Category: Interest in Land or Grounds of Claim – Accuracy of Claim in Caveat

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 81. Security documents inadequate to create caveatable interest.

Rainford & Ors v SA & RT Tesoriero Pty Ltd [2023] VSC 617, Waller J.

This case is a reminder of the importance of exact drafting of security documents. The facts were –

  • The plaintiffs (Philip, Christopher and Pylades Pty Ltd (Pylades)) were registered proprietors of a property (the Property) as tenants in common. Pylades was the trustee of a family trust. Pylades and another company related to the plaintiffs (Drofniar) owned the shares in a third company (Workspace).
  • By a Deed of Secured Loan (DSA) dated 1 February 2023 the defendant loaned $2.86 m. to Workspace due for repayment on 30 May 2023. Workspace was required to provide security over its land, which it did. Further, cl. 9.3 of the DSA provided that Philip, Pylades and Drofniar (not Christopher) were obliged to “execute deeds of guarantee and indemnity in such form as the Lender may require”.
  • Also on 1 February 2023, Philip (on his own behalf and as director of Workspace) and Christopher (as director of Pylades and Drofniar) executed a General Security Agreement (GSA) and a Guarantee and Indemnity (Guarantee) in favour of the defendant. Although Christopher added his name and signature to each of the DSA, GSA and Guarantee he was not stated to be a party in his own right in any of them.
  • Clause 2.1 of the GSA provided –

“Each of the Grantors as beneficial owners charge in favour of the Secured Party, and grants a Security Interest to the Secured Party by way of charge over, the whole of their Collateral and the Proceeds.”

In the GSA “Collateral” was defined to include all real property of the Grantor and “Security Interest” in relation to any Collateral other than personal property was defined to mean:

“… any mortgage, charge, … which is or has the effect of a security for the payment of a debt or other obligation or the compliance with any other obligation, …”.

  • Clause 5.4 of the Guarantee provided –
    “Upon request in writing by the Lender, the Guarantor shall:

    1. grant to the Lender a legal mortgage of any property … now or hereafter held by that person containing a covenant:
      1. That Philip … Rainford and Pylades … and Drofniar … shall duly pay all monies now or hereafter due and payable to the Lender by them, the Borrower or by any other person named in the Deed or Collateral Document as a Guarantor.
    2. Where property that the Lender requests be given a [sic] security by the Guarantor is held jointly by the Guarantor and another person (not a party to this Guarantee), the Guarantor shall: … “
      1. take such steps … to effect the registration of a legal mortgage over such jointly held land; or
      2. in the case of a corporation, as beneficial owner charge in favour of the Lender … any property … with the payment of indebtedness pursuant to this Deed …”

The Guarantee defined “Securities” to include a ‘General Security Interest’ over all property granted by Philip, Christopher and Pylades as trustee for the family trust.

  • In March 2023, Pylades and Drofniar sold their shares in Workspace to another company. The sale required the consent of the defendant and the defendant thus required execution of a Deed of Variation to the DSA. The Deed of Variation included as parties Workspace, Philip, Christopher (stated to be a party in his own right and described as one of the “Initial Guarantors”), Pylades, Drofniar and other legal and natural persons as “Additional Guarantors”.
  • On 4 August 2023 the plaintiffs entered a contract of sale of the Property due for completion on 20 October.  The purchaser paid the deposit.
  • Workspace failed to repay the loan and on 21 September 2023, the defendant’s solicitors emailed the plaintiffs’ former solicitor stating:

“Pursuant to clause 5.4 of the deed of guarantee and indemnity legal mortgages of over [sic] real property in the name or names of the guarantors jointly and severally. [sic]
Caveats will be placed on title of all land.

Please provide us with title particulars of all land that the guarantors are the registered proprietors of so that mortgage documents can be prepared.”

No title particulars were supplied.

  • Also on 21 September, the defendant caveated over the Property claiming an interest as mortgagee on the grounds of a mortgage with the registered proprietors dated 2 February 2023. The plaintiffs applied under s. 90(3) of the Transfer of Land Act to remove the caveat. On the balance of convenience issue the plaintiffs led evidence that the caveat would prevent settlement of the sale with consequential detriment. The plaintiffs also submitted that the defendant had security and potential security over other properties.

