Day v Sternhell

This judgment concerns the costs of a Notice of Motion filed by the plaintiffs on 23 December 2019. The relief sought pursuant to the motion was an order under s 74K of the Real Property Act 1900 (NSW) for an extension of the operation of a caveat the plaintiffs had lodged in relation to a property in Lantana Avenue, Wheeler Heights. The motion was prompted by the service on 20 December 2019 of a lapsing notice in respect of the caveat. The lapsing notice was served by ACN 057 690 034 Pty Ltd (“the company”). The company was named as the respondent to the motion.

The caveat (AP20026) had been lodged on 24 January 2019 against the title to the land in Folio 1/8438. The plaintiffs as caveators claimed an estate in fee simple by virtue of a contract for the sale of land dated 20 December 2018 entered into by them and the cross-defendant, Mr Wykrota. By that contract, the plaintiffs agreed to purchase from Mr Wykrota Lot 3 in an unregistered subdivision of the land in folio 1/8438 for a price of $1 million.

It appears that the plaintiffs had earlier entered into a contract with the defendant, Mr Sternhell, to purchase Lot 3 in the proposed subdivision of the land. That contract was the subject of these proceedings, commenced by the plaintiffs in 2017, seeking orders for specific performance. Mr Sternhell in turn filed a Cross Claim against Mr Wykrota seeking specific performance of a deed pursuant to which Mr Wykrota agreed, inter alia, to effect the subdivision of the land.

However, in accordance with the provisions of a Multiparty Deed dated 27 November 2018 between the plaintiffs, Mr Sternhell and Mr Wykrota:

The contract for sale dated 20 December 2018 was entered into between the plaintiffs and Mr Wykrota as contemplated by the Multiparty Deed. Special Condition 60 of the contract provides:

As already stated, caveat AP20026 was lodged by the plaintiffs on 24 January 2019.

On 29 May 2019, the plaintiffs filed a Notice of Motion against Mr Wykrota seeking, inter alia, specific performance of the contract for sale. On 18 July 2019 the Court made various orders by consent, including an order that the contract be specifically performed. Mr Wykrota gave an undertaking that he would proceed with all due expedition to register the subdivision and convey Lot 3 to the plaintiffs.

In the meantime, on 28 February 2019, the company obtained a judgment against Mr Wykrota in a sum of almost $245,000, and on 10 July 2019 a writ for levy of property was issued in favour of the company against Mr Wykrota in relation to the judgment. The company sought to have the writ recorded against the title to the Wheeler Heights property, but the plaintiffs’ caveat prevented the recording of any writ affecting the estate or interest claimed by them as caveators.

In late September 2019 the solicitors for the company made an application for a lapsing notice to be prepared in relation to the plaintiffs’ caveat.

On 17 October 2019 the solicitors for the company sent a letter to the plaintiffs (at the address specified in the caveat). The letter included the following:

On 19 November 2019 the solicitors for the company sent a further letter to the plaintiffs. A copy of the letter was also sent by email to the plaintiffs’ solicitors. The letter included the following:

On 22 November 2019 Land Registry Services sent a letter to the solicitors for the company, enclosing a lapsing notice in respect of the plaintiffs’ caveat. The letter contained advice to the effect that evidence of service of the notice should be lodged within 4 weeks, failing which the application may be rejected.

On 18 December 2019 the solicitors for the company sent a letter to the plaintiffs’ solicitors. The letter included the following:

On 19 December 2019 the plaintiffs’ solicitors sent a letter in response which included the following:

On 20 December 2019 the lapsing notice was served upon the plaintiffs. Later on that day the solicitors for the company sent a further letter to the plaintiffs’ solicitors which included the following:

On 23 December 2019 the plaintiffs approached the Vacation Judge and obtained orders ex parte for short service of the Notice of Motion seeking an extension of the operation of the caveat. The motion was made returnable on 9 January 2020. Service was effected upon the company on 24 December 2019 in accordance with the orders of the Court. The plaintiffs were also ordered to serve Mr Wykrota even though he was not formally named as a respondent to the motion. Also on 24 December 2019, the plaintiffs’ solicitors sent a letter to the solicitors for the company. Reference was made to Special Condition 60 of the contract for sale. The letter continued:

Upon return of the Notice of Motion on 9 January 2020, the Court ultimately made orders by consent, including an order that the caveat be extended until 14 February 2020. On 7 February 2020, a further order was made by consent extending the caveat until 6 March 2020.

On 10 February 2020 Deposited Plan 1222882 was registered, thereby effecting the proposed three lot subdivision of the Wheeler Heights property.

A settlement of the contract for sale of Lot 3 was scheduled for 26 February 2020 but did not proceed. On 28 February 2020 the Court made various orders in the proceedings (not consented to by the company) including an order extending the operation of the caveat until 1 May 2020.

