Alliance Developments Pty Ltd v Arbab
[2019] VSC 832
•20 December 2019
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
PROPERTY LIST
S ECI 2019 04202
| ALLIANCE DEVELOPMENTS PTY LTD (ACN 162 911 248) | Plaintiff |
| V | |
| MAHBOOB ALI JAN ARBAB | First Defendant |
| and | |
| REGISTRAR OF TITLES | Second Defendant |
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JUDGE: | GARDE J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 2 December 2019 |
DATE OF JUDGMENT: | 20 December 2019 |
CASE MAY BE CITED AS: | Alliance Developments Pty Ltd v Arbab and Anor |
MEDIUM NEUTRAL CITATION: | [2019] VSC 832 |
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PRACTICE AND PROCEDURE – Costs – Application for an order for indemnity costs against caveator and solicitor who lodged disputed caveats – Conduct of caveator and solicitor – Whether solicitor failed to act with reasonable competence – Exercise of caution – Indemnity costs – Supreme Court Act 1986 (Vic) s 24(1) – Supreme Court (General Civil Procedure) Rules 2005 (Vic) r 63.23(1) - Civil Procedure Act 2010 (Vic) – Transfer of Land Act 1958 (Vic) ss 89(1), 89(4), 89A(1), 89A(5), 90(3).
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr N Jones | SMR Legal |
| For the First Defendant | In person | |
| For the Second Defendant | No appearance | |
| For Ms Hina Pasha and Pasha Legal | Ms G Berlic | Lander & Rogers |
HIS HONOUR:
Introduction
On 3 October 2019, the Court ordered that the Registrar of Titles (‘Registrar’) remove two caveats lodged by the solicitor for Mahmoob Arbab, the first defendant and a resident of Pakistan, over two properties owned by the plaintiff. The plaintiff now seeks an indemnity costs order in this proceeding against Mr Arbab, as well as against Pasha Legal and its sole principal Ms Hina Pasha, who acted for Mr Arbab. The plaintiff says that there was no proper basis for lodging the caveats, and that Mr Arbab never had the interests in the two properties that were claimed. Mr Arbab and Ms Pasha oppose the application.
The application is made under:
(a) s 24(1) of the Supreme Court Act 1986 (Vic), which gives the Court a general discretion as to costs; and
(b) r 63.23(1) of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (‘Rules’) which gives the Court power to make a ‘wasted costs order’ against the solicitor of a party to litigation.
Background
The plaintiff has three shareholders, Raymond Abela, Abdul Syed and Mr Arbab. Mr Abela and Mr Syed are the current directors.
Previously, Mr Abela and Mr Arbab had 50 shares each in the plaintiff, and were the sole shareholders and directors. Mr Arbab subsequently resigned as a director of the plaintiff.
On 19 March 2013, the plaintiff entered into a contract to buy vacant land at 25 Alliance Avenue, California Gully (‘California Gully property’) for a purchase price of $207,000. The intention was to subdivide the California Gully property into five lots, and build new homes on the lots. The contract settled on 6 June 2013. Mr Arbab says he contributed $34,300 to the purchase.
In May 2014, Mr Abela entered into a contract to buy a property located at 5/100 Pipe Road, Laverton North (‘Laverton North property’) for a purchase price of $423,000. The plaintiff was subsequently nominated as the purchaser. The contract settled on or about 6 August 2014.
On 4 August 2015, Mr Syed was appointed as a director of the plaintiff. The shareholdings in the plaintiff were altered so that Mr Abela had 50 shares, Mr Syed 42 shares and Mr Arbab 8 shares. The change of shareholdings is disputed by Mr Arbab. He says that he did not agree to the transfer of 42 shares to Mr Syed.
Advice from counsel
Mr Arbab retained Pasha Legal for advice concerning the dispute. Pasha Legal in turn sought advice from Mr J Silver of counsel.
In a memorandum of advice dated 4 October 2015, Mr Silver said:
My knowledge of the facts …is limited to those expressed in my instructions. I surmise this is the sum of what my instructors have received. It is not sufficient to state any opinion on the prospects of success.[1]
[1]Emphasis in original.
After briefly describing possible relief from oppression under ss 232-234 of the Corporations Act 2001 (Cth) (‘Corporations Act’), Mr Silver said:
However, if Mr Arbab wishes to protect his property (based on his contributions to company assets), he may seek relief against the companies themselves, should the facts provide the basis for doing so.[2]
[2]Ibid.
As to the lodging of caveats, Mr Silver said:
While I do not have information of the circumstances in which Mr Arbab gave funds to purchase [the California Gully property] and [another property] – for example, if it is a formal loan – I am satisfied that his financial contribution, so far as it is not reflected on the title, would give rise to an equitable interest, in the form of a resulting trust.
To this end, I advise that he lodge caveats over [the California Gully property and another property].
While a caveat does not give an equitable interest priority over existing, secured interests, it will prevent further diminishment of Mr Arbab’s interest. However, it would be appropriate perhaps to clarify the quantum of that interest. …
The memorandum of advice does not refer to the Laverton North property.
