Category: Compensation Claim – s. 118

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

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

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

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

The facts were –

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

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

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

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

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

The Transfer of Land Act s. 118 provided:

Any person lodging with the Registrar without reasonable cause any caveat under this Act shall be liable to make to any person who sustains damage thereby such compensation as a court deems just and orders.

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

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

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

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

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

  Philip H. Barton

          Owen Dixon Chambers West

        Wednesday, March 22, 2023

 

42. Claim for compensation under TLA s. 118.

Long Forest Estate Pty Ltd v Singh & Anor [2020] VSC 604 (23 September 2020), John Dixon J., is a very long case only part of which involves a caveat.  It is also an interesting decision on whether a vendor’s statement is required to disclose declarations or decisions by a Minister or Department of the Commonwealth.  Briefly the facts were –

  • The plaintiff (Long Forest) owned farmland adjacent to a Nature Conservation Reserve.  It had acquired the land for residential development but without any active planning approvals in place.
  • The land was subject to –
    • three declarations of the Commonwealth Minister for the Environment and Heritage under the Environment Protection and Biodiversity Act 1999 (Cth) as to threatened species, ecological communities and key threatening processes;
    • two decisions of the Minister under that Act which related to Long Forest’s proposal for residential development.  The former decision, in 2014, described the proposed construction of a particular residential development as a controlled action, stating that the project would require assessment and approval under the Act before it could proceed.  The latter decision, in 2015, informed the plaintiff that its proposal to construct the residential development would be approved subject to conditions.

      The declarations, applications for approval for projects constituting controlled action and any final approval by the Minister were publicly available documents.
  • However, by 2016 the plaintiff no longer intended to develop the land.  It was listed for sale without a planning permit. 
  • Negotiations occurred between representatives of Long Forest and the first defendant (Singh).  The Sale of Land Act s. 32D(a) required the vendor to disclose –

    “[P]articulars of any notice, order, declaration, report or recommendation of a public authority or government department or approved proposal directly and currently affecting the land, …”

    The vendor’s statement did not disclose the Minister’s declarations or decisions.
  • Singh signed the contract of sale after being given a copy of the vendor’s statement.  He subsequently nominated the second defendant as purchaser. 
  • The purchaser did not pay the balance of the purchase price.  On 13 June 2017 the vendor served a rescission notice.  On 21 June 2017 a caveat was lodged on behalf of the nominee purchaser claiming a freehold estate with an absolute prohibition on dealing on the grounds that the caveator was a purchaser under an uncompleted contract of sale.  On 27 June the vendor’s solicitors wrote to the purchaser’s solicitors stating that as the rescission notice had not been complied with the contract was terminated and the deposit was forfeited.   In the meantime the defendants contended that they had validly rescinded the contract for non-compliance with s. 32D.
  • Long Forest applied to the Registrar of Titles under the Transfer of Land Act (TLA) s. 89A for service of a notice on the caveator.   In response the caveat was withdrawn and two replacement caveats were lodged on behalf of Mr Singh and the second defendant, each claiming a purchaser’s lien to secure repayment of the deposit of $400,000.
  • Long Forest’s solicitors wrote demanding that these caveats be removed, foreshadowing proceedings under s. 90(3), notifying that the caveat was preventing refinancing at a lower interest rate, and foreshadowing a claim for compensation under the TLA s. 118 for loss suffered by the refinancing delay.
  • Proceedings under s. 90(3) were issued but by agreement, reflected in a consent order, the caveats were withdrawn on the undertaking of Long Forest’s solicitors to hold $400,000 in trust not to be withdrawn without agreement or further order.

Long Forest made a number of claims against the defendants including under s. 118 for compensation for the delay in refinancing from 22 November 2017 to 11 April 2018.

