39. Solicitors’ sigh of relief made permanent – Not liable for compensation under TLA s. 118. 

Comment.   Blog 24 dealt with Lanciana v Alderuccio [2019] VSC 198 which held that a solicitor lodging a caveat on behalf of a client was not liable for compensation under the Transfer of Land Act s. 118.  The Court of Appeal confirmed this in Lanciana v Alderuccio [2020] VSCA 152 (12 June 2020). 

The facts and relevant legislation were (for convenience largely copied from Blog 24) –

  • The plaintiff and Bloomingdale Holdings Pty Ltd (Bloomingdale) were equal unitholders in two trusts. The sole shareholder and director of Bloomingdale was Antonio Gangemi.
  • In 2001 – 2 the trustee of one trust purchased a property and the trustee of the other trust purchased another property.
  • A dispute arose between the plaintiff and Gangemi concerning their business dealings and rights in respect of both properties. The defendants acted as solicitors for Bloomingdale and Gangemi.
  • In 2003 the dispute was settled by an agreement whereby Gangemi’s and Bloomingdale’s interests in both properties would be transferred to the plaintiff or his entities. This transfer to the plaintiff occurred, on which he became solely entitled to the beneficial interest in both properties, and caveats lodged on behalf of Bloomingdale over both properties were withdrawn.
  • However, on 29 March 2005, the defendants as “Alderuccio Solicitors” lodged caveats over both properties on behalf of Bloomingdale as caveator, claiming an equitable estate in fee simple pursuant to a deed of trust dated 25 February 2002 between Bloomingdale and both trustees. The caveats identified “Alderuccio Solicitors” as the address for service of notice and were signed by an “agent being a Current Practitioner under the Legal Practice Act 1996”.
  • The plaintiff alleged that these 2005 caveats caused it loss and damage.
  • Section 118 provided that –

“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 the Court deems just and orders”.

  • The plaintiff sued the defendants alleging that when the 2005 caveats were lodged they knew or ought to have known that Bloomingdale did not have a caveatable interest and could not reasonably have held an honest belief based on reasonable grounds that it had a caveatable interest.
  • Moore J held that the solicitors were not “a person” lodging a caveat for the purposes of s. 118. The plaintiff applied for leave to appeal.

The Court of Appeal (Tate, Hargrave and Emerton JJA) refused leave to appeal holding –

  1. The reasoning of Moore J was correct. [10]
  2. Insofar as a caveat is lodged by an agent of a person claiming an interest in land, the agent stood in the shoes of that person. The act of lodging the caveat was the act of the principal. The acts of the respondents in lodging the caveats were the acts of Bloomingdale. [31]
  3. Section 118 was to be read in tandem with s. 89(1). The person “who lodged the caveat” was (s 89(1)) “Any person claiming any estate or interest in the land …”. [33]
  4. Authorities on “reasonable cause” under s. 118 were Edmonds v Donovan (2005) 12 VR 513, [2005] VSCA 27; New Galaxy Investments Pty Ltd v Tomson [2017] NSWCA 153 and (the subject of Blog 9) KB Corporate Pty Ltd v Sayfe [2017] VSC 623 [19] (Mukhtar AsJ). [36]
  5. The fact that ss. 89(1) and 118 used the words “any person” rather than “the caveator” was a function of the fact that both the “claiming” and the “lodging” preceded the “recording” of the caveat in s. 89(2). The opening phrase “[a]ny person lodging” in s. 118 was in the present tense because that was the point in time at which the question of “reasonable cause” was to be assessed, that is, when the person is about to lodge or is in the course of lodging the caveat and the caveat had not yet been recorded. [39]

Philip H. Barton

Owen Dixon Chambers West

21 July 2020

38. Removal of caveats by courts exercising Family Law jurisdiction

Comment. 

To non – Family Lawyers, including me, one approaches the topic of this Blog as approaching a rumoured mystery.  However on examination the jurisdiction of the Family Court and Federal Circuit Court to remove a caveat is considerable.  As the cases below show the jurisdiction is exercisable not only where one party to a marriage caveats over the other’s property, but also where one party to a marriage caveats over the property of someone joined as a party to a proceeding (typically a second respondent), and even over non – party caveators with notice of it who had not intervened, the Registrar of Titles also not being a party. This removal under the TLA s. 90(3) of a caveat lodged by a non-party is unique to Family Law. 

Examples of courts exercising Family Law jurisdiction ordering removal of caveats appear to date at least from Bowe & Bateman [2012] FamCA 392 where the court issued a mandatory injunction requiring removal of a caveat.  Then in Auricchio & Auricchio and Ors (No. 2) [2014] FamCA 240 Forrest J. followed Bowe but also held that the court could have ordered removal of a caveat under the Queensland equivalent of the TLA s. 90(3). 

This Blog deals with recent Victorian cases of removal of the following caveats – 

Green & Walls [2019] FamCA 76 – caveat by Husband thwarting performance of Family Court order. 

Tailor & Tailor [2019] FamCA 383 – caveat by Wife over property owned by Husband from before marriage.  Also a reminder of the basic proposition that an application under s. 79 of the Family Law Act for alteration of property interests was not a caveatable interest – see also Hermiz v Yousif  [2019] VSC 160 (Blog 22). 

Siebel & Siebel & Anor [2019] FCCA 3367 – caveat by Husband over property owned by second respondent (son). 

Skye & Saidel and Anor [2020] FamCA 18 – caveats by non-parties over land owned by the second respondent who was the Wife’s mother. 

Green & Walls [2019] FamCA 76, (22 February 2019), Cronin J.

·        In 2014 the Husband lodged a caveat over property claiming an interest on the basis of an “implied, resulting or constructive trust”.

·     Final property orders were made in 2016 in which the Wife was required to “discharge and refinance” the mortgage over that property, thereby releasing the Husband from the mortgage, and so she would be sole registered proprietor.  Contemporaneously with the refinance the Husband was required to withdraw the caveat.  If she could not obtain this release she was required to sell the property.  There was no order indicating that the parties held any property upon trust for the purposes of the completion of their obligations under the orders.

·      Because the Husband did not comply with a particular payment order the Wife was forced to put the property on the market, requiring removal of the caveat. 

Cronin J directed the Registrar of Titles to remove the caveat.  Because the orders of the Family Court were still executory it was still seized of the matter and had power to direct the removal of the caveat arising from its accrued jurisdiction [14]-[15].  More particularly – 

(a)   The claim for removal came within the “scope of the controversy” which is “identifiable independent of the proceedings… brought for its determination”.  The scope was not limited to matters “incidental” to that which attracted federal jurisdiction in the first place but was here incidental to the completion of the obligations under the 2016 orders; [22]

(b)    What was required to be identified was whether or not the claim which might otherwise appear to be outside of the Family Court’s usual jurisdiction was essential for the determination of the federal claim.  Here, the federal claim was determined in 2016 but the efficacy of the order as an exercise of the power of the Commonwealth depended upon the caveat issue being determined; [23]

(c)    The court had power either as a court of competent jurisdiction (within the definition in s. 4 of the Transfer of Land Act) or as part of its determination of the federal claim.  The use of the State law was essential, or an integral element of the controversy between the husband and the wife about the alteration of property interests.  Accordingly the exercise of power in s. 90 was within the jurisdiction of the court. [24], [26]

Tailor & Tailor [2019] FamCA 383, (2 July 2019), McEvoy J.

·      In February 2019 the Wife caveated over property which the Husband had owned from long before the marriage.

