South Eastern Secured Investments Ltd v Mitchell Holdings and Investments Pty Ltd
[2011] VSC 662
•22 December 2011
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
S CI 2011 2378
| SOUTH EASTERN SECURED INVESTMENTS LTD (Receivers and Managers appointed) | Plaintiff |
| v | |
| MITCHELL HOLDINGS AND INVESTMENTS PTY LTD | Defendant |
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JUDGE: | DALY AsJ | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 26 October 2011, 8 November 2011 | |
DATE OF JUDGMENT: | 22 December 2011 | |
CASE MAY BE CITED AS: | South Eastern Secured Investments Ltd v Mitchell Holdings and Investments Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2011] VSC 662 | |
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CAVEATS ― application under s. 118 of the Transfer of Land Act 1958 ― standing of first mortgagee to bring application ― time for assessment of whether caveat lodged “for reasonable cause” ― consequences of failure to take prompt action to remove caveat
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M. McKenzie | Bill Kee & Associates |
| For the Defendant | Mr A. Flower | Goddard Elliot |
HER HONOUR:
On 21 May 2010, South Eastern Secured Investments Ltd (“SESI”) obtained judgment for possession of the property at 694‑696 Mount Macedon Road, Mount Macedon (“property”) against Queens Capital Group Pty Ltd (“Queens Capital”)[1], the registered proprietor of the property. Subsequently, on 22 June 2010, SESI obtained a warrant for possession for the property. Some time in the latter half of 2010 SESI took possession of the property, which was sold at auction on 24 February 2011. The settlement of the sale was due to take place on 28 April 2011 (“settlement date”).
[1]Queens Capital was formerly known as Queens Parade Pty Ltd.
A title search for the property shows that as at 7 December 2010 a number of encumbrances were recorded against the title of the property, including a mortgage to SESI registered on 13 February 2007 and a number of caveats, including one lodged by the defendant, Mitchell Holdings & Investments Pty Ltd (“Mitchell Holdings”) on 11 June 2010. The caveat, which was executed by Mr Paul Mitchell, the sole director of Mitchell Holdings, claimed an interest as lessee. The grounds of the claim were specified to be “as lessee under a lease from Queens Parade Pty Ltd (lessor) for a term of five years dated 1st September 2008 and other prior communications”.
On the settlement date, SESI’s solicitors, Bill Kee & Associates, wrote to Darroll Nelson & Co, (solicitors who had previously corresponded on behalf of Mitchell Holdings with SESI), in the following terms:
We act on behalf of South Eastern Secured Investments Ltd, receivers and managers appointed, and note you act for Mitchell Holdings Investments Pty Ltd.
We advise the above property has been sold and settlement of the sale was due today.
We note that your client has a caveat over this property pursuant to an alleged lease over the property registered in dealing AH292039F. Despite requests from ourselves and others to produce this lease this document has never been produced.
Our client requires a withdrawal of caveat from your client in order to enable the sale of this property to take place.
In the event that your client does not provide a withdrawal of caveat for the above property, our client will take steps to have your client’s caveat removed by the Supreme Court of Victoria. Should this become necessary, our client will be claiming costs, interest and penalties against your client.
Kindly give this matter your urgent attention.
We look forward to the receipt of the withdrawal caveat from your client as a matter of urgency.
Mr Trevor Yong, a solicitor employed by Bill Kee & Associates, deposed that he made a number of attempts to contact the solicitors for Mitchell Holdings between 28 April 2011 and 16 May 2011, the date this proceeding was issued. The number and timing of such contacts seems to be a matter of some dispute, but in any event, on 2 May 2011, Bill Kee & Associates wrote again to Darroll Nelson & Co in the following terms:
We refer to our letter to you dated 28 April 2011. We note we have not received a response to this letter as yet. We advise in the event that your client does not provide a withdrawal of caveat for the above property by 5.00pm Tuesday 3 May 2011 our client will take steps to have your client’s caveat removed by the Supreme Court of Victoria. Should this become necessary our client will be claiming costs, interest and penalties against your client. Kindly give this matter your urgent attention. We look forward to the receipt of the withdrawal of caveat from your client as a matter or urgency.