Waller J. ordered removal of the caveat, holding –

  1. Clause 2.1 of the GSA created a charge, not a mortgage, by ‘each of the Grantors’ including by Philip and Pylades but not by Christopher. (It was unnecessary to determine whether the reference to Pylades in the various documents was to it in its own right or as trustee of the family trust (and so binding the trust property)). [32]-[34]
  2. Clause 5.4 of the Guarantee did not purport to grant the defendant any interest at the time it was entered into. Rather, it gave the defendant the right to request a Guarantor to grant it “a legal mortgage of any property … now or hereafter held by that person” containing the covenant set out in cl. 5.4(a)(i). If a provision such as cl. 5.4 conferred an immediate right of recourse to the property it would amount to an equitable charge or mortgage, but it would not so amount if it was contingent upon further acts of the parties, such as requiring the lender to make a written request for provision of such a security. Clause 5.4 was of this latter character. This contingency had not been satisfied: the email of 21 September 2023 asked only for title details. [36]-[38]
  3. Further, a caveat could only in form be commensurate to the interest it was designed to protect. This caveat was not so commensurate because Christopher was not a named party to the Guarantee and so the caveat wrongly purported to rely on a “Mortgage” with “The Registered Proprietor(s)”. This caveat was accordingly not limited in its operation to the interest that could be said to have arisen between the relevant parties. [39]-[41]
  4. Although the Deed of Variation named Christopher as a Guarantor and Obligor, and defined “Securities” to include a “General Security Interest” over all property granted by Philip, Christopher and Pylades as trustee, it did not itself create a mortgage over the Property, let alone a mortgage of the kind referred to in the caveat. [42]
  5. Thus the defendant had not established a prima facie case of having an interest in the Property. The balance of convenience would also not have favoured the maintenance of the caveat. [43], [55]

Philip H. Barton

          Owen Dixon Chambers West

Tuesday, April 23, 2024

Blog 79 Caveator who adopted conflicting positions left unsatisfied.

Colony Constructions Pty Ltd v Zain Homes Pty Ltd & Ors [2023] VSC 529, Ginnane J.

This short case is an illustration of the importance, when faced with a serious breach of contract by the other party, of either accepting the breach and thereby terminating the contract or declining to accept the breach and asserting your intention to go on with the contract.  Confusion between these options possibly contributed to this caveator claiming the wrong interest and grounds.  The first defendant was a purchaser under a contract which did not settle on the due date, following which the vendor served a 14 day Notice of Default and Rescission and the third defendant (invalidly because it was the nominee transferee) served a 14 day Default Notice based on alleged deterioration to the premises and an inadequate planning permit.  Following expiry of both Notices the first defendant: wrote stating that the alleged breach had not been rectified and that the contract was at an end; and caveated claiming an interest as chargee on the grounds of implied, resulting or constructive trust.  On the plaintiff vendor applying under the Transfer of Land Act s. 90(3) to remove the caveat the purchaser adopted conflicting positions: its director deposed that “the caveat was lodged to protect my interests in the property namely the return of the deposit and or to purchase the property”; its counsel submitted that its conduct demonstrated that it wished to settle the contract; and in written submissions the purchaser relied on the right of rescission under ss. 32K and 34 of the Sale of Land Act 1962.  Ginnane J. held it arguable that the vendor had breached the contract, raising an arguable issue of whether it had the right to serve its Notice, but as the caveat had not claimed an interest as a purchaser the caveator only arguably had asserted an equitable lien for the return of the deposit.  Accordingly, appropriate relief was removal of the caveat with the deposit to be held in the vendor’s solicitor’s trust account.   His Honour stated –

“I have noted and considered the emphatic submissions of the defendant’s counsel that if the caveat is removed it will lose its right to settle the property, a right which may be later established.  However, … I can only consider the claims described in the caveat and they do not rely on the contract of sale …”

