Thomson & Ors v New Galaxy Investments Pty Limited & Ors

[2017] HCATrans 265

[2017] HCATrans 265

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S199 of 2017

B e t w e e n -

DAVID ALAN THOMSON

First Applicant

TRACY SPENCER

Second Applicant

JOSEPH LUIS ALONSO

Third Applicant

KAYE ALISON ALONSO

Fourth Applicant

JOHN SYDNEY WOLFE

Fifth Applicant

JANICE ROBIN WOLFE

Sixth Applicant

MALCOLM RICHARD SMITH

Seventh Applicant

KATHERINE ANNE SMITH

Eighth Applicant

PERA MARION WEBB

Ninth Applicant

MAUREEN LEE THEOBALD

Tenth Applicant

and

NEW GALAXY INVESTMENTS PTY LIMITED

First Respondent

GOLDEN DESTINY INVESTMENTS PTY LTD

Second Respondent

MV GOLDEN DESTINY DEVELOPMENT (TURRAMURRA) PTY LTD

Third Respondent

YUN “LOUISE” LIN

Fourth Respondent

KRISTJAN KENNETH TUNKS GEERING

Fifth Respondent

FRANCISCO GUTIERREZ TRADING AS AVONDALE LAWYERS

Sixth Respondent

Application for special leave to appeal

KIEFEL CJ
KEANE J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 15 DECEMBER 2017, AT 11.44 AM

Copyright in the High Court of Australia

____________________

MR G.A. SIRTES, SC:   May it please the Court, I appear with MR M.T. FERNANDES, for the applicants.  (instructed by Fox & Staniland Solicitors)

MR M.L.D. EINFELD, QC:   May it please the Court, I appear with my learned friend, MR D. KROCHMALIK, for the respondent.  (instructed by Websters Lawyers)

KIEFEL CJ:   Yes, Mr Sirtes.

MR SIRTES:   May it please the Court.  Your Honours, we need an extension of time, and I understand it is not opposed, for the reasons set forth in the affidavit of Mr Abramowicz, on page 346 of the application book.

KIEFEL CJ:   Yes, you have that extension.

MR SIRTES:   May it please the Court.  Your Honours, the solitary appeal ground is set forth on page 315 of the application book, I think consistently with something that fell from the Chief Justice in the earlier application.  We accept that if special leave is granted we would need to particularise the basis upon which that single ground is put forward.

What we say is the point of importance is the evidential significance of a lawyer’s involvement in the lodgement of a caveat as regards the question of reasonable grounds.

Can we indicate to your Honours, although we do not wish to be seen to be giving evidence from the Bar table, that in New South Wales last year there were 17,000‑odd caveats that were filed, and there was double that amount in Victoria. 

The operation of the provisions of full compensation in each State’s legislation, which we have set out in footnote 1 of our submissions, application book page 318, has national significance.  Each State’s compensation provisions, which have been around for many, many decades, are relevant to the same as those in New South Wales, and the effect of the majority judgment in this matter of Justice Basten and Justice Gleeson will have application, in our submission, Australia‑wide. 

The Court of Appeal adopted the pre‑existing test for determining reasonable cause in section 74P of the Real Property Act.  It is set forth at application book page 193; that is: 

where the caveator has an honest belief, based on reasonable grounds –

KIEFEL CJ:   There was a threshold finding by Justice Basten, was there not, that there was in fact a caveatable interest?

MR SIRTES:   Yes, and that was the point of difference between ‑ ‑ ‑

KIEFEL CJ:   You do even need reasonable cause there.

MR SIRTES:   No.  Quite.  In one sense, one could potentially view the entirety of his Honour’s decision as obiter in that regard.  That was of course a point of distinction between the judgments of Justice Gleeson and Justice Sackville in relation to the existence of a caveatable interest. 

KEANE J:   Insofar as Justice Sackville’s judgment proceeded on the footing that the $6 million was paid by the respondent to your clients as a voluntary payment, not a payment which had any effect upon Golden Destiny’s obligations in relation to its equitable interest, that seems to be an extraordinary proposition – that you pay $6 million voluntarily, or that in these circumstances the payment was not made to be held in trust, as Justice Basten said, in paragraph 69 on page 209.

MR SIRTES:   The factors upon which his Honour came to that conclusion were based upon the findings made in the court below by Justice Sackar that the payment was not specifically made by reference to the short form deed.  It was not made in circumstances where there were safeguards that had been erected as between Golden Destiny and New Galaxy, and it was a payment made on a commercial basis to preserve the transaction going forward in circumstances where, at the point in time it was paid, it was likely to be imperilled, and if that payment was made ‑ ‑ ‑

KEANE J:   And it would not have had that effect unless there was an obligation as to trust between Golden Destiny and the respondent.

MR SIRTES:   The next question, of course, in relation to that is the effect upon which that would have on the vendors of the property.  It is one thing to focus on what the nature of the relationship was between those two parties; the next issue, of course, in terms of the vendors who the evidence established had no idea that this money was being paid by NGI was paid to the agent for the vendors and that ‑ ‑ ‑

KIEFEL CJ:   Are you pointing to the lack of a contractual relationship?

