Month: November 2024

Blog 89. Removal of caveat following mortgagee’s sale.

Archer Wealth v Casey [2024] VSC 300, Moore J.  

The facts were as follows.

  • The second defendant (Kookee) was the registered proprietor of 100 acres in rural Victoria (the Property).  Its sole director and shareholder was the fourth defendant Ms Lagoutatzis.
  • Following a formal letter of offer by the first plaintiff (Archer) to Kookee and Ms Lagoutatzis, signed on 10 August 2023, Archer on 16 August agreed to lend Kookee $4,325,000 secured by first mortgage over: the Property; two properties in Doncaster owned by Kookee (Victoria Street and Daphne Street); and a property in Warrandyte owned by Ms Lagoutatzis where she lived with her husband the first defendant (collectively ‘the security properties’).   Clause 11.1(a)(i) of the Loan Deed required Kookee, within 30 days of the loan advance, to engage or procure a real estate agent acceptable to Archer, to list and market the security properties for sale.  The mortgages also required the mortgagor to pay the land tax and municipal rates.
  • On 23 August Archer agreed to lend Kookee an additional $700,000 on the security of second mortgages over the security properties.   The loans were advanced on 23 August, refinancing existing secured debts.
  • On 24 August Archer assigned part of its interest in the mortgages to the other plaintiffs.
  • Between 25 September and 10 November 2023: a Lender’s Demand by Archer alleged breach of cl. 11.1(a) of the Loan Deed and non-payment of land tax on the Doncaster properties, requiring rectification within seven days; Archer tried to obtain the cooperation of the tenant of Victoria Street to list it for sale; Archer took possession of Daphne St as mortgagee, it subsequently being sold for $1,057,000; a default notice under the Transfer of Land Act s. 76 was served in respect of the mortgages over the Property and the Doncaster properties, giving Kookee one month to remedy its breach of cl. 11.1(a) and to pay certain land tax and rates.
  • Following non repayment of the loans on the due date of 23 January 2024 the plaintiffs took possession of the Property, gave another s. 76 notice for over $4 m., obtained an independent valuation of market value at $800,000, and conducted a mortgagees’ sale for $850,000 plus GST due for settlement on 13 May.  The parties were ready, willing and able to complete this sale.
  • On 18 April Ms Lagoutatzis sought an injunction restraining sale of the Property for under $1.4 m., resulting not in restraint but in an order that she be provided with a copy of the contract of sale, which was complied with.
  • On 15 May a caveat was lodged on behalf of Kookee claiming a freehold estate with an absolute prohibition on dealings based on ‘Registered proprietor(s) being entitled to possession of the certificate of title for the land and to prevent improper dealings’.  Other caveats were lodged which counsel for the defendants acknowledged to be without foundation.

The plaintiffs commenced this proceeding ultimately seeking removal of all three caveats under the Transfer of Land Act s. 90(3).  Ms Lagoutatzis’ deposed that: the Loan Deed was entered into so that Archer could provide the finance necessary to sell the four properties; despite cl. 11(a) of the Loan Deed the plan, of which she had told Archer’s director, had always been only to sell the three Melbourne properties and for her family to move to the Property where they would build a home to live in retirement – the director denied being told this; the couple had spent about $100,000 in preparation for building this dwelling.

A draft counterclaim was provided to the court which among other things pleaded that: Kookee had engaged an agent to list and market the Melbourne properties, which Archer approved, whereby Kookee did not engage another agent; it was exonerated as regards land tax and rates because of a particular representation by Archer; accordingly the Lender’s Demand was void, whereby Archer’s enforcement of the Doncaster mortgages exceeded its power as mortgagee and breached the Loan Deed; on substantially the same grounds as those relied on to invalidate the Lender’s Demand, Archer had no right to serve the November Default Notice, on the basis of which it sold the Property; Archer had engaged in conduct which unreasonably prevented Kookee from refinancing; Archer did not sell Daphne Street and the Property in good faith; the sale of the Property should be restrained and the contract of sale set aside.