John Dixon J. relevantly held –

  1. The plaintiff had validly rescinded the contract for non-payment of the residue of the price and was entitled to forfeit the deposit.  The defendants’ argument that the plaintiff had breached s. 32D by not disclosing the Minister’s declarations or decisions failed.  Neither the Minister nor the Department was a public authority or a government department as those terms were used in the Sale of Land Act – the Victorian Parliament never contemplated that information issued by Commonwealth agencies or departments would need to be attached to a vendor’s statement.  Further, none of the declarations or notices directly and currently affected the land at the relevant time, as Long Forest had already abandoned its application for ministerial approval of the controlled action constituted by the subdivision of the land.   Under the federal statutory regime, any approval of a proposed action and the conditions attached was affixed to the designated proponent and the project constituting the controlled action, rather than the land that constituted the relevant habitat or environment. [8]-[10], [13], [117], [141], [157], [158], [169], [174]-[176], [179], [181], [182]
  2. His Honour stated the law under s. 118 in conventional terms, in particular referring to KB Corporate Pty Ltd v Sayfe & Anor.  (KB is dealt with in Blog 9 but its summary of six relevant propositions is set out in Blog 24, Lanciana v Alderuccio per Moore J., paragraph 2). [339]-[341]
  3. Mr Singh had an honest belief, based on reasonable grounds, that he was entitled to the interest claimed in the caveat on the grounds identified.  Where a caveat is lodged by solicitors on behalf of a caveator, it would usually be inferred that those solicitors received instructions, gave advice and were then further instructed to lodge the caveat.  Ordinarily, such inferences will be drawn in the absence of specific evidence demonstrating departure from expected conveyancing practice.  Long Forest had not discharged the onus of proving that the solicitors lodging the caveats either never genuinely advised Singh that there was a proper basis to contend for breach of s 32D, entitling him to return of the deposit, or were not his lawyers at the relevant time.  His Honour was not persuaded that there was not a genuine dispute between the parties about the termination of the contract and the entitlement to the deposit, a dispute that has only been quelled by this Judgment. [11], [342], [343], [351], [352], 354]-[356]

Philip H. Barton

Owen Dixon Chambers West

27 October 2020

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

29. A rare High Court foray into caveats – a claim for compensation under the equivalent of the TLA s. 118 – in what circumstances a trustee in bankruptcy has a caveatable interest – whether the interest claimed was correctly stated in the caveat – why maintenance of a caveat does not require an undertaking as to damages.

Boensch v Pascoe [2019] HCA 49 (13 December 2019) concerned the interaction between bankruptcy law and NSW caveats law, materially identical to Victorian law.  The following provisions of the Bankruptcy Act 1966 were relevant:

Upon a person becoming bankrupt, s 58(1) vests in the trustee in bankruptcy property then belonging to the bankrupt that is divisible among the bankrupt’s creditors together with any rights or powers in relation to that property that would have been exercisable by the person had the person not become a bankrupt.  Excluded by s. 116(2)(a) from the divisible property is property held in trust by the bankrupt for another person.  However where the person who becomes bankrupt is a trustee of property who has incurred liabilities in the performance of the trust, such entitlement as the person has in equity to be indemnified out of the property held on trust gives rise to an equitable interest in the property held on trust taking that property outside the exclusion in s 116(2)(a) (on the basis that the exclusion is limited to property held by the bankrupt solely in trust for another person).

Notwithstanding the foregoing, where the property held on trust by the bankrupt out of which the bankrupt had an entitlement in equity to be indemnified comprised legal title to land registered under the Real Property Act 1900 (NSW) (“the NSW Act”) (ie the equivalent of the Transfer of Land Act 1958), what was vested in the trustee in bankruptcy until the trustee could obtain legal title by registration was only the equitable estate (s. 58(2)).

The NSW Act provided:

any person who, “by devolution of law or otherwise, claims to be entitled to a legal or equitable estate or interest in land” under the provisions of the Act “may lodge with the Registrar-General a caveat prohibiting the recording of any dealing affecting the estate or interest to which the person claims to be entitled” (s. 74F(1));

a caveat must be in the approved form and specify “the prescribed particulars of the legal or equitable estate or interest … to which the caveator claims to be entitled” (s. 74F(5));

failures strictly to comply with the formal requirements for caveats are to be disregarded by a court in determining the validity of a caveat (s. 74L);

upon application by the registered proprietor the Registrar-General was required to serve a notice on the caveator that it would lapse unless within 21 days from service the caveator obtained and lodged a Supreme Court order extending the caveat (s. 74J(1));

any person who is or claims to be entitled to an estate or interest in the land described in a caveat may apply to the Supreme Court for an order that the caveat be withdrawn by the caveator (s. 74MA(1));

any person who, “without reasonable cause” lodges or after request refuses to withdraw a caveat is liable to pay compensation to any person who sustains pecuniary loss attributable to the lodging of the caveat, or the refusal or failure to withdraw it (s. 74P(1)).