The facts were –

  • On 18 February 2022 the plaintiff entered a contract to sell a property to the first defendant for $727,270, with a deposit of $77,000 which was paid, due for settlement on 18 February 2023. The conditions included that: the “contract is subject to the vendor providing the purchaser endorsed plans and permits” (Special Condition 6); the vendor must deliver the property to the purchaser at settlement in the same condition as it was in on the day of sale, except for fair wear and tear (General Condition 24.2).
  • The first defendant nominated the third defendant as transferee.
  • A planning permit was issued allowing partial demolition of a building and erection of six units.
  • The contract did not settle on the due date. On 20 February 2023 the vendor served a 14 day Notice of Default and Rescission describing the default as “failure to settle per the terms of the contract”.   On the same day the nominee served a Default Notice describing the default as “non-compliance of general condition 24.2 & special condition regarding endorsed planning permit” and stating that the purchaser intended to exercise its rights unless within 14 days the default was remedied and legal costs were paid.
  • On 9 March the first defendant by its lawyers emailed the plaintiff’s conveyancer stating that the alleged breach had not been rectified and that the contract was at an end.  It also caveated claiming an interest as chargee on the grounds of implied, resulting or constructive trust.
  • The plaintiff resold the property and applied under the Transfer of Land Act s. 90(3) to remove the caveat. The first defendant’s director deposed to damage to the property alleged to have occurred after the date of the contract.  The first defendant submitted that the plans provided did not contain a valid planning permit as stipulated in Special Condition 6 so as to enable performance of the building works.
  • The plaintiff argued that the first defendant had adopted conflicting positions concerning whether the contract was still on foot. The first defendant submitted that its conduct demonstrated that it wished to settle the contract, but its director also deposed that “the caveat was lodged to protect my interests in the property namely the return of the deposit and or to purchase the property”.  In written submissions the first defendant also relied on the right of rescission under ss. 32K and 34 of the Sale of Land Act 1962.

Ginnane J. ordered removal of the caveat on condition that the deposit was held in the vendor’s solicitor’s trust account until final determination of the proceeding or further order and on condition that the purchaser counterclaimed to substantiate its claim to the deposit –

  1. The third defendant’s Notice was invalid because it was a nominee who could not exercise rights under the contract. [7]
  2. The first defendant’s contentions that the plaintiff had breached the contract in failing to provide a valid planning permit and because of damage to the property raised an arguable issue as to whether the plaintiff had the right to serve its Notice. [8]
  3. Although the caveat had not claimed an interest as a purchaser (the claim of an implied, resulting or constructive trust did not claim an estate or interest arising under the contract) the caveator had established a serious question to be tried of an interest in the land in the form of an equitable lien for the return of the deposit – the caveat asserted such an interest when it referred to the first defendant’s interest as a chargee. [10]-[11]
  4. The first defendant’s arguable interest in the $77,000 deposit could be protected by a removal of the caveat on condition as stated above. The balance of convenience favoured that course.  This removal would deprive the first defendant of its right (which may later be established) to settle the contract but the caveat had not relied on the contract. [12]-[13]

Philip H. Barton

Owen Dixon Chambers West

Tuesday, December 19, 2023

Blog 77. No prima facie case of a contract of sale.

Ritz Bitz Pty Ltd & Anor v Cumming & Ors [2023] VSC 418, M. Osborne J.

This is the longest Blog because of the complexity of the facts and the desire of the registered proprietors to amend their Defence substantially.  This case largely concerns whether there was a prima facie case that a contract of sale existed.  An interesting twist is how his Honour dealt with misdescription in the caveat of the claimed interest in land.   Undisputed evidence was given that this was due to the PEXA options.  M. Osborne J. stated that this misdescription “would be put to one side” and did not consider possible amendment of the caveat, but noted that the caveator could have sought an interlocutory injunction which in practical terms would have secured the same outcome (but nonetheless the case remained one of caveat removal).  This appeared in turn to lead to some greater consideration than usual in a caveat case of the necessity and value of the undertaking as to damages offered.