By way of further steps, Mr Silver advised:
To commence proceedings against Mr Abella [sic]…, a clearer picture must be developed, and the appropriate evidence collected.
The correction proceeding and letter of demand
By originating process filed on 3 December 2015, Mr Arbab sought an order to correct the plaintiff’s share register under s 175 of the Corporations Act to show that he and Mr Abela owned 50 shares each in the plaintiff. The originating process was amended on 24 June 2016 to alternatively seek relief from oppression under s 233(1)(c) and (j) of the Corporations Act (‘correction proceeding’).[3]
[3]S ECI 2015 00446.
On 10 March 2016, Pasha Legal sent a letter of demand to Mr Syed and to Sawtech Pty Ltd trading as Deccan Homes (‘Sawtech’), of which Mr Syed was a director. In the letter, it was alleged that Mr Arbab was owed money from a partnership or profit sharing scheme in relation to building projects on eight properties, not including the California Gully or the Laverton North property. The letter alleged that an oral agreement had been made in 2013 for Mr Arbab to perform supervisory and managerial work relating to the construction of buildings on the nominated properties. Mr Arbab sought payment of $320,166 by Mr Syed and Sawtech. Despite the demand, no proceeding was subsequently issued by Mr Arbab against Mr Syed or Sawtech.
The importance of the claims made in the caveat
When lodging a caveat, the estate or interest claimed, the ground of the claim, and the nature of the prohibition are of prime importance. The claimed estate or interest in land is a central concept in a caveat.[4] Care must be taken to ensure that the claims made are correct, and accurately reflect the caveator’s estate or interest in the land the subject of the caveat. A caveat may only be lodged in a form commensurate to the interest it is designed to protect.[5]
[4]Martorella v Innovision Developments Pty Ltd [2011] VSC 282, 17 [51] (Dixon J) (‘Martorella’).
[5]Schmidt v 28 Myola Street Pty Ltd (2006) 14 VR 447, 457 [32] (Warren CJ); Piroshenko v Grojsman & Ors (2010) 27 VR 489, 498 [40] (Warren CJ) (‘Piroshenko’).
The issues that may arise if care is not taken when lodging a caveat are well illustrated in past cases. In Wells v Rouse & Ors, ‘an interest as chargee’ based on an implied, resulting or constructive trust was claimed. The claim was held to be nonsensical because it was not possible for an interest as chargee to arise on this ground.[6]
[6][2015] VSC 533, 4 [14] (Dixon J).
In Schwartz v Hadid, McMillan J held that a caveat claiming an estate in fee simple as an ‘[e]quitable interest as a 50% shareholder of the property pursuant to a trust Deed’ was defective and incapable of amendment.[7]
[7][2013] VSC 130, 5 [19] (‘Schwartz’).
In Lewenberg & Pryles v Direct Acceptance Corporation Ltd, a caveat was removed as it was stated too widely. An unregistered mortgagee who claimed an absolute prohibition on dealings stultified the exercise of a power of sale by a registered mortgagee.[8]
[8][1981] VR 344 (O’Bryan J), cited in Piroshenko (n 5) 498 [40].
A claim for an absolute prohibition was held at first instance in Young v Lawrence & Hanson Group Pty Ltd to be so wide as to encumber the other joint proprietor’s interest and therefore to be invalid.[9] However, the Court of Appeal held that the interest was sufficiently clear and should be construed as limited to the interest of the joint proprietor who gave the charge.[10]
[9](Supreme Court of Victoria, Rush J, 9 June 2015).
[10]Lawrence & Hansen Group Pty Ltd v Young [2017] VSCA 172, 26 [94] (Redlich, Kyrou JJA and Keogh AJA).
In Leros Pty Ltd v Terara Pty Ltd, a plurality of the High Court stated that the purpose of requiring the caveator to specify the estate or interest claimed was to enable the registered proprietor to know or find out the claim which he or she had to meet. A second purpose was to enable the Registrar to determine whether a dealing lodged for registration was inconsistent with the estate or interest claimed by the caveator.[11]
[11](1992) 174 CLR 407, 422–423 (Mason CJ, Dawson and McHugh JJ).
In Martorella v Innovision Developments Pty Ltd, Dixon J added that there was a further purpose of enabling the Registrar to determine whether a caveator’s notice is of a proceeding to substantiate the interest claimed by the caveator and satisfies the requirement of s 89A(3)(b) of the Transfer of Land Act 1958 (Vic) (‘Act’).[12]
[12]Martorella (n 4) 17 [52]–[53].
Referring to an article in the Australian Law Journal by John Baalman, a leading commentator on the Torrens System,[13] Dixon J observed that if a caveator enjoyed more or different rights in land than claimed in the caveat, it was proper and appropriate to lodge another caveat claiming the additional interests.[14]
[13]John Baalman, ‘The Drafting of Caveats’ (1957) 31 Australian Law Journal 17.
[14]Martorella (n 4) 18 [55].