The facts were –

  • Mr and Mrs Boensch were registered proprietors of a property.  He claimed that in 1999 they had reached a matrimonial property settlement under which she agreed for consideration to transfer her interest in the property to him.  He also claimed that in 1999 they had executed a Memorandum of Trust which included that she would cause her share of ownership to be transferred to him to hold the whole of land in trust, in substance for their children, and would arrange for a professionally drafted trust document.
  • In October 2003 he was served with a bankruptcy notice.
  • He claimed that in March 2004 they had executed a deed of trust confirming the settlement upon him as trustee in the 1999 Memorandum of Trust, constituting “the Boensch trust”and creating their children as First Group Beneficiaries.
  • On 23 August 2005 a sequestration order was made against him.  The trustee in bankruptcy was legally advised that there were strong prospects of defeating the trust claim.  Documents produced by the bankrupt did not lead the trustee to a contrary view.  On 25 August 2005 the trustee lodged a caveat claiming a “Legal Interest pursuant to the Bankruptcy Act 1966”.
  • Documents and evidence subsequently produced by the bankrupt were for a long time unconvincing.   However in December 2007 a court held that the Memorandum of Trust was not a sham and that it manifested a sufficient intention to constitute a trust.   Appeals failed.
  • The caveat lapsed on 15 September 2009.
  • The bankrupt took proceedings claiming compensation under s. 74P(1).  The primary judge concluded that, because the bankrupt had not proven that the trustee in bankruptcy lacked a caveatable interest it could not be said that the trustee had lodged or maintained the caveat without “reasonable cause”, but that even if the trustee had not had a caveatable interest he nevertheless had an honest belief based on reasonable grounds that he had a caveatable interest and thus reasonable cause to lodge and maintain the caveat within the meaning of s. 74P(1).
  • An appeal by the bankrupt failed but he obtained special leave to appeal to the High Court.  The appeal was unanimously dismissed.  There were two judgments: by Bell, Nettle, Gordon and Edelman JJ.; by Kiefel CJ, Gageler and Keane JJ.  Unless otherwise stated references below are to the judgment of the plurality.  The following propositions emerge from the judgments –
  1. Provided the bankrupt had a valid beneficial interest in the trust property, the trust property vested in the trustee in bankruptcy subject to the equities to which it was subject in the hands of the bankrupt.  For these purposes, a valid beneficial interest meant a vested or (subject to applicable laws as to remoteness of vesting) contingent right or power to obtain some personal benefit from the trust property. [15]
  2. Notwithstanding s. 58(1), a legal estate or interest in land subject to the Real Property Act could not pass to the bankrupt’s trustee in bankruptcy unless and until the trustee applied and subsequently became registered as proprietor of the land.  After this the trustee still held the estate or interest subject to the equities to which it was subject in the hands of the bankrupt. [94]
  3. The onus was on Mr Boensch to establish that he had lacked any valid beneficial interest in the property.  However, the evidence established that he had a beneficial interest in the property – to the extent of his right to retain the property as security for satisfaction of his right of indemnity as trustee of the Boensch trust.  By reason of that beneficial interest, an estate in the property vested forthwith in equity in the trustee in bankruptcy pursuant to s. 58 of the Bankruptcy Act 1966, subject to a subtrust on the terms of the Boensch Trust but permitting the trustee to exercise the right of indemnity.  On that basis, the trustee in bankruptcy was entitled to be registered as proprietor and that was a sufficient basis to sustain his caveat. [102], [116] (Similarly Kiefel CJ, Gageler and Keane JJ at [2]).
