RDN Developments Pty Ltd v Shtrambrandt

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

COMMERCIAL COURT

LIST C

No. 8744 of 2009

RDN DEVELOPMENTS PTY LTD (ACN 099 924 277)

Plaintiff

ARKADY SHTRAMBRANDT

PROSPERO FRANZESE

and

ANDREW MAY

Defendants

Third Party

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JUDGE:	CROFT J
WHERE HELD:	Melbourne
DATE OF HEARING:	24, 25, 27, 31 January; 1-3 and 14 February 2011
DATE OF JUDGMENT:	16 May 2011
CASE MAY BE CITED AS:	RDN Developments Pty Ltd v Shtrambrandt & Ors
MEDIUM NEUTRAL CITATION:	[2011] VSC 130	1^st Revision: 16 June 2011 – [7]

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TORRENS SYSTEM – Claim for compensation for lodging caveat without reasonable cause – Transfer of Land Act 1958 (Vic), s 118 - Lee v Ross (No 2) (2003) 11 BPR 20,991.

SALE OF LAND – Effect of sale of lots on unregistered plan of subdivision without complying with the requirements of sub-s 9AA(1) of the Sale of Land Act 1962 (Vic) – Sale of Land Act, s 9AE.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff and Third Party	Mr J.S. Barber	De Wet Partnership
For the First Defendant	In person
For the Second Defendant	No appearance

HIS HONOUR:

Introduction

The plaintiff’s claim is for compensation from the first defendant under s 118 of the Transfer of Land Act 1958 (Vic) (“the Act”) for lodgement of a caveat without reasonable cause. Although there are two named defendants to this proceeding, the claim is now solely against the first defendant, as, on 19 January 2011, the second defendant’s solicitors informed the Court that the second defendant had settled with the plaintiff. As a result, the contribution notice it had served on the first defendant on 23 November 2009 was discontinued, and the second defendant played no further part in defending the plaintiff’s claim.

The plaintiff claimed compensation on the basis of loss which it claimed to have suffered as a result of delay in the sale of the whole of the property the subject of the caveat. The delay, it was said, was caused by the presence of the caveat and the loss flowing from the delay due to a falling property market. The sum now claimed is $453,025.79, plus statutory interest, made up as indicated below.

Background

It is common ground that from about 11 November 2006 until about 7 March 2009, the plaintiff was the registered proprietor of the land described in Certificate of Title Volume 6595 Folio 817, situated at and known as 21 Alfada Street, Caulfield South (“the property”).

Subsequently to 11 November 2006, the plaintiff demolished the then existing house on the property and constructed two townhouses in its place.

On 13 October 2008, the second defendant, as solicitor and agent on behalf of the first defendant, lodged a caveat (numbered AG 139394B in the Land Titles Office) on the title to the property, claiming “an estate in fee simple” and specifying as the grounds of claim that “[t]he registered proprietor holds the property on trust for the caveator pursuant to a constructive and implied trust” (“the caveat”). The caveator as specified in the caveat is Arkady Shtrambrandt, the first defendant.

On 7 March 2009, a plan of subdivision was registered (number 618726G in the Land Titles Office) by which the property was subdivided into two lots, 21A and 21B, of which the plaintiff was registered as proprietor.

The plaintiff claims that the caveat was lodged by the first defendant without reasonable cause and that its lodgement caused the plaintiff to lose the benefit of contract notes, dated 12 October 2008, for the sale to Mr Danilov of the two townhouses which were, by then, erected on the property and were to be sold as lots 21A and 21B in accordance with the then proposed plan of subdivision. It was noted by the plaintiff that the contract notes were entered into the day before the caveat was lodged, but on the evidence, it is not clear whether this has any particular significance or was merely coincidental.

Proceedings were taken by the plaintiff to obtain the removal of the caveat under sub-s 90(3) of the Act. These proceedings culminated in orders by consent that the caveat be removed under these provisions. These orders were made by Warren CJ on 2 March 2009. The orders for removal of the caveat enabled registration of the plan of subdivision. As is discussed further below, Mr Danilov had, on 15 January 2009, refused to extend the time for settlement of the contract notes any further and so it was necessary for the plaintiff to take further steps to sell the townhouses on the property. One of the townhouses was sold in April 2009 and the other in July 2009, but by then the market had fallen and the sale prices were lower than the prices that had been agreed with Mr Danilov. As a result, the plaintiff claims that it suffered damage, for which it seeks compensation under s 118 of the Act, being the difference between the price agreed with Mr Danilov for the sale of the whole of the property and the prices which were ultimately obtained in 2009 for each of the townhouses which were built on the property, together with holding and other costs and interest.

The first defendant raised a variety of matters by way of defence to the plaintiff’s claim. The first, in a sense threshold, issue raised by way of defence was that the first defendant was not a person who lodged the caveat within the meaning of s 118 of the Act. I take this to be a denial of all the ingredients of potential liability under s 118 of the Act as the existence of the caveat, lodged on the first defendant’s behalf, was not denied. This view is to be supported by the immediately following pleading by way of defence, which was a denial of a specific ingredient of s 118 of the Act, namely that the caveat was lodged “without reasonable cause”. Having regard to the variety and detail of matters raised by way of defence in these proceedings, it is helpful to set out the relevant pleading, contained in the first defendant’s Amended Defence of 18 December 2009. Paragraph 4 of that defence is as follows:

“4.The Firstnamed Defendant denies allegations in paragraph 10 of the Plaintiff Statement of Claim and says the following:
a.   Between 1992 and 1999 Ms Elena Semenova [the first defendant’s former wife] has stolen approximately $500,000 from the Firstnamed Defendant’s business, Watertreat Engineering Pty Ltd.
b.   Between 1999 and 2005 Ms Semenova became further indebted to the Firstnamed Defendant and his companies for approximately $600,000 as a result of Family and various Supreme Court proceedings.
c.    Around April 2002 Ms Semenova paid $375,000 for unit 3/45 Briggs Street, Caulfield to Mr Andrew May. She then paid a further $58,000 to Mr May for various improvements to the property.
d.   On 27 November 2002 Ms Semenova resold the above property to Mr May for $350,000. Both parties used the same Solicitor, and no deposit was ever paid.
e.    Ms Semenova and Mr May conspired to transfer this money overseas to avoid paying Firstnamed Defendant and to her then solicitor, Issak [sic] Brott.
f.    In early 2006 during the No. 7374 proceedings of 2005 Ms Semenova swore an affidavit claiming that all her money was stolen by Mr May.
g.   In early 2008 the Firstnamed Defendant approached Mr May, who is his second nephew, regarding these issues.
h.   Mr May claimed being just a ‘fence’ for Ms Semenova and readily provided details of their dealing.
i.    Mr May was happy to re-pay the money plus interest to the Firstnamed Defendant, in exchange for Ms Semenova’s assurance that she would drop her County Court proceedings against him.
j.    On 17 April 2008 in the office and in the presence of the Firstnamed Defendant’s accountant, Mr Walker, Mr May explained that Ms Semenova’s money has been used to purchase land at 21 Alfada Street, Caulfield in the name of the Plaintiff.
k.   Mr Walker has assisted in putting together a ‘Loan’ Agreement that was acceptable to both Mr May and the Firstnamed Defendant.
l.    During the next six months the Firstnamed Defendant has inspected the site at 21 Alfada Street, Caulfield on several occasions and received numerous verbal and written communications from Mr May that everything was in order.
m. In his email to the Firstnamed Defendant dated 15 September 2008 Mr May re-iterated that: ‘I am not running away, doing everything I can’.
n.   However, on 17 October 2008 Mr May has sent a letter to the Firstnamed Defendant requesting a written authority from Ms Semenova to pay Firstnamed Defendant.
o.   The Firstnamed Defendant has reasonable belief that money to which he is entitled was used in the property at 21 Alfada Street, Caulfield, and, therefore, had reasonable belief that he held a caveatable interest in the Property.”

The first defendant also joined Mr Andrew May, a director of the plaintiff, as a third party by Third Party Notice dated 24 February 2010. The pleading attached to that notice pleads misleading and deceptive conduct under the Fair Trading Act 1999 (Vic), which I take to be a reference to the misleading or deceptive conduct provisions contained in s 9 of that Act. In summary, the representations said to be misleading were that on 17 April 2008, Mr May advised and represented to the first defendant that the moneys to which the first defendant claimed to be entitled were used to purchase the property and that subsequently, in May and September 2008, Mr May reassured the first defendant that he was doing all possible to complete the sale of the property, that the first defendant’s money was “safe” and that the first defendant would be paid out of the sale proceeds of the property. It was said that in reliance upon these representations, the first defendant “formed a reasonable belief that he had a caveatable interest in the property” and, consequently, caused the caveat to be lodged on the title to the property. It is also pleaded that the representations were false and misleading and were intended to induce the first defendant to form a reasonable opinion that the money to which he was entitled was used in the development of the property, and to believe that he would be paid out of the sale proceeds of the property. The claim contained in the pleading against Mr May, which is styled “Notice of Contribution”, is for contribution for “any liability to the plaintiff, in respect of lodging a caveat on the property and holding a reasonable and honest belief”.[1]
[1]See Third Party Notice, paragraph 8 of the “Notice of Contribution” pleading.

Issues were also raised by the first defendant in relation to the effect and operation of the contract notes having regard to the provisions of s 9AA of the Sale of Land Act 1962 (Vic), on the basis that they constituted a sale of land prior to approval of a plan of subdivision in breach of these provisions. Consequently, issues of illegality and the like were raised in relation to the contract notes and the fact that they had been entered into.

Effect of statutory provisions

Section 118 of the Transfer of Land Act provides:

“118. Compensation for lodging caveat without reasonable cause
Any person lodging with the Registrar without reasonable cause any caveat under this Act shall be liable to make to any person who sustains damage thereby such compensation as a court deems just and orders.”

The plaintiff relied, for a convenient statement of the law in relation to these provisions, on the judgment of Hayne J, as a judge of this Court, in Commonwealth Bank of Australia v Baranyay[2] where, having referred to the provisions of this section, his Honour said:[3]

“It is clear that the onus is on the bank to show that the caveator acted without reasonable cause: Kaihu Valley Railway Co Ltd v Kauri Timber Co Ltd (1889) 11 NZLR 403 and Young v Rydalmere Credits Pty Ltd (1963) 80 WN (NSW) 1463, at 1472. Is it enough for the bank to show that Baranyay had no caveatable interest or must it show more? Authority suggests that more must be demonstrated. (See Deputy Commissioner of Taxation v Corwest Management Pty Ltd (1978) WIR 129, at 141 to 142 Hook v Holland (1984) WIR 16, at 19 and Bedford Properties Pty Ltd v Surgo Pty Ltd [1981] 1 NSWLR 106, at 108.) Without in any way seeking to give an exhaustive definition of the circumstances covered by the very general expression ‘without reasonable cause’ it would seem to me to be likely that the foundation for reasonable cause will often be as Wootten J said in the Bedford Properties Case ‘not the actual possession of a caveatable interest but an honest belief based on reasonable grounds that the caveator has such an interest.’ However, as his Honour went on to say, honest belief on reasonable grounds may not always be enough to show reasonable cause for lodging a caveat, eg in the case where a caveat is lodged not for protection of the caveator’s interest but for an ulterior motive and without regard to the effect on transactions to which the caveator had agreed: cf. Young’s Case.” (emphasis added)

[2][1993] 1 VR 589.

[3]Ibid 600.