MR SIRTES:   There was, we say, not just a lack of a contractual relationship; no relationship whatsoever, we say.

KIEFEL CJ:   But an equitable interest arises by operation of law.  That is the point Justice Basten was making.

MR SIRTES:   And that was the issue that was the subject of analysis between their Honours and the ultimate finding by the majority that the mere receipt of that payment by vendors in circumstances where the respondents were strangers in relation to the vendors would not be sufficient to give rise to the lien that was ultimately found.

So, looking at it through the conceptual lens of the vendors, where they had not dealings with this party, where the amount of money turns up in circumstances where there are negotiations between the vendors and the purchasers in the ordinary course in order to extend the shelf life of the first contract in order to give life to the second contract, we say that viewed through the conceptual lens of the vendors the difficulty that – even accepting what may have occurred as between NGI and GDI was not sufficient to impose an obligation upon the vendors who had absolutely no involvement in any of these dealings and simply find that there are caveats placed upon their title in relation to dealings between parties that they are not involved in and have no ‑ ‑ ‑

KEANE J:   Ordinarily, one would expect that that sort of problem would be dealt with by an application for removal of the caveat, and if, on that application, the caveator was able to demonstrate an equitable interest then there might be an equitable injunction.  The caveat might be removed, an equitable injunction would be granted, and no doubt the caveator would be required to give an undertaking as to damages, and everybody’s interests would be preserved and protected.  To say that is simply to point out that it should not be thought that in a case like this the caveatee’s remedies are limited to claiming compensation after the event.

MR SIRTES:   That may be so.  The way this matter of course tracked was slightly different from that.  We say that that often by itself does not impact upon the findings that were made by the majority that, so far as the vendors were concerned, there was no caveatable interest bar their title.

KEANE J:   No, but it does mean that we are a long way from the case that you wish to bring to this Court, which is that mere advice from a lawyer cannot amount to reasonable grounds for the caveat.

MR SIRTES:   Looked at through, again, the eyes of the vendors and the evidence that was before the court, there was, as your Honours know, and our submissions detail this, there was simply no evidence, we say, before the court at all that allowed the court to conclude the existence of reasonable grounds.  There was no evidence from Ms Gai from NGI, there was no evidence from Mr Gutierrez, there was nothing that informed that issue.  Of course that, we say, was the most significant aspect of the finding by Justice Sackar and, of course, the findings made by his Honour Justice Sackville in relation to the absence of any reasonable grounds.

Of course, the starting point is that, even accepting that there was a reasonable basis to assert it, ultimately the findings of the Court of Appeal and his Honour at first instance was that there was not a caveatable interest.  Moving on from that, in the absence of there being, we say, a jot of evidence that established the reasonable basis, we say that the error here that justifies the grant of special leave is the array of inferences that his Honour Justice Basten made in the absence of there being evidence in relation to all aspects of the solicitor‑client relationship; that is, the giving of instructions, the consideration of those instructions – and not just the giving of instructions, of course, the giving of adequate instructions, as that expression was identified by his Honour Justice Basten at application book 194, at line 10.

KEANE J:   Mr Sirtes, once the case becomes reduced to a case about the appropriate inferences of fact, it becomes a very unattractive case for the grant of special leave.

MR SIRTES:   We say no, for this reason:  this is a significant compensatory provision.  There is no transparency from a vendor’s perspective as to what has occurred.  You have a situation where a caveator lodges a caveat and causes enormous disruption, particularly in this circumstance where the vendors had absolutely no knowledge of any of these matters.  They put on no evidence.  Effectively, we say, the upshot of the approach that was taken by his Honour Justice Basten, which was not simply fact‑specific, because the way his Honour approached it, we say, as is evidenced from application book 207, at paragraphs 63 and 64.  His Honour was saying in 63 and 64, this is the correct approach that ought to be taken, and his Honour says – this is at 63, at line 10, and 64 on 207:

in circumstances where the caveator is represented by lawyers who effect the lodgement of the caveats, it should usually be inferred that they received instructions, gave advice and then received instructions to do what they in fact did.

We say that his Honour also makes a number of other inferences, for example, on page 206, at paragraph 62.  The upshot of the approach that was taken by his Honour Justice Basten, which Justice Gleeson accepted and adopted, would allow any caveator, we say, to establish a reasonable ground by doing nothing more than tendering the caveat and relying upon the fact that it was drafted by a solicitor.

KEANE J:   You attack Justice Basten’s observation in paragraph 62, that the:

finding seriously adverse to the competence and professional behaviour of the solicitor . . . should not have been made unless it had been put –

to him.  You say that Justice Basten was wrong?

MR SIRTES:   We say this, that, first of all, that would require the solicitor to have given evidence.  In circumstances where the solicitor is not called to give evidence, that becomes an impossible task.  Secondly, with respect, it is not entirely plain why – the question of competence, of course, is a calculus of some underlying moving parts:  i.e. what were the instructions given to that solicitor by the client?  Was that solicitor given full instructions?  Were they given the full complement of documentation in order for them to give advice?

