By Russell Cocks, Solicitor

First published in the Law Institute Journal

Section 32 Sale of Land Act 1962 requires a vendor of land to provide a proposed purchaser with certain information about the land prior to the signing of a contract as a means of consumer protection and an equalization of the bargaining position between the parties.

However s 32 does not specifically refer to an obligation to provide a copy, or particulars of, any lease affecting the land and it has been common practice for vendors not to provide a copy of a lease in the Vendor Statement. Whilst it was relatively common for particulars of the lease to be included in the contract, there was no strict obligation to do so and the vendor’s alternate rights of providing vacant possession or receipt of rents and profits could sometimes create difficulties.

Indeed there was authority for the proposition that s 32 did not require disclosure of a lease. Thai, Hoa v Cinta P/L [1997] VicSC 526 specifically considered the question and decided that s 32 did not require disclosure of a lease in the Vendor Statement. This case referred to two previous Supreme Court decisions that had reached the same conclusion: George G. Collings (Aust) P/L v Stevenson [1990] VicSC 620 and Krakowski v Eurolynx Properties Ltd [1992] VicSC 62.

That decision was made in the context of a contract that did include particulars of the lease within the contract but the tenant was in substantial breach of the lease as at the date of the contract, which was not disclosed, and the purchaser sought to rely on the s 32 obligation to disclose the lease and, more importantly, to disclose the tenant’s failure to comply with the terms of lease. Byrne J. decided that s 32 did not require disclosure of the lease and therefore failure to disclose the tenant’s failure to comply with the lease could not constitute grounds for avoidance pursuant to s 32(5).

In passing it may be noted that the purchaser really was ‘barking up the wrong tree’ when it sought to avoid the contract for breach of s 32. The better course of action, and one most likely to be pursued today, would have been to rely on the vendor’s misleading and deceptive conduct in representing in the advertising that the tenant had been in occupation for 6 years and was a ‘good’ tenant. In fact, it appears that a new tenant had recently taken over the lease and was nearly 6 months in arrears at the time of sale!

Whilst the collective authority of those cases was against any obligation to disclose lease particulars in the Vendor Statement, the previously generally accepted practice of disclosing a lease, or particulars thereof, in the contract was confirmed in the 2008 form of contract that, for the first time, required the vendor to specifically nominate whether the sale was subject to a lease and include particulars thereof, by adopting the default position that vacant possession was required unless the words ‘subject to lease’ were included ‘in the box’. In this manner a prospective purchaser does have access to the terms of the lease, although the contractual disclosure obligation does not specifically extend to an obligation to disclose tenant’s breaches. Such a situation might call into play issues of misrepresentation by silence and similar principles.

It therefore came as something of a surprise when Macauley J. in Vouzas v Bleake House P/L [2013] VSC 534 concluded, without deciding, that s 32 does require disclosure of a lease. This decision was in the context of a claim by the purchaser that the vendor should have disclosed a proposed assignment of the lease and, by failing to do so, had not fulfilled the obligation to disclose ‘restrictions’ pursuant to s 32(2)(b). Krakowski was noted as contrary authority to this proposition but Macauley J. took solace in a comment by Nettle J. in IGA Distribution P/L v King & Taylor P/L [2002] VSC 440 doubting Krakowski. Thai and Collings were not cited.

The issue will fall to be resolved the next time the issue comes before the Supreme Court, although given that the current situation is merely a conflict of opinion, a binding decision will not come until the Court of Appeal makes a pronouncement. Given that leases are now disclosed by virtue of the contractual mechanism, the issue really is not whether leases are to be disclosed pursuant to s 32 but rather whether changes or non-compliance are to be disclosed. With respect, such issues are better dealt with in the context of principles developed over time to deal with misleading and deceptive conduct, as indeed was the case in both IGA and Vouzas.

Section 32 has been the subject of a statutory overhaul with changes due to take effect in the near future. A later column will consider these changes in detail, suffice to say that the changes do not introduce further obligations that are likely to burden a vendor and in fact some changes will ease the load without undermining the consumer protection aspirations of the section.

