Sandich v Fasoulis
[2023] VSC 65
•17 February 2023 (delivered ex tempore; revised 22 February 2023)
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
S ECI 2023 0542
| SOFIA SANDICH | Plaintiff |
| v | |
| CHRISTOS FASOULIS | First Defendant |
| REGISTRAR OF TITLES | Second Defendant |
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JUDGE: | John Dixon J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 17 February 2023 |
DATE OF JUDGMENT: | 17 February 2023 (delivered ex tempore; revised 22 February 2023) |
CASE MAY BE CITED AS: | Sandich v Fasoulis |
MEDIUM NEUTRAL CITATION: | [2023] VSC 65 |
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REAL PROPERTY – Caveat – Application to remove caveat – Whether a serious question to be tried in respect of the estate or interest claimed – Baumgartner trust asserted – Caveat used as a bargaining chip – Transfer of Land Act1958, s 90(3).
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M Black | Aitken Partners |
| For the First Defendant | Mr M Thomas | Dandanis & Associates |
HIS HONOUR:
The plaintiff is one of two registered proprietors of a property in Stevenson Street, Kew. The other registered proprietor is a former husband, Phillip Branov. The first defendant has no legal interest in this property. He married the plaintiff on 25 March 2017, although they have now separated with no prospect of reconciliation.
On 6 February 2023, the first defendant commenced a proceeding against the plaintiff in the Federal Circuit and Family Court of Australia, seeking financial orders pursuant to s 79(1) of the Family Law Act 1975 (Cth). He was legally unrepresented. The substance of the first defendant’s claim is a financial settlement, for a division of the total net non-superannuation assets of the parties and he seeks a settlement of 85 per cent to the wife and 15 per cent to him. In the alternative, that the court make any order that is just and equitable, pursuant to s 79 of the Family Law Act, and such further orders as are deemed necessary or appropriate. The first defendant sought an interim order that the plaintiff pay him $150,000 by way of an interim property settlement, but did not apply for that interim relief (the ‘family law proceeding’).
Part D of his application contains a section entitled, 'Evidence', in which the first defendant sets out the circumstances of his marriage to the plaintiff, and his claim for a financial settlement. He acknowledged that at the commencement of their marriage the plaintiff solely occupied the Stevenson Street property, which she owned outright (jointly with Branov), and he shared his time between that property and his property in Murrumbeena, which was encumbered with a sizeable mortgage, where his children also resided.
The first defendant explained that the financial burden of supporting the plaintiff and his children and running two households, quickly became untenable and he fell into serious financial difficulty. He sold a property held by a family trust and sold the Murrumbeena property in March 2018. He stated that he ‘used the net proceeds’ to pay off credit card debts, tax debts and some of the plaintiff's outstanding lawyer’s fees, most of which were incurred since the commencement of his relationship with the plaintiff in March 2016.
After the sale of the Murrumbeena property, the first defendant and his children lived in the Stevenson Street property until it was to be sold by order of the Family Court. The first defendant states that he financially assisted in preparing Stevenson Street for sale, undertaking substantial refurbishments. His children relocated to their mother's home.
The first defendant described the refurbishments as new kitchen appliances, refrigerator, oven, cooktop, dishwasher, rangehood, bar fridge, painting of the downstairs level, and part of the upstairs level, employing an electrician to fit off, rewire and decommission old electrical cabling, some plumbing works, painters, cleaning of guttering, gardening, rubbish removed, and new blinds to kitchen and laundry. As the plaintiff did not have any money, the first defendant paid for these purchases and the trade works spending an estimated $20,000. The property passed in at the initial auction but ultimately sold.
The first defendant submitted that there was a relationship between the sale of the Murrumbeena property and the subsequent discussions or agreement whereby the first defendant provided money to the benefit of the plaintiff by expenditure on the Stevenson Street property in preparing it for sale. The first defendant said that he knew that the Stevenson Street property would eventually need to be sold as part of the plaintiff’s property settlement with Branov. He stated that he discussed with her the benefit of undertaking substantial refurbishment of the Stevenson Street property so as to realise its maximum sale value. He contended that the two of them discussed that getting the highest sale price would benefit both of them financially and for this reason funds he had available to him by virtue of his work and the sale of the Murrumbeena property were invested in the Stevenson Street property. He did not say that the plaintiff said, or agreed, that such expenditure would entitle him to an interest in the property.
However, the first defendant expended only approximately $20,000 on refurbishment work and for all the new goods that were provided in preparation for the auction. Although the first defendant paid for most of the trades and labour costs in cash and purchased some appliances, principally from Harvey Norman, there was no evidence that this expenditure did, or was likely to, maximise the sale price achieved or that all of the goods supplied passed with the property.
