Month: March 2023

Blog 70. Solicitor disciplined concerning caveat – is lodgment of improper and baseless caveats by legal practitioners endemic?

Legal Services Commissioner v Souki [2022] VCAT 663 (17 June 2022)

This case was a proceeding by the Legal Services Commissioner against a solicitor including for drafting baseless caveats.  The solicitor pleaded guilty to a number of charges.  The form of Senior Member E. Wentworth’s decision was first to set out the Findings, second the Orders, third the Senior Member’s Reasons (27 paragraphs), and finally, occupying most of the decision, an “Appendix: Relevant Extracts from the Parties’ Submissions”.  The Appendix included agreed proposed penalties and the solicitor’s explanations.  The Senior Member stated (paragraph 20) –

“The Commissioner’s submissions noted that the lodging of such [improper or baseless] caveats by legal practitioners is ‘endemic’.  If that is so, it is a shameful matter for the legal profession.”

Last October I gave a paper on caveats at the Commercial Law Discussion Group Conference (being a Discussion Group of Victorian solicitors) and at least one experienced solicitor, without demur from the other solicitors present, disputed the word ‘endemic’, regarding it as unjustified.

The solicitor acted for three clients in a Supreme Court proceeding in which they were seeking to recover their investment in a gold bullion firm.  The facts related to the caveat charge (including the solicitor’s explanations) were –

  • The solicitor was a young practitioner who was in her early years of practice as a principal of her own law practice.
  • Her clients requested her to caveat over a property owned by a defendant in the Supreme Court proceeding.  They had no estate or interest in the property and were at most prospective judgment creditors.
  • The solicitor informed her clients that caveating was not possible as they had no caveatable interest, the clients were reluctant to accept that advice, the solicitor sought advice from counsel in conference with the clients, and counsel also told the clients that they had no caveatable interest.
  • The property was listed for sale and again the clients insisted on caveating.  The solicitor had a number of discussions with the clients about the issue, reiterating that no caveatable interest existed.
  • The clients then asked the solicitor to provide them with a pro forma caveat form.  Accordingly on 24 May 2017 the solicitor provided them with caveat forms she had prepared which: claimed that the clients had an ‘interest as chargee’ based on an agreement with the registered proprietor of that date; sought an absolute prohibition on dealings with the property; and erroneously listed the address for notices under the caveat as the property itself not the address of the clients (this error was attributable to the LEAP system and occurred without the foreknowledge of the solicitor).
  • The solicitor continued to reiterate to the clients that there was no basis for the caveats.
  • In July 2017 the clients lodged the caveats.

The solicitor was charged with professional misconduct in that she prepared and facilitated the lodgment of erroneous and defective caveats in the knowledge that the caveators had no estate or interest in the property capable of supporting a caveat.  She admitted that she facilitated this lodgment and that her conduct involved a substantial failure to reach or maintain a reasonable standard of competence and diligence which amounted to professional misconduct.  (The solicitor’s explanation included that, although she acknowledged that the provision of the pro forma caveat form was improper, changes to the LEAP and caveat process now meant that a pro forma caveat form could no longer be provided to clients).

The parties agreed that a reprimand, and an order that the solicitor complete an additional three CPD units on substantive property law and ethics, was an appropriate remedy.  The Tribunal imposed this penalty and also suspended the solicitor’s practising certificate for a month to be served concurrently with a suspension ordered in respect of another charge.  The Tribunal stated ([10]) that this suspension was in the interests of general deterrence and to signal the seriousness of the conduct.  It added ([22]) that if the matter had involved a more experienced practitioner or a higher degree of culpability, a more substantial interference with the right to practise would be have been warranted.

Philip Barton

Owen Dixon Chambers West

Tuesday, March 28, 2023

Blog 69. Claim for compensation under TLA s. 118 fails.

