41. Indemnity costs – Injunction against caveating – Mercury Draught Cider drinking caveator attracts both injunction and indemnity costs.

The two cases in this Blog are, but for one point, mundane cases of removal of hopeless caveats, indemnity costs and in the second case an injunction against caveating.  The one point is that in the second case the case for an injunction was so strong that the Associate Justice did not require an undertaking as to damages.  The mundaneness of the cases is also enlivened by some remarks by the caveator in the second case.

In Devine v Bernstone [2020] VSC 507, (17 August 2020), Croucher J, the facts were –
  • The plaintiff and defendant were involved in litigation pending before the County Court relating to monies which the defendant alleged were owed to him by a company of which the plaintiff is or was a director.
  • In 2018 the defendant caveated over a property owned by the plaintiff to protect his alleged interest under the agreements the subject of the County Court proceedings. His solicitors advised him that he had no caveatable interest and the caveat was withdrawn.
  • The plaintiff subsequently entered a contract to sell this property. Settlement was due on 28 November 2019 but was postponed because the defendant caveated again, this time on the ground of an alleged agreement dated 18 November 2019.
  • The plaintiff’s solicitors wrote to the defendant seeking details regarding the alleged agreement without response. They also requested that he remove the caveat to which he responded that he would do so in exchange for payment of $240,000.
  • The plaintiff commenced proceedings under the Transfer of Land Act s. 90(3) to remove the caveat. At the hearing in December 2019 the defendant (who was self-represented) said that the reference in the caveat to an agreement dated 18 November 2019 was erroneous, stated that he instead relied on an alleged conversation with the plaintiff and on a term in a loan agreement, but ultimately accepted that the caveat had no proper basis and withdrew his opposition to removal.

His Honour ordered the defendant to pay costs on an indemnity basis because of special circumstances, being –

  1. The ground stated in the caveat did not exist. [31]
  2. The alternative justifications for the caveat raised at the hearing were unmeritorious and the alleged conversation with the plaintiff was unsupported by evidence. [32]-[34]
  3. The caveat was lodged in wilful disregard of repeated advice to the defendant (including from his solicitors) that he had no caveatable interest. [35]
  4. The caveat was lodged with the ulterior motive of exerting pressure on the plaintiff to repay monies allegedly owed. [36]
  5. Because the defendant refused to withdraw the caveat the plaintiff had to commence this proceeding and so incur costs. [37]
  6. The plaintiff’s solicitors warned that indemnity costs would be sought. [38]

Royal Melbourne Institute of Technology v Galloway & Anor [2020] VSC 575, (9 September 2020), Derham AsJ.

RMIT owned the Oxford Scholar Hotel.  It entered a contract with Schiavello Construction (Vic) Pty Ltd (Schiavello) to redevelop and refurbish the hotel.  Schiavello engaged the first defendant as a subcontractor for the works.  He claimed that Schiavello owed him money.  RMIT called for expressions of interest, closing on 26 August, for the purchase of other land (“the land”) owned by it.  After this call the first defendant on 18 August lodged a caveat on the title to the land claiming a freehold estate pursuant to an agreement with the registered proprietor dated 3 August 2020.  Various expressions of interest were lodged and RMIT desired to advance the sale.

The first defendant had no legal relationship with RMIT, whose solicitors wrote to him twice seeking withdrawal of the caveat and warning that failing this proceedings would be issued and indemnity costs and compensation for loss suffered by RMIT would be sought.  He replied derisively including inviting the writer to “feel free to drop a slab around sometime”, stating that he drank Mercury Draught Cider, stating “see you in Court honey”, and accusing RMIT of behaving like foolish little children.

He also emailed RMIT: threatening to dump a truckload of rubbish outside the hotel and to put up posters at RMIT making allegations against RMIT; making personal threats against RMIT personnel; and demonstrating that he was aware of the baseless nature of the caveat and that he intended by it to inflict legal cost and media attention on RMIT.

