When will I be able to appeal successfully from the dismissal of application to remove caveat under section 90(3) of the Transfer of Land Act?

1.     The Court of Appeal (Beach, Kyrou and Kaye JJA), considered whether the Trial Judge erred in dismissing an application to remove a caveat under section 90(3) of the TL Act (see Chan and anor v Liu and anor [2020] VSCA 28).

 

2.     The appeal did not of itself make any alteration to the existing law relating to the removal of caveats. In particular, the Court of Appeal approved of and followed the decision in Piroshenko v Grojsman (2010) 27 VR 489.

 

3.     In Chan, the substance of the dispute related to whether the respondent purchaser had failed to settle the purchase on time, or whether an extension of time to settle had been granted.

 

4.     Interestingly, the purchaser had actually withdrawn its original caveat, in response to a demand by the vendor. It then lodged a subsequent to caveat (ostensibly in breach of section 91(4) of the TL Act). For reasons that are not clear from the Court of Appeal’s judgement, the trial judge did not consider that s 91(4) of the TL Act had the effect of prohibiting the respondent from lodging the [subsequent] caveat.

 

5.     The trial judge found that on the facts, there was a serious issue to be tried as to whether the purchaser had a caveatable interest in the property, and that the balance of convenience favoured the retention of the caveat.

 

6.     The power of the court, under section 90(3) of the TL Act, to remove a caveat is discretionary. Accordingly, in order to succeed on the application for leave to appeal, the applicants had to establish material error by the judge in the exercise of that discretion.

 

7.     Counsel for the applicant raised grounds that were not relied on at the hearing before the trial judge.

 

8.     The Court of Appeal noted (at paragraph 47) that:

Ordinarily, a party may not be permitted to raise a point, or rely on an argument on appeal, that was not put before the court that determined the matter at first instance.

 

9.     However, at paragraph 49, they noted:

That principle has been applied with less stringency in cases in which the decision, that is the subject of appeal, was by way of summary or interlocutory judgment.

 

10.  The Justices of Appeal then noted (at paragraph 50):

In the present case, the decision, concerning the removal of the caveat, had the potential effect of substantially affecting the rights of the respective parties. If the judge had ordered that the caveat be removed, such a decision would, in a practical sense, have rendered nugatory any right of the respondent to insist on specific performance of the contract of sale. Alternatively, the decision by the judge, not to order removal of the caveat, has had the practical effect that the applicants are, and will remain, in default of the contract to re-sell the property until the trial of this proceeding. In that way, the decision of the primary judge had the potential to substantially adversely affect the rights of the applicants under that contract.

 

11.  In determining whether to allow further arguments to be put to the Court of Appeal, which were not put to the trial judge, they decided:

… bearing in mind the substantive effect of the decision made by the judge on the rights of the applicants, and the circumstance that, if the points made … had been contended before the judge no further evidence would have been adduced, we consider that it is appropriate to permit counsel for the applicants to rely on those propositions.

 

12.  The Court of Appeal agreed that the primary submission, made by the applicants, was that, by his conduct the respondent elected not to rely on his rights to specific performance of the contract of sale, but, rather, to confine those rights to a claim for damages for the alleged repudiation of the contract by the applicants.

 

13.  In reply, Counsel for the respondent submitted that the Court of Appeal should not determine whether the respondent's conduct constituted an election by him between inconsistent competing rights under the contract. Counsel contended that the Court should do no more than acknowledge that the question, whether there was an election (or estoppel) affecting the rights of the respondent, under the contract of sale, is an arguable issue, but that proposition did not preclude or affect the conclusion that the respondent had established that there was a serious issue to be tried that he had a caveatable interest in the property.

 

14.  In the circumstances, the Court of Appeal did not consider it appropriate or necessary to determine conclusively whether, on the evidence, there was a binding election by the respondent which would preclude him from seeking specific performance of the contract of sale. However, they noted that they were well satisfied that there were strong grounds for concluding that such an election was made by the respondent as contended for on behalf of the applicants.

 

15.  The Court of Appeal agreed that there was a serious issue to be tried as to whether he had a caveatable interest in the property. However, based upon the assessment referred to in the previous paragraph, the Court of Appeal concluded that the balance of convenience in the case clearly favoured the removal of the caveat. They noted that the applicants had entered into a contract to sell the property to a third party after purporting to rescind the contract with the respondent, and after the respondent had previously withdrawn his caveat.  

 

16.  It was the matters that were not argued before the trial judge, but were argued before the Court of Appeal, that tipped the balance of convenience in favour of the removal of the caveat.

 

Conclusion

17.  The appeal in this proceeding succeeded on the basis of arguments that were not raised before the trial judge. That in itself makes this appeal, and its success, unusual.

