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Removal of caveats – the possibilities


Feature Articles

Cite as: (2004) 78(4) LIJ, p.58

A couple of procedures are available to a registered proprietor of land who wishes to remove a caveat from their title. Careful thought needs to be given to the best approach.

By Andrew Kirby

Disputes concerning interests in land, whether between vendor and purchaser or otherwise, are a common legal problem confronting practitioners. Almost invariably, one or more of the parties will have lodged a caveat on the title to the land.

Under ss89A and 90(3) of the Transfer of Land Act 1958 (TLA) there are two different procedures available by which a party can remove a caveat. A caveat may also be made to lapse under s90(2) in certain circumstances.

Removal under s89A

Section 89A of the TLA enables a caveat to be removed administratively as follows:

  • any person interested in the land may apply to the registrar of titles to have the caveat removed. The application must be in the prescribed form and must be supported by a certificate signed by a legal practitioner which states that in his or her opinion the caveator does not have the estate or interest claimed;
  • on receiving the application, the registrar will give notice to the caveator that the caveat will lapse by a specified date (usually 35 days after service of the notice) unless:
    - the application is abandoned in the meantime by the applicant; or
    - the caveator notifies the registrar that proceedings are on foot in a court of competent jurisdiction to substantiate the claim of the caveator;
  • on the specified date, unless:
    - the application has been abandoned; or
    - notice is given to the registrar that proceedings are on foot in a court of competent jurisdiction to substantiate the claim of the caveator –

    the caveat will lapse and the registrar will make all necessary amendments to the register.

The s89A procedure avoids an application to court. However, it is slow and may well lead to litigation which may not be determined for several years. If a vendor invoked this procedure and the caveator issued proceedings then the vendor would most probably lose the sale.

Removal under s90(3)

The procedure under s90(3) of the TLA allows a court to determine summarily the issue of the removal of a caveat. Section 90(3) provides that “any person who is adversely affected by any such caveat may bring proceedings in the court against the caveator for the removal of the caveat and the court may make such order as the court thinks fit”.

The proceeding is usually brought by originating motion in the Practice Court of either the Supreme or County Courts (if the value of the land is less than $200,000). The registrar of titles is usually made a defendant to the proceeding but customarily will not participate. It is possible to invoke this procedure even if proceedings are already on foot.[1]

The onus of proof to maintain the caveat is on the caveator.[2] This will require the caveator to swear an affidavit to substantiate the caveatable interest and depose to any other matters relevant to the application. The first consideration for the court then is whether the caveat complies with all formal requirements.

Formal requirements
Caveats must be lodged in a prescribed form which requires a clear description of the legal or equitable estate or interest claimed.[3] Defects in these particulars could be grounds for removal of the caveat in a s90(3) application. For example, if an equitable chargee purports to claim “an interest in fee simple” then the caveat will be defective and ought to be removed. Similarly, a claim for payment of a sum of money will be defective if it does not state a claim or interest in the land.[4]

The caveat must also state the facts or grounds on which the claim is founded and the extent of the prohibition. This will involve identifying clearly any instrument or agreement under which the estate or interest is created. The caveat should have been drafted in terms which are intelligible to a third party, as well as the registered proprietor. Otherwise, there is a risk that the registrar will not know what dealings are prohibited.[5] A caveat may be defective if it specifies a wider prohibition on dealings than the caveator is entitled to claim, such as a second mortgagee purporting to prohibit “any dealing with the land” when clearly it is subject to the first mortgagee’s power of sale.[6]

It seems that the court does have a limited power to amend a caveat, but that such power does not extend to an amendment which would result in the substitution of an estate or interest inconsistent with the estate or interest claimed in the caveat.[7] It may, however, at least be possible to amend minor technical deficiencies such as the name of the registered proprietor or the class of dealings prohibited.[8]

Assuming that the formal requirements are satisfied, the court will need to consider:

  • whether there is a serious question to be tried as to the existence of the caveatable interest in the land; and
  • whether the balance of convenience requires the status quo to be maintained pending trial.