Moore J. ordered that the caveats be removed, holding –

  1. The improper dealings referred to in the caveat may be taken to be those articulated in the draft counterclaim.  On the authority of Swanston Mortgage v Trepan Investments [1994] 1 VR 672 this did not give rise to an estate or interest in land and a mortgagor’s right to have an improper sale of mortgaged property set aside was a ‘mere equity’.  Accordingly there was no caveatable interest. [42]-[45], [47]
  2. The fact that the interest in land claimed in the Swanston Mortgage caveat was an equitable interest as mortgagor, whereas Kookee had asserted a ‘freehold estate’, was immaterial. [46]
  3. The balance of convenience would also have favoured removal of the caveat because
    Archer’s exercise of its rights as mortgagee did not infringe Kookee’s proprietary rights.  This informed the general rule that the court would not restrain the exercise of a mortgagee’s power of sale unless the mortgage debt, if undisputed, be paid, or, if it was disputed the amount claimed by the mortgagee be paid into court.  The defendants had not offered any payment. [48]-[50], [58]
  4. However, being an application of the equitable maxim that ‘he who seeks equity should do equity’, this general rule was subject to exceptions.  Depending on the facts and circumstances and overall justice of the case, payment into court may not be required if it was alleged that:
    1. the mortgagee’s power of sale was not properly exercisable or was being exercised for an improper motive;
    2. the mortgage was invalid, or had not been breached so as to engage the power of sale, or a notice required to engage that power was ineffective;
    3. the mortgage or the power of sale was impugned pursuant to the Australian Consumer Law or the Australian Securities and Investments Act 2001 or equitable principle. [51]
  5. On the basis of the allegations in the draft counterclaim, whatever might be the position of the other security properties, it appeared most unlikely that this sale enlivened any of these exceptions.  Kookee had not complied with cl. 11.1(a)(i) of the Loan Deed (and the alleged representation in the draft counterclaim in relation to the engagement of a real estate agent was limited to the other security properties).  Accordingly it had defaulted under the Loan Deed whereby the total amount owed by it was immediately due and payable.   Further, any allegation that the ‘express purpose’ of the loans was for the couple to build a house on the Property for their retirement was fundamentally weak: whatever their subjective purpose, the plan deposed to by Ms Lagoutatzis was contradicted both by her also deposing that the Loan Deed was entered into to enable Archer to provide the finance necessary to sell all four properties and by the terms of the formal letter of loan offer.  There was also no evidence that the Property was included in the Loan Deed by common mistake. [52]-[57]
  6. Accordingly, Kookee was not relieved from the obligation to bring in an amount either sufficient to meet the mortgaged debt, or such other amount as may be appropriate – which was in this case an amount equal to the mortgagee’s maximum possible loss from the sale being lost, this not being the amount of the mortgage debt but the value of the security itself. [58]

Philip H. Barton

Owen Dixon Chambers West

Tuesday, November 26, 2024

Blog 88. Two Costs Cases

The cases in this Blog are typical of two mundane situations, respectively concerning a dispute over costs after settlement of the main proceeding and a dispute about who should pay the costs where a caveat is withdrawn before a hearing of an application under the Transfer of Land Act s. 90(3).

Rigene Pty Ltd v Rugolo (Costs Ruling No 2) [2024] VSC 187, Gray J.

The facts were –

  • The first defendant caveated over a property of which the plaintiff was registered proprietor.  The caveat was based on a loan agreement containing a charging clause, the debt being allegedly over $306,000.  Desirous of selling the property the plaintiff applied for removal of the caveat under s. 90(3) of the Transfer of Land Act.  The court made a consent order removing the caveat on condition that from the proceeds of sale the amount claimed by the caveator be paid into a separate interest-bearing account, to be retained pending resolution or determination of the dispute concerning the caveator’s entitlement to that amount.  The parties could not agree on costs.
  • The plaintiff subsequently commenced an application that the caveator pay its costs on an indemnity basis.  This was based on material to the effect that the plaintiff disputed the loan agreement and the caveat, and that the balance of convenience also clearly favoured its removal.
  • On 8 March 2024, the plaintiff made a Calderbank offer to compromise its costs application by the caveator agreeing to pay about 55% of the plaintiff’s actual costs.  On 15 April the caveator’s submissions responding to the plaintiff’s costs application were served with a communication marked “without prejudice”.  This stated that the caveator would be seeking costs of and relating to the costs hearing, possibly on an indemnity basis, unless the plaintiff agreed to the filing of consent orders that there be no order as to costs.
  • At the hearing of the plaintiff’s costs application on 17 April 2024 it submitted that the caveator had acted unreasonably in the lead up to the litigation, that the consent orders achieved its purpose in bringing the proceeding and represented a capitulation by the caveator, and that it would have clearly won if its application for removal of the caveat had been heard on the merits.  The court rejected these arguments and dismissed the plaintiff’s costs application, with oral reasons.
  • After this oral ruling the caveator applied for indemnity costs of the plaintiff’s failed costs application, tendering the documents of 8 March and 15 April.

