25. Delinquent lodging of caveat through PEXA – Contrite conveyancer dodges discipline.

Guirgis v JEA Developments Pty Limited [2019] NSWSC 164 (26 February 2019), Kunc J (Supreme Court of New South Wales)

This is the first NSW case dealt with in the caveatsvictoria.blog.  It is a reminder of the care needed in lodging a caveat, specifically here in the context of the Electronic Conveyancing National Law, as denoted in the opening words of the judgment –

“Lodging a caveat is not a trivial act to be undertaken lightly.  It has immediate legal effect and can have significant commercial and financial consequences.  Legal practitioners and licensed conveyancers who advise on, prepare and certify caveats that are lodged electronically have an important role to ensure that obviously unmeritorious caveats are not lodged.  This judgment arises from a failure by a licensed conveyancer to perform that role properly”.

The facts were –

  • The plaintiff and his wife were engaged in Family Court litigation. She was the sole director, secretary and shareholder of the defendant.
  • In December 2018 he entered into a contract for the sale of a property owned by him, with settlement due on 25 February 2019.
  • On 11 February 2019 a caveat was lodged over the land electronically through PEXA. The caveat had been prepared, certified, electronically signed and lodged on behalf of the defendant by a licenced conveyancer, whose company was described on the caveat as the “Responsible Subscriber”.  The estate or interest claimed was a charge, by virtue of an agreement between the defendant and the plaintiff.  Under “Details Supporting The Claim” was “Outstanding loan”.  The caveat also stated certain things to the best of the knowledge of the Subscriber including that the caveator had a good and valid claim to the estate or interest claimed.
  • After his solicitor unsuccessfully attempted to obtain evidence of the alleged agreement from the conveyancer, the plaintiff commenced this proceeding seeking orders under ss. 74MA and 74P of the Real Property Act 1900 (NSW) for the removal of a caveat and for compensation against the defendant.
  • At the hearing on 20 February the plaintiff asserted that he had never entered into any agreement of the kind alleged in the caveat. Mrs Guirgis, who appeared in person, stated that there was no written loan agreement and insofar as there was any agreement it was “a husband and wife agreement” containing nothing giving the defendant a mortgage, charge or other interest in the property.  She acknowledged that the caveat was a negotiation tactic for a Family Court hearing.  The defendant was ordered to remove the caveat with costs.
  • The judge questioned Mrs Guirgis about her dealings with the conveyancer. Mrs Guirgis stated that: she phoned the conveyancer and asked that caveat be lodged; the conveyancer gave no advice about this; and the conveyancer asked whether there was an agreement between the plaintiff and the defendant to which the answer was yes, but the conveyancer did not ask whether it was in writing or oral.
  • His Honour formed a prima facie view that the conveyancer had been delinquent, required the conveyancer to appear to explain why the papers should not be referred to the appropriate body to consider disciplinary action, and on the  conveyancer appearing and apologizing etc (under the heading in the judgment  “The Conveyancer’s contrite explanation”, including “It is the first caveat I have ever put on” [36]) decided to take no further action, but also published his reasons “to make clear how seriously the court viewed the obligations of those who advise  on, prepare and certify caveats” ([5]).

 

His Honour –

  1. Set out at length the NSW statutory provisions on caveats and electronic conveyancing (ie the Electronic Conveyancing National Law). [19]-[28]
  2. Held that the caveat and the conveyancer’s purported certification of it were deficient in at least five respects. [29]
  3. As to the conveyancer’s representation that –

“The Caveator, to the best of the knowledge of the Subscriber identified in the execution of this Caveat document, has a good and valid claim to the estate or interest claimed as specified in this Caveat”.

held that “to the best of the knowledge” conveyed a representation that the conveyancer had a suitable level of knowledge about how an interest in land can arise and had taken reasonable steps to inform himself or herself of the relevant facts so as to be able to express a properly informed opinion. This was also true of the other statements in the caveat said to be “to the best of the knowledge of” the person or entity electronically signing it.   Such statements did not, however, amount to an unqualified warranty of the existence of the relevant state of affairs. [30], [33]