The caveats
On 31 May 2016, Ms Pasha lodged caveat AM819106S (‘2016 caveat’) relating to the Laverton North property on behalf of Mr Arbab. The estate or interest claimed was a freehold estate,[15] and the prohibition was absolute. The ground of the claim was ‘Implied, Resulting, Constructive Trust’.
[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.
Since 28 August 2014, the owner and registered proprietor of the Laverton North property had been the plaintiff. The ground relied on by Mr Arbab was expressed in general terms. It did not refer to any agreement or basis for the claim. It did not descend into particulars or provide any explanation as to how the alleged trust arose, or how it gave rise to a freehold estate.
On 22 March 2018, Ms Pasha lodged caveat AQ850209U (‘2018 caveat’) over the California Gully property on behalf of Mr Arbab. The estate or interest claimed was again 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.
The claim made was misconceived and nonsensical. The plaintiff had been the registered proprietor of the California Gully property 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.
Mr Arbab was not and did not purport to be the registered proprietor of the California Gully property. He claimed an interest in the California Gully property on the basis that he contributed $34,300 to the purchase price when the property was acquired.
The 2018 caveat made no reference to any agreement or financial contribution made by Mr Arbab at the time of the purchase of the California Gully property. It did not claim a lien or any other right relating to supervision or management work of Mr Arbab in connection with other properties, or assert any lien or right over the California Gully property. It did not make any claim for an interest consequent upon a resulting trust as suggested by Mr Silver in his advice.
The s 89A application
In or about August 2018, the plaintiff applied to the Registrar under s 89A(1) of the Act in relation to the 2016 and 2018 caveats.
Under s 89A(5) of the Act, an application has the effect that a caveat will lapse unless the application has been abandoned or notice in writing is given to the Registrar that proceedings are on foot to substantiate the claimed right or interest.
By letter dated 13 August 2018, Pasha Legal advised Land Registry Services that the correction proceeding was on foot and was set down for trial. The letter was signed by Ms Pasha. She 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 written notice signed by Ms Pasha to the effect that proceedings were on foot in a court of competent jurisdiction to substantiate the claim of Mr Arbab in relation to the Laverton North and California Gully properties. In truth, the only proceeding on foot was the correction proceeding.
The notice given by Ms Pasha was wrong and misleading. The correction proceeding related to the shareholdings as shown in the plaintiff’s share register. Mr Arbab had not sought any order that would substantiate the estate or interest claimed in the 2016 and 2018 caveats. It was conceded by counsel for Ms Pasha that Mr Arbab did not seek relief to the effect of the interest claimed by the caveats in the correction proceeding and that this was plainly apparent from the court documents.
Land Registry Services acted on Ms Pasha’s letter in good faith.
By letter dated 17 August 2018, the Registrar advised the plaintiff of the content of Ms Pasha’s notification. The result was that no further action was taken by the Registrar in relation to the 2016 and 2018 caveats.
If Ms Pasha had not certified as she did to the Registrar, the 2016 and 2018 caveats would have lapsed under s 89A(5) of the Act. Consequently, Ms Pasha’s letter to the Registrar necessitated the plaintiff’s application to the Court for removal of the caveats.
The caveat removal application
On 23 August 2019, SMR Legal, acting on behalf of the plaintiff, sent a letter of demand to Pasha Legal (‘23 August 2019 letter’) stating Mr Arbab did not have any caveatable interest over the California Gully and Laverton North properties. The letter advised that application would be made to the Court under s 90(3) of the Act unless the 2016 and the 2018 caveats were withdrawn.
In this letter, SMR Legal also said that they had been provided with instructions that may give rise to liability upon Mr Arbab’s advisers, referring to the decisions of Pearl Lingerie Australia Pty Ltd v TGY Pty Ltd; Pearl Lingerie Australia Pty Ltd v John Giarratana (‘Pearl Lingerie’)[16] and Gatto Corporate Solutions Pty Ltd v Mountney (‘Gatto’).[17] The letter expressed concern as to the certification by Ms Pasha to the Registrar and her failure to produce any documentation which could substantiate the caveatable interests claimed.
[16][2012] VSC 451 (‘Pearl Lingerie’).
[17][2016] VSC 752 (‘Gatto’).
The 23 August 2019 letter attracted a combative response from Ms Pasha. In an email sent on 25 August 2019, Ms Pasha referred to the correction proceeding and said:
…I reserve my rights to produce your correspondence to the Court in [sic] the 30th September 2019. I also remind you of the requirement to comply with your own overarching obligations in ensuring that you have a proper basis before applying to remove caveats. These caveats form part of the subject matter of the litigation on foot. It would appear that you have not obtained accurate and full instructions from your clients in this regard.
Should you continue with your misconceived application in spite of this letter, I shall produce it in respect of an application for costs against your firm.
By letter dated 27 August 2019, SMR Legal advised Ms Pasha that the application to remove the 2016 and 2018 caveats would proceed.