Gray J. ordered the plaintiff to pay the first defendant costs on a standard basis, holding:

  1. The plaintiff’s offer was of little weight but at least showed that it was not implacably set on receiving all its costs. [12]
  2. The caveator’s communication of 15 April was entitled to significant weight as, although its proposed response time was not very long, it reasonably promoted the overarching purpose stated in s. 7 of the Civil Procedure Act 2010 by offering an efficient conclusion to the proceeding, and the caveator had been vindicated by the court’s dismissal of the plaintiff’s costs application. [13]
  3. However, the communication of 15 April was not a Calderbank offer because it was not expressly described as such, did not provide very long for consideration and response, and did not clearly put the plaintiff on notice that indemnity costs would be sought. [14]
  4. The plaintiff would be ordered to pay the caveator’s costs, but only on a standard basis, because:
    1. Costs ordinarily followed the event.  In a proceeding with multiple issues and mixed success the court could order costs on an issues basis.  But the plaintiff’s costs application was a discrete issue in the proceeding, in respect of which the judge was required to consider the separate exercise of his costs discretion under s. 24(1) of the Supreme Court Act 1986, notwithstanding that there would be no costs order of the proceeding more generally.  The plaintiff’s failed costs application was a sufficiently distinct issue to attract the principle that costs ordinarily follow the event. [17]-[18]
    2. Rule 63.20 of the Supreme Court (General Civil Procedure) Rules, provided that, unless the Court otherwise ordered, where no order was made as to the costs of an application, such costs were the parties’ costs in the proceeding.   This outcome would be inappropriate because the plaintiff’s application postdated the consent disposition of the substantive relief sought and was itself directed to the allocation of costs. [20]-[21]
    3. The argument that the plaintiff should not be ordered to pay costs because subsequent costs applications could deter future compromises (in that it would have been better for the plaintiff not to consent but simply to run its application) was unsound: in any event the prospect of deterrence was equally and possibly even greater from the plaintiff’s own costs application.  Where parties submitted consent orders which did not deal with costs each side was at risk of a subsequent adverse costs order. [22]
    4. An order for indemnity costs would be unjustified.  Although the plaintiff’s costs application was somewhat speculative, it was neither clearly contrary to known authorities or foredoomed.  There was no decided case exactly on point.  The consent orders represented each party having a measure of success and were a compromise.  They were not a ‘capitulation’, as for example where a caveator agreed to remove a caveat by consent unaccompanied by anything of advantage such as quarantine of the amount sought by the caveator.  It was also not premature to determine this application before resolution of the proposed litigation over the monetary entitlement. [24], [27]-[29], [32], [33], [36]

[23]

In Willandra 74 Pty Ltd v AKG Willandra Pty Ltd [2024] VSC 398, Cosgrave J. ordered the plaintiff to pay the defendants’ costs on a standard basis.  Briefly:

  • The first plaintiff had four directors and was the registered proprietor of a property.   Each director was also the director of a separate company, which four companies were the shareholders in the plaintiff and each the trustee of a separate trust.
  • The plaintiffs developed the property.  The first plaintiff partitioned the property with the shareholders receiving equal lots (the allocated lots).  The remaining lots were retained to repay debt and to distribute any net proceeds equally to the shareholders.
  • The shareholders agreed to contribute equally to the first plaintiff’s expenses of the project.  In 2022 the first defendant ceased doing so, requiring the other shareholders to meet the shortfall.
  • In November 2022 the first defendant caveated over all the lots.  In December the first plaintiff and the trustees of the three trusts not associated with the first defendant issued a proceeding seeking the removal of the caveat.
  • On 12 December 2022 the parties settled that proceeding.  The settlement deed included conditions in effect that:
    • the first defendant would withdraw the caveat in respect of each remaining lot, at settlement of the relevant sale agreement, on the basis that the net sale proceeds were applied in reduction of the debt which the first plaintiff owed for the development;
    • the net proceeds of sale (after the debt had been paid) would be distributed equally between the four trusts;
    • if the caveat was not withdrawn in accordance with the deed of settlement the plaintiffs could reinstate the proceeding to obtain judgment by consent.
  • Pursuant to the deed of settlement the proceeding was dismissed with no order as to costs.
  • Various events then occurred in performance of the settlement agreement.   By July 2023 only one lot was unsold.   Correspondence between solicitors then occurred including the caveator’s solicitors stating that the caveat over that lot would not be removed until the day of settlement of any sale of that lot and subject to other conditions about the calculation and disposition of any surplus funds.
  • On 21 August 2023 the first plaintiff entered a contract to sell that lot with settlement scheduled for 16 October.  In subsequent correspondence the caveator’s solicitors proposed that the parties agree on any adjustments or reimbursements between them before settlement of this sale, but that absent agreement it would still withdraw the caveat to permit settlement provided the proceeds were held in a trust account upon an undertaking that they not be released pending agreement or court order.  Correspondence between solicitors continued, revealing disagreement about the details of the distribution.
  • On 10 October the plaintiffs commenced this proceeding seeking removal of the caveat and an order approving distribution of the sale proceeds in a particular order.  In the email serving the court documents the plaintiffs’ solicitor proposed that to avoid the hearing (before 16 October) the caveator remove the caveat immediately with the sale proceeds being held in trust pending an agreement between the parties or court order.
  • Later that day the plaintiffs’ solicitor advised the defendants’ solicitor that the hearing was listed for 2.15 pm on 16 October.
  • On the afternoon of 13 October the defendants’ solicitor advised that the first defendant “remains committed to removing the caveat prior to settlement of Lot 44 on the basis that the settlement proceeds remain in TickBox’s trust account on an undertaking by TickBox not to release the funds pending agreement or Court order”, and requested an urgent response.  On the same day a long affidavit by the caveator was filed.
  • The caveat was withdrawn to allow for settlement and the net proceeds were held in trust.
  • Cosgrave J. held that the proceeding was unnecessary.  Under the settlement agreement the caveator had impliedly agreed to withdraw any caveat preventing sale and in subsequent correspondence its solicitors had stated that it would withdraw the caveat at settlement provided the conditions in the deed of settlement were met.  The caveator’s solicitors had also said that even if adjustments or reimbursements had not been agreed it would still withdraw the caveat to permit settlement provided the sale proceeds were held in trust as stated above.  This had occurred.

Philip H. Barton

Owen Dixon Chambers West

Tuesday, November 19, 2024

Blog 87. Solicitor disciplined for lodging caveats in fencing dispute.

Victorian Legal Services Commissioner v Fong [2024] VCAT 103; [2024] VCAT 469, Senior Member E. Wentworth

In this matter Senior Member Wentworth explores the meaning of the following words or concepts, and their relevance in disciplinary proceedings: “unsatisfactory professional conduct”, “professional misconduct”, “substantial”, “gross negligence (occasionally coupled with incompetence)”, “deliberate (or wilful) or reckless conduct”, and “a state of mind allegation” . The Senior Member also analyses and comments on the drafting of Applications to the Tribunal by the Commissioner.

The facts were –

  • The respondent was a solicitor whose client was in dispute with his neighbours about the location of a fence.  His client wanted the fence rebuilt in the belief that it was partly not on the boundary line but encroached onto his land.  The neighbours maintained that it was on the boundary line.
  • In 2016 the solicitor lodged a caveat on behalf of his client over the neighbours’ title on the ground of “adverse possession by exclusive occupation”.  The neighbours’ lawyer wrote expressing surprise that the caveator was claiming adverse possession given that the respondent’s client was claiming that the writer’s clients had encroached onto his land.  The letter asserted that there was no caveatable interest.  Subsequently, on the application of the neighbours the Registrar of Titles issued a lapsing notice under s. 89A of the Transfer of Land Act.  No notice was given to the Registrar that a proceeding to substantiate the claim of the caveator was on foot (there being no such proceeding) and accordingly the caveat lapsed under s. 89A(5).  After this lapse the neighbours’ lawyer sent a more detailed letter stating that the existing fence had been in place for more than 15 years and if (which was denied) it was on the incorrect line the neighbours would have a claim in adverse possession.
  • On 1 September 2017 the solicitor lodged another caveat on behalf of his client over the neighbours’ title on the ground of “registered proprietor(s) being entitled to possession of the certificate of title for the land and to prevent improper dealings”.   This caveat was withdrawn on 3 November 2017.
  • In 2019 the solicitor lodged another caveat on the same ground as in 2017.  The s. 89A process then occurred with the same outcome as in 2016.

