Plaintiff v Defendant

Supreme Court of Victoria|2012-06-21|Before: McMillan J

REAL PROPERTY - Caveat - Whether caveat fatally defective - Power to amend - Application to remove - s 90(3) Transfer of Land Act 1958 - Serious question to be tried - Balance of convenience - Indemnity costs.

**1 The plaintiff is the joint registered proprietor of the property situated at 12 Pardalote Avenue Carrum Downs, Victoria ("the Property"). The plaintiff's husband, Mr Xiao, is the other registered proprietor of the Property.

2 On 24 October 2011, the defendant registered a caveat on the title to the Property, claiming an "estate in fee simple" over the whole of the Property "pursuant to an agreement between the defendant and Mr Xiao dated 3 May 2010".

3 The caveat relates to alleged business dealings between Mr Xiao and the defendant. The defendant alleges that Mr Xiao and the defendant entered into an agreement dated 3 May 2010. Under the agreement, Mr Xiao was to purchase shares from the defendant in Royco Pty Ltd ("the Buy Back Agreement"). The defendant also alleges that Mr Xiao and the defendant entered into a guarantee also dated 3 May 2010 to secure Mr Xiao's performance under the Buy Back Agreement ("the Guarantee"). Mr Xiao denies that he signed the Guarantee.

4 The plaintiff denies that she owes any debt to the defendant, or that she was a party to any agreement with him. This is not disputed by the defendant.

5 The Buy Back Agreement is the subject of proceedings in the County Court of Victoria issued in December 2011 ("the County Court Proceedings"). In those proceedings, the defendant sues Mr Xiao for breach of the Buy Back Agreement and seeks damages in the amount of $180,831.86. The plaintiff is not a party to the County Court Proceedings.

6 The defendant obtained default judgment against Mr Xiao in the County Court Proceedings in April 2012. Mr Xiao has made an application to set aside the default judgment.**

**7 In January 2012, the plaintiff and Mr Xiao entered into a contract for the sale of the Property, with settlement due to take place on 23 March 2012. On 10 April 2012, the plaintiff issued this proceeding seeking removal of the caveat in order to be able to secure settlement of the sale.

8 On 18 April 2012, at the first return date of this matter, the defendant's solicitors produced to the plaintiff's solicitor a handwritten agreement in Chinese, which they alleged was the Guarantee. Mr Xiao says that this was the first time he became aware of the Guarantee and, as stated above, he denies that he signed the document. It was at this time that the plaintiff and Mr Xiao became aware that the Guarantee was the "agreement" referred to in the caveat.

9 The further hearing of the application for removal of the caveat was adjourned to 2 May 2012. At that time, Hargrave J ordered that the defendant provide a withdrawal of caveat to be held in escrow by the plaintiff's solicitors pending the sale of the Property and that in the event the Property was sold before the further hearing, the net proceeds of sale be held on trust.

10 On 9 May 2012, the defendant's solicitors provided a withdrawal of caveat to the plaintiff's solicitors.

11 The sale of the Property has yet to settle and negotiations between the plaintiff and Mr Xiao and the prospective purchasers for the Property are continuing. If the sale of the Property does take place, the net proceeds of sale will amount to approximately $80,000.

12 The hearing for the removal of the caveat was adjourned several times for the filing of further affidavits and to enable cross-examination on the discrete issue as to whether the Guarantee was signed by Mr Xiao.

13 Since the last adjournment of this proceeding, agreement was reached between the solicitors for the plaintiff and the solicitors for the defendant as follows:[1]**

[T]he plaintiff, for these proceedings, has agreed not to agitate the issue of whether the written agreement between the parties for the buy back of shares, also dated 3 May 2010, [...] which gives rise to the debt the subject of the guarantee has been terminated or the issue of whether the guarantee was in fact signed by Mr Xiao.

**14 The issues for determination by this Court are:

(a) Whether the caveat was properly lodged over the Property. In other words, whether the caveat is defective.

(b) If the caveat is defective, whether the Court, in the exercise of its discretion, should allow the defendant to amend the caveat.

(c) If the Court exercises its discretion to allow the amendment of the caveat, or if the caveat was properly lodged over the Property, whether the Court should exercise its discretion under s 90(3) of the Transfer of Land Act 1958 ("the Act") to remove the caveat.**

**15 Counsel for the plaintiff submitted that the caveat is fatally defective because:

(a) It is clear that the Guarantee does not support "an estate in fee simple". If the Guarantee purports to grant any interest, that interest could only be an equitable charge.

