Plaintiff v Defendant

2 Between 5 July 2013 and today the defendant ("EOS") served a withdrawal of caveat upon the solicitors for Sovereign in respect of the Caveat.

3 Accordingly the only matter before me was the question of costs.

4 Having heard from counsel for Sovereign, I am satisfied that costs ought to be awarded against EOS on an indemnity basis.

5 The Caveat was lodged in relation to land located at Tarneit ("the Property"). This was the 2nd attempt by the defendant to have a caveat lodged and maintained in relation to the Property.

6 The Caveat was lodged on 1 July 2013. The grounds stated in the caveat were "Pursuant to rights under an underwriting agreement". The first caveat ("the Previous Caveat") was removed following the lapse of 30 days after a notice had been served under s 89A of the Act. It lapsed on 25 June 2013. In relation to the Previous Caveat, the ground stated was "Pursuant to a constructive trust". It is clear from correspondence before the court that that caveat was also founded on the same underwriting agreement referred to in the Caveat.

7 It is unnecessary to go into extensive detail in relation to the facts underlying the issues now before the court. In short, the directors of EOS are also directors of Sovereign. Sovereign and EOS entered into an underwriting agreement concerning sales of lots relating to the Property. The underwriting agreement was entered into on 25 February 2010. EOS now claims to be owed moneys by Sovereign under the underwriting agreement. Sovereign was placed into liquidation on 24 May 2013 at a meeting of creditors of Sovereign convened pursuant to s 439A of the Corporations Act 2001 (Cth).

8 I was taken to the relevant provisions of the underwriting agreement in relation to the underwriting fee claimed by EOS against Sovereign. There is nothing contained in the underwriting agreement which could properly be said to give EOS any equity or interest in the Property which would justify the lodging of the Caveat. In short, the claim for the underwriting fee would give rise to EOS being an unsecured creditor for a debt (assuming the moneys were owing).

9 It follows, on the evidence before me, there appears to have been no proper basis for the Caveat to have been lodged.

10 As stated above, the matter first came before me on the morning of 5 July 2013. There was no appearance by EOS on that occasion. However, there had been short service in relation to the application. Accordingly, the matter was adjourned to be heard this morning.

11 At approximately 4.50 pm yesterday, 8 July 2013, EOS served a withdrawal of caveat in relation to the Caveat. Thus, no substantive relief is sought in relation to the summons and the only issue outstanding is the question of costs.

12 There could be no question on the facts as set out above that Sovereign is entitled to its costs. However given that the application for costs was for an order on an indemnity basis, I required submissions from counsel for Sovereign in that regard.

13 I was referred to the decision of Love v Kempton[1]. In that case J Forrest J dealt with an application for indemnity costs where a caveat had been lodged in circumstances where there was no arguable claim by the caveator. Similar to this case, the caveat had been removed voluntarily by the caveator. In that case his Honour held that the lodging of the caveat was "opportunistic and unprincipled" and on that basis ordered indemnity costs.[2]

14 By reference to a number of decisions, his Honour stated that "[s]pecial circumstances must be demonstrated 'which lift the case out of the ordinary'" before an order for indemnity costs is warranted.[3]

15 The cases referred to are well known and I need not refer to them individually.

16 His Honour then considered a number of factors which he said justified an award of indemnity costs. They included the following:

(1) The nominated basis for lodging the caveat was without merit.[4]

(2) The defendant in that case was squarely on notice that if he failed to withdraw the caveat then he ran the risk of incurring an order for indemnity costs if the plaintiff was forced to make an application to remove the caveat.[5]

(3) Any person involved in dealing in property should be aware of the statements made of this Court on a number of occasions that a caveat is not a bargaining chip.[6]

(4) The lodging of a caveat is a serious business, as it has the potential to affect commercial transactions and the lives and financial interests of others.[7]

17 His Honour J Forrest J concluded with the following remark:[8]

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 v Dowling[9]] 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.

18 In my opinion, the comments by his Honour are apposite to this case.

19 Dealing with each of the factors considered by his Honour:

(1) Based on the submission provided to me, there is no apparent proper basis for the lodging of the caveat based on the underwriting agreement. Further, there has been no attempt by EOS to justify its conduct. In my view, it is proper for the court to draw an inference that, when there are solicitors representing EOS and corresponding on the matter, the absence of any appearance suggests that EOS appreciated there was no basis upon which its position could be defended.

(2) EOS was squarely put on notice as to the position of Sovereign in correspondence on 3 July 2013 before this proceeding was commenced. Not only was it suggested that there was no proper basis for the Caveat, reference was also made to s 91(4) of the Act in relation to the inability of a caveator to lodge a further caveat when the Previous Caveat has lapsed in relation to a lodgement based upon the same interest. By this letter, and also by the summons, EOS was informed that indemnity costs were going to be sought. It was not until after court hours yesterday that EOS signified to Sovereign that it was not necessary to pursue the application.

(3) It is clear from the evidence before me that the lodgement of the Caveat (and the Previous Caveat) were attempts by EOS to bargain for proceeds of the upcoming settlement. This is not a proper use for a caveat. There was no underlying basis upon which the caveat could have been properly lodged. As I have already noted, EOS had solicitors acting in relation to the subject matter of the proceeding.

(4) The comments made by J Forrest J are apposite to this case and I need say nothing further.

20 In addition to the factors referred to by his Honour, I note the additional factor that the initial attempt by Sovereign to remove the obstacle of a caveat to any settlement was by non-litigious means, namely the lodging of a notice under s 89A of the Act. It was only when the Previous Caveat had lapsed that Sovereign was compelled to bring the current proceeding because of the high-handed conduct of EOS of lodging yet a further caveat.

21 In summary, there was simply no merit in the conduct of EOS in lodging the Caveat (or for that matter the Previous Caveat). In those circumstances, Sovereign should not be out of pocket (nor should its creditors, given that the company is in liquidation). Accordingly, I order the costs of and incidental to the proceeding, including the reserved costs ordered on 5 July 2013,[10] be paid on an indemnity basis.

[1] [2010] VSC 254.

[6] At [28], by reference to Piroshenko v Grojsman [2010] VSC 240, [23]; Goldstraw v Goldstraw [2002] VSC 491, [42].

[9] [1996] VSC 51; [1997] 2 VR 127.

[10] Although there was short service in relation to the first return, in my view it was reasonable for Sovereign to get before the court as soon as practicable.