Category: Freehold Estate – meaning

Blog 98. Mortgagee takes priority over caveators purchasing under joint venture agreement.

Australian Commercial Mortgage Corporation Pty Ltd atf The Balmain Opportunity Trust v Negash [2025] VSC 502, Harris J. (19 August 2025).   This case concerns a unique purchase arrangement, whereby in substance a number of persons purchased off-the-plan pursuant to a joint venture agreement and/or contract, and whose caveatable interests were postponed to a subsequently registered mortgage.  The facts were –

  • In 2014 Emanda Pty Ltd (Emanda) entered into a contract to purchase land at Tarneit (the Property). Before settlement of its purchase it offered lots in the Property’s prospective subdivision for purchase.  There were two relevant documents: a Deed of Joint Venture Agreement (JVA) and a contract of sale.  The JVA provided –
    • “In exchange for the Contributor contributing to the venture costs and paying the additional contribution, the Contributor is herein granted an Option to Purchase the Nominated Lot and at the completion of the project and upon the Nominated Lot being available for sale, if the option to purchase is exercised …, the additional contribution will be credited towards the purchase of the Nominated Lot by the Contributor (as Purchaser) upon settlement of the sale … pursuant to a Contract of Sale, …” (Recital F);
    • “Emanda agrees to the Contributor joining the venture with Emanda to the extent of the Contributor contributing to the venture costs and paying the additional contribution in exchange for the Contributor being granted an option to purchase the Nominated Lot” (cl. 2.5);
    • that “ESVC amount” was:
      “The share in venture costs payable by each Contributor, which is calculated based on the total of the venture costs divided equally between each Contributor (subject to the number of Lots nominated to each Contributor)” (cl 1.3); .
    • that “additional contribution” was –
      “A sum of money payable toward the venture by the Contributor equivalent to the agreed value of the Nominated Lot, which is monies that will be later deemed as payment (or part payment …) of the Purchase Price for the Nominated Lot if the herein option is exercised ….” (cl. 1.3);

Clause 2.14.1 repeated this definition.

    • “The Contributor’s contribution is payable as follows:
      (a) an initial sum of money on signing of this Deed, as specified in the Schedule herein (“initial contribution”);

(b) a further sum is to be paid by the date set out in the Schedule (“second contribution”); and

(c) the balance of the contribution payable by the Contributor is to be paid in instalments as set out in the Schedule herein (“subsequent contributions”) …, as set out in the Schedule herein for the term of the venture with any balance owed …, to be paid in full at settlement.” (cl. 2.14.10)

    • The schedules to individual JVA’s varied between contributors. Each schedule provided for: the number, size and value of the lot; the ESVC amount, additional contribution and total contribution, and the dates and amounts of initial and second contributions.  Item 7(b) in the Schedule read –

“7. Contribution/s:

…

(b) ESVC Amount Total: The amount shown in item 4

(i) Subsequent contributions: Instalment Amount:
Date payable: Weekly Fortnightly Monthly Quarterly
*circle appropriate one.
Date of payment of
First Subsequent
Contribution: Thirty (30) days after the payment of the Second Contribution being on”

In many of the JVA’s, item 7(b) in the Schedule was uncompleted and it was difficult to reconcile the amounts stated under different headings in the document.

    • “The herein mentioned option to purchase is available to be exercised or waived by the Contributor once the Contributor receives notice by Emanda of the Nominated Lot being available for sale” (cl. 2.33.1);
    • that a contract of sale would be entered into simultaneous with execution of the deed (cl. 2.6).
  • The contract of sale provided for price, deposit and balance payable. Special condition 22 referred to “Instalment payments outlined in deed of agreement”, and stated:
    “The Purchaser and Vendor hereby agree that this Contract of Sale is subject to and conditional upon both parties entering into a deed of agreement for payments to be made by the Purchaser toward Development Costs.”

The court inferred that the “deed of agreement” was the JVA.

