Gatto Corporate Solutions Pty Ltd v Mountney
[2016] VSC 752
•12 December 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S CI 2016 01459
| GATTO CORPORATE SOLUTIONS PTY LTD (ACN 151 599 825) | Plaintiff |
| v | |
| LORRAINE JOAN MOUNTNEY | Defendant |
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JUDGE: | Daly AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 23 November 2016 |
DATE OF JUDGMENT: | 12 December 2016 |
CASE MAY BE CITED AS: | Gatto Corporate Solutions Pty Ltd v Mountney |
MEDIUM NEUTRAL CITATION: | [2016] VSC 752 |
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CAVEATS – Lodgement of caveats and issue of proceedings without proper basis.
COSTS – Whether solicitors should be jointly liable with caveator for costs ordered in favour of the registered proprietor of the property upon which a caveat had been lodged – Whether solicitor should indemnify caveator for costs for which it is liable by reason of issuing proceeding without instructions – Unnecessary to resolve factual disputes prior to resolving cost matters – Solicitor not liable for costs not caused by his conduct – Ordered that solicitor jointly liable with caveator for part of the costs.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Ian G Hone | |
| For the Defendant | Mr B J Murphy | Holding Redlich |
| For Mr Darroll Nelson | Ms S Tatarka | Darroll Nelson |
HER HONOUR:
On 18 October 2016, I made orders directing the Registrar of Titles to remove a caveat lodged on behalf of the plaintiff by its former solicitor, Mr Darroll Nelson, over a property in Mordialloc owned by the first defendant (‘property’) on 29 February 2016. The order was made with the consent of the plaintiff, who conceded that it had no caveatable interest in the property. There is in fact an outstanding dispute between the plaintiff and the first defendant concerning a sum said to be owing by the first defendant to the plaintiff pursuant to an agreement, but it is common ground that the terms of that agreement did not give rise to a caveatable interest in the property. Following notification by the Registrar of Titles on 18 March 2016 that the first defendant had made an application under s 89A of the Transfer of Land Act 1958 (Vic) (‘TLA’), Mr Nelson filed and served a Writ and General Indorsement on 20 April 2016 to commence this proceeding. The General Indorsement stated as follows:
1.The Plaintiff is and was at all material times a company capable of suing.
2.The Defendant is and was at all material times the proprietor of the properties comprised in Certificates of Title Volume 07702 Folio 080 (Property).
3.The Plaintiff provided funds and services to the Defendant for improvements to the Property based on representations by the Defendant that the Defendant would hold the Property on trust for the Plaintiff to the extent of those improvements.
4.The Plaintiff claims by reason of the matters aforesaid that they have a caveatable interest in the Property.
Contrary to s 41 of the Civil Procedure Act 2010 (Vic) (‘CPA’), the Writ and General Indorsement was not accompanied by an overarching obligations certificate signed by the plaintiff. Nor did Mr Nelson file a ‘Proper Basis Certificate’, as required by s 42 of the Act. The General Indorsement reflects the grounds of claim referred to in the caveat, but do not reflect the nature of the real dispute between the parties.
Shortly before the commencement of the hearing on 18 October 2016, the director of the plaintiff, Mr Anthony Swords, filed and served an affidavit in which he deposed, in summary, as follows:
(a) he disputed certain matters in the affidavits relied upon by the first defendant to set aside the caveat;
(b) he instructed Mr Nelson to lodge the caveat. He did so on the basis of Mr Nelson’s advice that there was a proper basis to do so;
(c) Mr Nelson subsequently contacted him regarding serving a writ on the first defendant, but he was not provided with a copy of the document nor was he aware of what the proceeding was about. He sought communication with Mr Nelson regarding the progress of his attempts to recover monies from the first defendant but was unable to obtain further information;
(d) on 7 July 2016, he terminated Mr Nelson’s retainer in relation to all of his own and the plaintiff’s matters, and since that time, Mr Nelson has not had instructions for the plaintiff or Mr Swords in any matter;
(e) at paragraph 4 of his affidavit, Mr Swords deposed as follows:
Despite ongoing requests Mr Nelson did not inform me of the progress of matters in respect of the Plaintiff’s dispute with the Defendant and in particular did not provide me with copies of the correspondence from the Defendant’s solicitors exhibited to her affidavit. I was not aware of the Defendant’s current application until the Defendant’s solicitors copied me in on the material directly.