·      In May 2019 she filed an Initiating Application seeking final orders for the adjustment of property interests.  A few days later he filed an Application seeking orders including that the Wife forthwith remove the caveat.  This order was made upon the Husband’s undertaking not to sell, dispose of, or encumber the property without notice.  His Honour held –

1.   An application pursuant to s. 79 of the Family Law Act for alteration of property interests was not a caveatable interest. 

2.   Applying Auricchio & Auricchio and Ors (No. 2), if a party had lodged a caveat on a property the subject of litigation in the Family Court, an application for the removal of that caveat was properly to be regarded as arising out of a common substratum of facts and formed part of a single justiciable controversy.  It accordingly fell within the jurisdiction of that court which could require the party to remove the caveat by the issue of a mandatory injunction in these terms pursuant to the Family Law Act s 114.

Siebel & Siebel & Anor [2019] FCCA 3367, (21 November 2019), Judge Blake

·     The Applicant Husband advanced a sum to his son towards purchase of a property.  The son became registered proprietor. 

·    In 2017 the Husband lodged a caveat on the basis of an implied, resulting or constructive trust.  In 2018 he applied under s. 79 of the Family Law Act for a just and equitable division of property of the marriage.  As the Applicant asserted that the property should be transferred to him and the Wife and then be available for distribution between them as part of the asset pool of the marriage his son was joined as second respondent. 

·     The Federal Circuit Court held that the advance of money was an unconditional gift and so that no trust existed, but that even if there had been evidence of a resulting trust the presumption of advancement applied in favour of the son.  Accordingly the property was not part of the asset pool.

·     His Honour also ordered that the Husband withdraw the caveat failing which the Registrar of Titles was directed pursuant to s. 90(3) of the Transfer of Land Act to remove the caveat.  His Honour followed the reasoning of Cronin J. in Green & Walls:
the substance of the dispute before the Court concerned the ownership of the property and the efficacy of the orders made as an exercise of the Commonwealth power depended upon the caveat issue being determined.

Skye & Saidel and Anor [2020] FamCA 18, (17 January 2020), Macmillan J. 

·       In 2011 the second respondent, who was the mother of the Wife, provided the moneys for purchase of a property of which they and the Husband became joint registered proprietors. 

·       In 2014 D Pty Ltd lodged a caveat over the property on the basis of a Credit Account Application and guarantee for the supply of materials for a business, which was signed by the Husband in his capacity as a director – the Husband had agreed to charge his interest in any real estate in which he had a beneficial interest. 

·      In 2018 a second caveat was lodged by the liquidator of that company on the basis of an equitable mortgage given by the Husband over his interest in the property in settlement of proceedings by the liquidator against the company and the Husband. 

·     In 2018 the Wife filed an Initiating Application against the Husband seeking orders for property settlement.  The orders eventually sought included an order that she and the Husband transfer their interests in the property to her mother who was formally joined as second respondent.  In an Amended Response the second respondent sought a declaration pursuant to s. 78 of the Family Law Act as to the legal and beneficial ownership of the property and consequential orders.  The Wife sought a similar declaration. 

MacMillan J was satisfied that the caveators had been given notice of the proceedings, were aware of the orders sought and had elected not to intervene in the proceedings.

Her Honour held – 

1.    Although the second respondent was not a party to the marriage, where there was a single justiciable controversy the Family Court could exercise its accrued jurisdiction to make the orders the second named respondent sought: the Court could not determine the proceedings pursuant to s. 79 of the Family Law Act without first determining the husband and wife’s legal and equitable interests in the land.  Also s. 78 provided a proper judicial basis for the making of a declaration binding the parties to this proceeding so long as the proceedings in which the declaration was to be made was, as in this case, a matrimonial cause. [25]. 

2.    As the Husband and Wife held their interest in the land on a resulting trust or on a Muschinski v Dodds constructive trust for the mother the declaration sought would be made.  [27]-[31]

3.    If the Husband had an interest in the land he could charge or mortgage it without notice to the other registered proprietors.  However, as the Husband did not hold his interest in the property beneficially he had no interest to mortgage or charge which could sustain the caveats. [42], [45]

2.    Exercising the court’s power arising under the accrued jurisdiction the Registrar of Titles would be directed under the Transfer of Land Act s. 90(3) to remove the caveats. [53], [54], [56]

 

Philip H. Barton

Owen Dixon Chambers West

2 June 2020

 

 

 

37. Caveat claiming resulting implied or constructive trust removed – No prima facie case – Difference between “prima facie case” and “serious question to be tried” tests – Circumstances in which hearsay admissible on application under TLA s. 90(3).

SMAV Nominees Pty Ltd v Bakal Enterprises Pty Ltd [2020] VSC 203 (24 April 2020), Derham AsJ

Comment.   This case is interesting for the following reasons –

1.   It considers the circumstances in which hearsay is admissible on an application to remove a caveat under the Transfer of Land Act s. 90(3).  See also Blog 11.

2.     Derham AsJ considers whether the caveator has to show, as to the existence of its asserted legal or equitable rights in the land, on the one hand a prima facie case or on the other hand a serious question to be tried.  His Honour states that the first is the correct test (as previously stated in Blog 1) and indeed states (at [64]) that the first test requires a higher standard than the second, citing the decision of Warren CJ in Piroshenko v Grojsman [2010] VSC 240; (2010) 27 VR 489.  It is, however, difficult to find any case in which a court holds that a caveator met one and not the other test (in this case Derham AsJ finds that caveator failed both), and indeed in Concrete Mining Structures Pty Ltd v Cellcrete Australia Pty Ltd [2015] FCA 888 at [33] (not a caveat case) Edelman J stated that the difference between the two tests is one of language not of substance.

3.   Although his Honour simply ordered that the caveator pay the plaintiff’s costs of the application he reserved liberty to apply in relation to his proposed orders.  It was ominous that he also found that the caveat had been used as a bargaining chip as this may foreshadow indemnity costs – see Blog 35 and previous Blogs on costs. 

The facts were –

·      In October and November 2017 the plaintiff’s sole director Mavroudis loaned Sabawi a total of $200,000.

·     In April 2018 Mavroudis was introduced to 294 Pound Road Hampton Park (“the property”) by Sabawi, whom he believed to be a licensed real estate agent.   On 13 April he signed a “Letter of Offer Expression of Interest” and paid a holding deposit of $10,000 to one of the vendors at the direction of Sabawi.

·    On or about 17 April 2018 Sabawi asked Mavroudis for his bank account details so that he could repay the loan of $200,000.  Mavroudis did this.  Sabawi subsequently advised Mavroudis that he had repaid the $200,000 to his account.  Mavroudis received the $200,000 into his account on 18 April 2018, recorded in his bank statement as “Inward Telegraphic Transfer 180490”.   

·   On 7 July 2018 Sabawi presented the contract of sale to Mavroudis for signing with the purchaser named as “294 Pound Road Pty Ltd” and the vendor’s estate agent named as a particular company formed by the two of them other than for the purpose of selling real estate.  Mavroudis signed only after insisting that the document be altered to show the plaintiff as purchaser and the sale as being by private treaty.   The plaintiff became registered proprietor. 

 

·  On 23 August 2019, the solicitors for the plaintiff and Mavroudis received a letter of demand from the then solicitors for the first defendant (“Bakal Enterprises”) demanding repayment of $200,000.  Among other things the letter alleged that, following discussion with an unnamed mutual friend, Bakal Enterprises had paid $200,000 into Mavroudis’s account on 18 April 2018 as a contribution towards a development on the property, which had fallen over.  Shortly before this letter Mavroudis received a telephone call to similar effect from, he gathered, Bakal, who was Bakal Enterprises’ sole director.

