Thorpe v Klaus Schulz as executor of the will of Erna Schulz - [2019] WASC 38

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   THORPE -v- KLAUS SCHULZ as executor of the will of ERNA SCHULZ [2019] WASC 38
CORAM:   MASTER SANDERSON
HEARD:   20 AUGUST, 4 OCTOBER & 27 NOVEMBER 2018
DELIVERED          :   19 FEBRUARY 2019
FILE NO/S:   CIV 1427 of 2010
BETWEEN:   ANDREW CECIL THORPE
Plaintiff
AND
KLAUS SCHULZ as executor of the will of ERNA SCHULZ
First Defendant
THE REGISTRAR OF TITLES
Second Defendant

Catchwords:

Caveat - Whether caveat can be maintained to support charge - Turns on own facts

Legislation:

Bankruptcy Act 1966 (Cth)
Magistrates Court (Civil Proceedings) Rules 2005 (WA)
Restraint of Debtors Act 1984 (WA)

Result:

Caveat to stand

Category: B

Representation:

Counsel:

Plaintiff	:	Mr P Van Der Zanden
First Defendant	:	Mr S J Blyth
Second Defendant	:	No appearance

Solicitors:

Plaintiff	:	Hotchkin Hanly Lawyers
First Defendant	:	Lewis Blyth & Hooper
Second Defendant	:	No appearance

Case(s) referred to in decision(s):

Nil

MASTER SANDERSON:

