Truefilm Pty Ltd v J R Investment Holdings Pty Ltd

[2004] NSWSC 372

Reported Decision: (2004) NSW ConvR 56-096

Supreme Court

CITATION:	Truefilm Pty Ltd v J R Investment Holdings Pty Ltd [2004] NSWSC 372
HEARING DATE(S):	22/04/04
JUDGMENT DATE:	6 May 2004
JUDGMENT OF:	Gzell J
DECISION:	Compensation ordered with interest and costs.
CATCHWORDS:	CONVEYANCING - Land Titles under the Torrens System - Caveats against Dealings - Compensation under the Real Property Act 1900, s 74P(1)(a) - Whether honest and reasonable belief that real estate agent had a caveatable interest in land for disputed commission - Whether loss of bargain for penalty interest attributable to lodgement of caveat - Whether a failure to mitigate loss
LEGISLATION CITED:	Real Property Act 1900 Supreme Court Act 1970
CASES CITED:	Bedford Properties Pty Ltd v Surgo Pty Ltd [1981] 1 NSWLR 106 Beca Developments Pty Ltd v Idameneo (No 92) Pty Ltd (1990) 21 NSWLR 459 Municipal District of Concord v Coles (1906) 3 CLR 96 Tierney v Loxton (1891) 12 NSWLR (L) 308 Midland Brick Co Pty Ltd v Welsh [2002] WASC 248 Downie v Kenny &Anor (1986) NSW ConvR 55-270 Lee v Ross (No 2) (2004) NSW ConvR 56-067 Nelson v Kimberley Homes Pty Ltd (1988) NSW ConvR 55-394
PARTIES :	Truefilm Pty Ltd - Plaintiff J R Investment Holdings Pty Ltd t/a Ray White Marrickville - Defendant
FILE NUMBER(S):	SC 6197/03
COUNSEL:	Mr D A Smallbone - For the Plaintiff Mr Germanos - In Person/Agent
SOLICITORS:	Terence Stern Solicitor

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

GZELL J

THURSDAY 6 MAY 2004

6197/03 TRUEFILM PTY LTD v J R INVESTMENT HOLDINGS PTY LTD T/A RAY WHITE MARRICKVILLE

JUDGMENT

1 These proceedings were brought for a declaration that the defendant had no caveatable interest in the plaintiff’s land, for an order that the caveat be withdrawn pursuant to the Real Property Act 1900, s 74MA, for damages under s 74P, for interest under the Supreme Court Act 1970, s 94 and for indemnity costs.

2 Following service of the proceedings upon it, the defendant handed over a withdrawal of the caveat. All that remained for hearing were the damages, interest and costs issues. The Real Property Act 1900, s 74P(2) provided that damages were recoverable in proceedings taken in a court of competent jurisdiction. $5,049.86 was claimed.

3 Robert Germanos was the sole director and the licensed real estate agent of the defendant which traded as Ray White Marrickville. On 24 August 2000, the plaintiff entered into a sole agency agreement with the defendant for the sale of the land in question. Mr Germanos introduced Sussine Hanna of S & G Hanna Developments Pty Ltd to the land and was introduced to Tony Jabbour as his partner.

4 A further sole agency agreement was entered into on 9 May 2001 and an advice of sale to S & G Hanna Developments Pty Ltd was forwarded to the plaintiff on 29 May 2001. An agreement acknowledging the defendant’s commission was signed by the plaintiff on 30 May 2001.

5 The sale did not proceed because the parties could not agree on requirements for the remediation of the site.

6 On 30 October 2001, a contract of sale of the land to S & G Hanna Developments Pty Ltd and Jabbour Developments Pty Ltd was signed. On 20 December 2001, Mr Germanos wrote to the plaintiff’s solicitor pointing out that he introduced the purchasers to the site, demanding commission and threatening to place a caveat on the land and commence legal proceedings to recover the fees.

7 On 30 January 2002, the defendant lodged a caveat specifying the interest in the land as an outstanding debt payable on the sale of the property subsequent to a valid sales agency agreement of 24 August 2000.