·        On 27 August 2019 the plaintiff’s solicitors responded, stating that Mavroudis’ first knowledge of these allegations was in this telephone call and refuting them.  On 16 September 2019 the then solicitors for Bakal Enterprises responded confirming that the mutual friend was Sabawi, enclosing a receipt so as to corroborate the statement that Bakal Enterprises and not Sabawi had made the $200,000 payment, and demanding its repayment. 

·     The plaintiff heard nothing further until receiving notice that Bakal Enterprises through its new solicitors Madgwicks had caveated on 10 February 2020 claiming a freehold interest in the property on the basis of a resulting implied or constructive trust.

·     The plaintiff’s solicitors demanded removal of the caveat and stated  that the $200,000 had been repayment of a loan by Sabawi.  On 27 and 28 February Madgwicks and the plaintiff’s solicitors communicated, in the course of which:

·       Madgwicks stated that Sabawi denied the loan, maintaining that the caveator had an interest in the land arising from the contribution of $200,000 towards its purchase;

·   the plaintiff’s solicitors provided documentary evidence of the $200,000 loan to Sabawi, foreshadowed caveat removal proceedings, reiterated Mavroudis’ previous account of the facts, and stated that: the plaintiff had purchased the property with its own funds and financial assistance from Mavroudis’s father; a planning permit for a subdivision of the property was imminent; the plaintiff had a very interested buyer once it could sell with plans and permits but that this was impeded by the caveat. 

·        On or about 5 March Bakal and Sabawi conferred with Madgwicks. On 12 March Madgwicks wrote to the plaintiff’s solicitors stating, after reiterating its instructions about the $200,000 payment, that Sabawi had instructed it that Mavroudis inappropriately altered the name of the purchaser in the contract of sale from 294 Pound Road Pty Ltd (to be incorporated between Mavroudis and Sabawi) to the plaintiff’s name and “[we] are informed by Mr Sabawi that this change was made under false pretences and without adequate payment to Mr Sabawi, who was instrumental in facilitating the sale in the first place …. Mr Sabawi is currently attending to swearing a statutory declaration confirming the above…”.

The plaintiff applied under s. 90(3) of the Transfer of Land Act for removal of the caveat.  Before the caveator filed any evidence Madgwicks offered in return for withdrawal of the caveat that $300,000 be held in trust pending determination of the dispute.

The material before the court included –

·      an affidavit by the caveator’s solicitor which stated that a statutory declaration was being prepared by Sabawi;

·       an affidavit by Bakal.  This affidavit exhibited a statutory declaration, inferred by his Honour to have been prepared by Madgwicks, said to have been made by Sabawi, containing Sabawi’s evidence including disputing Mavroudis’ account of the facts.   Bakal asserted that Sabawi had not sworn an affidavit because of the social distancing measures required in the COVID-19 pandemic. The statutory declaration omitted reference to the false pretences allegation contained in Madgwicks’ letter of 12 March.  It included that: in March 2018 Sabawi told Mavroudis that he was getting a friend to pay the deposit for the purchase; that after the $200,000 payment, Mavroudis acknowledged to Sabawi that the plaintiff had received the money; and he informed Mavroudis at the time of payment that the money was sent to him from Bakal for the purposes of the purchase.

·        Bakal’s affidavit contained a rendition of financial and property dealings between Sabawi and Bakal, with repetition of statements allegedly made by Sabawi about Mavroudis.  Bakal deposed –

·        that he did not know Mavroudis personally and other than the transfer of the $200,000 he had not had any relationship or dealings with him or his entities;

·        (partly denied by Mavroudis) as to an alleged involvement in this transfer of $200,000, garnished with further complex dealings.  He deposed that: on or about 18 April 2018, he transferred $200,000 to the plaintiff by electronic fund transfer, without contact between the plaintiff (or Mavroudis) and Bakal Enterprises (or Bakal); the details of who and when to pay were provided by Sabawi to him.  The reference on the payment produced by Bakal was “Deposit Pound Road”.  

·        affidavits by Mavroudis in which he deposed that when he signed the contract of sale he did not know, or know of, the caveator or anyone associated with it, and that he had not entered into any agreement, either personally or through any agent, with the caveator or any other party in relation to the property.  Mavroudis deposed that there was no truth in the account in the statutory declaration. 

The plaintiff submitted that the statutory declaration was inefficacious for non- compliance with the Oaths and Affirmations Act 2018 in its execution and witnessing. 

Derham AsJ held –

1.     Sabawi could have sworn an affidavit deposing to the matters in his statutory declaration.   The inconsistencies between the statutory declaration and matters raised in correspondence, in particular in the Madgwicks letter of 12 March, were relevant to an assessment of the strength of the caveator’s claim.  [27]-[28]

2.     However, regardless of the efficacy of that statutory declaration under the Oaths and Affirmations Act, the material in it was admissible because –

(a)     Under r. 43.03(2) of the Supreme Court (General Civil Procedure) Rules 2015, on an interlocutory application an affidavit may contain a statement of fact based on information and belief if the grounds were set out.  This included the identification of the supplier of the information, ie its source.  Nonetheless, the Court had a discretion to admit an affidavit non-compliant in this regard;

(b)     Section 75 of the Evidence Act 2008 provided that in an interlocutory proceeding the hearsay rule did not apply to evidence if the party who adduced it also adduced evidence of its source.  The source must be identified by name;

(c)     If Bakal’s affidavit had related the material in the statutory declaration as what he had been told by Sabawi it would have been admissible, this application being interlocutory and the source being disclosed. [51]-[56]

3.     His Honour set out the law on caveats in conventional terms, which, as this law is set out in Blog 1, it is unnecessary to repeat except in one regard.   His Honour noted that: the caveator bore the onus of establishing a prima facie case to be tried, ie a probability on the evidence that the caveator will be found to have the asserted legal or equitable rights or interest in the land, not that it was more probable than not that at trial it (his Honour states “the plaintiff” but this appears to be a slip) would succeed; and that probability is sufficient to justify the practical effect which the caveat has on the ability of the registered proprietor to deal with the property in accordance with their normal proprietary rights;

this test was often used interchangeably with whether the caveator established a serious question to be tried, but the prima facie case test was to be preferred;

the “prima facie case” test required a higher standard that the “serious question to be tried” test.  [30]-[33], [64]

4.     Where two people provided the purchase money for a property jointly, but the property was put into the name of one of them only, the property was, in the absence of a relationship giving rise to a presumption of advancement, presumed to be held on resulting trust in favour of the unregistered party in proportion to their contribution. [57]

5.     The caveator had not established a prima facie case or even, if it had been applicable, satisfied the serious question to be tried test, because Mavroudis gave evidence that he believed the payment of $200,000 was repayment of a debt and the evidence to the contrary was at best contained in Sabawi’s statutory declaration, which was of little weight, ambiguous and contrived.   Insofar as it purported to ascribe knowledge to Mavroudis of the purpose of the payment, it did not support a resulting trust claim: there was no identification of the supposed beneficiary of the trust beyond “a friend” and the ambiguous statement that the money was sent to the plaintiff by Bakal for the purpose of purchasing the property.  That might indicate that the beneficiary was to be Sabawi or Bakal.   The only objective evidence supporting the caveator’s claim was the payment of $200,000 itself and the record that Bakal produced that it related to “Pound Road”.   However, there was no evidentiary link between the payment of $200,000 and the payment of the deposit nearly three months later. [58]-[65], [76]