This action was commenced by originating summons filed 26 March 2010 - almost nine years ago. The originating summons sought the extension of the operation of a caveat. The caveat had been lodged over certain property to secure a debt of $15,000. When the matter eventually got to trial the hearing extended over three days. Detailed written and oral submissions were made by counsel for each of the parties. It beggars belief the matter could not have been settled. But no settlement was possible. It now falls to me to resolve this storm in a teacup.
There is a large measure of agreement as to the relevant facts. The summary which follows is taken from the plaintiff's affidavit sworn 31 May 2018. I have used this affidavit and the plaintiff's evidence as the framework in recounting the facts. Later in these reasons, where the first defendant disagrees with the plaintiff's version of the facts, I will highlight those disagreements.
The plaintiff is a former solicitor. He was admitted to practice in 1984, suspended from practice in September 2004 and struck off the Roll in February 2008.
In or about 1990 he acted for the first defendant in a dispute over a contract for the sale of a proposed strata lot to be created from a strata subdivision being carried out by the first defendant in Victoria Park. The purchaser was Johannes (John) Geradus Horsten. Mr Horsten was a licensed real estate agent and a director of the real estate company which employed the first defendant as a salesman. The matter went to trial in the Perth Magistrates Court on 14 December 1990 and judgment was given in favour of Mr Horsten for $7,300 plus interest and costs to be taxed. In February 1991 Mr Horsten had the first defendant twice arrested under the Restraint of Debtors Act 1984 (WA) alleging the first defendant was leaving the State and his departure could prejudice enforcement of the judgment. On each occasion the plaintiff successfully obtained orders for the first defendant's release.
The first defendant told the plaintiff he had been badly affected by the arrests. On each occasion the police had come to his house in his suburban street and he had been placed in a police van. Several of his neighbours had seen the arrest. At the time the first defendant was engaged in selling residential real estate in the area and he believed the very public arrests affected his reputation and ability to sell. The first defendant instructed the plaintiff to advise him in respect of a claim against Mr Horsten and his solicitors for damages for his arrests. The first defendant told the plaintiff he was in financial difficulties because of delays in the strata subdivision and was not in a position to meet the plaintiff's fees. The plaintiff offered to act for the first defendant on the understanding that at the completion of the proceedings the first defendant would pay all of the plaintiff's fees and disbursements. The first defendant did pay the plaintiff an amount of $1,000 on account of costs.
The plaintiff says during the course of his investigations and research into the first defendant's claim he formed the view there was a good claim for damages against Mr Horsten. He questioned, however, whether a claim could be made against Mr Horsten's solicitors. The plaintiff advised the first defendant he should obtain an opinion from an experienced barrister. The first defendant did not have the funds to pay for such an opinion. The plaintiff agreed to pay for the opinion on the understanding the first defendant would reimburse the plaintiff when he was able to do so. A certain Mr Wayne Martin, then a Junior Counsel, was briefed and provided an opinion in January 1992. Mr Martin advised that proceedings should not be issued against Mr Horsten's solicitors. He was of the view however that a cause of action may exist against Mr Horsten. The first defendant resolved to proceed. Proceedings were issued with the plaintiff paying the filing fee.[1]
[1] Supreme Court of Western Australia CIV 1415 of 1992 Schulz v Horsten commenced by writ of summons filed 30 March 1992.
The matter meandered along until in August 1997 Mr Horsten sought protection under pt X of the Bankruptcy Act 1966 (Cth). The first defendant's claim against Mr Horsten was not compromised by this step because, at the time, the first defendant was not a creditor and did not have a provable debt. Mr Horsten reached a settlement with his creditors in February 1998 and thereafter the first defendant instructed the plaintiff to proceed with the action. Some four years later, the proceedings commenced in 1992 were listed for trial.
