Pentridge Village Pty Ltd v Harry One Pty Ltd & Ors

IN THE SUPREME COURT OF VICTORIA	Not Restricted
AT MELBOURNE COMMON LAW DIVISION

No. 6915 of 2001

IN THE MATTER of Section 90(3) of the Transfer of Land Act

PENTRIDGE VILLAGE PTY LTD	Plaintiff
v
HARRY ONE PTY LTD, LUCIANO ONE	Defendants
PTY LTD and THE REGISTRAR OF TITLES

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JUDGE:	Mandie J
WHERE HELD:	Melbourne
DATE OF HEARING:	27 March, 1 - 2, 4,7 April 2008
DATE OF JUDGMENT:	24 November 2008
CASE MAY BE CITED AS:	Pentridge Village Pty Ltd v Harry One Pty Ltd
MEDIUM NEUTRAL CITATION:	[2008] VSC 480

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COSTS – application for removal of caveat – proceeding resolved by terms of settlement but costs reserved – whether caveators acted unreasonably prior to commencement of the proceeding – whether plaintiff acted unreasonably in instituting proceeding – whether any costs order should be made in favour of the plaintiff

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr R Garratt QC	Herbert Geer & Rundle
with Mr J Tsalanidis
For the First and Second	Mr G Parncutt	Comlaw
Defendants
For the Third Defendant	No Appearance

!Undefined Bookmark, I

HIS HONOUR:

Introduction

The sole issue in this proceeding at this stage is one of costs. The general factual background to this proceeding is set out in my reasons for judgment in Harry One Pty Ltd v Pentridge Village Pty Ltd[1] (“the main proceeding”) and these reasons should be read together with those reasons.
[1] [2008] VSC 479.
By originating motion dated 27 July 2001, Pentridge Village Pty Ltd (“the plaintiff”) sought an order that the first and second defendants (“the caveators”) forthwith withdraw and remove caveat X1954165J (“the caveat”) from the land contained in Certificates of Title Vol 10591 Fols 353-399 (“the Land”).
A supporting affidavit was sworn by Adam Christian Bratt (‘Bratt”), a solicitor employed by Herbert Geer & Rundle (“HGR”), the solicitors for the plaintiff, on 27 July 2001.
In his affidavit, Bratt deposed that the plaintiff was the registered proprietor of the Land which was mortgaged to Bendigo Bank Ltd (“the Bank”). There was initially a Joint Venture Agreement and a Custodian Agreement, and then Heads of Agreement dated 5 December 2000 pursuant to which the joint venture was dissolved and by which it had been agreed that the Land be subdivided into two lots.
Bratt exhibited to his supporting affidavit a list of lots which were the subject of contracts of sale in respect of which settlement was expected to proceed over the next few months. He asserted that the caveators were frustrating the plaintiff’s ability to settle the purchases and apply the net proceeds to the reduction of the Bank debt and that the plaintiff was entitled pursuant to the Heads of Agreement to an unconditional withdrawal of caveat in respect of lots that had been sold and further that the plaintiff was entitled to deduct conveyancing costs and expenses associated with settlement because the amount to be paid to the Bank, pursuant to cl.6.3 of the Heads of Agreement, on the sale of any lot, was the “net proceeds.”
The proceeding came before Master Wheeler on 31 July 2001, directions were given as to affidavits and the matter was referred to the Practice Court Judge on 22 August 2001 for hearing and determination.
On 16 August 2001, the parties (by their counsel), entered terms of settlement. As a result, on 22 August 2001, Beach J made an order, by consent, adjourning the matter sine die, reserving costs and granting liberty to apply.
On 14 October 2003, Jane Elizabeth Treleaven, a solicitor employed by HGR, swore an affidavit deposing that the caveat had been withdrawn and indicating that costs were sought by the plaintiff because the proceeding was necessitated by the caveators’ refusal to withdraw the caveat in breach of the Heads of Agreement.
On 15 October 2003, Master Kings made orders for the exchange of lists of discoverable documents and inspection thereof and ordered that the proceeding be fixed for trial and tried at the same time as the main proceeding.
Background facts
On 4 April 2001 the plaintiff executed under seal a Deed Poll in which it undertook in favour of the former joint venture parties[2] that, until the two lot plan of subdivision was registered, the plaintiff would “not encumber, mortgage, charge,.. or otherwise deal with the assets of [the plaintiff] without the consent in writing first had and obtained” of all the former joint venture parties. The Deed Poll was expressed to be executed by the plaintiff both in its own capacity and in its capacity as Custodian.
[2] Harry One Pty Ltd and Luciano One Pty Ltd (the caveators in the present proceeding), Piero One Pty Ltd and Tower & Tower Developments Ltd.
The Heads of Agreement dated 5 December 2000 relevantly provided:

