Category: Costs – Indemnity

Blog 88. Two Costs Cases

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over costs after settlement of the main proceeding and a dispute about who should pay the costs where a caveat is withdrawn before a hearing of an application under the Transfer of Land Act s. 90(3).

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

The facts were –

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

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

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

[23]

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

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

Philip H. Barton

Owen Dixon Chambers West

Tuesday, November 19, 2024

Blog 71. Caveat based on alleged Baumgartner constructive trust fails.

Sandich v Fasoulis & Anor [2023] VSC 65 (17 February 2023), John Dixon J.

  • The plaintiff, Ms Sandich, and her former husband were registered proprietors of a property in Kew.  The first defendant, Mr Fasoulis, married Ms Sandich in 2017 but they later separated.
  • Mr Fasoulis deposed that –
    • At the start of their marriage Ms Sandich solely occupied the Kew property and he shared his time between it and his property in Murrumbeena with his children.
    • The financial burden of supporting her and his children and running two households, quickly became untenable and he fell into serious financial difficulty.   He sold property including the Murrumbeena property and used the proceeds to pay debts including debts of Ms Sandich.
    • He and his children then moved to the Kew property until its sale by Family Court order, the contract of sale being dated 27 July 2022 and due for settlement on 20 February 2023.  He financially assisted in preparing the property for sale, undertaking substantial refurbishments costing an estimated $20,000, Ms Sandich having no money.
    • On 6 February 2023 Mr Fasoulis commenced family law proceedings against Ms Sandich seeking financial orders pursuant to s. 79(1) of of the Family Law Act.  The next day he through a solicitor lodged a caveat claiming an ‘Implied, resulting or constructive trust,’ the estate or interest claimed being a ‘freehold estate‘ and the prohibition on dealings being ‘absolutely.’
  • Ms Sandich applied under the Transfer of Land Act s. s. 90(3) for removal of the caveat.
  • Mr Fasoulis argued that there was a serious question to be tried that he was a beneficiary of a constructive trust based on Baumgartner v Baumgartner (1987) 164 CLR 137.  He deposed that: he discussed with Ms Sandich the benefit of undertaking substantial refurbishment of the Kew property so as to realise its maximum value; they discussed that getting the highest sale price would benefit both of them financially; and for this reason his funds were invested in the Kew property.  He did not depose that she said, or agreed, that such expenditure would entitle him to an interest in the property.

John Dixon J. ordered removal of the caveat with costs –

  1. The first defendant had not established a serious question to be tried of a caveatable interest because –
    1. The grounds of claim could not be made out against the joint-registered proprietor Ms Sandich’s former husband. There was no evidence that he was party to a joint endeavour or relationship. [21], [30]
    2. The claim was overstated in the form of a trust affecting the whole freehold estate. [30]
    3. There was no joint relationship or endeavour for improvement of the Kew property.  The first defendant had only contributed some $20,000 to tidying up the property for sale, which did not improve the property nor was a significant amount, in return for a promise that he be repaid out of the sale proceeds.  There was no evidence of any specific discussion or agreement that he would have any interest in the property.  He had conflated what he alleged to be contributions to the marriage with what he described as an agreement that he finance the cost of preparing the property for sale on the basis that he would be repaid out of the proceeds of sale. [20], [22], [24]-[26], [28], [30]
    4. If there was any pooling of resources to the parties’ common benefit it was in the circumstances of the marriage and not in relation to the improvement of the Kew property. [28]
    5. There was no unconscionability in not recognising that the first defendant had an equitable interest in the property, particularly where he contended that his expenditure was on the basis of a promise that he be repaid. [26]
  2. Claims under the Family Law Act s. 79 did not create caveatable interests in any land that may be part of the matrimonial assets. [27]
  3. Although the caveat was lodged as a bargaining chip in the Family Law proceedings the circumstances were not such as to warrant an order for indemnity costs against the caveator. [34], [37], [39], [42]

Philip H. Barton
Owen Dixon Chambers West
Tuesday, April 4, 2023

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

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

The facts were –

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

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

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

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

       Philip H. Barton

          Owen Dixon Chambers West

        Tuesday, March 7, 2023

Blog 46. Mere domestic relationship – No caveatable interest – Indemnity costs.

Burghley Pty Ltd v Soames & Anor [2021] VSC 236, McMillan J, 5 May 2021.