It was stressed by the Court of Appeal in Edmonds v Donovan; Disctronics Ltd v Kingston Links Country Club Pty Ltd[4] that in order to establish liability under s 118 of the Act, it was not sufficient merely to establish that the caveator had no caveatable interest, thus Phillips JA (with whom Winneke P and Charles JA agreed) said with reference to the caveat proceeding (Disctronics Ltd v Kingston Links Country Club Pty Ltd):[5]
[4](2005) 12 VR 513.
[5]Ibid 548–9.

“[91] It is true that, to recover compensation for the lodging of a caveat, the aggrieved party must go further than showing simply that the caveator never had a caveatable interest. As Hayne J said in Baranyay, more must be demonstrated.[6] …
[6]And the Court of Appeal then set out the passage from the judgment of Hayne J in Baranyay at [1993] 1 VR 600, which is set out in italics above, apart from the concluding reference to Young’s case (see paragraph 13, above).
In that case, Hayne J went on to accept, on the evidence, that the caveator did ‘honestly believe that he had the interest that he claimed’ and further that it had not been shown that he had no reasonable grounds for that belief.
[92] Baranyay was decided in 1992. In 1994, the Court of Appeal in New South Wales decided Gustin v Taajamba Pty Ltd.[7] In that case, there was a long history of dispute between the parties in relation to a contract for the sale of land and upon the vendor’s purported rescission of the contract for breach by the purchaser, the purchaser lodged a caveat to protect its interest under the contract and sought specific performance. Interlocutory relief was obtained on the usual undertaking as to damages and the court subsequently granted a declaration that the contract had been validly terminated. The question was what damages ought to be paid, either by virtue of the undertaking or because the caveat had been lodged without reasonable cause, if such was the case. As to the latter, Handley JA (with whom the other judges agreed) said:[8]
‘In my opinion the caveator did have reasonable cause to lodge and maintain his caveat while his proceedings were pending in the equity division of this court. He applied and obtained ex parte interlocutory relief on 24 December 1985 and in doing so necessarily persuaded the judge that there was a substantial question to be tried in the proceedings. Thereafter, until the dismissal of the proceedings … on 13 October 1986 an interlocutory injunction remained in force …
… Although the proceedings were dismissed, [the] history [of the proceeding] demonstrates that there was reasonable cause for lodgement of the caveat. Following the appeal to this court … the plaintiff again moved for interlocutory relief which was granted … This remained in force until the appeal was dismissed.
Once again, the grant of such interlocutory relief either by judicial decision or as a matter of admission by the respondent, demonstrates that there was a substantial question to be determined on the appeal. Apart from the history of the proceedings there was no other evidence to establish that the caveat had been lodged without reasonable cause.’

Wanting any other evidence, it was accepted that the plaintiff believed that he had reasonable cause to maintain the proceedings and equally that he had reasonable cause to maintain the caveat. There was no evidence that the plaintiff at any stage thought or was advised that he had no reasonable cause for lodging or maintaining the caveat. This was despite the failure of the plaintiff to give evidence and expose himself to cross-examination.
[93] Gustin is important because it demonstrates, more directly than Baranyay, the possibilities that arise when there is a dispute between the parties and one of them lodges a caveat to protect its interest. That is the position here. It seems to me that the caveat was lodged in December 2000 to protect the claims of the respondents that they, with Disctronics, were the victims of a breach of fiduciary duty and that, in the result, the appellants held the land which the new consortium had purchased, on a constructive trust. That position is now shown to have been untenable, but that was only after a 15-day trial and more than 100 pages by way of reasons for judgment. On any view, the position was very complex and, given the correspondence in which the parties so feverishly indulged at the critical time in August 1999, very difficult to disentangle. Even now the concept that Disctronics had a ‘right’ to take over the project was a claim that could readily be misunderstood and the position required careful analysis. If the question had been posed whether the respondents had reasonable cause to lodge a caveat to protect their interests, especially against alienation of the property by the new consortium, I should have thought that the answer would clearly have been in the affirmative: and her Honour suggests as much when she said that, had the caveat been lodged by the respondents, ‘matters might be different’.[9] It was, I think, only the fact that Disctronics was the caveator that led her Honour to conclude that the caveat was lodged without reasonable cause.”

[7](1994) 6 BPR 13,393.

[8]At 13,396-7.

[9]The trial judge herself granted interlocutory relief designed to preserve the proceeds of sale until the partnership’s claim was determined.

The question of “reasonable cause” has also been considered in the context of the corresponding provisions of the New South Wales Real Property Act 1900 (NSW) by Wootten J in Bedford Properties Pty Ltd v Surgo Pty Ltd, as indicated by the reference to that case by Hayne J in Commonwealth Bank of Australia v Baranyay.[10] Wootten J considered the matter in some detail in Bedford Properties:[11]

“There is not a great deal of authority on the phrase ‘without reasonable cause’ in the Real Property Act, 1900, s 98. The onus is on the plaintiff to show that the caveator acted without reasonable cause: Kaihu Valley Railway Co v Kauri Timber Co (1889) 11 NZLR 403; Young v Rydalmere Credits Pty Ltd (1963) 80 WN (NSW) 1463, at p 1472. In the latter case, Macfarlan J said at p 1473:
‘I cannot feel any doubt about the meaning of the phrase “reasonable cause”. It consists of two words and whether the words are considered separately or together their meaning is, I think, well understood by lawyer and layman, alike. Whether there has been an absence of reasonable cause requires, I think, a consideration of the circumstances existing both before and at the time when the caveat was lodged.’

The submission in this case belied the optimism of Macfarlan J. Counsel for the plaintiff submitted that a person could not have reasonable cause for lodging a caveat unless as a matter of law he had a caveatable interest and lodged a caveat in the required form. The purpose of the words ‘without reasonable cause” were, he said, to protect a person who lodged a caveat which was bad for some purely technical reason. This view of the section is inconsistent with the result of Kaihu Valley Railway Co v Kauri Timber Co (1889) 11 NZLR 403 and does violence to the words of the section. It was expressly rejected by Brinsden J in Deputy Commissioner of Taxation v Corwest Management Pty Ltd (1978) WAR 129, at pp 141, 142.”

[10][1993] 1 VR 589, 600; and see above, paragraph 13, where the relevant passage is quoted.

[11][1981] 1 NSWLR 106, 107-8.

The cases on the New South Wales legislation need to be considered with some care because the Real Property (Caveats) Amendment Act 1986 repealed s 98 of the Real Property Act, and introduced a new Part 7A. Part 7A provided, in s 74P(1), a new test for liability for compensation. Section 74P(1) commenced with the words:

“Any person who, wrongfully and without reasonable cause:
(a) lodges a caveat …”

The effect of the new test, which differed from the old by adding the word “wrongfully”, was considered by the New South Wales Court of Appeal in Beca Developments Pty Ltd v Idameneo (No 92) Pty Limited[12] where Clarke JA, with whom Kirby P agreed, at least in general terms, that the liability for compensation test then depended on two tests, namely, whether the caveat was lodged “without reasonable cause” and, additionally, whether it was lodged “wrongfully”.[13] Against this background, Palmer J, in Lee v Ross (No 2),[14] considered the effect of the statutory amendment adding “wrongfully” to the test, and the effect of subsequent amendments where the words added in 1986 were deleted:[15]

“[21] His Honour [Clarke JA in Beca Developments] reviewed the law prior to the amendment of the Act as to what constituted lodgement of a caveat ‘without reasonable cause’. His Honour noted some difference of judicial opinion but concluded (at [(1990) 21 NSWLR 459, 471]) that the test propounded by Wootten J in Bedford Properties Pty Ltd v Surgo Pty Ltd [1981] 1 NSWLR 106 was correct. That test, which is expressed in the affirmative rather than in the negative as it is expressed in the section itself, is that ‘reasonable cause’ for the lodgement of a caveat exists where the caveator has an honest belief, based upon reasonable grounds, that the caveator has a caveatable interest.
[22] Clarke JA was of the view that the addition of the word ‘wrongfully’ in s 74P(1) was made ‘in order to restrict claims for compensation to those cases in which it could be shown that the caveat was lodged deliberately by a person knowing that he had no interest in the land’: see at 472. Kirby P was in agreement with this proposition: see at 462. The other member of the Court, Waddell AJA, dissented.
[23] It will be seen that the test for liability introduced by the addition of the word ‘wrongfully’ in s 74P(1) placed a much higher hurdle in the path of those seeking compensation for wrongful lodgement of a caveat than had been the case under the former s 98. Apparently, the legislature did not consider that such a high hurdle was justified because by the Real Property Amendment Act 1996 (NSW) (which took effect on 1 February 1997), s 74P(1) was amended by the deletion of the words ‘wrongfully and’. The opening words of the present s 74P(1) as to the test for liability are now the same as they were in the former s 98. It is therefore legitimate to proceed upon the basis that the law as to the test for liability is as stated in the cases dealing with the former s 98 of the Act and that that law is as stated by Clarke JA in Beca in his discussion of those cases. This is the conclusion at which Young J (as his Honour then was) arrived in Collingridge v Sontor Pty Ltd [(1997) 141 FLR 440, 452] - a conclusion in which I respectfully agree.
[24] As the caveat in this case was lodged on 14 March 1997, shortly after the Real Property Amendment Act 1996 took effect, the test of liability for compensation is as stated in Bedford Properties and decisions to the like effect.”

[12](1990) 21 NSWLR 459.

[13]And see Lee v Ross (No 2) (2003) 11 BPR 20,991,[20].

[14]Id.

[15]Ibid [22]-[24].

The Victorian legislation has retained the “without reasonable cause” test, and has never had a requirement that the caveat be lodged “wrongfully” as a precondition to compensation. Nonetheless, the discussion in the New South Wales cases is relevant, as it serves to cast some light on the boundaries of the Victorian “reasonable cause” test. It indicates, if nothing else, that it is not necessary to establish as a precondition to an entitlement to compensation, under s 118 of the Act, that lodgement of the caveat was occasioned by any hint of “wrongfulness” or moral blameworthiness or turpitude of any kind.[16] All that is necessary is that there be no “reasonable cause” for lodging the caveat. The question then arises as to whether the “reasonable cause” test is objective, subjective to the caveator, or a combination of both. As to this question, Palmer J, in Lee v Ross (No 2) said:[17]

“[25] Mr Blank, who appears for the Purchasers, submits that the test is entirely subjective: one must look to what the caveator believes. I am unable to accept that submission. In my opinion, the test is twofold: it is subjective in that it requires an examination of the caveator’s actual belief and whether that belief is honestly held. The latter part of that question will often overlap the examination of the objective element of the test, namely, whether the caveator’s belief is held on reasonable grounds.”

[16]The Victorian provision in relevantly the same terms can be traced back to s 120 of the Transfer of Land Statute 1866 (Vic).

[17](2003) 11 BPR 20,991, [25].

Picking up the latter part of the statement of Palmer J on the nature of the “reasonable cause” test in Lee v Ross (No 2),[18] a further question arises in relation to the consequence or effect of the caveator relying upon legal advice, a matter ultimately addressed by Palmer J in that case, as indicated in the review of the authorities in this respect by the Western Australian Court of Appeal in Brogue Tableau Pty Ltd v Binningup Nominees Pty Ltd.[19] There was some divergence of opinion between the members of the Court in relation to the proposition or propositions for which Bolton v Excell[20] is authority.[21]
[18](2003) 11 BPR 20,991.
[19](2007) 35 WAR 27; [2007] WASCA 179. All references are to the medium neutral citation.
[20](unreported, West Australian Supreme Court of Appeal, Malcolm CJ, Ipp and Owen JJ, 22 February 1993).
[21]As noted by Wheeler JA at [2007] WASCA 179, [1], who did not find it necessary to express a view in relation to that issue.