187 Settlement Road v Kennards Storage Management [2022] VSC 771, Gorton J., (14 December 2022)

Note: In this case Gorton J. dismissed a claim for compensation under s. 118 for alleged lodgment of a caveat “without reasonable cause”.   His Honour conducted an intricate analysis of the law.  In particular:

  1. His Honour pointed out that the commonly judicially approved test for “without reasonable cause”, ie whether the caveator did not have an honest belief based on reasonable grounds that it had a caveatable interest: sat comfortably with the text of s. 118 where there was some factual uncertainty but where the legal consequences were otherwise straightforward; but did not easily apply where a caveator had an honest belief as to a set of facts the legal consequences of which arguably did, but might not, give rise to a caveatable interest.  In the latter case it was preferable simply to ask: was the caveat lodged “without reasonable cause”?
  2. His Honour dealt with the situation whether, even if a caveat was lodged without reasonable cause, it was just to order compensation if there was no causal connection between the caveat and any loss, or if by the time the caveat became a source of loss there was a proper basis for its lodgment.
  3. His Honour also dealt with the consequences, for the purposes of s. 118, of the prohibition on any dealings with the property and the claim of a freehold estate.
  4. His Honour considered complex issues of contractual interpretation and in what circumstances a right of first refusal, ie a conditional right to purchase under the contract, gave rise to a caveatable interest.

The facts were –

  • 187 Settlement Road Pty Ltd (187SR) was registered proprietor of land in Thomastown (the property).  GDM Self Storage Group Pty Ltd (GDM) owned the self-storage business conducted there.  Leslie Smith controlled both companies.   Kennards Storage Management Pty Ltd (KSM) was associated with Sam Kennard.
  • On 1 September 2015 187SR and KSM executed an agreement with a term of 5 years commencing that day, renewable at the option of either party.   Under the agreement: the “Centre” was defined to be the self-storage centre at the property and the “Business” was defined to be the operation of the Centre; 187SR agreed to develop and then maintain the Centre and KSM agreed to provide management services there and 187SR agreed to pay fees including a “performance incentive fee” if the property were sold.  Clause 16, headed “First and Last Right of Refusal”, provided that during and for 2 years after the end of that agreement the Owner (ie 187SR) must not, without first making the same offer to KSM (Offer), inter alia, sell Centre or the property (cl. 16(a)).  Under cl. 16(b) the Offer to sell was required to be in writing accompanied by a contract of sale specifying the purchase price, deposit, settlement date and any other material terms and KSM had 14 days to accept it.  Clause 16(c) provided that: “The Owner must not … sell … the Centre except at a … price not less than and on terms and conditions not more favourable to KSM than as specified in any Offer made pursuant to sub-clauses (a) and (b) above, provided that before offering to grant on such lesser terms to another party, those terms must be first offered to KSM, so KSM has the last … right to purchase all or any part of the Property or the Centre”.
  • Following construction the Centre commenced operation shortly thereafter in August 2019.  KSM operated the Business.  However, due to complications attributable to 187SR being a trustee company, Smith and Kennard then deemed it preferable for GDM (not 187SR) to own the Business (as occurred at certain premises in Cheltenham).  More particularly:
    • After KSM raised the potential problem of the trusteeship the chief financial officer of KSM emailed Smith on 27 November 2019 saying: “I see the new Mgmt agreement [that is, the agreement for the premises in Cheltenham] was signed with GDM Self Storage – could we adjust the Thomastown agreement to this ABN and then we should be sorted?”
    • On 2 December 2019 Smith responded: “We are OK for the TT [Thomastown] management agreement to be under GDM Self Storage as well”.
    • On 12 December 2019 a financial controller at KSM emailed Smith attaching a document (“the 2019 agreement”) and saying:

      “As discussed … please find attached new management agreement for Thomastown …. This is between KSM and GDM Self Storage and this agreement supersedes the old SSAMA dated 1st September 2015 with 187 Settlement Road.  Please sign and return, thanks.”

