Pedulla v Fernando Panetta (No 2) [2011] NSWSC 1386

This case concerns costs awarded as part of compensation from the Torrens Assurance Fund. The history of the substantive proceedings are as follows.

A brother fraudulently transferred his sister’s valuable northern beaches property to himself for $1, assisted by a fraudulent solicitor. The sister was in Italy with an order of nuns when this occurred. The brother then obtained a $2m loan secured by a mortgage over the property. The sister knew none of this and had left the order to care for her dying father. The son visited them in Italy and then entered into a contract of sale of the property for $3.8m. Two months later, the sister, still in Italy, found out that the property had been transferred to her brother but still knew nothing about the sale. She had no money to return to Australia and later that month, settlement occurred. The brother and his new wife fled Australia with the net sale proceeds and have not been seen since. The sister brought a claim for compensation from the Torrens Assurance Fund pursuant to section 129(1) Real Property Act, as her loss arose from fraud.

The Law
Compensation from the Fund is limited to the market value of the property when compensation is paid plus costs incurred in making the claim, is not payable to the extent that loss results from her act or omission that is fault-related or results from the fraud of a solicitor and is covered by their insurance.

The court held the sale price was the market value, the sister’s failure to lodge a caveat was excusable and not her fault, and it was unlikely the solicitor’s insurance would be available. Accordingly the court awarded the sister $3.8m plus costs. These proceedings concern whether the legal costs need to be assessed first and this was rejected the court. The court found that costs reasonably incurred in their full amount are to be awarded as part of the compensation.

The sister also recovered her other losses against the solicitor, for which the Fund does not compensate, namely stamp duty on a replacement property and rental incurred until a new home is purchased. The Registrar-General also obtained damages for negligence against the solicitor, reduced to reflect the solicitor’s proportionate liability of 30% and the costs of their cross-claim against the solicitor.

The court noted that the new purchasers did not hold the property on constructive trust for the sister, as they were bona fide purchasers for value without notice (section 45 Real Property Act). The court also ordered the fraudulent brother and wife who had fled to account for the net proceeds and pay damages.

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