#6941 - Property B Summary Caveat System - Property Law

Topic 6 Summary:

Caveat system

1. Introduction

   1. What is a caveat?

      • A caveat acts as an injunction to the Registrar by restraining the Registrar from registering any dealing except with the caveator’s consent

   2. Who can lodge a caveat?

      • Any person who is claiming an estate or interest in land under [an] unregistered instrument or dealing or by devolution in law or otherwise 89(1) TLA

        • Trust

        • Vendor’s lien for unpaid purchase money

        • Mortgagee’s interest under an unregistered mortgage

        • Purchaser’s interest under an option to purchase Bahr

        • Need not be a registrable interest, so long as it is one in respect of which equity will give specific relief against the land.

      • What is not caveatable?

        • A mere personal right

        • A claim to set aside a transfer on the ground of fraud is not caveatable until such claim is successfully established

   3. Recording a caveat

      • Must be recorded in the register 89(2) TLA

   4. Notice to the registered proprietor

      • Registrar is required to give notice of the caveat and a copy of the caveat to the registered proprietor 89(3) TLA

2. Removal of a caveat

   1. It can be withdrawn by the caveator 89(1)

      • Withdrawn application: 90(4) TLA

        • The registrar shall reinstate any recording of the caveat in the relevant part of the Register to which the caveat related

   2. An inconsistent dealing is lodged 90

      • Caveator is notified by the Registrar

      • They have 30 days to:

        • Consent to registration 90(1)(b)

        • Commence court proceedings 90(2)

      • Or caveat lapses

        • unless it is lodged by the Registrar 90(1) TLA

        • BUT if the transfer or dealing lodged does not dispose of the whole of the interest then the caveat will only lapse to the extent necessary to permit the registration

      • Exceptions: see 90(1)(a-e)

   3. An application for removal is made to the Registrar 89A

      • Any person interested in the land may make application to the registrar to have a caveat removed 89A(1)

      • Application must specify the land and the estate or interest in respect of which it is made; and be supported by certificate by a legal practitioner which states that, in the practitioner's opinion, the caveator does not have the estate or interest claimed 89A(2)

      • Registrar when satisfied gives notice of the application to the caveator 89A(3)

      • 30 days 89A(5) for caveator to:

        • Abandon the caveat by notice in writing; or 89A(3)(c)

        • Commence court proceedings to substantiate the caveator’s claims 89A(3)(b)

          • What level of substantiation do we need: 89A(7)(a) TLA

            1. Proceedings in question is not substantiated the court may make an order in regards to the caveat that it thinks fit

      • Or caveat lapses

   4. Application to the court 90(3)

      • Any person who is adversely affect by [a] caveat may bring proceedings in a court against the caveator for the removal of the caveat and the court may make such order as the court thinks fit

      • Piroshenko v Grojsman

        • application considered in accordance with the principles applied to an application for interlocutory injunction

        • Need to establish it's a serious question to be tried, and must show a prima facie case only

          • Probability that he/she will be found to have an equitable interest; and

        • Balance of convenience factors favours maintenance of the caveat on the register until trial

          • Choose the course which appears to carry the lower risk of injustice if it should turn out to have been wrong

      • Delaying registration 90(2)

        • Court can delay registering any dealing with the land for a further period specified in the order, or make any order it thinks just

          • When?

            1. Caveator provides security/lodges such sum sufficient to indemnify every person against any damage that may be sustained by reason of any disposition of the property being delayed

   5. 90(5): Section 90 has no application where, the lodgement of registration or dealings is to pass to the caveator upon being registered.

   6. A caveat that has lapsed or been removed by an order of a court cannot be renewed by the caveator for the same claim 91(4)

   7. A person who lodges a caveat without reasonable cause is liable to pay compensation to any person who sustains damage as a result 118 TLA

      • Reasonable cause: honest believe on reasonable ground that the caveator has such interest.

      • The fact that a caveator fails to sustain the caveat at full trial must not be equated with an absence of reasonable grounds for lodging the caveat in the first place

      • If a caveat has been lodged with reasonable cause, is it possible that the maintenance of the caveat may become unreasonable so as to attract the compensation provisions? Doubtful.