Pullen JA considered Bolton v Excell and other authorities and concluded that the fact that legal advice was taken was a relevant factor, but not necessarily one which was decisive. His Honour said:[22]
[22]Brogue Tableau Pty Ltd v Binningup Nominees Pty Ltd [2007] WASCA 179, [53]-[58].

“[53] Owen J's judgment in Bolton v Excell reveals that the existence of advice from a solicitor was a fact taken into account in the assessment of whether the caveat in that case was lodged without reasonable cause. His Honour said at 14:
‘A solicitor also told them that they had an enforceable contract. In my opinion in these circumstances it was not unreasonable for them to accept that advice even though they had not examined the First Offer and the General Conditions of Sale and had not personally satisfied themselves that that which they thought to be the case was in fact the case. In my view the failure of the appellants to examine the First Offer is not something which would render their conduct unreasonable.’

[54] The fact that his Honour referred to whether their actions would ‘render their conduct unreasonable’ may suggest that his Honour was referring to an objective consideration. However, his Honour continued his discussion about the ‘reasonableness of the appellants’ conduct’ in the next paragraph, concluding in the last sentence of that paragraph that:
‘In the end it comes back to the question whether, bearing in mind all of the facts and circumstances, the caveator honestly believed on reasonable grounds that he or she had a caveatable interest.’

[55] Thus, it seems clear that Owen J was considering all factors which went to both the objective and subjective considerations. He did not distinguish between them. The evidence about the fact that the appellants were ‘lay people’, that there was no evidence that they ‘had particular experience with land dealings or commercial matters’ and that the solicitor had given them advice, arguably goes to the subjective element and what the caveators in that case ‘believed’ and whether they had an ‘honest’ belief that they had an enforceable contract. Malcolm CJ also referred to the fact that the appellants in that case were advised to lodge a caveat and concluded that he was ‘unable to accept that the appellants could fairly be held to have acted without reasonable cause in this case on the basis that it was unreasonable for them to have acted on the legal advice they were given’. It is clear that the Chief Justice had in mind both the subjective and objective elements, because he began his consideration of the facts leading to that conclusion, by referring to the question which he considered to be relevant; namely, ‘whether the caveator had an honest belief based upon reasonable grounds’ that the caveators had an interest to support a caveat. The Chief Justice cited the Bedford Properties case in support of this view. As an aside, it should be noted that the Chief Justice cited Deputy Commissioner of Taxation v Corwest Management Pty Ltd per Brinsden J at 141–142 in support of the view that objective and subjective considerations must be taken into account whereas in fact, there appears to be nothing in Corwest’s case which supports that view.
[56] The Court in Bolton v Excell took into account the existence of legal advice in forming the view that there were reasonable grounds for the caveator’s honest belief. However, the Court did not hold that whenever legal advice is given that a caveat may be lodged, that it cannot then be shown that the caveat was lodged without reasonable cause. Heenan J said as much in McKellar v Singh [1999] WASC 145 at [7]. Heenan J also perceived the unsatisfactory result which might flow if advice from a solicitor, however negligent it might be, could be relied upon to disprove that a caveat was lodged without reasonable cause. Palmer J in Lee v Ross (No 2)[2003] NSWSC 507; (2003) 11 BPR 20, 991 made a similar observation. He pointed out that the solicitor is the agent of the party who employs the solicitor in the transaction and the acts or omissions of the agent in the transaction are usually taken as those of the principal. He said at [34]:
‘So, for example, a party to a contract whose solicitor or conveyancer insists on a completely unsupportable construction of the contract cannot be heard to say as against another party to the contract that he or she is relieved of the legal consequences because he or she personally had no view one way or another and simply acted on legal advice. If the advice given by the solicitor or conveyancer without reasonable ground causes the client to be in breach of contract, the client is not exonerated from liability to the other party to the contract and if the client thereby suffers loss, it may be that the client's remedy is against the solicitor or the conveyancer.’

[57] Palmer J observed at [37] that to hold that any advice which the solicitor might have given was reasonable because the solicitor did not have a copy of the clause in the contract which falsified the caveator’s claim ‘would be to reward neglect and to punish diligence’.
[58] Bolton v Excell indicates no more than that on the facts of that case legal advice was a relevant factor. The case is not authority for the proposition that if a caveat is lodged on legal advice that it could never be proved that the caveat was lodged without reasonable cause. The same may be said about Kuper’s case, which also involved the issue about whether the caveator had an honest belief on reasonable grounds for claiming to have a caveatable interest. The question here is whether the caveat was lodged without reasonable cause insofar as it prohibited absolutely the registration of any instrument affecting the claimed interest.”

Buss JA in Brogue Tableau was, on the basis of a review of the authorities, of the view that greater weight should be placed on the effect of the obtaining of legal advice:[23]

“[97] In my opinion, Heenan J's analysis in McKellar of the Full Court’s decision in Bolton was, with respect, in error. Bolton is authority for the proposition that even negligent advice from a solicitor to a client who, in reliance on the advice, lodges a caveat, may provide the caveator with reasonable grounds for an honest belief that he or she had a caveatable interest, if the caveator has not contributed to the giving of the wrong advice, for example, as a result of failing properly to inform the solicitor of the relevant facts. Also see Gordon v Treadwell Stacey Smith [1996] 3 NZLR 281 per Blanchard J (who delivered the judgment of the Court of Appeal of New Zealand) at 288.
[98] The observation of Palmer J in Lee to the effect that where a person, in reliance upon the advice of a solicitor, gives instructions to the solicitor to lodge a caveat, the client will have acted without reasonable cause if the solicitor did not have reasonable grounds for the advice given, is inconsistent with the proposition for which Bolton is authority. Bolton was not cited in Lee.
[99] It is important to bear in mind that a solicitor who advises a client that he or she has a caveatable interest or an interest which supports an absolute caveat is not, in the giving of that advice, acting as the client’s agent. If the client, on the basis of the solicitor's advice, instructs the solicitor to prepare, sign and lodge a caveat and the solicitor carries out those instructions, the solicitor will be the client’s agent, relevantly, in signing the caveat and attending to lodgement.
[100] Ultimately, as Owen J pointed out in Bolton at 13–14, the content and accuracy of legal advice must be evaluated with all other relevant facts and circumstances in determining the honesty and reasonableness of the caveator’s belief as to the existence of a caveatable interest. This approach also applies where the caveator’s belief concerns the existence of an interest which supported an absolute caveat.
[101] Finally, in this context, I should mention that in New Zealand there is a line of authority, based on the Court of Appeal’s decision in Gordon, to the effect that solicitors and other agents may be rendered liable for the payment of compensation under the New Zealand counterpart to s 140 where they have played a part in lodging a caveat which proves to have been lodged without reasonable cause. See Gordon at 287–289. It is unnecessary, in this appeal, to determine whether the reasoning on this issue in Gordon is applicable to the Western Australian provision.”

[23][2007] WASCA 179, [97]-[101].

For the reasons which follow, it is not necessary to resolve this divergence of approach in the authorities. Nevertheless, if a different view were taken with respect to the involvement of a solicitor, the second defendant in these proceedings, it may assist to express a view. On this basis, the approach of Palmer J in Lee v Ross (No 2)[24] in this respect is, in my opinion, to be preferred; read in the context of the nature of the “reasonable cause” test as explained in that case.[25] In my view, it would be highly undesirable in the context of a land title registration system, as provided for by the Act, to require a claimant for compensation under s 118 to enquire into and investigate the nature and extent of the caveator’s instructions to an advising solicitor, and the content of that advice (even putting aside any issues and difficulties with respect to legal professional privilege). Treating the caveator as the principal, and the obtaining of any advice as going to the reasonableness of the caveator’s belief, would tend to avoid the need for such enquiries and investigations. Additionally, on a more general basis, this approach is consistent with the position taken in the authorities that the obligation of a party under a statutory duty or obligation is not to be avoided merely because that person employed an agent to effect all or part of a transaction to which that person’s duty or obligation related. An example of this is the position of a mortgagee with respect to the duty or obligation on a mortgagee’s sale; duties and obligations that cannot be avoided merely by appointing a real estate agent for the sale.[26] In any event, in the present circumstances there is no evidence that the first defendant sought and obtained considered advice from his then solicitor, Mr Franzese, the second defendant, upon which he relied. It appears from the evidence that, in substance, assertions made by the first defendant in these proceedings were made to his solicitor. The first defendant then provided his then solicitor with a copy of the, so-called, loan agreement between the first defendant and Mr May.[27] The second defendant, his then solicitor, warned the first defendant that he must have “reasonable grounds” to lodge a caveat – and the caveat was lodged by the second defendant.[28] Additionally, there is no evidence that the solicitor, Mr Franzese, tested the assertions conveyed to him by the first defendant, by inspecting documents other than the so-called loan agreement or otherwise.
[24](2003) 11 BPR 20,991, [34], set out above, paragraph 18 (in the passage from Brogue Tableau).
[25](2003) 11 BPR 20,991, [25], set out above, paragraph 16.
[26]See for example, Commercial and General Acceptance Ltd v Nixon (1981) 152 CLR 491; and see Tyler, Young and Croft, Fisher and Lightwood’s Law of Mortgage (Butterworths, 2^nd Australian ed, 2005) [20.35].
[27]See below, paragraphs 32 and following.
[28]See witness statement of Prospero Franzese (3 February 2011).

Although the caveat was lodged by the second defendant as solicitor and agent for the first defendant, there is no evidence before the Court in relation to the nature of any advice that might have been given by the second defendant to the first defendant, nor as to the nature and extent of instructions given by the first defendant to the second defendant upon which any such advice was given. Consequently, the possible effect of legal advice given to the caveator with respect to the “reasonable cause” aspect of s 118 of the Act does not arise for consideration. Further, it is noted in this respect that no claim was made in these proceedings by the first defendant against the second defendant in relation to any aspects of any such advice; or more generally.

Finally, with respect to the operation of s 118 of the Act and the nature of the interest claimed under the caveat, reference should be made to the judgment of Dodds-Streeton J in Goldstraw v Goldstraw,[29] where her Honour said:[30]

“[26] An interest based on a constructive trust can form the basis of a caveat.[31] Such an interest could arise in a wide variety of circumstances. Examples include part performance of an agreement for disposition of an interest in land,[32] where parties have acquired land pursuant to a failed joint venture,[33] where the claimant has made an indirect contribution to the purchase price of property to which another party takes title,[34] or there is a common intention that a person will acquire an interest in a particular property to which another party holds legal title, and the person acts on that belief to his or her detriment, such that it would constitute a fraud to deny the interest intended to be acquired.[35]”

[29](2006) V ConvR ¶54-712; [2002] VSC 491. All references are to the medium neutral citation.

[30]Ibid [26].

[31]Taddeo v Catalano [1975] 11 SASR 492; McMahon v McMahon [1979] VR 239.

[32]Ogilvie v Ryan [1976] 2 NSWLR 504.

[33]Muschinski v Dodds (1985) 160 CLR 483.

[34]Baumgartner v Baumgartner (1987) 164 CLR 137.

[35]Hohol v Hohol [1981] VR 221.