This two-stage test mirrors the test for interlocutory injunctions. This is hardly surprising given that the Privy Council in Eng Mee Yong & Ors v Letchumanan[9] likened caveats to “a statutory injunction of an interlocutory nature restraining the caveatee from dealing with the land pending the determination by the court of the caveator’s claim to title to the land”.[10] The two-stage test for interlocutory injunctions is now applied to applications for removal of caveats in Victoria.[11] It should be noted that, as with injunctions, the court has a wide discretion to determine whether or not a caveat should be removed and the terms on which it is to remain or be removed.[12]

Is there a caveatable interest?
While the court will not determine disputes of fact at the application,[13] the caveator’s affidavit material will need to disclose a serious question to be tried in relation to their caveatable interest in the land. The types of caveatable interests are varied and further reference should be made to the specialised textbooks on this subject.[14] The most important requirement is that the interest claimed is proprietary in nature and not merely contractual. Typical examples of caveatable interests include:

  • a purchaser’s interest under a contract of sale;
  • options to purchase and to renew leases;
  • the interest of a chargee or mortgagee; and
  • a claim under an express, resulting or constructive trust.

In Classic Heights Pty Ltd v Black Hole Enterprises Pty Ltd,[15] Batt J held that a caveat can be lodged only in respect of an estate or interest which arises from a registrable instrument or where the caveator has a right (arising from the transaction giving rise to the alleged caveatable interest) to compel the registered proprietor to deliver an instrument which can itself be registered. On its face, the decision is a problem for caveators seeking to protect many equitable interests which may not satisfy these requirements, including interests arising under trusts. However, the Classic Heights decision has been questioned in subsequent cases and is not consistently followed.[16]

Balance of convenience
Once the court is satisfied that there is a serious question to be tried as to the existence of the caveatable interest in the land, it must then consider the “balance of convenience” as to whether the caveat should remain until trial or be removed. This consideration will necessarily depend on the circumstances of each particular case. For example, a pending settlement of a sale would be a strong argument by a vendor for removal of a caveat.[17] On the other hand, if a sale is allowed to proceed a purchaser may be denied his or her interest in the land.[18] The potential extinguishment of the caveator’s interest in the land is a good reason for a court not to order the removal of a caveat protecting that interest.[19] Similarly, it might be argued that a caveat should remain pending an appeal, otherwise a successful appeal might be rendered nugatory.

The court has the power to impose conditions on either the registered proprietor or the caveator when considering this issue. In Wright v Bridge Wholesale Acceptance Corporation,[20] a registered proprietor sought to remove a caveat which had been lodged in respect of “an equitable interest as chargee”. The registered proprietor had arranged a sale of the property. Tadgell J held that the question of priority between the parties could be resolved after the caveat had been removed and the proceeds of sale paid by the purchaser.

It is also possible that a caveat could be ordered to be removed on the registered proprietor providing security, such as the payment into court of a specified sum or the provision of a bank guarantee, to protect the caveator’s alleged interest.

In cases where the caveat is allowed to remain on title, conditions may be imposed on the caveator. Examples include the following:

  • an order that the caveator must bring proceedings within a short period of time to establish the right claimed in the caveat, otherwise it will be removed;[21]
  • an order requiring the caveator to provide an undertaking as to damages should the interest allegedly claimed in the caveat not be proven at trial.[22] In certain circumstances, including a case where the caveator is impecunious, this may involve the provision by them of security in support of such an undertaking; and
  • an order that the caveat be amended.[23]

It should be noted that once a caveat has been removed, s91(4) of the TLA prohibits the renewal of the caveat by or on behalf of the same person in respect of the same interest.

Lodgment of a subsequent dealing

There remains the possibility that the registered proprietor may wait until a transfer or dealing inconsistent with the caveat is lodged with the registrar. The registrar will then give the caveator notice under s90(1) of the TLA. In order to prevent the caveat lapsing, under s90(2) the caveator must appear before the court within 30 days and give an undertaking or lodge security which the court considers sufficient to indemnify any person against any damage that may be sustained by reason of any disposition of the property being delayed. The court will then direct the registrar to delay registering the dealing in respect of the property. The court usually would impose a term that the caveator issue proceedings to substantiate the estate or interest claimed within a specified term, otherwise the caveat will lapse. The problem with this procedure is that in practice the registered proprietor will find it difficult to deal with or transfer the property while the caveat remains on title.

Damages for wrongful lodgment

It is possible to seek damages against a person who has lodged a caveat “without reasonable cause”. Section 118 of the TLA provides that:

“Any person lodging with the registrar without reasonable cause any caveat under this Act shall be liable to make to any person who sustains damage thereby such compensation as the court deems just and orders”.