RMIT applied for removal of the caveat under the Transfer of Land Act s. 90(3).  The first defendant acknowledged that the caveat was a desperate attempt to induce RMIT to intervene in his dispute with Schiavello.  Derham AsJ:

  • stated the criteria for caveat removal under s. 90(3) in conventional terms (eg see Blogs under Category “Caveat – Test for maintenance on s. 90(3) application”); [16]-[18]
  • removed the caveat on the ground of no prima facie interest in the land and (if necessary) balance of convenience; [20]-[22]
  • enjoined the first defendant against further caveating on the title of any land of which RMIT was registered proprietor.  Although an undertaking as to damages was offered by RMIT his Honour stated that the legal right to an injunction was so clear and the balance of convenience so weighted that an undertaking was neither necessary nor appropriate [24]; and
  • as the caveat was lodged for an ulterior motive and being used as a bargaining chip, ordered him to pay indemnity costs. [23], [25]

Philip H. Barton

Owen Dixon Chambers West

29 September 2020

40. B acquires monies from A by mistake or in breach of trust, which B passes on to a third party, who uses them to purchase land of which third party becomes registered proprietor – Monies held on constructive trust for A – Not mere equity – Caveat by A based on constructive trust upheld – AE Brighton Holdings Pty Ltd v UDP Holdings Pty Ltd [2020] VSCA 235. No purchaser’s lien and so no caveatable interest because purchaser in breach of contract of sale – Ironbridge Holdings Pty Ltd v O’Grady [2020] VSC 344.

AE Brighton Holdings Pty Ltd v UDP Holdings Pty Ltd [2020] VSCA 235 (11 September 2020) was an unsuccessful application for leave to appeal from the case of that name covered in Blog 32, in which Ginnane J dismissed an application under the Transfer of Land Act s. 90(3) for caveats to be removed.  The facts are now restated from that Blog and supplemented –

  • Esposito Holdings Pty Ltd (Esposito Holdings) agreed to sell and the first defendant (UDP) agreed to purchase the issued shares in a company. An arbitration occurred related to disputes arising under that agreement.  The arbitral Award stated that Esposito Holdings had engaged in misleading and deceptive conduct contrary to s. 18 of Schedule 2 of the Competition and Consumer Act 2010 (Cth) and that its sole shareholder and director Mr Antonio Esposito was involved in the contravention within the meaning of s. 2(1) and for the purposes of s. 236 of Schedule 2.  The Award also declared that on and from 31 January 2014 Esposito Holdings held the purchase price on constructive trust for UDP which had suffered loss of $54,144,847.
  • The plaintiff (AE Brighton) purchased and became registered proprietor of four properties.
  • There was prima facie evidence that, when Mr Esposito was also sole shareholder and director of AE Brighton, part of the purchase price received from UDP under the share sale agreement was paid by Esposito Holdings, possibly through another company controlled by Mr Esposito, to AE Brighton to purchase the properties, possibly in the case of one purchase through repayment of an earlier loan used for that purchase.
  • In 2017 UDP caveated over the properties on the grounds of an implied, resulting or constructive trust.
  • In 2018 the Supreme Court gave UDP leave to enforce the Award and ordered that it be given effect as a judgment of the Court (‘Award recognition judgment’).
  • In 2019 AE Brighton entered contracts to sell two of the properties.

After the decision of Ginnane J in October 2019 UDP took an assignment of a mortgage registered on the properties, took possession, as mortgagee in possession rescinded the contracts of sale, and sold the properties with settlement due on 4 September 2020.  Its solicitor swore that the net proceeds of sale would be paid into court pending resolution of a proceeding.

The Court of Appeal (Kyrou, Kaye and Sifris JJA) held or stated –

  1. The law related to applications under s. 90(3) in conventional terms (eg see Blog 1). [25]-[26]
  2. A successful challenge to the exercise of judicial discretion by Ginnane J required establishment of an error of the kind identified in House v The King (1936) 55 CLR 499 at 505. [27]
  3. Only a legal or equitable interest in land could sustain a caveat and accordingly, as stated by the High Court in Boensch v Pascoe [2019] HCA 49 (Blog 29), a mere statutory right to take steps to avoid a transaction did not suffice – the interest asserted must be in existence when the caveat was lodged. A mere equity, defined in various ways including ‘a right, usually of a procedural character, which is ancillary to some right of property, and which limits it or qualifies it in some way’, was not a proprietary interest. [28]-[29]
  4. The constructive trust of the type upon which UDP relied was an institutional trust arising from the retention of funds known to have been paid by mistake. More particularly –

