Deutsch v Rodkin & Ors [2012] VSC 450

Supreme Court of Victoria|2012-09-28|Before: HARGRAVE J

CONSPIRACY - Successive caveats lodged by related parties - Whether caveats lodged pursuant to an agreement between caveators and the first defendant - Whether dominant purpose of agreement was to injure the plaintiff - Conspiracy established - Compensatory damages awarded.

EXEMPLARY DAMAGES - Whether conspiracy involved deliberate disregard for the plaintiff's rights - Exemplary damages awarded.

1 On 1 June 2012, the Court delivered reasons for judgment in Robert Deutsch & Ors v Erwin Deutsch & Ors (the 'main proceeding').[1] As those reasons describe, this proceeding was tried together with the main proceeding, and is referred to in that proceeding as the 'caveat proceeding'. For reasons which it is unnecessary to describe, the Court deferred delivering reasons for judgment in this proceeding until after the sale of the subject property. That sale has now occurred, and these reasons can be delivered. These reasons should be read in conjunction with the reasons given in the main proceeding.

Summary of facts and issues in the caveat proceeding

2 In the context of the issues in the main proceeding and its pending trial, Erwin Deutsch transferred his sole interest as registered proprietor of the family home in which he, his wife Tziporah and their children had lived for many years ('the property') to Tziporah: for 'love and affection'. The instrument of transfer was signed on 1 October 2009. Three days later, the main proceeding was fixed for trial, commencing 18 January 2010. That trial did not proceed.

3 In August 2011, Robert Deutsch was told by his son-in-law, Moishi Goldschmiedt, that Erwin and Tziporah were taking steps to sell the property and relocate their family to Israel. At this time, the trial of the main proceeding was fixed for 13 March 2012. In this context, the first of six caveats prohibiting dealings with the property was lodged on 16 August 2011. Shortly after that, Robert and the other plaintiffs in the main proceeding applied to the Court for a freezing order against Erwin's assets. The application was heard by the Chief Justice on 2 September 2011.

4 Judgment on the application was delivered on 16 September 2011. The Chief Justice dismissed the application, as she was not satisfied that the evidence justified a finding that Erwin intended to remove his assets from the jurisdiction or to dispose of them, so as to frustrate any prospective judgment in favour of the plaintiffs. In her reasons, the Chief Justice accepted the unchallenged evidence of Erwin and Tziporah that the property was encumbered by two mortgages totalling $1,530,000 for principal; that the mortgages were both in arrears, by amounts totalling approximately $65,000; that the anticipated sale price for the property was approximately $2 million; that Erwin and Tziporah's only income was from Tziporah's teaching job, which was insufficient to maintain the mortgages and support their family (including two school aged children); that they were living on money borrowed from family and friends; that the modest equity in the property would be used to rent accommodation for and to support the family; and that they were contemplating settling in Israel for personal, religious and employment opportunity reasons.[2] The Chief Justice also inferred that 'commonsense dictates that [Erwin] in any event will need funds to support the prosecution of his defence when the matter comes on for trial in 2012.'[3]

5 At the hearing before the Chief Justice, mention was made of the first caveat. In the context of discussion concerning whether there would be prejudice to Robert if judgment was reserved, counsel for Robert informed the Court that the first caveat had been lodged by David Deutsch, who is Robert's son and one of the plaintiffs, without the knowledge of the plaintiffs' lawyers. Counsel accepted that the caveat would have the effect of preventing completion of any sale of the property, pending the Chief Justice's decision. Further, counsel for the plaintiffs informed the Chief Justice that, having considered the issue ('after racking my brain'), he could not think of any reasonable cause which David Deutsch may have had to lodge the first caveat ('I couldn't find any basis upon which ... David Deutsch could have properly put the caveat'). Counsel informed the Court that David Deutsch had instructed the plaintiffs' solicitor that 'for the purposes of [the freezing order application] he is prepared to have the caveat removed.'

6 The first caveat was later removed by the Registrar of Titles administratively, under s 89A of the Transfer of Land Act ('the Act').

7 Notwithstanding the unchallenged evidence of Erwin and Tziporah concerning their urgent need to sell the property so as to provide for their family, and the Chief Justice's inference that Erwin needed money to fund his defence, or probably because of those matters, the caveats kept coming. The history of the caveats lodged by defendants to the caveat proceeding is as follows:

(1) The first caveat was lodged by Robert's son, David Deutsch, on 16 August 2011.

(2) The second caveat was lodged by Robert's daughter-in-law, Pearl Rodkin, on 24 October 2011; at about the time that the first caveat lapsed under s 89A of the Act. Pearl Rodkin is David Deutsch's wife.

(3) The third caveat was lodged by Robert's son, Alexander Deutsch, on 10 November 2011.

(4) The fourth caveat was lodged by Robert's son, Isaac Deutsch, on 24 November 2011.

(5) The fifth caveat was lodged by Robert's son, Abraham Deutsch, on 19 December 2011.

8 Each of the caveats claimed the same interest in the property.

9 Erwin and Tziporah Deutsch did not sit idly by. As appears above, the first caveat was removed administratively under s 89A of the Act. No attempt was made by David Deutsch to justify the caveat. Next, Tziporah commenced the caveat proceeding. She applied to the Court under s 90(3) of the Act to remove the second, third and fourth caveats. On 19 December 2011, Bell J removed those caveats. The caveators did not appear or otherwise endeavour to justify the caveats. Bell J also made orders restraining those caveators from lodging any further caveats, and restrained the Registrar of Titles from acting on any caveats lodged by them.

