Love v Kempton & Anor [2010] VSC 254

2 The asserted basis for the lodging of the caveat related to the conduct of the auction of the property at the Ellerslie Hall on 21 May 2010. Mr Kempton was the highest bidder but refused to sign the contract of sale. Mr Love then sold the property to the underbidders and settlement is due on 21 June 2010.

3 On the day of the hearing of Mr Love's application under s 90(3) of the Transfer of Land Act ('TLA'), Mr Kempton agreed to withdraw his caveat and orders giving effect to that concession are to be made. The remaining issue, which is the subject of these reasons, is the question of costs. In essence, the question is whether indemnity costs should be awarded against Mr Kempton for lodging a caveat which had no foundation in fact or law.

4 I am of the firm view that Mr Kempton's conduct in lodging the caveat was both opportunistic and unprincipled and must result in an order for indemnity costs.

5 Mr Love's application by originating motion and summons was issued on Monday 31 May and was ultimately supported by four affidavits; one sworn by himself, two by his real estate agents Mr John Nunn and Mr Brian Hancock, both of Brian O'Halloran & Co, and an affidavit of his solicitor, Mr Marcus Malseed.

6 Mr Kempton is a solicitor who, I was told, was admitted to practise in 1983. He relied upon an affidavit sworn by his solicitor Ms. Voigt. Notwithstanding that he was served last Thursday, 3rd June, with Mr Love's affidavit which set out the gravemen of the allegations concerning the auction, Mr Kempton swore no affidavit in response.

7 After the application was called on and adjourned over to enable documents to be inspected, I was told, upon resumption of the hearing at 2.15pm, that Mr Kempton was prepared to withdraw the caveat.

8 On 10 May 2010 Mr Kempton inspected the property in the company of Mr Nunn, the agent and Mr Love.

9 Between 10 May and the day of the auction, 21 May 2010, Mr Kempton had a number of discussions with Mr Nunn. Mr Kempton continually sought variations on the conditions contained in the proposed contract of sale. Mr Nunn kept contemporaneous notes of his discussions with Mr Kempton.

10 On 18 May Mr Nunn advised Mr Kempton that Mr Love would accept a deposit of $60,000 rather than a 10% deposit. A further discussion on 19 May was noted by Mr Nunn as follows:

Kempton - Told lower dep on [illegible] ($60,000) was acceptable to vendors but no other terms relating to settlement.

11 At the auction on 21 May the property was knocked down to Mr Kempton by Mr Hancock, the auctioneer, for $2,550 per acre which equated to a price of $1,529,446.60. Notwithstanding that the property had been knocked down to him on the terms and conditions as announced prior to the auction (and presumably subject to a variation in relation to the deposit), Mr Kempton then haggled over the conditions of the contract. There were protracted discussions between Mr Kempton and Mr Hancock for about 30 minutes. According to Mr Hancock, Mr Kempton then said:

If my terms are not accepted by the vendor, I am going to walk away and you can go and deal with the second bidder if he is still here.

12 The end result was that Mr Kempton left without signing the contract and drove away. Fortunately, the agent of the losing bidders, James and Kathryn Tanner, was still present and ultimately a contract of sale was signed between Mr Love and the Tanners at a price of $2,550 per acre or $1,499,457.50 - about $30,000 less than the knock down price. The time for settlement was varied from 60 days to 30 days.

13 On 24 May 2010 the Tanners lodged a caveat, properly describing their interest as purchasers under a contract of sale.

14 On the same day Mr Kempton also lodged a caveat claiming an estate or interest in the property. The estate or interest claimed was:

"Pursuant to Contract of Sale dated 21 May 2010 between Thomas Rowan Campbell Love as vendor and Adam Kempton as purchaser"

15 On 24 May, Ms Voigt, on behalf of Mr Kempton, wrote a rather extraordinary letter to Mr Love's solicitors which included the following:

We are instructed that on Friday 21 May 2010 our client was the successful bidder at the auction of the abovenamed property when the auctioneer knocked it down to him. To date your client has not provided our client with a signed contract of sale.

I pause here to note that this proposition was plainly wrong. Mr Kempton had been provided with a signed Contract of Sale - it was he who refused to sign it.

