17 I turn now to the question whether the caveat was lodged by the Purchasers "without reasonable cause" , within the meaning of s.74P(1) Real Property Act .
18 The history of s.74P(1) of the Act is of some significance. Its predecessor was s.98 of the Real Property Act , which was repealed on 1 August 1988 by the Real Property (Caveats) Amendment Act 1986 . Section 98, in essence, provided that any person who lodged a caveat "without reasonable cause" should be liable to pay to any person who may have suffered damage thereby such compensation as might be just. One sees, therefore, that as far as the test of liability for compensation is concerned, s.98 was in the same terms as the present s.74P(1).
19 The Real Property (Caveats) Amendment Act 1986 repealed s.98 and introduced a new Part 7A into the Act, in which s.74P(1) appeared. That section provided a new test for liability for compensation. The section commenced:
"Any person who, wrongfully and without reasonable cause:
(a) lodges a caveat …"
20 The new test for liability posited by the insertion of the word "wrongfully" was considered by the Court of Appeal in Beca Developments Pty Ltd v Idameneo (No 92) Pty Ltd (1990) 21 NSWLR 459. Clarke JA, with whom Kirby P was in general agreement, concluded that liability for compensation now depended upon two tests, namely, whether the caveat was lodged "without reasonable cause" and, in addition, whether it was lodged "wrongfully" .
21 His Honour reviewed the law prior to the amendment of the Act as to what constituted lodgement of a caveat "without reasonable cause" . His Honour noted some difference of judicial opinion but concluded (at 471C, 472G) that the test propounded by Wootten J in Bedford Properties Pty Ltd v Surgo Pty Ltd [1981] 1 NSWLR 106 was correct. That test, which is expressed in the affirmative rather than in the negative as it is expressed in the section itself, is that "reasonable cause" for the lodgement of a caveat exists where the caveator has an honest belief, based upon reasonable grounds, that the caveator has a caveatable interest.
22 Clarke JA was of the view that the addition of the word "wrongfully" in s.74P(1) was made "in order to restrict claims for compensation to those cases in which it could be shown that the caveat was lodged deliberately by a person knowing that he had no interest in the land" : see at 472G. Kirby P was in agreement with this proposition: see at 462E-G. The other member of the Court, Waddell AJA, dissented.
23 It will be seen that the test for liability introduced by the addition of the word "wrongfully" in s.74P(1) placed a much higher hurdle in the path of those seeking compensation for wrongful lodgement of a caveat than had been the case under the former s.98. Apparently, the legislature did not consider that such a high hurdle was justified because by the Real Property Amendment Act 1996 (NSW) (which took effect on 1 February 1997), s.74P(1) was amended by the deletion of the words "wrongfully and" . The opening words of the present s.74P(1) as to the test for liability are now the same as they were in the former s.98. It is therefore legitimate to proceed upon the basis that the law as to the test for liability is as stated in the cases dealing with the former s.98 of the Act and that that law is as stated by Clarke JA in Becker in his discussion of those cases. This is the conclusion at which Young J (as his Honour then was) arrived in Collingridge v Sontor Pty Ltd (1997) 141 FLR 440, at 452 - a conclusion in which I respectfully agree.
24 As the caveat in this case was lodged on 14 March 1997, shortly after the Real Property Amendment Act 1996 took effect, the test of liability for compensation is as stated in Bedford Properties and decisions to the like effect.
25 Mr Blank, who appears for the Purchasers, submits that the test is entirely subjective: one must look to what the caveator believes. I am unable to accept that submission. In my opinion, the test is twofold: it is subjective in that it requires an examination of the caveator's actual belief and whether that belief is honestly held. The latter part of that question will often overlap the examination of the objective element of the test, namely, whether the caveator's belief is held on reasonable grounds.
26 Ms Sofroniou accepts that the onus is upon the Vendors to establish the elements to their claim for compensation, that is, that the caveat was lodged without reasonable cause and that the loss claimed by the Vendors is "attributable" to its lodgement: see Bedford at 107G and the cases there cited; Horswell v Paul (1983) NSW ConvR 55-126, at 56,942.
27 Ms Sofroniou does not submit that the Purchasers did not have an honest belief that they had a caveatable interest in the land at the time that they lodged the caveat. No questions were directed to the Purchasers in cross examination which suggested that they did not believe that there was a contract in existence or that they did not believe that it continued to exist after Mr Ross had given the Notice of Termination.
28 Ms Sofroniou submits, however, that the Purchasers could not have had reasonable grounds to believe either that a contract came into existence on 24 January 1997 or that it had not been validly terminated by the Vendors on 7 March 1997, prior to the lodgement of their caveat.
