Arkbay Investments Pty Limited (In Liquidation) (Receivers and Managers Appointed) v Echelon Property Management Pty Ltd

Judgment (ex tempore) 1HIS HONOUR: Pursuant to a judgment delivered on 11 April 2014 following a hearing of the application that day [see Arkbay Investments Pty Limited v (In Liquidation) (Receivers and Managers Appointed) v Echelon Property Management Pty Ltd [2014] NSWSC 444], I ordered that the first defendant Echelon Property Management Proprietary Limited withdraw caveat AI262101 in respect of the land comprised in folio identifiers 1/732095 and 2/243107 by 4pm on 14 April 2014, and adjourned the balance of the proceedings including questions of damages and costs to today. 2Meanwhile, and notwithstanding observations that I had made in the course of the hearing on 11 April that the plaintiff might, in circumstances where there was evidence of apparently repeated attempts by people apparently acting in concert to frustrate a sale by a series of caveats, be entitled to an injunction restraining multiple persons from effectively aiding abetting, counselling and procuring or being knowingly concerned in the lodgement of any further caveats, Echelon lodged yet another caveat in respect of the same land claiming substantially the same interest as that claimed in the caveat that was ordered to be removed. As a result, on 17 April 2014, I granted leave to the second defendant, being the purchaser under contract, to file a cross-claim returnable on 22 April, and when the matter came before the court on 22 April, permitted on the cross-defendant's application a short adjournment to 24 April for the matter to be considered, that adjournment being granted upon the cross-defendant's usual undertaking as to damages. When the matter returned before the court on 24 April, Echelon consented to an order that it withdraw the further caveat that day, and that it and the other cross-defendants - namely, Tripod Funds Management Proprietary Limited (which had lodged an earlier caveat claiming an interest relying on the same source as that which was said to underlie Echelon's caveat), Shane Reynolds (an employee of the group of companies of which Echelon and Tripod are members), and Ian Lazar (a director of the companies in that group, who had also signed the relevant caveats), be restrained from lodging any further caveat in respect of the land in question without the leave of the court. The balance of the cross-claim, which included a claim for damages and costs, was also adjourned to today. 3The questions that remain for consideration are the claims by the plaintiffs and the cross-claimants for compensation pursuant to (NSW) Real Property Act 1900, s 74P, and the costs of the proceedings. 4Section 74P(1) provides: Any person who, without reasonable cause: (a) lodges a caveat with the Registrar-General under a provision of this Part, (b) procures the lapsing of such a caveat, or (c) being the caveator, refuses or fails 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. 5In Bedford Properties Proprietary Limited v Surgo Pty Ltd [1981] 1 NSWLR 106, Wootten J said that the foundation for "reasonable cause" must be "not the actual possession of a caveatable interest, but an honest belief based on reasonable grounds that the caveator has such an interest". This view was adopted by the Court of Appeal in Beca Developments Proprietary Limited v Idameneo (No 92) Pty Ltd (1990) 21 NSWLR 459, in which Clarke J, with whom Kirby P agreed, said (at 474): It follows that, in order to establish an absence of reasonable cause, it is necessary for a claimant for relief under s 74P(1)(a) to demonstrate that the caveator neither had a caveatable interest nor a reasonable belief based on reasonable grounds that he did have such an interest. 6Thus a person will not have lodged a caveat without reasonable cause if the person had a caveatable interest, or if, although not having a caveatable interest, the person nonetheless had an honest belief based on reasonable grounds that he or she had such an interest. 7The decision of 11 April 2014 established that the caveator did not have a caveatable interest. The sole remaining question then on liability is whether the caveator had an honest belief based on reasonable grounds that it had that interest. 8Before turning to that question, there is one other question of law to be resolved. The cross-claimant submitted - with a view to holding liable for their loss not only the caveator but the other cross-defendants - that the reference in s 74P(1) to "any person who, without reasonable cause, lodges a caveat" extended to any person involved in the lodgment of a caveat, and not only to the caveator. In this respect, Mr Moore's submissions emphasized that s 74P(1)(c) distinguished the position of a caveator by particular reference to it. I think that there is another explanation for that reference in subparagraph (c), namely, that it is only the caveator who could refuse or fail to withdraw a caveat on request. 