On 16 September 2019, the proceeding was issued and the originating motion, summons and affidavit in support served on Mr Arbab and Pasha Legal.
On 17 September 2019, Ms Pasha emailed the plaintiff’s solicitors and said:
I …wish to inform you that I do not hold instructions to accept service of the attached summons and originating motion on behalf of my client.
You will appreciate no doubt that my client is in Pakistan and I have not been in a position to confirm instructions. If the position changes I shall inform you.
In response, the plaintiff’s solicitors noted that Mr Arbab had already been served under s 89(4) of the Act at the address for service on the caveats.
On 23 September 2019, Ms Pasha advised that she was travelling overseas and was unable to respond to any emails. She reiterated that she did not act for Mr Arbab in the proceeding. On the same day, Ms Pasha emailed the Court advising that she did not have instructions to act in the proceeding due to a potential conflict of interest. She did not identify the nature of the conflict.
When the proceeding came on for hearing before Forbes J on 25 September 2019, a solicitor appeared as agent for Mr Arbab. Directions were given for affidavits and submissions to be served by Mr Arbab with a right of reply by the plaintiff. The proceeding was adjourned until 3 October 2019 on the basis that Mr Arbab was to pay the plaintiff’s costs of the application thrown away by the adjournment on an indemnity basis. The question of costs was otherwise reserved.
On 26 September 2019, Ms Pasha emailed the plaintiff’s solicitors:
I confirm that I do not hold instructions in this matter except that I have been sent an email and received a call from Mr Arbab in respect to his instructions.
…
I attach Mr Arbab’s email below which is self-explanatory and to the effect of:
1.Mr Arbab agrees to the removal of the caveats due to the fact that [the plaintiff’s] asset position will not be decreased, a matter not previously known to him. Whilst the email refers to [the California Gully property] only, Mr Arbab rang me and confirmed that he intended to refer to both properties.
2.Mr Arbab agrees to pay the costs of the application to remove the caveat.
Finally, I confirm that Mr Arbab has been in hospital and was discharged only some 2 days ago. He has undergone some serious treatment including a blood transfusion and was unable to comprehend or attend the current application.
Mr Arbab …is willing to sign any necessary consent minutes.
On 30 September 2019, Ms Pasha emailed the plaintiff’s solicitors, advising in substance that it was only on 25 September that Mr Arbab agreed to the removal of the caveats and to pay the associated costs of the application.
On 3 October 2019, Mr Arbab emailed the Court and the plaintiff’s solicitors, agreeing to pay the costs of the plaintiff on an indemnity basis. However, Mr Arbab did not agree to the amount of legal fees claimed without having seen a bill or having received advice from a costs consultant.
On the same day, the proceeding came on for hearing before Ginnane J. No affidavits or submissions had been filed on behalf of Mr Arbab, who did not appear. His Honour ordered that the Registrar forthwith remove the 2016 and 2018 caveats. The application by the plaintiff for indemnity costs was to be made by summons. His Honour gave directions to the filing of the summons and supporting affidavits.
Purchase of the property in Youlden Street, California Gully
In his affidavit sworn 13 September 2019, Mr Abela deposed that the plaintiff had entered into a contract to purchase the property at 26-28 Youlden Street, California Gully (‘Youlden Street property’) from Samz Enterprises Pty Ltd (‘Samz’). The purchase price was $255,000 of which $25,500 was payable by 28 August 2019, and the balance by 22 October 2019. Mr Abela deposed that the plaintiff was having difficulty financing the purchase. He expressed concern that the continuing presence of baseless caveats over the plaintiff’s properties was impeding its capacity to enlarge its property portfolio for the benefit of its shareholders.
In an affidavit sworn on 22 October 2019, Mazhar Raja, a director of Samz, said that the signed contract of sale for the Youlden Street property contained a settlement date of 10 November 2019. He said that he had signed the contract on 5 September 2019. The initials on each page of the contract were missing from the form of contract exhibited to Mr Abela’s affidavit of 13 September 2019.
Ultimately, the purchase of the Youlden Street property was undertaken by a third party who was substituted by the plaintiff as the purchaser.
At the hearing on 2 December 2019, Mr Arbab said that he would not have agreed to pay the plaintiff’s costs if he had been aware that the settlement date for the purchase of the Youlden Street property had been deferred to 10 November 2019.
Legal professional privilege
Mr Arbab has elected to waive legal professional privilege in relation to the advice he received from counsel and his instructions to Pasha Legal. Ms Pasha has deposed as to the instructions she received from Mr Arbab. This evidence has assisted me to obtain insight as to what happened between Mr Arbab and his legal advisers at the relevant times.
Relevant authorities
It is well established that the lodging of a caveat is a serious business. It has the potential to affect commercial transactions and the lives and financial interests of others, [18] and is not available as a bargaining chip.[19] A shareholder has no caveatable interest in land belonging to a company.[20]
[18]Goldstraw v Goldstraw [2002] VSC 491, 5 [23]–[24] (Dodds-Streeton J) (‘Goldstraw’).