(f) upon receipt of the summons issued by the first defendant and affidavit in support, which were served directly upon the first defendant as well as upon Mr Nelson, he instructed Mr Hone to review the matter. Mr Hone reviewed the files provided to him by Mr Nelson, and informed him that he was unable to find a basis upon which it could be argued that the plaintiff had a justifiable basis for lodging the caveat.
At the hearing on 18 October 2016, both the plaintiff and the first defendant signalled their intention to seek orders that Mr Nelson be in some way liable for the costs of the proceeding, which were largely the costs of the first defendant incurred in support of her summons to remove the caveat. [1] The first defendant submitted that I order that the plaintiff and Mr Nelson be jointly and severally liable for the first defendant’s costs. The plaintiff submitted that Mr Nelson indemnify it for any costs payable by it to the first defendant, and incurred by it in this proceeding. The applications were adjourned to 9 November 2016 to enable Mr Nelson to be notified of the applications, and to file and serve any affidavits upon which he intended to rely.
[1]These costs were fixed in the sum of $33,067.50 by my order of 2 November 2016.
On 9 November 2016, the scheduled hearing date for the applications, Mr Nelson filed and served an affidavit in the following terms:
1.I am an Australian legal practitioner and I had until my retainer was terminated the care and conduct of this matter on behalf of the Plaintiff.
2.On 26 October 2016, I was served with a copy of the orders made on 18 October 2016, and the second affidavit of Kylie Elizabeth Hall dated 25 October 2016.
3.I am currently unable to locate a copy of the affidavit of Anthony Charles Swords sworn on 18 October 2016, and I do not believe that the affidavit was served upon me.
4.My office was previously broken into and I do not have access to my entire file.
5.I had instructions to lodge the caveat and issue this proceeding from Anthony Charles Swords on behalf of the Plaintiff. I received these instructions in oral conversations and I am not at liberty due to legal professional privilege to divulge the contents of these conversations.
Of course, this affidavit did little to amplify matters. Given the nature of the allegations made against Mr Nelson, and the possible adverse consequences of any finding that he, as asserted by Mr Swords, issued this proceeding without instructions, and, as asserted by both the first defendant and Mr Swords, that he had lodged the caveat and issued the proceeding without a proper basis to do so, I adjourned the hearing to enable Mr Nelson to make a more fulsome response to the affidavit of Mr Swords sworn on 18 October 2016, and to consult his file. In ‘Other Matters’ in the orders made on that day, I noted:
The Plaintiff’s solicitor concedes that by making a claim for indemnity from Mr Nelson, it has waived any claim to legal professional privilege in documents evidencing any instructions regarding the issue of the proceeding, or the plaintiff’s awareness of the proceeding.
On 17 November 2016, Mr Nelson swore a more fulsome affidavit. He deposed, in summary, as follows:
(a) in February 2016 he took instructions from Mr Swords that there was a basis to lodge a caveat to claim an equitable interest in the property pursuant to an implied, resulting or constructive trust. These instructions were to the effect that the plaintiff had funded significant improvements to the property, and that there had been discussions between Mr Swords and the first defendant’s husband;
(b) while he agreed that he advised Mr Swords that there was a basis to lodge the caveat, that advice was premised on the instructions referred to above;
(c) on 29 February 2016, he reported to Mr Swords that he had lodged the caveat, and on 11 March 2016 sent an email to Mr Swords with a copy of the caveat and the title search for the property;
(d) on 31 March 2016, he sent to Mr Swords a copy of a letter from the first defendant dated 11 March 2016 claiming that the plaintiff did not have a caveatable interest in the property, along with a letter from the Registrar of Titles indicating that the first defendant had made an application pursuant to s 89A of the TLA. Also on that day, he sought instructions and funds to issue this proceeding. He deposed:
I must have received instructions to commence this proceeding to resist the section 89A of the Transfer of Land Act 1958 application and the removal of the caveat, although I cannot locate a file note of it or an email.
