Caveatable Interests

  • Charges giving rise to caveatable interests.

  • The indirect ability of the Court of Appeal to remove a caveat.

  • A competition between cash in a solicitor’s bank account and a caveat supporting a charge for potentially a greater amount.

Sim Development Pty Ltd v Greenvale Property Group Pty Ltd [2017] VSC 335 (16 June 2017) Sifris J.

Sim Development Pty Ltd v Greenvale Property Group Pty Ltd [2017] VSCA 345 (17 November 2017) Tate and McLeish JJA.

The plaintiff/appellant (“Sim”) provided services under a consultancy and management agreement for a proposed development on land of which the defendant/respondent (“Greenvale”) was registered proprietor.  Greenvale notified Sim of its intention to terminate the agreement at a specified date.  Sim caveated to secure moneys allegedly owed under the agreement and sued to recover $380,280 and for other relief.  Greenvale counterclaimed and commenced a separate proceeding under the TLA s. 90(3) seeking removal of the caveat.

Sifris J held Sim to be entitled to payment of $152,600.03 and Greenvale to be entitled to some payment on the counterclaim.  His Honour dismissed the caveat proceeding on the ground of a clause providing that on termination of the agreement before completion of the project Greenvale gave Sim “the right to register a charge over the property … and any other property owned by [Greenvale] and such charge is to be applied to the payment in full of any money owed to [Sim Development]”.  Sifris J held that the contractual right to register a charge, in the event of termination, supported the existence of a caveatable interest; and while the clause did not specifically adopt the language of lodging a caveat, its reference to the concept of registration, and lack of sufficient indication to the contrary, supported the conclusion that it gave rise to a caveatable interest.

Sim applied for leave to appeal, seeking orders in substance as sought at first instance. Greenvale did not seek leave to appeal against the caveat proceeding order.  However, desiring to be rid of the caveat, it made an interlocutory application in the application by Sim for leave to appeal, seeking an order directing Sim to withdraw its caveat on Greenvale paying $152,600.03 into an interest-bearing account of Greenvale’s solicitors and undertaking not to sell the land pending determination of the application for leave to appeal and any appeal.

Tate and McLeish JJA held:

  1. The application by Greenvale was competent, being permitted by s. 10(3) of the Supreme Court Act 1986.
  2. Sim would not be ordered to withdraw its caveat, because:
  • the caveat was supported by its right under the agreement to a charge over the land. The withdrawal of the caveat would in effect remove the protection of the security interest the parties provided for in the agreement;
  • if Sim succeeded in any appeal Greenvale may be ordered to pay $380,280. In those circumstances, the amount offered, $152,600.03, would be inadequate and Sim would have lost the protection of the caveat supporting its entitlement to monies owed.  This could render any appeal effectively nugatory;
  • Greenvale had not adequately specified how the caveat would impede the development’s progress. Accordingly, applying a test of balance of convenience, Sim had discharged its onus of establishing that the prejudice that would flow to it from an order directing it to withdraw the caveat outweighed any demonstrable prejudice to Greenvale.

Commentary: A novel case of a creative attempt to get rid of a caveat pending an appeal.  As to caveats supporting charges see also: Evans v Advertising Department Pty Ltd [2009] VSC 587; West Coast Developments Pty Ltd v Lehmann [2013] VSC 617, also [2014] VSC 293.

Antidotes to repeat caveats: enjoining the caveator and Registrar of Titles.

Andrews Family Holdings Pty Ltd v Yellow Tractor Pty Ltd [2017] VSC 682 (8 November 2017); Andrews Family Holdings Pty Ltd v Yellow Tractor Pty Ltd (No 2) [2017] VSC 695 (14 November 2017).  Ginnane J.  