At this point the plaintiff says he advised the first defendant that as he (the plaintiff) would give evidence at the trial, he could not act as counsel. He suggested a barrister, Mr Robert Richardson, who he then briefed as counsel on instruction by the first defendant. The plaintiff says he advised the first defendant that the first defendant would have to find funds to pay Mr Richardson. The plaintiff provided a quote for Mr Richardson's fees and the first defendant said he was not able to meet those fees immediately. The plaintiff says he was prepared to brief Mr Richardson on the basis he received a third party guarantee and a charge over real estate for Mr Richardson's fees and for his past and future fees. The plaintiff says the first defendant said his parents were prepared to give a guarantee and a charge over property they owned.
It is not in dispute the plaintiff drew a document which is described as a 'charge' to be signed by the first defendant's parents, Mr Kurt Schulz and Mrs Erna Schulz. It is also not in dispute that Mr and Mrs Schulz attended upon a solicitor, Mr Michael Hodgkins, and discussed the charge with him before they signed it. Their signatures were witnessed by Mr Hodgkins. On 3 February 2002 the plaintiff sent a letter to Mr and Mrs Schulz. That letter reads as follows:
We confirm that you have:
a)agreed to provide funding for your son's upcoming trial;
b)obtained independent legal advice; and
c)charged your property at 87 Mills Road, Martin with payment of your son's legal fees.
We enclose a copy of the charge executed by you. We confirm that we shall arrange to lodge a caveat over the property in accordance with that charge.
We confirm that you have arranged with Westpac Canning Vale to borrow $15,000 for counsel's fees and that you expect the $15,000 to be available next Tuesday whereupon it will be paid into our trust account pending receipt of counsel's invoice.
Yours sincerely.[2]
[2] Annexure 'ACT-14' to affidavit of Andrew Cecil Thorpe filed 31 May 2018.
The charge which was signed by Mr and Mrs Schulz was contained in a letter prepared by Mr Thorpe, but also addressed to Mr Thorpe. In other words, the letter was prepared as though it was written by Mr and Mrs Schulz to Mr Thorpe. It reads as follows:
We have been requested by our son Klaus Schulz to provide funding for his upcoming trial. We confirm that we have agreed to do so by arranging to borrow monies for counsel's fee in the sum of $15,000 and to provide a charge over an investment property owned by us to secure both counsel's fee and all other fees which we understand as at today's date amount to approximately another $15,000.
We confirm that we have been given the opportunity to obtain independent legal advice.
In consideration of your continuing to act for our son and instructing Mr Robert Richardson of counsel we hereby charge our property 85 - 87 Mills Road Martin 6110; volume 1772 folio 367.
With payment of your fees and authorise the lodging of a caveat in pursuance of this charge.
Yours faithfully[3]
(The words underlined above are handwritten and it is common ground they were inserted at the time the document was signed).
[3] Annexure 'ACT-12' to affidavit of Andrew Cecil Thorpe filed 31 May 2018.
It is also common ground between the parties that Mr and Mrs Schulz did in fact discuss the charge with Mr Hodgkins. Mr Hodgkins prepared a 'certificate'. That certificate reads as follows:
I, Michael Leslie Hodgkins of care of Birman & Ride, Level 3, 16 Irwin Street, Perth acknowledge that I have explained the letter printed on the reverse hereof to Mr Kurt and Mrs Erna Schulz and given them independent advice in relation to that letter and I am satisfied that they have understood my advice.[4]
[4] Annexure 'ACT-13' to affidavit of Andrew Cecil Thorpe filed 31 May 2018.
It does seem odd this 'certificate' was endorsed on the back of the letter constituting the charge. Be that as it may, it is signed by Mr Hodgkins and dated 31 January 2002.
Returning to the narrative, the matter went to trial on 5 and 6 February 2002 and was adjourned part heard. On 18 April 2002 the plaintiff lodged the caveat over the Martin property which is the subject of this action. Under cover of a letter dated 17 May 2002 the plaintiff invoiced the first defendant for an amount of $21,421.82 for work he says he performed for the first defendant since 13 November 1997.[5] That amount included the November 1997 balance. The figure was subsequently amended to the slightly lower amount of $21,234. On 27 July 2004 the plaintiff sent a letter to the first defendant asking for a reasonable proposal to pay the outstanding costs.[6] There was no response. On 2 September 2004 the plaintiff sent a letter to Mr and Mrs Schulz asking them to pay the costs they had guaranteed for their son.[7] There was no response. The plaintiff was not involved any further in the conduct of the Supreme Court proceedings CIV 1415 of 1992 which settled in July 2004.
[5] Annexure 'ACT-18' to affidavit of Andrew Cecil Thorpe filed 31 May 2018.
[6] Annexure 'ACT-20' to affidavit of Andrew Cecil Thorpe filed 31 May 2018.