(e) on a date he cannot determine, he informed Mr Swords that he had issued the proceeding, and on a date he also could not determine, he discussed with Mr Swords serving a copy of the writ;
(f) he received a letter from the solicitors for the first defendant dated 27 April 2016, seeking a copy of the writ;
(g) on 23 May 2016, he sent an email to Mr Swords asking whether he would be arranging for service of the writ. While Mr Swords did respond to that email, he did not respond to that query. He sent follow-up emails on 26 May and 30 May, and received no response;
(h) on 24 June 2016, he provided Mr Swords with a copy of the letter from the current solicitors for the first defendant, Holding Redlich, dated 20 June 2016 seeking the discontinuance of the proceeding and the withdrawal of the caveat, and sought instructions from the plaintiff. Mr Swords did not respond;
(i) on 7 July 2016, the plaintiff terminated his retainer in a number of matters, including this matter. He became aware that Ian Hone had been instructed to act in these matters. Accordingly, he took no further steps in the proceedings and awaited Mr Hone’s Notice of Change of Solicitor;
(j) on 1 August 2016, Mr Swords broke into his office after business hours and took a number of files, including the file in relation to this matter, and his computer. These goods, including this file, have been returned. Mr Hone acted for the plaintiff in relation to the negotiations concerning the removal of the computer and the files;
(k) he received a letter from Holding Redlich dated 15 August 2016 in respect of their proposed application for summary judgment;
(l) he received the summons and affidavits in support on 3 October 2016. He informed Mr Gordon Campbell of this matter, and to his knowledge Mr Campbell passed the information on to Mr Hone, who filed a Notice of Change of Solicitor on 11 October 2016; and
(m)at paragraph 32 of his affidavit, Mr Nelson deposed as follows:
At no time during the retainer did the Plaintiff ever instruct me to withdraw the caveat despite being made aware that the caveat was challenged by the Defendant and the proceeding had been issued to protect the Plaintiff’s position and the proceeding were being defended. The Plaintiff’s failure to provide a withdrawal of caveat in the face of the Defendant’s demands, including those made after my retainer was terminated on 7 July 2016 well before the Defendant’s summons was issued is the real cause of the costs being incurred by the Defendant. Only Mr Swords of the Plaintiff knew the facts upon which he based his instructions to me to lodge the caveat.
Mr Swords swore a further affidavit in response to Mr Nelson’s affidavit. He deposed, in summary, as follows:
(a) he agreed that he gave instructions to Mr Nelson regarding monies owed by the first defendant to the plaintiff, but in January 2016, not February 2016;
(b) he is not a lawyer, and as such, he does not have the capacity to assess whether the plaintiff had a caveatable interest in the property;
(c) he never instructed Mr Nelson that the plaintiff had funded improvements to the property, and the plaintiff in fact had not funded any improvements to the property. He did not instruct Mr Nelson that he had any discussions with any representative of the first defendant which he thought might found the basis for a caveat;
(d) he agreed that he had been informed by Mr Nelson that the caveat had been lodged, and that he was forwarded a copy of a letter from the first defendant objecting to the caveat. The email also sought funds to issue a proceeding. He did not provide either instructions or funds. He deposed that he told Mr Nelson that the plaintiff was not prepared to issue such proceedings. He received a further email from Mr Nelson on 19 April 2016, stating that the proceeding must be issued by the following day, but did not provide instructions or funds to issue the proceeding;[2]
[2]Since the hearing of the applications on 23 November 2016, Registry staff have confirmed that the filing fee for the issue of the proceeding was paid by Mr Nelson.
(e) he agreed that he received correspondence from Mr Nelson, and requests for instructions to issue proceedings. He deposed that he told Mr Nelson he did not want to spend any more money defending the caveat;
(f) he admitted that he was informed that the proceeding had been issued, but he is unclear as to when. He recalls that this was done without his instructions. He agreed that Mr Nelson contacted him about serving a writ, but he did not know what Mr Nelson was referring to;
(g) he admits receiving an email from Mr Nelson on 23 May 2016, but it discussed two different matters, and he was unable to understand what Mr Nelson was saying about each. By this stage he had become frustrated with Mr Nelson’s performance and did not respond substantively;
(h) he admits receiving an email from Mr Nelson on 26 May 2016, but he ‘had no idea what writ he was talking about’, and did not respond. He admits receiving a further email on 30 May 2016;
(i) he admitted receiving copies of the correspondence from the first defendant’s solicitors sent in late June 2016. The covering email enclosing the letter from Holding Redlich said, among other things, ‘Would you mind if I gave the file to Ian Hone?’ Mr Swords deposed that at about this time he had been hospitalised several times with a life threatening medical condition and was not in a condition to attend to correspondence promptly;
(j) he agreed that he terminated Mr Nelson’s retainer on 7 July 2016. In that email he stated:
I request that you prepare all my Files with an up to date summary and hand them over within 48 hours to Mr Ian Hone.[3]
(k) he denied unlawfully breaking in to Mr Nelson’s office. The plaintiff was engaged by Mr Nelson’s landlord to re-enter the premises due to non‑payment of rent. The plaintiff secured the contents of the premises which were in due course returned to Mr Nelson; and
(l) he had no knowledge of the letter sent by Holding Redlich to Mr Nelson of 15 August 2016. He received a copy of the summons and affidavit in support filed by the first defendant on 3 October 2016 by receiving a copy directly from Holding Redlich. He then passed that material on to Mr Hone. He had not previously instructed Mr Hone in this matter, because he was not aware that the proceeding was ongoing.