10 At the time of the hearing before Bell J, Tziporah and her lawyers were unaware that Abraham had lodged, or was about to lodge, the fifth caveat on that day. That caveat was later removed by Bell J, on 11 January 2012. Again, there was no appearance and no opposition to the application.

11 Later, a sixth caveat was lodged by Robert's son Gabriel Deutsch. Because of orders made by Bell J, the Registrar of Titles refused to register this caveat; but nevertheless recorded it as affecting the property under a 'notice of action', which acted as an impediment to settlement of any sale. On 27 April 2012, the Court ordered the Registrar to remove that notice of action. It was only when that occurred that a sale of the property could proceed.

12 Tziporah alleges that the registered caveats, individually and collectively, have caused her substantial damage. She contends that the caveats caused her:

(1) to cancel an auction of the property scheduled for 11 September 2011;

(2) to delay sale of the property until 29 December 2011;

(3) to sell the property for a lesser price than would have been obtained if the property had been sold at auction on 11 September 2011; and

(4) to incur significant extra interest (and costs) to mortgagees during the period that the caveats acted as an impediment to a sale of the property.

13 Tziporah claims compensation under s 118 of the Act. She also alleges that all of the caveats were lodged pursuant to an agreement between Robert and the caveators, for the predominant purpose of injuring her, Erwin and their children. On that basis, she contends that Robert and the caveators conspired to cause her damage, and that they are accordingly jointly and severally liable for the tort of conspiracy in respect of all of her losses arising from the caveats. She also claims exemplary damages.

14 On the basis of the cases pleaded, and having regard to written submissions filed by previous counsel for Robert and the caveators, the Court identified the following issues for determination at trial:

(a) Did any of the caveators have a caveatable interest?

(b) Is Robert a 'person lodging' a caveat for the purposes of s 118 of the Act?

(d) Were the caveats lodged pursuant to an agreement between Robert and the caveators?

(e) Was the dominant purpose of the agreement to injure Tziporah?

(f) Did the effectuation of the agreement cause loss to Tziporah?

(g) Should Robert or any of the caveators pay compensation to Tziporah under s 118 of the Act?

(h) Is Tziporah entitled to recover exemplary damages?

15 Most of these issues were conceded by Robert and the caveators at trial. The central issues for determination are whether the caveats were lodged pursuant to an agreement between Robert and the caveators, whether any such agreement was for the dominant purpose of injuring Tziporah and her family, and whether Tziporah has suffered any loss as a result of the caveats. It remains useful, however, to consider each of the questions in turn.

Did any of the caveators have a caveatable interest?

16 Robert and the caveators conceded at trial that none of them had an interest in the property which was capable of supporting any of the caveats. This concession stands in stark contrast with their pleadings, and with the considered written submissions prepared by their previous counsel and filed with the Court prior to trial (the 'earlier caveat submissions'); where they contended that the caveats could be supported on the basis of constructive trust, because some of the funds which Erwin misappropriated from the Cooee trust were used to maintain the property.

Is Robert a 'person lodging' a caveat for the purposes of s 118 of the Act?

17 In his defence and in the earlier caveat submissions, Robert denied that he was a 'person lodging' a caveat for the purposes of s 118 of the Act. At trial, Robert conceded that he physically lodged the third caveat on behalf of Alexander Deutsch and, on the basis of a decision of the New Zealand Court of Appeal in Gordon v Treadwell Stacey Smith,[4] conceded that he was a 'person lodging' a caveat for the purposes of s 118 of the Act in respect of that caveat.

18 A question arises as to whether it should be inferred that Robert physically lodged one or more of the other caveats. For the reasons appearing below, it is unnecessary to determine those issues; as I find that all of the caveats were lodged pursuant to an agreement between Robert and the caveators, for the purpose of injuring Tziporah and her family. Robert is therefore jointly liable with the caveators as a co-conspirator for any compensable loss established by Tziporah, and any exemplary damages awarded in her favour.

Did Robert or any of the caveators have reasonable cause to lodge a caveat?

19 This issue has been considered above. Initial assertions of reasonable cause were abandoned at trial.

Were the caveats lodged pursuant to an agreement between Robert and the caveators?

20 In their defences, each of Robert and the caveators admitted that there was an agreement between them to lodge the caveats. At trial, each of the caveators adhered to this pleading. Robert, however, sought and obtained leave to amend his pleading - to withdraw his admission that he was party to such an agreement. This caused Robert and the caveators to put conflicting cases before the Court.

21 Robert's decision to change his pleading was inconsistent with the earlier caveat submissions, which did not raise the issue. In those submissions, five reasons were given as to why the caveat proceeding must fail, but there was no denial that Robert was a party to the agreement to lodge the caveats.

22 Robert gave oral evidence on the issue, to the effect that the caveators acted independently of him in deciding to lodge the caveats. He contended in his evidence in chief that he was only involved in the drafting of the first caveat and in lodging the third caveat. He was cross-examined about the issue. His evidence was evasive and improbable. I reject it.

23 For the following reasons, I find that Robert was a party to an agreement between him and the caveators to lodge all of the caveats.

24 First, although leave was given to withdraw an admission about the issue, the fact remains that Robert initially admitted being a party to such an agreement. His defence was drawn and settled by junior and senior counsel. Further, those counsel prepared and filed the earlier caveat submissions, which made no mention of Robert denying that he was a party to the agreement.

