CAVEATS AGAINST DEALINGS IN LAND WHEN TO LODGE AND HOW TO REMOVE PRESENTED ON 14 FEBRUARY 2014 NICHOLAS JONES, BARRISTER

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1 CAVEATS AGAINST DEALINGS IN LAND WHEN TO LODGE AND HOW TO REMOVE PRESENTED ON 14 FEBRUARY 2014 BY NICHOLAS JONES, BARRISTER POWER TO LODGE A CAVEAT 1. Section 89(1) of the Transfer of Land Act 1958 provides that: Any person claiming any estate or interest in land under any unregistered dealing or by devolution in law or otherwise or his agent may lodge with the Registrar a caveat in an appropriate approved form forbidding the registration of any person as transferee or proprietor of and of any instrument affecting such estate or interest either absolutely or conditionally and may, at any time, by lodging with the Registrar an instrument in an appropriate approved form, withdraw the caveat as to the whole or any part of the land. 2. It is evident that in order to lodge a caveat a caveator must claim an estate or interest in land. PURPOSE OF CAVEAT

2 3. The lodging of a caveat does not create any priority in the interest noted in the caveat. The purpose of the caveat is to notify the Registrar of a claim and to enable the giving of notice to the caveator of any dealing. 4. In J. & H. Just (Holdings) Pty Ltd v Bank of New South Wales (1971) 125 CLR 546 Windeyer J stated as follows: A caveat noted in the register book is no doubt a notice, to anyone who searches at the Registrar General s Office, of the caveator s claim.... However, the fact that a caveat discoverable by a search of the title is notice to all the world of the interest claimed does not mean that the absence of a caveat is a notice to all and sundry that no interest is claimed. To say that would, it seems, equate the noting of a caveat in the register book with the registration of a dealing; it would make competing equitable interests depend not upon priority of creation in time and other equitable considerations, but upon priority of lodgement of caveats. After all the primary purpose of a caveat against dealing is not to give notice to the world of an interest. It is to warn the Registrar General of a claim. The word caveat has long been used in law to describe a notice given to an official not to take some step without giving the caveator an opportunity to oppose it. 5. It is evident that: (a) lodging a caveat in itself does not create any priority over other unregistered dealings; 2

3 (b) priority as between unregistered dealings, whether or not one or more are the subject of a caveat, will be determined in accordance with the usual legal principles which govern priority; and (c) the purpose of a caveat is to give notice to the Registrar of the caveator s claim so that the Registrar may give notice to the caveator of any proposed dealing. 6. Section 91(1) of the Transfer of Land Act 1958 provides that so long as the caveat remains in force the Registrar shall not (except in certain circumstances) record in the Register any change in the proprietorship or any dealing purporting to affect the estate or interest in respect of which the caveat is lodged. 7. The lodging of a caveat therefore has the effect of preventing further dealings without notice. To that extent it will protect the interest claimed by the caveator. AN ESTATE OR INTEREST IN LAND 8. As stated above in order to lodge a caveat a caveator must claim an estate or interest in land. 9. A caveat cannot be used as a type of injunction by a person who does not have the relevant interest in the subject land. The use of a caveat in such a manner may result in an order for compensation or costs against the caveator. 3

4 10. A mere contractual or personal right does not give rise to a caveatable interest unless such right is coupled with the granting of a relevant interest in the land. 11. Whether or not a caveator has an estate or interest in land is a matter to be determined by reference to the facts of each particular case. As such, there is no definition in the Act of an estate or interest in land. There are categories of claims that have been held by the courts to constitute an estate or interest in land. In each case it has to be determined whether the facts upon which the caveator relies give rise to such an interest. Some such interests are able to be established relatively easily (e.g. an unregistered mortgage). Other claims (such as an alleged constructive trust interest) may require detailed evidence of the matters giving rise to the alleged trust interest such as conduct of the parties, any discussions, any documentary evidence and contributions. 12. It should be noted that for the purpose of lodging a caveat the interest need only be claimed. No evidence or substantiation is required by the Registrar before a caveat is lodged. The claimed interest will need to be established by the caveator if there is an application to remove the caveat which the caveator seeks to resist. 13. Some of the more common types of interest claimed in caveats are: (a) (b) (c) unregistered mortgage; claim by a purchaser under an uncompleted contract of sale; an agreement by the registered proprietor to allow a person to lodge a caveat. It is not uncommon in financing agreements for a borrower to 4

