Caveats and unregistered interests Prof Cameron Stewart (Thanks to Shae McCrystal – errors

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Caveats and unregistered
interests
Prof Cameron Stewart
(Thanks to Shae McCrystal – errors
are Cameron’s)
(c) Cameron Stewart 2009
Caveats
•
•
Protection of unregistered interests
Section 74F - System of lodging a “caveat”
by a person who claims to have a legal or
equitable interest in the property – any
further dealing with the property cannot be
recorded unless with the caveator’s
approval – freezes any dealing with the land
that would impact on the subject of the
caveat
(c) Cameron Stewart 2009
Caveats
• The caveat must specify the ‘prescribed particulars’ of the
interest claimed (s 74F(5)). This means that the caveator must
state explicitly the claim that the RP must meet. Historically
the Act required caveats to be extremely precise and
particular and a lot of law developed around what a ‘valid
caveat’ looked like.
• Sec 74L requires the court to disregard a caveator’s failure to
comply strictly with the requirements. This allows the court to
overlook deficiencies in drafting if the omissions are not gross.
At least the caveat should identify the caveatable interest
claimed.
• The Register General has a duty to ensure that the caveat
complies with the caveat requirements, but the Register
General does not investigate whether the claimed interest is
genuine.
(c) Cameron Stewart 2009
Caveats
• The registrar General will then enter the particulars
on the Folio (not the CT) and will notify the
registered proprietor of the lodgement of the caveat.
• The effect of the lodgement of the caveat is that the
Registrar General is prohibited from recording any
dealing which would affect the estate or interest
claimed by the caveator, unless the dealing was
lodged before the caveat was lodged.
(c) Cameron Stewart 2009
Caveats
• You can only stop dealings lodged before the caveat
from being registered by an injunction in the
Supreme Court: Re Rush and Hazell and the Real
Property Act [1963] NSWR 78
(c) Cameron Stewart 2009
Caveats
Different types of caveats:
1. caveat against dealings
2. caveat against improper dealing where CT
has been lost
3. caveat against improper exercise of power
of sale
4. caveat lodged by RG to protect interest of a
person under a legal disability or on behalf
of the Queen
(c) Cameron Stewart 2009
Caveats
RPA s 74F(1) – Any person who, by virtue of any
unregistered dealing or by a devolution of law or
otherwise, claims to be entitled to a legal or
equitable estate or interest in land...
What is a ”caveatable interest”? Must be an interest in
land!!! Not just a contractual right or personal right
– the interest must exist at the time of lodgment – no
future interests
Eg
Interest of a purchaser under a contract for sale
Interest of an equitable mortgagee
Option to purchase land
And many many more
(c) Cameron Stewart 2009
Caveats
How can they be removed?
Lapsing notice with dealing – serve a notice of
lodging a dealing and then 21 days for the
caveator to go to SC for extension of time –
otherwise the caveat lapses
Lapsing notice without dealing – 21 days to
obtain SC order extending caveat otherwise the caveat lapses
SC order – no notice, no dealing - s 74MA(1).
(c) Cameron Stewart 2009
Caveats
•
•
After lapsing further caveat by same person
based on same interest will be of no effect
unless court leave has been obtained
Wrongful lodgment – if a caveator is found
to have wrongfully lodged a caveat they are
liable to compensate the person sustaining a
pecuniary loss – “wrongfully” means in
infringement of the rights of the person
against whom the caveat is lodged
(c) Cameron Stewart 2009
Caveats
•
What is wrongful? The section refers to
lodgement of a caveat without reasonable
cause, not lodgement without a caveatable
interest. So if a caveat is lodged and there is no
interest to protect, this section only comes into
play of the lodger had no reasonable cause to
think that they had a caveatable interest.
Therefore the test is whether the caveator had
an honest belief at the time the caveat was
lodged on reasonable grounds that a caveatable
interest existed: Bedford Properties v Surgo Pty
Ltd [1981] 1 NSWLR 106.