The facts were –

  • In 2016 the plaintiff became registered proprietor of a property at Red Hill.   The purchase price had been paid or lent by its sole director (Mr Cecil).  The plaintiff paid stamp duty and other expenses using funds borrowed from the first defendant (Ms Soames).
  • Mr Cecil and Ms Soames cohabited at the property, according to him from about 4 January 2017 to 29 November 2018, according to her from about 20 December 2016 to 24 December 2018.
  • On 11 June 2018 the loan by Ms Soames was repaid with interest.
  • On 8 November 2020 the plaintiff entered a contract of sale with settlement due on 8 February 2021.
  • On 17 November 2020 Ms Soames caused a caveat to be lodged over the property, naming the caveator as her then solicitor.  This caveat was withdrawn on 10 December. 
  • On 24 December Ms Soames issued a Federal Circuit Court (FCC) proceeding seeking relief including a declaration that she had been in a de facto relationship with Mr Cecil. 
  • On 14 January 2021 Ms Soames by her solicitors lodged a caveat claiming an implied, resulting or constructive trust.   On 25 January her solicitors stated as to the basis of the caveat that: Ms Soames instructed that a trust relationship existed between “her, your client and the vendor of the property”, the merits of which would be determined by the FCC; they believed the interest would be deemed to be a constructive trust; until the FCC determined this she legitimately sought to protect her interest in the property, and; she would lift the caveat to permit settlement of the sale if the plaintiff’s solicitors undertook to retain the proceeds in trust pending the FCC decision.  

The plaintiff applied under the Transfer of Land Act s. 90(3) for removal of the caveat.  The solicitor for Ms Soames filed an affidavit in which no basis for lodging the caveat was identified.  At the hearing Ms Soames offered to withdraw the caveat in return for $300,000 from the sale proceeds being held in trust pending determination of the FCC proceeding. 

McMillan J. held –

  1. Neither a mere relationship, nor the existence of the FCC proceeding, created a caveatable interest. [20]
  2. Claims by Ms Soames that a caveatable interest arose from the following alleged circumstances were rejected: her working for nominal wages in a restaurant owned by a company of which Mr Cecil was director or shareholder; her assisting in renovations, absent a joint endeavour in relation to purchase of the property; matters concerning companies and the loan.  The caveator accordingly had no arguable caveatable interest and the balance of convenience favoured the plaintiff. [23]-[29] 
  3. The caveat was lodged for a collateral advantage or to bring pressure on the plaintiff – a serious misuse of the caveat procedure for an ulterior or collateral purpose.  No proper attempt to articulate the basis of the caveat was given.  By inference the caveat was lodged as a bargaining chip in the FCC proceeding.   The caveator was ordered to pay indemnity costs. [21], [32]-[34]

Philip H. Barton

Owen Dixon Chambers West

Tuesday, July 6, 2021

Blog 44. Indemnity costs and injunction against caveating.

BCA Asset Management Group Pty Ltd v Sand Solutions (Vic) Pty Ltd & Ors [2021] VSC 177, Derham AsJ, 13 April 2021.

Before 2009 William Attwood, married to Jane Attwood, became sole registered proprietor of approximately 29 ha. at Devenish (the AustLII report says this occurred on 17 April 2013 but this seems incorrect).  The subsequent chronology was –

16 February 2009        Broken Creek Developments Pty Ltd  (‘BCD’)  incorporated with the second defendant (‘Colling’) its sole director and member.

20 August 2009              223 Coopers Road Devenish (‘the Land’) now comprised the 29 ha. plus land in Certificates of Title Volume 11153 Folios 541 and 542.

1 February 2010           Colling and BCD lodge caveats over the Land claiming an interest as a beneficiary under a constructive trust of which the Attwoods were the constructive trustees (‘First Caveats’).

25 June 2010                 Sand Extraction Agreement between Jane Attwood and Devenish Sands Pty Ltd.  This agreement: was conditional on the grant of an Extractive Industry Work Authority and approval of the company’s Work Plan within 180 days (clause 2.1); had an initial term of 10 years (clause 11.1); and could be terminated by Ms Attwood on the happening of a Default Event, which was defined to include an Insolvency Event (clauses 12.1 and 13.1).  It was unclear whether Ms Attwood waived compliance with the conditions precedent or when this agreement commenced.