[3]In his affidavit of 17 November 2016, Mr Nelson deposed that he asserted a lien over his files on account of unpaid fees.
Accordingly, there is a substantial factual dispute between the plaintiff and Mr Nelson, which arguably could not be resolved without a full trial. Indeed, counsel appearing for Mr Nelson submitted that I should leave the costs orders as they stand: that is, that the plaintiff pay the first defendant’s costs in the sum fixed, and if the plaintiff wishes to recover those funds from Mr Nelson, it can bring a proceeding in a court of appropriate jurisdiction.
I reject that submission, at least in the context of the current application. The Court has a number of sources of jurisdiction to make orders in the form sought by the plaintiff and the first defendant, including s 24 of the Supreme Court Act 1986 (Vic), s 29 of the CPA, and rule 63.23 of the Supreme Court (General Civil Procedure) Rules 2015 (’Rules’). Section 46 of the CPA is also relevant to the current case: it provides that, among other things:
A court may take into account any failure by a person to comply with any certification requirement under this Part – in determining costs in the proceeding generally.
While the conflict of evidence between Mr Nelson and his former client creates some difficulties in resolving the question of a party’s liability for costs, I note the caution expressed by John Dixon J and Judd J concerning the risk of encouragement of costly satellite litigation in Dura (Australia) Construction Pty Ltd v Hue Boutique Living Pty Ltd (No 5)[4] and ACN 005 490 540 Pty Ltd v Robert Frederick Jane Pty Ltd[5] in applications such as these. Furthermore, adopting the approach contended for by counsel for Mr Nelson fails to address the fact that the first defendant has made an application that Mr Nelson be jointly and severally liable for her costs.
[4][2014] VSC 400.
[5][2016] VSC 217.
One matter about which there is no dispute in this application is the first defendant’s costs should be paid. It would be unjust to prevent the first defendant from enforcing her costs order pending a full trial of the dispute between the plaintiff and Mr Nelson. Accordingly, I must do the best I can, given the facts that are available and the uncontested evidence before me.
As noted during the course of one of the hearings, the issues in the application by the first defendant and the application by the plaintiff are slightly different: the first defendant asserts that there was no proper basis upon which the caveat was lodged, or the proceeding issued: she is unconcerned with the question of whether Mr Nelson was instructed to issue the proceeding. The plaintiff now accepts that there was no proper basis to lodge the caveat or to issue the proceeding: he says he was advised by Mr Nelson that there was a basis for lodging the caveat, and that he did not instruct Mr Nelson to issue the proceeding. Mr Nelson asserts that, based upon the instructions he received, there was a reasonable basis to lodge the caveat, and that as he issued the proceeding, he must have received instructions to issue the proceeding. Further, Mr Nelson notes that his retainer was terminated by the plaintiff many months before the issue of the first defendant’s summons.
Both the first defendant and the plaintiff bear the burden of persuading me that Mr Nelson lodged the caveat and issued the proceeding (without which the caveat would have lapsed pursuant to s 89A of the TLA knowing that there was no proper basis for doing so, or without making proper investigations as to whether there was such a proper basis.[6]
[6]There is no doubt that such conduct may give rise to an adverse order for costs against a solicitor: see Pearl Lingerie Australia Pty Ltd v TGY Pty Ltd; Pearl Lingerie Australia Pty Ltd v John Giarratana [2012] VSC 451 (‘Pearl Lingerie’).
Given that the allegations, if proved, would involve serious misconduct and dereliction of duty on the part of Mr Nelson, the standard of proof which applies is in accordance with the principles in Briginshaw v Briginshaw.[7] This is accepted by the authorities as being applicable to applications under s 29 of the CPA, and, in my view, should apply by analogy to applications under s 63.23 where the application is based upon allegations of misconduct.
[7](1938) 60 CLR 336.