The Legal Profession Uniform Law (Victoria) provided –

“296 Unsatisfactory professional conduct

For the purposes of this Law, unsatisfactory professional conduct includes conduct of a lawyer occurring in connection with the practice of law that falls short of the standard of competence and diligence that a member of the public is entitled to expect of a reasonably competent lawyer.

Section 297 provided that for the purposes of this Law professional misconduct included “unsatisfactory professional conduct of a lawyer, where the conduct involves a substantial or consistent failure to reach or maintain a reasonable standard of competence and diligence”.

After the third caveat the neighbours’ lawyer made a complaint to the Victorian Legal Services Com­mission­er. The Commissioner carried out an investigation in the course of which it was not put to the solicitor that his conduct was wilful or reckless. And neither this allegation nor that of gross negligence was referred to in the “Murray” letter sent by the Commissioner before this proceeding.

The Commissioner laid three charges against the solicitor alleging that he engaged in professional misconduct under s. 297(1)(a).  The Commissioner did not bring a “rolled up” charge in the alternative, eg a charge in the alternative to charges 1, 2 and 3 alleging professional misconduct by reason of repeated lodging of caveats without a proper basis, and did not plead professional misconduct on the ground that the solicitor’s conduct represented a “consistent” failure to meet the required standard under s 297(1)(a).  Rather, each charge was limited to the conduct in lodging a single caveat and its particulars did not refer to factual allegations in respect of the previous caveat(s).  In the charges the Commissioner alleged that in lodging the first caveat the solicitor had acted in “reckless disregard of known facts or law” and that in lodging the later caveats he had acted in “wilful [ie knowing there was no proper basis for the caveat, deliberately] or reckless disregard of known facts or law”.  However, the Application was amended to delete the words “reckless” and “wilful”.  As Amended each charge was –

“Professional misconduct within the meaning of s 297(1)(a) of the Uniform Law, in that the Respondent caused the [first, second or third] caveat to be lodged, and maintained, over the [neighbours’] land without a proper basis, without regard to known facts and law, which involved a substantial failure to reach or maintain a reasonable standard of competence and diligence”.

The format of the Commissioner’s pleadings was a series of numbered paragraphs setting out factual allegations in a narrative form, followed by the formal charges, which under the heading “Particulars” then referred back to paragraph numbers in the preceding narrative.

At a directions hearing counsel for the Commissioner stated that the charges did not allege any state of mind, whatever state of mind previously alleged having been removed.  The Tribunal Member replied: “Yes, but it’s not reckless and it’s not wilful?”.  Counsel replied: “Exactly right … it is in the nature of gross incompetence or gross negligence”.

Although the Commissioner had not pleaded gross negligence, the Commissioner’s written submissions stated that the amendments to the charges made it clear that the Commissioner did not allege that the solicitor wilfully or recklessly lodged and maintained the caveats, but rather that he acted with gross negligence and incompetence.  The Commissioner did not allege that the solicitor knew that the caveats lacked any basis.

At the hearing the Tribunal raised, in light of there being no allegation that the solicitor acted wilfully or recklessly, what “without regard to known facts or law” meant and known by whom?  Counsel stated that: the Commissioner made no “state of mind” allegation, had withdrawn the allegation of wilful or reckless conduct, and instead alleged that the solicitor acted with “gross negligence and incompetence”, warranting a finding of professional misconduct under s 297(1)(a): ie unsatisfactory professional conduct of a lawyer, where the conduct involves a substantial failure to reach or maintain a reasonable standard of competence and diligence (omitting “or consistent” where appearing before the word “failure”).  As to “known facts or law” counsel also stated that the facts referred to were those known by the solicitor and that it was not alleged that the solicitor knew the law and disregarded it.

Counsel for the Commissioner also argued that the Tribunal should make adverse inferences about the solicitor’s purpose in lodging the caveats.