  1. The conveyancer appeared to have lodged the caveat with either a reckless disregard for the conveyancer’s obligations or had failed to meet the standard of care to be expected of a reasonably competent conveyancer certifying a caveat. No reasonably competent conveyancer who had bothered to take proper instructions from Mrs Guirgis would have co-operated in the lodgement of the caveat. [34]
  2. His Honour concluded in part –

“As New South Wales’ conveyancing system moves to a completely electronic platform, the role of conveyancers, solicitors and others as persons qualified to prepare and lodge caveats becomes all the more important.  Ordinary members of the public are, in practical terms, no longer able to lodge caveats without the intervention of a “Subscriber”, who in many cases will be a solicitor or licensed conveyancer.  The requirement to give the requisite representations and certifications operates to confer on them the role of a guardian at the gate”. [39]

Comment.

Victorian cases exposing delinquent lodgment of caveats by legal practitioners are: Legal Services Commissioner v Mercader [2011] VCAT 2062; Pearl Lingerie Australia Pty Ltd v Giarratana [2012] VSC 451; Legal Services Commissioner v Kotsifas [2014] VCAT 1615 (arising from the previous case); Gatto Corporate Solutions Pty Ltd v Mountney [2016] VSC 752.  Space does not permit reference to any other than Mercader, which also arose in the matrimonial context.

In Mercader, on termination of her instructions for a wife in a matrimonial dispute, the solicitor lodged a caveat over the former husband’s property (in which the wife claimed a share) claiming an equitable estate in fee simple “By virtue of constructive trust”.  The notion that the circumstances gave rise to the solicitor having a caveatable interest in the husband’s land was described by Judge Lacava as “a legal nonsense” [27] as was the interest claimed in the caveat [43].  The solicitor was charged with unsatisfactory professional conduct by lodging and/or refusing to withdraw the caveat where she knew and/or ought to have known that she had no caveatable interest and by providing information to the Registrar of Titles that she ought to have known was false.  She was convicted with the question of penalty adjourned.

14. Caveats lodged over NSW land based on Muschinski v Dodds constructive trust – Under Real Property Act 1900 (NSW) s. 74K(2) caveat not to be extended unless caveator’s claim has or may have substance – claim without substance

D’Agostino v Zandata Pty Ltd and Ors [2018] VSC 115 (15 March 2018) McMillan J. 

This case is novel for a Victorian court, being an application of NSW law, but the caveat would equally have been removed under Victorian law.

A man died survived by various family members including his de facto partner and the plaintiff who was her son.  The deceased was a director of and held controlling interests in the three defendant companies.  The plaintiff lodged caveats with the NSW Registrar-General over land owned by the companies, claiming an interest in each under a constructive trust.  The Registrar-General served lapsing notices requiring the caveator to apply for order extending the caveats.  He applied to the NSW Supreme Court for an order under s. 74K(2) of the Real Property Act 1900 (NSW) which provided that the court may, if satisfied that the caveator’s claim has or may have substance, extend the caveat.  The proceeding was cross-vested to Victoria. 

 The caveator alleged that over a period of 38 years he acted to his detriment in reliance on the encouragement of the deceased by contributing to the acquisition, maintenance and/or improvement of the properties, and this encouraged an expectation that he and his mother would eventually own those properties. 

 McMillan J held –

1.     The application was to be determined in accordance with the law of New South Wales.  An application for the extension of the operation of a caveat was treated as analogous to an application for injunctive relief. Her Honour cited conventional authorities. [20], [22]  

2.   A constructive trust claim may form the basis for a caveatable interest in real property.  The plaintiff relied on a trust of the type enunciated by the High Court in Muschinski v Dodds.  There was however no sufficient prima facie case giving rise to a serious question to be tried that there was a constructive trust here.  There was substance in the defendants’ submission that even at their highest the promises were not to the effect stated nor did the plaintiff rely on them as alleged.  Further, the properties were owned by the companies and there was not allegation that the deceased made any representation as an officer or representative of the companies. [26], [27], [36]-[39]  

3.      The balance of convenience was also against extension of the caveats.  There was no immediate risk of dissipation of the land.  The injury caused to the plaintiff by non-extension did not outweigh the injury the defendants would suffer through extension. [48] 

4.      The lower risk of injustice was for the operation of the caveats not to be extended. [49]