(b) The caveat was lodged against the title to the Property, with no "carve out in the estate or interest claimed" to indicate that the caveat did not bind the plaintiff's interest.

16 Counsel for the defendant conceded that the caveat is defective because the interest claimed by the defendant in the caveat is wrong, both in terms of the estate or interest claimed and in terms of its scope.

17 Counsel for the defendant submitted that notwithstanding the fact that the interest claimed by the defendant is an estate in fee simple and is not expressed to be limited to Mr Xiao's share of the Property, the grounds of claim in the caveat provide sufficient detail to identify the interest claimed by him and to indicate that it is limited to Mr Xiao's share of the Property.

18 Further, counsel submitted that the caveat ought be allowed to remain on the Property regardless of whether it is defective, because a withdrawal of caveat has been provided by the defendant.

19 I agree with the submissions made by counsel for the plaintiff on this issue and would add two further reasons for finding that the caveat is defective, which are:

(a) Whichever version of the English translation of the Guarantee is used,[2] it is clear that the words used in the Guarantee do not purport to convey the fee simple in the Property.

(b) The caveat does not make clear which "agreement" supports the estate or interest claimed. From the plaintiff's point of view, she must have assumed that the agreement relied upon was the Buy Back Agreement, because until 18 April 2012, she had no knowledge of the Guarantee.

20 Further, although a withdrawal of caveat has been provided by the defendant, the orders made by Hargrave J still have the effect of the plaintiff not being able to deal with any net proceeds of the sale.**

**21 The Court may only amend the "estate or interest claimed" in special or exceptional circumstances.[3] Counsel referred to the decision of Macaulay J in Percy & Michele Pty Ltd v Gangemi,[4] in which his Honour identified the following factors as relevant to the exercise of the discretion to amend:[5]

(a) Whether the amendment is to the estate or interest claimed and not just the grounds of claim.

(b) The circumstances in which the error was made, including whether the caveator was represented by lawyers at the time.

(c) "The Court should not readily act in a way which might encourage the belief that the caveats can be imprecisely formulated and then 'fixed up later'."

22 Counsel for the plaintiff submitted that the defective caveat is incapable of amendment for the following reasons:

(a) An amendment to the caveat under s 90(3) of the Act may be permitted provided that the amendment does not result in the Court substituting an entirely different estate or interest claimed.[6] The defendant seeks to amend the estate or interest claimed in two material respects which will result in the substitution of an entirely different estate or interest claimed.

23 Counsel for the defendant submitted that the Court has the power to amend the caveat under s 90(3) of the Act and that it is appropriate for the Court to exercise its discretion to do so in the circumstances because the interest claimed and the scope of the protection afforded by the caveat are apparent from the grounds of claim identified in the caveat.[7]

24 In my view, the amendments to the caveat sought by the defendant result in an entirely different estate or interest claimed. No explanation has been put forward to justify the substantial errors in the caveat. The error is inexplicable as at all times the defendant has been represented by solicitors. I consider that there are no exceptional or special circumstances in this case to justify an amendment. In particular, I consider that it is impossible to discern the "interest claimed and the scope of the protection" from the grounds of claim in the caveat.

25 Accordingly, I reject the submissions by counsel for the defendant and will not allow the amendment to the caveat.

26 As stated above, the solicitors for the defendant have provided a withdrawal of caveat to the plaintiff's solicitors.[8] This document can now be lodged by the plaintiff at Land Victoria.

27 To the extent that the orders made by Hargrave J provide that in the event the Property is sold before the further hearing, the net proceeds of sale are to be held on trust, I order that this order be vacated.**

**28 Although my findings in relation to whether the caveat is defective and whether it should be awarded make it unnecessary to consider the plaintiff's application for the removal of the caveat, I consider it appropriate to address the submissions made on this aspect of the proceeding as a further caveat might be lodged over the Property in the future. Further, the plaintiff's application for the removal of the caveat is relevant to the question of compensation and costs.

29 Section 90(3) of the Act provides:**

Any person who is adversely affected by any such caveat may bring proceedings in a court against the caveator for the removal of the caveat and the court may make such order as the court thinks fit.

