A Caveat on Caveats

When used cor­rect­ly, caveats can be an impor­tant ally in your secu­ri­ty arsenal.

Loaned some­one mon­ey? You should con­sid­er a caveat. 

Con­tract­ed to pur­chase real estate? You should con­sid­er a caveat.

You get the idea.

A per­son seek­ing the pro­tec­tion of a caveat is called a ​“caveator”.

A caveat is used to pro­tect a caveator’s legal or ben­e­fi­cial inter­est in real estate — they are a cost-effec­tive way for a caveator to let the world know that they have a legal or ben­e­fi­cial inter­est in the rel­e­vant piece of real estate. 

With the advent of online con­veyanc­ing plat­forms like PEXA, a caveat can now be reg­is­tered in a mat­ter of moments.

But what hap­pens when a caveat­able inter­est has not been prop­er­ly described on a reg­is­tered caveat? Caveats are a very tech­ni­cal area of the law – there is more to caveats than assum­ing you have a caveat­able inter­est and reg­is­ter­ing one. 

A fail­ure to prop­er­ly describe a caveat­able inter­est, both in an under­ly­ing doc­u­ment and on the caveat, can lead to a caveat being lapsed, ruled inef­fec­tive and in some cir­cum­stances, can also lead to a caveator being sued for damages.

Caveats are one area of the law where there has been lit­tle juridi­cal guid­ance when it comes to draft­ing them. And this can, and often does, lead to courts rul­ing them ineffective. 

The Court of Appeal’s deci­sion in Ta Lee Invest­ment Pty Ltd v Anto­nios [2019] NSW­CA 24 is a recent exam­ple of such a ruling. 

In this case, the Appel­lant, Ta Lee Invest­ments Pty Ltd (Ta Lee), had loaned funds to a devel­op­er (the sec­ond respon­dent in the pro­ceed­ings) MV Devel­op­ments (Lane Cove) Pty Ltd (MV).

The loan agree­ment between Ta Lee and MV con­tained a pro­vi­sion pur­port­ing to grant Ta Lee a caveat­able inter­est over real estate owned by MV (name­ly, lot 34 in the devel­op­ment site) to secure the loan if MV com­mit­ted an event of default under the loan agree­ment. MV com­mit­ted a num­ber of events of default under the loan agree­ment and Ta Lee reg­is­tered a caveat, accordingly. 

Fol­low­ing the reg­is­tra­tion of Ta Lee’s caveat, MV sought to sell lot 34 to the first respon­dent, Mr Anto­nious. Ta Lee’s caveat pre­vent­ed the legal estate in lot 34 from trans­fer­ring from MV to Mr Anto­nious. Accord­ing­ly, Mr Anto­nious insti­tut­ed pro­ceed­ings to remove Ta Lee’s caveat and have lot 34 trans­ferred to him. 

The rel­e­vant clause in the loan agree­ment expressed that, fol­low­ing an event of default, Ta Lee ​“may lodge and main­tain a caveat” over lot 34. 

The issue (in respect of the caveat) con­sid­ered by the Court of Appeal was whether the use of the words ​“may lodge and main­tain a caveat” was enough to cre­ate a charge over the secu­ri­ty real estate suf­fi­cient to give rise to a caveat­able interest. 

The Court dis­missed Ta Lee’s appeal. In doing so, the Court referred to the deci­sion in Aged Care Ser­vices Pty Ltd v Kan­ning Ser­vices Pty Ltd (2013) 86 NSW LR 174, and not­ed that in the case of Ta Lee, there was a fail­ure to ade­quate­ly express in the loan agree­ment that there was any ​‘secu­ri­ty’, ​‘secured inter­est’ or ​‘secured charge’ being grant­ed over the secu­ri­ty real estate [98 – 104]. 

There ulti­mate­ly need­ed to be an express inten­tion to cre­ate a charge in the loan agree­ment which was capa­ble of sup­port­ing a caveat and alas, words which mere­ly autho­rised lodge­ment of a caveat did not lead to the con­clu­sion that there was such an intention. 

In the Supreme Court deci­sion of Woods­man Pty Ltd v Joz­ic [2018] NSWSC 1311, the Court looked at the word­ing of the nature of the inter­est claimed as it was writ­ten on the caveat. 

In that case, the Court held a caveat to be ​“incur­ably defi­cient” where the inter­est claimed as expressed on the caveat was stat­ed to be ​“the whole of the Reg­is­tered Proprietor’s inter­est in the land”. The Court denied a request to extend the caveat because the ​“nature of the claimed inter­est was uncer­tain on its face”.

It is impor­tant to note that caveat­able inter­ests can arise in dif­fer­ent man­ners. For exam­ple, an equi­table inter­est in land may not need an under­ly­ing charg­ing clause to sup­port reg­is­tra­tion of a caveat. 

In the cir­cum­stances of Ta Lee, a prop­er­ly draft­ed charg­ing clause was nec­es­sary to grant Ta Lee did an equi­table inter­est in the land. In the case of Wood­man, the under­ly­ing charg­ing clause was prop­er­ly draft­ed how­ev­er, the inter­est claimed as expressed on the caveat itself was too uncer­tain to subsist.

Ulti­mate­ly, when there is a dis­pute over whether a caveator does indeed have a caveat­able inter­est, the sub­sis­tence of a caveat will be decid­ed hav­ing regard to all admis­si­ble facts and cir­cum­stances, as well as:

1. the con­struc­tion of the clause which pur­port­ed­ly grants a caveat­able inter­est, in the agree­ment or con­tract in ques­tion; and
2. the way in which the caveat­able inter­est is expressed on the face of the caveat. 

There­fore, when prepar­ing agree­ments or con­tracts which con­tain claus­es pur­port­ing to give rise to a caveat­able inter­est, caveators and prac­ti­tion­ers alike must ensure that:

1. the draft­ing of the charg­ing clause prop­er­ly grants a caveat­able inter­est; and
2. the draft­ing of the caveat prop­er­ly express­es the inter­est claimed.

In the case of Ta Lee, whilst reg­is­tra­tion of a caveat may have been the eas­i­er (yet, in the cir­cum­stances, ulti­mate­ly fruit­less) road to take, Ta Lee may have been bet­ter placed to request the grant­i­ng of a mort­gage over the devel­op­er’s secu­ri­ty property.

If you require advice or assis­tance regard­ing caveats or how to pro­tect your prop­er­ty inter­ests please do not hes­i­tate to call us on 02 9233 5544.