“6.3

Until the release of the documents in escrow the Custodian[3] shall apply the net proceeds of any sale of any lot on plan of subdivision PS 43027T in reduction of the debt owed to Bendigo Bank Ltd.
…

30.1

Luciano and Harry may lodge a caveat pursuant to The Transfer of Land Act on the Pentridge Land such caveat to be immediately withdrawn in total upon the registration of the Plan of Subdivision and to be withdrawn partially upon the settlement of the sale of any lot on the Pentridge Land. The provision of any withdrawal of caveat will be provided without cost to the Custodian ...”
[3] i.e. the plaintiff in this proceeding.

(emphases added)

The following account is derived from Bratt’s affidavit and also from the evidence of Charles Leonidas (“Leonidas”), solicitor, of Comlaw, the solicitors for the caveators.
The plan of subdivision having been lodged, construction of houses on the plaintiff’s part of the Land commenced. By July 2001, the plaintiff had entered into 39 contracts of sale for house and land packages in respect of lots on its part of the Land.
On 6 July 2001, the plan of subdivision was approved by the Department of Natural Resources & Environment and the lots contained therein were allocated title references. Settlement of the first two contracts of sale (in respect of lots 4 and 5 Stockdale Avenue Coburg) was booked for 20 July 2001. As at 19 July 2001, the caveat the subject of this proceeding (which had been lodged by Comlaw, the solicitors for the caveators, on 6 December 2000) was as yet unregistered because it was a follower dealing to the plan of subdivision.
On 19 July 2001, one Spence, a conveyancing clerk employed by HGR, spoke with Leonidas who told her that, before he could provide a withdrawal of caveat in respect of lots 4 and 5, he required copies of the particulars of sale, statements of adjustment, transfers of land and confirmation that all settlement proceeds would be paid to the Bank. Leonidas told Spence that he needed to know that the net proceeds of sale would go to the Bank, that the property had in fact been sold (and that he needed to ensure that the details in the transfer were in order). Leonidas said to Spence that if they could agree on this procedure that would speed up the process for future settlements and that he would prepare withdrawals of caveat on the basis that the above information would be provided and they had that as the agreed procedure for future settlements. Spence agreed and shortly thereafter sent copies of the required documents to Comlaw. Upon receipt, Leonidas saw that the statements of adjustments did not state to whom the net proceeds were to be paid and that there was provision for cheques payable to HGR (in the sum of $400 in one statement of adjustments of $405.40 in the other).
At 11.17am on 20 July 2001, Comlaw sent a fax to HGR referring to cl.6.3 of the Heads of Agreement and stating that, accordingly, a withdrawal of caveat would be provided “only when all proceeds are provided to the Bank’s solicitors.” Comlaw’s fax included the statements that:
“You are not entitled and neither is [the plaintiff] entitled to deduct
your fees from the net proceeds of the sale.
Further pursuant to a Deed Poll executed by your client it is required to obtain the written consent of all the joint venturers… before it is entitled to deal with its assets.”
HGR did not respond to the above fax.
At 1.03 pm on 20 July 2001 Bratt sent a fax to Comlaw advising that HGR would not deduct its costs at settlement (i.e. acceding to Comlaw’s demand), and asking for delivery to their office of the withdrawals of caveat. At 1.07pm, Bratt received a fax in response from Comlaw stating that it would not provide a withdrawal of caveat until settlement (and reserving its clients’ rights). At 2.20pm Spence spoke with Jonathan Bowers-Taylor (“Jonathan”) from Comlaw who said that he would attend the settlement at 3.30pm at the offices of Middletons but, at approximately 3.27pm, Jonathan phoned and spoke to Bratt and said that all proceeds of settlement were to be provided to the Bank. Bratt said that he could provide an undertaking on behalf of HGR to either provide the “difference” in the sum of $800 to the Bank by 10am Monday morning or alternatively arrange for checks payable to HGR to be endorsed to the Bank that afternoon. Jonathan said he did not have instructions and that he would call back.
At 3.29pm, Bratt received a further telephone call from Jonathan advising that the caveators would not accept the proposed undertaking from HGR and that further he would not attend at settlement or even leave the offices of Comlaw until it was confirmed that all funds would be paid to the Bank. At 3.38pm Bratt telephoned Jonathan and said that a partner would be able to endorse cheques as he had earlier proposed, within 20 minutes of Jonathan arriving at settlement.
At 3.45 pm Bratt received a further telephone call from Jonathan requesting that he provide an undertaking that all proceeds from future settlements would be paid to the Bank and Bratt attended to that request.
At about 4pm on 20 July 2001, Comlaw again advised HGR by fax that it would not be in a position to hand over withdrawals of caveat unless it was provided before or at settlement with a consent to the plaintiff dealing with its assets, such consent to be signed by all joint venturers. HGR did not respond to this fax.
According to Bratt, the settlements were cancelled due to other commitments of other parties who had attended and the failure of Jonathan to arrive in time.
