The recent decision of Legal Services Commissioner v Kotsifas (Legal Practice) [2014] VCAT 1615 underscores a solicitor’s independent duty to assess and ensure they do not lodge a caveat on their client’s behalf unless there is sufficient basis to do so.  A lodgement of such a caveat exposes the solicitor to both costs orders and potentially allegations of professional misconduct.

The above decision arose from findings set down in Pearl Lingerie Australia Pty Ltd v TGY Pty Ltd; Pearl Lingerie Australia Pty Ltd v John Giarratana [2012] VSC 451 , where the solicitor lodged caveats in circumstances where he was informed by the Court that:

1. It was ‘very doubtful’ that a resulting or constructive trust could succeed [i.e. stand as a sufficiently arguable basis for a caveat not to be removed]; and
2. His client only had a right to lodge a caveat if it had a proper interest.

The Court found that there was no basis for the caveats to be drawn or maintained, and indemnity costs were awarded against the solicitor personally.  The caveats were ordered to be removed, and the solicitor’s client lost any benefit from those caveats.

The case referred to Warren CJ’s comments in Piroshenko v Grojsman & Others [2010] VSC 240, which held that a caveat cannot be used as a ‘bargaining chip’ and the caveator’s interest or rights ‘must attach to the property with respect to which the caveat has been lodged’. It is ‘not sufficient …to establish a prima face case that they have a contractual, equitable or statutory right against the caveatee’.

The solicitor was found to have ‘engaged in professional misconduct… involving a substantial or consistent failure to… maintain a reasonable standard of competence and diligence’ in circumstances where he:

‘i.  had not considered the underlying documents said to support the caveatable interest, instead relying on instructions provided by the Defendants; and

ii.  acted in disregard of known facts and law.’

The Supreme Court referred the solicitor’s conduct to the Legal Services Commissioner who then commenced proceedings in the Tribunal.

As a consequence, the Tribunal ordered the solicitor to:

1. Pay the Legal Services Commissioners’ costs of $9,864.69;
2. Attend education in ethics, civil procedure and property law; and
3. Undertake mentoring at his own cost.

These decisions highlight the importance of engaging competent solicitors who are well aware of their obligations when lodging caveats and the risks of personal indemnity costs and professional misconduct if they breach those obligations.