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

New rules are being considered that will change the present r 27.2 offence of giving a conditional undertaking to an offence of asking for a conditional undertaking.

Legal practitioners are under stringent obligations to comply with undertakings that they may give. Specifically rule 27.1 Professional Practice and Conduct Rules 2005 requires practitioners to honour undertakings given to third parties.

Further rule 27.2 makes it an offence for a practitioner to give an undertaking that requires the cooperation of a third party. It can be seen that the logic behind such a prohibition is to prevent the practitioner from defending a charge of failing to honour an undertaking by blaming the failure on the actions of a third party. Simply giving such an undertaking is itself a breach of r 27.2, although one would imagine that it would be the failure to honour the undertaking that might trigger disciplinary proceedings.

The Supreme Court in Simon v Legal Services Commissioner[2014] VSC 185 considered an appeal from a Victorian Civil and Administrative Tribunal (VCAT) finding that Simon had been guilty of professional misconduct by failing to honour an undertaking. The facts concerned litigation funding finance. Simon introduced his client to a lender who had the client sign an Irrevocable Authority to Simon to direct repayment of the litigation funding to the lender from the anticipated proceeds of litigation. Simon had no direct obligations pursuant to that order but accepted the order by way of a separate document referred to as a ‘response’ whereby Simon acknowledged the order and agreed to account to the lender.

Simon was unable to ‘account’ to the lender as he did not receive the funds. The Commissioner charged Simon with misconduct in giving an undertaking ‘which required the actions of a third party’ and Simon was found guilty of misconduct. However VCAT’s decision was based on the fact that Simon had undertaken to pay the money to the third party and failure to do so was a breach of r 27.1. Simon appealed to the Supreme Court and the decision was set aside on the basis that Simon had been charged with giving an undertaking that required the ‘actions of a third party’ (r 27.2) but was found guilty of failing to ‘honour an undertaking’ (r 27.1). The charge was referred back to VCAT.

Simon argued before VCAT that the response, which is the document that was either an undertaking that he did not honour contrary to r 27.1 or an undertaking requiring the action of a third party contrary to r 27.2, was not an undertaking at all but merely an acknowledgement by Simon that provided that he received the funds he would account to the lender. Certainly it would have been possible for Simon to ensure that the response, which was drafted by the lender, was worded in that way and he failed to do so, but it appears to read too much into the document to interpret it as an unequivocal promise by Simon to pay funds to the lender. It is more in the nature of a conditional promise. With respect, there is no breach of r 27.1.

In relation to r 27.2, had Simon taken more care to ensure the response was worded in a way that made it clear that provided Simon received the funds he would account to the lender, then it is suggested that the response would not have been in breach of r 27.2.

Rule 27.2 should not prevent a practitioner giving an undertaking that involves the actions of a third party provided that the undertaking is expressed as being conditional on those preliminary actions. It is for the beneficiary of the undertaking to then decide whether the beneficiary is prepared to accept those terms. Rule 29.2 ought to be restricted to prohibiting undertakings that are dependent on undisclosed actions of third parties.

VCAT in Simon found that by signing the response Simon had promised the lender that settlement would occur and that the money would be paid. But the response does not say that and, with respect, it is difficult to imagine a litigation lawyer making such a promise or a lender expecting a document drafted as a ‘response’ to constitute an unconditional guarantee. Simon’s failing was to not take more care before signing the document that was put to him by the lender.

New rules are being considered by the Commissioner that will change the present r 27.2 offence of giving a conditional undertaking to an offence of asking for a conditional undertaking. However, such a rule should not prevent a person who requests an undertaking acknowledging that the beneficiary accepts that preconditions may exist before the undertaking is honoured. In the Simon situation, requesting an undertaking from Simon that, upon receipt of the funds, he account to the lender would not be in breach of the rule.

However, on balance, it appears preferable to maintain the offence as the giving, rather than the requesting, as this will cover all such inappropriate undertakings rather than just those sought by practitioners.

