Sellers v Michael Faltermaier Lawyers
[2016] VSC 341
•16 June 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
PRACTICE COURT
S CI 2016 02287
| KENNETH SELLERS & ALICE RUHE AS TRUSTEES OF THE BANKRUPT ESTATE OF STEPHEN TERRENCE DEWAR | Plaintiffs |
| v | |
| MICHAEL FALTERMAIER LAWYERS | Defendant |
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JUDGE: | T. FORREST J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 16 June 2016 |
DATE OF RULING: | 16 June 2016 |
CASE MAY BE CITED AS: | Sellers & Anor v Michael Faltermaier Lawyers |
| MEDIUM NEUTRAL CITATION: | [2016] VSC 341 |
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PROPERTY LAW – Application to remove caveat – Bankruptcy proceeding – Prima facie case not disputed – Balance of convenience in favour of the plaintiff – Caveat removed – Transfer of Land Act 1958 ss 89, 89A.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Ms A. Umbers | Quinert Rodda & Associates Pty Ltd |
| For the Defendant | Mr D. Connors | Michael Faltermaier Lawyers |
HIS HONOUR:
By originating motion the plaintiffs, the trustees of the bankrupt estate of Stephen Terence Dewar, seek the removal of caveat number AK455274N (‘the caveat’). The caveat is over a property at 57 Railway Crescent, Williamstown. Mr Dewar was the sole registered proprietor of this property prior to his bankruptcy. The plaintiffs became the registered proprietors of the property as a result of a transmission application made to the titles office on 27 August 2015. I have been provided with submissions filed on behalf of the plaintiffs and shorter submissions filed on behalf of the defendant. The plaintiffs rely on the affidavit of Alice Fay Ruhe sworn on 14 June 2016.
Background
The defendant, Michael Faltermaier Lawyers partitioned for bankruptcy of Stephen Dewar on 5 June 2014. According to paragraph 1 of the creditor's petition, Mr Dewar owed the defendant a judgment debt of $7,034.25 plus costs plus interest. I understand that the defendant claims an amount owing from Mr Dewar of considerably greater than this sum.
The defendant holds security over the Railway Crescent property consisting of the caveat. Paragraph 2 of part 1 of the creditor’s petition disclosed that the defendant was ‘willing to surrender this security for the benefit of creditors generally if a sequestration order is made against the respondent debtor.’
This undertaking was not taken up by the official trustee within the three‑month period determined by s 44 of the Bankruptcy Act 1966 (Cth). The plaintiffs were appointed two months after the expiry of that three‑month period.
At the time the plaintiffs were appointed trustees of the bankrupt estate, Mr Dewar was party to an application filed by Ms Quincero in the Federal Circuit Court of Australia (‘Federal Circuit Court proceeding’). Ms Quincero is the former wife of Mr Dewar and sought orders against him for child support and property of the marriage. The plaintiffs have been joined as second respondents in that proceeding. The defendant has not sought to intervene in that proceeding.
The Federal Circuit Court proceeding was adjourned to enable a mediation to occur on 10 July 2015. There were a number of caveats over the relevant property. In substance, it was agreed that Ms Quincero would pay the plaintiffs $116,000, and each party would be responsible for the removal and discharge of specific caveats (‘the agreement’).
A condition of the agreement was that certain of the conditions be met within 90 days. Difficulties associated with Ms Quincero and her legal representatives meant that some of those conditions were not met within the 90‑day period.
The defendant was requested to remove his caveat on 23 July 2015. The defendant replied by requesting a copy of the bankrupt statement of affairs. This was provided on 28 July 2015. Further correspondence followed, and on 5 August the plaintiffs’ solicitors again requested the defendant remove the caveat. On 7 August 2015 the defendant again sought further information to which the plaintiffs’ solicitors responded an 17 August 2015. At this stage, the plaintiffs were, as is deposed by Ms Ruhe, reluctant to commence and incur costs of removing the impugned caveat, as it was uncertain whether Ms Quincero could comply with her obligations under the agreement.
The Federal Circuit Court proceeding was adjourned on several occasions to allow the parties time to attempt to meet the conditions of the agreement. Shortly before 16 May 2016, solicitors for Ms Quincero informed the plaintiffs’ solicitors that they had reached agreement with the caveators whose debts they were required to discharge.
His Honour Judge Reithmueller made orders by consent requiring the plaintiffs to provide Ms Quincero with a withdrawal of the caveat lodged by the defendant by 16 June 2016, that is today. The removal of this caveat is the only impediment to the resolution of this protracted dispute.
On 19 May 2016 the plaintiffs’ solicitors wrote to the defendant who again requested further information. On 27 May 2016 the plaintiffs’ solicitors wrote again to the defendant. He did not respond.
On 7 June 2016 the plaintiffs’ solicitors wrote again to the defendant proposing that in order to allow the settlement with Ms Quincero to proceed by 16 June 2016 the funds allegedly secured by caveat be held in trust ‘until the determination of the application of removal of the caveat by the court’. The defendant did not agree with this proposal. I presume this to be because the defendant maintains that the debt owing is considerably larger than the judgment debt, and so $7,000‑odd dollars held in trust did not provide him with the comfort that he sought.