The following day after filing the family law proceeding, the first defendant consulted a solicitor, and on 7 February 2023 that solicitor, on his behalf, filed the caveat. The grounds of claim are ‘Implied, resulting or constructive trust,’ the estate or interest claimed is a ‘freehold estate‘ and the prohibition on dealings is ‘absolutely.’
This proceeding is an application under s 90(3) of the Transfer of Land Act 1958 (Vic) for the summary removal of that caveat. The second defendant informed the court that it did not intend to appear on the application.
It can immediately be noticed that the interest claimed by the caveat affects the interests of Philip Branov, the joint-registered proprietor of the property, notwithstanding that the first defendant was always aware of his interest and makes no claim affecting it. The first defendant has stated that he was aware of the protracted history of the Family Court dispute between the plaintiff and Branov. Secondly, by seeking to prohibit absolutely all dealings, the caveat also affects the interests of the purchaser under a contract of sale of the property dated 27 July 2022. Again, the first defendant was always aware of this contract, and that it was due to be settled on 20 February 2023. The first defendant ought to have known or ought to have been advised by his solicitor that lodging the caveat affected each of these interests.
It is not clear precisely when the first defendant served the plaintiff with the family law proceedings issued on 6 February 2023, but on 9 February 2023, her solicitors wrote to the first defendant's solicitor demanding that the caveat be withdrawn.
The first defendant's position in relation to the caveat was made clear in an immediate response to that letter. He was prepared to withdraw the caveat subject to part of the plaintiff’s share of the proceeds of sale being retained, pending the resolution of his family law claim for a property settlement. Of itself, this response is equivocal between a claim as the beneficiary of a trust to a freehold estate, a claim to an equitable charge and a claim for a property settlement under the Family Law Act.
The first defendant’s claim has varied about the sum to be secured. Initially, on 6 February 2023, he claimed the sum of $150,000 as an interim property settlement in the family law proceeding. On 9 February 2023, the first defendant proposed that the plaintiff’s share of the balance of the proceeds of sale of the property be placed in an interest-bearing trust account pending finalisation of the family law claim. On 16 February 2023, after the issue of this proceeding, the first defendant offered to withdraw the caveat to enable settlement of the contract provided an amount of $250,000 was paid into an interest-bearing trust account, such funds to be released only by agreement of the parties or by order of the Federal Circuit and Family Court.
This variation from the high point of his claim, to freeze the whole of the plaintiff's share in the proceeds, to the low point of the claim, as interim relief of the sum of $150,000, reflects the uncertainty in the first defendant’s position. It is more consistent with a statutory claim under the Family Law Act based on the incommensurate circumstances of the marriage than on a claim to a freehold interest under an implied, resulting, or constructive trust against one of two registered proprietors following from an expenditure of approximately $20,000 towards preparing the property for sale.
There was no dispute between the parties that the principles applicable on this application are well settled.[1] In substance the caveator must show that there is a serious question to be tried as to his entitlement to the interest that is claimed by the caveat over the land in question sufficient to warrant preventing all dealings with the land and that the balance of convenience favours protection of that interest.
[1]Piroshenko v Grojsman [2010] 27 VR 489 and cases following that decision.
The first defendant submitted that the serious question to be tried was that he was the beneficiary of a trust of the type described by the High Court in Baumgartner v Baumgartner,[2] and as such, was entitled to the interest claimed in the caveat. He submitted that he needed to show, at least to the standard of a serious question to be tried, the relevant elements to establish a Baumgartner trust, which he described as being:
(a)There was a joint relationship or endeavour in relation to the improvement of the Stevenson Street property;
(b)There was a pooling of resources for the parties' common benefit with the first defendant contributing a significant amount of money and resources to that endeavour;
(c)The substratum of that joint enterprise or endeavour ended without attributable blame; and
(d) That there was a requisite element of unconscionability.
[2][1987] 164 CLR 137, 148.
The first defendant also submitted that the material before the court showed there was a serious question to be tried that there was a common intention constructive trust.
The evidence before the court is brief on this question of the dealings between the parties going to the question of any interest in the property being granted by the registered proprietors to the first defendant. While that is unsurprising, given the summary nature of this application, it does not relieve the first defendant of the necessity to establish the serious question to be tried.
The key issue is whether there was a joint relationship or endeavour in relation to the improvement of the Stevenson Street property between the registered proprietors and the caveator. What is required is a joint relationship or endeavour in respect of the property itself, which is not to be confused with the joint relationship or endeavour that is constituted by a marriage. It is necessary to concentrate on that narrower concept, as the first defendant has conflated what he alleges to be contributions to the marriage with what he describes as an agreement that he finance the cost of preparing the property for sale on the basis that he would be repaid out of the proceeds of sale.
The first thing to be noted is that there is no suggestion that the Baumgartner trust includes, as trustee holding an interest for the first defendant, Branov, the other registered proprietor, yet the caveat plainly claims an interest against him. If the financing of the preparation of the property for sale was to effect any interest in the property for the benefit of the registered proprietors, Branov needed to be involved. There was no joint endeavour or relationship that included Branov.