In Victorian Legal Services Commissioner v Fong [2024] VCAT 103 the Tribunal found as to each charge that the solicitor engaged in unsatisfactory professional conduct, holding –

  1. The solicitor’s client had no caveatable interest but had a right to claim under the Fences Act 1968. [10]-[11], [113], [139], [168]
  2. To find professional misconduct under s. 297(1)(a) the Tribunal must be comfortably satisfied, under the principles enunciated in Briginshaw v Briginshaw (1938) 60 CLR 336, that the solicitor’s conduct involved a substantial failure to reach and maintain a reasonable standard of competence and diligence. [45]
    The Tribunal discussed the meaning of “substantial”. [46]-[47]
  3. Gross negligence could found statutory professional misconduct as it raised unfitness to practise law. [49]
  4. While deliberate or reckless conduct was not a necessary ingredient of professional misconduct it was often a component of the conduct found to meet the statutory definition. [51]
  5. Something beyond a minor or moderate departure from the standard was required to meet the definition of professional misconduct.  Accordingly, this usually required something above a single instance of mistaken understanding.  Otherwise every instance of incompetence or lack of diligence would be professional misconduct. [52]
  6. Because each charge was limited to the conduct in lodging a single caveat it was not open to the Tribunal to consider whether the solicitor’s negligent conduct in lodging three caveats might constitute professional misconduct. [55]
  7. It was also not open to the Tribunal to take into account the solicitor’s repetition of the same error (lodging a caveat without a proper basis) in deciding whether his conduct in relation to the later caveats constituted professional misconduct.  But in assessing the solicitor’s conduct in lodging the later caveats the Tribunal could take into account the information and arguments provided by the neighbours’ lawyers after the first caveat was lodged. [56]
  8. Notwithstanding counsel’s statement that the Commissioner made no “state of mind allegation” and had abandoned the allegation of recklessness, counsel’s other statement that the facts referred to were those known to the solicitor appeared to be a “state of mind allegation” and close to that abandoned allegation. [65]
  9. As counsel for the Commissioner had stated that it was not alleged that the solicitor knew the law and disregarded it, that allegation should have been removed from the charges. [65]
  10. Contrary to the Commissioner’s written submissions, the amendments to the charges did not make it clear that the Commissioner did not allege that the solicitor wilfully or recklessly lodged and maintained the caveats, but rather that he acted with gross negligence and incompetence.  The pleadings, including the factual allegations relied on as particulars (and the “Murray letter”), made no such allegation.  They ought to have been included if a finding of gross negligence was to be sought or made, for fairness reasons.  While the phrase “gross negligence” did not have a settled meaning in the common law, it was a known concept and, depending on how it was is defined or used, could be more than a pejorative or a label to criticise the degree of negligence.  It could found  misconduct at common law.  It was not interchangeable with “a substantial failure to reach the required standard”.  It was not an allegation that should be made for the first time in submissions.  [50], [66], [67], [69], [70], [71], [72]
  11. This did not, however, prevent a finding that the negligence or incompetence in this case met the requirements of s. 297(1)(a) as pleaded.   But the negligence in this case did not meet those requirements and was not, in any event, conduct warranting the label “gross negligence and incompetence” or amounting to that species of negligence. [50], [72], [73]
  12. For reasons of procedural fairness it was not open to the Tribunal to draw adverse inferences about the solicitor’s purpose in lodging the caveats.  These did not appear in the Amended Application as conclusions to be drawn from specified facts, and to draw them would also have been contrary to the assurance that the Commissioner made no allegations about the solicitor’s state of mind.   [75]
  13. The importance of clear and properly particularised charges in professional disciplinary cases, and the impermissibility of the Tribunal going beyond (or being asked to go beyond) the allegations made, were well-established. As a matter of procedural fairness, a practitioner should not be left in any doubt as to the extent of the allegations against them. [76]-[77]
  14. As to the way disciplinary Applications were pleaded at VCAT –
    1. the problem of a lack of clarity in the precise nature of the allegations and the facts relied on, could be compounded when, as in this case, the charges and the particulars relied were not set out sequentially in the Application, namely each charge followed by the factual allegations forming the particulars to that charge; [79]
    2. The format of pleadings commonly used by the Commissioner in Applications was to first set out all the allegedly relevant facts in a series of numbered paragraphs (including background, facts, references to annexed documents, and facts about the course of the investigation) followed by the charges, under each of which was a heading “Particulars”, under which was a list of paragraph numbers from the preceding narrative, rather than setting out the facts themselves under the charges.  That format meant that the reader was required to keep reverting to the narrative to identify the facts relied on as particulars for each charge.  Depending on the number of charges and the length of the narrative, this may not be a straightforward task; [80]-[82]
    3. Where (as was not the case here) a selection of paragraph numbers across the narrative was listed, it was necessary to “piece together” the facts referred to.  This: was unnecessarily time-consuming and inefficient; could create unnecessary lack of clarity, and; could obscure an overlap in charges, or that the particulars did not include a fact required to prove a charge, or that a submission went beyond the factual allegations. [83]-[85]
  15. As to the phrase used in each of the charges “without regard to known facts and law”, despite the abandonment of any allegation that the conduct was wilful or reckless: this was unclear and close to the abandoned allegation of recklessness, and; the paragraphs referred to as particulars, when read, set out a series of facts but did not spell out what were the facts and law it was alleged the solicitor did not have regard to, or make it clear (if that was the allegation) that he knew both the facts and the law and acted regardless. [86]-[87]
  16. The solicitor acted negligently in lodging and maintaining the first caveat, but he did not act knowing it did not have a proper basis or recklessly. [114], 115], [119], [120]
  17. While “mere” negligence may or may not attract disciplinary findings, such findings were warranted on Charge 1 as the solicitor’s negligence had resulted in him lodging a caveat without a proper basis and then maintaining it (until it lapsed) despite the letter from the neighbours’ solicitor. [123]-[126]
  18. Lodging the first caveat was at the lower end of unsatisfactory professional conduct.  Although the solicitor should not have maintained the caveat it did not remain on the title beyond the lapsing notice period.  There was, at least, no proceeding commenced in support of an unmeritorious caveat, nor did the solicitor know that the client had no caveatable interest, nor falsely tell the Titles Office that proceedings were on foot, nor repeatedly refuse to withdraw the caveat despite requests, nor lodge the caveat in support of a personal claim as opposed to protecting the interest of a client.  But, in support of this being unsatisfactory professional conduct, this conduct was more serious than the case of a solicitor not calling for a document that the solicitor understood existed but which in fact did not exist whereby a caveat lacked a proper basis, and the respondent had used a ground unavailable in law to his client. [19]-[20], [121], [123], [127]-[131], [133]
  19. In lodging and maintaining the second caveat the solicitor acted negligently and his conduct amounted to unsatisfactory professional conduct.  His conduct attained the higher end of unsatisfactory professional conduct because he lodged this caveat without prior advice yet with notice of the arguments raised by the neighbours’ lawyer.  However, the caveat did not attract a direct judicial warning and it was withdrawn two months after lodgment without a lapsing notice. [19]-[20], [139], [146], [151], [154], [156]
  20. In lodging and maintaining the third caveat the solicitor acted negligently and his conduct amounted to unsatisfactory professional conduct.  His conduct attained the higher end of unsatisfactory professional conduct because he lodged this caveat without prior advice yet with notice of the arguments raised by the neighbours’ lawyer.  However, the caveat did not attract a direct judicial warning, and although it lapsed after the lapsing notice it was relatively short-lived, and the solicitor he did not maintain in this proceeding that the caveat had a proper basis [19]-[20], [164], [168], [172]