On 16 May 2011 SESI initiated this proceeding, seeking a removal of the caveat. The application was initially returnable on 6 June 2011. On the return date, in adjourning the proceeding to 27 June 2011, Associate Justice Zammit recorded the following in “Other Matters”:
The Court is informed that the caveat has been withdrawn. The only outstanding matters are the costs and any damages resulting from the delay in the withdrawal of the caveat.
Accordingly, the application currently before the Court is made by SESI under s 118 of the Transfer of Land Act 1958 (“TLA”), which provides as follows:
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 the Court deems just and orders.
SESI also relies on s 90(3) of the TLA in support of its claim for compensation, which provides that “any person who is adversely affected by any such caveat may bring proceedings in the Court against the caveator for removal of the caveat, and the Court may make such order as the Court thinks fit.”
As deposed to in the affidavit of Mr Yong sworn 28 July 2011, SESI claims the sum of $31,798.58, calculated as follows:
Additional interest payable under the mortgage
$11,906.81
Difference in adjustment of rates and land tax
$ 2,974.17
Loss on the default notice
$ 605.00
Additional legal costs
$12,280.15
Loss of interest from 28 April 2011
$ 4,032.45
The claim under the heading “Additional interest payable under the mortgage” represents the additional interest debited to the loan account in the name of Queens Capital between the settlement date and the date the caveat was withdrawn. The “difference in adjustment of rates and land tax” is self explanatory. The “Loss on the default notice” was the amount paid to the purchaser of the property to compensate it for the costs of issuing a default notice after the failure of SESI to complete the sale on the settlement date.
The claim for “loss of interest from 28 April 2011” described by Mr Yong in his affidavit sworn on 28 July 2011 is as follows:
Queen’s Capital Pty Ltd and/or their creditors have suffered loss from the delay in settlement as a result of their inability to invest or apply the balance of funds from 28 April 2011. The balance that would have been available to Queen’s Capital Pty Ltd and/or their creditors had the sale of the property settled on 28 April 2011 was $560,916.66. Interest in this amount at a commercial rate of 6.4% from 28 April 2011 until 8 June 2011 amounts to $4,032.45.
SESI also claims the costs of this proceeding, to the extent they are not included in the accounts referred to above. Given the difficulties involved in disaggregating the costs claimed between the additional conveyancing costs incurred by reason of the delay in settlement of the sale and the legal costs incurred in bringing the action to remove the caveat, counsel for SESI agreed that the actual quantum of any costs claimed should be subject to taxation or assessment on a solicitor-client basis.
The test for determining when compensation is payable to a party in the position of SESI under s 118 of the TLA has been the subject of recent consideration by Croft J in the matter of RDN Developments Pty Ltd v Shtrambrandt.[2] Croft J adopted the reasoning of Palmer J in Lee v Ross (No 2),[3] which provides that the person claiming compensation must satisfy the Court that the caveat was lodged without reasonable cause at the time that the caveat was lodged. Further, in Lee v Ross, Palmer J stated as follows:
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.
[2][2011] VSC 130.
[3](2003) 11 BPR 20, 991 [20].
SESI submitted that, at the time that the caveat was lodged, Mr Mitchell did not have an honest belief, on reasonable grounds, that Mitchell Holdings had reasonable cause to lodge a caveat. While SESI accepted that Mitchell Holdings had a caveatable interest in the property on the basis of the existence of an unregistered lease, SESI contended that Mr Mitchell knew that the leasehold interest of Mitchell Holdings could not take priority over SESI’s mortgage, and that the only purpose for lodging the caveat was to provide Mr Mitchell and his associated entities with commercial leverage in their dealings with SESI.
SESI relied upon affidavits sworn by Mr Yong on 4 May 2011, 2 June 2011 and 28 July 2011. In his affidavit sworn 4 May 2011, Mr Yong deposed that:
[SESI], as a prior mortgagee, has never consented to the lease and has never seen a copy of the purposed lease document.
Further, in his affidavit sworn on 2 June 2011, Mr Yong deposed as follows:
At the time of the Plaintiff’s mortgage to Queen’s Capital Pty Ltd . . . which was registered on 13 February 2007, the Plaintiffs were not informed of any relationship between Queen’s Capital Pty Ltd and the Defendant.