9More significantly, the reference to " any person who, without reasonable cause, lodges a caveat " in s 74P mirrors earlier references in the Real Property Act to the caveator. In particular, the right to lodge a caveat is given by s 74F(1) to "any person who, by virtue of any unregistered dealing or by devolution of law or otherwise, claims to be entitled to a legal or equitable estate or interest in land under the provisions of this Act...". Similar provisions are found throughout s 74F. 10In my view, the preferable construction on the face of the Act is that the reference to "any person who, without reasonable cause lodges a caveat" in s 74P is intended to capture only the caveator who lodges a caveat as described in s 74F. 11While I was inclining to this view in any event, Mr Moore properly drew to my attention the recent judgment of Young AJA in Windlock Pty Ltd v Velibor Davidovic & Ors [2014] NSWSC 269 in which his Honour came to the same conclusion. I would not in any event lightly depart from a judgment of Young J on a question of pertaining to the Real Property Act, and particularly in circumstances where in any event I incline to the same view, there is simply no reason to do so. 12Accordingly, it seems to me that liability for compensation under s 74P is limited to the caveator. 13I turn then to the question of absence of reasonable cause for lodgment of the caveat. As I observed on the last occasion, for one reason or another, there has been no cross-examination of the defendant's witnesses in this respect. At the substantive hearing, Mr Lazar was not available to be cross-examined; and Mr Reynolds, although his attendance was anticipated, for various reasons did not appear. Today it appears that Mr Reynolds was also expected, at least by counsel for Echelon, to attend, but he did not do so. In those circumstances, their explanations and evidence has not been the subject of testing by cross-examination, and one proceeds with some caution in making adverse findings in that context. 14On the other hand, on the last occasion I specifically drew to their counsel's attention matters which troubled me concerning, in particular, Mr Lazar's evidence; and deliberately refrained from making any findings about them in the substantive judgment because he had not been cross-examined, and because the considerations to which those questions were directed might loom larger on questions of "without reasonable cause" and costs, which I deferred to today. 15No explanation has been forthcoming today in respect of the concerns I then raised. That, it seems to me, leaves the position as follows. 16First, and I regard this as a rather more important and fundamental matter as a starting point than the submissions have perhaps emphasized, the caveat which triggered these proceedings was lodged in late December 2013, in circumstances where a predecessor caveat by Tripod had been withdrawn only days before, in the face of proceedings before the court for its removal, and where the caveat the subject of these proceedings claimed an interest derived by assignment from that the subject of the caveat so removed. That itself was a bold step, and one to be taken in circumstances only where the caveator could be very comfortable that it had a caveatable interest. In other words, what I am seeking to indicate is that, where a caveat claiming substantially the same interest by a related company had been removed, a caveator seeking to lodge a further caveat founded on substantially the same interest, being related to the previous caveator, and signing by the same director, is, if anything, under a more than ordinary obligation to be very sure of its ground in lodging that caveat. 17Secondly, for the reasons given on 11 April, it is very clear that there never was a caveatable interest, and that the deed of assignment under which Tripod purportedly took an interest was a forgery. It seems to me that the caveator could not have taken reasonable steps to verify or ascertain the position in that respect before lodging the caveat. The deed of assignment was not lodged with the caveat, and perhaps more significantly, was not furnished when requested by the registered proprietor. 