  • Smith then signed and returned the 2019 agreement.  This was in the same terms as the 2015 agreement (even being dated and applying from 1 September 2015) with an additional clause providing that it superseded “Self Storage Asset Management Agreement dated 1st September 2015 between Kennards Storage Management Pty Ltd … and 187SR Pty Ltd …”.  This document also provided for “performance incentive fee” if the property were sold payable by GDM, calculated by reference to the EBITDA of the business.
  • In late September 2020, in response to Smith’s invitation, Kennard expressed interest in purchasing the property and the Cheltenham property.  Smith provided valuations, the valuation for the property being $19 m.
  • On 28 October Kennard emailed an offer to purchase the property for $16.2 m.  The email included: “This offer is made separately to the terms of the Management Agreement and does not forfeit any rights and obligations outlined by Clause 16 of the agreement”.
  • On 4 November 187SR obtained a signed “offer to purchase” the property for $18.5 m. from a third party.  On 5 November Smith informed Kennard of this and of his belief that the deal would be done with the third party at $19 m. and asked Kennard to consider his position.  On 6 November Kennard emailed: “I guess we should revert to the mechanism in the Management Agreement”.
  • On 6 November Smith signed and returned the offer to purchase to the third party, altering the price to $19 m., but stating that it was subject to his obligations to Kennard or KSM.
  • On 9 November Smith informed Kennard that he had received an offer at $19 m., that he had instructed solicitors to prepare contracts, and asked Kennard to advise his position. Kennard replied, saying: “Thanks Les.  Send it to us when its ready.”
  • On 10 November Kennard advised Smith that his company would not buy the Cheltenham property.
  • On 13 November Kennard instructed his solicitors to caveat over the property, leaving it to them to prepare the caveat documentation. The solicitors lodged a caveat by KSM prohibiting registration of any dealings with the property and claiming a “Freehold Estate”.
  • On 8 December Smith emailed Kennard that the third party had now also offered to purchase the Cheltenham property, also advising the gross offer for both properties, and stating “It is extremely important to the company to deal with both assets ….”, and “please advise what you would like to do in regards both properties”.
  • On 10 December Kennard sought the sale contract for both properties and stated

    “We should follow the process agreed and in accordance with the Right of Refusal outlined in the management agreement. …”

  • Smith did not provide to any contract to Kennard but on 23 December 187SR and GDM respectively agreed to sell the property and Business to the third party.
  • On 24 December Smith asked Kennard to remove the caveat. KSM alleged that it was a willing buyer for the property at $19m. and sought a written offer from 187SR in accordance with the 2015 agreement.  Dispute then arose about whether 187SR was required to make this offer, or whether any offer would require KSM to purchase both properties.  Then contracts were provided by 187SR and GDM, KSM raised whether it was being offered terms identical to those offered to the third party, KSM purported to accept the offers, argument erupted over whether acceptance was too late, and on 10 February KSM removed the caveat.  The sale to third party was completed on 19 February 2021.
  • 187SR sued KSM claiming compensation under the Transfer of Land Act s. 118.  It contended that the caveat was lodged without reasonable cause and delayed the completion of the sale to the third party giving rise to additional amounts it had to pay to its financier.

The Transfer of Land Act s. 118 provided:

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 a court deems just and orders.

KSM contended that because the “first and last right of refusal” granted by 187SR in the 2015 agreement was expressed to apply for 2 years after its end, it remained operative in 2020, because the 2015 agreement was only superseded by the 2019 agreement in December 2019, thereby giving it a caveatable interest.

His Honour accepted Kennard’s evidence that he believed that KSM had a right of first refusal and that it had not been complied with. 

GDM paid to KSM, under sufferance, the performance incentive fee claimed by KSM.  This did not account for rent payable by GDM to 187SR, but if this rent was to be taken into account in determining the EBITDA, then no performance incentive fee was payable.  GDM sued KSM for return of the performance incentive fee.  The proceedings were heard together.

Gorton J. dismissed the application under s. 118 and ordered the return of the performance incentive fee, holding –    