On an application by Queen’s Capital Pty Ltd for a further advance in September 2008, Queen’s Capital Pty Ltd provided the Plaintiff with a Licence Agreement dated 1 July 2008 between themselves and the Defendant (then known as Mitchell Trading Company Pty Ltd) . . .
This document is the only document provided to the Plaintiff by either Queen’s Capital Pty Ltd or the Defendant as evidence of the relationship between Queen’s Capital Pty Ltd and the Defendant regarding the Property.
As those parts of the affidavit sworn by Mr Yong on 28 July 2011 which went to the calculation of the additional interest payable under the mortgage were ruled to be inadmissible at trial, SESI sought and obtained leave to rely upon an affidavit sworn by Mr Brendan John Smith, a loan manager employed by SESI, to give evidence about the relevant terms and conditions of the loan and mortgage secured by the property, and the calculation of the amounts claimed by SESI in respect of interest.
Mr Smith gave evidence regarding the terms and conditions of the loan agreement and mortgage between SESI and Queens Capital. He deposed that the records held by SESI made no mention of a lease agreement between Queens Capital and Mitchell Holdings. Rather, a Loan Summary Application Summary prepared in connection with a Variation in the Loan Agreement states as follows:
Initial lend was $150,000 for residential development in Oakleigh. We then increased the loan to $400,00 for renovations to the hotel. Client advises additional funds have been used for replacing roof, replacing plumbing in kitchen and restocking hotel. A current licence agreement exists whereby they receive $12,000 per month for occupying and running the hotel.
Mr Smith gave evidence that Queens Capital fell into arrears in July 2009, and default interest continued to accrue on the loan up until the settlement of the sale. He verified the amounts claimed by SESI in respect of additional interest which accrued on the mortgage between the settlement date and the date of the removal of the caveat. Under cross‑examination, he agreed that after the caveat was removed and the settlement of the sale proceeded, SESI applied the proceeds of sale to the loan account, such that the outstanding loan balance (which included the interest which had accrued between 28 April 2011 and 6 June 2011) was reduced to zero.
Both Mr Yong and Mr Smith were cross-examined at trial. Relevantly, counsel for SESI made the following concessions at the close of SESI’s case:
(a)first, that the calculation of the claim for the additional legal costs occasioned 28 April 2011 and 6 June 2011 (including the costs of the application to remove the caveat) were unreliable and confusing, and that the claimed costs should be the subject of taxation on an appropriate basis; and
(b)secondly, the claim for compensation by SESI was not a claim for loss and damage actually caused to SESI by the delay in settlement of the sale, because all of the additional interest payable under the mortgage was recovered by it at settlement, and it was entitled to recover the additional costs claimed by it (such as legal fees) from the surplus held by it following settlement of the sale of property.
Mitchell Holdings relied upon the evidence of Mr Mitchell filed in opposition to the application for removal of the caveat. Mr Mitchell swore an affidavit on 3 June 2011, and was cross‑examined on that affidavit.
In summary, Mr Mitchell and entities associated with him became involved in the operations of the Mount Macedon Hotel in or about early 2007. Mr Mitchell is a registered builder. Another entity controlled by Mr Mitchell, Mitchell Trading Company Pty Ltd, entered into a building contract with Queen’s Capital for building works to be undertaken at the property to refurbish and upgrade the hotel. Mitchell Holdings entered into a licence agreement with Queens Capital on 1 July 2007, which provided Mitchell Holdings with access to the property and the right to occupy the manager’s residence attached to the hotel. Mr Mitchell gave evidence that during the course of building works undertaken by Mitchell Trading, Mitchell Holdings obtained a liquor licence, and the hotel continued to trade, albeit in a reduced fashion, until late 2009. Mitchell Holdings also entered into a lease agreement with a term of five years with Queens Capital dated 1 September 2008 for the property. It was common ground that SESI had not consented in writing to the property being leased to Mitchell Holdings or any other entity associated with Mr Mitchell.
Mr Mitchell gave evidence that the building works on the property ceased as a result of the failure of Queen’s Capital to pay him and other contractors associated with the works. He gave evidence that he lodged the caveat in June 2010 because he had become aware that Queen’s Capital may have been in financial difficulties. He presumed that those difficulties would extend to its capacity to pay the mortgage and he wanted to “protect his position” with respect to the building contract, the licence and the lease.