The remaining statutory provisions, the effect of which require consideration, are those contained in s 9AA of the Sale of Land Act. These provisions were relied upon by the first defendant as a basis for submitting that the contract notes entered into on 12 October 2008 with Mr Danilov were illegal or of no effect and ought not to be treated as relevant to the compensation claim by the plaintiff under s 118 of the Act. I understood the first defendant to be indicating, additionally, that some consequence in this respect would flow from the fact that the plaintiff was a party to such prohibited or illegal contract notes.

Section 9AA of the Sale of Land Act provides, in sub-s (1), that “A person shall not sell a lot in a plan of subdivision (whether certified or not) to anyone except a statutory body or authority if the plan has not been registered by the Registrar …” unless the contract of sale contains provisions with respect to the payment of deposit moneys which accord with the requirements of paragraphs (a) and (b) of that sub-section. It is not necessary to consider these matters in any detail, save to note that it was common ground that the contract notes did not comply with s 9AA and were prescribed contracts for the purposes of the Sale of Land Act. In general terms, arguments in relation to illegality and the effect of illegality on the validity or enforceability of a contract in breach of provisions such as s 9AA might arise. However, that is not the position in relation to these provisions because s 9AE of the Act specifically provides for the consequences of breach:

“9AE. Rescission of prescribed contract
(1) If the vendor under a prescribed contract of sale of a lot fails to comply with section 9AA or 9AB the purchaser may rescind the contract of sale at any time before the registration of the plan of subdivision.
(2) If the plan of subdivision is not registered within 18 months after the date of the prescribed contract of sale of a lot on that plan of subdivision, or, if the contract specifies another period, before the end of that specified period, the purchaser may, at any time after the expiration of that period but before the plan is so registered, rescind the contract.”

Consequently, Mr Danilov was entitled to enforce the contract notes had he chosen to do so. Nevertheless, he also had the right to avoid them, under sub-s 9AE(1), at any time until the plan of subdivision was registered, on 7 March 2009.
Basis of the plaintiff’s claim as caveator

On the basis of the authorities to which reference has been made, it is clear that the onus lies on the plaintiff to establish that the first defendant, as caveator, lacked reasonable cause for lodging the caveat. The plaintiff also bears the onus of establishing that the lodgement of the caveat caused damage, but that is an issue considered later.

The basis upon which the first defendant sought to establish a caveatable interest which would support the caveat or, at least, a “reasonable cause” for lodging the caveat, relies upon analysis of a series of events and transactions over many years.

In broad summary, it was alleged that substantial sums of money to which “the Firstnamed Defendant and his companies” were entitled were used to finance the purchase of the property; hence the claim, as specified in the caveat, for “an estate in fee simple” on the basis that the registered proprietor held the property on trust for the first defendant under a “Constructive and implied trust”. I will consider the nature and basis of these claims in some detail, insofar as I am able to do so given the most unsatisfactory state of the evidence in support of the case of the first defendant. Nevertheless, there appear to me to be two more general difficulties with the position advanced by the first defendant. The first is that even if moneys were “diverted” from individuals and companies otherwise entitled, it does not follow and, in my view, has not been established, that the first defendant, the caveator, would be the person entitled to those moneys, in whole or in part. Secondly, it is not clear how any alleged indebtedness of Mr May necessarily results in a beneficial entitlement in the first defendant, or an obligation on the plaintiff in terms of its interest in the property.

Before I turn to the specifics, I should observe that the manner in which the evidence in support of the case of the first defendant has been presented may be said to indicate a degree of complexity in the nature and basis of the claimed interest in the property such that it might be said, as in Edmunds v Donovan; Disctronics v Kingston Links Country Club Pty Ltd,[36] that the complexity is so great that it could only be resolved by a long trial, so it follows that it must be reasonable for a claimant to protect the position on an interim basis by lodging a caveat. Hence, the plaintiff ought to fail in establishing “without reasonable cause”. However, for reasons which I discuss further below, I am of the opinion that this would not be a fair or accurate analysis of the position in this instance. The case of the first defendant is replete with unsubstantiated allegations and lack of documentary evidence, and clearly emanates from the bitter state of family relationships following the breakdown of the first defendant’s marriage with Ms Elena Semenova. Mr May is the first defendant’s nephew, who was assisted by the first defendant and his ex-wife when Mr May’s family first arrived in this country. It seems that Mr May was grateful for this assistance, and sought to reciprocate by assisting Ms Semenova; but, for a variety of reasons, this was seen as an “unfriendly” act vis-à-vis the first defendant.
[36](2005) 12 VR 513, 549 [93] (set out above, paragraph 14).

I turn now to the specifics with respect to the caveatable interest claimed by the first defendant. The evidence in this respect was provided, principally, by way of a relatively short witness statement by the first defendant[37] and his oral evidence at the trial.
[37]Dated as signed, 27 January 2011.

In the course of his evidence-in-chief, the first defendant, Mr Shtrambrandt, said that the sole basis of his claimed caveatable interest was a, so-called, loan agreement made with Mr May, the third party, dated 17 April 2008 (“the Loan Agreement”). The critical part of this evidence-in-chief was as follows:[38]
[38]Transcript of Proceedings (“Transcript”), 168-70.

“MR SHTRAMBRANDT: … My priority was – and I express it in writing to Mr May and evidence was given and written by Mr May in my e-mails, that my concern was for him to complete the construction expediently, sell the properties, pay off his debt. I had no intention to impede normal commercial activity.
HIS HONOUR: Which debt do you mean? Do you mean the debt you claimed?
MR SHTRAMBRANDT: The debt I claimed. The debt that was, as far as I believe, owed to me and based on the loan agreement that was signed and assurances that were given over the period of six months. It is my pleadings that Mr May led me on after Mr May specifically told me on 17 April that money is committed to the construction, that money is invested in the development of 21 Alfada Street and will be paid upon completion and sale of the units. For the next six months Mr May was in numerous discussions, meetings, phone calls with me repeating the same assurances.
It’s my case that if I was wrong in placing caveats on the development of the RDN property it was because I was led to believe by Mr May that my money is in that particular development.

HIS HONOUR: You mean secured by - - -
MR SHTRAMBRANDT: Secured by the development and in full knowledge of all these conversations, loan agreements, assurances, discussions that were going for six months I placed caveats on the properties to put Mr May on notice that commercial dealings are commercial dealings.
HIS HONOUR: So am I right in understanding that the basis of your claimed caveatable interest was something in the nature of a security interest supporting the loan agreement in your favour as a result of representations or assurances by Mr May?
MR SHTRAMBRANDT: Yes.
HIS HONOUR: It’s not based on any other fact, matter or circumstance?
MR SHTRAMBRANDT: There was only Mr May’s telling me that he is unable to pay the loan – I call it ‘the debt’, he called it ‘the loan’ – on 17 April because money was committed in that particular development. Upon completion of the development he would repay the loan with the interest.
HIS HONOUR: Just to be very clear, that’s your claimed basis of the caveatable interest and the sole basis of the claim?
MR SHTRAMBRANDT: That’s the sole basis, that I was told by Mr May who I later realised is Mr May, not RDN Developments, but it was claimed by Mr May who I consequently added the third party that money is secured in that development and that upon completion it would be repaid with the interest.
HIS HONOUR: On that basis you would say, I assume for the purposes of section 118 of the Transfer of Land Act, that that gave you a reasonable cause to lodge your caveat.
MR SHTRAMBRANDT: That was my firm belief and that is what I conveyed to my solicitor. I produced the loan agreement to my solicitor. I produced a number of the e-mails that came from Mr May assuring me he was doing his best to complete the construction and fix the situation and following – and, of course, details of discussion that took place on 17 April and on the basis of my assurances the documents are produced and the phone call to the witness that was at the time present when the loan agreement was put together and who suggested some of the wording. After all this Mr Franzese agreed that he will sign.”

In order to understand the significance of some aspects of this evidence, it is important to have regard to the recitals and operative provisions of the Loan Agreement:

“Background:
1.Andrew [May] is a second nephew of Arkady [Shtrambrandt].
2.During the Shtrambrandt divorce process Andrew has represented and assisted Mrs Elena Shtrambrandt [now known as Ms Semenova]. In particular, he met with her legal counsels, sold to her then bought back unit 3, 45 Briggs Street, Caulfield, assisted her with obtaining invoice for improvements to the said unit, and controlled the $350,000 that Mrs Shtrambrandt has transferred offshore in December 2002.
3.From 2002 till 2005 Elena Shtrambrandt, Andrew May and Mr Eugene Makarov have been involved in various business and other contracts.

Loan:
1.The parties have agreed that Arkady represents interests of Mr Makarov and Mrs Shtrambrandt (also known as Semenova) in this matter.
2.The parties have also agreed that for the purpose of this agreement, and as of this day, the TOTAL outstanding amount (less various expenses) plus reasonable interest stands at $450,000 and is a Loan. (Aust. dollars)

Conditions:
1.The Loan must be repaired [sic] in full by or prior to 17 October 2008.
2.Andrew shall pay interest on the Loan to Arkady at the rate of 15% per annum.

No Assignment:
Neither party can assign or otherwise transfer the benefits of this Agreement without the prior written consent of the other parties.” (emphasis in original)

In the present context, there are some aspects of the Loan Agreement which are of significant importance, namely:

(1)there is no recitation of any loan by the first defendant to Mr May or of any other consideration moving from Mr May as promisee which would support a promise on his part to pay the sum of $450,000 (which is described, barely and without explanation, as a “Loan”) to the first defendant;
(2)reference is made to the first defendant “representing the interests of Mr Makarov and Mrs Shtrambrandt (also known as Semenova) in this matter” (paragraph 1 under the heading “Loan”). There is no reference to any interest of the first defendant in the loan or the loan moneys of $450,000 the subject of the Loan Agreement; either in the recitals or in any of the provisions within the operative part;
(3)although Condition 2 does require payment of interest to the first defendant, the preceding condition (which deals with repayment (Condition 1)) makes no reference to repayment to the first defendant. It may be said, and I think with some force, that this is implied but, significantly, it is a requirement in the context of paragraph 1 under the heading “Loan” which, for the reasons already noted, would appear to indicate no beneficial entitlement to the moneys on the part of the first defendant – rather that he was collecting the loan moneys on behalf of Mr Makarov and Mrs Shtrambrandt as beneficial owners; and
(4)there is no provision in the Loan Agreement which charges any real or personal property (including any fund) with payment of the loan moneys. Further, there is no mention of any land and there are no provisions which purport to create any other proprietary interest in any land or other property.

For these reasons, I am of the opinion that the Loan Agreement does not, by its own terms, confer any interest in real or personal property, to secure repayment or otherwise. Neither does it appear to confer (or even purport to evidence) any beneficial interest in the loan moneys on (or in) the first defendant. All this is, of course, assuming that there was any consideration for any promise to repay the loan moneys on Mr May’s part. As indicated, the Loan Agreement itself does not recite or disclose any such consideration. This is a critical aspect of the enforceability of the Loan Agreement, as it is not an instrument under seal and consequently requires consideration. This deficiency might possibly be cured by the “factual matrix” in which the Loan Agreement was made, as might other uncertainties in relation to its terms to which reference has been made.[39] However, in my view, the evidence led at trial does not achieve this, for the reasons which are subsequently examined in more detail.
[39]See Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337.