[19]Piroshenko (n 5) 495 [23], citing Goldstraw (n 18) 9 [42].
[20]D’Agostino v Zandata Pty Ltd & Ors [2018] VSC 115, 10 [38] (McMillan J); GW & R Mould Pty Ltd v Mould & Anor; Wakefield v Mould & Anor [2016] VSC 330, 14–15 [48]–[50] (McMillan J); Schwartz (n 7) 7 [27] (McMillan J).
The only proper purpose in lodging a caveat under s 89(1) of the Act is to protect the estate or interest claimed in the caveat by operation of the statutory injunction against the registration of subsequent dealings and to provide notice of the existence of the estate or interest to those who inspect the Register. The lodging of a caveat for ulterior purposes is a serious misuse of the statutory provisions.[21]
[21]Goldstraw (n 18) 8 [38], 9 [42].
In Love v Kempton, Forrest J observed that a person who lodged a caveat without proper grounds should be brought to book if others are forced to resort to court proceedings to remove a caveat which has no proper basis. The costs associated with removal of a caveat are heavy and the difference between standard costs and indemnity costs is considerable.[22]
[22][2010] VSC 254, 8–9 [30].
In Campbell v Pastras & Anor, Riordan J observed that the Court must plainly discourage persons from lodging caveats and interfering with the normal and proper conveyance of properties when those persons do not have bona fide claims.[23]
[23][2015] VSC 162, 3 [7].
Should indemnity costs be awarded against Mr Arbab?
The first issue is whether the Court should exercise its discretion and order indemnity costs against Mr Arbab.
In Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd, Woodward J said:
I believe that it is appropriate to consider awarding …”indemnity costs” whenever it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law.[24]
[24](1988) 81 ALR 397, 401.
In Ugly Tribe Company Pty Ltd v Sikola & Ors, Harper J listed a number of special circumstances in which it had been held proper to order indemnity costs. They included:
(a)the commencement or continuation of proceedings for an ulterior motive; and
(b)the commencement or continuation of proceedings in wilful disregard of known fact or clearly established law.[25]
[25][2001] VSC 189, 3–4 [7].
Both of these special circumstances are present in this case.
The relevant circumstances concerning the commencement and conduct of the proceeding by Mr Arbab are the following:
(a) the proceeding to remove the caveats commenced on 9 September 2019. On the return of the proceeding on 25 September 2019, it was contested and directions were given for Mr Arbab to file the material on which he intended to rely by 1 October 2019. Mr Arbab was ordered to pay the plaintiff’s costs thrown away by the adjournment on an indemnity basis. On the same day, he agreed to the removal of the 2016 and 2018 caveats and undertook to pay the costs of the application to do so;
(b) on 30 September 2019, Ms Pasha again emailed the plaintiff’s solicitors advising in substance that it was only on 25 September 2019 that Mr Arbab agreed to the removal of the caveats and to pay the associated costs of the application;
(c) in his email to the Court and the plaintiff’s solicitors on 3 October 2019, Mr Arbab agreed to pay the costs of the plaintiffs on an indemnity basis. However, he did not agree to the amount of legal fees claimed without having seen a bill or having received advice from a costs consultant; and
(d) at the hearing on 2 December 2019, Mr Arbab said that he would not have agreed to pay the plaintiff’s costs if he had been aware that the settlement date for the purchase of the Youlden Street property had been deferred to 10 November 2019.
Mr Arbab’s instructions
Taken at their highest, Mr Arbab’s instructions in relation to the interests claimed in the 2016 and 2018 caveats were that:
(a) he had contributed $34,300 to the purchase money for the California Gully property;
(b) on 10 March 2016, he demanded that Mr Syed and Sawtech pay $320,166 as a result of a partnership or profit sharing scheme orally agreed in 2013 for supervisory or management work in relation to eight properties but not the California Gully or Laverton North properties. No security over these properties was claimed in the letter of demand; and
(c) Mr Abela had orally agreed that he could lodge caveats over all of the plaintiff’s properties to secure monies said to have been contributed by him.
Notably, Mr Arbab has not given details (including dates or amounts) of any actual payments made by him concerning the Laverton North property.
Were the claims made in the caveats made bone fide?
The 2018 caveat lodged over the California Gully property was misconceived. No claim was made in the 2018 caveat for an implied, resulting or constructive trust arising from the alleged payment of $34,300 when the California Gully property was purchased.
In Sim Development Pty Ltd v Greenvale Property Group Pty Ltd, an authority to lodge a caveat in connection with an obligation to pay money, and the absence of any sufficient indication to the contrary, were held to give rise to an implication that the estate or interest granted was an equitable charge to secure payment of the money.[26] However in the present case no claim was made for an equitable charge or lien or any other right to hold the title pending payment of sums said to be due by Mr Syed or Sawtech to Mr Arbab.
[26][2017] VSC 335, 26 [120] (Sifris J), quoting Coleman v Bone (1996) 2 ACCR 323, 328 (McLelland CJ).