On or about 9 July 2010, Mr Mitchell instructed his solicitors, Darroll Nelson & Co, to write the following letter to SESI and its receivers, Korda Mentha Pty Ltd.
Dear Sir or Madam,
Re:Your Mortgage No. AE904421T – Property Volume 10431 Folio 074 (the property)
I refer to the above matter and advise that I act for Mitchell Holdings & Investments Pty Ltd the lessee of the above property.
My client is in occupation of the property pursuant to a lease dated 1st September 2008.
My client is the licensee of the hotel. My client’s interest is noted on a caveat lodged over the title of the property. It has been brought to my client’s notice that the mortgage on the property may be in arrears and as a result a default may have occurred. In the event you seek to sell the freehold of the property my client may be interested in purchasing same. Alternatively, should a buyer require the leasehold interest as well as the freehold my client will consider selling and/or transferring the licence and the lease. Should you or your agent require access for inspection my client can assist subject to notifying this office and providing reasonable notice.
Mr Mitchell deposed that neither he nor his solicitors received a response to this letter.
On 20 August 2010, Mr Mitchell, on behalf of Mitchell Holdings, sent a further letter to SESI and Korda Mentha (the receivers and managers appointed to SESI) in the following terms:
Dear Sir,
Re:Mt Macdeon Hotel, 694-696 Mount Macedon Road, Mount Macedon Vic 3441
Your Mortgage No. AE895521T – Property Volume 10431 Folio 074 (the property)
I refer to the above and advise that Mitchell Holdings & Investments Pty Ltd (Lease Holder), Mitchell Trading Company Pty Ltd (Building Company) and Paul Mitchell (Licensee & Registered Building Practitioner) are in occupation of this property.
I further confirm that correspondence was forwarded to you by our solicitor Mr Darroll Nelson (Barrister & Solicitor) on 9 July, 2010 (copy enclosed) advising you of this and confirming that we hold a current lease on this property. This letter also confirmed that we are the licensee with a current liquor licence; and the builders relating to this property. To date no response has been received in relation to this correspondence.
I further understand that this property is in receivership.
We are somewhat perplexed to receive a Notice to Vacate from the Sherriff as you are fully aware of our occupation and tenancy at this property. Recognition of this was endorsed by your client Queens Parade Pty Ltd (QP) through the advancement of funds on the mortgage (listed below) at different stages to the proprietor. Further, events occurring at the hotel identified our involvement and interest.
In late 2006, an application for a loan was made with you, South Eastern Secured Investments Ltd (SESI) – the lender and mortgage AE895521T dated 9 January, 2007 was approved and lodged on Certificate of Title, Volume 10431, Folio 074 in favour of QP – the borrower.
On the production of documentation, advancement was made and identified as the first variation of mortgage AF486301G dated 8 November, 2007. These documents were a ‘Licence Agreement’ accompanied with a ‘Commercial Building Contract’ between QP and Mitchell Trading Company Pty Ltd (MTC) and the ‘Transfer of the Liquor Licence’ between Mount Macedon Hotel Pty Ltd (MTC) and the ‘Transfer of the Liquor Licence’ between Mount Macedon Hotel Pty Ltd in favour of Mitchell Holdings & Investments Pty Ltd (MHI).
The second variation of mortgage AG167138M dated 16 October, 2008 where a further advancement was made supported by a ‘Lease’ entered into on 1 September, 2008 between the proprietor, QP and MHI for the second stage of building works to recommence on receipt of this funding. These are matters that QP and their agents have advised us was the premise in part of their further advance requirements at this time.
We recognise that any prudent financier would require documentation and make the appropriate enquiries to authenticate lending of a substantial advancement. The majority of this information is on public record and known and available for verification.
Considering the above it is somewhat disturbing that you have chosen to omit mention of our occupation/tenancy of this property in your application hearing at the Supreme Court of Victoria on 23 March, 2010 between SESI being the lender and QP the borrower.
