By Russell Cocks, Solicitor

First published in the Law Institute Journal

This column is concerned with two cases on entirely different topics, but connected by a similarity in the name of the principal parties and the fact that they are recent decisions in the Real Property List of VCAT, a jurisdiction that is growing in importance for property lawyers. Pavlovic v GEADSI Nominees P/L [2012] VCAT 997 (Pavlovic) concerns an easement and Pavlovich v Pavlovich [2012] VCAT 869 (Pavlovich) concerns co-ownership.

Pavlovic took place in a fairly conventional inner suburban setting. The two protagonists were neighbours, with Pavlovic having purchased his property in recent years with the intention of renovating and living in the property and GEADSI having constructed three units on the adjoining property some 15 years previously. At that time GEASDI had obtained from the then owner of the Pavlovic property consent to construct a stormwater drain across the Pavlovic property and a stormwater pipe had been constructed such as to take the stormwater from the GEADSI land through the Pavlovic land and to a laneway at the rear. This pipe was below the surface of the ground and Pavlovic was not aware of the pipe when he purchased the property as it was not recorded as an easement on the title, not evident to a physical inspection and he was not otherwise been informed of its existence.

Pavlovic intended to construct improvements in the backyard and discovered that the soil was so saturated that it would be necessary to remove the soil at a cost of $15,550 before commencing construction. Additionally, it would be necessary relocate the pipe to prevent the ongoing saturation of the soil below the improvements. Pavlovic wanted the pipe removed. He commenced these proceedings for an order pursuant to s 16 Water Act 1989.

GEADSI argued that the pipe constituted an implied easement and that Pavlovic, as subsequent purchaser, was bound by that easement. The Tribunal rejected that argument, effectively finding that the consent given by the previous owner did not create a proprietary right and was not enforceable against subsequent owners. An argument based on a prescriptive easement was rejected on the basis that the right to use the pipe arose by consent. The recent case of Kitching v Phillips [2011] WASCA 19 was referred to. Effectively, the Tribunal was of the view that the original temporary solution to the drainage problem should not be allowed to impact on the proprietary rights of the new owner – a glowing endorsement of fundamental Torrens principles. GEADSI was ordered to pay the costs of removing the saturated soil and to remove the pipe.

Pavlovich on the other hand concerned an application by a co-owner pursuant to the ‘partition provisions’ of the Property Law Act 1958, specifically s 228. The parties to the proceedings were registered joint tenants and, unusually, the application was not for a ‘partition’ as that word is generally understood but rather a transfer from one co-owning joint tenant to the other joint tenant. Whether VCAT had power to do so occupied the first portion of the judgement, with a conclusion that the power conferred by s 228 did indeed authorise such a transfer.

The parties were mother and son. There was evidence that as part of a downsizing exercise the mother had purchased a property but was unable to gain temporary finance, so the son was added as a joint tenant. Shortly after, the loan was repaid from the proceeds of sale of the mother’s original property and so the subject property was owned as joint tenants, although the son had effectively made no financial contribution.

Ten years later the mother applied for an order that the son transfer his interest in the property to the mother. The mother argued that it had always been intended that the son would do so when the loan was repaid. The son argued that it had been agreed at the time that the son would remain as joint tenant and then ‘inherit’ the property upon his mother’s death as gifts were made to other siblings that would be ‘offset’ by the son taking the property. Essentially the issue was a factual one and the Tribunal accepted the mother’s version.

The Tribunal concluded that whilst the son was a legal joint tenant, beneficial ownership resided entirely with the mother, therefore the son was ordered to transfer his interest in the property to the mother so that she would become sole legal and beneficial owner. Concern was raised, but dismissed, that because the Tribunal was therefore finding that the son had no beneficial interest, he could not be a co-owner within the meaning if the Act and VCAT therefore had no jurisdiction.

This is similar to an argument raised in Garnett v Jessop [2012] VCAT 156. Jessop was the sole registered proprietor and Garnett sought partition on the basis that he had made contributions and therefore held an equitable interest on the basis of a constructive trust. VCAT dismissed a submission that only legal (registered) owners qualify as ‘co-owners’ within the meaning of the Act and held that a party claiming an equitable interest is a ‘co- owner’ and therefore entitled to seek partition.

Tip Box

Whilst written for Victoria this article has interest and relevance for practitioners in all states.

