Comment. Colakoglu is a mundane caveat removal case in which a caveator, who removed the caveat after service of a s. 90(3) application, was ordered to pay costs on a standard basis – it was unclear whether there had been reasonable cause to lodge the caveat but clear that, in negotiations immediately before its withdrawal, he maintained it inappropriately as a bargaining chip to extract funds to cover his costs. Diep and Wegner are the latest manifestations of the practice of judges visiting hopeless caveats with indemnity costs. The caveator in Diep did not help his case by stating that he would not remove the caveat until there was “an offer on the table” and that he “plays poker and was happy to spend a couple of hundred thousand dollars to make a point”. From the time of the decision of Dodds–Streeton J. in Goldstraw v Goldstraw [2002] VSC 491 at [42] judges have repeated that caveats are not to be used as “bargaining chips”, which the caveator in Diep literally did. From the blogger’s dim recollection, in vernacular terms the caveator “went bust”, and indeed Google confirms that to “bust” a player in poker (as John Dixon J. did) means you are relieving them of all their chips.
In Colakoglu v Ozcelik [2020] VSC 139 the facts were –
- The plaintiff and first defendant were married, had purchased a unit then placed in the plaintiff’s name but to which the first defendant claimed he had contributed giving rise to a trust, and proceedings were on foot between them in the Federal Circuit Court in which the beneficial interest of the parties could be adjusted under the Family Law Act.
- The plaintiff listed the property for sale with the first defendant’s consent, his solicitors advising that he had foregone his interest in the property and had no interest in the proceeds of sale.
- A contract of sale was accordingly entered into with settlement scheduled for 19 March. However, on 3 March, notwithstanding their earlier advice, the first defendant’s solicitors lodged a caveat claiming a resulting and/or constructive trust.
- The plaintiff sought consent to withdrawal of the caveat, on the basis that the sale proceeds would be held by her solicitors in a solicitor’s controlled money account for the benefit of both parties pending resolution of the family law issues. Before the time for settlement of the contract arrived the parties were not in dispute that the contract ought to settle with the balance of proceeds of sale being paid into trust.
- However, the first defendant did not remove the caveat, delaying settlement. But after the plaintiff commenced a proceeding under the TLA s. 90(3) the first defendant withdrew the caveat and the contract settled
John Dixon J. ordered that the costs of the application be paid by the first defendant on a standard basis, dismissed an application for costs against his solicitors, and referred an application for compensation under s. 118 for case management. His Honour held –
- As to whether there was a serious question to be tried, as the unit was to be converted into a fund to be held in trust pending resolution of the family law dispute, the beneficial interest of either party was unaffected, and accordingly whether the first defendant disclaimed any interest in a trust as the plaintiff submitted, or whether he ever had such interest as the first defendant now contended, was a matter for trial. [7]
- The balance of convenience favoured removal of the caveat. [16]
- The evidence on whether the first defendant had reasonable cause to lodge the caveat was unclear, because he did not engage with the plaintiff’s allegation that he disclaimed any interest in the unit when consenting to its sale. However, in the negotiations immediately before the withdrawal the caveat continued to be maintained inappropriately as a bargaining chip to extract funds to cover his costs. [13], [22]
In Diep v Tran & Ors (Costs) [2020] VSC 171 –
- The first defendant lodged a caveat asserting a caveatable interest on the basis of an agreement dated 1 May 2019. He ignored requests for a copy of this agreement: it was never sighted.
- The plaintiff’s solicitors requested withdrawal of the caveat, being met with the response that it would not be removed until there was “an offer on the table” and that he “plays poker and was happy to spend a couple of hundred thousand dollars to make a point”.
- The plaintiff’s solicitors suggested that the caveat be withdrawn, the settlement proceed and the net proceeds of the sale be placed in a trust account pending resolution of the dispute. The caveator responded in substance: “you said you were going to make an offer, there’s no offer of money. Why would I remove my caveat if you are not going to give me money?”
- After caveat removal proceedings were issued the caveat was withdrawn.
His Honour ordered that the caveator pay indemnity costs because: he provided no justification for the interest claimed by his caveat; before issuing the proceeding the plaintiff’s solicitor made a reasonable proposal for retention of the net proceeds of sale; the caveat was used as a bargaining chip to extract a monetary offer – a serious misuse of statutory provisions for an improper or ulterior purpose.
In Wegner & Anor v Mayberry [2020] VSC 239 –
- The first defendant lodged a caveat on the ground of an implied, resulting or constructive trust over land of which the first plaintiff, his former wife, was a registered proprietor as tenant in common with the second plaintiff. The purchase of the land had been funded by bank finance secured by mortgage.
- In April 2019 this caveat was removed by court order with indemnity costs.
- In July 2019 the first defendant became bankrupt.
- In January 2020 the first defendant lodged a second caveat on the same ground as the first. On being requested to remove it he refused until the plaintiffs refinanced and released him from his obligations as a co-borrower. He was given notice that unless the caveat was withdrawn indemnity costs would be sought.
- In February 2020 the plaintiffs entered a contract to sell the land for a price below the mortgage debt, the solicitors for the first defendant’s trustee in bankruptcy consented to the sale, and caveat removal proceedings were commenced.
Kennedy J ordered removal of the caveat because the caveator had not established any arguable right or interest in the land (and any interest would now be vested in his trustee in bankruptcy) and the balance of convenience favoured removal: the caveat would adversely affect the sale; it was in everyone’s interests that the mortgage debt be reduced; there was evidence that market may be falling; and the trustee in bankruptcy had consented to the sale.
Indemnity costs were awarded because the caveat had been lodged for a collateral purpose and in disregard of known facts.
Philip H. Barton
Owen Dixon Chambers West
12 May 2020