The facts were as follows –

  • The defendants Daniel and Amanda Cumming (the couple) were registered proprietors of a property in Footscray improved by a former dance hall (the Property), at which as at mid 2015 his mother lived.
  • Daniel’s brother John was the second plaintiff and controlled the first plaintiff (Ritz Bitz).
  • In about 2015 the brothers discussed possible subdivision of the Property and the sale of part of it to John.  John alleged that an oral contract was made at this time to sell to him that part of the Property “later known as lot 1” (Lot 1) on a particular plan of subdivision (the 2015 contract).
  • In August 2015 John purchased a property in Braybrook, where their mother then lived, registered in the names of siblings of the brothers.
  • In early 2016 (John subsequently deposed) it was agreed, at Daniel’s request, to change the proposed two lot subdivision to a three lot subdivision, with John bearing one third and the couple bearing two thirds of the costs (the one third/two thirds agreement).
  • On about 22 August 2016 a plan for a three lot subdivision was lodged with the local Council. On 23 August 2016 it advised that it would approve the plan of subdivision, subject to compliance with requirements principally concerning fire safety including provision of a fire safety report.
  • In 2017 John proffered a standard form of contract for the sale of Lot 1, which the couple refused to sign.
  • In 2019 John obtained a fire safety report. By this time the Property was largely vacant and dilapidated.
  • In 2020 the Braybrook property was sold.  The proceeds of sale were paid to the plaintiffs.
  • In April 2022 John caveated over the Property claiming an implied, resulting or constructive trust. In September the Council issued a building order for minor work requiring compliance that month.  On 10 December Daniel and Amanda entered a contract of sale of the Property to a third party, Nikolce Talevski, under which the deposit was paid, due for settlement in February 2023.  Settlement had not occurred.
  • In December 2022 the plaintiffs commenced a proceeding against the couple and, because of other transactions not presently material, a company controlled by Daniel. The pleadings were a Statement of Claim and Defence which the defendants subsequently sought leave to amend.  The relevant pleadings were broadly:
    • The Statement of Claim paragraph 52 pleaded that in about July 2015 the couple agreed to sell to John part of the Property later known as lot 1 a particular plan of subdivision for $2 m. “on vendors terms”. The agreement was particularised as oral and implied, insofar as oral being contained in discussions between the John, the couple, and their mother at the Croatian Club in Footscray.  The Defence admitted this allegation but leave was sought to amend the Defence to deny this allegation and also plead: (a) that although John had at about that time offered to purchase lot 1 on a proposed plan of subdivision for $2 m. the offer was on terms including that: (i) he would arrange and pay for lodgment of the plan of subdivision (the “condition precedent”); (ii) he would pay a deposit of $800,000 to the couple to enable them to purchase a property at which their mother could live; (iii) the balance of the price would be paid within 12 months of entry into a contract; (b) the condition precedent was never fulfilled because the plan of subdivision was rejected by the Council for want of a fire safety plan; (c) non-compliance with s. 126 of the Instruments Act.
    • Paragraph 53 of the Statement of Claim alleged that on or about 22 August 2016 the Council advised the couple that the plan of subdivision had been lodged and that lot numbers had been allocated. However, paragraph 55 pleaded that on 23 August 2016 the Council advised that subject to its requirements (principally directed at fire safety) it would “give agreement for the plan of subdivision to be lodged”.  The Defence admitted these paragraphs but in paragraph 55 went on to plead “that upon the issue of the [requisite fire report] to John in 2019 he decided not to proceed with the purchase”.    The Defence also pleaded that the subdivision was not approved “by council as per the council’s requirement for the fire safety report to be provided”.
    • The Statement of Claim paragraph 56 pleaded that the terms of the contract included that: (a) the price for Lot 1 would be $2 m.; (b) the deposit was $800,000, to be paid in kind “by John providing a property for his mother to live in (she then residing at the … Property)”; (c) the balance of the price was to be paid on terms, with John developing a backpackers hostel at Lot 1 and to pay $1.2 m. 12 months after its establishment; and (d) that John would be responsible for obtaining planning permits and procuring registration of the plan of subdivision.
