34. Costs – Whether indemnity costs against unsuccessful caveator – Whether solicitor should bear costs.

Alliance Developments Pty Ltd v Arbab & Anor [2019] VSC 832 (20 December 2019), Garde J; Alliance Developments Pty Ltd v Arbab & Ors (No 2) [2020] VSC 37 (14 February 2020).

Comment.   In the first Alliance Developments case Garde J comprehensively examines the law on award of indemnity costs against a caveator and a solicitor and on the importance of adhering to proper conduct in caveating.  The second Alliance Developments case is a brief further application of these principles to later costs. 

Alliance Developments Pty Ltd v Arbab & Anor [2019] VSC 832. 

The facts were –

·   The plaintiff (Alliance) initially had three shareholders including Mr Abela (Abela) and the first defendant Mr Arbab (Arbab) they being the the sole directors.  

·   In 2013 Alliance purchased and became registered proprietor of land at California Gully with the intention of subdividing it and erecting homes on it.  Arbab claimed he contributed funds to the purchase.

·  In 2014 Alliance, on the nomination of the purchaser Abela, became registered proprietor of land at Laverton North.

·     By August 2015 Arbab was no longer a director of Alliance and his shareholding had been reduced from 50% to 8%.  He disputed this, claiming he did not agree to it. 

·    Arbab retained a firm (“the firm”) with a sole principal (“the solicitor”) for advice.  The firm sought advice from counsel.  In October 2015 counsel advised on the dispute concerning the company, and advised that, if, as to which counsel stated he had not been instructed, the funds supplied by Arbab bore a certain complexion that it should lodge a caveat over the California Gully property.  Counsel did not refer to the Laverton North property.

·  In 2015 Arbab commenced proceedings under the Corporations Act which were subsequently amended. 

·   In March 2016 the firm sent a letter of demand to the third shareholder and his company concerning a partnership or profit sharing dispute. 

·      Later in 2016 the solicitor lodged a caveat over the Laverton North property on behalf of Arbab.  The estate or interest claimed was a freehold estate and the prohibition was absolute.  The ground of the claim was “Implied, Resulting, Constructive Trust”.

·   In March 2018 the solicitor lodged a caveat over the California Gully property on behalf of Arbab.  The estate or interest claimed was a freehold estate and the prohibition was absolute. The ground relied upon was: “Registered proprietor(s), being entitled to possession of the Certificate of Title for the land and to prevent improper dealing”.

·   Later in 2018 on the application of Alliance the Registrar gave a notice under the Transfer of Land Act s. 89A(1) that both caveats would lapse unless the application was abandoned or notice was given to the Registrar that proceedings were on foot to substantiate the claim of the caveator.  In response the firm gave notice that such proceedings were on foot.  In particular: the firm advised that the Corporations Act proceeding was on foot and was set down for trial; the solicitor certified in substance that she had retained the evidence supporting the caveats and had taken reasonable steps to ensure that they were correct; the letter attached a notice signed by the solicitor falsely to the effect that proceedings were on foot in a court of competent jurisdiction to substantiate Arbab’s claims.  The Registrar accordingly took no further action. 

·    On 23 August 2019 Alliance’s solicitors wrote to the firm stating that Arbab did not have a caveatable interest, that application would be made under the TLA s. 90(3) unless the caveats were withdrawn, that, referring to the Supreme Court decisions, they had instructions that may give rise to Arbab’s advisers being liable, and that they were concerned at the certification to the Registrar and the solicitor’s failure to produce any documentation substantiating the caveatable interests claimed.  This letter drew a combatative response from the solicitor on 25 August. 