16 On 28 May 2010 Mr Love's solicitor, Mr Malseed, wrote to Ms Voigt, setting out the factual situation as it was subsequently deposed to by the three witnesses, Messrs Love, Hancock and Nunn. In particular he noted that Mr Kempton had refused to sign the contract of sale and had then departed the hall. Ms Voigt was also informed that the property had since been sold. The following parts of the letter are relevant to this application:

Your client does not have a caveatable interest in the land.

As such your client is hereby given a final opportunity to provide a withdrawal of the caveat. If we have not received from you by 12 noon on Monday 31 May a faxed copy of the withdrawal of the caveat with a written undertaking from you that the original will be posted to us the same day, our client will make application for withdrawal of the caveat without further notice.

If that course of action proves necessary, our client reserves the right to produce this letter on the question of costs and specifically notes that if, as it appears, your client does not have a caveatable interest in the land, indemnity costs will be sought, given all the circumstances...

If your client fails to do so, our client will proceed to lodge the application referred to above.

17 Ms Voigt did not respond to Mr Malseed's letter of the 28th. Rather she then took another unusual course of action by writing to the solicitors for the purchasers, the Tanners, on 1 June 2010. In that letter Ms Voigt asserted that prior to the auction Mr Love had agreed to vary the terms of sale in the event that Mr Kempton was the successful bidder at the auction and it was, so the letter alleged, on the basis of that representation, that Mr Kempton bid for the property. She went on to write:

With respect, your clients cannot be the purchasers because at the time they entered into the purported contract of sale with the vendors the property had already been sold to Mr Adam Kempton, pursuant to the agreement and the vendor had no interest to sell. Caveats over the titles have been lodged to protect Mr Adam Kempton's interest in the property.

(1) The auction process was fatally flawed insofar as bids made by both your clients and ours were reduced by representation on which our client relied and which proved to be false;

(2) The flawed bidding process resulted in an inflated sale price to the detriment of our client;

(3) Our client still does not have the contract of sale signed by the vendor;

(4) Your clients have also been induced by the vendor's false representation than he had an interest in the land capable of being sold, your clients relied upon the representation when they entered into a purported contract of sale and presumably paying a deposit to their detriment.

Ms Voigt then stated that she was instructed to "issue proceedings forthwith" and "apply for an injunction".

In the penultimate paragraphs of her letter she wrote:

we and (sic) invite your clients to withdraw the caveats placed on the title and withdraw from the purported contract of sale.

In the event that your clients unreasonably refuse to withdraw we will have no option but to join them as respondents to the proceeding.

18 Settlement pursuant to the contract of sale is due on 21 June 2010.

19 The principles relevant to the making of an order for costs on an indemnity basis rather than the usual course of a party/party basis are well known.[1]

Before making such an order, the Court needs to be satisfied that the conduct of the party warrants the ordering of costs on an indemnity basis. Special circumstances must be demonstrated "which lift the case out of the ordinary"[2]. Such conduct includes the commencement or continuation of proceedings in wilful disregard of known facts or clearly established law, as well as the commencement or continuation of such proceedings for an ulterior motive.

20 I need only refer to the following short extract from the recent judgment of Harper J in Shaw v Yarranova Pty Ltd (No 2)[3]:

The Court may order costs on a solicitor/client basis, or on an indemnity basis, whenever a party has been subjected to high handed and unmeritorious conduct and it is just that the innocent party not be out of pocket thereby.

21 In recent times applications for indemnity costs, particularly in commercial claims, are made almost as a matter of course notwithstanding the need for there to be persuasive evidence of the existence of special circumstances. But this trend can be put to one side here as the manifold circumstances of this case are so out of the ordinary as to warrant such an order.

22 There is an overwhelming case to award indemnity costs to Mr Love for reasons I will now endeavour to summarise.

23 First, the nominated basis for lodging the caveat was without merit. There was no contract of sale between Mr Kempton and Mr Love. Mr Kempton had no legal interest in the property. At the hearing before me his counsel referred somewhat obliquely to rights arising as a result of an estoppel, or, perhaps, some equitable right attributable to the conduct of the agent Mr Nunn. Even if I accepted that it was reasonable for Mr Kempton to believe that he had such rights (which I do not accept), the grounds set out in the caveat could never be substantiated.