  • Some persons executed only one of the JVA or contract of sale.
  • The defendants which were legally represented gave evidence of paying over $2 m. in total under the contracts and deeds.
  • Emanda became registered proprietor of the Property in January 2017. It continued to offer interests in the land.  Contributors lodged caveats, the 1st to 9th defendants (being largely those caveating until early 2025) claiming a “freehold estate”, with those caveating in July 2025 claiming as “lienee” based on a purchaser’s lien.
  • Two companies (Perpetual and Balmain Fund Administration) were lenders. In May 2022, following contact from Emanda’s mortgage broker, Mr Darjai, a loan originator at Balmain Nb Corporation Ltd, Mr Logan, provided an indicative funding proposal.   On inquiry about the caveats Darjai in substance responded that: the director and primary representative of Emanda, Mr Seid, had asked his family members to caveat to protect Emanda’s interests; there were no agreements between Emanda and the caveators; the caveats were lodged on legal advice to meet the best interests of Mr Seid and the development; all caveats would be removed to facilitate refinancing; there were no third party investors; the caveats had been lodged because Mr Seid thought this would prevent any mortgagee from charging high penalty interest.
  • Logan gave evidence that he accordingly thought that the caveators had neither interests in the Property nor agreements with Emanda. There was also evidence that inquiries had been made of the municipal council on behalf of the prospective lenders.
  • On about 1 July 2022 Emanda entered into a loan agreement with Perpetual and Balmain Fund Administration secured by mortgage. On application by Emanda the Supreme Court ordered removal of the caveats to permit registration of the mortgage, with the caveators having the right to relodge their caveats thereafter.  The mortgage was registered in August 2022 and the caveats were relodged.
  • Emanda defaulted under the mortgage. The mortgage debt was assigned to the plaintiff (ACMC).  It exercised its power of sale as mortgagee by contract dated 23 December 2024 due for settlement on 10 August 2025.
  • In late June 2025 the contracts of sale and JVAs were terminated.
  • ACMC applied under the Transfer of Land Act s. 90(3) for removal of the caveats. On the day of the hearing it disclosed a sale price of $8.4 m. and a mortgage debt of about $7 m., leaving (after sale costs, tax and legal costs) little if any surplus.  During the hearing it filed an affidavit concerning its financial position.

The Sale of Land Act 1962 s. 29A(1) provided that

“For the purposes of this Act a contract is a terms contract if it is an executory contract for the sale and purchase of any land under which the purchaser is-

(a) obliged to make two or more payments (other than a deposit or final payment) to the vendor after the execution of the contract and before the purchaser is entitled to a conveyance or transfer of the land; or …”

Section 29P prohibited a vendor from mortgaging land subject to the terms contract, and s. 29S(1)(a) rendered such a contract voidable by the purchaser before completion.  Section 29S(1)(c) provided inter alia that a mortgagee with actual or constructive notice of the interest of such a purchaser could not exercise its remedies and must discharge the mortgage.  Section 29V(1) provided that constructive notice only existed if notice of the purchaser’s interest would have come to the mortgagee’s knowledge if the mortgagee had made: (a) a proper inspection of the relevant land; and (b) such inquiries as ought reasonably to be made by the mortgagee of the mortgagor as to the rights of any person in possession; and (c) inquiries of the relevant municipal council; and (d) such searches, inquiries and inspections in the Office of the Registrar of Titles and Registrar-General as reasonably ought to have been made.

