Luther v Milner

[2009] VSC 595

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

PRACTICE COURT

No. 10497 of 2009

BELINDA MARGARET LUTHER	Plaintiff
v
LEONARD ANTHONY MILNER (in his capacity as the liquidator of Sayer Developments Pty Ltd (in liquidation))	First Defendant
and
THE REGISTRAR OF TITLES	Second Defendant

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JUDGE:	ROSS J
WHERE HELD:	Melbourne
DATE OF HEARING:	12 December 2009
DATE OF JUDGMENT:	15 December 2009
CASE MAY BE CITED AS:	Luther v Sayer & anor
MEDIUM NEUTRAL CITATION:	[2009] VSC 595

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Interest necessary to support caveat under s 89(1) of the Transfer of Land Act – Liquidator – No vesting order, no caveatable interest – Caveat maintained for a collateral purpose as a bargaining chip – costs awarded on an indemnity basis.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr Tim Messer	Brennan Georgiou Eaton
For the First Defendant	Ms Anne Robertson	Andrew Bell

HIS HONOUR:

1. This matter concerns a costs dispute arising from an application pursuant to s 90(3) of the Transfer of Land Act 1958 to remove a caveat. The background facts may be shortly stated.

1. Sayer Developments Pty Ltd (“the Vendor”) is the registered proprietor of the land described in Certificate of Title Volume 5036 Folio 014, being the land situated at 39 Webster Street Camberwell (“the Land”).

1. By contract of sale of real estate dated 17 June 2009 the Vendor sold, and the plaintiff’s husband purchased, the land for the sum of $790,000.  The purchaser subsequently nominated the plaintiff as substitute purchaser and the contract was completed at settlement on 28 August 2009.

1. On the settlement date the plaintiff received from the Vendor the duplicate Certificate of Title for the land, a Transfer in registrable form by which the Vendor transferred all its estate in fee simple in the Land to the plaintiff and a registrable Discharge of Mortgage.

1. Hence it is apparent that at settlement on 28 August 2009 the plaintiff was the sole beneficial owner of the Land.

1. On 30 September 2009 a winding up order was made in respect of the Vendor and the first defendant (Mr Milner or the liquidator) was appointed liquidator of the Vendor.

1. By caveat dated 6 October 2009 and registered the following day (the caveat) the liquidator claimed an estate in fee simple and the grounds of the claim are said to be:

“To protect against fraudulent dealings on the basis that the caveator does not have in his possession the duplicate Certificate of Title.”

1. On 11 November 2009 the plaintiffs’ solicitors (Brennan Georgiou Eaton, Lawyers, ‘BGEL’) wrote to the solicitor acting on behalf of the liquidator (Andrew Bell, ‘Bell’) setting out the background facts, indicating that the liquidator had no basis for maintaining the caveat and requesting that the caveat be withdrawn.

1. The letter concludes as follows:

“In circumstances such as this, there is no basis upon which your client can maintain it has a Caveatable interest in the property. Accordingly, we hereby give you notice that if we have not received a Withdrawal of Caveat form signed by your client by close of business tomorrow Thursday 12 November 2009, we will have no option but to make application to the Registrar of Titles for the service of a Notice under Section 89A of the Transfer of Land Act 1958 seeking withdrawal.

In the even that you issue proceedings to substantiate the claim of the Caveator in relation to the land, we put you on notice that we shall vigorously oppose any such proceedings and claim costs on a full indemnity basis.

Please contact Mark Eaton of our office should you wish to discuss this matter further.”

1. Bell responded to BGEL by letter dated 16 November 2009 saying that if his client received $12,349.48 he would provide a Withdrawal of  Caveat.