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 2008 Contract of Sale of Real Estate was amended in 2012, principally in response to the Personal Property Securities Act 2009 (Cth) (the Act). As an indication of the complexity of the Act, it has been decided to make further amendments to the standard contract that again largely address the requirements of the Act, although the opportunity has been taken to make some amendments that can largely be described as housekeeping.

Rather than going through the process of arranging for a new contract to be adopted by regulations, these amendments have been achieved by adding a set of special conditions to be made available to all users of the standard contract. The contract has always accepted that changes can be made by special condition and the new format merely means that all standard contracts will have both general conditions and special conditions. Further special conditions can be added to these standard special conditions (numbered 1-5) as required. The changes may be summarised as follows.

Special condition 1

Replaces general condition 7 with a new general condition 7 that amends the requirements associated with the Act in the light of experience gained from dealing with the Act in recent years.

General condition 7 remains unwieldy, but that is really a function of the Act as this general condition attempts to fully deal with issues arising from personal property registration. It must be noted that this general condition is not applicable to the great majority of real estate contracts, as such contracts rarely include the transfer of personal property that is subject to the Act. Nevertheless, the general condition is available for those transactions that do trigger the operation of the Act.

Special condition 2.1

Replaces general condition 13.1(b)

AND

Special condition 2.2

Replaces general condition 13.4

These two changes relate to the GST farming business exemption. Neither change is intended to change the substance of the general condition and merely reflects some expert feedback that has been received in relation to the general condition.

Special condition 3.1

Replaces general condition 17.1

AND

Special condition 3.2

Replaces general condition 17.2

These two changes allow for email service and provide that email service is effected when the email is received.

Special condition 4

Replaces General Condition 18

This change corrects reference to the role of the nominee from ‘purchaser’ to ‘transferee’.

A nomination does not substitute the nominee as a ‘purchaser’ but rather allows the nominee to be an additional or replacement ‘transferee’.

Special condition 5

Adds general condition 12.4 in relation to stakeholding

Section 27(7) Sale of Land Act provides that, if a purchaser fails to respond to a request for release of deposit within 28 days, the purchaser will be deemed to be satisfied with the particulars and deemed to have given consent. This amendment deems the purchaser to have also accepted title in such cases.

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

Determining whether negotiations between a vendor and a prospective purchaser have reached the stage where it can be said that a legally binding contract of sale of land has come into existence is a question that often occupies the attention of courts. The legal principles to be applied are rarely in dispute; it is the application of those well established principles to the particular facts of the case that causes contention and requires judicial determination.

In summary, a legally enforceable contract requires:

• writing;
• signing;
• offer;
• acceptance; and
• communication of acceptance

in an environment where it is possible to determine the:

• parties;
• property; and
• price.

Given the number of elements that comprise contract formation it is perhaps not surprising that the question comes before courts on a regular basis. Recently, Victorian courts at the opposite end of the legal spectrum have considered the application of these legal principles and reached opposite opinions as to whether a contract existed in particular circumstances.

Austlii has made the judgments of the County Court available for consideration and, whilst those judgments are of limited judicial significance, consideration of those decisions adds to an understanding of the underlying principles. Robles & Moser v Pigg [2014] VCC 1127 was an application for specific performance of a contract of sale of land by the purchaser. The essential issue was whether there was a contract that could be enforced, the vendor arguing that the negotiations between the parties fell short of the threshold requirements of a contract. There is no doubt that the factual circumstances had certainly reached the very tipping point of enforceability as the written document setting out all of the required information was in the hands of the vendor. The contract, signed by the purchaser, was emailed to the vendor. She responded to the agent by email stating, ‘I will accept the offer but I am having difficulty scanning the contract’. The agent advised the vendor that he would communicate the vendor’s acceptance to the purchaser and requested that the vendor return the signed contract by fax if scanning was a problem. The next day the vendor emailed the agent to say that she would not accept the offer and thereafter refused to proceed with the contract.

The vendor’s evidence was that she had not signed the contract and that her email was an indication of her future intention. If accepted, that meant that the crucial element of signing was absent and no contract existed. The judge rejected the vendor’s evidence and preferred to infer from the vendor’s email that the vendor had printed the contract, had signed it and then discovered the difficulty in relation to scanning the signed document. That being the case, all elements of a contract were satisfied and the purchaser was entitled to specific performance.