24 Second, Mr Kempton, as a solicitor with over 25 years' experience and now practising in the Western District, knew full well that, in lodging a caveat, he was required to demonstrate a caveatable interest as required by s 89(1) of the TLA. He knew that he had not signed "a memorandum or note of the agreement" in writing as required by s 126 of the Instruments Act.[4] He also must have known, as an experienced solicitor, that it was necessary to establish an interest or right that attached to the property in respect of which the caveat had been lodged and that he bore the onus in respect of establishing such an interest in the land.[5] Even if this did not occur to him at the time of lodgement of the caveat, by the time he received the letter of 28 May from Mr Malseed, he could have been in no doubt that there was a real issue about the existence of any caveatable interest in the property.

25 Third, in that letter of 28 May Mr Malseed put Mr Kempton squarely on notice that if he failed to withdraw the caveat (at no cost to himself at that time), then he ran the risk of incurring an order for indemnity costs if Mr Love was forced to make an application to remove the caveat. Mr Kempton's counsel on the hearing before me made a point reiterated in Ms Voigt's affidavit, that the letter did not refer to the manner in which the application would be made, the identity of the purchaser, or the date of settlement. This submission is devoid of merit. As any solicitor experienced in conveyancing knows, there is always the prospect that a party will go to the Supreme Court to remove a caveat rather than make an application to the registrar under s 89A of the TLA. That is particularly so where a contract of sale has been entered into and settlement, it may be reasonably surmised, is pending. The identity of the purchasers was irrelevant. In fact it was easily ascertained as the title search which resulted in Ms Voigt writing to the Tanners' solicitors demonstrated. In any event, if there was any doubt about these matters, a phone call could have been made by Ms Voigt to Mr Love's solicitors to ascertain the position. Not only was that not done, but Ms Voigt, presumably upon instructions from Mr Kempton, fired a broadside across the bows of the Tanners by her letter of 1 June 2010 - rather than respond to Mr Malseed's letter; it remains unanswered.

26 Fourth, there is no doubt in my mind that the letter of 1 June 2010 was designed to intimidate the Tanners. Much of it is nonsense - the property had not been sold to Mr Kempton as Ms Voigt asserted. Mr Love had a valid legal interest in the property when he entered into the contract of sale with the Tanners. Contrary to the assertion in Ms Voigt's letter Mr Love did not refuse to sign "the sale of land document" - rather it was Mr Kempton who determined not to sign it, having failed in his efforts to negotiate changes to the contract of sale. There was no agreement between the vendor and Mr Kempton as Ms Voigt asserted. The only discussions in relation to variation of the terms of sale were between Mr Kempton and Mr Nunn, the agent. In Mr Nunn's affidavit he deposed to telephone conversations with Mr Kempton substantiated by diary notes which demonstrate unequivocally that Mr Love agreed to accept a lower deposit "but no other terms relating to settlement". No contradictory affidavit was filed by Mr Kempton. The auction process was not fatally flawed. What marred the auction was the high handed conduct of Mr Kempton, not that of Mr Love or his auctioneers. It is singular that Mr Kempton, an experienced solicitor, filed no affidavit in response, but relied solely upon an affidavit sworn by his solicitor. Lest it be thought that he was not given a further opportunity to put his side of the case, I asked his counsel if he was minded to arrange for Mr Kempton (who did not attend this hearing) to give evidence viva voce but that invitation was declined.

27 It would not be of any assistance to continue to itemise the litany of misstatements of fact and law contained in Ms Voigt's letter to the Tanners' solicitors, other than to say that I am satisfied that it was written on Mr Kempton's instructions and in furtherance of his efforts to have the Tanners retreat from the signed contract they had entered into which he, by his unsubstantiated caveat, was endeavouring to sabotage.

28 Fifth, any person involved in dealing in property should be aware of the statements of this Court on a number of occasions that a caveat is not a bargaining chip as Dodds-Streeton J, and more recently the Chief Justice noted.[6] I have no doubt this was the intention behind Mr Kempton's lodging of the caveat. Such a practice as Dodds-Stretton J noted undermines "the operation of an essential feature of the Torrens system".[7]

29 Sixth, the lodging of caveat is a serious business. It has the potential to affect commercial transactions and the lives and financial interests of others. Dodds-Streeton J in Goldstraw v Goldstraw said as follows:

In my opinion, the only proper purposes for lodging a caveat against a registered proprietor's title under s.89(1) of the Act are to protect the estate or interest claimed by the operation of the statutory injunction against the registration of subsequent dealings and to provide notice of the existence of the estate or interest to those who consult the Register. A caveat has a significant potential to obstruct the rights, and to damage the interests, of the registered proprietor and other parties.