25 Second, the caveators admit that Robert was a party to such an agreement. It is improbable that they would do so if they did not honestly believe that to be the case. No application was made on their behalf to withdraw their admission that Robert was a party to the agreement.

26 Third, I infer that Robert was involved in the decision to lodge all the caveats. The first caveat is in his handwriting. He described David's claimed estate or interest in the property in terms containing a significant spelling error: 'An equitable intrest [sic] in fee simple'. The specified grounds of claim were 'resulting or constructive trusts'. The second, third, fourth, fifth and sixth caveats all contained the same spelling mistake and grounds of claim.[5] Further, Robert was in New York when caveats were prepared and lodged by relatives who lived in New York.

27 Fourth, for the reasons appearing below in respect of the purpose of the agreement, I find that Robert was involved in the lodging of each of the caveats for the purpose of seeking revenge against Erwin and his family; as a result of the issues in the main proceeding, and a belief that Erwin was endeavouring to dispose of his only significant asset for the purpose of frustrating execution upon any judgment obtained against him in the main proceeding.

28 Fifth, Robert gave his evidence on this issue in a most unsatisfactory manner. He was evasive and feigned no memory of relatively recent events. He appeared almost embarrassed by the evidence he was giving. To my observation, his demeanour was that of a man who simply could not bring himself to admit the obvious; because it would be consistent with the case made against him by those he has grown to hate: Erwin and his wife Tziporah. In particular, I found Robert's evidence that he allowed his children and their spouses to use his email account to write correspondence on his behalf, and without his knowledge, improbable. I reject it. I find that Robert and the caveators acted in concert in connection with decisions to lodge each of the caveats.

Was the dominant purpose of the agreement to injure Tziporah?

29 It was submitted on behalf of Robert and the caveators that any agreement between them was not for the purpose of injuring Tziporah and her family, in particular Erwin Deutsch, but was for the dominant purpose of protecting what they honestly believed was a caveatable interest in the property. I reject that submission. There is no evidence from any of the caveators to that effect. Indeed, none of the caveators gave evidence. No explanation was given for that failure. I infer that their evidence would not have assisted their case, or Robert's case, in any respect.

30 Taking the evidence as a whole, I find that, at the time the caveats were lodged, Robert and the caveators believed that Erwin had misappropriated significant sums of money from the trusts of which they were beneficiaries, and had transferred the property to Tziporah to avoid payment of any judgment against him in the main proceeding. They decided to punish Erwin for that conduct, by lodging the caveats for the purpose of preventing Tziporah and Erwin from accessing the net proceeds of sale. For the following reasons, I find that this was their dominant purpose.

31 First, the caveats were lodged against a background of hatred. Some examples follow.

32 From about mid-October 2007 to mid-November 2007, Robert telephoned Tziporah at home on a number of occasions after 10:00 pm. Tziporah could not recall exactly how many times Robert called her at home, but estimated it could have been five or six times. During these telephone calls, Robert told Tziporah of his intention to ensure that both she and Erwin would go to jail.

33 At a meeting on 2 October 2011, Robert cursed Erwin, Tziporah and their children, in strong language; stating words to the effect that he wanted revenge and to see Erwin and his family suffer. In this regard, I accept the evidence given by Joseph Franck and Mark Ernst in preference to Robert's evidence. In his evidence in chief, Mr Franck said that Robert cursed Erwin's family 'to finish in the gutters and to be kicked around, and liars, dogs, kicked around in the gutters and so on and so forth. One would perhaps not like to remember those things'. He said that the curse extended beyond Erwin's immediate family, to include his wife, his children, his grandchildren and leaders of the Jewish community, including rabbis, who had assisted in endeavours to resolve the dispute between the brothers.

34 In cross-examination, it was put to Mr Franck that Robert's statements were to the effect that Robert's rabbi had told him that Erwin would suffer for what he had done. Mr Franck bristled at the suggestion:

What I want to finally put to you is this: that what Mr Robert Deutsch said at that meeting was he told you that his rabbi had told him that Erwin Deutsch would suffer for what he had done. Do you recall that?---Absolutely not. He did not say that. I recall that clearly now. I will tell you clearly what he did say. He did say that he's cursing every rabbi and in particular one rabbi he's not cursing fully, and I can name you the rabbi if you do wish so, because that rabbi allowed him to stay in his congregation at the back and he did not kick him out. That rabbi he is not fully cursing, but everyone else he is cursing. So, if you wish me to name them all, I will do so.

35 Mr Ernst gave evidence of a conversation with Robert's son-in-law, Moishi Goldschmiedt, in 2009, in which Mr Goldschmiedt endeavoured to explain to him the effect of Robert's allegations against Erwin. Mr Ernst endeavoured to enlist Mr Goldschmiedt in endeavours to facilitate a resolution of the fighting between the two brothers. Mr Goldschmiedt replied that Robert's family did not intend to resolve the dispute:

... Moishi said that, 'The family is not going to stop until there is an auction board placed on the house and they're going to be thrown out of the house and that's when they're going to stop.'