Alternately, the judge accepted that the vendor’s ‘signature’ on the email of ‘Jessica’ constituted sufficient signing of the contract for the purposes of s 126 Instruments Act 1958. It is well accepted that the ‘signature’ that needs to be found can be found in a document ‘outside’ of the formal contract document and s 9 Electronic Transactions (Victoria) Act 2000 now means that the signature can be ‘found’ in a document created and transmitted digitally. Over 500 years we have moved from a wax seal, through a formal signature to the present position of acceptance of an informal digital signature.

At the opposite end of the legal spectrum, the Victorian Court of Appeal also considered the question of the requirement of a signature on a contract of sale of land in Update P/L v. Commissioner of State Revenue [2014] VSCA 218. Imposition of liability to pay a tax is often referrable to an event that takes place between taxpayers, sometimes determining which of those taxpayers will be liable to pay the tax or whether tax will be payable at all. Therefore the principles relating to contract formation are relevant to determining tax liability.

One such example is the imposition of liability to pay growth areas infrastructure contribution (GAIC). This case concerned an appeal by a purchaser of land against the imposition of GAIC as a consequence of the purchase. GAIC was only payable if the contract came into existence after a certain date. The purchaser sought to argue that the contract was in existence prior to that date but faced the difficulty of establishing that a binding contract existed notwithstanding that the vendor had not signed. With respect, it can only be the fact that the tax approached $1 million that enticed the purchaser to argue that an unsigned contract could be enforceable. The purchaser sought to rely on months of negotiations and ultimate acceptance by the purchaser of the vendors’ longstanding terms to establish the contract, but nevertheless fell at the signature hurdle as the vendors had not signed the contract prior to the relevant date. No surprise there.

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 Supreme Court has made another decision that, from the point of view of purchasers at least, might be described as ‘tough’. Certainly vendors might view the result favourably, but it is suggested that, on balance, the decision places too high a duty on purchasers before the purchaser is entitled to claim a return of the deposit in a situation when finance approval has not been obtained.

Umbers v Kelson & Anor [2008] VSC 348 denied a purchaser a refund of deposit in a sale of business contract when the purchaser wrote to advise the vendor within the time prescribed by the finance condition that finance approval had not been obtained and sought an extension of time for approval, concluding that:

In the event that an extension is not agreed to, you may treat this letter as written notice ending the contract.

Applying a strict interpretation of the condition, the court concluded that the word ‘may’ failed to sufficiently explicitly express the purchaser’s intention to end the contract if the extension was not granted and refused to order a return of the deposit. This outcome came as a shock to the vendor as much as the purchaser, as the vendor had not even made that argument and it was entirely a construct of the court. It may be explained by reference to the context of the dispute between the parties where the purchaser had adopted an ‘offhanded, on again, off again’ approach over an extended period of time and justice appeared to favour the vendor, who had been substantially inconvenienced by the purchaser.

Putt & Anor v Perfect Builders Pty Ltd [2013] VSC 442 concerned a 10% deposit of $59,500 paid pursuant to a contract relating to an ‘off the plan’ owner-occupier apartment valued at $595,000 with the purchaser contributing $155,000 and borrowing $475,000 (including acquisition costs) and appears to be the perfect consumer transaction involving John and Betty Citizen who had saved for years to buy their first home.

Some, probably unnecessary, controversy arose between the purchaser and the vendor in relation to relatively minor matters during the finance period, with the vendor failing to respond to some requests made by the purchaser in relation to the property and documentation. This perhaps soured the relationship and affected the vendor’s response to the purchaser’s request for a refund of the deposit when the loan had not been approved within the approval period. That request was supported by a relatively informal, but unchallenged, advice that the lender had refused the loan on the basis that ‘valuation confirms property is unacceptable’.