·    In September Alliance commenced a proceeding seeking relief under s. 90(3).  The necessary court documents were served on Arbab and on the firm.  Between 16 and 30 September:

o   the solicitor said she did not have instructions to accept service and incorrectly disputed that there had been valid service on the Arbab (served at the address stated in the caveat);

o   the solicitor said that both she and client were overseas and she could not get instructions and did not act for the caveator;

o     the solicitor emailed the Court advising that she did not have instructions to act in the proceeding due to an unidentified potential conflict of interest;

o   on 25 September another solicitor appeared in court as agent for the caveator, directions were given including for filing of material by Arbab, and the proceeding was adjourned with the caveator being ordered to pay the plaintiff’s costs of the adjournment on an indemnity basis;

o    on 26 September the solicitor emailed the plaintiff’s solicitors confirming that she did not hold instructions but attaching an email from the caveator stating in substance that he would agree to removal of the caveats for particular reasons with costs, and that for medical reasons he had been unable to deal with the application;

o   on 30 September the solicitor advised the plaintiff’s solicitors that the caveator had not so agreed until 25 September. 

·      On 3 October the caveator emailed the Court and the plaintiff’s solicitors, agreeing to pay the costs of the plaintiff on an indemnity basis, but not to their amount without further information.  On that day, no material having been filed by the caveator who also did not appear, Ginnane J. ordered removal of the caveats and required that any application for indemnity costs be by summons.

The plaintiff issued such a summons seeking indemnity costs against caveator, the firm and the solicitor under s. 24(1) of the Supreme Court Act, which gave the Court a general discretion as to costs, and under r. 63.23(1) of the Supreme Court (General Civil Procedure) Rules 2015, which gave the Court power to make a ‘wasted costs order’ against the solicitor of a party to litigation.   The evidence included that Alliance had entered into a contract to purchase another property (as to which the evidence was conflicting).  Arbab elected to waive legal professional privilege and the solicitor deposed to her instructions.

Garde J held that Alliance’s costs up to and including 3 October 2019 were payable on an indemnity basis jointly and severally by the caveator and the solicitor on the following grounds – 

1.  The estate or interest claimed in a caveat, its ground, and the nature of the prohi­bition were of prime importance.  Examples of inaccuracies in caveats from previous cases were: “an interest as chargee” based on an implied, resulting or constructive trust; an “[e]quitable interest as a 50% shareholder of the property pursuant to a trust Deed” – a shareholder has no caveatable interest in land belonging to a company; a claim by an unregistered mortgagee to an absolute prohibition on dealings which stultified the exercise of a power of sale by a registered mortgagee.  By contrast, as illustrated in in Lawrence & Hansen Group Pty Ltd v Young [2017] VSCA 172, where only one of two registered proprietors gave a charge, a claim for absolute prohibition was sufficiently clear and should be construed as limited to the interest of the charging joint proprietor. [16]-[20], [56], Footnote 15

2.   The purposes of requiring the caveator to specify the estate or interest claimed were to enable: the registered proprietor to ascertain the claim to be met; the Registrar to determine whether a dealing lodged for registration was inconsistent with that claimed; the Registrar to determine whether a caveator’s notice was of a proceeding to substantiate the interest claimed and satisfied s. 89A(3)(b). [21]-[22] 

3.   However, if a caveator had more or different rights in land than those claimed, the caveator could lodge another caveat claiming the additional interests. [23]

4.   As to the claim in the Laverton North caveat of a freehold estate on the ground of a trust: the ground was expressed generally without referring to any agreement or basis, nor descending into particulars or explanation of how the alleged trust or freehold interest arose (there were three kinds of freehold estates – most commonly a fee simple, but also a fee tail and a life estate). [25], Footnote 15

5.  The claim made in the California Gully caveat was misconceived and nonsensical. As Alliance had been its registered proprietor since 2017 the ground of claim was suitable only for a registered proprietor who sought to receive notification from the Registrar of the lodgement of a dealing affecting the land.   Whatever Arbab’s claim – whether pursuant to any agreement or financial contribution or otherwise – it was not referred to in the caveat. [26]-[29], [65]-[68]

6.  The notice given by the solicitor to the Registrar was wrong and misleading.  The Corporations Act proceeding sought orders related to the shareholdings not to substantiate the estate or interest claimed in the caveats. [33]-[34]

7.   The lodging of a caveat was a serious business. His Honour set out why this was so and what the proper purpose of lodging a caveat was, referringto Goldstraw v Goldstraw [2002] VSC 491; Piroshenko v Grojsman & Ors (2010) 27 VR 489; Love v Kempton [2010] VSC 254; Campbell v Pastras & Anor [2015] VSC 162. [56]-[59].