The principles relating to a removal of caveat were set out by the Chief Justice Warren in Piroshenko v Grojsman.[1] Caveats under the Torrens system are treated by the courts as analogous to applications for interlocutory injunctive relief. Their registration is administrative, and an application for removal casts an onus on the caveator to satisfy the two‑stage test used by the court when deciding whether or not to grant discretionary injunctive relief.[2] Although the courts have adopted the two‑stage test as an aid to the consistent exercise of the s 93 discretion,[3] the section requires to court to make such order as it thinks fit, and the test utilised by the court cannot circumscribe the power conferred by statute. The caveator will need to establish a prima facie case ‘that it has the estate or interest claimed in the land which entitles it to the maintenance of the caveat’[4]. Assuming this to be established, the court will then consider with whom the balance of convenience lies.
[1](2010) 27 VR 489.
[2]Ibid 491 [7].
[3]See Transfer of Land Act 1958 s 93.
[4]Piroshenko v Grojsman (2010) 27 VR 489, 491 [7].
Serious question to be tried
In order to establish that there is a serious question to be tried the defendant, as the caveator, must establish a prima facie case with sufficient likelihood of success to justify the maintenance of the caveat. The onus falls on the defendant to establish his interest in the relevant property. In this case, there is no dispute that there is a serious question to be tried. This is by reason of the fee agreement, which is set out in the affidavit of Ms Ruhe.
Balance of convenience
I have concluded that the balance of convenience favours the removal of the caveat.
The caveat is unnecessary to protect the interest claimed. The removal of the caveat does not extinguish any of the rights that the defendant possesses as a secured creditor or otherwise in the bankruptcy of Mr Dewar. The caveat neither elevates nor demotes the defendant in the creditors’ queue. The defendant’s status will be determined at the bankruptcy application uninfluenced by whether or not it holds the impugned caveat.
The only protection the caveat affords to the defendant is that the administration of the bankrupt estate cannot be finalised, and final dividends cannot be paid, until the underlying dispute is resolved. To this end, the plaintiffs have agreed to commence the bankruptcy application within 14 days of the removal of the caveat.
The caveat is blocking the proper exercise of the plaintiffs’ power to realise the bankrupt estate's interest in the property and distribute the proceeds for the benefit of all creditors, including the defendant.
The amount ostensibly secured by the caveat is comparatively small, although I understand that the defendant claims a significantly larger amount than the $7,000‑odd dollars that I referred to earlier in these reasons. Caveats are not bargaining chips,[5] nor, to use more dramatic language, are they instruments of blackmail.[6] All other obstacles in the path of resolving the family law proceeding have been removed.
[5]Piroshenko v Grojsman 27 VR 489, 495 [23].
[6]Kingstone Constructions v Crispel (1991) 5 BPR 11, 987.
The defendant gave an undertaking in the creditor’s petition that it was willing to surrender this security for the benefit of creditors generally if a sequestration order was made against the respondent debtor. The sequestration order was made, but the official trustee did not make a request for surrender within the requisite three months. Whilst the defendant is not legally compellable to surrender the security after the expiration of this time, his attitude in June 2014 to act for the benefit of creditors generally is a factor that I can take into account in considering the balance of convenience.
I am not persuaded by the defendant’s argument that this application is premature and an adjournment of today's proceedings in the Federal Circuit Court ought to have been sought. Such an outcome is not in the interests of justice. The Federal Circuit Court proceeding has dragged on for 16 months and has been adjourned repeatedly. Had the defendant wished, it could have intervened in that proceeding, but it has not done so. Additionally, the bankrupt estate is not a large one and repeated visits to court will diminish the assets of the estate further. In my view there must be decisive steps towards the finality of both the Federal Circuit Court proceeding and the bankruptcy application itself. Both proceedings will be advanced by the removal of the caveat and the defendant's status as a creditor, whatever it is, will be unaltered by the removal of the caveat. I will order the removal of the impugned caveat pursuant to s 90(3) of the Transfer of Land Act 1958.
Costs
The plaintiff contends that costs should be awarded on an indemnity basis. Before making such an order I would need to be satisfied that the conduct of the party warranted the order of costs on that basis. Special circumstances must be demonstrated which lift the case out of the ordinary. Citing the words of Justice Jack Forrest in Love v Kempton,[7] ‘Such conduct can include wilful disregard of known facts or clearly established law as well as the commencement or continuation of such proceedings for an ulterior motive.’[8]
[7][2010] VSC 254.
[8]Ibid [19].
The court has a broad, unfettered discretion in the awarding of costs pursuant to s 24 of the Supreme Court Act 1986. In my view, the court has a role in discouraging proceedings that are commenced disingenuously, and an order of indemnity costs is, at times, an appropriate vehicle for this. In this instance, it cannot be said that the caveat was disingenuously sought in the first place. Indeed, it is not in dispute that the defendant had a prima facie case supporting its interest in the land and the maintenance of the caveat.
Ms Umbers for the plaintiff asserts that the defendant has been bloody minded, and I am inclined to agree with that blunt characterisation. Mr Connors points out that I have determined this application on the balance of convenience, given the defendant’s prima facie case was undisputed. I do not find special circumstances in this case that warrant departure from the normal rules that costs follow the event, and I will order costs of this proceeding be taxed on a standard basis in default of agreement.
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