(a)        This trust arose at the time when the person who received the funds acquired knowledge of the mistake, if the moneys paid could still be identified at that time.  The recipient’s conscience was then bound and it would be against conscience for the recipient to use the funds as his or her own. [30]

(b)      “Knowledge” meant the payee having actual knowledge, or wilfully shutting his or her eyes to the obvious, or wilfully and recklessly failing to make such inquiries as an honest and reasonable person would make, or having knowledge of circumstances which would indicate the facts to an honest or reasonable person. [31]

  1. A third party may be liable to account as a constructive trustee where it received trust property with notice that it was being dealt with in a manner involving a breach of trust. In accordance with the equitable principle of tracing, the beneficial owner of misappropriated property could recover it or its traceable proceeds from someone holding the asset, subject only to the defence of bona fide purchaser for value without notice.  Where a trustee wrongfully used trust money to provide part of the cost of acquiring an asset, the beneficiary was entitled at his or her option either to claim a proportionate share of the asset or to enforce a lien upon it to secure his or her personal claim against the trustee for the amount of the misapplied money. [32]-[33]
  2. This case had two features usually absent from cases where a caveator claimed an interest under a constructive trust –

(a)     There was a declaration, recognised by the Award recognition judgment which itself had the effect of declaring as a matter of law, that Esposito Holdings held the purchase price paid by UDP on constructive trust for UDP from 31 January 2014;

(b)    Secondly, the sole director of the corporate registered proprietor of the properties (Mr Esposito) had given sworn evidence at a public examination that funds subject to the constructive trust were used to purchase the properties.  He was aware of all the facts giving rise to the constructive trust.  As he was its sole director his knowledge was attributable to Esposito Holdings.  It was its knowledge of those facts, which operated on its conscience, that could give rise to an institutional constructive trust without the need for a court order and which enabled the arbitrator to declare the existence of a constructive trust from 31 January 2014.  Importantly, as Mr Esposito was also the sole director of the plaintiff, his knowledge was attributable to the plaintiff.

The combination of those two features established a prima facie case that the beneficiary of the constructive trust had an equitable interest in the properties, in accordance with the principles of tracing. [55], [56], [58].

  1. The Evidence Act 2008 s. 91 provided that evidence of the decision, or of a finding of fact, in an Australian or overseas proceeding was inadmissible to prove the existence of a fact that was in issue in that proceeding. However, s. 91 did not preclude Ginnane J from relying on the Final Award and the evidence adduced in the arbitration, as they were not being used to prove the existence of any fact but were being considered in assessing whether there was sufficient evidence to enable UDP to establish a prima facie case of the existence of a caveatable interest. [45], [59]-[60]

In Ironbridge Holdings Pty Ltd v O’Grady [2020] VSC 344 (11 June 2020), Ginnane J, the facts and relevant holdings were –

  • In 2006 the plaintiff entered a contract of sale to purchase land from vendors of which the defendant was the survivor.  The settlement date was no later than 7 years but was extended.
  • A deposit and certain instalments of purchase money were paid, but the final instalment was not.  Part of the land was transferred.  The vendor rescinded the contract.
  • The purchaser caveated on the basis of an alleged equitable (purchaser’s) lien over the untransferred land to secure repayment of instalments of purchase money and interest.
  • The purchaser succeeded in a claim for restitution.  However the purchaser was held not to have a caveatable interest.  His Honour observed that where title was not conveyed the purchaser’s lien secured the repayment of monies paid by the purchaser, to whom it gave a right to sell the property and take a share of the proceeds of sale in an amount equal to the debt.  But there must be a debt which the lien could secure.  Here there was no lien because the purchaser was in default of its obligations under the contract: the purchaser was only entitled to the lien where the contract went off through no fault of its own. [307], [309], [310], [312]-[314]

Philip H. Barton

Owen Dixon Chambers West

21 September 2020