 

18.  Apart from that, the appeal itself does not raise any new issues of law.  

WG Stark 

Hayden Starke Chambers

Can I claim costs against a lawyer who lodges a caveat on behalf of his or her client?

1.     In Alliance Developments v Arbab [2019] VSC 832, the Supreme Court of Victoria (Garde J) considered the circumstances in which it may be appropriate to order indemnity costs against a solicitor in respect of an application to remove a caveat lodged on behalf of a client.

 

Background

2.     The Court had previously ordered that the Registrar of Titles (‘Registrar’) remove two caveats lodged by the solicitor for Mr Arbab, the first defendant, who was a resident of Pakistan, over two properties owned by the plaintiff.

 

3.     In this application, the plaintiff sought an indemnity costs order against Mr Arbab, as well as against Pasha Legal and its sole principal Ms Hina Pasha, who acted for Mr Arbab.

 

4.     The plaintiff alleged that there was no proper basis for lodging the caveats, and that Mr Arbab never had the interests in the two properties that were claimed.

 

5.     In 2013, the plaintiff entered into a contract to buy vacant land in California Gully, Victoria. It intended to subdivide the property into five lots and build new homes on the lots. Mr Arbab, who was then a director of the plaintiff, alleged that he contributed $34,300 to the purchase.

 

6.     In 2014, another director of the plaintiff entered into a contract to buy a property located in Laverton North for a purchase price of $423,000. The plaintiff was subsequently nominated as the purchaser and became registered as owner of the Laverton North property.

 

7.     In the background, Mr Arbab was in dispute with his fellow directors about building projects on eight properties, not including the California Gully and Laverton North properties.

 

8.     In the judgment, Garde J noted, among other things, at paragraph 16 (emphasis added):

When lodging a caveat, the estate or interest claimed, the ground of the claim, and the nature of the prohibition are of prime importance. The claimed estate or interest in land is a central concept in a caveat. Care must be taken to ensure that the claims made are correct, and accurately reflect the caveator’s estate or interest in the land the subject of the caveat. A caveat may only be lodged in a form commensurate to the interest it is designed to protect.

 

9.     The Honourable Justice Garde then proceeded to list several cases where the caveats in question were held to be defective.

 

10.  The lawyer for Mr Arbab lodged a caveat over the title to each of the California Gully property and the Laverton North property.

 

11.  In respect of the Laverton North property, the estate or interest claimed was a freehold estate, and the prohibition was absolute. The ground of the claim was ‘Implied, Resulting, Constructive Trust’. Garde J noted at paragraph 24:

The ground relied on by Mr Arbab was expressed in general terms. It did not refer to any agreement or basis for the claim. It did not descend into particulars or provide any explanation as to how the alleged trust arose, or how it gave rise to a freehold estate.

 

12.  In respect of the California Gully property, the estate or interest claimed was again a freehold estate and the prohibition was absolute. The ground relied upon was: Registered proprietor(s), being entitled to possession of the Certificate of Title for the land and to prevent improper dealing.

 

13.  Garde J noted at paragraphs 27 to 29 of the judgment:

The claim made was misconceived and nonsensical. The plaintiff had been the registered proprietor of the California Gully property since 2017. The ground of claim was suitable only for a registered proprietor who sought to receive notification from the Registrar of the lodgement of a dealing affecting the land.

 

28. Mr Arbab was not and did not purport to be the registered proprietor of the California Gully property. He claimed an interest in the California Gully property on the basis that he contributed $34,300 to the purchase price when the property was acquired.

 

29 The 2018 caveat made no reference to any agreement or financial contribution made by Mr Arbab at the time of the purchase of the California Gully property. It did not claim a lien or any other right relating to supervision or management work of Mr Arbab in connection with other properties, or assert any lien or right over the California Gully property. It did not make any claim for an interest consequent upon a resulting trust as suggested by … [counsel’s] advice.

 

14.  The plaintiff applied to the Registrar of Titles pursuant to section 89A of the Transfer of Land Act, 1958 (“the TL Act”) for removal of the two caveats.

 

15.  In response, the lawyer for Mr Arbab wrote to the registrar of titles and asserted that proceedings were on foot to justify the caveats.

 

16.  In fact, the only proceedings on foot were in relation to the shareholder dispute between Mr Arbab and his fellow directors of the plaintiff.

 

17.  At paragraph 34, Garde J noted:

The notice given by Ms Pasha was wrong and misleading.

 

18.  This is not a finding that a legal practitioner wants a Supreme Court Justice to make!

 

19.  In any event, the Registrar of Titles took no action to remove the caveats, pending the outcome of the proceedings that he thought were on foot.

 

20.  This necessitated the plaintiff issuing its own proceedings and seeking an order for removal of the caveats under section 90(3) of the TL Act. Before initiating proceedings, its lawyers sent a letter demanding that the caveats be removed. In that letter, the lawyers for the plaintiff foreshadowed an application for costs against the lawyer for the caveator.