The extent to which there was a joint relationship or endeavour for the improvement of the Stevenson Street property is confused by intermingling it with the issues raised in the claims for relief in the family law proceedings. The first defendant was not able to show a serious question for trial that the registered proprietors were trustees for the freehold interest under an implied, resulting, or constructive trust.
This conclusion is sufficient to require that the caveat be removed.
The second issue is that the first defendant has not identified any dealing other than a proposed obligation to repay him from the plaintiff’s share of the proceeds of the sale. The broader issues of the contributions to the matrimonial relationship are not related to the preparation of the Stevenson Street property for sale. But when looking at precisely what the first defendant says about that, I cannot see that his evidence goes any further than providing financial assistance to the plaintiff in relation to an endeavour that had already been agreed between the registered proprietors or ordered by a court. That was the sale of the Stevenson Street property. All that the first defendant identified as occurring was that he has contributed some $20,000 to tidying up the property for sale in the manner that I described above, in return for a promise that he be repaid out of the plaintiff’s share of the proceeds of sale.
There is no evidence of any specific discussion or agreement between the parties that he would have any interest in the property. At its highest the first defendant’s evidence contemplates a share of sale proceeds, not an equitable interest in the property, but the first defendant also references conversations with the plaintiff that their agreement was for a loan to cover the costs of the refurbishment to be repaid out of the proceeds and not an equitable interest.
Over the last month or so as I knew the settlement of the sale of the Kew Property was imminent, I noticed that when I tried to talk to Sofia about the money we had previously agreed that I would receive out of the sale, that Sofia would not engage with me about the topic and was evasive.
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In my application and supporting affidavit to the Family Court, I have specifically referred to the funds I invested in the Kew Property, which Sofia promised she would pay back to me.
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I was primarily responsible for overseeing and paying for the refurbishment work. Sofia did not have any money, so I paid approximately $20,000 for the new goods and all works in preparation for the auction.
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I have always discussed financial matters with Sofia, in particular her promise that she will ‘pay back’ the money that I am owed and that was invested in the Kew Property. I hold a strong belief that once she receives her share of the proceeds of sale, she will not repay me for my contributions to the Kew Property as she promised…
There is a necessary distinction between financial or other contributions that genuinely lead to a beneficial interest of the type recognised in Baumgartner and preparing a property for sale (particularly where only $20,000 was spent on a property worth approximately $3.3m). That expenditure either failed to meet the requirement that the work be an improvement of the property, or that the contribution be significant. There is no unconscionability in not recognising an equitable interest in the property itself, particularly where the first defendant contended he expended the $20,000 on the basis of a promise that he be repaid. At its highest the first defendant’s claim is against the proceeds of sale, but the evidence falls well short of establishing an entitlement to a charge over the property.
To the extent that he claims a greater equitable interest in the matrimonial assets, particularly those that were brought into the relationship by the plaintiff, that is a question for the family law proceeding. In such proceedings, the court has power, regularly exercised, to grant injunctive relief to preserve matrimonial assets pending resolution of financial claims. Claims under s 79 of the Family Law Act do not create caveatable interests in any land that may be part of the matrimonial assets.[3]
[3]See, eg, Ho v Ebert [2015] NSWSC 1468, [9].
I have not been persuaded that there is a serious question for trial that there was a joint relationship or endeavour in relation to the improvement of the Stevenson Street property of the kind that might, if other factors are present, give rise to a Baumgartner trust. I am not persuaded that the present circumstances of funding the preparation of the property for sale, should be properly understood as a joint relationship or endeavour. To the extent that the first defendant contended that there was a pooling of resources to the parties’ common benefit, that contention that any pooling of resources was in relation to the improvement of the Stevenson Street property was not made out. If there was any pooling of resources, it was in the circumstances of the marriage and relevant to the issues in the family court proceeding.
I add that the first defendant submitted that there was an element of unconscionability highlighted by his sale of his Murrumbeena property. The material does not show that the sale of the Murrumbeena property was made necessary, or followed, because of the joint relationship or endeavour concerning the improvement of the Stevenson Street property.
Accordingly, I am satisfied that the grounds of claim that are disclosed in the caveat cannot be established. First, the grounds of claim cannot be made out against the joint-registered proprietor. Secondly, the claim is overstated in the form of an implied, resulting or constructive trust affecting the whole of the freehold estate; and, thirdly, at its highest, the evidence about the dealings between the parties could go no further than establish a different interest, possibly an interest in part of the proceeds of sale due to the plaintiff, but not an interest in the property. While it might be in theory open for a caveat to be lodged claiming an interest as equitable chargee, a matter I need not determine, that claim was not made and, on the material, appears incapable of being established.
