Caveat solicitor

Yesterday I read an unusually brisk judgment ordering a caveator to withdraw a caveat and pay compensation, given by Justice Brereton in the NSW Supreme Court. 

You may or may not know that Australia’s main contribution to legal history is “Torrens Title,” named for the nineteenth-century South Australian politician after whom Adelaide’s Torrens River is also named.  This is a system of registration of land ownership which was conceived in order to do away with the cumbersome and expensive system of land title which the white man brought to Australia from England, where in order to prove ownership of land you had to establish title in the land through the series of documents which indicated all the dealings with the land which went right back to some document which could be considered a good “root of title.”  Any weak link in this chain of title could cause the whole process to unravel (yes, mixed metaphor) and lead to lengthy and expensive delays and disputes.

The key principal of Torrens Title is the existence of a register, maintained by the government, which records interests (ie, property rights) in land.  The state in effect guarantees these interests because the law considers them to be indefeasible.  There is an important exception to this indefeasibility, in that, broadly speaking, an interest in land is subject to the rights that other parties may have against the owner of the land, for so long as the owner remains the owner, but a person who deals with that owner or receives the land from that owner without knowledge of such interests will normally take their interest in the land free of any such hidden interests.

Some interests in right are created by statute or by planning schemes, and these are then recorded on the register.  However, most rights are created by the owner of the land.  The owner of the land is issued with a certificate of title, and the interests which the owner creates (such as, for example, a mortgage) are registered by production to the government office of the paperwork in relation to the creation of that interest, together with the certificate of title.

However, it is still possible (and indeed, quite common) to have an interest in land which is not registered, either because the owner is unable to produce the certificate of title to the register to enable registration of your interest (for example, when a person borrows money from a bank or other financial insitution, as well as registering its mortgage, the bank will hold on to the certificate of title until the mortgage has been discharged) or because the registered owner does not co-operate in producing the certificate of title for this purpose together with the necessary paperwork appropriately signed by the registered owner.  Sometimes there will in fact be no paperwork, because the owner does not agree that the other party has an interest in the land, and/or the owner has not executed a document which could lead to the registration of that interest.

Obviously, the holder of such an unregistered interest (or claimed interest) is vulnerable to the owner’s interest being transferred to a third party who doesn’t know about that interest, and who will consequently acquire an indefeasible title in the land.  If that happens, the unregistered interest in the land will have disappeared.  You might be able to sue someone about this, but if they don’t own the land any more, not only will you have lost the interest in the land, but you may well face difficulties in getting any money from them as compensation.

To guard against this risk, you can lodge a caveat which will be recorded in the register.  You don’t need to produce the Certificate of Title to do this, and it doesn’t require the consent of the registered owner or of the holders of other registered interests.  While the caveat remains on the register, no further dealing can be registered which is inconsistent with the interest claimed in the caveat.  The word caveat comes from the latin “to warn,” but the practical effect of a caveat is rather more than this, since it will generally block any dealings with the land.  This could be very inconvenient for registered owners or other parties wishing to deal with their interests.  For example, if they have entered into a contract to sell the land and are unable to do so, they could face claims for damages as a result. They may also face losses as a result of the funds which they were expecting from such a transaction no longer being available so that, for example, they are unable to buy another property and may be facing contractual damages claims for that.

Obviously, then, the lodging of a caveat can be a very powerful spoiling tactic in any dispute between people where one side has property over which such a caveat can be lodged.

In such cases, the person whose interest is, in effect, blocked by the caveat can issue a lapsing notice to the person who has lodged the caveat.  The effect of this lapsing notice is that the caveat will lapse (that is, cease to be recorded) after (in NSW, at least) 21 days unless the caveator obtains a court order extending its operation.  To do this, the caveator has to commence proceedings which will ultimately result, if the caveator is successtul, in establishing the caveator’s right to the interest in the land.  The first step in these proceedings will then involve a decision to determine whether the caveator’s claim is sufficiently strong that the owner’s interest in the land should continue to be blocked by the caveat until the claim can be litigated in the proceedings.  Other considerations at this time will also include the balance of convenience, that is, a weighing up of the likely harm to the caveator if the caveat should be removed and the likely harm to the person who owns the interest in the land if they are unable to deal with it in the interim.

Because the order has to be made in 21 days, this step is taken urgently.  Caveators don’t have to prove their case fully, but they have to do more than simply assert their claim.  Because it is urgent, the question usually comes before a duty judge to be decided at relatively short notice, and often at the last minute so that, if an order is obtained, the caveator can get the necessary paper work and rush across the road to the government department which maintains the register before it closes on the last day.  This urgency gives the proceedings a certain subdued air of drama compared to the usual leisured majesty of the law.