Mr Annesley entered a contract to purchase land from the plaintiff (“Andrews”).  In purported payment of the balance of price he tendered a document entitled ‘Promissory Note’ which was neither a permitted method of payment nor indeed in law a promissory note.  Andrews rescinded the contract.  The defendant (“the company”), of which Annesley was a director and which he had intended to nominate as purchaser, subsequently caveated, the caveatable interest being based on the rescinded contract.  The company was subsequently deregistered.  Andrews applied to remove this caveat under the TLA s. 90(3).  Ginnane J:

  1. Found no serious question to be tried that the company, even if still registered, had a caveatable interest: it was not a party to the contract and had no legal or equitable interest in the property.
  2. Also enjoined Annesley from lodging further caveats in respect of the land without leave. He noted that there was both authority for this course in the caveat context, ie Maryvell Investments Pty Ltd v Velissaris [2008] VSC 19, and the general curial power to grant injunctions given by the Supreme Court Act 1986 s. 37.  This case merited an injunction because Annesley had already lodged two caveats and did not foreswear lodging more.

Undaunted, on the day after this decision Annesley caveated in his own name claiming a purchaser’s lien.   The Titles Office had a copy of the court order but accepted the caveat albeit apparently issuing a requisition requiring Annesley to establish within 14 days that he had the court’s leave.   On an application for removal if this caveat Land Use Victoria argued that it had justifiably given Annesley ‘the benefit of the doubt’, the Registrar having a duty to accept a caveat for lodgment.   Ginnane J:

  1. Held this practice of giving the benefit of the doubt inappropriate for caveators whose previous caveats had been removed or had lapsed or were now subject to injunction. The Registrar’s statutory obligations included giving effect to directions of the Supreme Court (TLA s. 103).
  2. Permanently enjoined Annesley from lodging caveats in respect of the property, with indemnity costs.
  3. Enjoined the Registrar of Titles so that must forthwith reject and not record any caveat by Annesley over the property.

Commentary: This case is a rare case of the Registrar registering a caveat after an injunction was granted.  Otherwise, it succeeds previous cases such as where: the court orders the Registrar not to register any caveat without its leave or further order (Westpac Banking Corporation v Chilver [2008] VSC 587), or any caveat by any person other than a purchaser from the successful plaintiff without its leave for a certain period (Lettieri v Gajic [2008] VSC 378) or enjoins the lodging of further caveats (Marchesi v Vasiliou [2009] VSC 213; Wells v Rouse & Ors [2015] VSC 533).

 

Principles applicable to application to remove caveat under s. 90(3) of TLA

  • Absolute prohibition

  • Circumstances in which entitlement to payment for work on land caveatable

  • Injunction against future caveat

  • Amendment of caveat

  • Costs

  • Interest claimed being “implied, resulting or constructive trust”

  • Commentary

Yamine v Mazloum [2017] VSC 601 (3 October 2017) John Dixon J.

The timeline was –

Undated                         Plaintiff registered proprietor asks caveator to assist him to prepare property for sale.  Caveator subsequently alleges that in substance: the plaintiff asked him to work to finish his house and prepare it for auction; the caveator replied that a tremendous amount of work was involved which he could not even put a figure on, asked how he would be paid, and said that he would not help unless assured he could be paid; the plaintiff replied that he would be paid for his work from the proceeds of sale. 

March – 23 June 2017  Caveator moves into the property and allegedly fixes it for sale. 

8 July                               Property sold, settlement date 6 September, rescission notice served in September. 

26 July                             Caveat lodged, grounds of claim “implied, resulting or constructive trust”, estate or
interest claimed is a “freehold estate”, all dealings prohibited.

18 September                Following provision of information by caveator’s solicitors and inconclusive negotiations plaintiff foreshadows application to remove caveat, caveator offers withdrawal in return for $45,000 to be held in caveator’s solicitor’s trust account pending resolution of the dispute.