On 6 March 2020 further orders were made in the proceedings by consent, including orders that the plaintiffs withdraw caveat AP20026 in respect of Lots 1 and 2 in Deposited Plan 1222882 and that, simultaneously, the company’s writ and application in respect of the lapsing of the caveat were to be withdrawn in respect of Lot 3 in Deposited Plan 1222882. It was noted that the plaintiffs may withdraw caveat AP20026 earlier than 1 May 2020 to permit completion of the contract for the sale of Lot 3. That contract was in fact completed on 10 March 2020. It seems that caveat AP20026 had by that time been withdrawn. It further seems that on about 10 March 2020 the company’s writ was registered in respect of Lots 1 and 2 of Deposited Plan 1222882.

The plaintiffs seek their costs of the Notice of Motion from the company. Mr Wykrota, although not named as a respondent to the Notice of Motion, says (and I accept) that he has incurred costs in respect of the motion, and he, too, seeks his costs from the company. The company seeks its costs from either or both of the plaintiffs and Mr Wykrota.

On 20 March 2020 orders were made by consent for the provision of written submissions as to the costs of the Notice of Motion. The parties agreed that the matter may be determined on the papers. The Court has considered written submissions received from each side (including the plaintiffs’ submissions in reply dated 24 April 2020). In addition, the plaintiffs rely upon the affidavits of their solicitor, Mr Simon Grover (of 23 December 2019 and 7 April 2020) and the company relies upon the affidavit of its solicitor, Mr Keith Hewlett (of 17 April 2020). The Court has read and considered those affidavits.

In brief, the plaintiffs submitted that the company should pay their costs because their caveat was clearly valid and the company’s attempts to lapse the caveat were entirely misconceived. It was put that the company knew or ought to have known that the plaintiffs had a valid caveat and an equitable interest in the subject land. It was emphasised that not only were the plaintiffs purchasers under a contract for the sale of land, the contract was itself the subject of orders for specific performance. The plaintiffs also pointed to the terms of Special Condition 60 of the contract and the terms of the Multiparty Deed, which, it was said, further entitled the plaintiffs to secure their interests in the property by way of a caveat. The plaintiffs submitted that when the lapsing notice was served, the company was aware of the terms of the contract for sale, and soon thereafter became aware of the order for specific performance. It was submitted that by serving and then maintaining the lapsing notice the company, without a proper legal foundation, caused the plaintiffs to incur their costs of the motion. The plaintiffs further stated that they were ultimately successful in obtaining orders for the extension of the caveat.

Mr Wykrota submitted that he should have his costs because the caveat was valid and there was no rational or likely basis for it being removed. He essentially echoed the plaintiffs’ submissions in this regard. Mr Wykrota further submitted that as he was the registered proprietor of the land the plaintiffs were required to involve him in the motion. It was submitted that whilst the interests of the plaintiffs and his own interests were interlinked, his position was different as he was obliged to take steps to complete the subdivision, and the imposition of the company’s writ would have added complexity to that task. Mr Wykrota submitted that the company should have awaited the registration of the plan of subdivision before serving any lapsing notice.

The company submitted that the plaintiffs’ caveat was defective in that it was simply too wide insofar as their only interest was in Lot 3 (not Lots 1 and 2). It was submitted that the matter could have been simplified had the plaintiffs and Mr Wykrota agreed to confine the caveat to Lot 3 and allow registration of the writ on Lots 1 and 2, which is what ultimately occurred. It was also submitted that Mr Wykrota should pay costs because the motion was brought about by the fact that there was an unsatisfied judgment against him “and should be part of the costs of enforcement of the judgment”.

Before turning to the various arguments advanced by the parties, it should be noted that there was no final determination following a contested hearing on the central issue arising on the motion, namely, whether an order should be made extending the operation of caveat AP20026. It is thus not a case where there has been an “event” decided in favour of one party and against another (see Nichols v NFS Agribusiness Pty Ltd (2018) 97 NSWLR 681; [2018] NSWCA 84 at [2]). For the reasons which follow, neither is it a case where one party was almost certain to have succeeded had there been a contested hearing (see Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622 at 625).

It is true that the existence of the contract for sale of proposed Lot 3 (which contract subsequently became the subject of orders for specific performance) gave the plaintiffs an interest in the Wheeler Heights property sufficient to support a caveat (see, for example, Forder v Cemcorp Pty Ltd (2001) 51 NSWLR 486; [2001] NSWSC 281 at [26]-[28]). However, it is at least arguable that any caveat lodged by the plaintiffs would relate only to part of the land described in folio 1/8438 for the purposes of s 74F(5)(vii) of the Real Property Act. This is because the interest claimed by the plaintiffs derived from a contract to purchase only part of the land, being Lot 3 in a proposed subdivision of the land. If a caveat claiming such an interest did fall within s 74F(5)(vii), it would have to contain a description of the relevant part of the land in the form or manner prescribed by the Real Property Regulation 2014 (the Regulation in force at the time the plaintiffs lodged the caveat). This is the essential point made by the solicitors for the company in their letter of 17 October 2019.