Further, on 21 January, 2010 I spoke with Mr Brendan Smith from your office in relation to this matter and outlined our position. Mr Smith listened however advised me that he had been instructed at that time to make no comment by the Receiver of SESI regarding the issues raised with him.
I advise that as the licensee, leaseholder and builder we are owed substantial monies and are seeking to be compensated as the tenant for loss of performance on the undertaken building works and loss of trading income and other expenses incurred.
I further advise that as the tenant, that none of our property at the hotel and on the land (as listed in the lease of which you have a copy) are to be removed or presented as anything else other than our items. If this is to occur we will make the appropriate application if some form of agreement is not reached.
If such application is sort (sic) we will be seeking costs and damages from you or others as full knowledge of our occupation and tenancy at this property are widely known and has been established prior to your original mortgage being lodged in early 2007.
I seek your urgent response in order to amicably resolve this matter.
Yours faithfully,
Paul Mitchell
Director
Mr Mitchell deposed that he also did not receive a response to this letter. He gave evidence that he lodged the caveat in order to protect his position in respect of the building contracts, the lease and the licence but in particular the lease. He was concerned that he was owed money and that chattels belonging to him were located at the property. He gave evidence that he was never asked for a copy of the lease. He said at the time that he lodged the caveat he had spoken to solicitors on a casual basis in order to find out what type of form he needed to lodge, but did not specifically seek advice on the question of Mitchell Holding’s entitlement to lodge a caveat. He rejected a suggestion by counsel for SESI that he was aware of the effect of s 66(2) of the TLA: that is, that the lease would not bind SESI as there was no evidence in writing of SESI’s consent to Queen’s Capital’s entry into the lease. He gave evidence that he was aware that Queens Capital was in financial trouble because he became aware of the entry of judgment by undertaking a Google search.[4] He received a telephone call from the Sheriff’s office in October 2010, and became aware SESI had taken possession of the property on 3 January 2011.
[4]Given that there was no written reasons provided when the orders were made, and court orders of this nature are not generally available through public internet searches, this evidence is rather odd.
The issues for determination when considering whether an order should be made for compensation pursuant to s 118 of the TLA are as follows:
(a)Whether SESI is a party which has “sustained damage” by reason of the lodgement of the caveat within the meaning of s 118 of the TLA;
(b)whether SESI has discharged the onus of showing that Mitchell Holdings did not, at the time the caveat was lodged, have an honest belief on reasonable grounds that it had a caveatable interest; and
(c)whether the damage sustained by SESI (if any) was caused, not by the unreasonable conduct of Mitchell Holdings, but SESI’s failure to take any action to remove the caveat prior to the settlement date.
Counsel for SESI contended that SESI was entitled to claim compensation under s 118 of the Act despite the fact that SESI was not, and would not be out of pocket by reason of the need to take action to remove the caveat, and the delay in the settlement of the sale. This submission was based upon SESI’s duties as first mortgagee under s 77 of the TLA, and in particular, its obligations to account to subsequent mortgagees and chargeholders and the mortgagor, under s 77(3) of the TLA. The additional costs arising out of the need to remove the caveat, along with the additional interest recovered by SESI by reason of the delay in settlement of the sale, has necessarily diminished the pool of surplus funds available for distribution to subsequent mortgagors, chargeholders, and the mortgagor.[5]
[5]Or, more accurately, the mortgagor’s creditors (which may well include entities associated with Mr Mitchell) given that Queens Capital is now in liquidation.
Counsel for Mitchell Holdings submitted that, in the absence of any evidence of any claim having been made by the subsequent interest holders or the mortgagor against SESI, SESI had no standing to bring a claim against Mitchell Holdings under s 118 of the TLA, as it is not a person who has “sustained damage”. While it is theoretically feasible that some party could make a claim against SESI (by reason of the diminished surplus), the language of s 118 is inconsistent with awarding compensation to a party where the highest it could be put was that it may have a contingent liability to third parties. There is no evidence of those parties bringing or even signalling a claim against SESI
I accept that it is difficult to reconcile the clear language of s 118 with the fiduciary duties imposed upon SESI by reason of s 77 of the TLA. However, in the absence of any direct authority on the point, I think the better view is that SESI, in its capacity as trustee of the proceeds of sale of the property, does have standing to bring the claims made by it, notwithstanding the fact that any recovery by SESI will be for the benefit of subsequent chargeholders or, depending upon the size of the surplus, the mortgagor.