    • The Defence admitted the allegations in paragraphs 56(a), (b) and (d). It did not admit the allegations in paragraph 56(c) and added that it was a term that the balance of price was payable within 12 months, subject to approval of the plan of subdivision, and there was no agreement concerning a backpackers hostel.  Leave was sought to amend the Defence to: plead that no contract was ever formed and replace the admission of paragraph 56(a) with a denial, adding that John agreed to pay a deposit of $800,000 in cash to the couple so that the couple could purchase a property in which their mother could reside.
    • The Statement of Claim paragraph 57 pleaded that the alleged vendors represented and warranted that “part of the purchase price being $800,000 should be paid in kind by John purchasing a property for John and Daniel’s mother such that she would have a place to live” and that in reliance upon the representations, John acquired the Braybrook property for his mother. Paragraph 58 of the Defence pleaded that John had purchased the Braybrook property for $665,000, being less than the agreed deposit of $800,000, and had subsequently used it as security for Ritz Bitz to purchase a hotel.  It was sought to amend the Defence to add (paragraph 58(a)) that the $800,000 was to be paid in cash to the couple, and that John had since sold the Braybrook property and applied the proceeds to his own use.
    • The Statement of Claim paragraph 60 pleaded that in 2017 John proffered a draft contract of sale to Daniel and Amanda to give effect to the 2015 contract. The Defence pleaded that they did not sign it because it “was completely different to the original offer”.
    • The Statement of Claim paragraph 62 pleaded that the couple had breached the contract because they had “failed to convey [lot 1] to John upon payment of $1.2 million”.
    • Specific performance was sought of the 2015 contract requiring the plan of subdivision to be registered (and for the couple to do all that was necessary to register the plan) and for Lot 1 to be transferred to John upon his payment of $1.2 m. to the couple.
    • The Statement of Claim did not advert to any agreement to share the costs of a contemplated two lot subdivision equally, or of any agreement to split the costs of a contemplated three lot subdivision, but his Honour noted that the most logical reading of the pleading was that John was to bear the costs.
  • In June 2023 the Council served an emergency order on the couple requiring vacation of the building and performance of demolition works by 21 June. Daniel subsequently deposed that the couple lacked the resources to undertake these works.
  • The defendants applied under the Transfer of Land Act s. 90(3) for removal of the caveat and for leave to amend their Defence and Counterclaim.
  • John argued that his interest did not arise under an implied, resulting or constructive trust but was that of a purchaser under the 2015 contract. His solicitor deposed that those words were used in the caveat because when it was lodged John could not recall (and thereby nominate) the exact date in July 2015 of the contract, which inability meant that the only PEXA option for the grounds of claim was that nominated.  This evidence was not challenged.
  • John deposed –
    • to a conversation with his mother before and to similar effect as that at the Croatian Club referred to in the Statement of Claim in which he offered $2 m. to her for the front half of the Property (the Property being, according to John, in fact his mother’s property, notwithstanding that it was registered in the names of the couple), that he agreed to pay $800,000 immediately to her which she could use to acquire a property to live in, and that he would then pay her the balance of $1.2 million once the property was operating as a backpackers hostel;
    • that “as part of the relief [to be obtained in the proceeding he] will also need to pay over the ‘deposit’ from the sale of the Braybrook Property”;
    • to an agreement to change the proposed two lot subdivision to a three lot subdivision, on the basis of the one third/ two thirds arrangement;
    • that he believed that the value of Lot 1 was significantly above $2 m.
  • John exhibited to certain emails to his affidavit.
  • Daniel exhibited to his affidavit a copy of the written contract provided by John, which was largely inconsistent with the alleged 2015 contract. Although John deposed that the contract provided by him in 2017 was not inconsistent with the alleged 2015 contract he did not depose that the document exhibited by Daniel was not the contract provided.  However John’s counsel stated from the Bar table that his instructions were that the document exhibited by Daniel was not the contract provided in 2017, and that John no longer had a copy of it.
  • Daniel and Amanda tendered a fire engineering report dated 5 March 2019.
  • The plaintiffs offered an undertaking as to damages.