5 agree to allow a lender to lodge a caveat against property owned by the borrower. For instance, in Crampton v French (1995) V Con R Harper J stated as follows: A caveat cannot be entered against the land unless the caveator has the relevant proprietary interest in the land. It follows that, unless there is evidence of an intention to the contrary, the grant of an authority to lodge a caveat carried with it by implication the grant of such an estate or interest in the land affected by the caveat as is necessary to successfully resist its removal. In Crampton v French the wording of the agreement which was found to give rise to a caveatable interest was: In the event that the borrower defaults under this agreement the borrower authorises the lender to lodge any necessary caveat against the property known as 28 Portland Street, Mulgrave to better secure the amount outstanding including any interest. The wording of such agreement may refer to a particular property or to any property owned by the borrower. (d) a claim under a charge provided the wording of the charge is sufficient to create a charge against the land. For instance, in Troncome v Aliperti 5

6 (1994) NSW Con R the New South Wales Court of Appeal found that an equitable charge was created by a clause in the following words: The debtor authorises the creditor to lodge a caveat on any property owned by the debtors to protect his interest. (e) by a guarantee which gives the right to lodge a caveat. In Murphy & Anor v Wright (1992) NSW Con R the New South Wales Court of Appeal held that an equitable charge over land was created by a guarantee which contained the following words: In the event of default by the Borrowers in payment of moneys due under the Security Documents or in performance or observance of any covenants therein then the Lender shall in addition to the rights set out herein in any Security Documents be entitled to attach the debt due to any of the assets of the Guarantor or Guarantors whether such assets be real or personal and further the parties hereto agree that in the event of such default the lender may register a caveat against any property registered in the name of any or all of the Guarantors until the Moneys Secured are paid. (f) (g) a lease; an option to purchase. Such an option creates an interest in land and therefore gives rise to a caveatable interest; (h) purchaser s lien if the contract of sale for the purchase of land is rescinded due to the default of the vendor the purchaser may lodge a caveat in respect of the deposit until it is repaid; 6

7 (i) a claim that land is held on trust for the caveator. This includes a constructive trust. RISK OF IMPROPERLY LODGING A CAVEAT 14. If a caveat is lodged without reasonable cause the person lodging the caveat may be liable for any loss caused by the caveat. As a caveat prevents dealing in land such loss is likely to be connected with the failure to be able to deal with the land. 15. S. 118 of the Transfer of Land Act 1958 provides that: Any person lodging with the Registrar without reasonable cause any caveat under this Act shall be liable to make any person who sustains damage thereby such compensation as the Court deems just and orders. 16. In Deutsch v Rodkin & Ors. [2012] VSC 450 an application was made for compensation under s. 118 of Transfer of Land Act 1958 and alternatively for damages for conspiracy to lodge caveats. Exemplary damages were also sought. 17. The facts in Deutsch v Rodkin & Ors. may be summarised as follows: (a) the plaintiff was the registered proprietor of a house in North Caulfield which was her family home; (b) there had been an ongoing dispute and associated Supreme Court proceedings between the plaintiff s husband and his brother; (c) (d) 5 successive caveats were lodged over the property several weeks apart; the caveats were lodged in the name of the sons of the plaintiff s brother in law; (e) the caveats were removed without any opposition from the caveators; 7