As trustee of the proceeds of sale, SESI had a duty to protect the trust property (being the surplus after payment of the loan and its costs and expenses incurred in selling the property) from being diminished and/or wasted. The authorities refer to the “dominant” or “paramount” duty of a trustee of “recovering, securing, and duly applying the trust fund.[6] This duty would certainly encompass an obligation to take action to remove the caveat, as well as any action to recover funds to replenish the trust property in the event that it had been diminished by the conduct of a third party, as is alleged here.
[6]See the discussion in Jacobs’ Law of Trusts in Australia at [1718], and the authorities referred to therein.
Therefore, it is necessary to determine the issue of whether, having regard to the circumstances before and at the time of the lodgement of the caveat, Mr Mitchell (as the director of Mitchell Holdings) had an honest belief upon reasonable grounds that Mitchell Holdings had a caveatable interest.
The authorities demonstrate that the task facing a party in the position of SESI has a difficult task ahead of it in satisfying the onus of proof in establishing the entitlement to compensation under s 118 of the TLA. This is particularly so in a case such as this, where the caveator does in fact have a caveatable interest (its interest under the lease, which was not shown to be a sham). Rather, SESI contends that a number of circumstances lead to an inference that the purpose of Mr Mitchell in lodging the caveat was without reasonable cause because it was not to protect Mitchell Holdings’ interest as a tenant in possession of the property, but was for an ulterior purpose, being the obtaining of some degree of commercial leverage in its dealings with SESI.
In particular, the following matters were contended to evidence the existence of an ulterior motive for the lodgement of the caveat:
(a)the lease was dated September 2008, but Mitchell Holdings did not lodge the caveat until June 2010, after Mr Mitchell had become aware that Queens Capital was experiencing financial difficulties;
(b)Mitchell Holdings was in receipt of legal advice, and must have known that its leasehold interest did not bind the mortgagee, whose interest was registered in 2007. The incorporation of the words “and other prior communications” in the grounds of claim recorded in the caveat smacks of an attempt to assert that SESI had prior notice of Mitchell Holdings’ interest;
(c)the hotel had not traded since late 2009; and
(d)the correspondence sent to SESI by Darroll Nelson & Co and Mr Mitchell demonstrates that Mr Mitchell was seeking to obtain a financial advantage from a negotiated withdrawal of the caveat.
Further, counsel for SESI contended that s 118 applies not only to the unreasonable lodgement of a caveat, but for the unreasonable failure to remove the caveat once requested to do so. In Edmonds v Donovan,[7] Phillips JA stated:
The question how far the section looks to the maintenance of the caveat, as well as its lodging, was expressly reserved by Hayne J in Baranyay and by Handley JA in Gustin and it should be reserved here too. I mention it only because Mr Delany submitted that s 118 was always concerned with the maintenance of the caveat. As he put it, damage flows from always from the maintenance of a caveat rather than its lodging; for even if lodged without reasonable cause it is only the insistence of the caveator in refusing to withdraw it that, in the final analysis, can cause damage to the registered proprietor. Whether ‘lodging’ should be read as meaning lodging and maintaining is a point which does not call for decision.
[7](2005) 2 VR 513, 551.
While the contention of counsel for SESI has much to commend it, the difficulty with adopting this approach in this case and others is two fold. First, it is inconsistent with the authorities which state that the question of whether the lodgement of the caveat was reasonable must be determined in the light of the facts and circumstances which existed at and before the time of the lodgement of the caveat, not in hindsight.[8] If s 118 was to be construed so as to apply to a part who unreasonably maintained a caveat, that inquiry must of necessity extend to the facts and circumstances for the entire period leading up to the removal of the caveat (regardless of whether the removal is by way of voluntary withdrawal or by order of the court).
[8]See Hooke v Holland [1984] WAR 16, 20 and Savill v Chase Holdings (Wellington) Ltd [1989] 1 NZLR 257, 289.