Another issue that requires further consideration of the evidence is whether it was established that Mr May did, by representations alleged by the first defendant to have been made to him, “reassure” the first defendant that the moneys the subject of the Loan Agreement were secured by the property, thus creating an interest in land by way of equitable charge. Although not pleaded or argued as such, presumably the first defendant was intending to put the position that Mr May was, in effect, estopped from denying the Loan Agreement constituted an equitable charge on the property as a result of his alleged representations and the first defendant’s alleged reliance upon them – and hence provided a caveatable interest. As is discussed further below, Mr May denied any such representation and, for a variety of reasons, submitted that the Loan Agreement was not enforceable.[40] In any event, for the reasons set out further below, I am of the opinion that the evidence does not establish this position. This leaves the Loan Agreement, if enforceable, constituting an agreement conferring beneficial entitlement in the loan moneys on persons other than the first defendant so that even if that entitlement was secured by way of equitable charge, it does not confer a caveatable interest in the property on the first defendant.
[40]See below, paragraphs 61-5.

Further, the lack of any beneficial entitlement on the part of the first defendant to all or part of the alleged loan moneys was apparently confirmed by Mr Shtrambrandt’s evidence in cross-examination:[41]
[41]Transcript, 246-7.

“Mr Shtrambrandt, at about the end of February or the beginning of March 2008 you telephoned Mr May’s mother, didn’t you?---Correct.
You spoke to her about an alleged debt of Andrew May, didn’t you?---Yes. I precisely told her that - - -
I am just asking you yes or no. Did you say that to Mr May’s mother?---Yes. Correct.
Shortly after that you received a telephone call from Andrew May. Isn’t that right?---Correct.
He asked you about the alleged debt. Isn’t that right?---That’s right.
You said, ‘The matter’s very serious’, didn’t you?---I said that the amounts are astronomical.
You said that you wouldn’t talk about it on the phone?---Mr May wanted details. I told him that I heard one side of the story. I’m giving him an option of telling his side of the story and that was the result of – and that was an option to meet and discuss it.
You didn’t tell him your side of the story over the phone, did you?---No. I only told him that people are making claims for enormous amounts of money because the indication from Mr Makarov was there was $500,000 owed to him and the same amount to my ex-wife. That sounds like a lot of money and I told Mr May, ‘What can you say was the situation?’.

Subsequent evidence with respect to the first defendant’s beneficial entitlement to “loan moneys”, in whole or in part, may be seen to be inconsistent and self-serving,[42] as was submitted by the plaintiff in relation to the first defendant’s evidence generally. At best, it is, in my view, confused. In any event, I am of the opinion that it does not assist the first defendant’s case.
[42]See, for example, Transcript, 265, 282, 361, 364, 368, 370.
Reasonableness of the first defendant’s position and his honest belief

The first defendant’s evidence in relation to the basis of the Loan Agreement begins with the alleged theft of money by his former wife, Ms Semenova, from his former company, Watertreat Engineering Pty Ltd. The evidence of the first defendant in this respect is, in part, contained in an affidavit which he made on 11 February 2009, in proceedings under sub-s 90(3) of the Act for the removal of a caveat lodged on property, being Unit 3, 45 Briggs Street, Caulfield (“the Briggs Street property”), by Watertreat Engineering Pty Ltd in October 2004.[43] The first defendant’s evidence was that in July 2003, his accountant, Mr Alan Walker, conducted an audit of the financial accounts of Watertreat Engineering Pty Ltd. He said that the results were used in a Supreme Court proceeding where his company, Watertreat Engineering Pty Ltd, was trying to recover money taken by Elena Semenova without authority, which amounted to at least $200,000.[44] In spite of the first defendant’s evidence that an audit of the financial accounts of this company had been conducted, there is no documentary evidence of any such theft and the first defendant acknowledged in the course of his cross-examination that he did not have proof of any theft and this is why the matter was never reported to the police.[45] Mr Walker, the accountant who conducted the “audit”, agreed in the course of his cross-examination that he did not know where the income of this company, which he said was unaccounted for, had gone. The first defendant claimed that Mr May had provided him with all the details of the alleged theft and the manner in which it was executed. However, these matters were not put before the Court in his evidence or otherwise. In any event, Mr May maintains that he does not know what happened to the funds, and denies these allegations. Consequently, the position with respect to the alleged theft of money from Watertreat Engineering Pty Ltd by Elena Semenova is that it remains an allegation by the first defendant which is unsupported by any documentary evidence; neither primary documents nor secondary documents, such as an audit report of some kind. As the plaintiff submitted, this theft allegation is one of, if not the, foundation or foundations of Mr Shtrambrandt’s claim that there is some real basis to the Loan Agreement and that he has a caveatable interest in the property.
[43]The earlier proceedings between RDN Developments Pty Ltd as plaintiff and Arkady Shtrambrandt and the Registrar of Titles as defendants (No 4625 of 2009).
[44]See affidavit of Arkady Shtrambrandt (11 February 2009), paragraph 6.
[45]Transcript, 230.

The Briggs Street property was purchased by Ms Elena Semenova in 2002. On Mr May’s evidence, Ms Semenova purchased the Briggs Street property from the proceeds of her partial property settlement with the first defendant. It appears that settlement took place on or about 22 July 2002, although the transfer of land is dated 28 October 2002. The caveat lodged on the title to the Briggs Street property named Watertreat Engineering Pty Ltd as the caveator and claimed “an equitable estate in fee simple” as the estate or interest claimed and specified that the grounds of claim were “by virtue of a constructive trust”. The caveat was dated 13 October 2004.[46] The significance of this caveat in the present proceedings is that it was apparently based on the first defendant’s claim that Elena Semenova had stolen moneys from Watertreat Engineering Pty Ltd and that those moneys had been used to purchase the Briggs Street property. Consequently, there is, at least potentially, some significance in the reason for the withdrawal of this caveat on 30 March 2005.[47]
[46]And lodged at the Land Titles Office, with number AD177918D.
[47]The withdrawal was effected by Withdrawal of Caveat dated 30 March 2005 lodged in the Land Titles Office and numbered AD527842N.

The evidence of the first defendant as to the reason for withdrawal of the caveat, the time at which it was decided to withdraw the caveat, and related matters does not, in my view, serve to do anything but cast very significant doubt on the veracity of the first defendant’s claim to a caveatable interest in the Briggs Street property. In particular, it casts very significant doubt on the basis of that claim, the allegation that Ms Semenova had stolen moneys from the caveator company, Watertreat Engineering Pty Ltd.

The first defendant’s evidence as to why he removed the caveat from the Briggs Street property was contradictory. Initially, his evidence was that the caveat was removed because of documents that Mr May showed him on 10 March 2005.[48] He subsequently said, “… it was Mr Makarov who came and brokered the deal as part of that deal. Because of what Mr May told me, as a part of that deal myself and my ex-wife achieved full settlement on the spot and one of the conditions was she removes caveats from my property and I let bygones be bygones and take the caveat off Briggs Street”.[49] This was, as submitted by the plaintiff, followed by an acknowledgment by the first defendant that he had read paragraph 9 of his affidavit of 11 February 2009 just before giving this answer.[50] Paragraph 9 of that affidavit, it is noted, is as follows:

“An hour later I received a visit from Mr Eugene Makarov, a well respected Russian businessman who offered to mediate a settlement between Ms Semenova and me. After a discussion with Mr Makarov a settlement was reached, and as a result of this settlement she removed caveats from my properties, and Watertreat Engineering Pty Ltd removed the caveat from Unit 3, 45 Briggs Street, Caulfield.”

The first defendant’s evidence was then that the caveat was not removed because of the documents that Mr May showed him,[51] an answer which directly contradicted his earlier answer in this respect. Finally, the first defendant’s evidence was that the caveat was removed because “… my evidence didn’t go far enough in this case and then Mr Makarov also confirmed some of the story that Mr May has told me and at the time I decided it was not worth to pursue any further. That was a commercial decision”.[52]

[48]Transcript, 209-10.

[49]Transcript, 213.

[50]Transcript, 214.

[51]Transcript, 214.

[52]Transcript, 230.

The evidence of the first defendant as to the time he decided to remove the caveat from the Briggs Street property was also contradictory. He first said that he decided to do so at the end of a meeting on 10 March 2005[53] and then he said that, “I agreed to remove the caveat. I agreed not to Mr May, I agreed to Mr Makarov”,[54] in spite of the fact that the alleged conversation with Mr Makarov occurred after the end of the meeting with Mr May, as is made clear in paragraph 9 of the first defendant’s affidavit of 11 February 2009 (which is set out above). The first defendant’s evidence continued in this respect with the statement that, “I can’t be sure of what exactly I said at the end of the meeting but it was my clear intention to remove the caveat …”.[55] He then said, “At all events, at the end of the meeting you had formed a clear intention to remove the caveat?---Absolutely”;[56] “… It had nothing to do with any alleged settlement that you say might have been reached between yourself and your ex-wife through Mr Makarov, did it?---It was the final factor in my decision”;[57] “But you just told us a moment ago that you had already decided?---Absolutely. I already decided that is not the cause that I can argue in court about. I wasn’t going to let Mr May off that easily and told him that I am not happy with the way he behaved and I shouldn’t be making an easy life for him by just removing the caveat without getting a proper explanation of the events but I knew, I knew deep inside, I knew I had no reasons, no legal reasons to maintain the caveat. I was just trying to get a better deal”.[58] On this basis, I accept the plaintiff’s submissions that, given the alleged conversation with Mr Makarov and that the deal allegedly brokered by him between the first defendant and his ex-wife occurred after the meeting between Mr May and the first defendant on 10 March 2005, these answers are contradictory.
[53]Transcript, 245.
[54]Transcript, 245.
[55]Transcript, 245.
[56]Transcript, 246.
[57]Transcript, 246.
[58]Transcript, 246.

In relation to these issues, the first defendant also said in his evidence that Ms Semenova would have had an interest in the removal of the Watertreat Engineering Pty Ltd caveat over the Briggs Street property because “Her money was in Mr May’s possession and Mr May would not release her money until he got his ownership in the unit”.[59] This evidence was in spite of the fact that an aide-memoire, which the first defendant provided to the Court, indicated that it was not Mr May but Mr Makarov who was holding this money, allegedly as part payment of the debt said to be owed by Mr May. The plaintiff submitted that, putting to one side the absence of documentary evidence to support any of these allegations, and also putting to one side the fact that none of the allegations were put to Mr May, the whole story is utterly implausible.
[59]Transcript, 231.

The implausibility of the first defendant’s account of the transactions and dealings with respect to the moneys allegedly stolen from Watertreat Engineering Pty Ltd and its application to the purchase of the Briggs Street property was, in my view, added to by the first defendant’s evidence that Mr May, despite having told the first defendant that he had no knowledge of what Ms Semenova had done with the $350,000 she received from the sale of the Briggs Street property, nevertheless produced to the first defendant a copy of her overseas transfer of the money.[60] Nevertheless, the first defendant subsequently agreed that this was untrue and that Mr May had not given him the funds transfer document he had referred to, but that it had been discovered by his ex-wife, Ms Semenova.[61]
[60]Transcript, 234.
[61]Transcript, 243.

The other aspect of the alleged indebtedness of Mr May as asserted by the first defendant, and reflected in the terms of the Loan Agreement to which reference has been made, was to Mr Makarov. This indebtedness was alleged, by the first defendant, to have arisen out of business dealings Mr Makarov had with Mr Andrew May and Mrs Anna May. Accordingly, it is to this issue that I now turn.