29 I am unable to accept that the Purchasers did not have reasonable grounds to believe that a contract came into existence on 24 January 1997. The fact that a contract had not come into existence was due to two factors, in my opinion: first, a laxity on the part of Mr Kwon in failing to ensure that the amendments which he had made to the contract, and in particular to Special Condition 45, were explicitly and directly drawn to the attention of Mr Ross himself, especially when Mr Kwon must have known that Mr Ross was not a lawyer. The second factor was that Mr Ross, not being a lawyer, failed to understand the legal effect of the variations made to the contract by Mr Kwon and the absence of an exchange of counterparts containing identical terms.
30 Those two factors produced a mistaken belief on both sides of the transaction that a contract had come into existence, but each side believed it contained a significantly different term. As I have said, after 24 January 1997 the parties acted on the basis that a binding contract had come into existence: requisitions on title were sent by the Purchasers' solicitor and were answered by Mr Ross, the contract was stamped and an appointment was made for settlement.
31 At the time of lodgement of the caveat, I conclude, with some hesitation having regard to the proper conveyancing steps which Mr Kwon should have taken to ensure an effective exchange, that the Purchasers and Mr Kwon would have had reasonable grounds to believe from the conduct of the Vendors that the Vendors regarded a valid contract as having been brought about by the purported exchange on 24 January 1997.
32 I conclude, however, that as at the time of lodgement of the caveat the Purchasers could not have had reasonable grounds for concluding that the contract which they believed was in existence had not been validly rescinded by the Vendors. My reasons are as follows.
33 It is important to recognise that for the purpose of liability for compensation under s.74P(1) of the Act the position of a party to a contract for sale who caveats the title to protect an interest under the contract is not always separate and distinct from the position of the solicitor or conveyancer who is acting for that party in the conveyance. Such a solicitor or conveyancer is the agent of the party who employs him or her in the transaction and the acts and omissions of the agent in the transaction are usually taken as those of the principal.
34 So, for example, a party to a contract whose solicitor or conveyancer insists on a completely unsupportable construction of the contract cannot be heard to say as against another party to the contract that he or she is relieved of the legal consequences because he or she personally had no view one way or another and simply acted on legal advice. If the advice given by the solicitor or conveyancer without reasonable ground causes the client to be in breach of contract, the client is not exonerated from liability to the other party to the contract and if the client thereby suffers loss, it may be that the client's remedy is against the solicitor or the conveyancer.
35 These observations are not, of course, addressed to a situation such as came before Powell J in Horswell v Paul (supra). There, prior to the lodgement of a caveat, the purchaser's solicitor had obtained the advice of Counsel that a caveatable interest existed. In those circumstances, his Honour said that the vendor failed to show that the caveat had been lodged without reasonable cause. No doubt his Honour was of the view that Counsel whose advice was sought was simply expressing a tenable legal opinion on the facts presented in the brief. His Honour does not discuss what would have been the result if, for example, the purchaser's solicitor had deliberately or negligently misstated critical facts in the brief to Counsel.
36 In my view, for the reasons more fully explained in my earlier judgment, after Mr Ross had asserted orally and in his correspondence prior to 5 March 1997 that the Vendors had a contractual right to retain the sandstone foundations to the house and garage, Mr Kwon could have had no reasonable grounds for insisting that no such right existed. Either Mr Kwon had in his file a complete copy of contract, containing Special Condition 45, which would clearly show Mr Ross to be correct, or he did not have a copy of Special Condition 45. If he did have a copy of Special Condition 45 he could not reasonably have advised the Purchasers to take the position which they did in Mr Kwon's letter of 5 March 1997. If he did not have a copy of Special Condition 45 in the file and accordingly advised the Purchasers upon the basis of an incomplete version of the contract, that was entirely due to fault on his part in failing to ensure that he had a complete copy of the contract after the purported exchange.
37 Whichever of the two possibilities is correct, in my view, Mr Kwon could have had no reasonable ground for advising the Purchasers that Mr Ross was acting inconsistently with the contract and that his termination on 7 March 1997 was, therefore, invalid. To hold that any advice which Mr Kwon might have given to the Purchasers was reasonable because Mr Kwon did not have a copy of Special Condition 45 in his file at the time would be to reward neglect and to punish diligence. Unfortunately for the Purchasers, they are visited with the consequences of acting on Mr Kwon's advice; as he had no reasonable ground to believe that a contract was still in existence on 14 March and that the Purchasers therefore had a caveatable interest in the land under that contract, neither did the Purchasers have a reasonable ground for such a belief for the purposes of s.74P(1).
38 It follows from the above that I am satisfied that the caveat was lodged without reasonable cause, so that the Vendors have made out a basis for the Purchasers' liability under s.74P(1).