So the question of competence really comes after a contemplation of what tools the solicitor has been given, or the lawyer has been given, to contemplate those things.  Particularly in this case, where we know that it was a live issue in relation to the application of the short form deed, which was said to be effectively the principal base upon which these caveats were lodged, we have a situation where, according to the evidence which his Honour set forth on application book 200, at paragraph 42, where Ms Gai writes to Ms Lin and Mr Darmali:

It’s clear that your side has repudiated the Agreement with NGI and accordingly it is terminated.

This is on 23 May 2014 which is just two months shy of the date which the caveats are lodged and raises the question, as has been observed by his Honour Justice Sackville ‑ raises the very question as to the array of instructions that were given by NGI when we have correspondence that was sent and we have the caveats.  That correspondence, for example, is set forth on page 201which was correspondence sent by Mr Gutierrez, which is largely based upon the short form deed which according to NGI’s own evidence they terminated on 23 May.

Now, Justice Sackville accepts in his judgment that the fact it was terminated gives rise to an interesting question as to whether or not it can be sustained as the basis for the caveatable interest.  But it also shines some light on whether or not in circumstances where that correspondence was written where it could possibly be said that proper instructions were given.

The other problem of course is that which is identified by Justice Sackville and of course his Honour refers to the Western Australian Court of Appeal decision where it requires not just an uncritical acceptance based upon an inference that a solicitor has received proper instructions and given advice, that these things are the starting point for an overarching assessment of whether or not there were reasonable grounds.  It is and it can ‑ ‑ ‑

KEANE J:   This is Brogue Tableau.

MR SIRTES:   Brogue Tableau. 

KEANE J:   Now, in relation to Brogue Tableau, in terms of what their Honours in the Court of Appeal made of it, do you say that there is a difference in terms of principle in their approach, as opposed to just simply differences in the application?

MR SIRTES:   We do, and we say for this reason, your Honour, because Brogue Tableau approaches the question of advice on the basis that there must be some articulation of what that advice is and our learned friends say, and I think the point that your Honour has made is this, is that, well, the only difference here is that his Honour Justice Basten made a series of inferences and those inferences in fact was the body of evidence that was considered and therefore the only difference in approach was not Brogue Tableau, but was the inferences that were made on the one part and the refusal by his Honour Justice Sackville to make those inferences.

We say the significance though is that Brogue Tableau suggests, in our respectful submission, that it is not something that can be left to inferences because it is the calibre of the inferences that are significant.  Brogue Tableau, and we say Justice Sackville’s acceptance of it, requires there to be some transparency, some transparency as to in fact what occurred in the advice that was obtained, in the instructions that were given, and it would preclude there being simply an inference that all those things

were regular.  It could not simply be, in our respectful submission, something left to advice only.

It would have to be something that was exposed, otherwise it gives rise to the very problems that we say have emerged here, which his Honour Justice Basten has made these inferences in circumstances where it appears from the evidence that there has been ‑ at least arguably has been a failure by Ms Gai to actually provide proper instructions in circumstances of course where she gave no evidence about having given instructions other than, “please protect our interests”, “please protect NGI’s interests”.

Now, there is, we say, a chasm between the kind of information that should be an entry level of information provided to a court to make the assessment and the inferences.  We also say that the inferences that were made by his Honour are almost akin to judicial notice of a range of important matters that we say a court simply cannot make inferences about because, even if one starts from the perspective that a solicitor may be competent in the discharge of their obligations, as we say, the competency can only be measured against the surrounding circumstances in which they have given advice, indeed, if they have given advice at all, because we have no instructions about – we have no evidence about whether that has occurred.  So there is a number of moving parts in that analysis and we say Brogue Tableau makes it plain that there must be evidence about it.

If it was not the case, the flipside would be we find ourselves in the territory, as we have said, where if one applies the kind of inferences that his Honour Justice Basten made in this case and made not just specifically in relation to the facts, but generally, one would find that it would completely exonerate caveators from having to give any evidence about these matters, but to simply say, we take advantage of the inferences that the majority made in this particular case on the basis that these caveats were prepared by a solicitor and the court from that is entitled to, and should, make the inferences that advice was given, there were adequate instructions, a solicitor gave advice on caveats being lodged and on that basis the court is entitled to infer without nothing other than the caveat that there has been a reasonable basis to lodge the caveat.

That, of course, would create effectively a subclass between those people who did not have the benefit of a solicitor of course when they drafted the caveat, and those who did.  We say that the compensation provisions, to the extent that we say that this decision of the Court of Appeal will have national significance and would be binding unless otherwise established to be manifestly wrong, will have the effect – it will declaw the operation of section 74P and it will be almost impossible, we say, for a caveator to seek compensation.  Those are our submissions.

KIEFEL CJ:   We need not trouble you, Mr Einfeld.

We consider that there is no reason to doubt the conclusion reached by the Court of Appeal in this matter.  Special leave is refused with costs.

The Court will adjourn to reconstitute.

AT 12.04 PM THE MATTER WAS CONCLUDED