3. The effect of a caveat

   1. No recordings shall be made in the register relating to proprietorship of or any dealing purporting to affect the estate or interest in respect of the caveat lodged, UNLESS it related to 90(1)(a-c)

      • A transfer or dealing referred to in section 90(1)(a)(b)(c)(d) or (e)

      • A transfer of dealing referred to in section 90(5); or

      • A transfer or dealing in respect of which the caveat has lapsed

   2. If you lodge a caveat AFTER an instrument has been lodged it will not affect that instrument 91(2)

   3. If you are lodging a caveat after a mortgagee exercised their power of sale, the caveat will not have any effect IF the caveat: 90(2A)

      • Was lodged after the mortgage or charge was lodged; and

      • Claims an estate or interest in the land transferred by virtue of an unregistered mortgage or charge or other unregistered document intended to create a security for the payment of moneys

   4. Exercising power of sale under mortgage, a caveat will lapse if: 91(2B)

      • Was lodged after the mortgage or charge was lodged; and

      • Claims an estate or interest in the land transferred by virtue of an unregistered mortgage or charge or other unregistered document intended to create a security for the payment of moneys

4. Registered proprietors and caveating

   1. In most cases the RP must have another interest that is being caveated, other than legal title. Generally they cannot lodge a caveat against your own title.

   2. When will this arise?

      • It will arise when the RP becomes aware of a situation that a new transfer is about to be lodged

      • This often comes up with an improper mortgagee exercising a power of sale

   3. There needs to be a separate and distinct interest in the land: Swanston

      • The court held in this case that a mere equity did not give rise to a proprietary interest in the land capable of supporting a caveat. However, this was argued to be wrong in Capital Finance Australia

      • Until a court makes an order setting aside a voidable sale by mortgagee, the RP has a ‘mere equity’ which is not a caveatable interest.

      • They relied on Latec in arguing that a mere equity was not a proprietary right. However, Latec was not dealing with caveats, but a priority dispute

      • However, as a matter of practice a registrar will accept a caveat if a CoT is lost.

   4. Types of interests

      • Mere equity – cannot be caveated. As it is not a proprietary right. Swanston

        • However Vasiliou stated that it was never shown that in Latec that they were dealing with caveats

      • Legal interest: mortgagor remains legal holder, but this cannot be caveated Swanston

      • Equity of redemption: this is caveatable Latec and Breskvar which did not in fact specifically state which interest was held, but gave the impression it was a full equitable right

        • This has been heavily criticised because Latec was a priority dispute, and dealt with proprietary rights.

Competing equitable interests under the TS: Equitable vs Equitable

1. First Step: Identify what interests each party has

   1. Equitable interest and a specifically enforceable contract

   2. Equitable interest

   3. Legal interest

   4. Mere Equity:

      • Equity of rectification

      • Equity to set aside fraudulent transaction

2. Second Step: When was each created?

3. Notice Provision Test: Preliminary test

   1. The first equitable interest must prevail if the second equitable interest took with notice of the existence of the first Mofatt v Dillon

      • Notice is not just a consideration in determining which is the better equity, it is determinative, no need to make any further enquiries

      • According to Brooking in Moffet, if there is notice, not need to apply Heid test. But Orminston doubts that the doctrine of notice applies where the later interest is equitable rather than legal. He thinks notice is an important consideration in determining whether there is postponing conduct.

   2. Situations of when you go to the merits test even with notice:

      • It might be a situation where the second interest holder has been induced to believe that the first won’t enforce the interest against them

   3. What is sufficient for notice 199 PLA

      • If there is actual knowledge; or

      • If it would have come within his knowledge if such inquiries and inspections had been made as ought reasonably to have been made; or

      • It has come to the knowledge of his legal practitioner or other agent, or would have come to the knowledge of his legal practitioner or other agent, if such inquiries and inspections had been made as ought reasonably to have been made by the legal practitioner or other agent.

   4. Perpetual Trustees v Smith

      • Look at whether section 42 strips the registered mortgagee of their indefeasible title, which will leave them with a competing unregistered interest.

        • Things that would strip it: tenants in possession

      • Things that might alert you to notice:

        • Name of company

        • Fact that you would know the type of business before granting a mortgage.

        • The homes were occupied (there interest of a TIP does not usually take priority over a subsequent RP). The occupation was constructive notice of their interest which would prevail even against a bona fide...