18It eventually emerged from Mr Lazar's evidence, if it be accepted, that doubts had arisen in the directing minds of Echelon in late December 2013 as to the authenticity of the execution of the deed of assignment. While Mr Lazar deposed to certain steps that he says were taken to obtain a new document with an original signature and "100 points of ID from the witness", his evidence in that respect is inconsistent with that before the court from Mr Reynolds, is not corroborated by Mr Reynolds (who one would have expected to corroborated it if he could), and suffers from a number of significant problems. The first is that Mr Lazar's evidence is to the effect that Mr Reynolds drew to his attention "the incompatibility of the signature of El-Cheikh on the contract to the deed". I understand this to mean that Mr Reynolds is said to have noticed and drawn to Mr Lazar's attention that the signature purporting to be that of Mr El-Cheikh on the deed of assignment differed from his signature on the contract for sale. However, it is not apparent how Echelon or Mr Lazar would be in possession of a contract of sale bearing Mr El-Cheikh's signature. Mr El-Cheikh was effectively the purchaser, and his signature would be on the contract which after exchange was in the possession of the vendor. Any signed contract that might have conceivably have been furnished by the El-Cheikh interests to Echelon would presumably have been one signed by the vendor and handed over on exchange to the purchaser. This is corroborated by the fact that the copy of the contract attached to Mr Reynolds' affidavit of 20 March 2014 as annexure "1" is indeed one signed by the vendor and does not bear Mr El-Cheikh's signature. 19Secondly, so far as Mr Lazar's evidence refers to obtaining 100 points of ID from the witness on the re-signed deed of assignment, no-one is able to say who that witness was, nor has the allegedly re-signed deed been produced. 20Thirdly, although Mr Lazar says that Mr Jamal, who had allegedly been retained to procure a deed of assignment from Mr El-Cheikh, had demanded a further $20,000 on or about 30 December and then stormed out, or smashed up the office by pushing over a rack of water cooler bottles - a matter which Mr Jamal, to that extent, did not dispute - and then left, documents annexed to Mr Lazar's affidavit evidence on going payments to a person described as SJ, who is said by Mr Lazar to be Mr Jamal, on 31 December of $30,000, and a further $20,000, and then on 17 January a further $1,000, bringing the total payments to $200,000. I should record that Mr Jamal denies receiving any such payment, whether before or after 30 December, but the point is that on Mr Lazar's version, the ongoing payments after 31 December are not easily reconciled with his version. 21In those circumstances, I am unable to accept Mr Lazar's professed claim of an honest belief that Echelon had a caveatable interest, and that the deed of assignment was validly executed by Mr El-Cheikh. I am fortified in that conclusion by the circumstance that, those matters having been raised with Echelon on 11 April, they remain unanswered. 22I accept the plaintiff's and cross-defendant's submission that the lodgment of the later caveat in April of this year, following the order for removal of the previous one, together with the lodgment of the first caveat very shortly after the withdrawal of the Tripod caveat, founds a strong inference that the caveats were being lodged for a purely tactical purpose. The elaborate defence of the caveats maintained by Echelon does not provide reasonable grounds for lodging the caveat when they did not exist at the time the caveat or the later caveat was lodged. I am satisfied that both caveats the subject of the summons and of the cross-claim were lodged without reasonable cause within the meaning of s 74P. 23The next question is that of the quantum of compensation. On this there appear to be two issues of principle. The claim for compensation is framed as one by the plaintiff as registered proprietor and vendor for additional interest which it was obliged to pay to its financier under various finance facilities from late December 2013, when it says the sale would have settled but for the caveat, and until 14 April 2014, when it ultimately settled, together with additional holding costs and less interest received from the purchaser, being the second defendant, on account of the delayed settlement. The second defendant claims the interest which it had to pay the plaintiff on account of the delay in settlement. 24The first question is whether interest should run from 20 December 2013, when it is said that the sale would otherwise have settled, or from a later date when another caveat that was preventing the sale, lodged by Hong - the subject of associated proceedings - was withdrawn. 25It seems to me that the law of causation in this respect is well established. Where there are two concurrent causes for a loss, each of which would itself have caused the loss, both of them are treated as causing the loss. In short, it is sufficient that an act be a cause, not the sole cause, of the loss. In this case, there were, until the Hong caveat was withdrawn, two concurrent causes of the sale not completing. Each of them can be considered a cause of loss under section 74P. The pendency of neither precludes the other from being causative of loss in the relevant sense. 