By Russell Cocks, Solicitor

First published in the Law Institute Journal

A sheriff’s sale is one of the true curiosities of the world of property law – to borrow a phrase, ‘a riddle wrapped up in an enigma’. The urban myth conjures up visions of the dastardly sheriff riding in on his pitch-black steed to wreak havoc on the ‘innocent’ villager. As a recent case confirms, there is not likely to be a Robin Hood in the wings waiting to swoop in at the last minute to set things right; indeed, quite the contrary.

Kousal v Suncorp-Metway Limited [2011] VSC 312 cast the defendant bank in the role of an innocent bystander seeking the direction of the court. The plaintiff was the purchaser from the sheriff and sought to require the defendant to make the certificate of title to the property available to allow for registration of the transfer from the sheriff. Herein lies the reason why the matter had proceeded to this point: the owner of the property and person most likely to suffer the harsh consequences of the sheriff’s sale was not a party to the proceedings and had steadfastly failed to take appropriate steps to protect his interests. As a consequence the law, like a steamroller, had followed its unrelenting course to ‘justice’ and the case became another episode in the tales of sheriff’s sales.

The story began as a simple debt claim in the Magistrates’ Court. A creditor claimed payment from the debtor (the ‘innocent villager’ in our tale). Irrespective of the merits of the claim, it appears that the debtor did not contest the claim and judgment was entered. This failure to engage in the legal process, repeated time and again, by the judgment debtor is the true cause of the problems that arose as, whilst many such judgments go unenforced, this judgment debtor was the registered proprietor of real estate and thus susceptible to the sheriff’s sale procedure.

The judgment of the Magistrates’ Court was raised to the Supreme Court and a writ of seizure and sale was issued. These were previously known by the far more exotic – and perhaps appropriately theatrical – name of fieri-facias, commonly abbreviated to fi. fa. This writ calls upon the sheriff to sell the judgment debtor’s assets and account to the creditor for the proceeds of sale to the extent of the judgment and costs, and to the judgment debtor for any balance. The likelihood of a mortgage to a third party, the role played by the defendant bank in this case, serves to add a further complicating factor. The sheriff only has power to sell the interest of the judgment debtor in the property, and therefore any sale is subject to all encumbrances affecting the property at the time of sale. Thus the mortgagee bank was not liable to lose the protection of its mortgage; it was simply being asked in these proceedings to make the title available to allow for the registration of the transfer of the interest of the judgment debtor by the sheriff to the plaintiff.

The plaintiff had entered the fray as an existentialist Robin Hood. Rather than fight off the sheriff and return the villager’s home, the plaintiff became the purchaser at the sheriff’s sale, first bidding $100 and finally $1000 for the right to take a transfer from the sheriff. Given that the property was apparently valued in excess of $600,000 and the mortgage was around $400,000, the prospect of a $200,000 profit appeared to be good shopping.

At this point the sheriff’s sale process appears to have gone feral. A person can lose their home, in which they have an equity of $200,000, and the judgment creditor, who initiated the process, stands to receive nothing, as the sale price of $1000 would not even cover the sheriff’s costs. Whether the villager is an idiot or not, that cannot be justice. Mukhtar AsJ. also expressed concern in relation to this outcome and repeated a call first made in 1982 for a review of this procedure, which appears to be ‘ill adapted to modern conditions’.

Without doubt, the judgment debtor/registered proprietor should have done more to help himself. He sought the assistance of a private lawyer, but regarded that as too expensive. He followed the usual trail around the various free legal services, but appeared to weary of the travel. No doubt a lack of English greatly affected his understanding of the significance of the documents that he received, but by the end he would have needed a wheelbarrow to transport them and yet he still came before the court and shrugged his shoulders, unable to see the steamroller diligently rolling towards him. Mukhtar AsJ. made orders that ensured that the process could not proceed without coming to the attention of the person most affected by the orders, even though not a party to these particular proceedings, but in the end concluded that ‘[t]he Court can do no more’ (para 41).

Mukhtar AsJ. identified a number of areas of concern in relation to the sheriff’s sale process:

1. that the prospect of a sale being made without any reserve price can lead to a perception that the property is being sold under value and call into question the duty of the sheriff to the judgment debtor to sell for the ‘best price’ (para 35);
2. that the application for a sale without reserve, which can be made after an unsuccessful sale with a reserve, should not be made ex parte, but rather with notice to the judgment creditor;
3. that consideration should be given to holding sheriff’s sales on-site, rather than at the sheriff’s office, with additional advertising. The implication is that a sheriff’s sale ought more resemble a traditional auction; and
4. that, in appropriate circumstances, a court may need to set a ‘not below’ price, something of a misnomer in a ‘no reserve’ auction.