The plaintiff applied for removal of the caveat under the Transfer of Land Act 1958 s. 90(3). John Dixon J ordered removal of the caveat with costs. His Honour reasoned –
1. His Honour first recited certain standard principles, namely –
(1) The power under s. 90(3) was discretionary.
(2) Section 90(3) was in the nature of a summary procedure and analogous to the determination of interlocutory injunctions.
(3) The caveator bore the onus of establishing a serious question to be tried that the caveator had the estate or interest claimed. The caveator must show at least some probability on the evidence of being found to have the equitable rights or interest asserted in the caveat.
(4) The caveator must further establish that the balance of convenience favoured maintenance of the caveat until trial.
(5) As to the balance of convenience generally the court should take the course appearing to carry the lower risk of injustice if the court should turn out to have been wrong in the sense of declining to order summary removal where the caveator fails to establish its right at trial or in failing to order summary removal where the registered proprietor succeeds at trial.
(6) The stronger the case that there was a serious question to be tried, the more readily the balance of convenience might be satisfied. It was sufficient that the caveator showed a sufficient likelihood of success that in the circumstances justified the practical effect of the caveat on the registered proprietor’s ability to exercise normal proprietary rights. [15]

2. His Honour also noted authority for the proposition that “a caveat may only be lodged in a form commensurate to the interest it is designed to protect”. [16]
3. The argument that the caveator’s entitlement to be paid for his work on a quantum meruit was enforceable in equity by a constructive trust was invalid. The plaintiff did not accept any intention to charge or secure the land with the obligation to repay the cost of the work or to create any beneficial interest in it. The concept of salvage, deriving from Re Universal Distributing Co Ltd (1933) 48 CLR 171 at 174 – 5 per Dixon J, was inapplicable: the current case concerned property rights, not rights in insolvency and the property was preexisting and not converted into a fund for the benefit of claimants. There was only an oral agreement for services on a quantum meruit. [19], [24], [26] – [32]
4. If the caveator now evinced an intention to lodge a further caveat claiming an interest as chargee, an injunction would likely lie. [33]
5. No application to amend the caveat was made, and the discretion to amend would not have been exercised because:
(1) The application would have been to amend the interest claimed ie to chargee or equitable lienee, an amendment of interest claimed “not usually be[ing] permitted”, not merely to amend the grounds of claim or scope of protection. [35]
(2) The circumstances the grounds or interest claimed were erroneously stated was were relevant: the caveat was lodged not by an unrepresented person but by a solicitor certifying that he had taken reasonable steps to verify the identity of the caveator and had retained the evidence supporting the claim. [36]
(3) The court should not encourage the belief that caveats could be imprecisely formulated and then fixed up later: a caveat was in effect an interlocutory injunction by administrative act with possible serious consequences. Wrongly formulated caveats should not easily be tolerated. Caveats should not be used as bargaining chips. [37]-[38]
(4) The court should have regard to all of the considerations that arise on applying for removal of the caveat in the terms of the amendment sought. If this caveat was amended the caveatable interest claimed would still lack merit because even if the caveator’s version of the oral agreement was proved it would not create a charge or an equitable lien. [39] – [40]
6. His Honour not merely awarded costs but also reserved liberty to the plaintiff to make any application pursuant to r 63.23 as it may be advised against the first defendant’s solicitors. [44]
7. His Honour noted in passing that use of the phrase “implied, resulting or constructive trust”, which identified three different forms of trust, was “usually evidence of a degree of loose thinking”. [20]
Commentary –
1. His Honour deals with the principles applicable to s. 90(3) and amendment of caveats at length and touches on other interesting points now expanded on.
2. The stress on a caveat not imposing an absolute prohibition if inappropriate is expanded on in Lawrence & Hanson Group Pty Ltd v Young [2017] VSCA 172 to be the subject of a future Blog.
3. Other cases related to whether works on land will create a caveatable interest are –
• Walter v Registrar of Titles [2003] VSCA 122 at [18] – mere work and labour done not caveatable;
• Depas Pty Ltd v Dimitriou [2006] VSC 281 – a builder was found to have at most a contractual right to, and perhaps even an equitable interest in, half a joint venture’s net profit, but not a half interest in the land;
• An equitable lien will give rise to a proprietary and so caveatable interest, a foundational statement on equitable liens being that of Deane J in Hewett v Court (1983) 149 CLR 639 at 668. Caveat cases where no lien was established are: Western Pacific Developments Pty Ltd (in liq) v Murray [2000] VSC 436 and HG & R Nominees Pty Ltd v Caulson Pty Ltd [2000] VSC 126;
• In Popescu v A & B Castle Pty Ltd [2016] VSC 175 Ginnane J held that the only Romalpa clause conferring an equitable interest in land was one entitling the holder to enter upon the land to sever and remove the fixtures, and accordingly removed a caveat based on a clause simply providing that all materials used in a contract remained the supplier’s property until paid in full.