At about 10.53am on 23 July 2001, Comlaw received a fax from HGR advising that they would attempt to reschedule settlements for that day. HGR also told Comlaw that the purchasers’ solicitors would not proceed without sighting the withdrawals of caveats. The fax confirmed that a trust account cheque would be provided at settlement, payable to the Bank, for the “full balance of sale [proceeds]” and added:
“In relation to the issue raised in your facsimile received by us at 4.00pm Friday 20 July we again state that written consent from each of the joint venturers to the dealing with the assets of [the plaintiff] is not relevant or required in relation to the settlement of these sales.”
Comlaw replied that day by fax to the above fax, stating, inter alia:
“Your client is clearly in breach of the Deed Poll.
Please explain on what basis you state that written consent of each of the joint venturers to dealing with the assets of [the plaintiff] is not relevant or required …
You are not authorised by our clients to take any steps on behalf of the Joint Venture of which [the plaintiff] is the Custodian. Your firm prepared the Joint Venture Agreement and are aware of this ..”
Nevertheless, the said fax by Comlaw stated that they intended providing a withdrawal of caveat at settlement at 4pm that day.
At about 3.02pm on 23 July 2001, Comlaw by fax requested, prior to settlement at 4pm that day, advice in writing as to the interest that had accrued on the deposit monies held by HGR with respect to the relevant lots.
Shortly thereafter, HGR advised Comlaw that the settlements would probably have to take place on the following day. In the meantime they urgently sought copies of the withdrawals of caveats in relation to lots 4 and 5 and indicated that they also proposed to provide Comlaw with details of all lots in respect of which settlement was expected to take place in the near future so copies of withdrawals of caveat could be provide well before settlement and that, should the caveators refuse to comply with this request, an application would be made for the caveat to be removed from all relevant lots.
On 24 July 2001, Comlaw faxed unsigned withdrawals of caveats in respect of lots 4 and 5, stating that signed withdrawals would be provided “subsequent to compliance with the matters requested of you.” The fax also again sought written advice as to the sum of interest accrued on the deposits and sought confirmation that such interest would be paid to the Bank. HGR subsequently provided the requested information concerning interest and confirmed that it would be paid to the Bank.
Withdrawals of caveat were provided at settlement and settlement was effected on lots 4 and 5 at approximately 4.30 pm on 24 July 2001.
On 25 July 2001 Bratt sent a fax to Comlaw requesting that withdrawals of caveats be prepared in respect of lots 2, 3, 6, 7, 8, 10, 11 and 13 in relation to which settlement was anticipated within the next 7 days.
At about 9.30am on 26 July 2001, Comlaw replied advising that withdrawals of caveat would be provided at settlement for those lots strictly on the basis that the caveators were reserving all their rights and subject to receipt of the specified documentation[4] 2 days prior to settlement.
[4] In respect of each lot, a statement of adjustments, particulars of sale, details of interest on deposit monies, written confirmation that all monies would be paid to the Bank without deduction and transfer of land.
By fax dated 27 July 2001 from HGR to Comlaw, HGR stated that they had instructions on behalf of the plaintiff to apply to the Supreme Court for the removal of the caveat.
By letter in response dated 27 July 2001 from Comlaw to HGR, Comlaw said that HGR’s advice and decision to institute proceedings for removal of the caveat could not be based on any refusal by the caveators to provide withdrawals of caveat. Comlaw said that its previous correspondence had indicated that they would be providing the withdrawals of caveat subject to receipt of information previously provided concerning lots 4 and 5 and which the caveators were rightly entitled to receive as joint venturers. Comlaw said that they could turn up to each settlement and check those documents then but their request to receive them in advance was to prevent the undue delay of the settlements. Among other things, the letter also asked whether the plaintiff intended to refer to dispute to mediation as provided by the Heads of Agreement and reiterated the need for a written consent from all joint venturers.
As I have said, this proceeding was commenced on 27 July 2001 and settled on 16 August 2001.
The said terms of settlement provided as follows:
“ WHEREAS:
(a)        Pentridge is the registered proprietor for all that piece of land contained in Certificate of Title Volume 10453 Folio 945 (“the Land”).
(b)        Harry and Luciano are the caveators of registered caveat number X195416J over the Land (“the Caveat”).
(c)         Pentridge has commenced Supreme Court proceeding no. 6915 of 2001 seeking orders for the partial removal of the caveat (“the proceeding”).
(d)        The parties have agreed to resolve all issues in the proceeding in accordance with these terms of settlement.
NOW THESE TERMS WITNESSETH:
1.          From the date of these terms to the date of registration of plan of subdivision PS438597S and to enable the settlements of the sale of Lots 1 to 41 in plan of subdivision PS430271T and lots contained in Plans of Subdivision PS 430302K and PS 430303H the following is to occur in preparation of settlement for each lot:

(a) upon the written request of Herbert Geer & Rundle, solicitors for Pentridge and provision by Herbert Geer & Rundle of title particulars, ComLaw, solicitors for Harry and Luciano will provide to Herbert Geer & Rundle as soon as practicable an unsigned copy partial withdrawal of caveat;
(b) as soon as practicable, Herbert Geer & Rundle will advise ComLaw of the venue, date and time of settlement;
(c) at settlement ComLaw will provide a signed withdrawal of Caveat of the relevant lot and Herbert Geer & Rundle will provide to Comlaw the following copy documents in respect of the relevant lot:
(i)         duly executed Transfer of Land;
(ii)        Particulars of Sale; and
(iii)       Statement of Adjustments.

(d) the net proceeds of sale being the purchase price less:

(i) adjustments made on the statement of adjustments, such as rates, discharge of mortgage fee, state revenue fees and other like disbursements, and
(ii) legal costs and disbursements of Herbert Geer &
Rundle.
will be paid to Bendigo Bank Limited.

2.          Harry and Luciano shall pay to Pentridge the sum of $60.00 being additional settlement fees incurred by reason of two cancellations of settlements of lots 4 and 5 on PS430271T within 7 days of signing these Terms.
3.          Harry and Luciano shall pay to Pentridge the sum of $667.73 being compensation for interest payable to Bendigo Bank for the period 20 July 2001 to 24 July 2001 within 7 days of signing these Terms.
4.          Pentridge, Harry and Luciano agree to obtain orders by consent that Pentridge’s summons filed 27 July 2001 be adjourned sine die, costs reserved and liberty to apply.”

Submissions on behalf of the plaintiff

The plaintiff sought its costs of this proceeding from the caveators on the grounds that they had acted unreasonably by failing to provide the plaintiff with relevant partial withdrawals of the caveat pursuant to cl.30.1 of the Heads of Agreement.
The plaintiff submitted that HGR were entitled to deduct conveyancing costs and expenses associated with each settlement as the obligation of the plaintiff under cl.6.3 of the Heads of Agreement was to pay the “net proceeds” to the Bank. The plaintiff submitted that the unreasonableness of the caveators’ position was highlighted by the terms of settlement that were subsequently executed. Under those terms, the caveators agreed to pay additional settlement fees of $60 incurred by the plaintiff by reason of the two cancellations of settlements of lots 4 and 5 and also compensation of $663.73 for interest that was payable to the Bank and further agreed to provide copies of unsigned withdrawals of caveat in advance of settlement. Morever, the caveators accepted that HGR were entitled to deduct legal costs and disbursements from the proceeds of sale in arriving at the net proceeds.
It was submitted that the plaintiff had acted reasonably in commencing this proceeding and that the conditions insisted upon by Comlaw on behalf of the caveators, such as the written consent of the other joint venturers and that no conveyancing costs be deducted were contrary to cll.6.3 and 30.1 of the Heads of Agreement. The plaintiff further submitted that it was unreasonable of the caveators to insist upon confirmation that trivial amounts of interest on deposit monies would be paid to the Bank when it was the plaintiff’s obligation to pay the same to the Bank – indeed the Bank would not have provided partial discharges of mortgage unless satisfied of the same. The plaintiff said that, by instituting the proceeding, it had achieved the outcome that it sought and the reasonableness of its conduct was vindicated by the contents of the terms of settlement.
Submissions on behalf of the caveators
The caveators submitted that the appropriate order was that there should be no order as to costs.