It is important to note that the use of the word “lodging” means that the issue of “reasonable cause” is to be considered as at the time of the lodgment. Therefore, if reasonable grounds exist at the time of lodgment, subsequent events do not alter the position as against the caveator.[24] In Commonwealth Bank v Baranyay,[25] Hayne J considered the section and found that the onus was on the plaintiff to prove that the caveator acted “without reasonable cause”. His Honour considered it insufficient to prove simply that the caveator had no caveatable interest. Indeed, his Honour indicated that it would usually be sufficient if the caveator had an honest belief in his entitlement based on reasonable grounds. The section does not extend to the maintenance of the caveat in the face of complaint by the registered proprietor.[26]

In some other states, such as New South Wales and South Australia, the equivalent provision to s118 has been extended to encompass the unreasonable maintenance of, or refusal to withdraw, a caveat.

If the caveator was required to provide an undertaking as to damages as part of an application under s90(3) by the registered proprietor, then it will be possible to bring an action for damages based on that undertaking if the trial judge determines the case against the caveator.

Summary

The possibilities available under ss89A and 90 of the TLA to remove caveats can lead to different consequences. These consequences need to be considered beforehand, particularly if a court is required to balance competing interests in the land and make practical orders which may include conditions and require undertakings by the parties.


ANDREW KIRBY is a member of the Victorian Bar practising in commercial law. He is secretary of the banking and finance section of the Commercial Bar Association.


[1] Martyn v Glennan [1979] 2 NSWLR 234; In Amatruda v Chandler [2001] VSC 93 (10 April 2001), Byrne J, proceedings had been issued by the caveator in response to a s89A notice. The registered proprietor then issued a summons to remove the caveats under s90(3).

[2] Lewenberg and Pryles v Direct Acceptance Corporation Limited [1981] VR 344.

[3] Leros Pty Ltd v Terara Pty Ltd (1991) 174 CLR 407 at 423.

[4] Delma Investments Pty Ltd v Shillito [1971] VR 442.

[5] New Zealand Mortgage Guarantee Co Ltd v Pye [1979] 2 NZLR 188.

[6] Note 2 above.

[7] Midwarren Estates Pty Ltd v Retek and Stivic [1975] VR 575; ML Johnston & Sons Pty Ltd v Ostrek Pty Ltd (1992) V ConvR 54-441.

[8] Refer to the discussion in Colbran S and Jackson S, Caveats, 1996, FT Law & Tax Asia Pacific, pp283-287; Lindsay S, Caveats Against Dealings, 1996, Federation Press, pp166–71.

[9] [1980] AC 331.

[10] Note 9 above, at 335. See also J & H Just (Holdings) Pty Ltd v Bank of New South Wales (1971) 125 CLR 546 at 552; note 3 above, at 419.

[11] Smith v Callegari (1988) V ConvR 54-300; Australia and New Zealand Banking Group Ltd v Oak Pty Ltd (1991) V ConvR 54-423; Trowmet Pty Ltd v Lew (1992) V ConvR 54-427; Australian Natives’ Association Friendly Society v Peball Pty Ltd (1993) V ConvR 54-482; note 1 above.

[12] Commercial Bank of Australia Ltd v Schierholter [1981] VR 292 at 296 per Young CJ.

[13] Wright v Bridge Wholesale Acceptance Corporation [1993] 1 VR 502.

[14] Note 8 above, Colbran S and Jackson S, p127; Lindsay S, p89.

[15] (1994) V ConvR 54-506.

[16] Refer to Crampton v French (1995) V ConvR 54-529; Chiodo v Murphy & Doherty (1995) V ConvR 54-531; Composite Buyers Ltd v Soong (1995) 38 NSWLR 286; Spencer v Spencer (unreported, Supreme Court of Victoria, 16 October 1996, Hedigan J); Wikrama, N, “Do caveats need supporting by registrable instruments?” (1995) 69 LIJ 101.

[17] Note 12 above.

[18] Interests in land are usually seen to have a special character which cannot adequately be compensated by an award of damages: see Spry ICF, The Principles of Equitable Remedies (6th edn), 2001, LBC Information Services, pp61-63.

[19] John and Luba Zombolas v LRG Credit and Finance Pty Ltd (1998) V ConvR 54-302.

[20] [1993] 1 VR 502.

[21] Re Jasper’s Caveat (1923) VLR 650.

[22] Martyn v Glennan [1979] 2 NSWLR 234 at 242; Re South Brisbane Motors Pty Ltd’s Caveat [1981] Qd R 416.

[23] Note 8 above.

[24] Note 8 above, Colbran S and Jackson S, pp555-556.

[25] [1993] 1 VR 589.

[26] Robinson S, Transfer of Land in Victoria, 1974, LBC, p434.

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