In Victorian Legal Services Commissioner v Fong [2024] VCAT 469 the Tribunal reprimanded the solicitor, fined him $3,000, and ordered that he pay the Commissioner’s costs of $5,000.

Philip H. Barton

Owen Dixon Chambers West

Wednesday, November 13, 2024

 

Blog 86. Where a director’s spouse has given a charge, is lodgment of a caveat by the chargee prohibited during a company administration?

Langdon v Tradelink Pty Ltd [2024] VSC 113, Gray J.

The facts were –

  • The plaintiff was married to Shane Langdon.  Langdon Building Pty Ltd was incorporated in 2005.  He became its sole director in 2007.  It was a home builder.
  • In 2012 the third defendant (now known as Tradelink) agreed with the company to supply building materials on terms of credit by Tradelink as ‘Supplier’ to the company as ‘Customer’.  The application for a credit account and agreement included a ‘Guarantee and Indemnity and Charge’ (Guarantee) signed by the plaintiff.   This included her agreement: ‘To pay the Supplier … all monies which are now or may … be owing or remain unpaid by the Customer to the Supplier …’; that she as guarantor ‘To better secure the payment of all monies which the Guarantor may become liable to pay to the Supplier hereunder … charges all of its interest in real property both present and future … with the amount of the Guarantor’s indebtedness to the Supplier’; that she appointed the Supplier as her attorney in substance so that it could caveat over her real property – this clause also provided that ‘Each Guarantor undertakes to not … take any steps to remove any such caveat’.
  • In January 2024 voluntary administrators were appointed to the company.  Next day Tradelink lodged a caveat over a property of which the plaintiff was sole registered proprietor based on its interest as chargee.
  • On 4 March 2024 the company’s creditors resolved to accept a deed of company arrangement (DOCA) proposed by Shane.  The DOCA proposal included an initial and deferred cash contribution.  A formal DOCA was not yet executed.
  • The plaintiff applied under the Transfer of Land Act s. 90(3) for removal of the caveat.  She deposed that it was adversely impacting her ability to access a bank line of credit, secured by a mortgage, needed for funds required for the DOCA proposal.