36 As to the meeting on 2 October 2011, Mr Ernst gave evidence which supports the version given by Mr Franck. He said that Robert's outburst against Erwin left him 'gob-slapped' [sic]. He recounted the following statements by Robert:

Just do the best you can to tell me what Robert said?---He was cursing - first of all he was cursing Erwin and his family and his children and then he was cursing, I'm not sure in order, but the rabbis of the community because the rabbis had been working so hard to try and also facilitate, and then he was cursing myself, for me to die, my wife to die, my children. I can't remember, I just can't remember all the words that came out of his mouth. It was just from left field. I think that about sums - to put what happened at that particular meeting and after that I mean everybody just sat there with their mouths open, couldn't believe what they were hearing.

[COUNSEL]: What did he say towards Erwin Deutsch? You said he was cursing. What did he actually say ?---He was cursing Erwin on the similar track as what he was cursing myself, for him to die, for his family. I mean the word 'death', every second word was 'death'.

37 Mr Ernst was cross-examined to similar effect as Mr Franck. He said that he could not recall Robert saying words to the effect that 'his rabbis had told him that Erwin was going to suffer for that he had done', but did recall Robert saying that 'the people who help [Erwin] should suffer'.

38 There was also correspondence from Robert which evinced his hatred of Erwin and Tziporah. For example, on 24 October 2011, Robert sent an email to Rabbi Telsner asking him to put both Erwin and Tziporah 'in cherem' because of Erwin's alleged fraudulent activity. On 29 November 2011, Robert sent an email to Hersh Cooper alleging that Erwin and Tziporah 'fraudulently stole approximately $1 million from a Trust. He must pay for this ... Him and his frauding wife will be brought to real justice.'

39 Second, the first caveat was drafted by Robert on behalf of his son David and was soon after accompanied by Robert's freezing order application against Erwin. Given Robert's concerns about the transfer of the property from Erwin to Tziporah, and the proposed auction and possible relocation to Israel, an application for a freezing order was a justifiable remedy available to Robert and the other plaintiffs in the main proceeding. In the context of that application, however, Robert and David must have learned that the first caveat was without basis. Their counsel informed the Chief Justice that he could not think of a legitimate basis for the caveat, and I infer that advice to that effect was given to Robert and David.

40 Third, following the dismissal of the freezing order application, successive caveats were lodged. I infer that each caveat was lodged at a time when legal advice was to the effect that there was no legitimate basis to do so. There was no evidence of the caveators receiving any advice contrary to the position adopted by counsel for Robert and David at the hearing before the Chief Justice on 2 September 2011.

41 Fourth, I infer because of legal advice that there was no legitimate caveatable interest, no endeavour was made to resist applications to remove any of the caveats. The first caveat was removed pursuant to s 89A of the Act. The other caveats were all removed on application to the Court. No application for the removal of a caveat has ever been opposed. I infer that the successive lodging of the caveats was done for the dominant purpose of injuring Tziporah and her family, and causing them stress. I also infer that a purpose of the caveats was to prevent Erwin accessing the remaining equity in the property for the purpose of paying his legal costs of defending the main proceeding.

42 Fifth, on 19 December 2011 Bell J heard Tziporah's application to remove the second, third and fourth caveats. I infer that notice of the application was given to Pearl Rodkin, Alexander Deutsch and Isaac Deutsch, as the relevant caveators. On the same day, Abraham Deutsch lodged the fifth caveat. I infer that the fifth caveat was lodged in anticipation of orders being made removing the second, third and fourth caveats on that day. There was no appearance in opposition to the application heard by Bell J that day.

43 For the above reasons, I find that there was an agreement between Robert and the caveators to lodge each of the caveats and that the dominant purpose of that agreement was to injure Tziporah and her family. I reject the submission that the dominant purpose of the agreement was, based on an honest belief as to a caveatable interest, to protect the legitimate interests of Robert and the caveators. The agreement and its implementation satisfies the elements of the tort of conspiracy described by Lord Diplock in Lonrho Ltd v Shell Petroleum Co Ltd (No. 2).[6] It was comprised of 'acts done in execution of an agreement entered into by two or more persons for the [dominant] purpose not of protecting their own interest but of injuring the interests of the plaintiff.'[7]

44 To similar effect is the statement of the Full Court of this State in Little v Law Institute of Victoria,[8] where the Court stated:

It follows that a statement of claim pleading tortious conspiracy must allege an agreement or combination between defendants to injure or harm the plaintiff, overt acts of the defendants in furtherance of the agreement or combination, and consequential injury or damage suffered by the plaintiff.[9]

45 In my opinion, subject to proof of consequential injury or damage, the tort of conspiracy has been made out against Robert and the caveators. I turn to consider issues of causation and damage.

Did the effectuation of the agreement cause loss to Tziporah?

46 Tziporah contends that she has suffered significant loss and damage by reason of the wrongful lodgement of the caveats. Her damages claim comprises the following elements:

(1) The first caveat prevented her proceeding with an auction of the property which was scheduled to occur on 11 September 2011. In the absence of the first caveat, the property would likely have sold at auction on that day for approximately $2.1 million, plus or minus 10 per cent. This was the effect of the joint report and concurrent expert evidence given by two real estate agents and a property valuer ('the valuers').

(2) The successive lodgement of the second, third, fourth and fifth caveats in the period to 19 December 2011, prevented her from selling the property for its market value. By 29 December 2011, however, her position had become desperate. The mortgagees were seeking to take possession of the property and sell it. Accordingly, on 29 December 2011, she sold the property to Gestetner Capital Ltd for $1.8 million. This was approximately $100,000 less than its value at that time. The valuers agreed that there had been a softening in the market since the scheduled auction on 11 September 2011, such that the property was worth $1.9 million on that day, plus or minus 10 per cent.