The vendor refused to refund the deposit on the basis that the purchaser had applied for a loan of $476,000 and therefore had failed to strictly comply with the finance condition, which called for a loan of $475,000. It should be noted that $476,000 is 80% of the purchase price and it is entirely likely that this amount was applied for as a result of the broker describing the loan as an 80% LVR (loan to valuation ratio). The purchaser argued that ‘commercial reality’ predicated that a refusal for $476,000 meant that there would have been a refusal for $475,000, but Williams J. stated that, even if that were the case, there was no evidence upon which the court could be satisfied that the purchaser had done ‘everything reasonably required to obtain approval’. There was no evidence of the requirements of the lender referred to in the correspondence between the parties and the valuation referred to in the refusal and this meant that the court was unable to be satisfied that the precondition for a refund had been satisfied.

This lack of evidence was a direct result of the judicial course that the purchaser chose to follow to force a refund. The application was made pursuant to s 49 Property Law Act (Vic), informally known as a vendor-purchaser summons. The virtue of this procedure is speed (the hearing was within 2 months of the dispute arising) but the evil is the lack of evidence that the parties can put to the court, as only affidavit evidence is permitted. If a procedure in a lower court or tribunal had have been adopted it may have been possible to adduce more evidence, but the ‘evil’ in that option was the inevitable time delay.

Section 49 does give the court discretion to ‘do justice between the parties’ and, with respect, it is suggested that ‘justice’ in this case required a refund of the deposit to the purchaser, rather than a windfall profit to the vendor. However the exercise of this discretion has previously been interpreted in a quite limited way and Williams J. was not prepared to exercise the discretion in this case.

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 Victorian Court of Appeal has introduced an element of uncertainty into conveyancing settlements that will have property lawyers anxious to adopt the (hopefully) soon to be introduced electronic settlement regime.

Settlement Group P/L v Purcell Partners [2013] VSCA 370 conducts a post-mortem on a conveyancing settlement that will have all parties looking over their shoulder as they leave settlement, fearful that someone will be waving at them to return. In brief, the facts are:

1. PP retained SG to act as settlement agents. PP instructed SG in relation to distribution of cheques to discharge a number of encumbrances over 4 properties and the documents to receive in return for those cheques;
2. SG conducted the settlement in accordance with those instructions and all attending parties confirmed their satisfaction in relation to settlement and left settlement, however G, a very inexperienced clerk who represented one of the discharging mortgagees, remained to telephone his office;
3. G was told by his office to retrieve the Discharge of Mortgage as he had not received sufficient funds;
4. SG rang PP and was instructed to hold the discharge, nevertheless SG shortly thereafter returned the discharge to G;
5. Subsequently, PP’s client was registered as second, rather than a first, mortgagee and ultimately suffered a loss of $200,000 as a result of a default under the mortgage.

PP was liable to its client and joined SG to the proceedings. In the County Court, SG was held liable to PP for the full amount as a consequence of breach of its contract of retainer with PP, however the Court of Appeal reversed this decision and PP alone was responsible for the loss.

There is no doubt that PP was negligent. It was a complex transaction and a simple error was made. PP sought payout figures from the various out-going mortgagees in respect of the various securities. One mortgagee gave payout figures in respect of some but not all of the securities, and PP failed to recognise the absence of this information. Arguably, the outgoing mortgagee created the circumstances that led PP to make the mistake but, between PP and its client, PP was liable for its negligence.

In the County Court, the subsequent decision by SG to act contrary to PP’s instructions by returning the discharge was found to be the cause of the loss but the majority of the Court of Appeal, placing emphasis on the mortgagor’s contractual right to receive a discharge only after repayment of the mortgage, concluded that the mortgagee was entitled to demand return of the discharge as the mortgage had not been repaid. Indeed, the court characterised SG as an agent of the borrower when it said: ‘the settlement agent had no right (acting, as it been authorised to do, on behalf of the borrowers) to refuse the request … to return the DM’.

It seems a long bow to suggest that SG was an agent of the borrower. The only connection between the two was that SG had a contract with PP, who in turn had a contract with the incoming mortgagee. PP did not act for the borrower and the only connection was an authority to seek payout figures and arrange discharges. A simple test to determine whether SG was an agent of the borrower would be to ask whether, if PP did not pay SG’s settlement fee, would the borrower have been liable to do so?