6.     For the same reasons there was also no prima facie case of a Muschinski v Dodds constructive trust.  There was no evidence of consensus between the caveator and the registered proprietor which could give rise to a joint endeavour. [66]-[69]

7.    There was no suggestion that the existence of a claim for restitution gave rise to any equitable interest in the property. [70], [76]

8.     The caveat had been used as a bargaining chip to obtain payment of $200,000.  Although there were many cases in which a caveat dispute was resolved as proposed by the caveator’s solicitors, with the addition of a mechanism for the resolution of the dispute sometimes involving the caveator commencing a proceeding, the registered proprietor was entitled to deal with its property as it saw fit without being restrained by the injunctive effect of the caveat unless the caveator established a proper basis for the caveat. [73]-[76]

9.     The caveator was ordered to pay the plaintiff’s costs of the application.  His Honour however reserved liberty to apply in relation to his proposed orders. [77]

Philip H. Barton

Owen Dixon Chambers West

26 May 2020

 

36. Arguable case of constructive trust but caveat removed on balance of convenience due to conflict with pre-existing orders of Family Court – Undertaking as to damages should have been offered – Harvey v Emery & Ors [2020] VSC 153 (2 April 2020), John Dixon J.

 

CommentThis case is a good example of an arguable, but not strongly so, interest in the land being trumped by the balance of convenience – John Dixon J. engages in a careful balancing exercise against the background of existing Family Court orders.  Several further general principles emerge –

1.     Non-parties to a marriage claiming an interest in land the subject of Family Court proceedings should expeditiously intervene in those proceedings.

2.    An undertaking as to damages is not commonly required as the price of maintenance of a caveat.  Boensch v Pascoe [2019] HCA 49 at [113] (Blog 29) explains how caveats differ from interlocutory injunctions in this respect.  However, John Dixon J. states an exception, being that such an undertaking is invariably required when a caveat was not removed in circumstances where third party rights would be detrimentally affected. 

3.   The case illustrates that a registered proprietor taking the s. 89A procedure can subsequently take the s. 90(3) procedure.

In Harvey v Emery & Ors [2020] VSC 153 the facts were – 

•  The plaintiff was married to Daniel Emery who was the son of the defendants. In about early 2018 the plaintiff and Daniel entered a contract to acquire a property as their family home for $950,000. They agreed that it would be acquired solely in her name to protect it from his creditors. The price comprised: her contribution of $200,000; an advance by the defendants to her of $200,000; the balance by bank finance secured by first mortgage. The plaintiff became sole registered proprietor.

•  As noted by the judge, it could only be determined at a subsequent trial whether this advance (and any subsequent claimed expenditure) by the defendants was: a loan, and whether to the plaintiff or Daniel or both, and for what purpose, or; an equity contribution in the context of a broader joint enterprise to which the defendants were parties, with the ultimate purpose of providing accommodation to the plaintiff, Daniel, their children and the defendants.  Related to this, were the defendants either chargees or beneficiaries of a resulting or constructive trust?

•  After settlement of the sale the plaintiff briefly resided at the property, vacating due to conflict in the relationship with Daniel that led to its breakdown.  Daniel remained in possession of the property for a period before being placed in custody for undisclosed reasons.

•  In proceedings between the plaintiff and Daniel the Family Court made consent orders in March 2019 including to the effect that – 

•  the plaintiff would transfer the title to the property to him on him refinancing the bank loan to discharge her mortgage and release her from the debt obligation, and on payment by him of $200,000 into her solicitors’ trust account;  

•  if Daniel was unable to refinance the property was to be sold with net proceeds broadly being disbursed in varying proportions between the plaintiff and Daniel after payment of costs and discharge of the mortgage;

•  The parties held their respective interests in the property on trust, with Daniel having the sole right of occupancy and sole liability for mortgage payments and outgoings.  

•  Daniel was unable to refinance and so could not comply with this order, leading to further Family Court orders in October 2019 including – 

•  that plaintiff recover possession of the property to effect its sale, in accordance with the March orders, and Daniel was restrained from caveating or from encumbering the land;  

•  directions for the conduct of the sale and for the distribution of the proceeds. The direction in respect of the priority of distribution of the proceeds was in substance: (a) – (d) payment of the costs and expenses of sale and for discharge of the mortgage; (e) payment to the plaintiff in reduction of the amounts due to her pursuant to the March orders with interest; (f) payment of any remainder to Daniel in reduction of the amounts due to him pursuant to the March orders; a further order relating to the balance owing in respect of a truck and other minor orders.   

•  The defendants were not party to the Family Court proceedings and did not seek to intervene. The settlement of the Family Court proceedings assumed that the whole of the beneficial interest in the property was matrimonial property.

•  In November 2019 the defendants caveated claiming a freehold estate absolutely prohibiting all dealings on the grounds of an implied, resulting or constructive trust.

•  The plaintiff applied under s. 89A of the Transfer of Land Act for removal of the caveat.  In response the defendants commenced a Supreme Court proceeding against her seeking a declaration that the property was held on trust for them as to an amount equivalent both to the above advance of $200,000 and to $120,000 expended on renovations (“the trust proceeding”).

The plaintiff applied pursuant to s. 90(3) to remove the caveat.  Daniel was not a party to either proceeding although he appeared to be a necessary party to the trust proceeding.  He apparently expressed a strong interest in retaining ownership of the property.  The defendants alleged that after the plaintiff had vacated the property, but with her acquiescence, they invested labour and expended approximately $120,000 in renovations and improvements and to enhance its value, in furtherance of a joint endeavour to acquire and improve an extended family home.  The plaintiff disputed this.

John Dixon J. held –

1.   If the allegations in the trust proceeding were proved, the defendants’ beneficial interest ought to have been excluded from the matrimonial property available for division in the settlement reached between the plaintiff and Daniel. [15]

2.  If the defendants’ contentions were correct, they had been adversely affected by the Family Court’s orders. They could enliven the Family Court proceedings, either by applying to intervene and seek a rehearing or by appeal. There was potential for conflict between the resolution of the trust proceeding and the execution of the orders of the Family Court. There were compelling reasons to cross-vest the trust proceeding to the Family Court to be dealt with in conjunction with a reopening of the property settlement orders. This application under s. 90(3) was not the appropriate forum for determination of issues between the parties. [25]-[27]

3.  The defendants had demonstrated some probability that they may be found to have an equitable right or interest in the land as asserted in the caveat, ie a freehold estate in the land based on a joint endeavour giving rise to a constructive trust. And if the renovation expenditure was added the defendants’ percentage claim to the beneficial interest would correspondingly increase. However, although there was a serious question for trial of such a constructive trust the claim did not appear to be strong. It was more probable that the defendants would establish an equitable lien or charge limited to the initial $200,000 advanced, this not being the interest claimed in the caveat. [4], [13], [28], [31], [32], [43], [45]

4.  A relationship existed between the strength of the case establishing a serious question to be tried and the extent to which the caveator must establish that the balance of convenience favoured maintenance of the caveat. Because the constructive trust claim was not strong the balance of convenience obligation fell more heavily on the caveators. There were significant negative practical consequences for the plaintiff if the caveat was maintained, being –

(a) Frustration of the sale ordered by the Family Court, in circumstances where none of the material facts affecting that order were, or since had been, placed before that court at the material time;