The 2016 caveat over the Laverton North property was lacking in substance. No specific contributions or payments to the purchase of the property were particularised in the caveat or in correspondence. Mr Arbab did not present any evidence of a trust interest. It was unclear how the monies allegedly owed by Mr Syed or Sawtech could conceivably result in an entitlement to a freehold estate over the plaintiff’s Laverton North property based on an implied, resulting or constructive trust. Mr Arbab made no claim for an equitable charge or a lien over the property.
In light of the above, it must be concluded that the 2016 and 2018 caveats were not seriously intended to maintain the estate or interest in land claimed in them, but were intended to apply commercial pressure on the plaintiff and its directors and inhibit their property dealings. They were bargaining chips which had the effect of freezing the California Gully and the Laverton North properties. Their purpose was to make it impossible for the plaintiff to sell or use the properties as security for loans.
The Youlden Street property
The postponement of the settlement of the sale of the Youlden Street property and the nomination of that property to another person do not have the significance alleged by Mr Arbab. While Mr Abela produced an unamended version of the contract of sale which was yet to be finally agreed, the fact was that the caveats had been previously lodged and maintained by Mr Arbab. The caveats lodged were inherently defective and would inevitably have been removed by the Court. The postponement of the date for settlement and the nomination of that property to another person made no difference. If Mr Arbab had come to Australia to contest the proceeding, the costs would have been higher, but the result would have been the same.
Conclusion
I am of the view that Mr Arbab should be ordered to pay the plaintiff’s costs of the proceeding on an indemnity basis.
The award of indemnity costs against Mr Arbab is fair and reasonable in light of the following:
(a) he agreed to pay the costs of the proceeding on 25 September 2019 and at an indemnity costs level on 3 October 2019, disputing only the final amount of costs on the basis that he required an itemised bill;
(b) the caveats were lodged and maintained on his instructions;
(c) the caveats as framed were misconceived and without merit. In the case of the California Gully property, the claim in the caveat was nonsensical. They could never be supported;
(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 correction proceedings; and
(f) it would be unfair to the other shareholders if the plaintiff were left to bear the difference in cost between an indemnity cost order and a standard cost order.
Should Pasha Legal or Ms Pasha be ordered to pay the costs of the proceeding?
The second issue is whether Ms Pasha should also be ordered to pay the costs of the proceeding as wasted costs under r 63.23(1) of the Rules or in the discretion of the Court.
The Court’s power under r 63.23 reflects the inherent jurisdiction of the Court to supervise its own affairs.[27] The inherent jurisdiction requires a serious dereliction of duty or gross negligence,[28] but this is not necessary under r 63.23.
[27]Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd (No 5) (2014) 48 VR 1, 19 [47] (‘Dura (Australia) Constructions’), citing White Industries (Qld) Pty Ltd vFlower & Hart (a firm) (1998) 156 ALR 169, 229 (Goldberg J) (‘Flower & Hart’).
[28]Flower & Hart (n 27) 230; Myers v Elman [1940] AC 282, 319 (Lord Wright J).
Under r 63.23, a solicitor’s negligence or failure to act with reasonable competence may justify a personal costs order. [29] It extends to orders that a solicitor personally pay costs in cases where it is proper to do so.
[29]Dura (Australia) Constructions (n 27) 21 [55], citing Apollo 169 Management Pty Ltd v Pinefield Nominees Pty Ltd (No 2) [2010] VSC, [30]–[33] (Emerton J) (‘Apollo 169’).
In Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd (‘Dura (Australia) Constructions’), Dixon J held that the following matters need to be considered in the exercise of the wasted costs jurisdiction:
(a)The court's jurisdiction to make a wasted costs order against a solicitor is founded on breach of the duty owed by the legal practitioner to the court to perform his duty as an officer of the court in promoting, within his own sphere, the cause of justice.
(b)‘Negligent’ should be understood in an untechnical way to denote failure to act in a way no reasonably well-informed and competent ordinary member of the profession would have done.
(c)The jurisdiction to order a legal practitioner to pay the costs of legal proceedings in respect of which he or she provided legal services must be exercised with care and discretion and only in clear cases.
…
(e)A legal representative is not to be held to have acted improperly, unreasonably or negligently simply because he or she acts for a party who pursues a claim or a defence that is plainly doomed to fail.
(f)The legal practitioner is not the judge of the credibility of the witnesses or the validity of the argument.
(g)A judge considering making a wasted costs order arising out of an advocate’s conduct of court proceedings must make full allowance for the exigencies of acting in that environment; only when, with all allowances made, an advocate’s conduct of court proceedings is quite plainly unjustifiable can it be appropriate to make a wasted costs order.
…
(j)The procedure to be followed in determining applications for wasted costs must be fair and as simple and summary as fairness permits.[30]
[30]Dura (Australia) Constructions (n 27) 22–23 [57], citing Lemoto v Able Technical Pty Ltd & Ors [2005] NSWCA 153, 63 (Hodgson, Ipp and McColl JJA) and Heidrich v Standard Bank London Ltd [2008] EWCA Civ 905 [10] (Lord Ward J).