12 January 2011              First Caveats withdrawn.

26 May 2011                   Ms Attwood registered as the sole proprietor of the Land.

29 July 2011                    Work Authority issued to Devenish Sands Pty Ltd.

23 November 2011       Colling lodges caveat over the Land claiming an interest as beneficiary under a constructive trust between himself and Ms Attwood (‘Second Caveat’).

14 January 2013             First defendant (‘Sand Solutions’) incorporated.

9 July 2014                  Work Authority transferred from Devenish Sands Pty Ltd to Sand Sol­utions.

8 August 2014               Devenish Sands Pty Ltd wound up in insolvency.

17 April 2015                Devenish Sands Pty Ltd by its liquidator disclaims any interest in the Land under the Sand Extraction Agreement.

13/14 September 2016     Second Caveat withdrawn. 

July 2017 on                    Sand Solutions seeks access to the Land for the purposes of remediation. At all times, Sand Solutions proceeds on the basis it had no right of access.

10 November 2017       Contract of sale whereby Ms Attwood agrees to sell the Land to BCA Civil Pty Ltd.

20 March 2018            Caveat by Sand Solutions over the land in Certificates of Title Volume 11153 Folios 541 and 542 claiming an interest as the grantee of a profit à prendre pursuant to an agreement entered into 16 June 2010 (‘Third Caveat’).  Sand Solutions was not at this time in existence and the only agreement known that might support a profit à prendre was the Sand Extraction Agreement with Devenish Sands Pty Ltd.

23 March 2018              Ms Attwood commences proceeding seeking an order for the removal of the Third Caveat.  

Undated                            Caveat withdrawn before hearing.

28 March 2018              Zammit J. orders Sand Solutions to pay Ms Attwood’s standard costs and otherwise dismisses the proceeding stating that the Court would take a ‘very dim view’ if Sand Solutions again caveated.

4 May 2018                      Plaintiff registered as the sole proprietor of the Land.

1 August 2020                  Colling appointed sole director of Sand Solutions.

26 February 2021          Sand Solutions, by a solicitor, lodges caveat (‘Fourth Caveat’) claiming an interest as grantee of an easement pursuant to the Sand Extraction Agreement.

18 March                          Plaintiff writes requesting withdrawal of caveat. 

22 March                          Plaintiff email foreshadowing urgent application for caveat removal.

24 March                      Email by caveator’s solicitor saying he was to confer with his client.  No further response. 

31 March                          Plaintiff commences proceeding under Transfer of Land Act s. 90(3) returnable on 13 April.

6 April                        Email from caveator’s solicitor stating: his client maintained that it had rights to go upon the land and extract the sand, in accordance with a (cancelled) planning permit and a Licence granted by Earth Resources; it was anticipated that VCAT would reinstate the permit; if his client succeeded at VCAT then his client would, if necessary, commence court proceedings seeking a declaration that it had the rights it claimed; but to avoid costs the caveat would be withdrawn.

8 April                            Caveat not yet withdrawn, plaintiff’s solicitor writes with draft order for caveat removal and payment of indemnity costs. 

Undated                            Caveat withdrawn after service of Originating Motion and Summons. 

13 April                            Hearing.


An affidavit was filed on behalf of the plaintiff deposing that: no grant of easement by Ms Attwood to Sand Solutions had ever been drafted; the plaintiff intended to use the Land as a commercial water park with caravan facilities; to undertake this development other investors were required, one of whom withdrew on learning of the possible easement, others of whom would not proceed until the caveat issue was resolved, and one of whom was seeking return of her investment unless the caveat was removed within 30 days but would also seek immediate refund of her investment if Sand Solutions and Colling further caveated; delay put at risk necessary support by the Benalla Rural City. 

Derham AsJ ordered –

1.     Sand Solutions and Colling to pay indemnity costs because –

(a)      the claim to an easement (or to any other proprietary interest) lacked any basis;

(b)     the plaintiff sought withdrawal of the caveat before the proceeding was commenced, which did not occur;

(c)   before the proceeding was commenced Sand Solutions was warned that the plaintiffs would suffer damage from the Fourth Caveat, and after commencement of the proceeding an award of indemnity costs against Sand Solutions and Colling was foreshadowed;

(d)     the caveat was lodged as a bargaining chip;

(e)   it was impermissible for the innocent registered proprietor to bear any differ­ential between standard and indemnity costs, occasioned by the delinquent conduct of Sand Solutions and Colling. [27]-[28]