(b) The plaintiff would breach the contract of sale, affecting the purchaser’s rights in a manner with adverse consequences for the plaintiff, which could culminate in her reopening the Family Court proceedings to adjust the value of the pool of matrimonial assets underlying their resolution;

(c) Other than belatedly, the defendants had not offered any undertaking as to damages, notwithstanding that this undertaking was invariably required when a caveat was not removed in circumstances where third party rights would be detrimentally affected. Having regard to the belatedness of the offer it was not deserving of weight in the absence of evidence of its worth;

    There was insufficient evidence that the plaintiff had sold at an undervalue, and if the property market was falling the sale should proceed. [5], [33], [39], [45]-[52]

5.  The course that carried the lower risk of injustice, if it should turn out that his Honour was wrong, was to order that the caveat be removed on the following conditions –

a) amendment of the trust proceeding and it being transferred to the Family Court;

(b) relief of the plaintiff of the obligation to comply forthwith with the orders of the Family Court, and in lieu order that the proceeds of sale be distributed in accordance with paragraphs 7(a) – 7(f) of the order of October 2019 and that the balance remaining be deposited into an interest bearing account and not be disbursed save by further order of the Family Court. [53]-[59]

 Philip H. Barton

Owen Dixon Chambers West

19 May 2020

 

35. Costs – Judge busts caveator poker player – Colakoglu v Ozcelik [2020] VSC 139 (25 March 2020), John Dixon J; Diep v Tran & Ors (Costs) 2020 VSC 171 (9 April 2020), John Dixon J; Wegner & Anor v Mayberry [2020] VSC 239 (1 May 2020), Kennedy J.

Comment.   Colakoglu is a mundane caveat removal case in which a caveator, who removed the caveat after service of a s. 90(3) application, was ordered to pay costs on a standard basis – it was unclear whether there had been reasonable cause to lodge the caveat but clear that, in negotiations immediately before its withdrawal, he maintained it inappropriately as a bargaining chip to extract funds to cover his costs.  Diep and Wegner are the latest manifestations of the practice of judges visiting hopeless caveats with indemnity costs.  The caveator in Diep did not help his case by stating that he would not remove the caveat until there was “an offer on the table” and that he “plays poker and was happy to spend a couple of hundred thousand dollars to make a point”.   From the time of the decision of Dodds–Streeton J. in Goldstraw v Goldstraw [2002] VSC 491 at [42] judges have repeated that caveats are not to be used as “bargaining chips”, which the caveator in Diep literally did.  From the blogger’s dim recollection, in vernacular terms the caveator “went bust”, and indeed Google confirms that to “bust” a player in poker (as John Dixon J. did) means you are relieving them of all their chips.

In Colakoglu v Ozcelik [2020] VSC 139 the facts were –

  • The plaintiff and first defendant were married, had purchased a unit then placed in the plaintiff’s name but to which the first defendant claimed he had contributed giving rise to a trust, and proceedings were on foot between them in the Federal Circuit Court in which the beneficial interest of the parties could be adjusted under the Family Law Act.
  • The plaintiff listed the property for sale with the first defendant’s consent, his solicitors advising that he had foregone his interest in the property and had no interest in the proceeds of sale.
  • A contract of sale was accordingly entered into with settlement scheduled for 19 March.  However, on 3 March, notwithstanding their earlier advice, the first defendant’s solicitors lodged a caveat claiming a resulting and/or constructive trust.
  • The plaintiff sought consent to withdrawal of the caveat, on the basis that the sale proceeds would be held by her solicitors in a solicitor’s controlled money account for the benefit of both parties pending resolution of the family law issues.  Before the time for settlement of the contract arrived the parties were not in dispute that the contract ought to settle with the balance of proceeds of sale being paid into trust.
  • However, the first defendant did not remove the caveat, delaying settlement.  But after the plaintiff commenced a proceeding under the TLA s. 90(3) the first defendant withdrew the caveat and the contract settled

John Dixon J. ordered that the costs of the application be paid by the first defendant on a standard basis, dismissed an application for costs against his solicitors, and referred an application for compensation under s. 118 for case management.  His Honour held –

  1. As to whether there was a serious question to be tried, as the unit was to be converted into a fund to be held in trust pending resolution of the family law dispute, the beneficial interest of either party was unaffected, and accordingly whether the first defendant disclaimed any interest in a trust as the plaintiff submitted, or whether he ever had such interest as the first defendant now contended, was a matter for trial. [7]
  2. The balance of convenience favoured removal of the caveat. [16]
  3. The evidence on whether the first defendant had reasonable cause to lodge the caveat was unclear, because he did not engage with the plaintiff’s allegation that he disclaimed any interest in the unit when consenting to its sale.  However, in the negotiations immediately before the withdrawal the caveat continued to be maintained inappropriately as a bargaining chip to extract funds to cover his costs. [13], [22]

In Diep v Tran & Ors (Costs) [2020] VSC 171

  • The first defendant lodged a caveat asserting a caveatable interest on the basis of an agreement dated 1 May 2019.   He ignored requests for a copy of this agreement: it was never sighted.
  • The plaintiff’s solicitors requested withdrawal of the caveat, being met with the response that it would not be removed until there was “an offer on the table” and that he “plays poker and was happy to spend a couple of hundred thousand dollars to make a point”.
  • The plaintiff’s solicitors suggested that the caveat be withdrawn, the settlement proceed and the net proceeds of the sale be placed in a trust account pending resolution of the dispute.  The caveator responded in substance: “you said you were going to make an offer, there’s no offer of money.  Why would I remove my caveat if you are not going to give me money?”
  • After caveat removal proceedings were issued the caveat was withdrawn.

His Honour ordered that the caveator pay indemnity costs because: he provided no justification for the interest claimed by his caveat; before issuing the proceeding the plaintiff’s solicitor made a reasonable proposal for retention of the net proceeds of sale; the caveat was used as a bargaining chip to extract a monetary offer – a serious misuse of statutory provisions for an improper or ulterior purpose.

In Wegner & Anor v Mayberry [2020] VSC 239 –

  • The first defendant lodged a caveat on the ground of an implied, resulting or constructive trust over land of which the first plaintiff, his former wife, was a registered proprietor as tenant in common with the second plaintiff.  The purchase of the land had been funded by bank finance secured by mortgage.
  • In April 2019 this caveat was removed by court order with indemnity costs.
  • In July 2019 the first defendant became bankrupt.
  • In January 2020 the first defendant lodged a second caveat on the same ground as the first.   On being requested to remove it he refused until the plaintiffs refinanced and released him from his obligations as a co-borrower.  He was given notice that unless the caveat was withdrawn indemnity costs would be sought.
  • In February 2020 the plaintiffs entered a contract to sell the land for a price below the mortgage debt, the solicitors for the first defendant’s trustee in bankruptcy consented to the sale, and caveat removal proceedings were commenced.

Kennedy J ordered removal of the caveat because the caveator had not established any arguable right or interest in the land (and any interest would now be vested in his trustee in bankruptcy) and the balance of convenience favoured removal: the caveat would adversely affect the sale; it was in everyone’s interests that the mortgage debt be reduced; there was evidence that market may be falling; and the trustee in bankruptcy had consented to the sale.

Indemnity costs were awarded because the caveat had been lodged for a collateral purpose and in disregard of known facts.