[7] Annexure 'ACT-21' to affidavit of Andrew Cecil Thorpe filed 31 May 2018.
On 18 September 2008, solicitors then acting for the plaintiff wrote to Mr and Mrs Schulz seeking payment of the account in the amount of $31,189.90.[8] The following day the same solicitors issued proceedings in the Perth Magistrates Court (case number 13942 of 2008) against the first defendant. On 26 September 2008 HFM Legal wrote on behalf of the first defendant responding to the plaintiff's solicitor's letter. Among other things HFM Legal advised that Mr Kurt Schulz passed away on 24 March 2007, and that the first defendant would make weekly payments of $20.[9]
[8] Annexure 'ACT-22' to affidavit of Andrew Cecil Thorpe filed 31 May 2018.
[9] Annexure 'ACT-24' to affidavit of Andrew Cecil Thorpe filed 31 May 2018.
On 10 March 2010 the plaintiff received a 21 day notice from the Registrar of Titles. It was upon receipt of that notice these proceedings were commenced. On 30 March 2010 an order was made by this court extending the operation of the caveat until further order. Coincidently the order was made by Chief Justice Martin.
On 21 April 2010 this court adjourned the caveat proceedings sine die.
For the sake of completeness I should note that in March 2014 a transmission application was lodged by the first defendant on behalf of Mrs Erna Schulz (deceased) in relation to the property. The plaintiff was advised that when the transmission application was processed the caveat would remain in place. Sensibly the plaintiff took no steps to interfere with this process and it has not affected his security.
In February 2015 the Magistrates Court action was put on the inactive cases list under r 95B of the Magistrates Court (Civil Proceedings) Rules 2005 (WA). For one reason or another this notice did not come to the plaintiff's attention until 15 July 2015. He then made an application to have the matter removed from the inactive cases list. That application was heard and dismissed. The plaintiff appealed that decision and was successful - the matter was remitted to the Magistrates Court for rehearing. In May 2016 the application was again dismissed. The plaintiff again appealed to the District Court - this time without success. The plaintiff then appealed to the Court of Appeal. On 2 November 2017 that appeal was dismissed. As I understand it no further steps have been taken by the plaintiff to recover the amount of fees he says he is owed.
The first defendant's evidence does not differ materially from the plaintiff's evidence up until the events of January 2002. The first defendant says the first time the plaintiff advised that he (the first defendant) would have to pay $15,000 for Mr Richardson's fees was two weeks prior to trial.[10] There may be some differences in timing but those differences are not material. The first defendant says the plaintiff suggested to him his parents should take out a loan for the $15,000. That is slightly different from what was said by the plaintiff, but nothing appears to turn on that discrepancy.
[10] Affidavit of Klaus Schulz sworn 1 August 2018 at par 21.
The first defendant says the first time he heard about the prospect of a caveat was when he received a call from the plaintiff.[11] The first defendant says he did not know what a caveat was - despite the fact he was at the time working in the real estate industry. In any event he consulted his parents and his parents agreed to the caveat as way of security. The meeting then took place on 31 January 2002.
[11] Affidavit of Klaus Schulz sworn 1 August 2018 at par 27.
It is common ground the meeting took place at the offices of the plaintiff, which was part of the premises occupied by Birman & Ride. Also present at the meeting were solicitors Jeremy Birman and Michael Hodgkins (Mr Hodgkins). There was some discussion about the purpose of the meeting and the first defendant said, on behalf of his parents, that they wished to obtain independent legal advice before they signed anything.
The first defendant says he and his parents went into an office with Mr Hodgkins, who then told the first defendant his advice was directed to Mr and Mrs Schulz and although the first defendant could remain in the office, he had to sit some distance away from his parents. The first defendant says he could hear the exchange that took place. He says Mr Hodgkins asked his parents if they knew why they were present, and whether they understood the document. At this stage the first defendant says he attempted to intervene. He was concerned that because English was not their first language (they were both native German speakers) and they might not understand the document. Further, Mr and Mrs Schulz were elderly - Mr Schulz was 78 and Mrs Schulz was 79. The first defendant says Mr Hodgkins did not allow him to interfere nor see the document presented to his parents for signing before they signed it. Furthermore, he says Mr Hodgkins did not explain to his parents what a charge or a caveat was, or how the combination of the charge and the caveat would affect their position. The first defendant says his father could not read or write English and his mother could only read basic English (such that when mail which was in English was received he had to read it to them).[12]