(3) Accordingly, the caveats have caused her to obtain $300,000 less for the property than she would have obtained at a regularly conducted auction on 11 September 2011 without encumbrance by the first caveat.

(4) The delay in selling the property has caused her further losses, including:

(a) additional interest payable to the two mortgagees. The interest is substantial, as penalty rates of interest have applied;

(b) legal costs payable to the mortgagees arising from continued default under the mortgages; and

47 Tziporah's claim that the auction was cancelled because of the existence of the first caveat was supported by the evidence of Marshall Rushford, the real estate agent engaged to conduct the auction. Mr Rushford is a director of Hocking Stuart. Tziporah signed an exclusive auction authority on 24 May 2011 with Hocking Stuart, authorising that firm to sell the property for between $2.2 million and $2.5 million. Mr Rushford gave evidence by affidavit sworn in support of the application to remove the second, third and fourth caveats, by expert report for the purposes of the trial, and by joint expert opinion by the valuers as to the value of the property on 11 September 2011 and 19 December 2011 respectively.

48 Mr Rushford is a licensed estate agent and auctioneer. He has owned and run his own estate agency in Glenhuntly Road, Caulfield, since 1998. He has lived in the St Kilda/Caulfield area since 1990. He was well placed to give expert evidence, based on his experience, concerning the value of the property and the effect of the caveats on the ability to sell the property for its market value. No objection was taken to him giving expert opinion evidence.

49 In his affidavit sworn 7 December 2011, Mr Rushford described the property as being 'within the area of the Jewish community in Melbourne, and was likely to appeal to Jewish community buyers'. In his opinion, early September was an ideal time to sell the property, because of Jewish festivals commencing in late September. He described an extensive marketing campaign, which attracted the interest of more than 20 buyers. He continued:

However, in spite of the interest in the property, the presence of a caveat substantially affected the willingness of buyers to make an offer or bid at auction. A number of the prospective buyers specifically informed us that as long as the caveats remained, they would not be willing to purchase the property due to concerns that they would be unable to complete the sale, or that the property would be otherwise interfered with by the caveator.
As such, in the week leading up to the auction, I met with Erwin to discuss the auction. I explained the circumstances, and indicated that the presence of the caveats would greatly reduce the price that buyers would be willing to pay for the property. Erwin further indicated his concern that Robert Deutsch, his brother and the plaintiff in a case against him, would take the opportunity of the auction to make a disturbance and undermine the auction process.
I am now informed that further caveats have been placed over the property, claiming constructive trusts. This will have a further deleterious effect on the value of the property and its attractiveness to buyers.
Given the state of the housing market, I believe that the lodgement of the caveats has caused substantial damage to the value of the property which will persist for some time, even after the removal of the caveats.

I have been asked to assess the negative impact the Caveats that have been placed on the property at 32 Talbot Avenue St Kilda East.

In coming to terms with the negative impact of such Caveats there are 2 considerations.

The first consideration is understanding the specialty nature of the subject property. It is positioned in a highly coveted and desirable location by the Jewish fraternity. In particular the orthodox community. It is a very small tightly knit community where it is common for members within this community to know each other's business and families.

Families living in this immediate precinct know each other through business, spiritual and social circles. It is part of the attraction and desirability of the area. It is why it is so popular and why the area commands such high prices.

If you examine the buyers list for the property you will see that almost every person that has been through the property and shown interest is Jewish.

To have a Caveat on a property is an obstacle in any circumstance. As a sales person if you can explain the reason behind it and make a guarantee that it will be removed prior to settlement you may be able to convince buyers to still move forward on a purchase. In this instance buyers were aware of the dysfunctional relationship between the Deutsch families. Buyers had no confidence in the ability of the brothers to resolve the issues and without these issues being resolved the caveat was not going to be removed.

Without the certainty of the caveat being removed no reasonable buyer would be interested in purchasing a property and investing a substantial deposit not knowing when they may be able to settle on the property. The only type of purchaser interested in trying to buy such a property would be a bargain hunter looking for a seriously discounted price. Please see attached email from a purchaser with knowledge of the Caveat trying to secure the property at a discounted price.

The other consideration is the delay in being able to sell the property. From the time the subject property was first valued in January 2011 to now, values of Real Estate in Melbourne have dropped considerably.

51 It was put to Mr Rushford in cross-examination that the existence of a caveat should not trouble a prospective purchaser, because the caveat must be removed before completion of any contract of sale. Mr Rushford acknowledged that, 'for the most part', that proposition was correct. He said, however, that the circumstances of this particular case were unusual, as it was known in the Jewish community that the caveat on the property was associated with a family dispute, and that the vendor may accordingly be unable to secure its removal at settlement. Mr Rushford was of the opinion that purchasers would be 'reluctant to move forward in case they missed out on another property that they may in fact have had an opportunity to buy and settle on'.

52 In final submissions, it was contended on behalf of Robert and the caveators that the decision to withdraw the property from auction on 11 September 2011 was the result of 'wrong headed' advice by Mr Rushford, which ought not to have been accepted; and by the existence of the undetermined freezing order application. It was contended that the only reason the property was withdrawn from auction was because of the possibility that the Chief Justice would impose a freezing order, and the net sale proceeds would therefore be frozen until trial of the main proceeding. In order to consider this contention, it is necessary to recount some further evidence.