In Apollo 169, Emerton J held that the words ‘failure to act with reasonable competence and expedition’ in r 63.23 did not require findings of gross negligence. Proof of negligence to the ordinary standard was sufficient, bearing in mind that the breach is of the practitioner’s duty to the court.[31]
[31]Apollo 169 (n 29) 9–11 [30]–[33], citing Myers v Elman [1940] AC 282, 319 (Lord Wright J), Ridehalgh v Horsefield [1994] Ch 205, 229–30, 223 and Guss v Geelong Building Society (in liq) [2001] VSC 228, [13] (Ashley J).
The need for caution was emphasised in Sekhon & Anor v Chandyoke & Anor, where Forrest J said:
To order costs against a non-party under …r 63.23 is a departure from the general rule that only parties to a proceeding may be subject to costs orders. It is ‘prima facie unjust’ to make a non-party costs order, and such an order should be approached with caution, and made only in clear cases. It should only be made where a solicitor’s conduct is ’plainly unjustifiable’. This sets a high bar. It is insufficient to show that a solicitor has acted for a party who pursues a claim that is plainly doomed to fail. Similarly, it is not inappropriate for a solicitor to proceed with an action or defence when instructed by a client to do so, if the solicitor has properly advised the client that the action or defence is weak.[32]
[32][2018] VSC 327, 9–10 [33].
Likewise in McKewins Hairdressing and Beauty Supplies Pty Ltd (in liq) v Deputy Commissioner of Taxation and Anor, Gummow J noted that the power to make a costs order against a practitioner should be exercised sparingly, in particular, where the order sought was one for indemnity costs. However, his Honour noted that it was of the first importance that solicitors observe the basic professional requirements and obligations to the court.[33]
[33](2000) 74 ALJR 1000, 1003 [16].
Relevantly, courts have made wasted costs orders against solicitors in circumstances where caveats were lodged without a proper basis. In Pearl Lingerie, Croft J ordered the payment of indemnity costs in circumstances where:
(a)the solicitors did not have possession of the documents alleged to support the basis of the caveats;
(b)the solicitor appearing for the caveators stated in open court that he had not seen the documents that were said to support the caveatable interests, and that he was acting on the basis of instructions only;
(c)the solicitors thereby acted in wilful disregard of known facts and law which amounted to serious misconduct and dereliction of duty on their part; and
(d)the solicitors had previously been warned in correspondence and by a judge that any further caveat would need to be grounded on a proper basis.[34]
[34]Pearl Lingerie (n 16) 9 [24], 11 [25]–[26].
In Gatto, Daly AsJ found:
(a)the solicitor lodged the caveat and issued the proceeding on instructions from a client without making proper enquiries regarding the basis upon which he lodged the caveat;
(b)there was no documentary corroboration of the expenditure alleged to have been made with respect to the property or any alleged agreement between the parties giving rise to an interest on the part of the caveator; and
(c)taking the solicitor’s case at its highest, there had been a dereliction of duty on his part.[35]
[35]Gatto (n 17) 10–11 [18].
Daly AsJ did not consider the solicitor’s conduct to be quite so egregious as that in Pearl Lingerie, but nonetheless considered that the solicitor should be jointly and severally liable for part of the costs incurred by his client. It was left open for the client to pursue its grievances against the solicitor elsewhere.[36]
[36]Ibid 12 [22].
In Flower & Hart, Goldberg J held that it was unreasonable for a solicitor to institute a proceeding, notwithstanding the fact that the solicitor had sought and relied upon the advice of senior counsel in doing so. In this regard, his Honour said:
Although [the solicitor] obtained senior counsel's advice he did so on the basis of information and material which was inadequate upon which to form a view or opinion whether the proceeding should be instituted in respect of the causes of action pleaded. …[the solicitor] was obliged to exercise his own mind as to whether the proceeding, as instituted, should be instituted. ….He was bound to turn his own mind to the prospects of success and to the purpose of the proceeding and to the nature of the causes of action proposed to be pleaded and to the extent to which he did so he determined upon and implemented an improper purpose resulting in an unreasonable institution of the proceeding.[37]
[37]Flower & Hart (n 27) 239.
Submissions on behalf of Ms Pasha and Pasha Legal
Ms Pasha and Pasha Legal appeared by counsel to oppose the making of costs orders against them. The main submissions made on their behalf were:
(a)there was a proper basis for Pasha Legal to lodge the caveats;
(b)the lodging of the caveats was supported by Mr Arbab’s instructions, and by advice from counsel;
(c)there has been no determination by the court as to whether or not there was a caveatable interest. The order to remove the caveats was made by consent of the parties;
(d)no serious misconduct, abuse of process or breach to the Briginshaw standard could be established against Pasha Legal;[38]
(e)the plaintiff’s conduct in making the application for a costs order against Pasha Legal has been unreasonable and in breach of the overarching purpose of, and overarching obligations under the Civil Procedure Act 2010 (Vic); and
(f)the Court should not exercise its discretion to take the serious step of making a costs order against a solicitor personally considering:
(i)the conduct of the plaintiff in commencing the proceeding; and
(ii)the gravity of making such an order against the solicitor.