  1. Smith was acting on behalf of both 187SR and GDM when he participated in the exchanges preceding the 2019 agreement.  Conceptually, these communications, together with the signing of the 2019 agreement and the subsequent management of the Business by KSM, revealed that an agreement was reached that included Smith on behalf of 187SR agreeing that the 2015 agreement would be wholly discharged and replaced by the 2019 agreement.  This conclusion was compelled by: the change in the entity that was to own the business; the communications preceding the 2019 agreement; the text of the 2019 agreement, in particular the expression that it “supersedes” the 2015 agreement and the backdating of the 2019 agreement to 1 September 2015 and expressing that it was to commence from that date. [15], [20], [21]
  2. Accordingly from the time of execution of the 2019 agreement the parties were discharged from all obligations under the 2015 agreement, including any obligations imposed on 187SR by the 2015 agreement expressed to survive its termination. [20]-[22]
  3. Accordingly, although as at December 2020 GDM was obliged to give KSM a “first and last right of refusal” if it wished to sell the business, 187SR was not so obliged as regards sale of the property, whereby KSM did not have a caveatable interest. [23], [24]
  4. The test whether the caveat was lodged “without reasonable cause” within the meaning of s. 118 was often re-expressed as whether the caveator did not have an honest belief, based on reasonable grounds, that it had a caveatable interest. The re-expressed test sat comfortably with the text of s. 118 where, although there was some factual uncertainty, the legal consequences were otherwise straightforward.  However, it sat less comfortably where there was, as here, a complex legal dispute as to whether a first and last right of refusal, that the parties believed existed, was legally sufficient to give rise to a caveatable interest: it did not easily apply where a caveator had an honest belief as to a set of facts the legal consequences of which arguably did, but might not, give rise to a caveatable interest.  If the caveator believed that he or she probably had a caveatable interest, but recognised that the position was uncertain, was that an honest belief in a caveatable interest?   In these circumstances, it was preferable to return to the text of the statute: was the caveat lodged “without reasonable cause”?  The fact that a caveat might be lodged with reasonable cause yet to protect an uncertain interest was apparent from previous authority. [25], [28], [29]
  5. Both parties believed that there was a contractual right of first refusal exercisable against 187SR, and through Smith 187SR incorrectly believed that it had complied with its obligations. [26], [27], [32]-[34], [37]
  6. If, however, contrary to his Honour’s view but nonetheless believed to be so by the parties, 187SR had still contractually been bound to make KSM an offer of first refusal, this right would not per se give rise to an equitable interest because it did not, of itself, give the holder the right to call for a conveyance. No interest would arise if the owner was still absolutely free to sell or not. [39]
  7. However, if a right of first refusal was expressed in positive terms that applied when a contingency was satisfied, then equity would ordinarily intervene once the contingency was satisfied. 187SR’s argument that cl. 16 of the 2015 agreement did not impose a positive obligation on it, on the satisfaction of a contingency, to make an offer to KSM, but merely prevented it from selling to anyone else unless it first made an offer to KSM, had force but the position was not without difficulty.  It was, at least, well arguable that if 187SR were to make an offer to sell the property, then it was positively obliged to make an offer on those terms also to KSM.  It was at least arguable that by signing the 6 November 2020 offer and manifesting a clear intention to sell the property on those terms, or by signing the 23 December 2020 agreements, both in circumstances where 187SR had informed the third party that KSM had a right of first refusal, 187SR fell under an enforceable contractual obligation to make an offer in those terms to KSM.  On balance, if the 2015 agreement had applied, a court probably would have ordered 187SR to offer to sell the properties to KSM on the terms contained in the 23 December 2020 intertwined agreements.  However, the matter was not straightforward. [27], [39], [40], [42]-[46]
  8. For the reasons set out above, by the time the caveat was lodged, having regard to the complexity of the legal argument as to whether cl. 16 would give rise to a caveatable interest, his Honour was not satisfied that KSM lodged the caveat without reasonable cause. It had reasonable cause. [47], [48], [52]
  9. Not detracting from this conclusion was that the caveat precluded all dealings with the property and claimed a freehold interest. If KSM was entitled to lodge a caveat, it was entitled to lodge one that precluded any dealings.  As to claiming a “freehold estate”, the right that KSM was asserting was the equitable right to obtain the freehold on a sale, and although perhaps it would have been more precise to claim a conditional right to purchase under the contract, this imprecision was insufficient to establish lack of reasonable cause. [49]
  10. Although it may be correct, as the caveat was lodged by KSM’s solicitors, to consider that KSM’s solicitors’ mind that was the mind of KSM for the purpose of determining reasonable grounds, even so, and even on the basis that the person preparing and lodging the document had legal training, the caveat was not lodged without reasonable cause. [50]
  11. Further, even if the interest asserted or wording used in the caveat rendered the caveat not lodged with reasonable cause, it would not be “just” to award 187SR any compensation unless it could be shown that this assertion or use caused any loss that would not have been caused anyway if the “right” interest were asserted or wording was used. This was not proved. [50], [65]
  12. The caveat was also not lodged prematurely. But in any event, by the time that the caveat interfered with 187SR’s intentions and, as 187SR alleged caused it loss, 187SR had signed the offers.  In reality, it was probably the maintenance of a caveat at a time when someone tried to register an instrument that caused loss, rather than the “lodging” of the caveat.  In any event, it would not be “just” for the purposes of s. 118 to order that a party pay compensation because a caveat was lodged prematurely if, by the time the caveat became a source of loss, there was a proper basis for its lodgement. [51], [65]
  13. Accordingly, 187SR’s claim for compensation under s. 118 failed. But, if this was incorrect, the process of determining compensation involved two steps: first to ascertain a date by which, but for the caveat, the sale of the business would have been completed; second to ascertain what loss KSM suffered, if any, by reason of the delay between that date and 19 February 2021 being the date of completion of the sale.  If there had been no caveat settlement would have taken place by 22 January 2021 and the loss from delay would have been $274,658 being the increased amount that 187SR had to pay to its financier. [52]-[54], [60], [63], [64]
  14. GDM was entitled to return of the “performance incentive fee” because it was not payable under the terms of the 2019 agreement. [79]

