state of affairs. [30], [33]

  1. The conveyancer appeared to have lodged the caveat with either a reckless disregard for the conveyancer’s obligations or had failed to meet the standard of care to be expected of a reasonably competent conveyancer certifying a caveat. No reasonably competent conveyancer who had bothered to take proper instructions from Mrs Guirgis would have co-operated in the lodgement of the caveat. [34]
  2. His Honour concluded in part –

“As New South Wales’ conveyancing system moves to a completely electronic platform, the role of conveyancers, solicitors and others as persons qualified to prepare and lodge caveats becomes all the more important.  Ordinary members of the public are, in practical terms, no longer able to lodge caveats without the intervention of a “Subscriber”, who in many cases will be a solicitor or licensed conveyancer.  The requirement to give the requisite representations and certifications operates to confer on them the role of a guardian at the gate”. [39]

Comment.

Victorian cases exposing delinquent lodgment of caveats by legal practitioners are: Legal Services Commissioner v Mercader [2011] VCAT 2062; Pearl Lingerie Australia Pty Ltd v Giarratana [2012] VSC 451; Legal Services Commissioner v Kotsifas [2014] VCAT 1615 (arising from the previous case); Gatto Corporate Solutions Pty Ltd v Mountney [2016] VSC 752.  Space does not permit reference to any other than Mercader, which also arose in the matrimonial context.

In Mercader, on termination of her instructions for a wife in a matrimonial dispute, the solicitor lodged a caveat over the former husband’s property (in which the wife claimed a share) claiming an equitable estate in fee simple “By virtue of constructive trust”.  The notion that the circumstances gave rise to the solicitor having a caveatable interest in the husband’s land was described by Judge Lacava as “a legal nonsense” [27] as was the interest claimed in the caveat [43].  The solicitor was charged with unsatisfactory professional conduct by lodging and/or refusing to withdraw the caveat where she knew and/or ought to have known that she had no caveatable interest and by providing information to the Registrar of Titles that she ought to have known was false.  She was convicted with the question of penalty adjourned.

24. Solicitors breathe a sigh of relief! – Compensation claim under TLA s. 118 – Whether solicitor who lodged caveat liable – Scope of “Any person lodging … any caveat”.

Lanciana v Alderuccio [2019] VSC 198 (28 March 2019), Moore J.

The facts and relevant legislation were –

  • The plaintiff and Bloomingdale Holdings Pty Ltd (Bloomingdale) were equal unitholders in two trusts. The sole shareholder and director of Bloomingdale was Antonio Gangemi.
  • In 2001–2 the trustee of one trust purchased a property and the trustee of the other trust purchased another property.
  • A dispute arose between the plaintiff and Gangemi concerning their business dealings and rights in respect of both properties. The defendants acted as solicitors for Bloomingdale and Gangemi.
  • In 2003 the dispute was settled by an agreement whereby Gangemi’s and Bloomingdale’s interests in both properties would be transferred to the plaintiff or his entities. This transfer to the plaintiff occurred, on which he became solely entitled to the beneficial interest in both properties, and caveats lodged on behalf of Bloomingdale over both properties were withdrawn.
  • However, on 29 March 2005, the defendants as “Alderuccio Solicitors” lodged caveats over both properties on behalf of Bloomingdale as caveator, claiming an equitable estate in fee simple pursuant to a deed of trust dated 25 February 2002 between Bloomingdale and both trustees. The caveats identified “Alderuccio Solicitors” as the address for service of notice and were signed by an “agent being a Current Practitioner under the Legal Practice Act 1996”.
  • The plaintiff alleged that these 2005 caveats caused it loss and damage.
  • The TLA s. 118 provided that –
    “Any person lodging with the Registrar without reasonable cause any caveat under this Act shall be liable to make to any person who sustains damage thereby such compensation as the Court deems just and orders”.
  • The plaintiff sued the defendants alleging that when the 2005 caveats were lodged they knew or ought to have known that Bloomingdale did not have a caveatable interest and could not reasonably have held an honest belief based on reasonable grounds that it had a caveatable interest capable of supporting any caveats.
  • The court heard a preliminary question including whether, assuming the foregoing facts, the defendants were “a person” lodging a caveat for the purposes of s. 118.

His Honour –

1.    Held that the defendants were not such “a person”.  The case contains much statutory analysis going back to the 19th century and reference to cases for this conclusion which it is unnecessary to set out. [5]

2.   Approved the summary of applicable principles under s. 118 in KB Corporate Pty Ltd. v Sayfe and Anor (see Blog No. 9) –

(a)  the applicant must show the caveator had no caveatable interest;

(b)  the applicant must show the caveator did not have an honest belief based on reasonable grounds that a caveatable interest existed;

(c)  the test is partially subjective and partially objective;

(d)  the subjective component requires an examination of the caveator’s belief and whether it was honestly held;

(e)  it is objective in that it requires that the belief is held on reasonable grounds;

(f)   it is a fallacy is to think that the absence of a caveatable interest at the time when the caveat was lodged establishes that the caveator did not have a reasonable basis for a belief that it was entitled to lodge a caveat; and

(g)  legal advice that the caveator was entitled to lodge the caveat may be of considerable significance in determining whether the claimant has established that the caveat was lodged without reasonable cause, but the content and accuracy of the legal advice must be evaluated with all other relevant circumstances. [80]

3.    Held that “Any person” in s. 118 –

(a)  was capable of covering someone who lodged a caveat without any authority. [82]

(b)  may cover: someone named as executor who had not yet taken out probate where the unregistered interest which could the subject of a caveat was part of the estate and was threatened, or; someone seeking a guardianship order in respect of an incapable person who had such an unregistered interest. [64], [82]