It appears that the proposed plan of subdivision (PP DP1222882) had been lodged but not registered before the caveat was lodged. On that basis, item 1(b) of Schedule 4 of the Real Property Regulation 2014 would operate so that the description of the part of the land must refer to it as a proposed lot in a plan lodged for registration. Caveat AP20026 contained no such description.

In these circumstances a number of possibilities arose. It is arguable that the validity of the caveat could be successfully challenged by the company on the ground that it failed to comply with the requirements of s 74F(5) of the Real Property Act. Against that, it could be argued that the failure to comply should be ignored pursuant to s 74L of that Act as merely a failure “with respect to the form of the caveat” (see Syndication Capital Group Pty Ltd v MDR Cornish Investments Pty Ltd [2011] NSWSC 1289 at [17]-[18]). That argument might in turn be sought to be met by a contention that the failure is more than a mere failure with respect to the form of the caveat, and is rather a failure to properly specify the nature of the estate or interest claimed in the land (cf Circuit Finance Pty Ltd v Crown and Gleeson Securities Pty Ltd [2005] NSWSC 997 at [18]-[30]). Finally, the plaintiffs might, if necessary, have sought leave under s 74O of the Real Property Act for the lodgement of a further caveat in respect of the same interest, and purporting to be based on the same facts, as the interest the subject of caveat AP20026. Such a caveat would be capable of avoiding any failure to comply with the requirements of s 74F.

It would be inappropriate to now embark upon a determination of what would have been the outcome of a contest of that nature (see Nichols v NFS Agribusiness Pty Ltd (supra) at [31]-[32]). However, it follows from the above that the plaintiffs’ submission (and the submission of Mr Wykrota) that the caveat was clearly valid cannot be accepted. The company’s submission that the caveat was defective in that it was simply too wide can be accepted as far as it goes, but it nonetheless falls short of establishing that the company would have almost certainly succeeded had there been a contested hearing.

It is necessary to consider the reasonableness of the parties in relation to the Notice of Motion.

The motion can be seen as the product of the decision of the company to serve the lapsing notice. I do not regard that decision as unreasonable, having regard to the point made by the company that the plaintiffs’ interest related only to part of the land, and the fact that the plaintiffs failed to engage with that point, and did not respond to the letters sent to them until 19 December 2019. The solicitor for the company understood that as the day before the company was required to lodge evidence of service of the lapsing notice. The lapsing notice was thus served on 20 December 2019. Whilst the company could have waited, perhaps until registration of the subdivision, as submitted by Mr Wykrota, the communication sent by the plaintiffs’ solicitors on 19 December 2019 did not indicate that this event was imminent. Neither did the plaintiffs indicate that they would, upon registration of the subdivision, facilitate the registration of the company’s writ in respect of Lots 1 and 2.

It is unfortunate that the plaintiffs gave no indication to that effect. However, it is also unfortunate that the company apparently adopted the position that the plaintiffs were obliged not to settle their purchase of Lot 3 unless on settlement the company was paid the full amount owing under its writ. This stance prompted the plaintiffs’ solicitor to state, not unreasonably, that recovery of those monies was a matter between the company and Mr Wykrota.

The plaintiffs, faced with the lapsing notice, acted reasonably in promptly filing the Notice of Motion, particularly bearing in mind that it was served on the last day of the Court Term.

Both parties to the motion thereafter acted reasonably, or at least have not been shown to have acted unreasonably. The same can be said of Mr Wykrota, although I note that the underlying context of the dispute concerning the caveat involved an unsatisfied obligation on the part of Mr Wykrota to have the subdivision registered, and an unsatisfied monetary judgment against him. Orders were initially made by consent for the operation of the caveat. Ultimately, consent orders were made on 6 March 2020 (after the subdivision had been registered) with the evident aims of facilitating registration of the company’s writ in respect of Lots 1 and 2, and maintaining the caveat in respect of Lot 3 pending settlement of the plaintiffs’ purchase of that lot.

This is not a case where there has been a marked difference in the reasonableness of the actions taken by the parties so that one party should be rewarded for its reasonable actions and the other party should suffer a detriment in costs (see Edwards Madigan Torzillo Briggs Pty Ltd v Gloria Stack [2003] NSWCA 302 at [5], cited in Nichols v NFS Agribusiness Pty Ltd (supra) at [27]). Rather, the case may be seen as an example of one where the central issue was resolved by agreement between the parties without a hearing on the merits, in circumstances where all parties have acted reasonably, or at least not unreasonably.

In my opinion, and as is usual in cases of this kind (see Nichols v NFS Agribusiness Pty Ltd (supra) at [30]) the proper exercise of the Court’s discretion under s 98 of the Civil Procedure Act 2005 (NSW) is to make no order as to costs of the Notice of Motion filed on 23 December 2019, to the intent that each party (including Mr Wykrota) bear its own costs of the motion.

I should add that this order is not intended in any way to prejudice any claim the company may have elsewhere for some or all of its costs to be borne by Mr Wykrota as costs of the enforcement of the company’s judgment against him.

The Court orders that there be no order as to costs of the Notice of Motion filed on 23 December 2019.