(c) Cameron Stewart 2009
Caveats
• Butt examples p 751
–
–
–
–
Additional interest payments on a mortgage
Lost profits from a business to be run on acquired land
Damages paid to a purchaser if a sale falls through
Delay of sale resulting in increased capital gains tax
• Loss recoverable is the loss that can realistically
be shown to be attributable to the lodging of the
caveat (Lee v Ross (No 2) (2003) 11 BPR 20,991)
(c) Cameron Stewart 2009
What are unregistered interests?
• Barry v Heider (1914) 19 CLR 197 – The facts of Barry v Heider are a
little convoluted and we don’t need to get into them. Mr Barry was
the RP of a fee simple in Torrens land. Barry was defrauded by
Schmidt who tricked him into signing a transfer form saying that he
would sell the property for much less than it was worth. Schmidt
then used the transfer form/CT to raise a couple of loans with Mrs
Heider, using the property as security.
• Nothing had been registered. So, the transfer form has not been
registered and neither have the mortgages – so you have a group of
unregistered interests. Barry tried to argue that as all the
mortgagees had were unregistered mortgage instruments, those
instruments could not create any interests in the land itself –
because of s 41. So he’s saying that they have contractual rights
against Schmidt but that they cannot have any proprietary
equitable rights in the land because s 42 says you can’t have such
rights without registration.
(c) Cameron Stewart 2009
What are unregistered interests?
• Decision of Griffiths CJ – Griffith reviews the provisions of the
legislation; Notes that Parts of the legislation clearly envisage the
operation of unregistered interests: Part nine of the act deals with
trusts; the caveat provisions; and provisions allowing suits of
specific performance.
• Griffiths CJ concludes that Torrens legislation does recognise
unregistered interests in land.
• Isaacs finds that s 41 denies effect to an instrument until
registration, it does not deny effect to the rights arising out of the
transaction that gave rise to the dealing.
• No legal interest can be created because no legal interest can arise
in land without registration but if equity would enforce the
agreement then an equitable interest can arise before registration.
(c) Cameron Stewart 2009
What are unregistered interests?
• Isaacs J at 216:
Does not touch the form of contracts. A proprietor
may contract as he pleases, and his obligations to
fulfill the contract will depend on ordinary principles
and rules of law and equity … consequently, section
41, in denying effect to an instrument until
registration, does not touch whatever rights are
behind it. Parties may have a right to have such an
instrument executed and registered; and that right
according to accepted rules of equity, is an estate or
interest in the land.
(c) Cameron Stewart 2009
What are unregistered interests?
Chan v Cresdon (1989) 168 CLR 242 - per Mason, Brennan,
Deane and McHugh JJ at 257:
Though the unregistered instrument is itself ineffective to
create a legal or equitable estate or interest in the land,
before registration, the section does not avoid contracts or
render them inoperative. So …an agreement will be effective,
in accordance with the principles of equity, to bring into
existence an equitable estate or interest in the land. But it is
that agreement, evidenced by the unregistered instrument,
not the instrument itself, which creates the equitable estate
or interest. In this way no violence is done to the statutory
command [in s 41].
(c) Cameron Stewart 2009
Competing unregistered interests
Breskvar v Wall (1971) 126 CLR 376 - Mr and Mrs
Breskvar executed a transfer to Petrie as security
for a loan. Petrie fraudulently used the transfer
and sold to his grandson Wall, who became
registered owner. Wall sold to Alban Pty Ltd but
before they could register their interest the
Breskvars lodged a caveat which injuncted the
sale. The conflict was therefore between the
interest of Breskvars and the interests of Alban
Pty Ltd
Barwick : 'title by registration'. What sort of
interest did Wall have? What sort of interest does
Alban have? What interest do the Breskvars have?
(c) Cameron Stewart 2009
Competing unregistered interests
Heid v Reliance Finance Corporation Pty Ltd (1983) 154
CLR 326, Heid agree to sell land to Connell Investments.
Connell was owned by Newman McKay & Co. Heid
accepted advice from Newman to use their employee
(Gibby) as a solicitor. The solicitor was unqualified. Heid
left for overseas and left Gibby to complete the sale and
put part of the proceeds into an investment. The
remainder of the proceeds were not to be paid by
Connell but to be secured by way of a mortgage in favour
of Heid. In fact Connell mortgaged the property to
Reliance before it registered the sale from Heid to
Connell. After registering the sale but before Reliance's
or Heid's mortgage could be registered, Heid discovered
the fraud. Whose mortgage took priority?