8 (f) the plaintiff had intended to auction the property but withdrew it from auction as a result of the caveats; (g) (h) the property eventually sold for substantially less than market value; and the plaintiff commenced proceedings for damages against each of the caveators as well as against her brother in law. The plaintiff s brother in law had personally lodged some of the caveats even though he was not named as the caveator. 18. The Court found that all of the caveats had been lodged pursuant to an agreement between the plaintiff s brother in law and the caveators for the purpose of injuring the plaintiff. In their defences the defendants admitted that there was an agreement between them to lodge the caveats. At trial the plaintiff s brother in law withdrew that admission. 19. The Court found that there had been an agreement between the plaintiff s brother in law and the caveators to lodge each of the caveats and that the dominant purpose of the agreement was to injure the plaintiff and her family. It was found that the agreement and its implementation satisfied the elements of the tort of conspiracy described by Lord Diplock in Lonrho v Shell Petroleum Co Ltd (No. 2) [1982] AC 173 being:... acts done in execution of an agreement entered into by two or more persons for the [dominant] purpose of not protecting their own interest but of injuring the interests of the plaintiff. 20. Compensatory damages were awarded for the reduction in the sale price of the property, interests and mortgagee legal costs. 21. Exemplary damages were also awarded. In ordering exemplary damages the Court stated that the conduct of the defendants had: 8

9 involved deliberate, intentional, reckless and contumelious disregard of the plaintiff s rights. 22. It was further stated by Hargrave J. that: In fixing the amount of exemplary damages, I have regard also to the fact that the caveats were lodged in circumstances where it was known that the property was a family home; that the family had income which was insufficient to maintain the two mortgages; that a decision had been made to sell the property and realise the net equity in it; that the caveats and their consequences would cause (the plaintiff) to suffer increased stress, beyond that resulting from the continuing family conflict; and that (the plaintiff s husband) was facing the trial of the main proceeding and thus may require access to funds to pay his legal costs of defending himself. I have considered whether the compensatory damages award will provide sufficient denunciation of the conduct of Robert and the caveators. In my opinion it will not. Although the size of the compensatory award is large due in part to the decline in the property market after the scheduled auction, the deliberate and continuing intent to injure, involving repeated abuses of the caveat procedure, was reprehensible and requires further punishment to reflect the Court s denunciation It was accepted that for the purpose of s. 118 of Transfer of Land Act1 958 the plaintiff s brother in law was a person who had lodged a caveat even though he was not named as a caveator. This was on the basis that he had physically lodged a caveat at the Land Titles Office. 24. The Court did not make an order for compensation under s. 118 of Transfer of Land Act 1958 as it made an award for damages for conspiracy. 9

10 25. The plaintiff subsequently made an application for indemnity costs of the proceeding. In Deutsch v Rodkin & Ors. (No. 2) [2012] VSC 543 it was stated as follows:... as a general rule it is the conduct of the unsuccessful party in conducting the litigation which is the determining factor not the underlying conduct which gives rise to litigation. 26. However, it was also accepted that indemnity costs are often ordered when the Court removes a caveat which should not have been lodged. 27. In Love v Kempton & Anor [2010] VSC 254 the Court made an order for indemnity costs against a caveator following a successful application for removal of the caveat. The caveator withdrew the caveat at the hearing of the application for its removal. The caveator was a solicitor who had been the highest bidder at an auction but who refused to sign the contract. The property was then sold to the underbidder. J. Forrest J. stated as follows: A party who lodges a caveat without proper grounds should, I think, be brought to book if others are forced to resort to court proceedings to remove a caveat which has no proper basis. The costs associated with the exercise are heavy and the differential between party/party costs and indemnity costs is... considerable. In this case to require an innocent vendor to pay the differential between party/party costs and indemnity costs occasioned by the delinquent conduct of the caveator cannot be permitted. 28. In ordering costs on an indemnity basis a number of factors were said to justify the award of indemnity costs including: (a) the nominated basis for lodging the caveat was without merit. 10