2.   That Sand Solutions and Colling be restrained, until further order, from lodging for regis­tration any caveat in reliance on a profit à prendre or an easement.  As to the power to grant an injunction –

(a)   Normally the injunction would be in the nature of a final or permanent injunction: as an injunction restraining Sand Solutions and Colling from lodging any further caveat on the basis of the Sand Extraction Agreement, or on the basis of an alleged profit à prendre or easement, would be an order in aid of the plaintiff’s proprietary right to quiet and peaceful enjoyment of the Land as registered proprietor; [15]

(b)  However because Sand Solutions and Colling had not appeared in court, and there may be some other basis for their belief that a subsisting proprietary right existed surviving the indefeasibility provisions of the Transfer of Land Act, it was appropriate to apply principles applicable to the grant of interlocutory injunctions by analogy; [16]

(c)         An interlocutory injunction would go because –

(i)    The plaintiff had demonstrated a prima facie case that there was a high proba­bility, approaching a certainty, on the evidence, that its proprietary interest in the Land was free from any proprietary interest of the kind claimed in the Third and Fourth Caveats.   There was also a prima facie case that if not restrained Sand Solutions and Colling would continue to lodge caveats as bargaining chips in pursuit of asserted rights under the Sand Extraction Agreement; [29]-[30]

(ii)      The injury which the plaintiff was likely to suffer was one for which dam­ages would not provide an adequate remedy.  In cases concerning the ‘quieting of title’, meaning the seeking of the assistance of the Court to protect and preserve the title to land against unwarranted challenges or claims, damages were not considered an adequate remedy; [31]

(iii)  The balance of convenience favoured the plaintiff.  The strength of the plaintiff’s claim, the weakness of the claims raised by the Third and Fourth Caveats, and the evidence of actual and potential injury to the plaintiff occasioned by the caveat entailed that the course carrying the lower risk of injustice (if it should turn out to have been wrong) was to restrain Sand Solutions and Colling, but, because they had not appeared, to give them liberty to apply to discharge the injunction. [32]

                                                                                     Philip. H. Barton
Owen Dixon Chambers West
Tuesday, May 25, 2021

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

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

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

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

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

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

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

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

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

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

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

Philip H. Barton

Owen Dixon Chambers West

29 September 2020

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

22. Caveats based on trusts alleged to arise in the domestic context – Muschinski v Dodds trust? Sale of land subject to caveat with requirement of retention of net proceeds to meet caveator’s future claim – Requirement in case of conflict of testimony that caveat be removed unless caveator commenced proceeding to establish interest – Power of courts exercising Family Law jurisdiction to alter property interests rests on legislation not on trusts – Family Law Act does not, of itself, give a party to a ‘marriage’ or a de facto relationship a caveatable interest though court order under that Act could have that effect – Comparison of procedures under TLA s. 90(3) and s. 89A – Indemnity costs against client and reserved against solicitor who lodged caveat.

Karan v Nicholas [2019] VSC 35 (7 February 2019) Daly AsJ.

McRae v Mackrae-Bathory [2019] VSC 298 (7 May 2019) Derham AsJ.  

Hermiz v Yousif [2019] VSC 160 (15 March 2019) Derham AsJ.

 

Karan is a case of a son with a caveatable interest in his parents’ property based on a Muschinski v Dodds constructive trust.

McRae is a dispute between real or alleged domestic partners concerning two properties, involving a Muschinski v Dodds constructive trust, with analysis by Derham AsJ of: (1) the balance of convenience where despite a caveatable interest it is necessary that a property be sold, and; in the case of a property not being sold, the law that, where a caveator has established a prima facie case but there is a conflict of testimony, the caveat would not be removed outright but may be ordered to be removed unless within a certain time a proceeding is issued to establish the caveator’s title.

Hermiz is a groundless claim for a Muschinski v Dodds constructive trust by the mother of a registered proprietor’s child, which also: ventilated why the TLA s. 90(3) procedure should be taken rather than that under s. 89A, and; attracted an order for indemnity costs against the caveator and reserved the caveating solicitor’s liability also to pay them.  This case reiterates that the power of courts exercising Family Law jurisdiction to alter property interests rests on legislation not on the principles of constructive trusts; and that the Family Law Act does not, of itself, give a party to a ‘marriage’ or a de facto relationship a caveatable interest, although an order under that Act could have that effect.