53 As appears above, Mr Rushford gave evidence that the property was withdrawn from auction on 11 September 2011 as a result of advice he gave Erwin and Tziporah during the week leading up to the auction. He advised them that the caveat on the property was going to have a negative effect on the outcome of the auction, as would any disturbance of the auction by Robert.

54 Tziporah and Erwin said that they withdrew the property from auction for three reasons. First, because of Mr Rushford's advice as to the uncertainty created by the caveat. Second, because of the uncertainty surrounding the Chief Justice's reserved judgment on the freezing order application. Third, because Erwin was concerned that Robert would disrupt the auction. Taking the evidence as a whole, I find that each of these matters was a contributing cause to the decision to withdraw the property from auction. Erwin and Tziporah were faced with considered advice from a real estate agent, the uncertainty surrounding the Chief Justice's reserved judgment, and Erwin's reasonable fear that Robert would endeavour to disrupt the auction.

55 I do not accept the submission made on behalf of Robert and the caveators that the only reason for withdrawing the property from auction was the unresolved freezing order application. That was a contributing factor, but not the sole reason.

56 Further, I find that the property would have been withdrawn from sale in the absence of the freezing order application. Mr Rushford did not know of the freezing order application. He nevertheless gave advice that the existence of the caveats, and the possibility that Robert may disrupt the auction, would likely reduce the price at auction. His advice was a sufficient reason for the property to be withdrawn from sale.

57 I do not accept that the advice from Mr Rushford was in any way 'wrong headed'. I found his evidence logical and persuasive. In the small, tightly knit Orthodox Jewish community in the vicinity of the property, where the dispute between the brothers was well known, it is unlikely that anyone except a bargain hunter would have purchased the property at auction on 11 September 2011. I accept Mr Rushford's evidence that persons looking to acquire a family home would not wish to expose themselves to the uncertainty of a delayed settlement; while the caveat dispute was resolved and other desirable family properties were sold. Further, a purchaser in that position would not wish to have a significant deposit held by the vendor's real estate agent or solicitors pending resolution of the caveat dispute.

58 There was a direct causal link between the first caveat and the decision to withdraw the property from sale at auction on 11 September 2011.

59 Next, it was submitted on behalf of Robert and the caveators that the delay in selling the property, between 11 September 2011 and its eventual sale on 29 December 2011, was caused by Tziporah failing to take the simple step of applying to the Court to remove the successive caveats. I reject that submission also. I find that the effect of the agreement between Robert and the caveators was that caveats would be lodged on a rolling basis as others lapsed or were removed by the Court. That finding is justified by the second, third and fourth caveats being lodged, the lodging of the fifth caveat on 19 December 2011 in anticipation of the second, third and fourth caveats being removed by the Court that day, and the subsequent lodging of the sixth caveat notwithstanding the terms of the orders made by Bell J on 19 December 2011.

60 I turn to consider the amount of the loss caused to Tziporah Deutsch.

61 The valuers conferred and agreed that, unaffected by any caveat by Robert's family or associates, the value of the property was $2.1 million plus or minus 10 per cent on 11 September 2011, and had reduced in value to $1.9 million plus or minus 10 per cent by 29 December 2011. In other words, due to adverse market movement between the two dates, the property declined in value by $200,000 in the relevant period. That is the first component of Tziporah's damage by reason of the caveats.

62 Second, as at 29 December 2011, the property was encumbered by the fifth caveat lodged by Abraham Deutsch. Given the caveat history of the property, any purchaser would have known that there was a risk that any sale would not be completed or would be delayed. The risk of further caveats was obvious. In these circumstances, accepting Mr Rushford's expert evidence, it is likely that a purchaser would pay less than the market value of the property at this time. That is what happened. On 29 December 2011, Samuel Herzberg of Gestetner Capital Pty Ltd agreed to purchase the property from Tziporah for $1.8 million, which is $100,000 less than the valuers' opinion of value.

63 The question arises as to whether that sale price was simply a reflection of the plus or minus 10 per cent margin accepted by the valuers. In my opinion, it was not. Both Erwin and Tziporah gave evidence that Mr Herzberg made lower offers, before agreeing to pay $1.8 million on behalf of Gestetner Capital. At the time, by reason of the delay following cancellation of the auction on 11 September 2011, Tziporah was desperate to sell the property and avoid a mortgagee's sale. Mr Herzberg was aware of these matters. He said that he purchased the property in the following circumstances:

(1) He was aware that the property had been withdrawn from auction and that there was a dispute between the Deutsch brothers.

(2) He is very familiar with the neighbourhood in which the property is located.

(3) He and his family have purchased a number of houses in the area as investments and residences.

(4) He was aware of a recent sale of a comparable property in the neighbourhood for about $1.8 million. In his view, the property owned by Tziporah was 'bigger and better' than the comparable property.

(5) He had no emotional attachment to buying the property: 'if he could buy it for the right price he would but otherwise he would not.'

(6) He went to the negotiating meeting with Erwin and Tziporah on 29 December 2011 in the knowledge that they 'had to sell the property'. He took a contract with him to the meeting.

(7) During the negotiation, he initially offered less than $1.8 million. When his offer of $1.8 million was accepted, the contract he had brought with him was signed immediately.

(8) At the time the contract was signed, he knew of the caveat history of the property. He was 'scared that more caveats may be lodged'.

64 The contract of sale from Tziporah to Gestetner Capital supports Mr Herzberg's evidence as to his concerns about caveats delaying completion of the contract. The contract of sale provides for a five per cent deposit (and not the usual 10 per cent) of which only $2,000 was payable on the contract date. The balance of the deposit is specified as payable 'within 30 days after caveats are removed from the title'.