11 (b) the defendant was on notice that if he failed to withdraw the caveat then he ran the risk of incurring an order for indemnity costs. (c) any person involved in dealing in property should be aware of the statements made by the court on a number of occasions that a caveat is not a bargaining chip. (d) the lodging of a caveat is a serious business and has the potential to affect commercial transactions and the lives and financial interests of others. REMOVAL OF A CAVEAT 29. The Transfer of Land Act 1958 provides two different methods by which application may be made for a caveat may be removed. 30. The procedure under section 89A of the Transfer of Land Act 1958 provides that: (a) any person interested in the land affected by the caveat may make application to the Registrar for service of a notice on the caveator; (b) the notice shall be supported by a certificate signed by a barrister or solicitor stating that in his or her opinion the caveator does not have the estate or interest claimed; (c) on receiving such notice the Registrar shall give notice to the caveator that the caveat will lapse unless: 11

12 (i) the application for removal of the caveat is abandoned; or (ii) notice in writing is given to the Registrar that proceedings in a court of competent jurisdiction to substantiate the claim of the caveator are on foot; (d) the time allowed in the notice given by the Registrar will not be less than 30 days; (e) unless on the date allowed in the notice from the Registrar the application to remove the caveat has been abandoned or notice in writing has been given by the caveator as required the caveat will lapse. 31. The advantages of using this procedure to remove a caveat are that: (a) it is relatively inexpensive; and (b) it places the onus on the caveator to issue proceedings to substantiate the caveat. 32. The disadvantages of using this procedure to remove a caveat are that: (a) it is relatively slow in that the caveator has 30 days to respond to the notice issued by the Registrar; and 12

13 (b) if the caveator issues a proceeding to substantiate the caveat then the caveat will remain in place until the determination of those proceedings unless an application is made to remove the caveat. 33. However, section 89A(7) of the Transfer of Land Act 1958 provides that if the proceeding that has been issued by the caveator is not substantiated to the satisfaction of the Court then the Court may make such order in relation to the caveat as the Court thinks fit. 34. A different procedure to remove a caveat is provided in section 90(3) of the Transfer of Land Act This section provides that any person who is adversely affected by a caveat may bring proceedings in the court against the caveator for removal of the caveat. 35. This procedure is appropriate where the removal of the caveat is urgent. The application is generally heard in the Practice Court as an urgent matter. If the application for removal is unsuccessful then the proceeding may be placed in the list for further hearing. That is, even if the caveat is not removed in a summary application the court may ultimately order its removal on a final hearing. PROCEDURE UNDER SECTION 90(3) OF THE TRANSFER OF LAND ACT In order to seek removal of a caveat under section 90(3) of the Transfer of Land Act 1958 an application must be made to the court. Such an application is 13

14 usually made by originating motion. The application must be supported by affidavit evidence which sets out the basis for the application for removal. 37. The legal requirements for such an application were described by Dodds- Streeton J. in Goldstraw v Goldstraw [2002] VSC 491 as follows: Section 90(3) is in the nature of a summary procedure analogous to the determination of interlocutory injunctions. The Court s power under s. 90(3) is discretionary. In that context, it is recognised that the caveator bears the onus of establishing that there is a serious question to be tried that he or she does have the estate or interest in the land claimed. That is in order to resist successfully the application for removal of caveats (the caveator s) arguments must be directed towards the assertion of an interest in the subject land in the light of relevant principles of property and equity law. Further, if the caveator does establish the serious question to be tried in relation to the estate or interest claimed, the weight of authority indicates that the caveator must further establish that the balance of convenience favours the maintenance of the caveat until trial. 38. Even though the application for removal is brought by the cavatee the onus of establishing that the caveat should remain is placed on the caveator. NICHOLAS JONES. BARRISTER. 14

15 OWEN DIXON CHAMBERS. 15