  4. There was a division of opinion on whether the interest claimed in the caveat, ie “Legal Interest pursuant to the Bankruptcy Act 1966”, was adequate.  On the one hand, expressing themselves very cautiously, the plurality stated that ([107]) “Generally speaking” it was to be doubted that this claimed interest was adequate to describe an equitable estate vested in a trustee in bankruptcy pursuant to s. 58(2) by reason of the bankrupt’s right of indemnity.  While noting that NSW statutory provisions did not require the caveat to specify whether the interest claimed was legal or equitable, their Honours gave reasons why this wording was inadequate, stating that ([107]) it “may be accepted that a court would not ordinarily make an order under s. 74K(2) of the NSW Act extending the operation of a caveat which employed that description”; and stating in a footnote that it was unnecessary to determine whether the court would have power to order amendment of the caveat in those circumstances referring to Percy & Michele Pty Ltd v Gangemi [2010] VSC 530 at [92]- [102] per Macaulay J.On the other hand Kiefel CJ, Gageler and Keane JJ held that the equitable estate vested in the bankrupt was adequately described in the caveat [11].
  5. The trustee in bankruptcy also had good reason to believe, as he did, that the Boensch Trust was not validly constituted.  However, the possibility that the trust might have been set aside under the Bankruptcy Act would not have been sufficient to sustain the caveat.  The interest asserted in the caveat must be in existence at the time of its lodgment.  The assertion by a caveator, who at the time of the lodgment did not have an estate or interest in the land, that he had commenced proceedings which may result in such an interest being vested in him did not suffice. [103] – [104]
  6. The test for liability under s. 74P(1) was established in Beca Developments Pty Ltd v Idameneo (No 92) Pty Ltd (1990) 21 NSWLR 459 at which time the statutory words were “wrongfully without reasonable cause”.  This test was that the claimant for compensation must establish that the caveator had neither a caveatable interest nor an honest belief based on reasonable grounds that the caveator had a caveatable interest (and thus “without reasonable cause”), and that the caveator acted deliberately, knowing that he or she had no interest in the land (and thus “wrongfully”).  Notwithstanding the repeal of “wrongfully” this remained the correct test. [110], [111] (Similarly Kiefel CJ, Gageler and Keane JJ at [12]).
  7. The plurality noted that the Beca Developments test had been substantially followed by intermediate courts in other States including in Edmonds v Donovan [2005] VSCA 27;  (2005) 12 VR 513 at 548 per Phillips JA (Winneke P and Charles JA agreeing at 516 [2], [3]).  The High Court however left open whether, if that test is not satisfied, a person may still be liable under s. 74P(1) by reason of acting with an ulterior motive or where the only interest supporting a caveat is de minimis in terms of legal content or economic value. [114]
  8. Accordingly provided the caveat was lodged on the basis of an honest belief on reasonable grounds that the bankrupt had an extant beneficial interest in the property (including a beneficial interest by way of right of indemnity) the trustee in bankruptcy had reasonable cause to do so.  In fact there was a caveatable interest here.  Further the trustee honestly believed on reasonable grounds that the property vested in him either because the trust was void or because of the bankrupt’s right of indemnity [105], [108], [116] (Similarly Kiefel CJ, Gageler and Keane JJ at [12]).
  9. Even if, as the plurality had held, there was a mere technical deficiency in the statement of the interest claimed this did not of itself demonstrate the absence of a “reasonable cause” to lodge and not withdraw the caveat, at least where the caveat did not overstate the interest sought to be protected. [108]
  10. The plurality noted that, although a caveat was “a statutory injunction to keep the property in statu quo until [the caveator’s] title shall have been fully investigated”, unlike an application for interlocutory injunction it did not have to be supported by an undertaking as to damages.  Their Honours justified this on the ground that the holder of an unregistered interest in land under the Torrens system is more vulnerable to inconsistent dealings. [113].