Dixon AJA was in the minority and held that whilst PP’s negligence was a contributing factor, SG’s decision to hand back the discharge contrary to PP’s specific instructions was negligent and deprived PP of the ability to control subsequent events. He therefore would have apportioned liability two-thirds to SG and one-third to PP.

If PP had have retained control of the discharge it would have been in a better position to secure a more favourable outcome for its incoming mortgagee client, thereby reducing liability for its negligence. Notwithstanding mistakenly handing over the discharge, the outgoing mortgagee would have retained a right to payment against the mortgagor and could have taken steps to secure its interest. This would have called into question the original failure of the out-going mortgagee to fully respond to PP’s inquiry for payout figures which led PP into making the error in the first place. By returning the discharge, SG gave the party that had arguably made two mistakes a ‘get-out-of-jail-free card’.

Electronic settlements will solve this problem but, in the meantime, don’t look back!

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

Property lawyers do not often hold ‘privileged’ information. All information that comes to a lawyer about a client is confidential and is protected from disclosure by the duty to the client of confidentiality. The concept of legal professional privilege or, as it has come to be known recently, client professional privilege applies to a small subset of confidential information, being information relating to legal proceedings, current or anticipated.

Most property law is in the nature of process work – we process a transaction from inception (contract) to completion (settlement). Despite a tendency for some practitioners to adopt a combative attitude to the process – probably brought about by dissatisfaction with being involved in the process at all – relatively few property law transactions end up in legal proceedings. However a quick glance through the legal reports – and indeed through prior Property columns – reveals that the mundane processes of property law are responsible for a fair proportion of the cases that come before our courts. As a proportion of the number of transactions, disputes are few, but as a proportion of the number of disputes, property law is significant.

Therefore property lawyers, as well as litigators, need to be aware of Expense Reduction Analysts Group P/L v Armstrong Strategic Management and Marketing P/L [2013] HCA 46 (Armstrong). This judgment of the High Court has concluded that the overriding duty that lawyers owe to the court requires a lawyer who receives information from a lawyer acting for another party in legal proceedings, which has been inadvertently disclosed by that other lawyer, to return that information to the other lawyer and refrain from making use of that information in the proceedings.

This can only be described as a momentous decision. That it appeared to be so self-evident to all five judges who delivered a joint judgment is itself significant as the topic of inadvertent disclosure had lingered like a bad smell for many years. Legal scholars struggled with it and the Law Institute’s own guidelines could be described as ‘vague’ at best, and yet the High Court (overruling the NSW Court of Appeal) had absolutely no problems with concluding that, in relation to inadvertent disclosure, the duty to the court trumps the duty to the client.

This may be variously viewed as a triumph for the majesty of the law or another example of the law protecting its own. The language of the Armstrong judgment is all about the proper administration of justice and the ethical duty of practitioners to assist the court to efficiently resolve the real matters in dispute between the parties. There is even a suggestion that ‘in the not too distant past’ there would have been no need for the recently introduced – but not yet adopted in Victoria – rule 31 of the Australian Solicitors’ Conduct Rules that requires return of inadvertently disclosed information.

On the other hand, consider the issue from the point of view of the client who may be facing ruin because of a ‘little slip-up’ made by the client. Due to another ‘little slip-up’ the client’s lawyer has received information that is extraordinarily helpful to the conduct of the client’s case, indeed could lead to a speedy settlement of the dispute and allow the client to get on with his/her life. Disclosure of that ‘little slip-up’ may have dire consequences for the lawyer who was responsible for it but will that be of any concern to the client? When the client is told that, unfortunately for the client, the lawyer must return that information and can make no reference to it in the proceedings. Will the client gratefully bow to the majesty of the law? Or will the client simply regard the law as protecting its own?

The simple solution for the lawyers is that, in acknowledgement of our duty to the court, we return the information and do not bother our client with the details. What they don’t know will not hurt them. But can this be the correct way to fulfill our duty to the client – shield them from matters that do not concern them? This sounds like ‘secret men’s business’ and would be grist for the mills of the shock jocks.