Such applications are relatively commonplace.  It is easy to lodge a caveat, and lots of people have interests in land.  My guess is that these applications are one of the three most commonly-litigated types of matters heard in the Supreme Court, the other two being applications to set aside statutory demands (statutory demands are a way of shaking down a company for money by issuing a demand for a debt which, if not satisfied, can establish that a company is insolvent and lead to it being wound up) and applications for security for costs (this is when a defendant says that the plaintiff must provide some money or other security upfront to the defendant because if the defendant wins there is a risk that the defendant will whistle in the wind to recover the defendant’s legal costs from the plaintiff).  There is a forest of case law about all three of these, or rather, there would be forests, had they not been cut down to print the paper on which the decisions are printed.

I mentioned already that lodging a caveat can be a very powerful spoiling tactic.  If the caveat was wrongy lodged, you can seek compensation against the caveator.  This is rare, because usually the question about extension of the caveat hinges on the strength of the caveator’s claim, or whether the balance of convenience favours its extension or not.  Whether or not the caveat was really justified will often disappear in the wash when, after the initial stoush, the parties settle their differences out of court.

In this case, a solicitor was engaged to prepare, and did prepare, a contract of sale for a property.  The solicitor seems to have acted for both sides (purchaser and vendor) in doing so, and performed some other associated work.  The parties then changed solicitors, and a fresh contract was entered into which then proceeded to completion.  The first solicitor’s fees were not paid.  Shortly before the proposed settlement of that contract (that is, the final point where monies are exchanged and the certificate of title handed over for transfer of registration to the new owner) the original solicitor lodged a caveat claiming an “equitable interest” by virtue of “exchange contract of sale of the subject property dated 19 November 2006” (that is, the contract which the first solicitor had prepared). He said he would withdraw the caveat if his fees (which he said were owed by the owner) and other monies (owed by various parties associated by the purchaser) were paid.

The owner of the land did not wait for the usual lapsing notice procedure to run its course.  He went straight to the court and sought an order that the caveat be removed and that the solicitor pay him compensation for the loss caused by the delay.  The proceedings were brought on for hearing the very next day.

Justice Brereton took a very dim view of the solicitor’s conduct.

He held that:

“It is as plain as can be that he personally has no caveatable interest in the subject land, and there never was the slightest basis for him to lodge a caveat claiming an interest in it”

The solicitor claimed that he had lodged the caveat to protect the interests of his former clients.  Justice Brereton said that it was:

“manifestly clear that the real purpose of the caveat was to extract payment of Mr Abboud’s fees, and not to protect the interests of his former clients.”

He ordered that the first solicitor withdraw the caveat and “pay the plaintiff compensation for the loss occasioned by the wrongful lodging of the caveat, assessed in the sum of $1,070.34.”

This amount was the loss caused by the delay in the settlement.  It is not a particularly large amount, and would normally not be the sort of thing with which judges of the Supreme Court would be concerned.  Obviously, however, there was a principle at stake.

This is apparent from the penultimate sentence of the judgment:

“I order that the defendant pay the plaintiff’s costs of the proceedings on an indemnity basis.”

Usually, unsuccessful litigants are only ordered to pay the other side’s costs “as agreed or assessed.”  If the costs are assessed by the court on this basis, in most cases the successful party is only entitled to recover about 75% to 80% of their actual costs, if that.  An indemnity costs order, although it may still need to be assessed, is one which entitles the party in whose favour it is ordered to recover 100% of the party’s costs.  Such orders are only made against parties who have behaved unreasonably or really badly.

It is rare and therefore oddly cheering to see justice so swiftly and decisively done.  This sentiment may be tempered by the thought that, although he went too far in lodging the caveat, the solicitor may well have been dudded by his clients in relation to money owed by them to him.

12 Responses to “Caveat solicitor”

  1. Robert Says:

    Thank you, very interesting article, I have a question.
    Land is sold, caveators are paid the amounts stated in the individual caveats.
    Susequently the person is declared bankrupt.
    Does the bankrupt trustee have any recall on the money paid to the caveators?

    • marcellous Says:

      My off the cuff answer (ie: not meant as serious legal advice: ask someone you are paying for that kind of advice) is that it all depends whether there was a valid security interest underlying the caveat. Generally, in bankruptcy, creditors who get an advantage by repayment in the dying days of the debtor’s solvency instead of sharing in the proceeds of the estate equally with other creditors have to put what they got back into the pot and share with everyone else. However, if a creditor is secured and would have got that money anyway on realisation of their security, then they can’t be said to have got any advantage by any repayments made by reason of the actual or de facto (by a debtor’s sale) realisation of their security.

  2. Robert Says:

    Thank You marcellous. I understand.

  3. Sue Maynes Says:

    This issue of registering “interests” in land is very important for a private land owner to understand.
    In fact, all land in Australia is purchased under a Grant in Fee Simple title, which carries extraordinary indefeasible rights. Torrens Title is only and simply the recording of that ownership and any interests (ie points of other “ownership”) that affect that premier ownership, such as a bank mortgage or crown retention of mineral rights.
    Now when a person/entity claims an interest in another’s land and lodges a caveat, responsibly registered against that land ownership, all is well. On the other hand claiming against another’s land ownership without a registration, as the justice has so rightly ruled, is wrong.
    Therefore, the question I ask is this.
    Council retain an unregistered interest in private land for rating purposes. This is supported by the courts when they allow another person’s land to be both seized and sold to cover a rating debt.
    How without registration of that ongoing debt in any form?