Of particular relevance in the present case is the potential deterrence of purchasers. Given the potential for damage to a variety of parties, in my opinion the lodgment of a caveat for an ulterior or collateral purpose constitutes a serious misuse of the relevant statutory provisions.[8] (Emphasis added)

30 A party who lodges a caveat without proper grounds should, I think, be brought to book if others are forced to resort to court proceedings to remove a caveat which has no proper basis. The costs associated with the exercise are heavy and the differential between party/party costs and indemnity costs is, as Winneke P noted in Spencer, considerable. In this case to require an innocent vendor to pay the differential between party/party costs and indemnity costs, occasioned by the delinquent conduct of the caveator cannot be permitted.

31 Seventh, the emotional and psychological toll on a vendor faced with removing an unsubstantiated caveat is, I think, often overlooked. The sale of a property has attached to it stressors and strains which most of us have experienced. To add to these, during the time preparatory to settlement, the worry associated with the litigation and, invariably, whether the settlement can proceed is a highly relevant consideration in determining questions of costs. If the caveat is lodged on a proper basis, then so be it. However, if it is motivated solely by an opportunistic and unprincipled desire to obtain a commercial advantage, as has occurred here, then a court is entitled to take into account the added stressors of the litigation as a factor in determining whether to award indemnity costs.

32 Finally, I should say something about the matters urged upon me by counsel for Mr Kempton which, it was said, should result in no order for costs being made. I do not accept that Mr Kempton's concession on the day of the hearing that he would withdraw the caveat should count in his favour. It was, in my view, nothing but an acknowledgement of the reality of the situation by Mr Kempton with his primary aim being to avoid the costs of a protracted hearing which, I readily surmise, would have resulted in no different outcome but a far greater liability for costs. The time for Mr Kempton, an experienced solicitor, to withdraw the caveat was, at the latest, upon receipt of Mr Malseed's letter.

33 Nor do I accept, at least on the material before me, that Mr Kempton was ever able to establish an interest in the property, be it equitable or legal. In the course of discussion his counsel referred to potential claims of equitable estoppel and under the Fair Trading Act and Trade Practice Act on the basis of alleged false and misleading conduct on the part of the agent, Mr Nunn. Even if I accepted (which I do not) that such claims may attach to the property, nothing in the evidentiary material before me supported any of those assertions. To the contrary, the case presented by Mr Love was overwhelming.

34 Mr Love should have his costs on an indemnity basis.

(1) The Court dispense with the requirements of rr. 5.03(1) and 8.02 of the Supreme Court (General Civil Procedure) Rules 2005 and authorise the plaintiff to commence a proceeding by originating motion in Form 5C.

(2) The first defendant remove Caveat Number AH244250G recorded on the Certificates of Title Volume 09221 Folio 744 and Volume 05673 Folio 417 by 4.00pm. on 15th June 2010.

(3) The first defendant to pay the plaintiffs costs of this proceeding on an indemnity basis.

(4) There be no order of costs in relation to the second defendant.

[1] See Spencer v Dowling [1996] VSC 51; [1997] 2 VR 127, 147, 163; Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd [1988] FCA 202; (1988) 81 ALR 397; Ugly Tribe Co Pty Ltd v Sikola [2001] VSC 189; Murdaca & anor v Maisano & anor [2004] VSCA 123.

[2] Bass Shire Council v King (unreported 15 August 1994), referred to with approval by Winneke P in Spencer v Dowling [1996] VSC 51; [1997] 2 VR 127, 147.

[3] [2010] VSC 125, [9].

[4] See in relation to its application to sales by auction Wright v Madden [1992] 1 Qd R 343, Peppe v Jydonnet Pty Ltd [2007] NSWSC 547.

[5] Goldstraw v Goldstraw [2002] VSC 491, Piroshenko v Grojsman & ors [2010] VSC 240.

[6] Goldstraw v Goldstraw [2002] VSC 491, Piroshenko v Grojsman & ors [2010] VSC 240, [23].

[7] Goldstraw v Goldstraw [2002] VSC 491, [42].

[8] Ibid [38] and [42]; See also Luther v Sayer & Anor [2009] VSC 595.