8.   After referring to the criteria in Fountain Selected Meats (Sales) Pty Ltd v Inter­national Produce Merchants Pty Ltd (1988) 81 ALR 397 and Ugly Tribe Company Pty Ltd v Sikola & Ors [2001] VSC 189, Arbab was ordered to pay indemnity costs because 

(a)  he agreed to pay costs on 25 September 2019 and indemnity costs on 3 October 2019, disputing only the final amount;

(b)  the caveats were lodged and maintained on his instructions;

(c)  the caveats were misconceived and without merit;

(d)  the caveats were lodged and relied on without regard for known facts and clearly established law;

(e)  the caveats were intended as a bargaining chip in the Corporations proceeding; and

(f) it would be unfair to the other shareholders if Alliance bore the difference between an indemnity costs and a standard costs order. [60]-[73]

9.  The Court’s power under r 63.23 reflected the inherent jurisdiction of the Court to supervise its own affairs. The inherent jurisdiction required a serious dereliction of duty or gross negligence, but this was unnecessary under r 63.23.  Under r 63.23, a solicitor’s negligence or failure to act with reasonable competence may justify a personal costs order.  His Honour set out matters found relevant by previous judges in the exercise of the wasted costs jurisdiction in  Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd (No 5) [2014] VSC 400; (2014) 48 VR 1;  Apollo 169 Management Pty Ltd v Pinefield Nominees Pty Ltd (No 2) [2010] VSC; Sekhon & Anor v Chandyoke & Anor [2018] VSC 327 (Blog 17); McKewins Hairdressing and Beauty Supplies Pty Ltd (in liq) v Deputy Commissioner of Taxation and Anor (2000) 74 ALJR 1000; Pearl Lingerie Australia Pty Ltd v TGY Pty Ltd; Pearl Lingerie Australia Pty Ltd v John Giarratana Pearl Lingerie [2012] VSC 451; Gatto Corporate Solutions Pty Ltd v Mountney [2016] VSC 752; and White Industries (Qld) Pty Ltd v Flower & Hart (a firm) (1988) 156 ALR 169.  [75]-[84]

10.The firm had a paramount duty to the Court and in the administration of justice to act honestly in relation to the dispute. These duties included a duty on the factual and legal material available not to make a claim or respond to a claim in a civil proceeding without a proper basis.  The firm was required not to engage in misleading or deceptive conduct or conduct likely to mislead or deceive. [86]-[87]

11. Assuming the standard laid down by Dixon J. in Briginshaw v Briginshaw (1938) 60 CLR 336 applied, his Honour was satisfied to a comfortable level of satisfaction on the balance of probabilities that the firm (and solicitor) failed to act with reasonable competence and was negligent and in breach of duties to the Court in:

(a)  the drafting of the caveats;

(b)  the s 89A application;

(c)  the misrepresentations to the Registrar;

(d)  the refusal to withdraw the caveats to avoid the proceeding;

(e)  the failure to acknowledge that the caveats were unsustainable; and

(f)   the failure to brief counsel with the relevant facts, or if in doubt, obtain counsel’s opinion on whether the caveats were maintainable. [88]-[90]

In Alliance Developments Pty Ltd v Arbab & Ors (No 2) [2020] VSC 37 Garde J held that the plaintiff’s costs after 3 October 2019 were payable on an indemnity basis jointly and severally by the caveator and the solicitor for similar reasons to the previous costs order, including that the solicitor had acted contrary to the overarching principles set out in the Civil Procedure Act, including the obligation to act honestly, the requirement to have a proper basis for a civil claim, and the obligation not to mislead or deceive.

Philip H. Barton

Owen Dixon Chambers West

5 May 2020