[12] Affidavit of Klaus Schulz sworn 1 August 2018 at pars 34 – 57.
There is one further aspect of the first defendant's evidence which is of importance. He says that as at the date of signing the charge the handwritten words were not included. He alleges they must have been inserted subsequently. In the end not much turned on this point. It was not suggested by counsel for the first defendant the insertion of the handwritten words affected the charge. The only relevance of the alleged later insertion of these words goes to the credibility of the witnesses.
Subsequent to the first defendant filing his affidavit the plaintiff filed a further affidavit.[13] He takes issue with certain matters raised by the first defendant but these are not really of concern. What the plaintiff does say is that the first defendant had personal experience with caveats.[14] He says Mr Horsten had lodged one against the title to the first defendant's property when they were in dispute over Mr Horsten's contract to buy. The plaintiff says the first defendant instructed him to act in relation to removal of the caveat. The plaintiff also says at no time was he aware of any difficulty Mr and Mrs Schulz had with the English language.[15] In fact in early February 2002 the plaintiff interviewed Mrs Schulz with a view to taking a proof of evidence from her in relation to the upcoming trial. He says not only was he satisfied she understood English and had no difficulty communicating in the language but that she never advised she could not read or write English.
[13] Affidavit of Andrew Cecil Thorpe sworn 15 August 2018.
[14] Affidavit of Andrew Cecil Thorpe sworn 15 August 2018 at par 17.
[15] Affidavit of Andrew Cecil Thorpe sworn 15 August 2018 at par 22.
At the hearing of this application the plaintiff, the first defendant and Mr Hodgkins gave evidence. Mr Hodgkins said he had absolutely no recollection of the events surrounding the provision of advice. Given those events took place almost 17 years ago that is perhaps not surprising. But it is important to note that his absence of recollection was complete. He could not remember meeting Mr and Mrs Schulz, he could not remember the circumstances in which he met them, he had no recollection of providing advice and so on. He could not explain why the certificate was endorsed on the reverse of the charge. All he could do is say the handwriting was his and it was his signature.
The plaintiff gave his evidence in careful and considered fashion. He appeared to have a clear recollection of events and he answered all questions put to him in a succinct manner. There was nothing in his response to questions put in cross‑examination which led me to doubt his version of events. At no point did I have the view he was providing answers on the basis of what he thought must have happened. Rather, I was left with the strong impression he actually remembered the events as they occurred.
The first defendant was a less satisfactory witness. His recollection of what had occurred did not seem to be complete. In particular I was not satisfied his parents did not have an understanding of English. It may well be their reading skills were lacking. But the charge itself is a very simple document and Mr Hodgkins says he signed the certificate and has no reason to doubt its veracity. It is difficult to understand why, if the first defendant did not think his parents fully understood and appreciated the document they were signing, he did not intervene. After all it was his evidence he was in the room at the time they signed the charge.
At this point it is relevant to note just what is to be determined by these proceedings. It is whether or not the plaintiff has the right to maintain the caveat over the subject property. That in turn feeds into the question as to whether or not the charge is valid and enforceable. It was the first defendant's contention that the charge was not valid and enforceable. In par 2 of the first defendant's written submissions filed 2 November 2018 counsel set out five grounds on which he submitted invalidated the charge. Counsel for the plaintiff approached the matter by addressing these five issues in turn. Without the benefit of pleadings it is always a difficult matter to assess just what are the relevant facts and the issues which arise from those facts. But in this case I am satisfied the matters raised by the first defendant and addressed by the plaintiff are the real issues in the case. I will deal with them in turn.