Karan v Nicholas [2019] VSC 35 (7 February 2019) Daly AsJ.

The facts were –

  • Mrs Karan was the registered proprietor of a residential property. Her son Theo was registered proprietor of a neighbouring property where his parents and then his mother lived for many years.
  • She died, as administrator of her estate her other son Frank desired to sell the property, but Theo had caveated claiming an equitable estate in fee simple on the ground of an implied or constructive trust.
  • Frank applied under the Transfer of Land Act (TLA) s. 90(3) to remove the caveat. Theo was agreeable provided part of the sale proceeds was held in trust pending determination of his claim.
  • Theo alleged in substance:
    • residence in the property since 1988;
    • that Frank had used both properties to raise funds for business ventures on the basis of being responsible for the mortgage repayments which he subsequently ceased making leaving Theo to make some repayments;
    • payment of rates and outgoings including insurance;
    • expenditure on repairs, renovations and extensions;
    • in summary, total contributions of over $200,000.

Daly AsJ:

  1. Referred to a “Baumgartner constructive trust” (based on the High Court case of Baumgartner v Baumgartner (1987) 164 CLR 137, also known as a Muschinski v Dodds constructive trust, based on the High Court case of that name: (1984) 160 CLR 583)). The elements of this trust are that a constructive trust for the holding of a beneficial interest in land in particular shares may arise regardless of agreement or intention where:

(a)   A relationship or joint endeavour has broken down without any blame attributable to any party to it;

(b)   There has been a financial contribution by one or both parties to the relationship or to the joint endeavour;

(c)   In these circumstances, and in all the circumstances, it would be unconscionable for one party to the relationship or joint endeavour to retain a benefit greater than that party’s contribution. [7]

  1. Held that Theo had established a serious question to be tried that such a trust existed from before 2012, on the basis of arguments that:

(a)   he and their parents were involved in a joint endeavour whereby he made contributions to the property, which enabled him and his family to live rent free at the property, and enabled his parents to live rent free at his property;

(b)   they all pooled their resources to facilitate the joint endeavour;

(c)   the joint endeavour ended without blame upon the death of the parents; and

(d)   it would be unconscionable for the estate to retain the benefit of his contributions. [8], [14], [16]

  1. Ordered removal of the caveat on condition that all or part of the net sale proceeds be retained to meet any claim by Theo, who was also required to commence a proceeding to pursue his claim within a specified time. [3(k)], [18]-[20]

McRae v Mackrae-Bathory [2019] VSC 298 (7 May 2019) Derham AsJ.  

The chronology was –

  • The plaintiff (Zachary) was the registered proprietor of a property at Albion acquired in 2004 and of a property at Lara acquired in 2013, each encumbered by the same mortgage.
  • In January 2019 the defendant (Rachel) caveated over each piece of land claiming an interest in the land “as chargee” under an implied, resulting or constructive trust.
  • In March 2019 Zachary entered into a contract to sell the Albion property to be settled in May 2019.
  • He applied for removal of the caveats under the TLA s. 90(3).
  • He alleged that:
    • in 2012 she gave birth to their twins, but he had never lived with her as a couple in a de facto relationship and there was no agreement between them sufficient to give rise to a constructive trust;
    • until recently the children lived with her during the week and with him every weekend;
    • in January 2019 she had attempted to kill him leading to an intervention order.
  • Rachel alleged that:
    • they had resided in a ‘full emotional and sexual’ committed de facto relationship between 2002 and 2019 and were publicly known as such;
    • they pooled their income for joint expenses;
    • the properties were acquired during the course of the relationship;
    • she made financial contributions to their purchase and development;
    • Zachary always ‘indicated’ to her that she had an interest in both properties and was entitled to a half share of them;
    • his evidence as to residence with the children was incorrect and that she had not assaulted him.