Philip H. Barton

Owen Dixon Chambers West

12 May 2020

 

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

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

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

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

The facts were –

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(c)  the caveats were misconceived and without merit;

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

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

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

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

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

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

(a)  the drafting of the caveats;

(b)  the s 89A application;

(c)  the misrepresentations to the Registrar;

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

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

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

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

Philip H. Barton

Owen Dixon Chambers West

5 May 2020

33. Unsuccessful claim for injunction under TLA s. 90(2) – Caveator merely an unsecured creditor with no caveatable interest.

In EZY Global Ltd v Miller Crescent Pty Ltd & Ors [2019] VSC 815 (11 December 2019) Croucher J. the facts were –

 

  • The plaintiff invested in a project for development of a property of which the first defendant was registered proprietor.   The plaintiff advanced funds pursuant to a loan agreement with the first defendant which included a term that the first defendant “must apply the Loan solely for the purpose of the development of” the property.  The plaintiff asserted that: it had advanced funds in reliance on the representation contained in this term, which was also made in conversations with its director; the effect of the loan agreement and the discussions between the parties was that the first defendant held the land on a common intention constructive trust for itself and the plaintiff in proportion to its indebtedness pursuant to the loan agreement; and the plaintiff’s director had relied on an oral assurance that it would be unnecessary for the plaintiff to take a security interest in writing, creating a lien arising from an estoppel.
  • The plaintiff alleged that there had been breaches of the loan agreement and had commenced a County Court proceeding seeking to enforce this and other loan agreements, also seeking declarations that it had an interest in this and other properties.
  • The plaintiff lodged a caveat.  The interest claimed was a freehold estate on the ground of the loan agreement.  It was also notified that the second defendant had lodged a mortgage for registration.  Within 30 days of notification it applied pursuant to s. 90(2) of the Transfer of Land Act for an order restraining the Registrar of Titles from lodging this mortgage or for similar relief.  Section 90(2) provided –

“If before the expiration of the said period of thirty days … the caveator … appears before a court and gives such undertaking or security or lodges such sum as the court considers sufficient to indemnify every person against any damage that may be sustained by reason of any disposition of the property being delayed, the court may direct the Registrar to delay registering any dealing with the land for a further period specified in the order, or may make such other order (and in either case such order as to costs) as is just”.

The plaintiff offered an undertaking as to damages.

The application failed on the following grounds –

1.   The application under s. 90(2) was to be determined on the following principles –

(a) the plaintiff must establish a prima facie case giving rise to a serious question to be tried as to whether it has a caveatable interest in the land; [4]

(b) the plaintiff must show that the balance of convenience favours the maintenance of the caveat and the prevention of the mortgage being registered (or that there should be such other order as is just). [4]

2.   The plaintiff had not established a prima facie case giving rise to a serious question to be tried that it had a caveatable interest in the land.  The loan agreement contained no charging clause and it was common ground on the evidence that there was to be no written security given for the loan.  The evidence did not support the existence of a constructive trust or lien.  The caveator was merely an unsecured lender. [5], [72]-[80]

Comment.

This was not the typical application by a registered proprietor under s. 90(3) for removal of a caveat but rather an application under s. 90(2) by the caveator to create the same outcome as if its caveat was upheld, to which the same principles applied (see 1 above) with an undertaking as to damages.   It appeared that the caveator took this course because it tacitly acknowledged that its caveat was defective in not claiming any equitable interest in the property ([47]-[48]).  It relied on TL Rentals Pty Ltd v Youth On Call Pty Ltd [2018] VSC 105 where an interlocutory injunction was obtained to protect the priority of an equitable mortgage (Blog 13).  However, unlike that case, it failed because it had no arguable interest in the land.

Philip H. Barton

Owen Dixon Chambers West

27 April 2020

32. Where B wrongfully acquires monies from A, which B passes on to a third party, who uses such monies to purchase land of which it becomes registered proprietor – Or where B fraudulently transfers land owned by A to a third party who becomes registered proprietor – Caveat by A upheld if there is a constructive trust in A’s favour, but not if there is a mere equity to set aside the transfer – Contrast between AE Brighton Holdings Pty Ltd v UDP Holdings Pty Ltd and Super Jacobs & Anor v Esera Faalogo & Ors.

In AE Brighton Holdings Pty Ltd v UDP Holdings Pty Ltd [2019] VSC 688 (15 October 2019) Ginnane J. the facts were –

  • 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 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 2018 the Supreme Court gave UDP leave to enforce the award and ordered that the award was given effect as a judgment of the Court.
  • UDP caveated over the properties on the grounds of an implied, resulting or constructive trust.
  • Subsequently AE Brighton entered a contract to sell two of the properties.

Ginnane J dismissed an application by AE Brighton for the caveats to be removed, but required the caveator to commence proceedings promptly to support its claim, on the following grounds –

  1. Where a trustee wrongfully used trust money to provide part of the cost of acquiring an asset, the beneficiary was entitled at his option either to claim a proportionate share of the asset or to enforce a lien upon it to secure his personal claim against the trustee for the amount of the misapplied money. It was irrelevant whether the trustee mixed the trust money with his own in a single fund before using it to acquire the asset, or made separate payments (whether simultaneously or sequentially) out of the differently owned funds to acquire a single asset.  This principle was not reliant on proof of fraud, merely on breach of trust. [32]-[33]
  2. Based on this principle there was a prima facie case that the caveator had an estate or interest in the properties as a beneficiary under a constructive trust. This arose from money (ie the purchase money under the share sale agreement) obtained by Esposito Holdings as a result of misleading or deceptive conduct, from which the caveator suffered loss, held on trust by Esposito Holdings for the caveator, being paid in breach of trust by Esposito Holdings to AE Brighton which used it to purchase the properties.  While the evidence in the arbitration did not bind AE Brighton, because it was not a party to the arbitration, it was relevant in determining this prima facie case. [28], [36], [37], [38], [40], [41]
  3. AE Brighton had more than a mere equity, which was not an equitable estate and so not caveatable. [30]-[31]
  4. Although the court took into account that AE Brighton had entered into two contracts of sale, the caveats predated the contracts and AE Brighton had made no submission about how, taking into account the interests of the mortgagees and other caveators, the caveator’s security interest in the properties could be protected if the caveats were removed. Accordingly the balance of convenience favoured maintenance of the caveats on terms requiring the caveator to commence its proposed proceeding promptly. [42]-[43]

An application for leave to appeal against this decision has been lodged, the respondent’s application for security for costs being dismissed: AE Brighton Holdings Pty Ltd v UDP Holdings Pty Ltd [2020] VSCA 43.

In Super Jacobs & Anor v Esera Faalogo & Ors [2019] VSC 778 (3 December 2019) Daly AsJ the facts were –

  • The defendants were registered proprietors of a residential property. They were migrants, of limited means, not highly educated or familiar with legal or financial matters.  In 2016 they gave a general power of attorney to a mortgage broker who they believed was arranging finance for them to be secured against their property.
  • In 2017 the mortgage broker, the defendants’ claimed fraudulently, used the power to execute a contract of sale of the land to the plaintiffs who became registered proprietors in June 2018. The sale was not by auction or private treaty or advertised and had other unusual features.
  • The defendants received no funds from sale, subsequently discovered this transfer, and later in 2018 caveated 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 was one of the grounds of claim in the drop-down menu in the Registrar of Titles’ electronic lodgment service.
  • The plaintiffs applied for removal of the caveat and for an order for possession.