4. As to injunctions against future caveats, or the similar order that the Registrar not register any caveat without its leave or further order see also Westpac Banking Corporation v Chilver [2008] VSC 587, Lettieri v Gajic [2008] VSC 378, Marchesi v Vasiliou [2009] VSC 213; Wells v Rouse & Ors [2015] VSC 533.

  1. 5. The reservation of liberty to apply for costs against the solicitors ties in with an increasing judicial tendency to so order, eg Gatto Corporate Solutions Pty Ltd v Mountney [2016] VSC 752.

 

When does a caveat lapse and can the effect of lapse be avoided?

Tawafi v Weil [2017] VSC 643 (21 August 2017) Digby J.

Section 90(1)(e) of the Transfer of Land Act 1958 provides that, subject to certain exceptions, a caveat lapses as to land affected by a transfer upon the expiration of thirty days after notice by the Registrar that a transfer has been lodged for registration.  If within this period the caveator appears before a court and gives an undertaking or security the court may direct the Registrar to delay registration for a further period, or may make such other order as is just (s. 90(2)).  If the Registrar is of opinion that the doing of any act is necessary or desirable, then, if the act is not done within such time as the Registrar allows, the Registrar may refuse to proceed with any registration (s. 105(a)).

The timeline was –

11 April 2017         Plaintiff enters contract to purchase certain land. 

30 May                  Defendant caveats on the grounds of “part performed oral agreement” et cetera with the registered proprietor. 

26 June                  Settlement of the purchase without the caveat being removed. 

28 June (about)   Lodgment of the instrument of transfer (Transfer) for registration. 

29 June                 Registrar notifies caveator that pursuant to s. 90(1) the caveat would lapse on 31 July unless the caveator obtained an order pursuant to s. 90(2).  No order was obtained. 

2 August               Caveator commences a proceeding against registered proprietor inter alia claiming declarations of a proprietary interest in the land and for other relief in substance supporting the existence of the caveat and preventing registration of the Transfer.  An
agreement with the registered proprietor proprietor in early 2016 is alleged whereby the caveator agreed to lend $86,000 on security of this land, followed by that loan.  The second defendant was the conveyancer acting for both sides and the third defendant was the purchaser.  

3 August               The Registrar accordingly issues a Notice of Action prohibiting registration of further dealings until withdrawal of that notice or further order. 

16 August             Purchaser files Originating Motion seeking order for registration and Summons for dismissal of the caveator’s proceeding. 

 

Digby J ordered the Registrar to register the Transfer and remove the Notice of Action.  His Honour reasoned –

  1. The counting of days under s. 90(1) commenced from 30 June, being the day after the notice, thirty days elapsed on Sunday 30 July, and so the expiry date was 31 July. Accordingly the caveator was out of time.  It was irrelevant that s. 105(1) might have achieved a similar result in suspending the progress of registration. [24]-[25]
  2. The judicial approach to caveat removal applications was analogous to that in applications for injunction, ie the burden of proving the caveatable proprietary interest and maintaining the caveat was upon the caveator who must also establish on the balance of convenience that the caveat should be maintained until the trial of the contested proprietary interest. However, because the caveat had lapsed this case was not the usual caveat removal contest. [17]-[19]
  3. In any event the caveator had not raised a sufficient prima facie case of or arguable triable issue concerning the asserted proprietary interest. Further, the balance of convenience heavily favoured the purchaser because: the asserted triable issue was palpably weak; and the purchaser would be prejudiced by deferral of registration, particularly having entered a building contract to improve the property which could not be financed until the financier could register a mortgage. [28], [35]-[38]
  4. Indemnity costs were awarded against the caveator, particularly because of her very weak case, the purchaser having previously asked the caveator in writing to identify an arguable caveatable interest, without proper response, and given appropriate warning to the caveator. [43] – [59]