[38]Briginshaw v Bringinshaw (1938) 60 CLR 336, 362–363 (Dixon J) (‘Briginshaw’).
Summary of findings
The duties of legal practitioners to the Court are well established. Pasha Legal had a paramount duty to the Court and in the administration of justice to act honestly in relation to the dispute between Mr Arbab, Mr Abela and Mr Syed.[39]
[39]Civil Procedure Act 2010 (Vic) ss 11, 17.
Pasha Legal’s duties to the Court included a duty on the factual and legal material available not to make a claim or respond to a claim in a civil proceeding that did not have a proper basis.[40] Pasha Legal was required not to engage in misleading or deceptive conduct or conduct likely to mislead or deceive.[41]
[40]Ibid s 18(d).
[41]Ibid s 21.
The facts concerning the caveats lodged by Pasha Legal are summarised below:
(a) Pasha Legal instructed Mr Silver to give advice concerning the correction proceeding. Mr Silver advised that the facts available to him were those contained in the relevant instructions and were insufficient for him to form any opinion as to the prospects of success;
(b) Mr Silver briefly advised about the California Gully property but was not asked to advise about the Laverton North property;
(c) Mr Silver advised that if Mr Arbab had made a financial contribution to the purchase of the California Gully property, he may have an equitable interest in the form of a resulting trust;
(d) Pasha Legal was responsible for lodging the caveats and for the claims made in them;
(e) the caveat lodged by Pasha Legal in relation to the California Gully property was misconceived. It was lodged five years after the property was purchased by the plaintiff. It did not make any claim of resulting trust as Mr Silver suggested might be possible;
(f) the caveat lodged by Pasha Legal in relation to the Laverton North property was unsubstantiated by any documentation, or evidence of payments or contributions made by Mr Arbab to the purchase of that property;
(g) there is no sign of any serious assessment by Pasha Legal of the basis of the claims made in the caveats;
(h) neither caveat alleged that there was any lien or right arising from the alleged partnership or profit-making scheme concerning other properties;
(i) there was no documentary evidence or corroboration of the claim made in either caveat;
(j) Pasha Legal was given notice that it was at risk for costs;
(k) no attempt was made to uphold either caveat;
(l) the real purpose behind the caveats was to use them as a bargaining chip;
(m) in relation to the s 89A application, Pasha Legal engaged in conduct that was misleading or deceptive or likely to mislead or deceive by misrepresenting to the Registrar that the correction proceeding would substantiate Mr Arbab’s claims as caveator in relation to the Laverton North and California Gully properties and the estate or interest which he claimed. The correction proceeding related to the state of the plaintiff’s share registry, and did not seek any relief concerning the Laverton North or California Gully properties;
(n) when they found out what had occured, the plaintiff’s solicitors expressed concern at the certification and statements made to the Registrar. Despite this, Pasha Legal did not withdraw the caveats or advise Mr Arbab that they should be withdrawn immediately;
(o) by refusing to withdraw the caveats, or to obtain counsel’s advice, Pasha Legal triggered the proceeding to remove them. Pasha Legal did not at any time appreciate that the caveats were not maintainable and were highly likely to be removed by the Court;
(p) Pasha Legal maintained a combative style, particularly in the early stages of the proceeding; and
(q) ultimately, it was Mr Arbab who came to the view that the proceeding should not be opposed, and agreed to pay the plaintiff’s costs of the proceeding.
Whilst allowance must be made for the difficulties and challenges of legal practice, and the absence of Mr Arbab and Ms Pasha from Australia at various times, it is my view that Pasha Legal failed to act with reasonable competence and was negligent and in breach of its duties to the Court as to:
(a) the drafting of the caveats;
(b) the s 89A application;
(c) the misrepresentations made 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 as to whether the caveats were maintainable.
Assuming the Briginshaw standard applies (which was not argued before me) I am satisfied to a comfortable level of satisfaction on the balance of probabilities that Ms Pasha failed to act with reasonable competence and that she was negligent and acted in breach of her duties to the Court. The statements and certifications made to the Registrar were egregious. They resulted in the need for the plaintiff to incur the costs of the proceeding.[42]
[42]See Briginshaw (n 38) 343–344 (Latham CJ), 354 (Rich J), 362–363 (Dixon J).
Conclusion
Having regard to the conclusions I have reached, it is appropriate for Ms Pasha to be added as the third defendant in this proceeding, and for an order to be made that the plaintiff’s costs of the proceeding up to and including 3 October 2019 be taxed on an indemnity basis and when taxed paid by the first and third defendants, who shall be jointly and severally liable for the plaintiff’s costs. It will be a matter for the first and third defendants to resolve how the costs will be paid as between themselves.
I will hear the parties as to the orders that should be made in relation to the costs of the plaintiff’s summons filed 14 October 2019.
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