1. The sum claimed is said to be referable to liquidator’s costs, insurance and legal fees.  It is said that these costs were incurred as a consequence of the plaintiff’s failure to lodge a purchaser’s caveat.  The relevant parts of the letter state:

“The two salient points that you omit from your description of the background of this transaction are:

1.Your clients chose not to lodge a purchaser’s caveat thereby notifying the world at large of their interest in the Property:

2.Notwithstanding that settlement allegedly took place on Friday 28 August 2009 your clients’ failed to lodge their title documentation with the Land Titles Office for registration.

Had your clients acted prudently and reasonably in all the circumstances then at the time of the appointment of my client the Property would have been transferred and the course of events that has unfolded would not have taken place and the indefeasibility of your clients’ title would have been assured.

My client is mindful of your clients’ predicament however he his only prepared to resolve this issue on the basis that your clients reimburse him for his expense which have arisen as a result of the investigations that he has been required to make directly relating to the Property and the consequent actions that he has been required to undertake pursuant to his statutory responsibility as the duly appointed liquidator of the company.

Those costs are as follows:

Liquidator’s costs                $8,824.75

Insurance Premium            $774.73

Legal Fee’s  $2750.00

The costs incurred by my client include the initiation of a full investigation into the sale of the Property including site visits, arranging insurance, discussing with the selling agent, discussion with the vendor’s conveyancer, discussions with the local municipality, investigation of bank records relating to the sale of the Property and so on.  I reiterate that had your client prudently and reasonably in all the circumstances these costs would have been avoided.”

1. On 26 November 2009 there was a conversation between BGEL and Bell in which the plaintiffs offered to pay $2,000 to the first defendant to facilitate the removal of the caveat.  Bell rejected this offer the following day and made a counter offer to accept the sum of $6,500 in settlement of the costs which the first defendant had incurred as a result of the plaintiff’s failure to register her interest on the title to the land.

1. BGEL wrote to Bell again on 2 December 2009 demanding that the Caveat be withdrawn, failing which an application under s 90(3) of the Act would be commenced,:

“If your client fails or refuses to provide a Withdrawal of Caveat to our office by 10.00am tomorrow morning we are instructed to make immediate application pursuant to section 90(3) of the Transfer of Land Act 1958 for the removal of your client’s Caveat. If such action is necessary, we shall seek orders that your client pay our client’s costs of the proceedings on an indemnity basis…”

1. This letter was received by Bell at around 4 pm on 2 December 2009.  No reply was received by BGEL within the stipulated time.  Nor was there any attempt by Bell to contact BGEL to seek further time.  In these circumstances BGEL proceeded to file its application to remove the caveat.

1. On 3 December 2009 Bell wrote to his client seeking instruction in relation to the withdrawal of the caveat.

1. On the afternoon of 4 December 2009 Mr Eaton attended Bell’s office and sought to serve a copy of the Originating Motion.  Bell declined to accept service apparently on the basis that he did not have any instructions to accept service.

1. Mr Bell says that late on the afternoon of 4 December 2009 he receive instructions from his client to agree to provide the withdrawal of the caveat and he personally delivered the withdrawal of the caveat to the offices of BGEL at 12 noon on Saturday 5 December 2009.

1. At about 7.30 am on Monday 7 December 2009 Bell sent a letter to BGEL, by facsimile transmission, confirming that he had instruction to provide the Withdrawal of Caveat.  The Originating Motion was served on the first defendant later that day.

1. It is in these circumstances that the plaintiff seeks costs on an indemnity basis against the first defendant.

1. The Liquidator opposes any award of costs contending, essentially, that the plaintiff’s costs were not necessary and reasonably incurred in the circumstances and that the plaintiff’s failure to lodge a purchase4rs caveat resulted in the defendant incurring substantial costs.

1. I am not persuaded that there is any merit in any of the arguments advanced on behalf of the Liquidator.  Two short points may be made in this regard.