Comment: The equivalent Victorian provision to s. 74P(1) is the TLA s. 118 which provides –

“Any person lodging with the Registrar without reasonable cause any caveat under this Act shall be liable to make to any person who sustains damage thereby such compensation as a court deems just and orders”.

Accordingly the two provisions are materially the same and the High Court’s decision applies in Victoria.  The test in Victoria has however been the same as in NSW, or virtually so, as illustrated in Blogs 9 and 24.

The case is also instructive on –

  1. whether the interest claimed in the caveat was correct.  The comment in paragraph 4 above that the NSW statutory provisions did not require the caveat to specify whether the interest claimed was legal or equitable applies equally in Victoria – the TLA s. 89 simply requires that caveator be a person “claiming any estate or interest in land”;
  2. the interest claimed in the caveat must be in existence at the time of its lodgment – it is not enough that the caveator has commenced proceedings which may result in such an interest being vested in him – paragraph 5 above;
  3. why an undertaking as to damages is not normally required – paragraph 10 above.

24. Solicitors breathe a sigh of relief! – Compensation claim under TLA s. 118 – Whether solicitor who lodged caveat liable – Scope of “Any person lodging … any caveat”.

Lanciana v Alderuccio [2019] VSC 198 (28 March 2019), Moore J.

The facts and relevant legislation were –

  • 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.
  • The TLA s. 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 capable of supporting any caveats.
  • The court heard a preliminary question including whether, assuming the foregoing facts, the defendants were “a person” lodging a caveat for the purposes of s. 118.

His Honour –

1.    Held that the defendants were not such “a person”.  The case contains much statutory analysis going back to the 19th century and reference to cases for this conclusion which it is unnecessary to set out. [5]

2.   Approved the summary of applicable principles under s. 118 in KB Corporate Pty Ltd. v Sayfe and Anor (see Blog No. 9) –

(a)  the applicant must show the caveator had no caveatable interest;

(b)  the applicant must show the caveator did not have an honest belief based on reasonable grounds that a caveatable interest existed;

(c)  the test is partially subjective and partially objective;

(d)  the subjective component requires an examination of the caveator’s belief and whether it was honestly held;

(e)  it is objective in that it requires that the belief is held on reasonable grounds;

(f)   it is a fallacy is to think that the absence of a caveatable interest at the time when the caveat was lodged establishes that the caveator did not have a reasonable basis for a belief that it was entitled to lodge a caveat; and

(g)  legal advice that the caveator was entitled to lodge the caveat may be of considerable significance in determining whether the claimant has established that the caveat was lodged without reasonable cause, but the content and accuracy of the legal advice must be evaluated with all other relevant circumstances. [80]

3.    Held that “Any person” in s. 118 –

(a)  was capable of covering someone who lodged a caveat without any authority. [82]

(b)  may cover: someone named as executor who had not yet taken out probate where the unregistered interest which could the subject of a caveat was part of the estate and was threatened, or; someone seeking a guardianship order in respect of an incapable person who had such an unregistered interest. [64], [82]

9. RECENT SUPREME COURT CASES DEC 2017 – FEB 2018 (3 of 6)

A claim for compensation under s. 118

KB Corporate Pty Ltd v Sayfe and Anor [2017] VSC 623, 22 December 2017, Mukhtar AsJ.

A judge had previously ordered the defendant to remove caveats lodged over the plaintiff’s properties.  This was a consequential application for compensation under s. 118 of Transfer of Land Act which created liability in any person lodging a caveat without reasonable cause to pay compensation to any person who sustained damage thereby.  The plaintiff claimed that the caveats delayed a purchase of a NSW property by a company with the same directorship and shareholding, which purchase was allegedly being funded by a loan from a financier to the plaintiff.  His Honour held –

 1.      The relevant principles under s. 118 were in substance:

  • The plaintiff had the onus of proving both lack of caveatable interest and that the defendant lacked an honest belief based on reasonable grounds that the caveatable interest existed. Even this may not suffice if it was established that the caveator was actuated not by the protection of the caveator’s interest but by an ulterior motive;
  • The fact that the caveator obtained legal advice to lodge the caveat may be of considerable significance in determining lack of reasonable cause, but the content and accuracy of the legal advice must be evaluated with all other relevant circumstances. However, his Honour noted NSW authority that, where a solicitor had no reasonable basis for advising the caveators to caveat, the caveators had no reasonable grounds for their belief that they were entitled to lodge a caveat.

      2.      The elements required under s. 118 were established. 

3.     Because of the caveats the lender to the plaintiff temporarily withheld certain funds, causing increased payments by the plaintiff to the lender for interest and re-scheduled and delayed settlement and legal fees.  This claim succeeded. 

4.      A second claim related to a payment to the vendor of the NSW property as a condition of extension of the settlement date (calculated on the basis of the vendor’s alleged lost interest, refinance fees and re-scheduled and delayed legal fees) because the caveat allegedly delayed receipt of the loan.  This claim failed for lack of proof that the inability to obtain the loan disabled or impaired the purchaser from completing the contract.