The plaintiff also raised the issue that the caveat was lodged as a bargaining chip in order to secure a payment from the plaintiff.[4] I am satisfied that the caveat was so being used.
[4]Piroshenko, 495 [23] (n 1).
In the first place, the extent to which the caveat fails claim the correct interest and overextends by making claims affecting disinterested parties supports that inference. The first defendant was at this point legally represented. The relevant facts were set out in the application in the family law proceeding, were known to the first defendant and were available to his solicitor. The fair inference is that a copy of that document would have been provided to his solicitor and the information that it contained would become the knowledge of that solicitor who otherwise would have taken instructions to identify a proper basis for the proposed caveat.
For the reasons I have given, it is clear that the caveat was an untenable claim from the outset. Yet, the choice that was made was to lodge the caveat. This bears the hallmarks of a strategic decision, rather than a series of simple mistakes.
What immediately followed was that the claim for that interest was never pursued. Rather, by two open offers the first defendant was willing to withdraw the caveat in return for a sum of money being secured. This is only consistent with the caveat being misused as a bargaining chip in place of the more costly route of an application for an interim injunction in the family law proceedings. The solicitor could have and should have advised the first defendant that there was no merit in a caveat and to seek an injunction to protect his expressed fear of dissipation of the matrimonial assets. Pausing there, there was no evidence to support the fear expressed by the first defendant and while that fear may prove to be correct, I am not persuaded on the evidence before me now that there is a proper basis for it.
In any event, it is clear enough that what is being put in support of the retention of funds are arguments that go to establishing the statutory entitlement to a share of matrimonial property in the family law proceeding rather than the more specific trust that is being claimed to support the caveat. The form of an injunction that might have been granted in that proceeding had it been applied for may have been more broadly directed to requiring a certain sum from the matrimonial assets to be retained by the plaintiff or it may have been directed more specifically at the proceeds of sale of this property. I cannot say, but in any event, a proceeding of that sort would not suffer the fault of being an inappropriate attempt to enforce an interest in a sum of money by the caveat claiming an interest in land that threatened to derail an imminent settlement of a contract.
The Court does not permit negotiations or bargaining to occur between parties by lodging caveats with the Registrar of Titles that communicate to all of the world a claim against a particular piece of property, unless that claim has a proper basis and is to be appropriately established. The caveat applied maximum leverage on the plaintiff by being lodged only days before the contract of sale was to settle, forcing a real risk of pecuniary loss on the vendors that was likely to be focussed on the plaintiff’s interest.
I consider that the first defendant's intention, whether it was directly his intention or the consequence of strategic advice given by his solicitors, was to use the caveat as a bargaining chip to freeze some of the funds for his ultimate benefit.
Accordingly, I would order the removal of the caveat from the Register Book forthwith. It is unnecessary to consider the further issues that the parties raised, particularly issues about the balance of convenience, a consideration which on my finding is not reached. Given the PEXA system and the imminent settlement of the contract, the best practical approach is that I order that the first defendant procure the withdrawal of the caveat by his solicitor today.
On costs, the first defendant submits that each party should bear their own costs while the plaintiff contends that the first defendant should pay the plaintiff's costs of the proceeding assessed on an indemnity basis.
The usual rule is that an unsuccessful caveator pay the plaintiff's costs of the proceeding. The first defendant submitted that the plaintiff could have applied in the family law proceeding. I do not accept that that was a reasonable option for the plaintiff. I have already observed that the first defendant was not entitled to lodge a caveat but might have applied to the Federal Circuit and Family Court for an injunction in respect of his family law claim. The settlement date for the contract was fast approaching and the only impediment to settlement was the existence of an untenable caveat. Section 90(3) provides for summary removal of the caveat by application to this court. The proper process was followed. I do not accept that there has been a needless duplication of costs. An application to a court was necessary one way or the other.
The first defendant’s offers both before the issue of this proceeding and after it were predicated on an entitlement to maintain the caveat, which he has not established. It is not possible to classify those offers as reasonable or appropriately balanced.
That said, I remain unpersuaded that the use of the caveat procedure as a bargaining chip in the circumstances was such as to warrant the conclusion that in the interests of justice an order that the costs be assessed on an indemnity basis should be made, and I decline to order that they be so assessed.
The orders of court are these:
(1)The requirements of rr 5.031 and 8.02 of the Supreme Court General and Civil Procedure Rules 2015 be dispensed with;
(2)The plaintiff is authorised to commence this proceeding by originating motion in Form 5C;
(3)By 4pm on 17 February 2023, the first defendant by his solicitors, Dandanis and Associates, is to take all reasonable steps and actions necessary to withdraw the caveat lodged with the Registrar of Titles in dealing No. AW527040M and registered on the Certificate of Title Volume 8510 Folio 969; and
(4)The first defendant pay the plaintiff's costs of the proceeding.
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