Derham AsJ held:

  1. The estate or interest claimed as chargee was likely to be the result of a legal error. [3]
  2. If Rachel’s testimony was accepted there was a sensible basis for, and a sufficient probability of, finding that there was a Muschinski v Dodds constructive trust over both properties to the extent of her having an equitable estate in fee simple as a co-tenant with Zachary. This basis was: her direct contributions to the acquisition of the Albion property; her contributions to the maintenance and mortgage payments of both properties. [17]-[19]
  3. Accordingly, while it was neither necessary or appropriate to determine disputed questions of fact, Rachel had a sufficient likelihood of success justifying the practical effect of maintaining the caveat over the Albion property or of requiring deployment of most of the net sale proceeds in reducing the mortgage. [13], [20]
  4. The interaction between the strength of the caveator’s case and the balance of convenience was such that the lowest risk of injustice, whatever the outcome of the disputes, lay in removal of the caveat at settlement on the proviso that the net proceeds of the sale were (after payment of certain credit card debts – see below) applied to reduce the mortgage (Zachary also undertaking not to withdraw loan monies under the mortgage). This outcome preserved most of the benefit of Rachel’s caveatable interest.  To withhold this protection would do her irreparable harm if she succeeded in establishing her claimed interests, while to grant it would not greatly injure Zachary if her claims failed. [4], [21], [22], [24]
  5. However, certain of Zachary’s credit card debts were first to be paid out of the sale proceeds because most were incurred during the relationship alleged by Rachel and some had been incurred in completing the Lara property and so would ultimately benefit Rachel if her constructive trust claim succeeded. [4], [23]
  6. As regards the Lara property, it was clearly established law that where a caveator established a prima facie case but there was a conflict of testimony the court would not order outright removal of the caveat but may order removal unless steps were taken to establish the caveator’s title within a certain time. Accordingly the caveat would be ordered to be removed unless the caveator commenced proceedings to establish her title within a month. [5], [25], [26]
  7. Having regard to offers made by each side before the hearing, which were each to some extent appropriate, the defendant was ordered to pay the plaintiff’s costs fixed at $1,400, being disbursements incurred in issuing the originating process and paying the search fees incurred in putting forward exhibits to his affidavit in support. [27]

 

Hermiz v Yousif [2019] VSC 160 (15 March 2019) Derham AsJ.

The chronology was –

  • In 1998 the plaintiff (Hermiz) and the first defendant (Yousif) were sexually intimate leading to the birth of a child.  They ceased their relationship at about this time and Hermiz had never met the child.
  • Hermiz paid child support.  Yousif never provided him with any financial support.
  • Hermiz married his wife Dina in 2004.  In 2010 they purchased a residential property, became registered proprietors and subsequently cohabited there.
  • Yousif made no contribution to the property, or to any other asset owned by Hermiz, he made no promise about the property or declaration of trust or like arrangement concerning it, and no court order related to it.
  • In December 2018 Hermiz and Dina entered into a contract to sell the land with settlement due in February 2019.
  • In January 2019 Yousif lodged a caveat claiming an interest in the land pursuant to a court order under the Family Law Act.  There was no order giving such an interest.  The caveat was voluntarily removed.
  • On 1 February 2019 Yousif via a firm of solicitors lodged the caveat the subject of this proceeding claiming a freehold estate on the basis of an implied, resulting or constructive trust.  Hermiz’s solicitors wrote to Yousif’s solicitors expounding the absence of basis for the caveat and forshadowing an application for damages and indemnity costs.
  • Hermiz and Dina could not complete the sale, but gave the purchaser possession under a licence and also remained liable to keep up mortgage repayments.
  • Hermiz applied under the TLA s. 90(3) to remove the caveat.
  • Two days before the Supreme Court hearing Yousif filed an application in the Federal Circuit Court for a property order, in particular for an order that the net proceeds of sale of this property be held in trust pending final orders, supported by an affidavit including allegations referred to in 1 below.

Derham AsJ held:

  1. Yousif had not discharged the burden of establishing a serious question to be tried (in the sense of a prima facie case) of the interest in land claimed in the caveat.  There was insufficient evidence of a Muschinski v Dodds constructive trust: her allegation of cooking, cleaning and supporting Hermiz financially whilst he studied for his Australian medical qualification more than a decade before purchase of the land did not reveal that it is or would be unconscionable for him to deny her an interest in the land. [32]-[37], [40], [41]
  2. On the dissolution of marriage or the breakdown of a de facto or domestic relationship, the scope of the Federal Circuit Court’s power to alter property interests was determined by legislation, in this case the Family Law Act s. 90SM, rather than by the principles of constructive trusts.  The Family Law Act did not, of itself, give a party to a ‘marriage’ or a de facto relationship a caveatable interest, although an order under that Act could have that effect. [38], [39]
  3. The balance of convenience was also against Yousif. [42]
  4. Hermiz was justified in applying under the TLA s. 90(3) as opposed to using the administrative procedure in s. 89A. The very reason for the summary procedure under s. 90(3) was to enable an application that avoided the delay involved under s. 89A. [44], [45]
  5. Indemnity costs would be awarded against Yousif because: the nominated basis of resulting, implied or constructive trust for lodging the caveat was without merit, and; she was using the caveat process as a bargaining chip. [52], [53]
  6. Leave would be reserved to Hermiz to claim costs against the solicitors who lodged the caveat. [54]

21. Options – Indemnity costs – Injunction against caveating

Pollard v Pollard [2019] VSC 21 (8 February 2019) Daly AsJ. 