Harris J. removed the caveats, holding –

  1. A caveatable interest could exist in unsubdivided land, but on subdivision the caveatable interest was limited to the particular lot sold. [37]
  2. There was a serious question to be tried that the purchasers had equitable interests in the Property in the form of purchasers’ liens. These were based on their payments to Emanda as vendor, which, on termination of the contracts of sale and JVAs, were required to be repaid and secured by equitable liens. [35], [38], [39], [41], [49], [50]
  3. It was unnecessary to determine the significance of the fact that following rescission of the contracts “freehold interest” was no longer an accurate description of a caveator’s interest. [42]
  4. These contracts were arguably terms contracts. [52], [59]
  5. ACMC did not have actual notice of the JVAs and of the contracts of sale. It did not have constructive notice within the meaning of s. 29S(1)(c) by reason of ss. 29V(1)(a) – (c) but whether it had such notice by reason of s. 29V(1)(d) was a difficult question.  The search of the Registry showed the reason for the caveats, which referred to liens and freehold interests – but these did not reflect the existence of a terms contract.  It was, however, arguable that a mortgagee with notice of any contract giving rise to interests in the land was required by s. 29V(1)(d) to inquire as to what the contract underlying the purported interests (in this case freehold interest) was.  There was therefore an arguable case under the Sale of Land Act. [54], [57]-[59]
  6. The balance of convenience was against maintenance of the caveats. This was chiefly because ACMC as first registered mortgagee had priority to the sale proceeds leaving very little surplus, and in light of the affidavit filed on its behalf ACMC had sufficient financial resources to satisfy any compensation awarded pursuant to the Sale of Land Act.    Further reasons supporting this conclusion on the balance of convenience were that if the sale was not completed there would be prejudice to the purchaser without the likelihood of any greater surplus of funds. [60]-[63]
  7. There would be no order as to costs, owing to the mortgagee’s right of indemnity. [65]

 

Philip H. Barton

Owen Dixon Chambers West

Tuesday, September 2, 2025

Blog 84. A freehold estate?

The Victorian government publication “Guide to grounds of claim for caveats” lists “Freehold Estate” in certain circumstances under “Estate or interest claimed”.  In Alliance Developments Pty Ltd v Arbab & Anor [2019] VSC 832 (Blog 34) Garde J. stated at footnote [15] –

“At common law, there are three kinds of freehold estates – a fee simple, a fee tail and a life estate.  The most common freehold estate encountered in Victoria is the fee simple estate.”  Because it has been impossible to create a fee tail in Victoria for a long time (see Property Law Act  1958 Part VI) the field is reduced to fee simple and life estate.  In Marchmont v Keeshan [2023] VCC 2138 Judge Marks considered: caveats claiming a freehold estate; issue estoppel, Anshun estoppel or abuse of process arising from a previous caveat removal proceeding; and whether a stay should be granted pending an appeal from orders removing caveats, in the course of which her Honour considered the nature of a caveat.

The facts were –

  • In March 2017 the plaintiffs lent the defendant $50,000 pursuant to a written agreement.  On about 20 September 2017 the plaintiffs and the defendant entered a second agreement relating to the original $50,000 loan and to a further loan of $185,000.  Clause 8.1(b) of the Second Agreement in substance provided that if there was a default by the Borrower the Lender (i) ‘may call on the Borrower to provide a mortgage over real property determined by the Lender on such terms and conditions as are determined by the Lender, at any time prior to the Repayment Date’ and (ii) ‘At any time prior to the Repayment Date the Lender may, pursuant to this clause, lodge a caveat over any such real property it may determine as appropriate to provide security pursuant to sub-clause (a) hereof.
  • The defendant repaid part of the debt, the extent of repayment being disputed.
  • On 6 July 2020, the plaintiffs lodged caveats over properties owned by the defendant stating the ‘Estate or interest claimed’ as ‘Freehold Estate’ and the ‘Grounds of claim’ as ‘Agreement with [the Registered Proprietor(s)] dated 20/09/17’.
  • February 2023 the defendant, in the context of seeking a particular refinancing facility, applied to the Supreme Court to remove the caveats, resulting in a consent order dismissing the proceeding with no order as to costs.  Under “Other Matters” McDonald J. noted –

“The parties have agreed to resolve the matter with the First and Second Defendant consenting to a registration of first ranking mortgages over the properties the subject of the proceeding.  The First and Second defendants undertake to provide all relevant consents in writing for the registration of first ranking mortgages in relation to the facility referred to at paragraph 17 of the affidavit of Clinton Keeshan …”.

  • That refinancing did not proceed and the defendant now applied to the County Court under the Transfer of Land Act s. 90(3) for removal of the caveats.