(c) Cameron Stewart 2009
Competing unregistered interests
• Gibbs CJ focused first on priority based upon the
time of creation of the relevant equitable interests,
with such priority being displaced only if the equities
favoured the holder of the interest created second in
point of time. His Honour, at 333, said:
• In the present case the interest of the appellant was
first in time. The question therefore is whether his
conduct … has the consequence that [the holder of
the second equitable interest] has the better equity,
and the appellant's interest should be postponed to
that of [the holder of the second equitable interest].
(c) Cameron Stewart 2009
Competing unregistered interests
At 341, Mason, Deane JJ observed:
It will always be necessary to characterize
the conduct of the holder of the earlier
interest in order to determine whether, in
all the circumstances, that conduct is such
that, in fairness and in justice, the earlier
interest should be postponed to the later
interest.
(c) Cameron Stewart 2009
Competing unregistered interests
• By signing the transfer form which states that the
purchase price had been received (see ACT form)
Heid had enabled CI to create R's later interest, ie to
present itself as holding the unencumbered fee
simple, but Heid argued that he had not acted
imprudently. It was normal practice to hand over a
signed transfer form and CT to a solicitor - the
solicitor attends settlement on behalf of the vendor.
If vendors have to take precautions against the
possibility of their own solicitor being fraudulent,
then conveyancing practice would become very
cumbersome and expensive.
(c) Cameron Stewart 2009
Competing unregistered interests
• The flaw in his argument was that he had not followed normal
conveyancing practice because he had not engaged his own
solicitor. In fact Heid ought to have been suspicious of Gibby
because he was an employee of the purchaser. Furthermore, he
wasn't a qualified solicitor. So H Ct held the equities were
unequal and Reliance had priority.
• Implicitly the H Ct acknowledged that it would have been
acceptable for Heid to give the executed transfer form and the
CT to his own solicitor, so that if that solicitor then acted
fraudulently to create a later unregistered interest, H would not
lose priority.
(c) Cameron Stewart 2009
Failure to lodge a caveat
• Butler v Fairclough (1917) 23 CLR 78
• Mr Good was the registered proprietor of a property.
The title to that property was encumbered by one
registered mortgage. Mr Good was then involved in the
following transactions:
• 30th of June - a contract of mortgage with Mr Butler (a
second mortgage). This mortgage was not registered on
the title.
• 2nd of July - a contract of sale with Mr Fairclough. Mr
Fairclough searched the title and discovered the first
mortgage only.
• 7th of July - Mr Butler caveated to protect his interest.
(c) Cameron Stewart 2009
Failure to Lodge a Caveat
•
•
•
Subsequent to the lodgement of the caveat Mr Fairclough lodged his transfer
of title documents. The transfer of title documents could not be processed on
the title because of the existence of the caveat. There were then some
additional complications which we won’t go into here. For our purposes we
can simply note that when the matter came to court, the court had to decide
between the competing priorities of Mr Butler’s unregistered mortgage and
Mr Fairclough’s unregistered transfer of title.
Who takes priority? If Mr Butler takes priority then Fairclough’s fee simple will
be subject to the mortgage. If Mr Fairclough takes priority then he will take
the fee simple free from the mortgage.
The rule of course is that where the equities are equal first in time will prevail.
Mr Butler was the first in time. The question for the court was whether the
equities were equal. Was there any postponing conduct on the part of Mr
Butler? The court said yes. The court said that Butler's delay in caveating by
seven days made the equities unequal. In this case the court placed emphasis
on the fact that Mr Fairclough had searched title and was induced to acquire
his interest by the absence of any existing adverse interests.
(c) Cameron Stewart 2009
Failure to lodge a caveat and postponing
conduct
• Abigail v Lapin [1934] AC 491
• Lapins executed a transfer to Mrs Heavener
(as security for a loan) on the
understanding that they could redeem it on
repayment. Mrs Heavener became
registered and mortgaged it to Abigail. The
mortgage was unregistered but Abigail had
not notice of the earlier interest. He
searched the register and found nothing.
