No Estate or Interest
The risks of attempting secure debt by Caveat
A caveat lodged under the Transfer of Land Act (TLA)[1] protects ‘any estate or interest in land’ and, when lodged, prevents any later dealing on title.
The TLA does not define an ‘estate or interest’, and former Chief Justice Warren of the Victorian Supreme Court has noted that the ‘authorities do not provide an exhaustive list of what interests meet the standard’.[2]
An ‘interest’ must be a ‘proprietary’ interest in land. A simple contract or obligation for a landowner to pay money generally creates no interest in land. As such, a contract debt is generally not a ‘caveatable interest’.[3]
If a party who is owed money tries to lodge a caveat to secure repayment via the debtor’s title to land, there are serious risks, including:
- that the party owed the money may end up, having wrongfully lodged a caveat, being responsible for compensation and payment of the debtor’s legal costs, even where a court order or warrant exists mandates the debtor to pay the money;[4] and
- that compensation may be payable to the landowner/debtor for any loss resulting from lodging a caveat ‘without reasonable cause’.[5]
The question is whether the caveat was unreasonable lodged – even if it was ‘not unreasonably maintained’ after being lodged.[6]
PEXA digital lodgement rules require that any party lodging a Caveat must certify, before lodgement, that they have and retain documents supporting the caveat. Failure to hold and retain such documents can result in removal from the PEXA scheme and amounts to a breach of the PEXA contract.
WHEN IS A CAVEAT POSSIBLE?
In Evandale Estates v Keck, the Court confirmed the general principle that a loan agreement for a land purchase would not generally create a caveatable interest but stated that it would be inequitable to deny the security if ‘from the whole of the circumstances of the transaction it was the intention of the parties that the lender should have security over the property…’.[7]
A charge may create a caveatable interest depending upon the parties’ intentions as well as the words of the agreement,[8] but should be approached carefully – and cannot automatically be assumed. Charges may exist or be inferred from agreement. For example, certain charges given to builders or persons undertaking works on land, to secure payment for such works, may create a caveatable interest depending upon the wording of the document and the parties’ actions and evidence of their intentions.
Terms of Agreement and Parties’ Actions
In Murphy v Wright,[9] a deed of guarantee for a loan provided that, if the borrower defaulted, the lender was entitled to ‘attach’ the debt to any of the guarantor’s assets and was entitled to lodge a caveat over any property of which a guarantor was the registered proprietor. Handley JA of the New South Wales Court of Appeal (with Priestley JA agreeing) set out two important propositions:
‘a contractual provision, especially in a commercial contract, will not be held void for uncertainty or ambiguity except in a most extreme and intractable case…’
‘ambiguous contractual provisions should be construed in favour of the surety’.
In Coleman v Bone,[10] a loan in informal language included the words – ‘About the $50,000 I shall want to put caveat on the property.’ After her signature, the debtor wrote ‘signed in contemplation of a properly worded and witnessed legal agreement being drawn up by the date of settlement’. The NSW Supreme Court found this created a caveatable interest and mere contemplation of a later agreement was ‘not inconsistent with an intention that the loan document should itself give rise to binding obligations unless and until superseded by the further document’.
In Wilson v Graham[11], a loan agreement stated that, in the event of default, the lender had ‘the right to… lay first claim to any other property in [the debtor’s] name to the value of the debt plus costs.’ The NSW Supreme Court upheld a caveatable interest.
McMillan v Dunoon[12] also concerned a loan agreement stipulating that the debtor would provide a ‘deed of charge’ over her land as security to the lender. The Victorian Supreme Court, upholding a caveatable interest, considered that the words of the agreement demonstrated the parties’ intention to charge the property with the debt and constituted a security.
Building Agreements
The mere possession of a site does not give a builder or contractor a caveatable interest in the land[13]. It may be, however, that the possession of the land, combined with the carrying out of improvements to the land in circumstances where it would be unconscionable for the builder or contractor to receive no payment for its work, may give rise to a caveatable interest.[14]
Building contracts frequently include specific provisions that create a charge. Courts recognise such provisions as creating a caveatable interest.[15]
WARNING
Any Caveat is a serious title registration – not a device. It must link to an interest in the land over which it is registered. No lodgement should ever occur without extreme care. In many circumstances, legal advice is a wise precaution if not essential.
KELLEHERS AUSTRALIA
25 January 2022
Copyright © Kellehers Australia 2022.
Liability limited by a scheme approved under Professional Standards Legislation
This fact sheet is intended only to provide a summary and general overview on matters of interest. It does not constitute legal advice. You should always seek legal and other professional advice which takes account of your individual circumstances.
[1] Transfer of Land Act 1958 (Vic), ss 89(1), s91(1).
[2] Warren CJ at [23] in CFHW Pty Ltd v Burness [2014] VSC 451.
[3] Bacon v O’Dea (1989) 25 FCR 495, 505 [31] (Northrop, Gallop and Pincus JJ), Neoform Developments & Interiors v Town & Country Marketing [2002] NSWSC 344 (Young CJ).
[4] The fact that the caveator has obtained judgement does not alter the position, except in Tasmania (s134(1) TLA (Tas). Perchey v Crawford (1871) 2 SCR (Q) 149, Hall v Richards (1961) 108 CLR 84 per Kitto J @ 93-94.
[5] S118 TLA.
[6] South Eastern Secured Investments Ltd [2011] VSC 662.
[7] [1963] VR 646 at 652 per Hudson J.
[8] For example, Wright v Bridge Wholesale Acceptance Corp (Australia) Ltd [1993] 1 VR 502.
[9] (1992) 5 BPR 11,734.
[10] (1996) 9 BPR 16,235.
[11] (1997) 10 BPR 19,051.
[12] [2005] VSC 440.
[13] Re PT Stevens Earthmoving Pty Ltd’s Caveat [1975] Qd R 69m @ 70, Graham H Roberts Pty Ltd v Maurbeth Investments Pty Ltd [1974] 1 NSWLR 93.
[14] Twenty-Sixth Shackle Pty Ltd v Drever (1994) V Conv R 54-493
[15] For example, Griffith v Hodge (1979) 2 BPR 9474, Sindoro Pty Ltd v Koen [1982] ACLD 493, Venios v Machon (1986) 3 BCL 171, Bullen v Christian John Properties Pty Ltd (1987) ANZ Conv Rep 478, George Bevan Pty Ltd v Robert Patrick Pty Ltd (1987) 4 BPR 9457, Gibson v Co-ordinated Building Services Pty Ltd (1989) ANZ Conv Rep 587, Henery Property Development Pty Ltd v McLennan (1992) V Conv R 54-468, Rising Developments v Hoskins (1996) 39 NSWLR 157.
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