  Philip H. Barton

          Owen Dixon Chambers West

        Wednesday, March 22, 2023

 

Blog 68. Court of Appeal allows appeal by caveator on ground of arguable contract of sale.

Ek v Red Eagle International Pty Ltd (atf Chunan Bai Hybrid Unit Trust) [2022] VSCA 254, Niall and Kennedy JJA., (18 November 2022) 

The facts were –

  • The respondent (Red Eagle) was registered proprietor of three adjoining buildings at 7 – 13 Carrington Road, Box Hill (the Properties).  Ms Cherry Pai was a director of Red Eagle.  In 2021 and early 2022 she negotiated with the applicant (Jade) concerning their sale.  Jade received a draft contract of sale and s. 32 Statement.  She later paid $3,000 to Red Eagle.
  • At a meeting between Cherry and Jade on 14 June 2022 a price of $12.15 m. was proposed and a ‘particulars of sale’ page was used to write down the discussion.  Jade subsequently texted Cherry a photo of the completed particulars which included that price and a handwritten amendment by Jade of the address, from ‘7 – 13 Carrington Road Box Hill’ to ‘7 – 15 Carrington Road, Box Hill’ (the ‘first particulars’).  However, Cherry subsequently explained that shop 15 was not on the title and so not for sale.
  • On 9 July 2022 Jade and Cherry met at Jade’s dental clinic.  Notwithstanding conflicting evidence of what occurred at this meeting it was undisputed that a revised ‘particulars of sale’ dated 9 July 2022 (the ‘9 July Particulars’) came into existence.  This recorded the following, with two handwritten notes (denoted NB)–

    Vendor: Red Eagle International Pty Ltd
    Purchaser: Jade Ek & or Nominee
    Street Address: 7 – 13 15 Carrington Road Box Hill 3128
    Purchase price: $11,850,000.00
    Deposit: $355,500.00 3 – 5% or ($592,500 @ 5%)
    Balance: $11,494,500.00 (9 – 12 months)
    N/B 3 – 5% Due 10/10/2022
    N/B On Market Value 2 yrs after settlement if Property appreciate (Jade) will give 300k

The amounts recorded for price, deposit and the balance were in Jade’s handwriting over whiteout.  Jade’s initials also appeared proximate to the entries of purchaser, street address, ‘3 – 5%’, and the notes.  At its bottom Jade’s signature appeared next to the Chinese characters for ‘purchaser’ (next to a date of 9 July 2022) and Cherry’s signature appeared next to the Chinese characters for ‘vendor’.