65 No submission was made that Mr Herzberg's evidence should not be accepted.

66 I find that the sale to Gestetner Capital was in forced circumstances caused by the successive caveats lodged pursuant to the agreement between Robert and the caveators. In the absence of those caveats and the threat of further caveats, and in the absence of the further financial pressure placed on Tziporah as a result of the delays caused by the caveats, it is more probable than not that the property could have been sold for the valuation amount of $1.9 million. I find that Tziporah has suffered a further loss of $100,000 by the conduct of Robert and the caveators in pursuance of their agreement.

67 Before considering other items of loss, it is necessary to deal with a further submission made on behalf of Robert and the caveators. They contended that it was unreasonable for Tziporah to reject an offer made on 13 September 2011 to purchase the property for $1.85 million. The offer was made by facsimile sent by a firm of solicitors to Tziporah's solicitors. The offer was made on behalf of an undisclosed client. It was contended that this was a reasonable offer which, if accepted, would have avoided any further loss from that time. I reject the contentions for a number of reasons:

(1) An offer of $1.85 million was below the value of the property at that time; about $2.1 million.

(2) The offer assumed (without any basis) that the first caveat lodged by David Deutsch was valid, that it secured a specified amount, and that Tziporah 'clearly must pay outright the amount demanded of [sic] the caveat'. There was never an amount specified in the caveat or demanded in order to remove it.

(3) The offer was made on the basis that any surplus after discharging the registered mortgages would first be paid to David Deutsch: 'to remove the caveat'.

(4) The offer contained a thinly veiled threat that, if not accepted, the sale process would be further 'tainted':

We understand from the real estate agent that your client is seeking a higher figure but considering:-

1. ...

the fact that there is a caveat, which has tainted the sale process (and perhaps someone else may also lodge a further caveat); and
..., we believe our client's offer is fair and allows Mrs Deutsch to move forward.[10]

(5) Tziporah was justified in rejecting the offer as suspicious. It was below market value, was written on the express basis that the first caveat was valid and secured a specific amount, was sent on the Monday following the cancelled auction, and was sent at a time of uncertainty because of the Chief Justice's reserved decision on the freezing order application. In these circumstances, Tziporah was entitled to believe that the offer probably emanated from Robert or his relations, and was designed to ensure that she and her husband received no money from a sale of the property. While the statement in the offer that the unidentified offeror had had no contact about the offer with any member of Tziporah's 'extended family' may have been literally true, that does not mean Robert was not involved. Based on my reading of the letter as a whole, and taking account of my reasons for the conspiracy finding made above, I infer that Robert was directly or indirectly involved in, or knew and approved of, the offer being made.

68 Next, I turn to consider the claims for interest paid to the mortgagees, legal costs paid to the mortgagees and costs of the cancelled auction which have allegedly been thrown away.

69 As to interest, the relevant period is between the likely settlement date of a sale concluded at auction on 11 September 2011 and the date of settlement of the Gestetner Capital contract of sale. That sale was due to settle 26 April 2012; so the relevant period is 168 days. The notice of action caused a short further delay, but the sixth caveat was lodged by Gabriel Deutsch who is not a party to the proceeding and I will not extend the period on that account. Subject to the rental adjustment referred to below, Tziporah is entitled to recover interest paid under the first and second mortgages for 168 days. Further delays were not caused by Robert or the caveators.

70 Following a sale of the property at auction, Tziporah and Erwin would have rented alternative accommodation for their family. I will therefore reduce the damages in respect of interest paid to the mortgagees by $1,400 per week for the 168 day period (24 weeks). I fix $1,400 per week on the basis that Erwin and Tziporah have agreed to rent the property for that amount following settlement of the sale.

71 Tziporah's counsel provided the Court with interest calculations for the 168 day period, totalling $85,097.99. As no contrary submission has been made as to the interest calculations put forward, I will accept them. The rental adjustment is $33,600 (24 weeks at $1,400 per week). The adjusted compensatory interest amount is therefore $51,497.99 ($85,097.99 minus $33,600).

72 As to the legal costs claimed by the mortgagees, it was submitted on behalf of Robert and the caveators that these costs were not caused by the caveats but were caused by Tziporah's defaults under the mortgages. Further, it was contended that it was unreasonable for Tziporah to swell the amount of the costs by making a hopeless application to restrain the mortgagees from exercising their powers of sale. I agree with the second submission, but not the first.

73 As to the first submission, in the absence of the caveats the property would have been sold at auction on 11 September 2011 or shortly thereafter. If that had occurred, the mortgagees would both have waited for settlement in the usual course. In these circumstances, Tziporah would not have incurred any obligation to pay legal costs to the mortgagees arising from actions in the court seeking orders for possession. Those costs were caused by the caveats.

74 As to the second issue, however, Tziporah had no reasonable basis to seek orders restraining the mortgagees from executing their judgments for possession or exercising their powers of sale. To the extent that the legal costs claimed against her relate to her failed application in that regard, they are not recoverable from Robert and the caveators. Allocation of the costs between the actions for possession and the failed application to restrain the mortgagees will require further evidence. I will give the parties an opportunity to adduce evidence on the issue if they cannot agree on the appropriate allocation. They should endeavour to agree, and take their overarching obligations into account in doing so.