8 The registered proprietor’s address on the caveat was given as Truefilm Pty Ltd care of 251 Oxford Street, Bondi Junction. The plaintiff had no office at that address. Its solicitor’s office was on the fifth floor of a building at that address. The caveat did not come to the attention of either the plaintiff or its solicitor. There was no further communication between Mr Germanos and the plaintiff or its solicitor until December 2003.

9 Settlement of the sale was appointed to take place on 9 December 2003. It did not proceed because of the caveat. It came to the attention of the solicitors acting for the purchasers on that day who communicated its existence to plaintiff’s solicitors on that day.

10 As a result of the demands made by the solicitors for the plaintiff, the withdrawal of caveat was executed by Mr Germanos on 10 December 2003.

11 Clause 5.3 of the special conditions of the contract for sale required the purchaser to pay interest if, through no fault of the vendor, they did not complete the contract on the date for completion. An agreement had been reached between the parties that the amount payable on 9 December 2003 by way of interest was $10,099.72.

12 Settlement was finally effected on 12 December 2003 but the purchasers refused to pay the interest previously agreed in light of the plaintiff’s inability to complete the contract on 9 December 2003. A compromise was achieved and, upon settlement, interest of $5,049.86 was paid.

13 The Real Property Act 1900, s 74P(1)(a) provided that any person who, without reasonable cause, lodged a caveat was liable to pay to any person who sustained pecuniary loss that was attributable to that act, compensation with respect to that loss.

14 The legislation had stood in this fashion until 1998 when the test became: “wrongfully and without reasonable cause”. On 1 February 1997, “wrongfully” was omitted and the test resumed its pre-1988 formulation. Care needs to be exercised in analysing the authorities to determine which formulation was under consideration.

15 In BedfordProperties Pty Ltd v Surgo Pty Ltd [1981] 1 NSWLR 106 at 108, Wootten J took the view with respect to the pre-1988 formulation that the foundation for reasonable cause was an honest belief based on reasonable grounds that the caveator had a caveatable interest. That view was approved by the Court of Appeal in Beca Developments Pty Ltd v Idameneo (No 92) Pty Ltd (1990) 21 NSWLR 459 at 469-471, Waddell A-JA stating at 479 that it was the accepted view in Australia and in New Zealand.

16 Expressed in the negative, the Real Property Act 1900, s 79P(1)(a) was enlivened if a person without a caveatable interest lodged a caveat with no honest belief based on reasonable grounds that a caveatable interest existed.

17 Mr Germanos, who appeared for the defendant, submitted that he held an actual belief that the caveat was properly lodged.

18 To support the lodgement of a caveat in New South Wales, a person must have a legal or equitable interest in the land, partaking of the character of an estate in it or an equitable claim to it (Municipal District of Concord v Coles (1906) 3 CLR 96 at 107 approving Tierney v Loxton (1891) 12 NSWLR (L) 308 at 314).

19 Mr Germanos relied on Midland Brick Co Pty Ltd v Welsh [2002] WASC 248. There the plaintiff sold the land in question under a contract containing a special term that the property was not to be subdivided at any time without its consent and an acknowledgement and agreement by the purchaser that the plaintiff might lodge a caveat to protect its rights including its rights to prevent the purchaser subdividing the property. The plaintiff sought an extension of the caveat lodged in accordance with the contract.

20 Mr Germanos cited from par 36, the sentence: “To limit the right to caveat only to interests classified as proprietary in nature is to deny a chief purpose of caveats”.

21 However, that sentence was taken from a writer arguing that the wording of the Western Australian legislation did not require a proprietary interest to support a caveat. Hasluck J did not decide that question. At par 44 he pointed out that there was authority to the effect that an unregistered restrictive covenant was an equitable interest in land that might be protected by caveat. At par 53 his Honour stated that the crucial question was whether the covenants should be characterised simply as personal covenants or whether they should be characterised as restrictive covenants running with the land. At par 94 his Honour concluded that there was an unregistered restrictive covenant that was a caveatable interest. The authority did not support the defendant’s contention.

22 A contractual right to commission by a real estate agent is not an interest in land and does not support a caveat (Downie v Kenny &Anor (1986) NSW ConvR 55-270. In that case, Young J said it must be made very clear to real estate agents that they cannot pressure their principals into paying disputed commissions by lodging caveats on the title where they have no interest in the land.