Armstrong concerned privileged information but rule 31 of the Australian Solicitors’ Conduct Rules relates to confidential information – a much wider category. The reference to the rule in Armstrong would appear to be a strong endorsement of it by our highest court and so all information coming to a lawyer would now appear to be subject to suppression if inadvertently disclosed.

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 article Caveats – Forcible removal 1 considered the question of removal of caveats from the point of view of a caveator who had a legitimate caveat but was faced with a demand from a third party to provide a withdrawal to allow a dealing to proceed. This article considers removal of caveats from the point of view of the registered proprietor who believes the caveat to be illegitimate and requires it to be removed.

Section 89A Transfer of Land Act 1958 (Vic) provides a relatively simple procedure to achieve removal. The registered proprietor, or other interested party, makes application to the Registrar for service of a notice upon the caveator that the caveat will lapse unless the caveator issues proceedings to substantiate the caveat. If those proceedings are not issued, the caveat ‘shall lapse’ and the applicant will have achieved the desired result in a relatively quick and cost effective way.

The application is supported by a certificate signed by a legal practitioner who certifies that ‘the caveator does not have the estate or interest claimed’. This requirement places some limits on the suitability of this process as the certifier must be satisfied that the certificate is based on sound evidence. One common example of the use of this procedure is where a purchaser has lodged a caveat, but the contract has subsequently been rescinded. Typically the purchaser shows no interest in withdrawing the caveat but the certifier is able to conclude that the ‘estate or interest claimed’ has been terminated by rescission and can safely certify as to that legal situation.

At the other end of the spectrum is a caveat claiming an interest arising pursuant to a trust. Such an interest is much more amorphous in nature and it would be unsafe to certify that the interest does not exist until a court had ruled on its validity, and consequently the s 89A procedure is not appropriate in such circumstances. Indeed, it is probably professional misconduct to certify in such circumstances.

Somewhere between the clearly certifiable lack of an interest in the rescinded contract scenario and the non-certifiable trust claim lies the common situation of a very old caveat lodged on the basis of a loan made by a now-defunct finance company which the registered proprietor assures the legal practitioner has been repaid. Assuming that those instructions are correct, the ‘caveator does not have the estate or interest claimed’ but the certifier is not able to rely on any objective evidence in that regard and must weigh up the subjective evidence provided by the registered proprietor. Whilst never wanting to sign an inappropriate certificate, the certifier can take some solace in the fact that the certificate itself will not operate to defeat the caveat but merely serves to bring the application to the notice of the caveator and the caveator remains free to take action to justify the caveat.

If the caveator does not give notice to the Registrar that proceedings to substantiate the caveator’s claim are on foot then ‘the caveat shall lapse’ and the Registrar may remove the caveat after a period of not less than 30 days – reduced from 35 days in 2009 – has elapsed from service on the caveator by the Registrar of notice of the application. The Registrar allows some number of days as a grace period for service by post, so the number of days from certification until removal may be closer to 40.

Section 90(3) Transfer of Land Act 1958 provides an alternative method of forcible removal if the legal practitioner is unable to provide the certificate required by s 89A. This section requires the issue of proceedings and will therefore be many times more expensive than the s 89A method, although undefended proceedings might result in an order that the caveat be removed in a relatively short period of time. The cases indicate that the touchstone for determination of the application is the ‘balance of convenience’ test and if the application is contested the applicant will have the onus of establishing that the balance of convenience favours removal of the caveat. See Rogers v Censori & Anor [2009] VSC 309.

If a caveat lapses pursuant to s 89A or is removed pursuant to s 90(3) then s 91(4) provides that the caveat ‘shall not be renewed by or on behalf of the same person in respect of the same interest’ and s 118 makes a person who lodges a caveat ‘without reasonable cause’ liable to pay compensation. But both provisions offer little comfort to a registered proprietor who has achieved lapsing or removal, only to find a second caveat lodged. Some solace may be taken from Westpac Banking Corporation v Chilver & Ors[2008] VSC 587 where the court also ordered that the Registrar not register (sic.) a caveat lodged by the caveator when the court was satisfied that there was a real possibility that the caveator would seek to re-lodge and Deutsch v Rodkin & Ors [2012] VSC 450 where the court awarded substantial damages against relatives of the caveator who successively lodged caveats contrary to s 118.