Daly AsJ removed the caveat, holding –

  1. Even if (which they denied) the plaintiffs obtained the property by fraud or improper dealing the caveators’ claim to have the transfer set aside on the grounds of a fraud by, or which could be sheeted home to, the registered proprietors was not an interest or estate in land. They did not hold an equitable interest in the property until the claim was made good in a court.  Until then their equitable right to assail the transfer for fraud was a ‘mere equity’, being a personal right of action.  On the same principle, if a mortgagee sold land in breach of its duties to the mortgagor the mortgagor had only an equity to set aside the pending transfer of land and could not caveat. [18]-[20], [28]-[32]
  2. Accepting for present purposes that the mortgage broker owed the defendants a fiduciary duty, and that as such, if (as they denied) the plaintiffs were knowingly concerned in the broker’s breach of trust, or were a knowing recipient of trust property (being the land), then the plaintiffs may be liable to the defendants pursuant to the principles in Barnes v Addy (1874) LR 9 Ch. App. 244 with the remedy of a remedial constructive trust. However, this did not convert the defendants’ potential claim into an equitable interest as opposed to a personal claim against the plaintiffs.  This was to be contrasted with an equitable interest arising from proprietary estoppel or a common intention constructive trust: in such a case the equitable interest arose from when the promise was relied upon or the common intention was given effect. [34]-[36]
  3. It was accordingly unnecessary to consider whether the caveat ought to be removed because the grounds of claim did not refer to an interest in land known to the law, or whether the caveat should be amended. [37]
  4. If the defendants had had an interest in the land the balance of convenience would have been in their favour. [17]

Comment.  Both cases considered the decision of the Full Court in Swanston Mortgage Pty Ltd v Trepan Investments Pty Ltd [1994] 1 VR 672 that where, under the Torrens system, a mortgagee sells in breach of its duties to the mortgagor, the mortgagor has an equity to set aside the pending transfer of land, but until the equity is made good by bringing a successful claim the mortgagor has no equitable interest in the land and therefore no right to caveat.  The first case distinguished it.  The second applied it.

The principle that the interest claimed in the caveat must be in existence at the time of its lodgment – it was not enough that the caveator had commenced proceedings which may result in such an interest being vested in him or her – was also asserted in Boensch v Pascoe [2019] HCA 49 which was the subject of Blog 29.

Philip H. Barton

Owen Dixon Chambers West

20 April 2020

 

31 Caveat by bankrupt on ground of “estoppel” removed.

In Official Trustee in Bankruptcy v Shaw & Anor [2019] VSC 681 (14 October 2019) John Dixon J.

The facts were –

·      In 2014 a sequestration order was made against the first defendant who was the sole registered proprietor of a residential unit and an associated car parking space.  In July 2019 the Official Trustee entered into a contract to sell the property with settlement due on 4 October 2019.  In August the bankrupt ceased to be registered proprietor of the land.  In September the Federal Court dismissed an application by the bankrupt for interlocutory injunctive relief directed at the Official Trustee’s decision to sell.

·       On 3 October 2019 the bankrupt lodged caveats over each property on the ground of “estoppel”. 

John Dixon J. ordered removal of the caveats on the following grounds –

1.   There was no serious question to be tried or prima facie case that principles of estoppel could give the bankrupt a claim to an interest in the land enforceable against the Official Trustee because –

(a)   under s. 58(1) of the Bankruptcy Act (Cth) all of his right, title and interest in the land vested in the Official Trustee whether as his property when he became bankrupt or as after-acquired property;

(b)  it was inconceivable that circumstances that would give rise to his estoppel extended before the time the bankrupt ceased to be the registered proprietor, because it was nonsensical to suggest that the registered proprietor had a claim against himself for an estate or interest in land pursuant to an estoppel;

(c)   the caveat was lodged for the improper purpose of preventing sale while he appealed the Federal Court decision.   The only proper purpose of a caveat was to prevent dealings with that property because of a claimed interest in it.

[44]-[48], [53], [55]

2.     The balance of convenience was against the caveator because –

(a)  it was frustrating the settlement of the contract, affecting the interests of a third party purchaser adversely, and if, as would be the consequence of significant delay, the sale was terminated there would be the prospect of prejudice to the caveator’s creditors;

(b)   he could not proffer an undertaking as to damages;

(c)   he had not explained why the caveat had been lodged so close to settlement.  He could still in the context of further Federal Court proceedings seek relief affecting the future conduct of the Official Trustee in relation to the proceeds of sale.

[55]-[58]

Philip H. Barton
Owen Dixon Chambers West
14 April 2020

 

30. Vendors agreeing to extend settlement date through act of agent with actual or ostensible authority – Not a formal variation of contract of sale required to comply with Instruments Act s. 126 but a waiver or estoppel – However caveator by withdrawing previous caveat had elected not to sue for specific performance but only to claim damages or was estopped from asserting the contrary – Caveat removed.

Chan & Anor v Liu & Anor [2020] VSCA 28 (25 February 2020) was a successful appeal from a decision of Forbes J [2019] VSC 650 upholding a caveat.  The facts were –

  • By a contract dated 21 July 2018 the first respondent Zhenzhu Liu agreed to purchase a property in Burwood Highway, Burwood, from the applicants for $2,450,000 with settlement due on 22 July 2019.
  • Most of the discussions concerning the sale were between Mr Liu’s wife Yumei Feng and Xuehang Cheng who was a sales consultant employed by the selling agents.  Soon after the contract was entered into she asked through him whether the vendors would agree to extend settlement to 15 September 2019 without penalty.  After speaking to the second vendor he conveyed that the vendors would only agree to an extension to 22 August 2019.  Ms Feng again sought an extension to 15 September, Mr Cheng again sought the vendors’ consent and again confirmed that the vendors would extend settlement to 22 August 2019.  Further interaction to similar effect then occurred between the purchaser’s solicitors and the agents, and on 10 August 2018 the agents again stated that the vendors had agreed to extend the settlement date to 22 August 2019.
  • Mr Liu deposed that he and Ms Feng believed that the extension to 22 August 2019 was confirmed and that only the further request to extend settlement to 15 September 2019 was not, and that they were preparing their finances for settlement on 22 August 2019 in reliance on the agent’s representation.
  • On 10 August 2018 Mr Liu caveated claiming an interest in the property pursuant to the contract of sale.
  • In late 2018 the vendors requested the purchaser to temporarily ‘lift’ the caveat so that they could refinance.  The caveat was accordingly withdrawn and on 21 December 2018 a second caveat was lodged.
  • Between 12 June and 22 July 2019 the solicitors for both parties engaged in manoeuvres and negotiations including: the purchaser’s solicitor asserting that the vendors had previously agreed to a penalty free extension to 22 August 2019 and the vendors’ solicitor disagreeing; the vendors’ solicitors seeking more money; the purchaser’s solicitor stating his client had difficulty obtaining finance and asking that the vendors consider an extension of the settlement date and a deferred payment of part of the price.
  • On 22 July, following no settlement by 4.00 pm, the vendors’ solicitor at 5.19 pm served a 14 day notice of default and rescission.
  • On 9 August the vendors’ solicitor wrote to the purchaser’s solicitor confirming termination of the contract and forfeiture of the deposit.  No response was received.
  • On 20 August the vendors’ solicitor wrote again noting that as a result of the purchaser’s default his clients needed to re-sell and demanding withdrawal of the second caveat.  In response, on 22 August the purchaser withdrew the second caveat and his solicitor advised the vendors’ solicitor of this.  However, next day the purchaser’s solicitor wrote again stating that the withdrawal of the caveat was ‘without prejudice to any of the [respondent’s] rights under the contract or at all, which rights are fully reserved’.  The vendors’ solicitor responded that day stating that his clients were attempting to re-sell quickly and requesting that the purchaser not jeopardise or delay this re-sale.
  • On 27 August the vendors entered into a contract of re-sale to a third party.
  • On 3 September 2019 the purchaser lodged a third caveat claiming an interest in the property pursuant to the (original) contract of sale and next day his solicitor sent a notice to complete by 19 September 2019.  The vendors subsequently disputed the validity of these actions.  They subsequently applied under the Transfer of Land Act s. 90(3) to remove the caveat.