Caveats in Victoria – the basic requirements

On the evening of 5 July, I gave a paper entitled “Questionable Caveats – To lodge or not to lodge?” at Leo Cussen Centre for Law.  Over 50 persons attended in weather mildly reminiscent of that described in Love’s Labour’s Lost in words commencing “When icicles hang by the wall”.  This indicated the concern in the Victorian profession about this topic.  I intend to deal with Victorian cases as they are decided, but commence with the basic tests under the Transfer of Land Act 1958 s. 90(3).

 

1.                  Power to lodge a caveat over land is given by s. 89(1) which materially provides –

“(1)  Any person claiming any estate or interest in land under any unregistered instrument or 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 ….”

A caveat as a “statutory injunction to keep the property in statu quo until the court has an opportunity of discovering what are the rights of the parties” (Kerabee Park Pty Ltd v Daley [1978] 2 NSWLR 222 at 228).  A caveat or failure to caveat may well also affect priorities between unregistered interests: eg Mimi v Millennium Developments Pty Ltd [2003] VSC 260 at [39].

 

2.                  The methods of instigating removal of caveats: to lodge certain transfers or dealings for registration (ss. 90(1), (2)); to apply to the Registrar for a notice requiring the caveator to commence proceedings (s. 89A); or to proceed in the Supreme Court or County Court against the caveator for removal, the Court being empowered to make such order as it thinks fit.  This blog will deal with s. 90(3) as cases under s. 89A tend to resolve into full trials in which the caveat issue recedes.

 

3.                  In Nicholas Olandezos v Bhatha [2017] VSC 234 at [16] Derham AsJ sets out the summary of principles by Elliott J in Sylina v Solanki [2014] VSC 2 at [43].  These with embellishment are:

(1) The court’s power under s. 90(3) is discretionary.

(2) A caveator bears the onus of establishing a serious question to be tried that it has the “estate or interest in land” claimed (Elliott J).  Derham AsJ expands this [17] by noting that the “serious question to be tried test” was often used interchangeably with the “prima facie case test” and that the latter was preferable: this did not mean that caveators must show that it was more probable than not that at trial they would succeed, but must show a prima facie case with sufficient likelihood of success to justify the maintenance of the caveat and the preservation of the status quo pending trial.  As to the interplay between serious question and prima facie case see further Nicholas Olandezos at [18] and the foundational case of Piroshenko v Grojsman [2010] VSC 240 at [22] (Warren CJ).   Ordinarily the final determination of disputed factual issues or of the claimed interest is unnecessary and inappropriate; but that an exception may be where there is no substantial issue of fact: Nicholas Olandezos at [19].

(3) The caveator must also establish that the balance of convenience favours the maintenance of the caveat until trial (Elliott J).  The court (as in an interlocutory injunction case) takes whichever course appears to carry the lower risk of injustice if it should turn out to have been “wrong”, in the sense of maintaining the caveat in favour of a party who fails to establish his right at trial, or in removing the caveat of a party who succeeds at trial: Piroshenko.

(4) The stronger the case in establishing a serious question/prima facie case, the more readily the balance of convenience might be satisfied.  It is sufficient that the caveator show a sufficient likelihood of success that, in the circumstances, justifies the practical effect which the caveat will have on the ability of the registered proprietor to deal with the property in question in accordance with its normal proprietary rights (Elliott J).

Finally, in Saafin Constructions Pty Ltd v Vidak & Anor [2015] VSC 441 at [21] Warren CJ stated that the two-stage test (ie in (2) and (3) above) “informs, but does not subsume, the exercise of the Court’s discretion”.

 

 

Philip. H. Barton

Owen Dixon Chambers West

Wednesday, September 20, 2017