The caveators referred to what was said by McHugh J in relation to the costs of a settled proceeding in Ex parte: Lai Qin:[5]
“If it appears that both parties have acted reasonably in commencing and defending the proceedings, and the conduct of the parties continues to be reasonable until the litigation was settled … , the proper exercise of the costs discretion will usually mean that the court will make no order as to costs of the proceedings.”
[5] (1997) 186 CLR 622, 625.
They also referred to what was said by Burchett J in One Tel Limited v Deputy Commissioner of Taxation:[6]
“In my opinion, it is important to draw a distinction between cases in which one party after litigating for some time, effectively surrenders to the other and cases where some supervening event or settlement so removes or modifies the subject of the dispute that although it could not be said that one side has simply won, no issue remains between the parties except that as to costs. In the former type of case there will commonly be lacking any basis for an exercise of the Court’s discretion otherwise than by an award of costs to the successful party. It is the latter type of case which more often creates problems since there may be difficulty in discerning a clear reason why one party rather than the other should bear costs.”
[6] (2000) 101 FCR 548, 553
The caveators submitted that this proceeding was instituted with some haste without regard to the position of the caveators. They submitted that they had acted reasonably prior to the proceedings being commenced. They said that the plaintiff had sought withdrawals of caveat for 8 properties and yet, 2 days later, sought an order for removal of the caveat in relation to 46 properties.
The caveators submitted that the Deed Poll required that the plaintiff obtain the consent from the other joint venturers and that no such consent had been obtained.
The caveators said that HGR had accepted the position that all the proceeds from the sale of the property would be paid to the Bank. However, the caveators did not seek to justify their demand that HGR not deduct its legal costs and they did not seek to dispute the plaintiff’s submission as to the proper interpretation of the term “net proceeds.”
Reasons
In my opinion, the terms of settlement demonstrate, in substance, a surrender or capitulation by the caveators. Paragraph 1 of the terms of settlement sets out the procedure for future withdrawals of caveat and the actions therein required to be performed by HGR on behalf of the plaintiff were actions that it had already agreed to perform prior to the commencement of the proceeding.
On the other hand, Comlaw’s agreement in para. 1 of the terms of settlement that the legal costs and disbursements of HGR would be deductible from the purchase price amounted to a concession that its previous stance was incorrect. Perhaps more importantly, its previous stance was clearly incorrect because I am in no doubt that the proper interpretation of the term “net proceeds” would allow for the solicitors for the vendor to deduct their costs. I consider that Comlaw acted unreasonably by contending and insisting to the contrary as a condition of the caveators’ production of withdrawals of caveats.
The foregoing conclusion as to unreasonableness is fortified, I think, by the fact that paras. 2 and 3 of the terms of settlement provide for the caveators to pay compensation as a result of the cancellations and delays in the settlements of lots 4 and 5.
On the material, I am unable to determine whether the caveators were correct in contending that the settlement of the sale of any lots by the plaintiff without the consent of the other former joint venturers was in breach of the Deed Poll but, as the caveators were prepared both before the proceeding and under the terms of settlement to provide withdrawals of caveat without insisting on the production of such a consent, I do not think that this aspect is relevant to the question of costs. To put it another way, even assuming that the caveators were correct about the operation of the Deed Poll, it does not show in the circumstances that they acted reasonably in relation to the matter before the proceeding was commenced.
The plaintiff criticised a number of other aspects of Comlaw’s conduct, on behalf of the caveators, as being unreasonable or obstructive but although it is apparent that Comlaw’s approach was somewhat adversarial and pedantic I would not conclude that it was unreasonable, other than in respect of the question of the deduction of HGR’s costs.
There is only one feature, in my view, that weighs in favour of the caveators. That is that HGR had agreed not to deduct its costs from the proceeds of sale and then reversed its stance, without giving the caveators an opportunity prior to the commencement of the proceeding to reconsider their position. On the other hand, the matter was urgent and it was not unreasonable of the plaintiff to perceive the stance being taken by the caveators’ solicitors as likely to be conducive of continuing delays and frustrations. The concessions made by the caveators in the terms of settlement confirm, I think, that the plaintiff was well justified in instituting the proceeding. By the same token, it is fair to say that the caveators acted reasonably in compromising the proceeding.
In all the circumstances, I think that, in the Court’s discretion, an order for costs should be made in favour of the plaintiff and I think that it would be just and appropriate if the caveators were ordered to pay three-quarters of the plaintiff’s costs of this proceeding (including reserved costs) to be taxed, in default of agreement, on a party-party basis.

“6.3	Until the release of the documents in escrow the Custodian[3] shall apply the net proceeds of any sale of any lot on plan of subdivision PS 43027T in reduction of the debt owed to Bendigo Bank Ltd.
…
30.1	Luciano and Harry may lodge a caveat pursuant to The Transfer of Land Act on the Pentridge Land such caveat to be immediately withdrawn in total upon the registration of the Plan of Subdivision and to be withdrawn partially upon the settlement of the sale of any lot on the Pentridge Land. The provision of any withdrawal of caveat will be provided without cost to the Custodian ...”

[2008] VSC 480

24 November 2008