Tip Box

Whilst written for Victoria this article has interest and relevance for practitioners in all states.

By Russell Cocks, Solicitor

Published in 2011, First published in the Law Institute Journal

The Vendor’s Statement required by the seller of real estate pursuant to s 32 of the Sale of Land Act 1962 is a fundamental document in the conveyancing process. Designed as a consumer protection mechanism, the statement requires the vendor to disclose certain items of relevant information to a prospective purchaser.

Perhaps reflective of a ‘boom market’ in real estate in the new millennium, there have not been many recent cases that have considered this section. Purchasers in such a market are less likely to complain and more likely to take a long term view that capital growth may remedy minor blemishes. Add to this the uncertainty of legal proceedings and enormous cost consequences of failure and it is little wonder that contested cases are rare. Nicolacopoulos v Khoury [2010] VCC 1576 – the writer’s firm acted for the purchaser plaintiff – therefore comes as a rare treat for the property connoisseur.

The vendor instructed a conveyancer to prepare a Vendor’s Statement, which formed part of a contract of sale. The property was a lot on a plan of subdivision and it was, as a matter of law, affected by an owners corporation. This was an agreed fact at the hearing, but the conveyancer had incorrectly taken the view that the property was not affected by an owners corporation as there was no ‘common ground’. This was apparently a reference to the fact that the subdivision was a two-lot subdivision with both lots having separate road access, so there was no common property. Nevertheless, there was an owners corporation, even if in name alone – the euphemistic ‘inoperative owners corporation’.

In those circumstances s 32(3A) requires the vendor to include in the Vendor’s Statement an Owners Corporation Certificate, issued pursuant to s 151 Owners Corporation Act 2006, and accompanying documents. Failure to do so entitles the purchaser to rescind the contract pursuant to s 32(5), subject to the limitation created by s 32(7).

There was no contest that there was a breach of s 32(3A) and a consequent right to rescind pursuant to s 32(5), but the vendor argued that the vendor was saved by s 32(7). To come within the protection of subsection (7) the vendor had to prove:

1. that the vendor had acted ‘reasonably’; and
2. that the purchaser was ‘substantially in as good a position as if all relevant provisions had been complied with’.

The first question raised the issue of the vendor’s liability for the statements in the Vendor’s Statement. This issue had been the subject of conflicting authority, with Payne v Morrison [1991] V ConvR 54-428 holding a vendor vicariously responsible for the unreasonable (negligent) conduct of an adviser and Paterson v Batrouney & anor [2000] VSC313 suggesting that vicarious liability was not appropriate and that only personal liability was relevant. Fifty-Eighth Highwire v Cohen and Anor [1996] VicRp 57 had also considered the issue, without needing to reach a decision on the point.

Ultimately Ginnane J. adopted a similar course to Fifty-Eighth Highwire v Cohen and avoided deciding whether vicarious liability was sufficient as he was satisfied that the vendor had been personally negligent and therefore had not acted reasonably. Unlike Paterson v Batrouney, where there had been total reliance on the adviser, Ginnane J. held that the vendor should have been aware of the existence of the owners corporation and therefore bore personal responsibility for ensuring adequate disclosure.

The second issue concerned the consequences of the breach on the purchaser. The vendor made two arguments on this point:

(a) that the Vendor’s Statement had not misled the purchaser.

The purchaser’s evidence was that she was particularly interested in the property because the sales brochure began with the words, ‘Say good-bye to the body corporate’. She presently owned a property subject to a body corporate (owners corporation) and she was very concerned that a new property should not be affected by an owners corporation. The vendor argued that the purchaser purchased the property because of the brochure and that the absence of the Owners Corporation Certificate in the Vendor’s Statement had not influenced the purchaser’s decision.

Ginnane J. held that if the information required by subsection (3A) had have been included in the Vendor’s Statement, then it was likely that the purchaser would have been made aware that the property was subject to an owners corporation and would not have purchased the property.

(b) that the owners corporation was dormant.

The vendor gave evidence that the owners corporation had never met and that no levies had been struck. For all intents and purposes, the owners corporation did not exist.

This argument was not accepted. The mere existence of the owners corporation and the possibility that it could be enlivened was sufficient to establish a detriment.

Whilst the issue of detriment was to be determined objectively, the purchaser’s subjective characteristics were a relevant consideration. So too was the fact that parliament had decreed that certain information was required; and, it may be presumed, such consumer protection aspirations are not to be lightly ignored.