The court (Beach, Kyrou and Kaye JJA) gave leave to appeal and allowed the appeal, holding –

  1. The power of the court under s. 90(3) was discretionary and so to obtain leave to appeal the applicants must establish material error by the judge in the exercise of that discretion of the kind described by the High Court in House v The King (1936) 35 CLR 499. [41]
  2. The principles applicable under s. 90(3) were as stated by Warren CJ in Piroshenko v Grojsman [2010] VSC 240, (2010) 27 VR 489, ie that the caveator must persuade the court that:

(1)  there is a probability on the evidence before the court that he or she will be found to have the asserted equitable rights or interest; and

(2)  that probability is sufficient to justify the caveat’s practical effect on the ability of the registered proprietor to deal with the property in accordance with normal proprietary rights.

But that these propositions were qualified by the fact that the discretion conferred by s. 90(3) was expressed broadly and enjoined the court to make such order as it thinks fit, and so the test adopted by the court ought not to restrict the statutory power.   Further, (1) and (2) are not mutually discrete: the exercise of the court’s discretion ultimately involved a synthesis of the Court’s conclusions on each. [42], [43], [75], [76]

  1. Where a purchaser had a right, in equity, to specifically enforce a contract of sale the purchaser thereby had an interest in the land, akin to an equitable interest, which may be protected by a caveat. [53]
  2. The parties had agreed that the specified settlement date be extended to 22 August 2019. Even if the vendors had insisted that the agent Mr Chan impose a condition on the extension of time, which he failed to do, for the purpose of the summary application under s. 90(3) it was appropriate to proceed on the basis that he had, at least, ostensible if not actual authority to enter into such an extension arrangement on behalf of the applicants.  Accordingly there was a serious issue to be tried that that ‘arrangement’ did not constitute a formal variation of the contract of sale (which would have been required to comply with s. 126 of the Instruments Act) but, rather, was a waiver of the stipulated settlement date of 22 July 2019 or founded an estoppel precluding the vendors relying on that date (instead of 22 August 2019). [55], [56]
  3. However, as to whether there was a serious issue to be tried that the purchaser, when he lodged the third caveat, had and continued to have the right to specifically enforce the contract, notwithstanding failure to pay the balance of purchase monies on 22 July 2019, as a consequence of which the vendors purported to rescind the contract –

(a)  Under the doctrine of election, a party confronted by two truly alternative or inconsistent rights or sets of rights (such as the right to avoid or terminate a contract and the right to affirm it and insist on performance of it) may lose one of those rights by election by acting in a manner which is consistent only with that party having chosen to rely on the other alternative or inconsistent right; [60]

(b) Ordinarily, a caveat removal application, being in the nature of an application for an interlocutory injunction, was not an occasion for the final determination of disputed factual issues, or of the substantive claims which the caveat sought to protect, and so it was not appropriate or necessary for the court to determine conclusively whether there was a binding election.  In the circumstances of the case, it was sufficient that there were strong grounds for concluding that the purchaser had made an unequivocal election not to retain his right to specific performance but, rather, to treat the contract of sale at an end, and pursue a claim for damages ([57], [59], [63], [67], [71]) for the following reasons –

(i)       the purpose of the lodgement of the second caveat was to protect the right of the purchaser to specific performance; [64]

(ii)   on 9 August the purchaser was placed on clear notice that the vendors took the position that the contract had been terminated.  Then, in the context of neither seeking to rebut nor respond to that position, he on 22 August withdrew the second caveat in response to the demand that he do so that the vendors could re-sell.   At this point it was strongly arguable that, in those circumstances, the purchaser’s conduct in withdrawing the caveat was an election no longer to claim a right to specific performance, which was an essential pre-condition to maintaining the second caveat.  That proposition was reinforced by the email of 23 August reiterating that the vendors were attempting to re-sell the property.  There was no assertion by the purchaser at any time before the re-sale on 27 August that the vendors were precluded from doing so because the purchaser had a right to specific performance; [65]

(iii)  the context in which the purchaser’s solicitor emailed on 23 August stating that the withdrawal of the caveat was done ‘without prejudice’ etc militated strongly against the proposition that the purchaser thus preserved his right to specific performance.  The only purpose served by the removal of the second caveat was to enable the applicants to re-sell the property, which re-sale would be directly inconsistent with any potential right of the purchaser to specific performance, and the email of 23 August did not suggest that the rights sought to be preserved included a right to specific performance or that the vendors could or should not re-sell. [66]

(c) For the same reasons there was a strong basis for concluding that the purchaser, by his conduct between 9 August and 27 August 2019, was estopped from contending that he continued to have a right to seek specific performance of the contract of sale.  He represented that he did not seek to maintain a caveatable interest in the property, so implying that he no longer sought to pursue a right to specific performance; by his withdrawal of caveat on 22 August, and his conduct at that time, he enabled the vendors to re-sell; if he was now permitted to depart from this representation the vendors would suffer detriment, namely, the loss of the contract of re-sale and exposure of them to a claim in damages (or other relief) by the new purchaser. [69], [71]

6.   The degree of likelihood of success in the proceeding was relevant to evaluation of the balance of convenience.  The above conclusions on election and estoppel were  of critical significance in an assessment of the balance of convenience against the fact that retention of the caveat would prevent completion of the contract of re-sale.   The balance of convenience accordingly favoured removal of the caveat. [73], [74], [77]

7.    The vendors’ further argument that, insofar as the parties had arranged, in August 2018, for the settlement date to be extended to 22 August 2019, nevertheless the conduct of the respondent between June 2019 and 22 August 2019 in some way rendered the extension of time nugatory, raised a question of fact which the court could not determine. [79]-[82]

Comment:

This case is interesting for the following reasons –

1.     In cases of contracts of sale the caveator/purchaser will often win or lose depending on whether there was a contract at all or if there had been whether it had been repudiated.  In this case the caveator lost because by the withdrawal of the second caveat he had given up the right to specific performance by affirmation or by estoppel.

2.    The court (paragraph 3 above) states that the right to specific performance is an “interest in land, akin to an equitable interest”.  The words “akin to” are interesting and are based mainly on Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315 at 332–3.  Older cases simply said that a specifically enforceable contract of sale confers an equitable interest on the purchaser (eg Bunny Industries Ltd v FSW Enterprises Pty Ltd [1982] Qd. R. 712, based on earlier authorities). 

3.   The principle that on a caveat removal application it is not appropriate or necessary for the court to determine conclusively whether a particular legal event would happen (see paragraph 5(b) above) is normally applied in favour of caveators, ie that the caveator has only to show a serious question to be tried.  In this case the Court of Appeal turned this principle on its head by applying it in favour of the registered proprietor, ie it was sufficient that the registered proprietor showed only “strong grounds” for there being a binding election. 

Philip H. Barton
Owen Dixon Chambers West
7 April 2020