23 Mr Germanos was cross examined as to his 13 years’ experience in the real estate industry and his completion of a TAFE course on the law and practice with respect to commission. He denied that he knew, at the time the caveat was lodged, that the defendant had to have an interest in the land.

24 In Lee v Ross(No 2) (2004) NSW ConvR 56-067, Palmer J at 58,901 rejected a submission that honest belief is to be determined as a subjective element alone. His Honour concluded that a subjective analysis of the actual belief of the caveator was required, but in determining whether that belief was honestly held, the investigation would overlap the objective requirement that the belief be held on reasonable grounds.

25 While I am not prepared to hold that Mr Germanos’s subjective belief was other than he expressed it to be, I have grave doubts that the belief was honestly held. There was no justification given by Mr Germanos for the view he held other than he held it.

26 In any event, in my view, the belief that a legal or equitable interest in the land was not necessary was not held on reasonable grounds. There was no evidence from the defence of any grounds for the belief. The justification for the defendant’s action was based upon an alleged entitlement to commission for introducing the purchasers and a desire to protect that entitlement.

27 In my view, the plaintiff has made out a liability in the defendant to pay the plaintiff compensation with respect to any pecuniary loss attributable to the lodgement of the caveat in terms of the Real Property Act 1900, s 74P(1)(a).

28 The defendant argued that it was not responsible for all loss sustained by the plaintiff but only that which flowed directly from the defendant’s breach. Nelson v Kimberley Homes Pty Ltd (1988) NSW ConvR 55-394 was cited.

29 In that case, Young J rejected a claim to additional interest payments on the basis that losses due to impecuniosity were too remote unless the state of the plaintiff’s finances was known to the defendant at the time of breach.

30 But that is not the case in the instant circumstances. While interest is claimed, it is interest as a loss of bargain and not interest on borrowings. I agree with Palmer J who, in Lee at 58,903, said a practical commonsense approach had to be taken to the identification of compensable loss that was attributable to the wrongful lodgement of the caveat.

31 In my view, the plaintiff has made out its loss of bargain. That loss flowed from lodgement of a caveat that contained no precise address of the plaintiff or its solicitor and, in consequence, failed to come to the attention of the plaintiff until the date appointed for settlement of its sale of the land in question.

32 The defendant’s argument that there was a failure by the plaintiff to mitigate its loss falls on the same basis. It was argued that the plaintiff failed to act to remove the caveat prior to settlement. However, the plaintiff was unaware of the existence of the caveat. It contained an imprecise address and, in consequence, there was no occasion for the plaintiff to move to have the caveat withdrawn prior to the date of settlement of the contract for sale of the subject land.

33 In my judgment the plaintiff has succeeded in its claim for relief and I will make an order that the defendant pay the plaintiff the sum of $5,049.86.

34 In Nelson at 57,658, Young J observed that that matter was properly before the court until the caveat was removed at which stage it could have been transferred to the District Court or, alternatively, the proceedings could have been discontinued and fresh proceedings commenced in a local court. His Honour awarded the plaintiff his costs up to the time the caveat was withdrawn and made no order for costs thereafter. On the other hand, in Downie, Young J made an order for costs on a common funds basis.

35 Mr Smallbone, who appeared for the plaintiff, argued that there was a failure of agreement prior to the issue of the proceedings and their commencement was necessary in order to obtain the withdrawal of the caveat with the consequence that the plaintiff should have an order for its costs on an indemnity basis. He submitted that it would have added to overall costs to argue that question in this court following the withdrawal of the caveat and to argue thereafter for costs on an appropriate basis in a local court or in the District Court.

36 In the instant circumstances the proceedings could have been transferred to the District Court or re-commenced in a local court. In my view, there would have been little duplication of effort in arguing for indemnity costs at the stage the caveat was withdrawn and then commencing fresh proceedings in the local court or applying to have the matter transferred to the District Court.

37 In the exercise of my discretion, I refuse to order costs on an indemnity basis. I will make an order that the defendant pay the plaintiff’s costs.

38 An interest calculation was presented during the hearing calculated to the date of hearing. I will make an order for interest up to judgment and include that amount in the figure for which judgment will be entered.

39 I direct the parties to bring in short minutes of orders reflecting these reasons.

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Last Modified: 05/07/2004