Section 440J of the Corporations Act 2001 (Cth) provided –

‘440J  Administration not to trigger liability of director or relative under guarantee of company’s liability

  • (1)   During the administration of a company:
    • (a)    a guarantee of the liability of the company cannot be enforced as against
      • (i)     a director of the company who is a natural person; or
      • (ii)   a spouse … of such director; and
    • (b)   without limiting paragraph (a), a proceeding in relation to such a gua­ran­tee cannot be begun against such a director …;

except with the leave of the Court …’

Gray J dismissed the application, holding –

  1. A caveat lodged under the Transfer of Land Act s. 89 was a statutory injunction, in the sense of preventing registration of new dealings with the title on the Register pending an application under s. 90 or administrative action under s 89A. [41]
  2. In determining whether lodgment of a caveat was prohibited by s. 440J(1)(a) the principles of statutory interpretation were to be applied.  These included: the statutory interpretation process must begin and end with the text used; where the words of a provision were clear, unambiguous, and could be intelligibly applied to the subject matter, the provision must be given its ordinary and grammatical meaning; the text must be interpreted in its context, and context should be considered at first instance, rather than at a later stage when ambiguity might arise; the context included the purpose Parliament intended to achieve, as discerned from the legislation itself, and relevant extrinsic material; the legislative context included the statute as a whole, with an assumption that Parliament intended interrelated provisions to operate coherently, giving effect to ‘harmonious goals’. [25]
  3. By reason of s. 13 of the Acts Interpretation Act 1901 (Cth) section headings were part of the Act. [27]
  4. The principal purpose of s. 440J was to remove any inhibition on directors commencing a voluntary administration. [35]-[36]
  5. Lodgment or extension of a caveat relating to a charge or guarantee did not amount to enforcement, but to prioritisation, of security interests.  The policy underlying s. 440J did not include that a secured creditor could not maintain this priority, even if that were thought necessary or desirable to facilitate a deed of company arrangement. [39]
  6. There was at least a prima facie case that the caveator had an interest in the property as chargee.  Accordingly lodgment of the caveat was permissible from the time the agreement and charge first applied to the property, well before any suggestion of the Guarantee being enforced.  The subsequent commencement of company administration could not alter the fundamental character of the caveat’s lodgment as a step in protecting the chargee’s security interest from a loss of priority but not a step in enforcement of the Guarantee.  Accordingly the lodgment of the caveat did not breach s. 440J(1). [20], [42]-[45]
  7. This case was distinguishable from Waco Kwikform Ltd v Jabbour [2010] NSWSC 1379, being an application under s. 74K of the Real Property Act 1900 (NSW), in response to a lapsing notice, to extend the operation of a caveat lodged before the commencement of a company administration, which decided that s. 440J(1)(a) did not prohibit that application but that it was prohibited by s. 440J(1)(b) so as to require the grant of retrospective leave for extension. [30]-[34]
  8. The balance of convenience favoured maintenance of the caveat.  On the one hand, it was unclear whether the bank would not consent to, or allow the funds needed for, the DOCA.  On the other hand the caveator had established a real risk of prejudice if its caveat was removed, in that it appeared likely that equity in the property may be diminished and there was a real risk that priority might be lost.  The mere fact that removal of the caveat might help bring the DOCA proposal closer to operation did not outweigh this entitlement to priority.  Further, because the DOCA was subject to other conditions precedent there was force in the caveator’s submission that the court could not be satisfied that even if the caveat was removed the DOCA would necessarily proceed – it weighed heavily against the plaintiff that if the caveat was removed the caveator could lose its priority yet the DOCA still not proceed. [49]-[53]

Philip H. Barton

Owen Dixon Chambers West

Friday, November 8, 2024