The matter came before the court as a vendor-purchaser summons based on s 49 Property Law Act. As such, the issue for determination was limited to the issue arising from s 32 Sale of Land Act, and the question of the negligence of the conveyancer or misrepresentations of the agent were not matters before the court. Nevertheless, the purchaser was able to establish that the agreed breach of subsection (3A) was not saved by subsection (7).

Tip Box

Whilst written for Victoria this article has interest and relevance for practitioners in all states.

By Russell Cocks, Solicitor

First published in the Law Institute Journal

The recent decision in Sacks v Klein [2011] VSC 451 considered the well known distinction between joint tenancy and tenancy in common and the impact of the death of a co-owner. It confirmed that whilst co-owners may be registered as joint tenants (legal joint tenants) equity may nevertheless impose an equitable tenancy in common by way of a trust.

Generally speaking, VCAT (Victorian Civil and Administrative Tribunal) has almost exclusive jurisdiction over applications relating to co-owned land under Part IV of the Property Law Act 1958. However, pursuant to s 234C(2) the courts retain jurisdiction in relation to co-ownership disputes in de facto property situations, testator’s family maintenance claims and partnership disputes. This dispute potentially came within one or both of the latter two categories, although the issue of jurisdiction was not discussed in the judgment. Indeed, no reference was made to the Property Law Act and the proceedings were conducted as an application for a declaration of trust.

The important distinction between joint tenancy and tenancy in common presents upon the death of one of the co-owners. In a joint tenancy, the deceased’s interest in the property passes to the surviving owner pursuant to the right of survivorship. In a tenancy in common, the deceased’s interest passes to the deceased’s estate.

In Sacks v Klein, two brothers (D aged 30 and M aged 29) purchased a property in 1994 as an investment and were registered as joint tenants. M died in 2005 and D lodged a survivorship application and became registered as sole proprietor by survivorship. M’s administrator issued an application on behalf of M’s estate for a declaration that D held the property on trust for himself and the plaintiff as tenants in common in equal shares.

Hargrave J. set out various principles discerned from previous cases:

1. Where property is conveyed to two or more persons who are named as transferees without further specification as to whether they are to hold the title as joint tenants or tenants in common, they are deemed by operation of s 33(4) of the Transfer of Land Act 1958 (Vic) to hold the legal estate as joint tenants. However, s 33(4) of the Act does not preclude the operation of equity.
2. Unless there is evidence to indicate the transferees held a different intention, equity will follow the law.
3. Irrespective of the position on the certificate of title, equity may intervene to impose a tenancy in common.
4. Equal provision of purchase money points to a joint tenancy.
5. Where the co-owners are partners or participants in a joint undertaking, tenancy in common will prevail.
6. A common intention by the co-owners to acquire the property as joint tenants is not conclusive.

Analysing the evidence, Hargrave J. concluded that the brothers had purchased the property as a joint undertaking. The mortgage loan was made to them jointly and severally. The fact that it was D’s idea to invest in the flat was not to the point. He chose to invite M to participate in a joint purchase of the flat with the express purpose of long-term profit being made by each of them. Likewise, the fact that D assumed responsibility for the investment and arranged for the property to be leased, maintained and renovated was not to the point. Notwithstanding that M had lived overseas the entire time the property was jointly owned, he was to be regarded as a ‘silent partner’ in a joint undertaking, a conclusion that would point to a tenancy in common, even if no formal partnership existed.

However, Hargrave J. accepted that there was evidence that at the time of purchase the difference between joint tenancy and tenancy in common was explained to D and that he in turn explained it to M, who agreed that the property should be purchased as joint tenants. On this basis His Honour concluded that at the time of purchase the co-owners intended to hold the property as joint tenants.

Thus His Honour was faced with a subjective joint tenancy, based on the stated preference of the co-owners as revealed by their registration on the title, as opposed to an objective tenancy in common, based on the nature of the relationship between the co-owners. In such a situation the stated intention (as revealed on title) of the parties will prevail unless ‘there is evidence, even slight evidence, to indicate an intention to divide the property between the joint tenants’. His Honour found that there was evidence of such an intention, being:

1. the property was an investment;
2. the income and expenses were divided equally; and
3. M had acknowledged a ‘moral obligation’ to D’s family in the event of D’s death.

The plaintiff’s application for a declaration of trust was successful.

Tip Box

Whilst written for Victoria this article has interest and relevance for practitioners in all states.