M. Osborne J. ordered removal of the caveat, holding –

  1. The misdescription in the caveat of the grounds of claim would be put to one side because the true alleged interest had been asserted in a solicitor’s letter and, even if the court had not had power (which it did have) to amend the caveat, the caveator could have sought an interlocutory injunction to restrain settlement of the third party sale which in practical terms would have secured the same outcome. [34]-[35]
  2. Although completion of the alleged 2015 contract was conditional on registration of the plan of subdivision, and thus on consent of a third party, a court would, in appropriate circumstances, make orders in the nature of specific performance compelling the vendor to do what was necessary to obtain approval for the subdivision and, if approval was granted, to settle the contract. This interest was sufficient to support a caveat. [36]-[38]
  3. There was not a prima facie case that a contract existed, because even allowing for the admissions in the Defence, the contract as alleged was attended with difficulty, as follows –
    1. The Statement of Claim lacked precision, in particular:
      1. the allegation that the subject matter of sale was land later known as a particular lot number on a plan of subdivision could not accurately reflect the particularized July 2015 discussions, because this plan was not yet prepared; [43]
      2. notwithstanding consensus in the pleadings that the plan was uncertified because Council’s fire safety requirements remained unaddressed, the Statement of Claim did not directly engage with the fact that settlement was impossible pending certification and subsequent registration of the plan, nor with what was necessary to procure certification or with who was responsible for securing certification and registration; [44]-[45]
      3. the reference in paragraph 52 to “vendors terms”, unidentified and unclear, seemed to suggest settlement at an undefined point not linked to registration of the plan; [46]
      4. the allegation in paragraph 62 that the alleged vendors had breached the contract by failing to convey Lot 1 to John upon payment of $1.2 m.: did not reflect that the obligation to convey was dependent on registration, did not plead tender of this sum, and did not clarify how reference to this sum was reconciled with the sale on the ‘vendors terms’, whatever they might be; [46]
      5. The pleas concerning the deposit and its payment were unclear; [47]
      6. The relevance of the allegations in paragraph 57 were unclear: they appeared to set the scene for pleas of estoppel or part performance without following through; [48]
      7. A fair, but not the only, reading of the Statement of Claim was that the deposit of $800,000 was to be paid in kind. However, the question of who was to own the Braybrook property was left unsaid, much less how the purchase of a property otherwise than for the couple could amount to part performance of an obligation to pay them $2 m. for Lot 1; [49]
      8. The relevance of the provision of the later written contract to the claim for specific performance was unclear, and that document contained myriad inconsistencies with the alleged 2015 contract. [50], [53]
    2. John’s evidence of a conversation with their mother in which he offered her $2 m. for the front half of the Property was inconsistent with his pleading that $1.2 m. was be paid to the couple. [57]
    3. In broad terms, the emails exhibited by John supported an interpretation of the 2015 contract as containing a term that payment the deposit of $800,000 was to be effected in some way by the purchase of a property for their mother. [58]
    4. Notwithstanding the purchase of the Braybrook property for their mother and its registration in the names of the brothers’ siblings the plaintiffs received the proceeds of sale. Although the Statement of Claim sought an order in effect requiring the transfer of Lot 1 to John upon his payment to the couple, he had deposed that “‘as part of the relief, [he] will also need to pay over the ‘deposit’” from this sale, thus implicitly recognising that the couple were entitled to the $2 m., which was not the same as part of the $2 m., namely the $800,000 ‘deposit’, being paid to their mother to buy the Braybrook property and was inconsistent with the plaintiffs’ ultimate receipt of the proceeds of sale.  On the case that John now sought to advance, the couple, not John (or his mother’s estate), were entitled to the $800,000. [59]
    5. It was undisputed that responsibility for obtaining registration of the plan of subdivision, fell on John not, as was usual, on the vendors. And, although John deposed to an agreement to change the proposed two lot to a three lot subdivision, he had not pleaded this agreement nor one to share the costs equally on the basis of a contemplated two lot subdivision. [60]
    6. In summary, even if the court was to assess the question of a prima facie case by reference to the alleged admissions in the Defence, there were significant impediments to the establishment of a legally binding contract in the form of the alleged oral 2015 contract. In particular:
      1. The alleged 2015 contract failed sufficiently, arguably at all, to take account of the sale being conditional because dependent upon certification and registration and was entirely unclear on the date of payment of the price or whether this payment was conditional. [62]
      2. The only form of written contract in evidence was quite inconsistent with the alleged 2015 contract, or with the parties becoming legally bound before its execution, and as John had not deposed that the document in evidence was not the document proffered no weight could be attributed to his instructions conveyed from the Bar table to the contrary. [63]
      3. As to the deposit, the Statement of Claim was most unclear. It was ambiguous as to whether John would pay $800,000 to the vendors (suggested by the pleading and the relief which John now accepted he would be entitled to at final hearing) or whether (as pleaded in paragraph 57(c)) it be paid in kind by John purchasing a property for their mother (and so suggestive of the $800,000 being paid in effect to their mother) which was consistent with the version in John’s affidavit.  Whatever the true interpretation, it was difficult to see how John could have paid the $800,000 deposit, whether to his mother, or to the couple by being used to buy a house for their mother  (which presumably meant that the couple did not have to do so), but still somehow received the proceeds of sale of the Braybrook Property. [64]