75 As to the costs alleged to relate to the cancelled auction, there is no dispute that the real estate agent's advertising costs of $8,607.40 should be part of the damages. Tziporah also seeks $4,400 in respect of painting of the property in preparation for the auction on 11 September 2011. I am not satisfied that these costs have been wasted. They improved the property and it was the property in that improved state which was sold to Gestetner Capital.

Should Robert or any of the caveators pay compensation to Tziporah under s 118 of the Act?

76 The conspiracy findings make it unnecessary to consider this issue.

Is Tziporah entitled to recover exemplary damages?

77 The principles governing the award of exemplary damages were recently summarised by the Court of Appeal in Carter and State of Victoria v Walker,[11] in the following terms:

Exemplary damages are damages over and above those necessary to compensate the plaintiff. They are awarded to punish the defendant. They are intended to act as a deterrent to the defendant, and to others minded to behave in a like manner. They are also intended to demonstrate the Court's disapprobation and denunciation of such conduct. Such damages may be awarded in respect of any tort that is committed in circumstances involving a deliberate, intentional, or reckless disregard of the plaintiff's rights.[12]

78 In XL Petroleum (NSW) Pty Ltd v Caltex Oil (Australia) Pty Ltd,[13] Brennan J described the award of exemplary damages:

As an award of exemplary damages is intended to punish the defendant for conduct showing a conscious and contumelious disregard for the plaintiff's rights and to deter him from committing like conduct again, the considerations that enter into the assessment of exemplary damages are quite different from the considerations that govern the assessment of compensatory damages. This is no necessary proportionality between the assessment of the two categories.

...

The social purpose to be served by an award of exemplary damages is, as Lord Diplock said in Broome v Cassell & Co 'to teach a wrong-doer that tort does not pay'.[14]

79 In considering whether to award exemplary damages and, if so, in what amount, the Court may consider whether the offending conduct was the result of the provocation by the plaintiff.[15] In this case, Erwin's conduct in locking Robert out of the Cooee business, changing its banking arrangements to accounts under his sole control, and misappropriating substantial receipts of the Cooee business for his personal purposes and for excessive management fees was provocative. It should be taken into account in determining whether exemplary damages should be awarded and, if so, in what amount.

80 Erwin's provocative conduct should not defeat the claim for exemplary damages entirely. The conduct of Robert and the caveators involved deliberate, intentional, reckless and contumelious disregard of Tziporah's rights. Although Tziporah's ownership of the property may be the result of a transfer from Erwin which is liable to be set aside under s 172 of the Property Law Act 1958 (Vic), as having been undertaken with intent to defraud creditors, that was not a matter for Robert and the caveators to judge. Tziporah was the registered proprietor of the property when the caveats were lodged. Robert and the caveators were not entitled to take the law into their own hands and lodge repeated caveats in the absence of a right to do so. This was especially so after the hearing before the Chief Justice, when counsel for Robert and David informed the Court that he could not think of a legitimate reason to support the first caveat.

81 The Court should denounce such conduct in the context of family disputes, however bitter, and deter like conduct from occurring again. In that regard, I note that the feud between Robert and Erwin, and their respective families, continues to this day.

82 In fixing the amount of exemplary damages, I have regard also to the fact that the caveats were lodged in circumstances where it was known that the property was a family home; that the family had income which was insufficient to maintain the two mortgages; that a decision had been made to sell the property and realise the net equity in it; that the caveats and their consequences would cause Tziporah to suffer increased stress, beyond that resulting from the continuing family conflict; and that Erwin was facing the trial of the main proceeding, and thus may require access to funds to pay his legal costs of defending himself.

83 I have considered whether the compensatory damages award will provide sufficient denunciation of the conduct of Robert and the caveators.[16] In my opinion, it will not. Although the size of the compensatory award is large, due in part to the decline in the property market after the scheduled auction, the deliberate and continuing intent to injure, involving repeated abuses of the caveat procedure, was reprehensible and requires further punishment to reflect the Court's denunciation of the offending conduct. In fixing the amount, however, I have nevertheless taken account of the size of the compensatory award. In all the circumstances, I fix the sum of $25,000 for exemplary damages.

84 Tziporah is entitled to recover compensatory damages comprising $300,000 for the reduction in the sale price of the property, interest paid to the mortgagees (after taking account of the rental allowance) of $51,497.99, an amount for legal costs paid to the mortgagees, and $8,607.40 for the costs of the cancelled auction. She is also entitled to recover $25,000 for exemplary damages. I will hear the parties as to the legal costs amount, interest and costs.

[2] Reasons of the Chief Justice, 16 September 2011, [21]-[26], [38], [42].

[5] In the fifth caveat lodged by Abraham Deutsch, the spelling mistake has been corrected in hand, by deleting 'intrest' [sic] and replacing it with the word 'Estate'.

[12] Ibid, [284] (citations omitted).

[14] Ibid, 471 (citation omitted); quoted with approval in Lamb v Cotogno [1987] HCA 47; (1987) 164 CLR 1, 9; State of New South Wales v Landini [2010] NSWCA 157, [113].

[15] Williams v Hursey [1959] HCA 51; (1959) 103 CLR 30, 83-4, 110, 132; Fontin v Katapodis [1962] HCA 63; (1962) 108 CLR 177.

[16] Backwell v AAA [1997] 1 VR 182, 207-8.

At a glance

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Judgment (154 paragraphs)

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Legislation Cited (1)

Cases Cited (3)