30 The relevant principles with respect to an application under s 90(3) of the Act were summarised by Warren CJ in Piroshenko v Grojsman:[9]

Caveats under the Torrens system are treated by the courts as analogous to applications for interlocutory injunctive relief. In so far as their registration is an administrative act, it is when application is made for their removal that the onus falls on the caveator to satisfy the two-stage test used by the court when deciding whether to exercise its discretion to grant injunctive relief. ... This two-stage approach requires the caveator to establish that there is a serious question to be tried that they have the estate or interest which they claim in the land in question, and having done so, to establish that the balance of convenience favours the maintenance of the caveat on the Register of Titles until trial.

31 In order to establish that there is a serious question to be tried, the caveator must establish "a prima facie case with sufficient likelihood of success to justify the maintenance of the caveat".[10]

32 For the purposes of this proceeding, analysis of the serious question is limited by the nature of the agreement referred to in paragraph 13, in that all issues relating to the Buy Back Agreement and the Guarantee were not in issue before this Court.

33 In any event, both the plaintiff and the defendant obtained English translations of the Guarantee. The plaintiff's translation reads "[Mr] Xiao agrees to use his family assets to guarantee the repayment of the debt owed to [Mr]Shi". In contrast, the defendant's translation reads "[Mr] Xiao agrees to use his family assets as security for the repayment of the debt owed to [Mr] Shi".

34 Counsel for the plaintiff submitted that if the Guarantee purports to grant an interest in the Property, that interest would be an equitable charge, if anything. A charge is:[11]**

a security whereby real or personal property is appropriated for the discharge of a debt or other obligation, but which does not pass either an absolute or a special property in the subject of the security to the creditor, nor any right of possession, but only a right of realisation by judicial process in case of non-payment of the debt.

**35 Counsel for the defendant submitted that in order for an equitable charge to come into existence, there must be an intention to create an immediate proprietary interest or immediate right of recourse to identifiable present or future property.[12] Counsel submitted that it is evident from a plain reading of the words in the Guarantee that Mr Xiao agreed to give an immediate charge over all of his family's assets, whatever they may be, with a limitation that the charge is only enforceable against property actually owned by Mr Xiao.

36 In the context of the cases involving loans or agreements that are said to constitute equitable charges, clear language indicating the parties' intention to create a charge is required before the proprietary interest will arise.[13] An example of this is Crampton v French,[14] referred to by counsel for the plaintiff. In that case, similar language was used to that in the Guarantee and an equitable charge was found to have been granted. However, the relevant term was more certain, it identified real property as being the subject of the charge, not "family assets", and it specifically granted a right to lodge "any necessary caveat" over the real property.

37 In my view, the words used in the Guarantee are not clear and do not provide in any plain or identifiable way the property or assets to which the Guarantee is intended to give an immediate right of recourse. As a result, I consider that there is no probability on the evidence before this Court that the defendant will be found to have an equitable charge and, therefore, there is not a serious question to be tried.[15] This conclusion is made bearing in mind the limitations referred to in paragraph 32.

38 In any event, in my view, the balance of convenience in this case favours the plaintiff and granting the application to remove the caveat carries the lower risk of injustice.[16] I make that finding for the following reasons:

(a) The caveat constitutes an absolute fetter on the plaintiff's ability to sell the Property. Maintaining the caveat is a comprehensive restriction on the plaintiff's rights. The caveat prejudices good faith purchasers of the Property because a prospective purchaser is on notice that there is a dispute on foot.

(b) The defendant has not given any evidence of any prejudice that may be suffered which could not be cured by a successful result in the County Court Proceedings. If the defendant's submissions are correct, the most that he would be entitled to is to hold one half of the net proceeds of the moneys realised from a sale of the Property, pending determination of the dispute.

(c) There is a genuine dispute between Mr Xiao and the defendant, but not between the plaintiff and the defendant. The issue as to whether any money is owed to the defendant by Mr Xiao is not a matter in which the plaintiff is involved. Further, the County Court Proceeding will determine the dispute between Mr Xiao and the defendant.

(d) Counsel for the defendant conceded that the caveat should not have been lodged over the plaintiff's Property, yet continues to resist an unconditional withdrawal of the caveat.

(e) Mr Xiao has not earned any income since around June 2011. The plaintiff and Mr Xiao require the sale of the Property in order to access funds to repay personal debts and purchase a business, in order to earn a living. Without access to the funds, the plaintiff and Mr Xiao are likely to suffer hardship.