In early 2003, Mr and Mrs May went into business with Mr Makarov, a Russian friend, in a management rights, holiday accommodation rentals business on the Queensland Gold Coast which they all purchased together. The business required a resident manager and, as a result of an expression of interest by Ms Semenova, she commenced to work as resident manager of this management rights business. Mr May had also moved to the Gold Coast for the purposes of this business. Further, during 2004, it became clear that the business was not as profitable as had been expected, and required a lot more personal involvement. Consequently, Mr and Mrs May decided to sell the business and that Mr May would move back to Melbourne. Mr May said that Mr Makarov agreed that the business should be sold. It appears that the news of the sale of the business was not greeted well by Ms Semenova, as it meant that she would lose her position as resident manager of the business and, according to Mr May, said that she would have to move back to Melbourne. Mr May’s evidence was that the relationship between Ms Semenova and he and his wife started to deteriorate from mid 2004 when he told Ms Semenova that the business was going to be sold.

On 2 March 2005, Mr May returned to Melbourne and said that a few days later he found out that a caveat had been lodged on the Briggs Street property. By this stage, the Briggs Street property had been purchased by Mr and Mrs May. Mr May’s evidence was that shortly after Ms Semenova purchased that property, she told Mr May that she was concerned about her ability to keep and maintain the property and, consequently, she offered to sell a two thirds interest in the Briggs Street property to Mr and Mrs May for two thirds of the total property value of $375,000, being the amount that Ms Semenova actually paid to purchase the property, with a deduction of $25,000 on the basis that she wanted to repay some money that she had previously borrowed from Mr and Mrs May.

The offer was accepted in an executed contract of sale.[62] Although this contract appears to be undated, the sale date was specified as “the earlier day of this contract or the acceptance date of any prior contract namely the 8^th day of November 2002”. In any event, by deed of variation dated 21 November 2002 between Ms Semenova and Mr and Mrs May, the contract, recited as having been entered into on 8 November 2002, was varied so that it became a sale of the entire interest in the Briggs Street property to Mr and Mrs May. Consequential variations were that the purchase price was varied upwards to $350,000 payable by a deposit of $35,000 and the residue of $315,000, payable on the date of settlement, namely, 7 February 2003.
[62]The arithmetic referred to in paragraph 61, above, does not accord with the particulars of sale in the contract of sale, which shows the purchase price to be $233,333 – more than the $225,000 that would be obtained utilising Mr May’s method of calculation. However, as the contract sale was varied soon after, this discrepancy has no practical importance.

Shortly after Mr May discovered that the caveat had been lodged on the Briggs Street property, he contacted the first defendant and arranged to meet him at his home on 10 March 2005. Mr May’s evidence of discussions at that meeting and immediately subsequent events leading to the withdrawal of the caveat lodged on the title to the Briggs Street property are set out in his witness statement dated 24 January 2011, as follows:

“41. On 10 March 2005, I arranged for a meeting with Arkady at his home at 6 Curraweena Road, Caulfield South. At the meeting the atmosphere was pretty tense and quite hostile. I asked Arkady why Watertreat Engineering endorsed the caveat over 3/45 Briggs St, Caulfield. He said that he believed that the sale from Elena to Anna and me was not genuine as, he said, no funds changed hands. He said a number of things about Elena and said that she will never se a dollar from their matrimonial assets and that I will also pay a heavy penalty because I was on her side during the separation process. I said to Arkady that the caveat should be removed as we’ve purchased the property from Elena and the transaction was genuine, money has changed hands, we’ve paid stamp duty and other relevant fees and charges. I produced copies of the contract of sale, the deed of variation, the transfer of land form, receipt for the stamp duty paid, copy of my and Anna’s NAB account statement on the loan [307-308], copy of the NAB cheque to the amount of $350,000 [309] to Elena and some other documentation to confirm the genuineness of the transaction. The NAB account statement clearly shows that it is a loan account. The opening balance, on 27 November 2002, was ‘zero’. The first transaction was a debit transaction for the amount of $350,000.00 marked on the statement as an ‘authority transfer’. The amount of $350,000.00 was actually transferred out of the account to purchase the bank cheque issued to Elena as payment for the property. The balance of the account was $350,000.00 debit. I pointed all these matters out to Arkady in our meeting. I told Arkady that I’m not interested in games that he plays and requested that the caveat be immediately removed. Arkady kept asking as to what Elena has done with the funds receive from the sale of the Property. I said that I don’t know and even if I knew, I would not tell him. I repeated my request for the caveat to be removed and said that if I have to, I’ll instruct my solicitor to issue court proceedings. He examined the documentation a number of times, said that he did not know about the fact that the money changed hands and stamp duty was paid. At the end of the meeting Arkady said he would remove the caveat.
42. About three weeks later Arkady called me and advised that he had prepared the required form for the withdrawal of the caveat and that I can collect the form and lodge it with the LTO. I collected the form [318] and lodged it with the Land Titles Office.
43. When I attend at the LTO, I was questioned by the LTO officer on the counter as to why I was lodging the form in person. I was asked why it was not done by my solicitor. I said I wanted to do it quickly and my solicitor could not come to the LTO that day. The LTO officer then accepted the form but warned me that the caveat will be removed only upon verification with the caveator. In a few days, I received a call from the LTO informing me that the caveat had been withdrawn. The caveat was removed from the title of the Briggs Street property.
44. In about April or May 2005, Anna and I sold 3/45 Briggs Street, Caulfield as we wanted to utilise the funds in a development project in Elwood.”

Mr May’s evidence does not indicate whether the development project in Elwood did proceed, but, in any event, approximately 18 months after the sale of the Briggs Street property, the plaintiff purchased the property at a public auction conducted on 11 November 2006. The purchase price was $678,000. Mr May said that the plaintiff company purchased the property using its own funds from various financiers. Any suggestions that the company received any moneys from or belonging to the first defendant, or that it used any such moneys to purchase the property was specifically denied, as was any suggestion that the company used any moneys from or belonging to the first defendant for any purpose.[63] Settlement of the purchase of the property took place on 28 February 2007, with the total price paid, including adjustments, being $683,559.68. Mr May’s evidence was that these adjustments were paid according to the adjustments statement received from Ms Goldie Kelmann, the conveyancing solicitor who acted for the plaintiff in the purchase. Further, he said, that there were additional costs involved in the purchase of $38,972.50, including $36,340 in stamp duty, $1,400 in government fees, and $1,232.50 in settlement and loan application fees. Lastly, there was as an additional $770 in legal costs. This brought the total cost of the purchase of the property to $723,302.18. Mr May then gave detailed evidence as to how the purchase price and additional costs were funded:[64]
[63]See witness statement of Andrew May (24 January 2011), paragraph 46.
[64]Witness statement of Andrew May (24 January 2011), paragraph 49.

“49. The purchase price and additional costs were funded as follows:
(a)     The deposit of $67,800 was paid by cheque from RDN’s NAB account. [436] is the receipt for the deposit cheque provided to me by the vendor’s real estate agent. [407-408] is the relevant page of RDN’s NAB cheque account statement. The deposit cheque was number 000066;
RDN’s account had been put in funds the same day by a transfer of $75,000 by way of loan from me and my wife Anna. The transfer was funded by a redraw from a joint home loan account held by Anna and me with NAB. [437] is the relevant page of our joint home loan account showing the drawdown of $75,000 and its transfer to RDN’s cheque account;
(b)     $542,400 was funded by a loan in that amount received by RDN from Challenger Mortgage Management Pty Ltd (“Challenger”). [477] is the relevant page of a loan statement from Challenger showing the drawdown of the settlement amount of $542,400;
(c)     The balance was funded by two advances, one of $192,000 and one of $720,000 from Challenger to me and my wife as joint borrowers. The net proceeds of these loans after deduction of fees were $190,815.50 and $718,720.50 respectively. These loans were used to discharge two loans from NAB to me and my wife at a cost of $108,212.05 and $674,581.55 respectively. This left net sums of $82,604.45 and $44,138.05, which in total amount to $126,742.40. Of this, $113,102.18 was lent to RDN by my wife and me to fund the settlement on the purchase of the Property.
(i)[454] is a loan statement received by my wife and me from Challenger showing the drawdown of $192,000 together with a copy of the disbursement authority we provided to Challenger;
(ii)[443] is a loan statement received by my wife and me from Challenger showing the drawdown of $720,000 and in [PD108] a copy of the disbursement authority we provided to Challenger; and
(iii) [442] is a letter dated 1 March 2007 we received from NAB confirming receipt of the sums of $108,212.05 and $674,581.55.”

The plaintiff commenced work on the development of the property in early 2007, initially demolishing the existing residence in preparation for the construction of two townhouses.

The reaction of the first defendant to Mr May’s evidence with respect to the financing of the purchase of the Briggs Street property and, later, the purchase of the property, was, in summary, that Mr May and his company, the plaintiff, simply would not have had the financial capacity to purchase these properties in the manner Mr May described. The first defendant discounted the suggestion that the $350,000 purchase price for the Briggs Street property had in fact been borrowed from the National Australia Bank on the basis that if the funds had not come from other sources, such as from moneys in the hands of Ms Semenova, Mr May and his companies would not have had the assets to secure this indebtedness to the bank. No documentary or other evidence was provided by the first defendant in support of this assertion, which is at odds with the documentary evidence provided by Mr May in support of his position that the full $350,000 had been financed by the National Australia Bank under an ordinary commercial loan arrangement.

The first defendant also alleged that Mr May, through his companies, had previously sold the Briggs Street property for $375,000 to Ms Semenova and could not explain why he had bought the property back a month later for $350,000. This assertion may have been the result of confusion as between contract settlement dates and transfer dates but, in any event, the first defendant was unable to provide any documentary evidence other than his assertion that this was the position. There was a long series of questions in cross-examination in relation to the funding of the $350,000 for the purchase of the Briggs Street property. Nevertheless, the position of the first defendant is probably best summarised in the following questions and answers:[65]
[65]Transcript, 208-10.

Further, it was submitted that “… at best for Mr Shtrambrandt, he is a fantasist and conspiracy theorist for whom every fact that goes against his case is automatically regarded as part of the conspiracy, engineered by Mr May. Into this category falls such bizarre theories as the idea that the borrowing from NAB that [Mr and Mrs May] used to fund the purchase of 3/45 Briggs Street was in fact part of some ‘back to back’ transaction designed to conceal the ‘true’ source of the money (Transcript, 211-2). Mr Shtrambrandt did not advance a similar theory in relation to the funding of Alfada Street [the property] but it would be necessary to do so if his suggestion that Alfada Street was funded in turn by the proceeds of the sale of Briggs Street were to be accepted”.[81] Additionally, the plaintiff made submissions in relation to Mr Shtrambrandt’s motivation with respect to his ex-wife, Ms Semenova; namely, that he resented the assistance that Mr and Mrs May had provided to his ex-wife and that the Loan Agreement and the caveat “ought to be regarded as part of an extended campaign by Mr Shtrambrandt to recover part or all of the amount of his ex-wife’s partial property settlement, if not from his ex-wife, then from Andrew May or his company, RDN”.[82]

[81]See Plaintiff’s Closing Submission (10 February 2011), paragraph 130.

[82]See Plaintiff’s Closing Submission (10 February 2011), paragraph 134; see also paragraphs 131–3 of those submissions.

On the basis of the evidence to which reference has been made, particularly and more generally, and for the reasons indicated, I am satisfied that the plaintiff has established that the first defendant could not, on the basis of the objective facts which that evidence establishes or reasonably implies, have had an honest belief based on reasonable grounds that he had a caveatable interest in the property at the time the caveat was lodged. Consequently, it follows that the caveat was lodged without reasonable cause for the purposes of s 118 of the Act.