The first issue is whether the retainer agreement entered into by the first defendant with the plaintiff in 1991 constituted an entire agreement and if so, was the plaintiff entitled to vary and did the first defendant consent to the variation of the agreement.
It is the first defendant's position the contract of engagement between the plaintiff and the first defendant did not permit the plaintiff to demand from the first defendant a guarantee by way of charge or otherwise. The first defendant says, as I understand the submission, that the charge was outside the scope of the retainer agreement and therefore unenforceable.
That submission should be rejected. It seems clear the engagement agreement between the plaintiff and the first defendant was fluid. There was nothing committed to writing - in those days such loose agreements between solicitor and client were common. From time to time the plaintiff and the first defendant discussed payment of the plaintiff's fees and ad hoc arrangements were entered into. There is nothing surprising in the course of dealing between the parties that at the last minute the plaintiff should have requested from the first defendant a guarantee for Mr Richardson's fees. Such an approach was entirely consistent with the rather haphazard way the business relationship had been conducted. The evidence simply does not support there being a rock solid agreement which in some way precluded the plaintiff from seeking a guarantee or money on deposit from the first defendant.
The second issue is whether the charge document signed on 31 January 2002 was validly entered into. This appears to be an unconscionability argument. As I understand the first defendant's position, it is submitted Mr and Mrs Schulz were in a position of disadvantage. They were of advanced age and had limited understanding of the document they were signing. Furthermore, it was submitted the circumstances of signing the document were such that it was not possible to conclude Mr and Mrs Schulz fully understood what they were signing. They were volunteers who stood to gain no benefit by signing the charge. The first defendant submitted the charge should be regarded as unenforceable.
I have already mentioned reservations I have about the evidence as to the capacity of Mr and Mrs Schulz to read and write English. Even leaving those reservations to one side there is nothing in the evidence to suggest Mr and Mrs Schulz had limited understanding to the point they did not realise what they were signing. Furthermore, there is the certificate of Mr Hodgkins. There is a risk in taking at face value such a certificate when the person who completed and signed the certificate has no independent recollection of the circumstances in which it came into existence. But Mr Hodgkins is a lawyer and even allowing for his relevant inexperience at the time he signed the certificate it is difficult to accept he would have signed it if he did not believe it accurately represented what had occurred. Mr Hodgkins had no conflict of interest - neither he nor the firm he worked for stood to gain any benefit from security provided for the plaintiff's fees. In the circumstances there is no basis for doing anything other than giving full weight to this certificate and accepting it accurately reflected Mr Hodgkins' position. That being so there is no basis for the contention of unconscionability.
The third issue is whether or not handwritten words were added to the charge by the plaintiff after the charge was signed. Looking at the evidence I am satisfied that was not the case. I accept the plaintiff added those words before the charge was signed - in other words, I prefer the plaintiff's evidence to the first defendant's evidence.
But even if that were not the case, and the words were added after the document was signed, it does not materially alter the effect of the charge itself. The words do not contain any additional obligation on Mr and Mrs Schulz. The fact the address of the property over which security was taken was added later is neither here nor there. There was no dispute between the parties as to the property over which the caveat was to be lodged. Nor is the reference to the amount of fees outstanding of any significance in the overall validity of the charge. So even if additional words were added it does not invalid the charge.
Fourthly, there is the question of whether the charge can be of any force and effect when the underlying debt is not, in the first defendant's submission, recoverable as against the first defendant. This appears to be an argument based on a limitation defence. That is to say the plaintiff is precluded by the flux of time from claiming the amount allegedly outstanding for fees. That then feeds into an abuse of process argument. If the fees cannot be recovered then the charge is of no utility and it is an abuse of process to attempt to retain the caveat. For the sake of this argument it is important to remember these proceedings were commenced by the plaintiff for the sole purpose of retaining the caveat - these proceedings are not concerned with the recovery of any debt.
Given the way that this case was run it is perhaps surprising the first defendant did not make more of the question of whether or not the plaintiff is precluded from recovering any outstanding costs by the provisions of statutes of limitation.
In any event, as the evidence was presented I could not conclude that in any proceedings between the plaintiff and the first defendant as to the alleged outstanding fees a limitation defence would succeed. That is a matter which would need to be resolved in Magistrates Court proceedings. It cannot be the basis of resolving this dispute.
Fifthly, there is the question of whether seeking to enforce the charge itself is an abuse of process. This appears to rely on the proposition that the charge itself is unenforceable as a consequence of the flux of time. It is common ground between the parties that the relevant limitation period is 12 years. However, by letter dated 26 September 2008 the first defendant's solicitors acknowledge the existence of the charge. Even if the first defendant did not authorise his solicitors to acknowledge that charge they were his agents and he must be bound by their actions. But, insofar as it is necessary to make a finding of fact on this question, I would not accept the first defendant's evidence. I am satisfied he did authorise his solicitors to acknowledge the charge.
In all the circumstances then I am not satisfied there is any basis upon which I could conclude the caveat ought be removed.
Regrettably that is not the end of the matter. The originating summons anticipated the appointment of a receiver to enforce the charge. But it is not possible to say what the amount of the fees might be. It is to be borne in mind the reference in the charge is to 'fees' - no firm and final figure is given. Because of the failure of the Magistrates Court proceedings there has been no determination as to what amount, if any, is owed by the first defendant to the plaintiff. It is not enough to say that the plaintiff has rendered accounts and what is owing is the amount of those accounts. If and when a court considers what amount is owing it may or may not reach the figure proposed by the plaintiff. In fact, if any limitation defence is successful, the outstanding figure might be zero. But for present purposes there is no basis upon which I could order the appointment of a receiver and sale of the property to satisfy an unquantified debt.
This means the parties are left in limbo. The plaintiff lodged a caveat over the property which the first defendant is unable to remove. The plaintiff has security over a property and is unable to enforce the debt because the debt is unquantified. On one view these proceedings have achieved nothing. But to my mind there is no other outcome which is possible given the state of the evidence and the respective positions of the parties.
On publication of these reasons I will give the parties the opportunity to make submissions as to the form of orders and as to costs.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

DG
Associate to Master Sanderson

18 APRIL 2019