Further, it is necessary to show that the conduct of the party from whom costs are sought actually caused the costs in question to be incurred: in the current case, the costs of the first defendant in agitating for the removal of the caveat, and in issuing her summons. Those costs have now been quantified. In the case of the plaintiff, the costs are its liability to pay the first defendant, plus the costs incurred by it in the proceeding after Mr Hone commenced to act for it. The latter costs are likely to be relatively modest.
Accordingly, the question in the case of the first defendant’s application is whether Mr Nelson’s conduct caused or materially contributed to her incurring legal costs, such as to warrant him being jointly and severally liable to her with the plaintiff. The question in the plaintiff’s application is whether Mr Nelson’s conduct was the substantial cause of the plaintiff becoming liable to the first defendant, such as to entitle the plaintiff to an indemnity for the amount it is liable to the first defendant.
In my view, Mr Nelson should be jointly and severally liable with the plaintiff to the first defendant for her costs, insofar as they were incurred by the first defendant prior to the service of the first defendant’s summons upon the plaintiff on or about 4 October 2016. While Mr Nelson says that he lodged the caveat and issued the proceeding based upon the instructions given to him by Mr Sword, he must have done so without making proper enquiries regarding the basis upon which he lodged the caveat. While strictly speaking it is not necessary to determine which of Mr Sword and Mr Nelson is telling the truth, Mr Nelson must have lodged the caveat on the basis of Mr Sword’s oral instructions alone, in circumstances where there was no documentary corroboration of the expenditure alleged to have been made with respect to the property, or of any alleged agreement between the plaintiff and the first defendant with respect to the plaintiff having an interest in the property. Taking Mr Nelson’s case at its highest and best, there has been a dereliction of duty on his part.
While Mr Nelson’s conduct was not quite so egregious as the solicitors in Pearl Lingerie, where Croft J found that:
the solicitors prepared and lodged the TGY caveat in circumstances where they could not have formed a professional view at the time of preparing and lodging the caveat,
it is incumbent upon a solicitor to do more than simply rely upon the oral instructions of his client. Further, Mr Nelson’s failure to comply with the requirements of s 42 of the CPA does give one cause for concern that the proceeding was issued without a proper basis, or that Mr Nelson was not prepared to commit to certifying that on the factual and legal material available to him, each allegation of fact in the General Indorsement was made on a proper basis.
Further, while I accept that Mr Nelson’s retainer had been terminated on 7 July 2016, and it was reasonable for Mr Nelson to assume at that time that Mr Hone would file a Notice of Commencing to Act in due course, it must have been apparent to Mr Nelson from the terms of the letter from Holding Redlich dated 15 August 2016 that at least the first defendant’s solicitors were under the misapprehension that Mr Nelson continued to act for the plaintiff, and, that if no action was taken by him with respect to that letter, the first defendant would make the application she ultimately did make. While this letter did not specifically refer to an application to remove the caveat, it did notify Mr Nelson that the first defendant would make a summary judgment application, which, if successful (which it would have been), would have the consequence that the caveat would lapse. Mr Nelson’s failure to do anything in response to the letter from Holding Redlich dated 15 August 2016 was also a dereliction of duty which caused the first defendant to incur costs (and the plaintiff to incur a liability for those costs).
However, Mr Nelson should not be liable for all of the costs of the application. The first defendant’s application to remove the caveat would have been received by Mr Swords shortly after it was served on 4 October 2016. Mr Hone was instructed on 11 October 2016, and it was not until the day of the hearing that Mr Swords filed and served his affidavit conceding that the caveat had been lodged and the proceeding issued without a proper basis. It could not be argued that Mr Nelson be held responsible for any costs incurred by reason of the plaintiff’s failure to concede the matter in a more timely fashion after the plaintiff was served with the application.
Accordingly, I will order that Mr Nelson be jointly and severally liable to the first defendant for costs incurred by her prior to 4 October 2016, which I calculate to be $23,011.50 (based upon the exhibits to the affidavit of Kylie Elizabeth Hall sworn 25 October 2016, and allowing 75 per cent of those costs). That leaves the plaintiff solely liable for the balance of $10,056.00. I will make no orders as to the plaintiff’s costs as to the proceeding, as it is not possible for me to determine on a summary basis whether or not Mr Nelson acted with instructions, or whether Mr Nelson negligently advised the plaintiff of its rights to lodge the caveat. Accordingly, my orders in this application do not preclude the plaintiff from pursuing its grievances against Mr Nelson elsewhere.
I shall hear further from the parties as to the form of order and the question of costs of the parties incurred after 18 October 2016.
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