Finally, there is the first defendant’s allegation that Mr Andrew May represented to him that money to which the first defendant was entitled was used in the purchase of the property; in other words, a representation that the first defendant was entitled to a caveatable interest in that property. The first defendant claimed that he had relied upon this representation and that, consequently, it followed that it could not be said that he did not have an honest belief on reasonable grounds that he was entitled to a caveatable interest in the property. Consequently, the first defendant submitted that it could not be said, and certainly not by the plaintiff and Mr May, that he had lodged the caveat without reasonable cause.

The chain of events that the first defendant alleged amounted to a relevant representation or representations by Mr May appear to be, in summary, that:

(1)Ms Semenova stole money from Watertreat Engineering Pty Ltd between 1992 and 1999 and passed that money through accounts in Nauru;
(2)Ms Semenova paid these moneys to Mr and Mrs May, who used these funds to buy the Briggs Street property from Ms Semenova in November 2002; and
(3)$300,000 of the proceeds of the subsequent sale of the Briggs Street property, being $300,000 of the money allegedly stolen by Ms Semenova, remained under Mr May’s control and these funds were used to buy the property.

I accept the plaintiff’s submissions that there is no evidence, apart from the unsupported assertions of the first defendant, that any of these events ever occurred. Additionally, the events noted in paragraphs (2) and (3) are directly contrary to documentary evidence to which reference has been made that the purchases of both the Briggs Street property and the property were funded by borrowings from commercial lenders. Additionally, I accept the plaintiff’s submissions that if I were to conclude that these representations were made, it is quite clear from the evidence of the first defendant that he did not rely and would not have relied on representations of this kind. He gave firm and confident evidence that he never trusted Mr May, and that he suspected every word that Mr May said.[83] Apart from specific instances of such evidence, the position of the first defendant in this respect was very evident by inference or implication throughout the presentation of his case and his allegations with respect to Mr May. Consequently, even if these representations were made, Mr Shtrambrandt’s position vis-à-vis Mr May is fatal to both his defence of the principal claim and also his third party claim against Mr May.

[83]Transcript, 272–3 and 285.

Finally, the position is that, even if the first defendant established the representations he sought to rely upon, they would not, in any event, give him any right personally. As noted previously, any right, and any caveatable interest flowing from that right, would belong to the company from which the moneys were alleged to have been stolen, namely Watertreat Engineering Pty Ltd.[84]
[84]See above, paragraph 39.

Compensation

On 12 October 2008, the plaintiff and Mr Valeri Danilov entered into two separate contracts for the purchase of each of the two units which were being erected on the property. Both these contracts were probably best described as being in the nature of “contract notes” or “sale notes”, insofar as they were not the common, more formal, contracts based on the standard form Law Institute of Victoria or REIV contracts. Nevertheless, there is no suggestion that they were not otherwise enforceable as contracts for the sale of land, subject to the operation of ss 9AA and 9AE of the Sale of Land Act 1962 (Vic); a matter which was raised by the first defendant, and which has already been discussed.[85]
[85]See above, paragraphs 25 and 26.

These contracts provided for settlement on or before 15 January 2009. They contained some particular provisions clearly directed to the fact that the units which were being purchased were in the course of being constructed, and the plan of subdivision had not been approved. These matters were addressed in paragraphs 5 and 6 of these contracts, as follows:

“5. Vendor/vendor solicitor to finalise documentation and register plan of subdivision with relevant authorities and provide to Purchaser documentation confirming the same prior to 15 December 2008;
6. Construction of the subject property to be completed prior to 15 December 2008. Vendor to provide Purchaser with ‘occupancy permit’ issued by the relevant building surveyor by 15 December 2008;”

These provisions were complemented or supported in terms of sanctions by special condition three, which provides as follows:
“3. Purchaser may terminate this agreement if one of the following conditions is not complied with by specified date:
- subdivision is not registered with the relevant authorities by 15 December 2008;
-‘Occupancy Permit’ is not issued by 15 December 2008;

Should any of the above occur, upon Purchaser’s request, Vendor shall immediately return the amount of $2,500 (two thousand five hundred dollars only) to Purchaser and this agreement can be considered VOID.
Vendor shall not be entitled to any money and may offer the subject property for sale to the general public.”

Each of the units sold under these contracts for a price of $1,150,000, with the balance of deposit, namely, $115,000, to be paid by 15 December 2008 (which date corresponds with the requirements of paragraphs 5 and 6 and special condition 3) and with the balance of purchase price of $1,035,000, in each case, payable on settlement. The financial provisions of these contracts were consistent with an Exclusive Sale Authority which the plaintiff had entered into with Noel Jones (Caulfield) Pty Ltd, estate agents, on 9 June 2008. The terms of that Authority, which was signed by or on behalf of the plaintiff and the estate agent, provided for a vendor’s authorised price of $1,200,000 for each of the units payable in 30 to 60 days. The agents Estimate of Selling Price (pursuant to s 47A of the Estate Agents Act 1980 (Vic)) provided an estimate of between $1,100,000 and $1,200,000. The estate agent’s commission was provided for at the rate of 1.65% for each unit. Ms Julia Portnoy, an estate agent employed by Noel Jones (Caulfield) Pty Ltd, gave evidence in cross-examination that the price of the sales to Mr Danilov were “reasonable” and said that at the time the estate agent she had been employed by had been marketing the units for an asking price in excess of $1,200,000 for each unit.

Mr May gave evidence that the day after the contracts were signed, he attended the offices of Noel Jones (Caulfield) Pty Ltd and met with Ms Julia Portnoy, senior sales executive, and Mr Alex Zarnowski, a director of that company. He said that he showed Ms Portnoy the contracts with Mr Danilov, and negotiated a reduced commission of $15,000 in total for both of the townhouse units. The agreement for reduced commission is recorded in a letter dated 13 October 2008 from Noel Jones (Caulfield) Pty Ltd. Omitting formal parts, the agreement was as follows:

“This agreement between Noel Jones (Caulfield) Pty Ltd and RDN Developments Pty Ltd with regard to Mr Valerie Danilov a prospective purchaser for both units at the above address.
In the case if Mr Valerie Danilov purchases both units, RDN Developments Pty Ltd will pay Noel Jones (Caulfield) Pty Ltd total commission of $15,000 including GST.”

The agreement was signed on behalf of both parties.

In the course of the trial, the first defendant raised issues in relation to the reference in this agreement for reduced commission to Mr Danilov as a “prospective purchaser”. The implication sought to be drawn, as I understood it, was that this was indicative of the contracts and the sale to Mr Danilov not being genuine. In my opinion, there is no evidence to support such an assertion and, further, the use of the word “prospective” is, in my view, appropriate with reference to the contracts with Mr Danilov which were, expressly, conditional upon the obtaining of an occupancy permit and approval of the plan of subdivision; quite apart from the effect of ss 9AA and 9AE of the Sale of Land Act, the effect of which has already been discussed. In any event, if the contracts and the sale to Mr Danilov had not been genuine, it is difficult to see any basis for assuming that such an elaborate artifice would have been constructed by Mr May in negotiating reduced commission and recording that agreement with Noel Jones (Caulfield) Pty Ltd and then instructing the plaintiff’s conveyancing solicitor, Ms Goldie Kelmann, to prepare contracts of sale.

Ms Kelmann’s evidence was that on 9 September 2008, Mr May instructed her to prepare vendor statements for the two units being constructed on the property. She prepared these statements as instructed. Ms Kelmann said that she was shown copies of the contracts with Mr Valerie Danilov on 13 October 2008. On 20 November 2008, she received from Mr May the original statements of compliance with respect to the then unregistered plan of subdivision of the property by Glen Eira City Council (by letter dated 20 November 2008 from its Subdivision Planner to Nacha Moore Land Surveyors Pty Ltd). Ms Kelmann was, she said, ready to immediately lodge all required documents and drawings with the Land Titles Office to finalise the process for approval of the plan of subdivision. The next day, 21 November 2008, Ms Kelmann attended the Land Titles Office for this purpose, but lodgement of the plan of subdivision was refused because of the presence of the caveat.

On discovering the presence of the caveat, Ms Kelmann took further instructions from Mr May and, as a result, contacted the first defendant’s solicitor, the second defendant, Prospero Franzese, by telephone on 25 November 2008. Ms Kelmann’s evidence was that she told Mr Franzese that the caveat needed to be removed, to which he said that Mr May owed money to his client. Ms Kelmann said that she informed Mr Franzese that the property was not owned by Mr May and that Mr Franzese’s client had no caveatable interest in it. Mr Franzese replied that there had been an agreement signed, to which Ms Kelmann responded that the agreement was signed under duress and had no validity, and asked him to remove the caveat. Mr Franzese refused. When asked by Ms Kelmann whether Mr Franzese’s client would agree to the subdivision, he said that his client would, provided new caveats were endorsed on each of the new lots. By letter dated 25 November 2008 from Ms Kelmann to Franzese and Associates, she warned the first defendant, on behalf of the plaintiff, that it would suffer financial loss if the caveat was not removed and that it would apply to have the caveat removed under s 89A of the Act. The letter also requested consent to registration of the plan of subdivision. On 27 November 2008, Ms Kelmann rang Mr Franzese again. He said he would send a letter consenting to registration of the plan of subdivision. Ms Kelmann said that she wanted the caveat removed, to which Mr Franzese said that his client was a very powerful man and he would get what he wants. Ms Kelmann said that she asked Mr Franzese to elaborate, but that he was silent. Mr Franzese denied any statement or threat to the effect that the first defendant was a very powerful man. He also said in his evidence that he had attempted to explain the basis of the caveat to Ms Kelmann, with reference to “an agreement”, but that she was not interested and simply said that “It has to be removed”.[86] The evidence of Ms Kelmann and Mr Franzese in relation to these conversations was in conflict. Although the conversations are not in themselves critical, it must be observed that the evidence of Mr Franzese was never put to Ms Kelmann and, further, Ms Kelmann’s evidence is consistent with the documentary evidence relied upon by the plaintiff; in contrast to Mr Franzese’s evidence, which derives no support from such consistency, given the relative absence of relevant documentary evidence relied upon by the first defendant. For these reasons, I prefer the evidence of Ms Kelmann.
[86]See Transcript, 438-9.

Ms Kelmann sent a further letter to Mr Franzese, dated 3 December 2008, which, omitting formal parts, was in the following terms:

“I refer to my letter of 25 November 2008 and subsequent telephone conversation wherein you confirmed that your client would provide a letter of consent in order that the subdivision could be lodged. I have not received any letter of consent and the subdivision is unable to proceed. As advised my client is ready to market the individual units for sale and is unable to sell because of your client’s caveat and the subdivision delay. Your client needs to be aware that my client is paying interest to the bank and your client will be responsible for the additional interest and potential loss caused by my client’s inability to sell the properties.”

On 11 December 2008, Mr Franzese sent, by facsimile, a letter bearing that date addressed to Ms Kelmann, consenting to registration of the plan of subdivision “on the condition that the caveat no AG139394B be registered on the Lot 1 and Lot 2 of the Plan of Subdivision PS618726G”. Ms Kelmann said that on 15 December 2008 she attended the Land Titles Office with the facsimile consent and attempted to lodge the plan of subdivision. Lodgement was, however, refused, because the consent was not an original document. On 14 January 2009, Ms Kelmann received a letter from the Land Titles Office stating that proceedings to substantiate the claim of the caveator were on foot. By letter dated 27 January 2009 from Mr Franzese, Ms Kelmann received, by way of service, the writ and statement of claim in proceeding 10589 of 2008, which was the proceeding referred to in the letter from the Land Titles Office of 14 January 2009. The institution of this proceeding meant that it was not possible to lodge the plan of subdivision and, consequently, the process was delayed until 3 March 2009, when the Court ordered removal of the caveat. Steps were then taken to register the plan of subdivision and, on 10 March 2009, Ms Kelmann received confirmation that the plan of subdivision had been registered and new titles issued.