    • marcellous Says:

      The Council’s interest is a statutory charge: that is, it is a power conferred by statute to sell the land if the rates are not paid. It’s not noted on the title but there a procedures for you to find out the rates owing (or not) when you purchase land (section 603 of the Local Government Act and it’s up to the purchaser to protect themselves by getting a clear certificate or adjusting the price for outstanding rates. The mechanism for selling land for unpaid rates is, as I understand it, a reasonably protracted one so that, if you became aware that your land was going to be sold for unpaid rates, then you would have plenty of time to check out the actual position and prevent the sale if the rates weren’t actually due.

  4. Sue Maynes Says:

    Marcellous – councils rating process can only come under 3 headings.
    It is a fine – which it is not.
    It is a contract – which you enter unknowingly because you receive a notice due and pay it thus activating the contract. You will note you never receive a bill, but a notice.
    It is a tax – which most council websites state it is.
    Now, if it is a contract, under contract law you must have all the proof of how to end a contract, including all the conditions relating to it. As you never receive a bill, you are never given all the conditions, which essentially means the contract is not lawful.
    If it is a tax, that also cannot be lawful as the High Court have ruled that only the Federal govt can levy a tax. And the NSW Land Tax Management Act 1956, which was used as evidence in the HC case, Paliflex v Chief Commissioner of State Revenue 2003, states that rural land is not subject to a land tax anyway.
    The High Court have also ruled that unless a debt is attached by registration to your title deed, it cannot have any effect on your land ownership, yet the lower courts clearly ignore that when allowing Council to seize land for rating debts.
    This again establishes that the rates must be a contract, wherein, without being revealed, your agreement to paying rates hinges on the potential loss of your land.
    Now the fact is that at the point of the first sale of land out of Crown hands into private hands, the relevant acts all state the following –
    “Land held of the Crown in fee simple may be assured in fee simple without licence and without fine and the person taking under the assurance shall hold the land of the Crown in the same manner as the land was held before the assurance took effect.”
    The question is –
    * if land is sold out of crown hands into private hands without any debt of any kind being attached to the land
    * has anyone ever seen the contract to enter into a rating debt over that land?
    And I would like you to think about this. We rent roads from the local Council. When those roads were gazetted, the land owner at that time, entered into a contractual lease, which we have personally never seen, but exists. We have a copy coming from the Lands Dept, who later passed the road onto the council.
    If there is a contract to rent these roads, then there must be a rating contract to make that debt judicially lawful.

    • marcellous Says:

      Sue

      I’ve read your website. I think it is full of misconceptions. I’m not going to answer them all here.

      I don’t think your trichotomy is particularly relevant, first because I think there are some underlying assumptions about the existence of rates which you are overlooking and secondly because, so far as it is derived from the NSW Act you refer to, that Act is open to being affected by whichever other Act (I’m assuming the Local Government Act) authorise council rates.

      As to

      “If it is a tax, that also cannot be lawful as the High Court have ruled that only the Federal govt can levy a tax.”

      I find that a very surprising proposition.

      As to what is meant by “a fine” I think (without hitting the books to check) that you will find that the reference in the statute is a technical term relating to payments on transfer and that, moreover, holding property without a fine at the time you take it is different from holding property without fines in the more colloquial sense subsequently.

      I must say I would have thought of council rates as a species of tax, but experience tells me that they may not be a tax for the purposes of all lists which include the term “tax.” That sort of thing always depends on the context and in particular what other terms are in the list.

      In a general way, I will say that councils have to raise rates and councils of one sort or another at a local level have always had to raise rates. Without delving into the legal technicalities, I don’t find it odd or objectionable that, in the end, given that rates are raised from owners of land (which does not mean, incidentally, that they are land tax, which is something different) the ultimate remedy for non-payment of rates is the sale of the land and the recovery of the rates owed out of the proceeds. When it comes to the legal technicalities, it is always possible to mount a contrary argument. It is always possible to raise an a contrary legal argument.

      As to whether there is any point in responding further to your comment, I have to say that, judging from your own website, I very much doubt it. I’m not saying that to attack you (who else is reading this? I am confident that it is almost nobody), but simply because there are too many legal misconceptions expressed there for me to have the energy to put them right, or for me to expect that the energy, even if expended, would in any way change your mind. Even if they were not misconceptions in an absolute sense, they are misconceptions from my point of view so extreme that I do not see any point in trying to correct or (allowing for relativism) counter them.

  5. RippedOff Says:

    Is there a caveatable claim over land for work including extensive survey and money spent on a piece of land on the proviso that it was to be sold but then the owner changed their mind? Does the person who spent the time and money have a claim over the land via a caveat?

  6. bandb2003 Says:

    does a caveat legally prevent other creditors from bankrupting someone, for eg, if all they had was real estate.

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