Kuipers v Harrington (No 2) [2019] VSC 190 (25 March 2019) Derham AsJ.

 

These two cases are in contrast.  Pollard illustrates that a well drawn option to purchase creates a caveatable interest.  Kuipers illustrates a badly drawn option clause, no caveatable interest, and consequential award of indemnity costs and enjoining of the caveator. 

Pollard v Pollard [2019] VSC 21 (8 February 2019) Daly AsJ.  This was not a case under the TLA s. 90(3) but was a trial in which, if the defendant succeeded (as she did), she would have a caveatable interest.  The facts were –

·       In 2004 the parties entered into a deed inter alia concerning a property owned by a company and later by the plaintiff which included (cl. 5.7) that if the plaintiff wished to sell it he must first give the defendant the option to purchase it: at a value calculated by multiplying the annual gross rent paid by the tenants at such time by 10 times; but if it was untenanted, then at current market value established by sworn valuation; and the defendant was to be given at least 30 days’ prior notice in writing of such intention to sell, with her then to exercise her option to purchase within 21 days of receipt of such notice;

·    In 2009 the defendant lodged a caveat on the grounds of “As beneficiary of an option to purchase pursuant to a written agreement” then describing the agreement;

·    In February 2018 the plaintiff informed the defendant that the property was going on the market, stated its market value according to a real estate agent, and asked her intentions.  At that time the property was leased to a tenant;

·      Initially the defendant stated that she was not interested in purchasing the property and that the caveat would only be lifted at settlement of a sale.  Subsequently she confirmed that she wished to exercise her right to purchase at 10 times the current annual rent; 

·       The plaintiff commenced proceedings seeking removal of the caveat.   

Daly AsJ found or held –

1.    The plaintiff was obliged to give the defendant the option to purchase the property at the price calculated in accordance with the Deed, ie to give 30 days’ notice of intention to sell and concurrently to give the option to purchase the property at ten times the annual rental receivable at the time of the notice.  The obligation to offer the property to the defendant for sale at market value only arose if the property was untenanted. [32]

2.    The defendant was only obliged to respond to an offer made in accordance with the Deed.  No such offer was ever made.  She was not required to enquire whether the property was tenanted. [35]

3. The defendant was entitled to an order for specific performance of the plaintiff’s obligations. [34], [37]-[46]

 

Kuipers v Harrington (No 2) [2019] VSC 190 (25 March 2019) Derham AsJ.

The chronology was –

·         The plaintiffs owned a 38.38 ha. property at West Rosebud.  On 4 April 2014 they and the first defendant executed a “Heads of Agreement” and a “Deed of Agreement”.  Under the Deed the first defendant was to facilitate development of the property by subdividing it into ten acre lots, in return for transfer to him of one such lot.  Clause 7 of the Deed purported to give the first defendant the plaintiffs’ consent to the lodgement of a caveat over the land to ‘better secure the opportunity’ for the first defendant to develop it;

·         The Heads, described by his Honour as “an ill drawn document” ([14]) –

·         Recited that:

·    the seller has agreed to grant to the option holder a three-year call option for “the properties” to either purchase the properties, source a joint venture partner or investor, source a funder to develop them or to source an ultimate buyer/buyers.  This was the only reference in the document to a period of three years for exercise of the call option;

·     if the option holder exercised the call option, the seller and the ultimate buyer and/or their nominees must enter into an unconditional contract of sale;

·     the option holder was entitled to earn the profit margin between the seller and buyer less any relevant costs, fees, and commissions due to third parties.

·         Defined:

·    “Expiry Date” of the Heads as “three years from the commencement date” (but the term “Expiry Date” was not subsequently used in the document);

·      “Option Call” as an irrevocable offer to enter into a REIV sale contract with an ultimate buyer.

