Mr Arbab, the defendant (Arbab), was a director and shareholder of the plaintiff, Alliance Developments Pty Ltd (Company). A dispute arose between Arbab and the other directors and shareholders of the Company, which resulted in Arbab resigning as a director and bringing proceedings in relation to his shareholding in the Company (Shareholding Proceedings).
Prior to Arbab’s resignation, the Company relevantly purchased two properties being:
- vacant land that was purchased by the Company on 19 March 2013 (California Gully Property). Arbab claimed to have contributed $34,300 to the total purchase price of the California Gully Property; and
- a property in Laverton North, Victoria (Laverton North Property). Arbab was originally named as the purchaser of the Laverton North Property, however the Company was ultimately nominated as purchaser. Arbab did not contribute to the purchase price of the Laverton North Property and had no other interest in it.
Following the dispute arising between Arbab and the other Company shareholders, Arbab instructed his solicitors to lodge caveats over each of the California Gully Property and the Laverton North Property. Relevantly, the grounds of the caveats were as follows:
- In relation to the California Gully Property, Arbab claimed a freehold interest on the basis that he was the Registered proprietor(s), being entitled to possession of the Certificate of Title for the land and to prevent improper dealing (California Gully Caveat).
- In relation to the Laverton North Property, Arbab claimed a freehold interest on the basis of an ‘Implied, Resulting, Constructive Trust’ (Laverton North Caveat).
Application to remove the caveats
In or around August 2018, the Company applied to the Registrar of Titles under s 89A of the Transfer of Land Act 1958 (Act) for the removal of the caveats. Pursuant to section 89A(5) of the Act, the application would have the effect of causing the caveats to lapse unless Arbab commenced court proceedings to substantiate the interest claimed in the caveats and notified the Registrar of those proceedings within the time frame specified in the Act.
Arbab’s solicitors notified the Registrar that relevant proceedings were on foot, such that the s89A application ought to fail. In reality, this was not the case and the only proceedings on foot were the Shareholding Proceedings. However, the Registrar acted in good faith on the correspondence from Arbab’s solicitors, and the s89A application failed.
Accordingly, the Company was forced to bring an application under section 90(3) of the Act to remove the caveats.
On 3 October 2019, the Court ordered that the Registrar of Titles remove the caveats, determining that:
- The California Gully Caveat was ‘nonsensical and misconceived’ as Arbab was not the registered proprietor of the California Gully Property. Further, the grounds of claim in the California Gully Caveat did not refer to an agreement or a financial contribution made by Arbab towards the purchase price of the California Gully Property.
- The ground of claim being the basis for the Laverton North Caveat was of a general nature and made no specific reference to any financial contributions or agreements made by Arbab.
- Arbab did not assert at any stage that he had made a financial contribution towards the Laverton North Property, but only towards the California Gully Property.
- The caveats were employed without a proper basis and were not seriously intended to maintain the interests claimed, but rather used to apply commercial pressure on the Company in the Shareholding Proceedings.
Following his Honour’s findings in relation to the caveats, the Company sought an indemnity costs order against Arbab and his solicitors, which is the subject of this most recent decision.
His Honour ordered Arbab to pay the Company’s costs of the caveat removal proceeding on an indemnity basis. The Court agreed that there was no proper basis for the caveats, and they were relied upon by Arbab without adherence to established law.
The Court also ordered that Arbab’s solicitors be added as a defendant to the caveat removal proceeding and directed them to pay the Company’s costs on an indemnity basis. It was held that the solicitors were negligent and in breach of their paramount duty to the Court, as to the following:
- the drafting and lodgement of the caveats without a proper basis;
- the misleading notice provided to the Registrar in response to the s 89A application;
- the refusal to withdraw the caveats and avoid proceedings; and
- the failure to acknowledge that the caveats were unsustainable.
It is important to remember that caveats may only be lodged in circumstances where the lodging party has a legal or equitable interest in land.
The purpose of lodging a caveat is to protect one’s estate or interest in real property, and to do so for any other reason, especially in circumstances described by the Court as a ‘bargaining chip’ or for any other commercial or ulterior purpose, is a serious misuse of the Act.
When lodging a caveat, solicitors must ensure that, notwithstanding the instructions of a client, the ground of claim has a proper basis and accurately reflects the caveator’s legal estate or interest in the land.
This case is a reminder that the courts will order the parties responsible for lodging a caveat without a proper basis, including solicitors, to pay legal costs and disbursements as a consequence.
If you have any questions about this article, please get in touch with an author or a member of our Litigation & Dispute Resolution team.
This information and the contents of this publication, current as at the date of publication, is general in nature to offer assistance to Cornwalls’ clients, prospective clients and stakeholders, and is for reference purposes only. It does not constitute legal or financial advice. If you are concerned about any topic covered, we recommend that you seek your own specific legal and financial advice before taking any action.