(f) Although the defendant has now provided the plaintiff with a withdrawal of caveat, which means the Property can be sold if a purchaser is obtained in the future, the submission made by counsel for the defendant that half of the net proceeds from any sale should be placed in trust assumes a strong arguable case on the part of the defendant, which I have not found to be the case in the circumstances.**

**39 Counsel for the plaintiff submitted that as the caveat was lodged without reasonable cause, the plaintiff is entitled to compensation under s 118 of the Act.

40 In such an application, the plaintiff bears the onus of proof. The test to be applied is set out in Lee v Ross (No 2) as follows:[17]**

[The test] 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.

**41 During the course of the hearing, counsel for the defendant stated that if an application for compensation was made by the plaintiff, the defendant would concede that the caveat were lodged without reasonable cause, thereby making it unnecessary for the defendant to be cross-examined on this issue. Accordingly, I find that the plaintiff is entitled to compensation for any loss suffered by reason of the caveat.

42 On the question of the amount of any compensation, the parties agree that this issue should be adjourned to a later hearing, so that the plaintiff is able to provide evidence of her loss and damage.

43 I will hear the parties on the amount of compensation on a date to be fixed.**

**44 Counsel for the plaintiff submitted that the plaintiff should be awarded indemnity costs in respect of the proceeding for two reasons:

(a) The caveat has been maintained in circumstances where the defendant, properly advised, should have known that he had no chance of success.[18]

(b) The defective and improperly lodged caveat was being used as a bargaining chip.[19]

45 Further, in their letter dated 19 April 2012, the plaintiff's solicitors put the solicitors for the defendant on notice that the plaintiff would seek indemnity costs if the caveat were not withdrawn.[20]

46 Counsel for the defendant submitted that indemnity costs should not be awarded, because the caveat was lodged by the defendant's legal advisers pursuant to the Guarantee and not as a bargaining chip. Further, counsel for the defendant sought costs from the plaintiff for the appearance on 28 May 2012 on the ground that the plaintiff sought to agitate issues that she has now abandoned, namely, whether the Buy Back Agreement had been terminated and whether Mr Xiao signed the Guarantee.

47 I agree with the submissions of the plaintiff on the question of indemnity costs. The concession made by counsel for the defendant that the caveat is defective supports my conclusion. Further, the defendant's solicitors were given notice in relation to the potential application for indemnity costs from the start, yet maintained their position.

48 In respect of the costs for the appearance on 28 May 2012, the issues referred to were agreed rather than abandoned and the costs of the appearance form part of the costs of the application and should be paid by the defendant.

49 I order that the defendant pay the plaintiff's costs of the application, including the costs on 28 May 2012, on an indemnity basis, taxed in default of agreement.

50 Accordingly, on the basis of the above reasons, I will hear the parties as to the form of final order.**

[1] As described in a further outline of submissions dated 8 June 2012 filed on behalf of the defendant in this proceeding.

[3] Martorella v Innovision Developments Pty Ltd [2011] VSC 282, [66].

[5] Percy & Michele Pty Ltd v Gangemi [2010] VSC 530, [104]-[105].

[6] Martorella v Innovision Developments Pty Ltd [2011] VSC 282, [58]-[60]; Percy & Michele Pty Ltd v Gangemi [2010] VSC 530, [96]; Multi-Span v Portland [2001] NSWSC 696, [132].

[7] S&D International Pty Ltd (in liq) v Malhotra [2006] VSC 280 at [15]; Percy & Michele Pty Ltd v Gangemi [2010] VSC 530 at [101].

[11] Tyler, Young and Croft, Fisher & Lightwood's Law of Mortgage (LexisNexis Butterworths, 2nd ed, 2005) 49.

[12] Roberts v Investwell Pty Ltd (in liq) [2012] NSWCA 134, [29].

[13] Palmer v Carey [1926] UKPCHCA 1; (1926) 37 CLR 545; Avco Financial Services Ltd v White [1977] VicRp 62; [1977] VR 561, 564; Porter v Bonarrigo [2009] VSC 500, [63]-[73].

[15] Piroshenko v Grojsman [2010] VSC 240, [18].

[16] Bradto Pty Ltd v State of Victoria [2006] VSCA 89; (2006) 15 VR 65.

[18] Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd [1988] FCA 202; (1988) 81 ALR 397, 401.

[19] Goldstraw v Goldstraw [2002] VSC 491, [38]-[42].

[20] See exhibit "FC-1" to the affidavit of Francis Chu sworn 1 May 2012.

At a glance

Court

Decision date

Before

Source

Judgment (94 paragraphs)

Parties

Legislation Cited (6)

Cases Cited (4)