Judge Marks removed the caveats, holding –

  1. The reference to ‘sub-clause (a)’ at the end of sub-clause (b)(ii) was to be construed as a reference to sub-clause (b)(i). [27]
  2. There was no serious question to be tried that the plaintiffs had the estate or interest claimed, because –
    1. Each caveat “overclaimed”, in that cl. 8.1 gave no sort of freehold estate interest but at most a charge or something akin to a chargeable interest.   This case was distinguishable from 187 Settlement Road v Kennards Storage Management [2022] VSC 771 (Blog 69) where a ‘freehold estate’ was claimed in circumstances involving a right which might later turn into holding the freehold estate, in that that caveator had a conditional right to purchase that land.  The highest interest ever available to the plaintiffs under cl. 8.1(b) was the right to call on the defendant to provide a mortgage. [21], [24], [25], [28], [31]
    2. Clause 8.1(b) did not entitle the plaintiffs to restrain any dealing with the freehold estate.  An unregistered charge, unregistered mortgage, or even a registered mortgage, did not prevent the registered proprietor of the land from granting further charges or mortgages.  The principal vice in a caveat which overclaimed in the manner of these caveats was that they could achieve that unjustified effect.  This was a key reason underpinning the requirement for a caveator to establish a serious question to be tried of the estate or interest claimed and not some other interest.  This case was analogous to those in which a creditor claimed ‘an estate in fee simple’. [29], [30]
  3. Further, on the proper construction of the second agreement, a ‘call’ under cl. 8.1(b)(i) was likely necessary before a caveatable interest arose (and there had not been one). [35]
  4. The balance of convenience also favoured removal of the caveats over some of the properties, because, having regard to amount arguably secured, the plaintiffs would have been protected by maintaining caveats on the other properties.  There was no identifiable prejudice to the caveators from this removal, but the registered proprietor needed to avoid the consequences of the first mortgage being in default. [36], [37], [39]
  5. None of the doctrines of issue estoppel, Anshun estoppel or abuse of process, founded on the existence of the Supreme Court order, barred this application.  In particular –
    1. although an issue estoppel could arise where a final order was made, including by consent, the estoppel could only exist in respect of matters necessarily resolved by the earlier order and where the decision was ‘final and conclusive on the merits’.  Nothing as to the validity of the caveats was necessarily resolved as a step in reaching the ‘determination’ made in the Supreme Court order; [49]-[51]
    2. An Anshun estoppel precluded the assertion of a claim, or the raising of an issue of fact or law, if that claim or issue was so connected with the subject matter of the first proceeding as to have made it unreasonable for the claim not to have been made or the issue not to have been raised in that proceeding.  There was no hearing on the merits in the Supreme Court: it was not arguable that it was unreasonable for claims or arguments as to the validity of the caveats (and the overclaim) to have been made in circumstances where the first proceeding was settled at an early stage without any submissions being made. [52]-[53]
    3. An abuse of process existed where in an earlier proceeding a claim was made or an issue raised and determined, or where it ought reasonably to have been so made or raised for determination. It was not the case that arguments about the validity of the caveats ought reasonably have been made in the Supreme Court proceeding in circumstances where it was settled at an early stage without submissions being made.   The circumstances underlying this application and the earlier one were different – the consent orders in the Supreme Court proceeding were tied to a particular refinancing facility being sought. [55]-[56]
  6. An application for a stay to allow time to appeal was refused.   The consequence of the orders removing the caveats did not have the effect of extinguishing whatever security the plaintiffs were entitled to over the land.  A caveat did no more than provide notice of an asserted security interest.  It did not create, nor did its removal extinguish, rights over the land.  The only effects of removing the caveats would be: to enable the defendant to refinance, involving discharge of old and registration of new mortgages; (at worst for the plaintiffs) if the properties were ultimately sold, potentially prejudice the priority of their asserted equitable rights as chargee against (hypothetical) equitable claimants to the proceeds of sale.  There was no risk of the defendant dissipating the properties. [63], [65]
  7. Section 91(4) of the Transfer of Land Act, which provides that a “caveat that has lapsed or been removed by an order of a court shall not be renewed by or on behalf of the same person in respect of the same interest” did not prevent lodgement of a fresh caveat where a caveat was removed for claiming the wrong interest (as had occurred here). [65]

Philip H. Barton

Owen Dixon Chambers West

Wednesday, October 23, 2024

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

 

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