1. First, the plaintiff was under no legal obligation to lodge a caveat to protect their interests as purchaser.

1. Second, at the time the Liquidator lodged the caveat he had no caveatable interest in the land. A caveat under the Act must be supported by an estate or interest in land. The interest to be protected by the lodging of a caveat is a proprietary interest. Section 89(1) of the Act relevantly provides:

“Any person claiming any estate or interest in land under any unregistered instrument or dealing or by devolution in law of otherwise … may lodge with the Registrar a caveat …”

1. In order to support a caveat an interest “must be an interest in respect of which equity would give specific relief against the land itself, either by way of requiring the provision of a registrable instrument or in some other way, for example, by ordering a sale to enable a charge to be satisfied out of the proceeds”.[1]

   [1]Spencer v Spencer, unreported, Supreme Court of Victoria, 16 October 1996, Hedigan J, at 9.

1. In this matter the caveat is stated to be based on an estate in fee simple “to protect against fraudulent dealings on the basis that the caveator does not have in his possession the duplicate Certificate of Title”. 

1. It is beyond doubt that when the caveat was lodged the Liquidator had no caveatable interest in the land.  Indeed, counsel for the first defendant conceded that this was so.  The property of the Vendor does not automatically vest in the Liquidator.  Hence unless a vesting order is made under s 474(2) of the Corporations Act the Liquidator is not able to lodge a caveat in his own name.[2]

   [2]Re Application by the Liquidator of Haupiri Courts Ltd [1969] NZLR 348; Muroa Pty Ltd v O’Meara, unreported, NSW Supreme Court, 26 August 1997 per Young J (BC 9704361).

1. Against this background what, if any, order should be made as to costs?

1. The power to award costs on an indemnity basis is in the discretion of the court, although it must be exercised judicially and not unreasonably.[3]  Generally speaking such an order is exceptional and reserved for cases where the losing party has engaged in unmeritorious or other improper conduct such as to warrant the court showing its disapproval and preventing the unsuccessful party being left out of pocket.[4]  In the context of this case the observations of Woodward J in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd[5] are apposite:

“I believe that it is appropriate to consider awarding “solicitor and client” or “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. Such cases are, fortunately, rare. But when they occur, the court will need to consider how it should exercise its unfettered discretion.”

[3]Bass Coast Shire Council v King [1997] 2 VR 5 at 29.

[4]PCRZ Investments Pty Ltd v National Gold Holdings Ltd [2002[ VSCA 24; Ugly Tribe Co Pty Ltd v Sikola [2001[ VSC 189; Marchesi v Vasiliou [2009] VSC 213.

[5](1988) 81 ALR 397 at 401.

1. In my view this is a case which warrants the making of an order for indemnity costs.

1. By its conduct the Liquidator has lodged a caveat in circumstances where he had no caveatable interest and then used the caveat as a bargaining chip to recover costs which it is said he incurred as a result of the plaintiff’s failure to lodge a purchasers caveat.  As I have mentioned there is no legal obligation on a purchaser to caveat.  In the event that the Liquidator has a cause of action against the plaintiff (a matter about which there must be considerable doubt) the proper course is to commence proceedings.  Absent a caveatable interest it is entirely inappropriate to lodge and maintain a caveat for an ulterior or collateral purpose.  In this regard I respectfully adopt the observations of Dodds-Streeton J (as she then was) in Goldstraw v Goldstraw[6]

“[38}In my opinion, the only proper purposes for lodging a caveat against a registered proprietor’s title under s.89(1) of the Act are to protect the estate or interest claimed by the 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 consult the Register. A caveat has a significant potential to obstruct the rights, and to damage the interests, of the registered proprietor and other parties.

[39]…  Given the potential for damage to a variety of parties, in my opinion the lodgment of a caveat for an ulterior or collateral purpose constitutes a serious misuse of the relevant statutory provisions. 

[42]If a widespread practice developed of lodging caveats as bargaining chips in such contexts, it would undermine the operation of an essential feature of the Torrens system. “

[6][2002] VSC 491 at [38]-[39] and [42].

1. The first defendant is ordered to pay the plaintiff’s costs on an indemnity basis.