26Next, it was submitted that the evidence that completion would have taken place on or about 20 December was inadequate to reach that conclusion. I disagree. There is evidence from the vendor and from the purchaser, which was unchallenged and uncontradicted, that they were ready, willing and able to settle at that stage and time. 27Finally, it was submitted that damage should not be taken to commence until the plaintiffs and/or cross-claimants took steps to have the caveat removed. Again, I do not agree. Section 74P captures loss attributable to the lodgement of the caveat without reasonable cause. In circumstances where, as I find, the sale would otherwise have settled on or about 20 December 2013, the Tripod caveat having been withdrawn not long before then, loss commenced to accrue on 21 December 2013. 28It may be that there are circumstances in which not demanding withdrawal of the caveat at an early stage might convert to an unreasonable failure to mitigate loss but in this case, given the history of caveats affecting this property, the real answer is that it was open to the defendant at any time to put an end to the loss by withdrawing the caveat. Far from doing so, it maintained it and then, having been required to withdraw it, it lodged yet another caveat. 29Accordingly, I assess the compensation to which the plaintiff is entitled in accordance with the affidavit of Matt John Adams of 2 May 2014 as additional interest payable by the plaintiff to ANZ during the period of 20 December 2013 to 14 April 2014 of $448,595.92, less interest received by the plaintiff from the Macquarie Trust Account in which part of the purchase price was held of $11,682.68, and from the ANZ Trust Account in which a part of the purchase price was held of $8,021.17, and less interest paid under the contract by the purchaser of $197,505.31, plus holding charges for that period of land tax of $68,778.18 and council rates of $26,198.72. The net compensation is $326,363.66. 30I assess the cross-claimant's damages in accordance with the third affidavit of Bilal El-Cheikh of 6 May 2014 as interest payable under the contract on account of the delayed settlement of $197,505.31, less interest received from the half share of the deposit of $8,021.17. The net compensation is $189,484.14. 31Each of those calculations is up to 14 April 2014 and it seems to me that the plaintiff and cross-claimant respectively would be entitled to prejudgment interest from 14 April 2014 to date in accordance with (NSW) Civil Procedure Act 2005, s 100, and I will give the parties an opportunity to calculate that interest and bring in a minute reflecting the correct amount. 32So far as costs are concerned, to my mind it follows from the conclusion that the caveat was lodged without reasonable cause that this is a proper case in which the plaintiff should have its costs of the summons on an indemnity basis, and the cross-claimant should have its costs of the cross-claim on an indemnity basis. 33The second defendant sought that the costs order be made against not only the caveator, but the other parties joined. It seems to me that, in respect of the cross-claim but not in respect of the summons, the other cross-defendants, having been joined only by the cross-claim, and Mr Lazar having plainly on the evidence been the directing mind of Echelon in this respect, a case for a personal costs order against him, he having been joined as a party, is clearly made. So far as Tripod and Mr Reynolds are concerned, it seems to me that insufficient implication of Tripod in the caveats the subject of the present proceedings, has been demonstrated; and Mr Reynolds appears to be no more than an employee, if a somewhat active one. 34Accordingly, I direct that the parties bring in short minutes providing for judgment and orders to the following effect: (1)Judgment that the first defendant, Echelon Property Management Pty Limited, pay the plaintiffs a sum, being $326,363.66 was interest calculated, pursuant to the Civil Procedure Act, s 100, from 14 April to date. (2)Judgment that the first cross-defendant pay the cross-claimant a sum, being $189,484.14 plus interest calculated pursuant to Civil Procedure Act, s 100, from 14 April 2014 to date. (3)Order that the first defendant pay the plaintiffs' and the second and third defendants' costs of the proceedings, on an indemnity basis. (4)Order that the first cross-defendant and the fourth cross-defendant pay the cross-claimant's costs of the cross-claim on an indemnity basis.