  • On 9 July Jade made a further payment of $12,500 to Cherry, and ultimately paid a total of $45,500 between June and 1 August (which she asserted was part payment of the deposit).
  • On 24 July 2022 Red Eagle entered into a contract of sale of the Properties with a new purchaser, Jun Chen, with settlement on 24 October 2022.  Cherry gave evidence that a 10% deposit was paid.  That contract was not in evidence, nor did Jun Chen give evidence.
  • On 2 August 2022 Jade caveated relying on an agreement with the registered proprietor dated 9 July 2022.
  • In September the net deposit paid by Jun Chen was released to Red Eagle and it used $62,750 of it to pay consulting fees related to the sale to Jun Chen.
  • Red Eagle applied to the County Court under the Transfer of Land Act s. 90(3) for removal of the caveat.  Cherry deposed that: at the 9 July meeting she and her husband insisted on a price of $12.15 m.; ‘we signed’ at the bottom of the first particulars of sale next to the Chinese character meaning vendor (which showed her intention to sell at $12.15 m.) and Jade signed the bottom of the page next to the Chinese character for purchaser; Jade then took the signed document back to her office and amended it in handwriting including the price and the deposit, then initialled the changes, and added the handwritten notes; after this Jade presented the amended page to Cherry who refused the amendments.
  • Jade deposed that while she was initially prepared to pay $12.15 m., this altered on realizing that Red Eagle could not sell 15 Carrington Road.  She deposed that: on 9 July she met with Cherry and Cherry’s husband; Jade said to Cherry that she was initially prepared to offer $12.15 m. for “the Carrington Properties” but that after discussions with her son, who was investing with her, we would only pay $11.85 m.; Cherry asked if she would consider paying her $300,000 if the Carrington Properties increased in value of at least that amount, to which Jade agreed; Cherry wanted Jade to sign that day; she told Cherry they could meet again later to sign a clean copy as the copy Jade had contained her previous offer; Jade then remembered she had electronic access to the one page she had sent to Cherry previously by sms, and so they went to her office and arranged for her staff to print it out; Cherry whited out the details and asked Jade to complete the price and other details, which she did except for the Chinese writing appearing at the bottom, which was done by Cherry; she asked Cherry what that writing was and she said it was “buyer” and “seller”; Jade signed where the buyer appeared and wrote the date “9/7/2022”; Cherry signed where the seller appeared; Jade believed that they had reached a concluded agreement.
  • Jade undertook to the court to pay 5% of $11.85 m. (in addition to amounts already paid).
  • On 21 October a County Court judge ordered Jade to remove the caveat by 4 November.  The judge reasoned inter alia: she reached her conclusion on a consideration of the particulars of sale, and so was not required to resolve disputed facts or matters of credit; the indicia of objective intention available from a consideration of the face of the particulars of sale did not support the argument that the parties intended the document to be a binding contract; these indicia included the absence of Cherry’s initials, including against changes to the price and deposit; at trial the caveator would have to establish that the amendments were agreed to by Red Eagle and in view of this lack of initialling Jade’s prima facie case in this regard was weak; the submission that it was left to the purchaser to decide whether to pay a deposit of 3%, 4%, 5% or something in between was not supported on the face of the document – there was nothing to indicate at whose election the amount of the deposit within that range can be decided – so the prima facie case on certainty in this regard was weak; as to the time for payment of the balance of price, a range was provided but without indication of who decided when; she rejected the contention that the terms were agreed but it was simply that the mechanism was not; it was objectively apparent from the existence of unresolved matters on the face of the document that the argument that the document was a final enforceable agreement was weak.
  • Jade filed an application for leave to appeal.  Her proposed grounds included first that the judge erred in finding that her prima facie case of an interest in land arising from an enforceable contract of sale was weak.  The particulars of this ground included that the judge erred by considering that the strength of the prima facie case was diminished by: (a) the term specifying the deposit as 3–5% of the price; (b) the term fixing settlement as 9 – 12 months after entry into the contract; (e) the fact that handwritten notations on the agreement had only been initialled by the purchaser and not on behalf of the vendor.
  • The Court of Appeal stayed the County Court order.