      [42], [61], [65]

  1. The question of the prima facie case was not confined to whether there was a binding sale agreement for Lot 1 but extended to whether specific performance would be granted for the sale of a lot in a plan of subdivision which remained unregistered some 8 years after the date of the alleged contract. As to this:
    1. Contracts for the sale of lots in unregistered plans of subdivision were amenable to orders for specific performance because of the normal implied term requiring the vendor to do everything reasonably necessary to procure registration. However, here John bore the burden of obtaining registration. [67]
    2. Even if the court was to accept for the purposes of this Application that (although unpleaded) the contract had been varied to change the proposed two lot to a three lot subdivision with the one third/two thirds arrangement, there was uncertainty about the costs, nature and extent of the required tasks. The report tendered was long and required performance of a range of measures to attain certification of the plan of subdivision.  And it appeared in 2023 that further works would be required.  In sum, the works required were complex, unidentified, and at some indeterminate and potentially large cost, to be met on John’s case as to one third by him and two thirds by the couple. [68], [70], [71]
    3. Accordingly, a series of further orders for their performance and payment would be required antecedent to any order for specific performance. Although a court would supervise a contract the performance of which required costs to be met in agreed proportions, in this case the costs related to, at least in part, performance of building works of uncertain scope. A building agreement was one requiring continual supervision in respect of which a court was reluctant to grant orders for specific performance.  If specific performance were granted the court would  likely have to supervise potentially significant building works not yet identified or delineated by the alleged 2015 contract. [72], [73], [78]
    4. John had also failed to establish a prima facie case that he was ready, willing and able to perform the obligations imposed on him by the alleged 2015 contract. Even assuming in his favour that his non-payment of a deposit in the traditional sense was not itself a disentitling breach of contract, he had led insufficient evidence of ability to meet future necessary payments. [74]-[78]

    [66]

  1. In conclusion John has not established a prima facie case at a sufficient level of certainty to justify the maintenance of the caveat. [78]
  2. The balance of convenience also favoured removal of the caveat. Ordinarily, because contracts for the sale of land were the subject for orders for specific performance, land being of a unique character such that damages were not an adequate remedy, the balance of convenience favoured a caveator with a prima facie case and priority over any relevantly competing interest.  However here the balance of convenience was against John because:
    1. Of his Honour’s concerns about the adequacy of the undertaking as to damages offered by Ritz Bitz and John – the insufficiency of an undertaking as to damages being a powerful discretionary factor against the grant of an interlocutory injunction – there being a very real possibility that the couple would suffer significant losses by reason of their inability to settle the third party contract; [82]-[84]
    2. If the caveat remained in place the Property would likely deteriorate or the couple would have to finance rectification works in order to deal with the building order and the emergency order or face prosecution; [88]
    3. Talevski’s interests would be effected; [89]
    4. Notwithstanding John’s emotional connection with the Property he had not pursued his claim with alacrity and if his assessment that Lot 1 was worth substantially more than $2 m. this would sound in damages. [90]

    [80], [91]

    Philip H. Barton

              Owen Dixon Chambers West

            Tuesday, December 5, 2023

Blog 64. Agreement concerning land insufficient to give rise to caveatable interest.

A. P. Welco Holdings Pty Ltd & Anor v Canterbury Hills Pty Ltd & Anor [2022] VSC 490, Button J., (24 August 2022) concerns an unsuccessful attempt to eke a caveatable interest out of a Memorandum of Agreement (MOA) concerning land.  It also confronts the problem of the PEXA drop down menu having limited options for description of the caveatable interest.