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

In September 2011 I wrote a column in relation to sheriff sales based on the case of Kousal v Suncorp-Metway Limited [2011] VSC 312. The case exposed the sheriff sales process as flawed and likely to lead to injustice but at that time Mukhtar AsJ. lamented that “the Court can do no more”.

In fact the court was subsequently able to do more when the judgment debtor sought review of a subsequent sale conducted by the sheriff in accordance with the orders of AsJ. Mukhtar. This review was the subject of the case of Zhou v Kousal [2012] VSC 187(Zhou). That sale was conducted at the office of the sheriff and two prospective bidders were in attendance. The potential equity in the property was in the order of $165,000 and the highest bid was $1,000. As the property was being sold ‘without reserve’ in accordance with AsJ. Mukhtar’s orders, the property was knocked down to that bidder. The judgment debtor sought review against both the bidder and the sheriff.

An argument based on unconscionability was unsuccessful but an argument that the sale was in breach of the Sheriff Act 2009 resulted in an order that the sale be set aside as it was in breach of the sheriff’s duties under the common law and the Sheriff Act 2009. The case has not returned to court and one may therefore assume that the judgment debtor, having finally responded to a litany of proceedings by attending court with a legal representative, was able to negotiate a satisfactory resolution of the overall dispute.

The aftermath of Zhou left the sheriff’s office in a state of shock. The time honoured process of conducting sheriff sales at the office of the sheriff (rather than on site) and only advertising in the Government Gazette appeared to expose the sheriff to attack. To protect himself the Sheriff therefore sought orders from the Court as to the appropriate process to be followed when the next ‘without reserve’ auction rolled around. This was the case of JG King P/L v Kim Ngan Thi Do [2012] VSC 545 (JG King). The sheriff had conducted an unsuccessful sale and sought court permission to conduct a further sale ‘without reserve’. There was evidence before the court that the property was valued at $700,000, that the judgment debt was in the order of $230,000 and unpaid rates were approximately $10,000. The judgment debtor’s equity was therefore approximately $450,000.

The court ordered that the property be sold but that any sale be subject to review by the court, thus introducing into the sheriff’s sale process a step that had previously not existed – one of judicial review of a ‘without reserve’ sale. This example of judicial law reform is in response to what was clearly an unsatisfactory situation that was finally exposed by Zhou, but one wonders whether it should not be the role of parliament, rather than the courts, to effect such change.

JG King led to an auction on Saturday 6 April 2013. Little, if any, advertising of this auction was evident and it was left to readers of the Government Gazette to be aware of the date. The auction was conducted on site and (unusually) prospective bidders were given access to the house, which was vacant, for one hour prior. The auction was conducted by a sheriff’s officer and there was a crowd of more than 50 people in attendance. After reading out the terms of the contract and emphasising that the sale would need to be approved by the court, the officer invited bids. At least five interested bidders took the price from an opening bid of $300,000 to a successful bid of $450,000.

At the time of writing there was no report of the outcome of the subsequent hearing but one would imagine that the court would be satisfied that a genuine sale had been conducted and that approval would follow. The purchaser would then be required to pay the purchase price to the sheriff, who would retain the costs of the process, pay out the judgment debtor and presumably pay any balance into unclaimed money, as the registered proprietor appears to have left the jurisdiction. The purchaser would be faced with the problem of obtaining registration without the duplicate certificate of title, although perhaps an application to the court for an order in that regard might be made when court approval for the sale was sought.

The question however remains: is the sheriff sale process fair to judgment debtors? The debtor in JG King showed no interest in the outcome but many other judgment debtors may be desperate to ensure that full value of their asset is achieved. Consideration should be given to legislative reform of the process to give the sheriff the ability to contract out sales to a panel of estate agents so that sales may be conducted in a more commercial manner.

Tip Box

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