Lapins sought to rectify the register
(c) Cameron Stewart 2009
Failure to lodge a caveat and postponing
conduct
• Lapins' interest should be postponed - they
armed Heavener with the means to deal
with the estates. The failure to caveat was
one factor to consider in the question of
who had the better equity. The question of
whether a caveat should be lodged is a
question of conveyancing practice or
whether it was reasonable. Abigails search
of the register was not relevant as it had
not been caused by an representation by
the Lapins
(c) Cameron Stewart 2009
Failure to lodge a caveat and postponing
conduct
• In J & H Just (Holdings) Pty Ltd v Bank of New South
Wales (1971) 125 CLR 546, the bank loaned money
to Josephson. The bank obtained a mortgage in
registrable form as well as the certificate of title but
did not register the mortgage. J & H Just advanced
further money to Josephson on the security of the
land. They asked Josephson about the certificate of
title and accepted his statement that it was with the
bank for safekeeping. J & H Just lodged a caveat. The
issue before the High Court was whether the bank
maintained its priority according to time. The High
Court ruled in favour of the bank. By receiving the
title documents the bank had taken adequate
precautions to protect themselves.
(c) Cameron Stewart 2009
Failure to lodge a caveat and postponing
conduct
•
Chief Justice Barwick at 554:
To hold the failure by a person entitled to an equitable estate or interest in land
under the Real Property Act to lodge a caveat against dealings with the land must
necessarily involve the loss of priority which the time of the creation of the
equitable interest would otherwise give, is not merely in my opinion unwarranted
by general principles or by any statutory provision but would in my opinion be
subversive of the well-recognised ability of parties to create or to maintain
equitable interests in such lands ….
Of course, there may be situations in which such a failure may combine with other
circumstances to justify the conclusion that the act or omission proved against the
possessor of the prior equity ‘has conduced or contributed to a belief on the part
of the holder of the subsequent equity, at the time when he acquired it that the
prior equity was not in existence’ … this is the relevant principle to apply if it is
claimed that the priority of a prior equitable interest has been lost in competition
with the subsequent equitable interest.
(c) Cameron Stewart 2009
Failure to lodge a caveat and postponing
conduct
• In Osmanoski v Rose [1974] VR 523, A
contracted to sell land to B and then again to
C. When C contracted he searched the register
and saw that A was the registered proprietor.
B had not lodged a caveat in relation to his
unregistered interest at that time but did
lodge one before C lodged a transfer for
registration. The court held that B’s failure to
lodge a caveat before C contracted with A was
postponing conduct as it led to C contracting
in the belief that there was no other interest
such as B’s in existence.
(c) Cameron Stewart 2009
Failure to lodge a caveat and
postponing conduct
• In Avco Financial Services v Fishman [1993] 1 VR 90,
Fishman mortgaged land to the State Bank. The
mortgage was registered. A second mortgage between
the bank and Fishman was entered into. It was not
registered. Nor was a caveat lodged by the bank.
Fishman entered into a third mortgage with Avco. Avco
had no notice of the second unregistered mortgage to
the bank. They wrote to the bank seeking details of the
amount owing under the first (registered) mortgage.
The bank responded, but said nothing about having an
unregistered second mortgage. The issue was whether
Avco had priority over the bank’s second mortgage due
to the bank’s failure to lodge a caveat.
(c) Cameron Stewart 2009
Failure to lodge a caveat and
postponing conduct
• Tadgell J ruled in favour of the bank, finding that it had not
done anything justifying postponement of its priority
according to time. He re-affirmed that the purpose of a
caveat was protective and not to give notice. Having the
title documents the bank did not need the protection
gained by lodgment of a caveat. Citing J & H Just (Holdings)
Pty Ltd v Bank of New South Wales, Tadgell J, at 95 said:
The Bank was not to be expected to lodge a caveat to give
notice of its second mortgage to persons who might be
induced to lend to the mortgagors by their false statements
or representations that no second mortgage had been
taken by them.
(c) Cameron Stewart 2009
Failure to lodge a caveat and postponing
conduct
• Person-to-Person Finances Pty Ltd v Sharari
[1984] 1 NSWLR 745 Tredgolde had a registered
mortgage over Torrens title land. As a registered
mortgagee he also held the certificate of title.