Secondly, while this is not of itself determinative, the fact that s 118 is not expressed in the same or substantially similar terms as s 74P of the Real Property Act 1900 (NSW) indicates that, at least in New South Wales, the legislature did not consider that “lodgement” actually meant “lodgement and maintenance”. Section 74P provides that:
(1)Any person who, without reasonable cause
(a)lodges a caveat … under a provision of this Part,
(b)…
(c)being the caveator, refuses on facts to withdraw such a caveat after being requested to do so
is liable to pay to any person who sustains pecuniary loss that is attributable to an act, refusal, or failure referred to in paragraph (a), (b) or (c) compensation with respect to that loss.
Section 74P came into effect in or about 1986. Prior to that date, the provision governing the payment of compensation was in substantially similar terms to s 118. The inclusion of an express reference to the maintenance of a caveat in s. 74P tends to suggest that the legislature in New South Wales intended to extend the circumstances in which the courts could compensate an aggrieved party, and not merely to clarify the existing position.[9] Accordingly, in the absence of any direct authority from an appellate court on the point, it would be inappropriate to depart from the longstanding view that only the circumstances which applied at June 2010 are relevant to the determination of whether a caveat had been lodged for reasonable cause.
[9]See the reference in National Australia Bank Ltd v Bridge Wholesale Acceptance Corporation (Australia) Ltd (1990) 21 NSWLR 96, at 102.
Counsel for SESI also relied upon s. 90(3) of the TLA as grounding a claim for compensation with respect to the maintenance of a caveat. Section 90(3) of the TLA provides that:
Any person who is adversely affected by any such caveat may bring proceedings in the Court against the caveator for the removal of the caveat and the Court may make such order as the Court thinks fit.
In response, counsel for Mitchell Holdings submitted that s. 90(3) does not confer upon the court jurisdiction to make orders for compensation in addition to the express power conferred by s. 118 of the TLA. I agree with that submission. In my view, the power of the court to make orders under s. 90(3) is directed towards empowering the court to impose conditions upon the maintenance or removal of a caveat, as well as of course the question of costs.
Accordingly, it is necessary to determine the question of whether SESI has discharged its onus of establishing that Mr Mitchell had the ulterior purpose ascribed to him in lodging the caveat at the time the caveat was lodged in June 2010. In my view it has not. While Mr Mitchell was not precise in his evidence about the interest he was seeking to protect by lodging the caveat, it is apparent from the contemporaneous letters sent by him or on his behalf (which may or may not have been drafted by his solicitors, noting that the caveat was lodged in June 2011 and the first solicitor’s letter was written in July 2011), that Mr Mitchell and his entities were activated by a number of different considerations, such that it could not be said that the dominant purpose of his lodgement of the caveat or his correspondence with SESI was to extract some payment or other commercial advantage from SESI in exchange for removal of the caveat.
More particularly, the following inferences can be drawn from the correspondence:
(a)Mr Mitchell was quite open about the fact that Mitchell Holdings had lodged a caveat on the title of the property;
(b)Mr Mitchell or entities associated with him may have had an interest in purchasing the property from the mortgagee (such that the existence of any caveat would be irrelevant);
(c)Mr Mitchell was prepared to consider transferring and/or selling the lease, and, possibly more importantly, the liquor licence (which does not expire until 31 December 2011);
(d)Mr Mitchell was seeking compensation (from an unspecified party, but most likely Queens Capital) for moneys owed and losses suffered by him and his related entities. However, he did not assert that compensation was payable to him by SESI; and
(e)Mr Mitchell believed that SESI held a copy of the lease, which, among other things, listed in some detail the chattels at the property which belonged to Mitchell Holdings, and demanded that those chattels not be removed or represented as being the property of anyone other than Mitchell Holdings. Significantly, the only reference made in the correspondence to any potential legal action was made in respect of these chattels.
Accordingly, it is not readily apparent from this correspondence that Mr Mitchell was seeking to use the caveat as a bargaining tool in its dealings with SESI. There was no evidence led to contradict Mr Mitchell’s assertions that he failed to receive a response to this correspondence. SESI would be in a better position to make good its assertion that the lodgement of the caveat was for an ulterior motive had it immediately responded to Mr Mitchell’s correspondence with a demand to remove the caveat. However, as it failed to make such a demand before the settlement date, how Mr Mitchell might have responded at that time is a matter of mere speculation. The absence of an immediately pending sale (given that the property was auctioned more than eight months after the caveat was lodged) also weighs against a finding that the lodgement of the caveat was a tactical device on the part of Mr Mitchell (or perhaps, more accurately, if the caveat had been lodged after the property had been put on the market, one would more readily draw an inference that its lodgement was for an ulterior purpose).