The Court of Appeal gave leave to appeal, allowed the appeal and dismissed the application under s. 90(3), holding –

  1. Because the court’s power under s. 90(3) was discretionary an applicant for leave to appeal against an exercise of that discretion must establish an error of the kind identified in House v The King (1936) 55 CLR 499. [22]
  2. The critical issue was whether the parties signed the 9 July Particulars (which include a revised price of $11.85 m.) or the (earlier) first particulars. This could only be resolved at trial. [16]
  3. The judge hearing the caveat removal application was not required to consider that a trial judge might consider the absence of Cherry’s initials in determining whether Cherry had really executed the 9 July Particulars. Not only was this not required, it was ordinarily inappropriate for a judge to enter into resolution of the underlying factual dispute on this sort of application, particularly where this turned on findings on credit of witnesses.  Accordingly, the judge was not in a position to assess the key issue of whether the parties signed the 9 July Particulars or the first particulars.  The judge had endeavoured to reach a finding about the strength of the key issue in the case and in so doing had considered the absence of Cherry’s initials without regard to the other evidence. [25]-[26]
  4. Even if the judge was in a position to assess the merits of the key issue, there could be no assessment on a prima facie basis, or otherwise, by only having regard to one isolated piece of evidence. The judge thereby erred in her treatment of the evidence that the 9 July Particulars had only been initialled by the purchaser. [27]
  5. The judge’s reasoning that the ranges for the deposit (3% – 5%) and settlement date (9 – 12 months) meant that the prima facie case on certainty was ‘weak’, because there were ‘unresolved matters’, was also flawed. A contract was only uncertain if the court could not put any definite meaning on it.  The objection that one party was left to choose whether to perform a contract was distinguishable from the situation where the contract gave one party choice of or discretion in the manner of performance.  The identification of the person given the choice to determine the figure within the range specified for the deposit or time of settlement was capable of resolution, consistent with the general approach of upholding contracts: there was authority, for example, that it is the promisor who usually had the right to elect which of the methods of performance to choose (although this may need modification as regards time for settlement, given this depended on mutual obligations).  Issues of contractual construction of the 9 July Particulars were ultimately to be determined by the trial judge, but this said nothing about whether the 9 July Particulars gave rise to a binding contract in the first place. [28], [29], [33], [34]
  6. Each of the absence of Cherry’s initials and the specification of the deposit and time of settlement ranges played a significant, if not determinative, role in the judge’s assessment of the prima facie case. They also affected the judge’s assessment of the balance of convenience.  Accordingly grounds 1(a), (b) and (e) were sustained. [36]-[37]
  7. Given the urgency of the case and the Court of Appeal having before it the evidence and submissions that were before the judge, it was appropriate for the Court to exercise afresh the discretion under s. 90(3). [39]
  8. For the reasons given in holding number 5 Red Eagle’s submissions concerning failure to agree on the deposit and settlement date were unmeritorious. Also unmeritorious was its submission that there was a failure to agree on the mechanism for determining market value to ascertain whether the additional $300,000 was payable. Courts were routinely called upon to determine the market value of properties and would readily supply machinery when parties failed to state the basis for determining value. [40]-[41]
  9. As to any argument about reliance on material which post-dated the contract, post-contractual conduct could in limited circumstances be admissible on whether the parties intended a contract to be binding. There was conflicting material which could only be tested at trial. [42]
  10. In summation, the 9 July Particulars raised a serious question to be tried of whether Jade had the interest claimed. [43]
  11. The balance of convenience favoured maintenance of the caveat having regard to: evidence that available properties of this nature in this location were very rare; evidence of Jade’s business needs; an assessment of the interests of the other purchaser; the vendor dissipating part of the released deposit to third parties (to which Jade’s undertaking as to damages was relevant); Jade’s undertaking to pay an amount equal to 5% of $11.85 m. and to prosecute a proceeding for specific performance. [44], [45], [47], [48]
  12. Accordingly, although the matter was finely balanced, the lower risk of injustice was to maintain the caveat. [49]

 

Philip H. Barton

Owen Dixon Chambers West

Tuesday, March 14, 2023

Blog 67. Caveator relying on forged document pays indemnity costs.

Iceland Properties Pty Ltd v Palta & Anor [2022] VSC 734, McDonald J. (28 November 2022).