A good deal of attention was directed, in the case of the first defendant, to the allegations and submissions that the sale of the two units which were being erected on the property to Mr Danilov was not genuine in, as I infer, two senses. The first was that the contracts were, in effect, a sham, and the second was Mr Danilov did not have sufficient resources available to him to finance the purchase price payable under the contracts in any event.

In relation to the first aspect of this claim, I am of the opinion that the evidence supports the genuineness of the contracts. As indicated previously, their provisions are not unusual. They are reflective of the sale of a property in a state of redevelopment, and they contained provisions which appear reasonable and appropriate in this context. Further, a receipt for the preliminary deposit is endorsed on them and their execution was followed by dealings which one might expect with both the selling estate agent and a conveyancing solicitor which were indicative of an intention to complete these sales according to the usual commercial and conveyancing processes.

Mr Danilov also gave evidence of the resources available to him to complete the purchases. The evidence showed, amongst other things, that a residential property at 4 Helensley Road was purchased in 2006 for $2,175,000 and in October 2008 was encumbered by a mortgage of $1,012,752.79. The evidence also showed that the business of Australia’s Quality Sheepskins Pty Ltd, of which Mr Danilov was the sole shareholder, had a typical monthly turnover of $1.7 million. Additionally, Mr Danilov identified a contract of sale and land titles register search statement that showed that less than two years later, he and his wife purchased, in their own names, a property at 21 Arnold Road, Brighton East for $1,120,000 cash. In my opinion, the evidence led in this respect does demonstrate that Mr Danilov was, at all relevant times, a man with substantial assets at his disposal with which he could have completed the purchase of the units which were being constructed on the property.

In any event, having regard to the evidence to which reference has been made, I do not regard the genuineness of the contracts or the capacity of Mr Danilov to complete them as being decisive with respect to the plaintiff’s claim for compensation. In my opinion, the evidence establishes quite clearly that on or about the time those contracts were entered into, the property did have a market value, for each of the units, of between $1,100,000 to $1,200,000, as established by the evidence of Ms Portnoy and as recorded, reasonably contemporaneously, in the Estate Agent’s Exclusive Sale Authority. Even if a purchaser other than Mr Danilov had been found in the latter part of 2008, it would, in my view, be implausible to think that such a purchase would have proceeded, even if it reached the stage of exchange of contracts, as a result of the presence of the caveat and the consequent delay in the registration of the plan of subdivision by the Land Titles Office, until March 2009. Having regard to this position, the datum, in my view, from which any compensation is to be determined is set at between $1,100,000 and $1,200,000 at about the time the contracts were entered into with Mr Danilov, but independently of that fact or circumstance. It follows that the critical question becomes whether or not the plaintiff had mitigated its loss and damage in a falling market by the process adopted for selling the units on the property on or after March 2009.

It was common ground that there is a duty on a caveatee to mitigate loss in the context of a claim under provisions such as s 118 of the Act. In this respect, the plaintiff referred to the decision of Young J (as he then was) in National Australia Bank Ltd v Bridge Wholesale Acceptance Corporation (Australia) Ltd.[87] Young J, in that case, made it clear that the duty to mitigate does not require the caveatee to do anything other than in the ordinary course of business, but it does also require the caveatee to avail itself of procedures available to remove a caveat. These procedures would, in Victoria, include an application to the Court under s 90(3) of the Act or the administrative procedure for removal provided by s 89A of the Act. In the context of the New South Wales provisions, Young J relevantly said:[88]
[87](1990) 21 NSWLR 96.
[88](1990) 21 NSWLR 96, 104-5.

“(a) Section 74J was introduced into the Real Property Act for the purpose of giving the registered proprietor a simple method of getting rid of a caveat without application to the court. The practical effect of the insertion of the section was to make the caveator apply for an extension of a caveat, rather than for the registered proprietor to move to extinguish it. …
In Hooke v Holland [[1984] WAR 16] (at 20), Brinsden J said, with respect to the then alternative procedure of lodging a contrary dealing:
‘… No explanation was given to me why this alternative procedure was not undertaken in this case. If undertaken, it may have facilitated settlement by 15 November, or shortly thereafter. … I am not persuaded that the damages [the plaintiff] claims have flowed (necessarily) from such failure. If the plaintiff had availed himself of the alternative procedure I have referred to, he may not have incurred any additional interest payments ….”

Mr Harper, for the defendant, submitted that I should follow this decision and that the result of following it meant that the plaintiff would only be entitled to some nominal amount of damages. Mr Harper reminded me that in Nelson v Kimberley Homes Pty Ltd [(1988) 4 BCL 298; (1988) NSW ConvR ¶55-394] I mentioned the decision in Hooke v Holland with approval.
As I said in Nelson’s case, it is clear that the principle of mitigation of damages applies to the damages claimed under s 74P of the Real Property Act. The basal principle of mitigation of damages was laid down by Viscount Haldane LC in British Westinghouse Electric and Manufacturing Co, Ltd v Underground Electric Railways Co of London, Ltd [1912] AC 673 at 689, as imposing on a plaintiff ‘the duty of taking all reasonable steps to mitigate the loss consequent on the breach, and debars him from claiming any part of the damage which is due to his neglect to take such steps’.
It is clear that the plaintiff is under no duty to mitigate his loss by taking such steps as a reasonable person would not consider appropriate, nor need the plaintiff do anything otherwise than in the ordinary course of business: Dunkirk Colliery Co v Lever (1878) 9 Ch D 20 at 25.”

In the present circumstances, the evidence establishes, as I have noted previously, that an application to remove the caveat was made under s 89A of the Act by Ms Goldie Kelmann, conveyancing solicitor acting on behalf of the plaintiff, as soon as it became clear as a result of correspondence between her and Mr Franzese, the first defendant’s solicitor, that he would not agree to removal of the caveat; at least other than on the basis that new caveats would be lodged in his favour on the new separate lots into which the property was being subdivided. As soon as Ms Kelmann received a letter from Mr Franzese, dated 27 January 2009, enclosing the written statement of claim in proceedings by the first defendant to substantiate his claim as caveator, steps were taken to bring the matter before the Court as soon as possible, which resulted in the order for removal of the caveat made 3 March 2009. Steps were then taken to sell the property, Mr Danilov having avoided the contracts due to the delay in approval of the plan of subdivision as a result of the presence of the caveat. Ms Portnoy, an employee of the estate agent employed to sell the property, gave evidence that after Mr Danilov’s avoidance, a number of steps were taken to sell the two units on the property.[89] There was, however, some difficulty in achieving a sale price as high as that initially negotiated with Mr Danilov, due to what Ms Portnoy described as the “softened” state of the market.[90] As a result, there was a substantial diminution in the sale value of the units: the first unit sold for $905,000 on 5 April 2009, and the second for $860,000 on 20 July 2009.[91]
[89]See witness statement of Julia Portnoy, signed 25 January 2011, paragraph 13 and following.
[90]Ibid, paragraph 17.
[91]Ibid, paragraphs 18, 26, respectively.

In the context of the mitigation issue, the first defendant also claimed that there was a failure to mitigate by the caveatee “in that no notice of the alleged sales were given to the defendants prior to commencement of these hearings”. I accept the plaintiff’s submissions that this contention is misconceived as there is no evidence that notifying the first defendant of the contracts would have constituted mitigation of loss. As it was submitted, the plaintiff mitigated its loss by having the caveat removed in spite of the first defendant’s resistance until 2 March 2009, and then by proceeding to sell the two lots as soon as reasonably practicable, consistent with the time and the best available price. In any event, there is no evidence that the first defendant would have withdrawn the caveat had he known of the sales to Mr Danilov. On the basis of the evidence and the manner in which the trial was conducted, I accept the plaintiff’s submission that it is much more likely that the knowledge that the plaintiff had a willing purchaser would have only encouraged the first defendant to increase the pressure on the plaintiff and Mr May, by maintaining the caveat and resisting its removal even more vigorously. Further, as submitted, the whole point of a caveat is, at least in general terms, to prevent sale. In light of the first defendant’s previous, and subsequent, conduct, Mr May was entirely justified, in my view, in fearing that if the first defendant did find out about the sales to Mr Danilov, he would have become even more difficult to deal with.[92] If any support for this view were needed, it is, in my view, provided by the action of the first defendant in issuing proceedings to maintain the caveat and maintaining these proceedings until 3 March 2009, when the Court ordered removal of the caveat.
[92]See witness statement of Andrew May (24 January 2011), paragraph 84.

The plaintiff also submitted that if the Court finds that the caveat was lodged by the first defendant for an improper purpose, namely, to pressure Mr May into paying the amount referred to in the Loan Agreement, then the allegation of failure to mitigate must fall away. It was submitted that if this was the first defendant’s purpose, as the plaintiff contended, it would be an implausible proposition that the first defendant would, on learning of the sales, withdraw his caveat without first being paid $450,000 plus interest which he was demanding from Mr May under the Loan Agreement. The plaintiff referred to the judgment of Dodds-Streeton J in Goldstraw v Goldstraw [2002] VSC 491, where her Honour said:[93]

“[38] In my opinion, the only proper purposes for lodging a caveat against a registered proprietor's title under s89(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] Of particular relevance in the present case is the potential deterrence of purchasers. Given the potential for damage to a variety of parties, in my opinion the lodgement of a caveat for an ulterior or collateral purpose constitutes a serious misuse of the relevant statutory provisions.
[40] That is fortified by s118 of the Act, which provides that any person lodging a caveat without reasonable cause shall be liable to compensate any person who sustains damage thereby, as the court deems just.”

[93]Goldstraw v Goldstraw [2002] VSC 491, [38]-[40].

Consequently, the plaintiff submitted, the first defendant’s decision to lodge and maintain the caveat was for an ulterior purpose, constituting a misuse of the caveat provisions of the Act. It was also submitted that the first defendant’s attempted to put pressure on Mr May to pay what he considered to be an outstanding unsecured debt, pursuant to the Loan Agreement; self-described by the first-defendant as a “commercial decision” (Transcript 383), on the basis that he “just wanted money” (Transcript, 383). In any event, as Mr Shtrambrandt had no honest or reasonable belief in the existence of a caveatable interest at the time of lodging the caveat, I find that lodgement of the caveat was not based on a proper purpose in protecting an estate or interest in the land subject to the caveat. As a result, the lodgement of the caveat constitutes improper use, which gives rise to liability on the first defendant’s behalf pursuant to s 118 of the Act.

Conclusion

For the reasons set out above, I find that the first defendant lodged the caveat without reasonable cause within the meaning of s 118 of the Act and that, under those provisions, he is liable to make compensation to the plaintiff for the damage suffered as a result. Additionally, and also for the reasons set out above, I dismiss the claim of the first defendant against the third party, Mr May. As indicated previously, no claim has been pursued in these proceedings against the second defendant.

Also for these reasons, I determine that just compensation for the purposes of s 118 of the Act is the difference between the sum of the differences between the sale price of each of the units which were constructed on the property as agreed and contained in the contracts with Mr Danilov and the price for each unit when they were ultimately sold.

I will hear the parties in relation to the form of final orders and on the question of costs which is, at this point, reserved for further submissions and consideration by the Court.

[2011] VSC 130

16 May 2011