·      Provided, in a “Payment Agreement”, that for facilitating the subdivision the first defendant would receive a ten acre parcel;

·         Provided that “the seller grants to the option holder an irrevocable right and option: (a) to require the seller to enter into a contract of sale with either the option holder or the ultimate buyer (cl. 2.1(a)); (b) to nominate a person or entity as selected buy (sic) the option holder to enter into a contract as the ultimate buyer, to purchase the property or properties listed on this agreement and on the terms contained in this agreement”; (cl. 2.1(b));

·   Provided: that the “call option” may be exercised during the term of the agreement by notice (cl. 2.2); the option holder, the first defendant, must pay the seller (the plaintiffs) $1 which is “deemed to be a holding deposit towards the purchase of the properties” (cl. 2.8); “This agreement can only be terminated by either of; the expiry of this agreement, or by mutual consent of both parties” (cl 2.11);

·       Provided that (cl. 4):

“The seller consents and grants to the option holder and the ultimate buyer, an interest in the property for the purpose of securing the development approval, and when a Contract is offered, the option holder and/or the ultimate buyer are authorised to lodge a caveat on the title of the property, a) but the caveat shall be discharged in favour of mortgages to be lodged for a contract of purchase, b) the caveat will protect any equitable interest of the option holders until settlement of the contract by the ultimate buyer; c) cost of removal will be paid by the lodger of the caveat”.

·     Nothing then occurred until 2018 when, after the plaintiffs had entered into a contract to sell the land to someone else, the first defendant lodged a caveat claiming a freehold estate in the land pursuant to an agreement dated 4 April 2014;

·     On an application by the plaintiffs to remove this caveat Daly AsJ found that the caveator’s prospects of maintaining a claim for an interest in the land were modest at best and on the  balance of convenience the caveat should be removed;

·       A month after this removal the first defendant lodged a second caveat claiming an interest as chargee apparently on the ground that the Heads created a charge;

·    The plaintiffs applied under the Transfer of Land Act s. 90(3) to remove the caveat.  Before filing the summons the plaintiffs’ solicitors wrote foreshadowing an application for indemnity costs. 

Derham AsJ held –

1.    On its proper construction, the option right, if any, conferred by the Heads was limited to three years from the date of the agreement. [20]

2.    However the Heads were uncertain, and therefore void and unenforceable, because 

(a)    it was unclear who was responsible to pay the option holder the ‘profit margin’, how it was to be calculated or what if any costs were to be taken into account;

(b)     the price at which the land was to be sold was to be determined by later agreement;

(c)     many terms of the subsequent REIV sale contract were unknown;

(d)     the nomination provision was uncertain in its reference to “on the terms contained in this agreement” which were unidentified; and

(e)   it was unclear whether the contract of sale to be entered into was to be between the plaintiffs, the option holder and the ultimate buyer under which the option holder was to be paid some unidentified profit margin. [21]

3.    The wording of clause 4 (consent to caveat) was unclear as to what interest in the property was purportedly granted and it appeared that the right to lodge a caveat did not arise until a contract was offered to the sellers. [23]

4.    There was accordingly no serious question to be tried that the Heads gave the caveator a caveatable interest because:

(f)      there was no charging clause;

(g)     the call option was void for uncertainty;

(h)     the time for exercise of the call option had expired; and

(i)   the sellers’ consent to caveat was little better than a contractual consent to lodge a caveat in certain circumstances, which had not arisen and, if they had, would not give rise to an interest in the land. [24] 

5.    The balance of convenience also favoured removal of the caveat. [26]

6.    Indemnity costs were awarded against the caveator.  His Honour comprehensively recited the principles governing an award of indemnity costs.  An order for indemnity costs warranted by: the nominated basis for lodging the caveat, ie a charge, was untenable; the pre-summons warning; the caveator was attempting to use the caveat as a bargaining chip. [33]-[35]

7.    The first defendant would be enjoined against lodging any further caveat on the basis of the Heads or the Deed because the lodgement of the second caveat was frivolous, vexatious and an abuse of process.  The caveator had shown a profound disregard of the absence of any underlying basis for the second caveat and displayed that he was ready, willing and able to continue to disrupt any sale.  There was accordingly a prima facie case that he would continue to lodge caveats if not restrained. The balance of convenience also favoured the grant of an injunction. [36]-[37]