The facts were –

  • The plaintiff (Iceland) was registered proprietor of a property. Its sole director was Mr Gill. The first defendant (Palta) alleged that on 2 July 2018 he entered a loan agreement with Iceland and Gill, clause 8 of which gave him a charge and the right to caveat.  He relied on a particular document with a signature page, which he produced, being a photocopy (the copy) of the alleged original (the original) which he did not produce.
  • In 2019 Palta caveated on the basis of that alleged charge.
  • In 2020 Palta commenced County Court proceedings to enforce this agreement. However, from October 2020 Gill alleged that he had not signed this document and that it was forged.  He pleaded that it appeared that his signature had been taken from another document and superimposed.  Palta’s solicitors responded that this plea was denied and scandalous.
  • In 2022 Iceland applied under the Transfer of Land Act s. 90(3) for removal of the caveat.
  • Palta deposed that on or about 27 or 28 July 2018 he and Gill had signed the original in the presence of a Mr Handa in the Epping Plaza Shopping Centre carpark, and that Gill had retained it and a few days later given him (Palta) a photocopy, which he exhibited to his affidavit. He further deposed concerning the background of this alleged signing.
  • Handa, whose signature appeared three times as a witness on the copy, deposed: to this meeting at the Epping Plaza carpark; how he came to be there; that Palta asked him to witness the signing of some documents; to events at the time of signing; that he watched Gill and Palta sign a document the front page of which said “loan agreement”, and that he then signed the signing page as a witness three times. He deposed that the front page and the signing pages on the copy exhibited to his affidavit was the same as in the document he witnessed.
  • On the second day the matter was before the court, 18 November 2022, McDonald J. raised with counsel for Palta that it appeared that the two signatures of Gill on the copy were identical, whereas, in contrast, there were slight differences in the signature of Handa, and that the identical signatures of Gill, allegedly made in a carpark, and the manner of their presentation, constituted prima facie evidence of forgery.
  • The proceeding was adjourned to 25 November. In the interim an expert report was filed on behalf of Iceland concluding that Gill’s signature from a lease was placed onto the copy (twice) through a cut and paste manipulation, and so it was extremely likely that no original existed.
  • At the adjourned hearing counsel for Palta conceded that, based on the expert’s report, Gill’s signature on the copy was forged. However, he submitted that Palta had still discharged the onus of establishing a probability, on the evidence before the Court, of being found at trial to have an interest in the property pursuant to the 2 July 2018 loan agreement.  He submitted that the copy was a copy of an original which was in fact signed by Gill.  He submitted that on the evidence currently before the Court, there was a probability that at trial Palta would establish that: (1) Gill signed the original in the presence of Palta and Handa at Epping Plaza in late July 2018; (2) he took the original away; (3) he then photoshopped his own signature over his genuine signature, so as to afford grounds for subsequently contending that the agreement was unenforceable; (4) in or around mid-August 2018 he provided the copy to Palta.

Gill acknowledged that before July 2018 Palta had advanced funds to Iceland or him on particular terms.   In August 2022, Iceland, Gill and others entered into a deed of settlement of litigation requiring Gill to pay $6.5 m. by 1 December 2022.   He had paid a 10% deposit and contended that the caveat was impeding his ability to raise finance to pay the balance.

McDonald J. ordered removal of the caveat with indemnity costs, holding –

  1. There was not a probability that at trial Palta would establish that he had an interest as a chargee of the property. The matters raised by his counsel were a very tenuous basis for the asserted caveatable interest and any probability was insufficient to justify the practical effect of the caveat on the ability of Iceland to deal with its property. [24]-[35]
  2. If it had been necessary to consider it, the balance of convenience would also have favoured removal of the caveat, particularly relevant being that a prima facie case, if any, was weak and that the caveat was a significant impediment to Gill obtaining finance. The lower risk of injustice was to order removal of the caveat, notwithstanding that it was common ground that Palta had advanced funds to Gill, the circumstances of the present case being quite unusual.  There was accordingly very significant risk of injustice if the caveat remained. [36]-[40]
  3. The caveator would be ordered to pay indemnity costs.  On the first two court days the caveator had resisted the removal of the caveat on the basis of an agreement which he now conceded was forged, having notice of this contention for over two years without taking steps to establish the authenticity of the agreement, then accepting that the agreement was forged but nonetheless asserting on a very tenuous basis that Gill was the perpetrator.  It should have been readily apparent to the caveator before the first day of hearing that the agreement on which he relied was forged. [41]-[44]

       Philip H. Barton

          Owen Dixon Chambers West

        Tuesday, March 7, 2023