In any event, even if SESI could establish that at the time of lodging a caveat Mr Mitchell knew, or, by reason of receipt of legal advice ought to have known that any interest by Mitchell Holdings as lessee could not bind SESI, that does not of itself establish an ulterior purpose for the lodgement of the caveat. Mitchell Holdings held the liquor licence for the hotel. That of itself may have some commercial value, if not to SESI, then to a subsequent purchaser. While that does not of itself give rise to a caveatable interest, it is apparent that Mr Mitchell had multiple commercial interests associated with his occupancy of the property.
Further, the uncontradicted evidence is that by reason of the lease, Mitchell Holdings held title to a substantial number of chattels, including furniture and catering equipment, which presumably have or had some value. While that may not affect the priorities between SESI and Mitchell Holdings, lodging a caveat does give notice not only of claimed possessory rights, but also potential claims to the chattels on the premises.
In any event, even if it were established that Mr Mitchell did not have an honest belief on reasonable grounds that he was entitled to lodge a caveat on behalf of Mitchell Holdings, I agree with counsel for Mitchell Holdings that substantial issues of causation and/or mitigation of loss arise out of SESI’s failure to take any action to remove the caveat until the settlement date.[10] As previously noted, Mr Mitchell’s solicitors alerted SESI to the existence of the caveat in July 2010, after SESI had obtained its judgment for possession of the property. Further, the title search annexed to Mr Yong’s first affidavit is dated 7 December 2010, and the auction of the property was held on 24 February 2011. However, no demand was made for the removal of the caveat until 28 April 2011. There was a further delay of nearly three weeks before this proceeding was issued. There was no attempt made by SESI to avail itself of the alternative avenue of relief under s. 89A of the TLA.
[10]There have been a number of instances where a court has refused an application for compensation for lodging a caveat without reasonable cause in circumstances where the aggrieved party had failed to take prompt action to remove a caveat. The authorities differ as to whether such a failure gives rise to a question of causation (Hooke v Holland [1984] WAR 16) or represents a failure to mitigate loss (see National Australia Bank Ltd v Bridge Wholesale Acceptance Corporation (Australia) Ltd (1990) 21 NSWLR 97 and Beca Developments Pty Ltd v Idameno (No 92) Pty Ltd (1990) 21 NSWLR 459).
Putting SESI’s case at its highest (and there is some dispute about when the letter of 28 April 2011 was received by Mr Mitchell’s solicitors) approximately six weeks elapsed between the date of the demand for the removal of the caveat and the actual withdrawal of the caveat by Mitchell Holdings. However, by 28 April 2011, SESI had been on notice of the existence of the caveat for nearly nine months, and the sale of the property had taken place two months prior to the settlement date. Therefore, to the extent that the surplus proceeds of sale have been diminished by the delay in the settlement date, the direct cause of those losses was the failure of SESI to take reasonably prompt action to remove the caveat well prior to the settlement date.
However, the same could not be said for the legal costs incurred by SESI in bringing this proceeding to remove the caveat. While I have found that SESI has not established on the balance of probabilities that the caveat was lodged without reasonable cause, it ultimately was necessary for it to bring this proceeding to remove the caveat. In my view, had the application been opposed, SESI would have been successful in obtaining an unconditional order for removal of the caveat, both on the basis that Mitchell Holdings did not have a caveatable interest that gave it possessory rights as against SESI, and even if that point was arguable, on the basis that the balance of convenience favoured the removal of the caveat.
Accordingly, I will make the following orders:
1.The plaintiff’s application for compensation pursuant to s. 118 of the TLA (or s. 90(3) of the TLA) is refused.
2.The defendant pay the plaintiff’s costs of the proceeding up to and including the hearing on 6 June 2011, to be taxed in default of agreement.
I will hear counsel further on the question of the parties’ costs incurred after
6 June 2011.
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