Sharari took a subsequent mortgage over the
property, but his solicitor failed to have that
mortgage registered. Sharari did not lodge a
caveat to protect his unregistered mortgage.
Subsequently Person-to-Person took a mortgage
over the property after being told by the owner
of the land that Tredgolde had the only other
mortgage over the property.
(c) Cameron Stewart 2009
Failure to lodge a caveat and postponing
conduct
• Person-to-Person’s search of the register
revealed only Treadgolde’s mortgage. Personto-Person lodged a caveat in respect of its
unregistered mortgage. The issue before the
Court was whether Sharari’s failure to lodge a
caveat amounted to postponing conduct.
• McLelland J ruled that Sharari was guilty of
postponing conduct and that, therefore,
Person-to Person had priority over Sharari.
(c) Cameron Stewart 2009
Failure to lodge a caveat and postponing
conduct
• His Honour, at 738, said:
• [I]t is the settled practice of competent solicitors ... acting
for second or subsequent mortgagees, to ensure either the
prompt registration of the mortgage or lodgment of a
caveat. The failure by [Sharari] through his solicitor to
conform to this practice would lead naturally to those who
searched, such as [Person-to-Person], to believe that there
was no such outstanding second mortgage, and it is my
opinion that the failure of [Sharari], in the absence of
registration of his mortgage, to lodge a caveat led [Personto-Person] to acquire its mortgage on the supposition that
no unregistered second mortgage already existed, in
circumstances which make it inequitable as between the
parties that [Sharari’s] mortgage should have priority over
that of [Person-to-Person].
(c) Cameron Stewart 2009
Failure to lodge a caveat and postponing
conduct
• Jacob v Platt Nominees [1990] VR 146 – Full Court of Vic Supreme
Court – The Platts were the directors of a company – Platt
Nominees which owned a motel. The Platts entered into a
contract with their daughter, Mrs Jacobs, in which she had an
option to purchase the motel. This gave Mrs Jacobs an equitable
caveatable interest. Mrs Jacobs did not lodge a caveat because
she thought that the creation of any subsequent interests would
have to be approved by her mother, who would not allow it. Also,
she did not want to antagonise her father.
(c) Cameron Stewart 2009
Failure to lodge a caveat and postponing
conduct
• Platt Nominees entered into a contract of sale with Perpetual
Trustee to sell the land. The father did this by using his son, who
had a signed authority from his mum to authorise transactions. It
happened without the knowledge of Mrs Jacobs or her mum. Mrs
Jacobs found out about the contract after exchange but before
settlement and lodged a caveat.
(c) Cameron Stewart 2009
Failure to lodge a caveat and postponing
conduct
Crockett, King and Gobbo JJ
• Mere failure to lodge a caveat will not result automatically in
postponement although it could do in the circumstances;
• Primary purpose of caveat is to protect the interest holder not
to give notice of the interest to all the world. No duty to lodge
a caveat;
• Taking possession of the CT is one way to protect oneself but
even it will not prevent the creation of subsequent interests
(although it will prevent their registration);
• It was not demonstrated that it was settled conveyance
practice to always caveat after the creation of an equitable
interest – such that a failure would induce a person to believe
that no other interest could exist;
(c) Cameron Stewart 2009
Failure to lodge a caveat and postponing
conduct
• In this case, the failure to caveat in the circumstances was not
postponing conduct – because of the relationship between
Mrs Jacobs and her parents. The court held that Mrs Jacobs it
was inconceivable that her parents would both agree to sell
the motel and defeat her interest:
The appellant had secured the option from her parents in
such a way that it was inconceivable that her mother and
father would join together to sell the motel in breach of the
option. It was, in short, not reasonably foreseeable that her
failure to lodge caveat exposed herself or others to a risk of a
later sale (per Crockett, King and Gobbo JJ at 160).
(c) Cameron Stewart 2009
Failure to lodge a caveat and postponing
conduct
• Mimi v Millenium Developments Pty Ltd [2004] V ConvR 54687 - two competing equitable interests and a failure to
caveat
• Jacob v Platt distinguished because there was no close
personal relationship between the earlier interest holder and
the RP on which to base an assumption that further interests
would not be created.
(c) Cameron Stewart 2009
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