The facts were –

  • The defendants were registered proprietors of five parcels of land.  It was not proposed that the first plaintiff purchase the land.  The plaintiffs alleged the existence of a contract in substance to develop the land (the Agreement) between the first plaintiff and the defendants, being, insofar as in writing, constituted by a ‘Memorandum of Agreement’ (MOA).  The plaintiffs alleged that the terms included: access to the defendants’ project consultants, internal staff, and documents to enable a feasibility assessment by the first plaintiff of a project; access to the land; the defendants not advertising or negotiating with any other party to market the land; the defendants permitting the first plaintiff or its nominee to, without purchasing it, subdivide the land and then develop and sell the lots; payment to the defendants of $40 m.; the first plaintiff having carriage of the development, providing development and marketing expertise and funding for development; the parties preparing and entering a “Final Agreement” (known as the  “Staged Asset Sale Agreement”) after which the first plaintiff would pay land outgoings and for insurance; and an obligation to act in good faith.
  • The plaintiffs alleged that, pursuant to the Agreement, the first plaintiff and the defendants worked towards concluding the Staged Asset Sale Agreement, drafts being exchanged, but that on 21 December 2021 the defendants wrongfully repudiated the Agreement, which repudiation was not accepted.
  • The relief sought by the plaintiffs included an order for, or in the nature of, specific performance of the Agreement requiring the defendants to provide a signed form of the Final Agreement contemplated by the Agreement, substantially the same as the form of a particular document sent to the defendants with any agreed additions or variations.
  • The defendants, in substance, denied the existence of large components of the Agreement.
  • The first plaintiff caveated over the land on the ground of an agreement with the registered proprietor(s) dated 20 May 2021.  The defendants applied under the Transfer of Land Act s. 90(3) for removal of the caveat.

The estate or interest claimed in the caveat was described as ‘Interest as Covenantee of a Restrictive Covenant’.  The plaintiffs accepted that this description was inapt but, referring to a Land Use Victoria document stating the options in the drop-down form on PEXA, submitted that the PEXA lodgment portal lacked any option corresponding to the particular equitable interest allegedly held by the first plaintiff.

The plaintiffs argued that although the MOA did not itself confer any proprietary interest the first plaintiff had an equitable interest in the land because: it was a binding agreement for the development and subsequent sale of the land (and not merely an agreement to negotiate accompanied by limited rights); and, because the MOA was a contract whose subject matter was land, which contained obligations with a substantial connection with the land, and which provided for its ultimate sale after subdivision with sharing of proceeds, the potential availability of an order for specific performance of the MOA gave the first plaintiff an equitable interest.

Button J. removed the caveats, holding –

  1. The arguments that the MOA was an immediately binding agreement for the development and sale of the land, that the first plaintiff was a party to it, and that it had not already been terminated by the time the caveat was lodged, were insufficiently strong to establish a prima facie case of an equitable interest. Approaching the matter on a summary basis it appeared that the plaintiffs only a very weak case that the MOA was an agreement for development of land and of no fixed duration. [64], [65], [80], [87], [90], [101]
  2. Further, any potential the first plaintiff had of obtaining specific performance of the MOA did not suffice to establish a prima facie case of an equitable interest. The mere availability of an equitable remedy such as specific performance in relation to a contract concerning land did not give rise to a proprietary interest in land. [59], [63], [75], [77]
  3. The deeming provisions of the Duties Act 2000 did not give rise to an equitable interest. [102]-[105].
  4. Even if the plaintiffs had established a prima facie case the balance of convenience was against them. [110]
  5. The PEXA system did not contain an available option directly corresponding with the nature of the equitable interest claimed by the first plaintiff, and so this case was distinguishable from other caveat interest misdescription cases.  However by reason of the holdings referred to above it was unnecessary to consider whether an order could have been obtained for amendment of the caveat. [106]

       Philip H. Barton

          Owen Dixon Chambers West

        Thursday, February 16, 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

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

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

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

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

The NSW Act provided:

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

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

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

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

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

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

The facts were –

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

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

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

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

The case is also instructive on –

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