 

21.  After the proceeding was issued, and directions were made about filing further affidavits and submissions, Mr Arbab consented to the removal of the caveats and to an order that he pay costs an indemnity basis.

 

22.  The plaintiff then made this application for an order that the caveator’s lawyer pay its costs of the application, on an indemnity basis.

 

23.  At paragraphs 56 and 57 of his judgment, Garde J noted (emphasis added):

It is well established that the lodging of a caveat is a serious business. It has the potential to affect commercial transactions and the lives and financial interests of others, and is not available as a bargaining chip. A shareholder has no caveatable interest in land belonging to a company.

 

57. The only proper purpose in lodging a caveat under s 89(1) of the Act is to protect the estate or interest claimed in the caveat by operation of the statutory injunction against the registration of subsequent dealings and to provide notice of the existence of the estate or interest to those who inspect the Register. The lodging of a caveat for ulterior purposes is a serious misuse of the statutory provisions.

 

24.  The Honourable Justice Garde then analysed the cases relating to indemnity costs, and noted:

In Love v Kempton, Forrest J observed that a person who lodged a caveat without proper grounds should be brought to book if others are forced to resort to court proceedings to remove a caveat which has no proper basis. The costs associated with removal of a caveat are heavy and the difference between standard costs and indemnity costs is considerable.

 

25.  Garde J concluded that special circumstances existed in this case, such that the defendant, Mr Arbab, should be ordered to pay the plaintiff’s costs of the proceeding on an indemnity basis.

 

26.  At paragraph 70, Grade J noted (after analysing the facts leading to the lodging of the caveats):

In light of the above, it must be concluded that the … caveats were not seriously intended to maintain the estate or interest in land claimed in them, but were intended to apply commercial pressure on the plaintiff and its directors and inhibit their property dealings. They were bargaining chips which had the effect of freezing the California Gully and the Laverton North properties. Their purpose was to make it impossible for the plaintiff to sell or use the properties as security for loans.

 

27.  Perhaps of more interest to practitioners is what Garde J had to say about the application for indemnity costs against the lawyers for the caveator. Those costs were claimed from the lawyer under either order 63.23(1) or the inherent jurisdiction of the court to supervise its own process. Garde J noted that: “The inherent jurisdiction requires a serious dereliction of duty or gross negligence, but this is not necessary under r 63.23. … Under r 63.23, a solicitor’s negligence or failure to act with reasonable competence may justify a personal costs order. It extends to orders that a solicitor personally pay costs in cases where it is proper to do so.”

 

28.  Among other considerations, Garde J noted

(at paragraph 87): Pasha Legal’s duties to the Court included a duty on      the factual and legal material available not to make a claim or           respond to a claim in a civil proceeding that did not have a proper           basis. Pasha Legal was required not to engage in misleading or deceptive conduct or conduct likely to mislead or deceive.

 

(at paragraph 88, among other matters): there is no sign of any     serious assessment by Pasha Legal of the basis of the claims made in           the caveats; there was no documentary evidence or corroboration of        the claim made in either caveat; Pasha Legal was given notice that it      was at risk for costs; no attempt was made to uphold either caveat;           the real purpose behind the caveats was to use them as a bargaining   chip; in relation to the s 89A application, Pasha Legal engaged in   conduct that was misleading or deceptive or likely to mislead or       deceive by misrepresenting to the Registrar that the correction     proceeding would substantiate Mr Arbab’s claims as caveator in       relation to the Laverton North and California Gully properties and the       estate or interest which he claimed. The correction proceeding   related to the state of the plaintiff’s share registry, and did not seek          any relief concerning the Laverton North or California Gully     properties; when they found out what had occurred, the plaintiff’s            solicitors expressed concern at the certification and statements made    to the Registrar. Despite this, Pasha Legal did not withdraw the    caveats or advise Mr Arbab that they should be withdrawn                immediately; by refusing to withdraw the caveats, or to obtain                  counsel’s advice, Pasha Legal triggered the proceeding to remove      them. Pasha Legal did not at any time appreciate that the caveats             were not maintainable and were highly likely to be removed by the        Court; Pasha Legal maintained a combative style, particularly in the       early stages of the proceeding; and ultimately, it was Mr Arbab who          came to the view that the proceeding should not be opposed, and   agreed to pay the plaintiff’s costs of the proceeding.

 

(At paragraph 89): … it is my view that Pasha Legal failed to act with         reasonable competence and was negligent and in breach of its    duties to the Court as to:

(a) the drafting of the caveats;

(b) the s 89A application;

(c) the misrepresentations made to the Registrar;

(d) the refusal to withdraw the caveats to avoid the proceeding;

(e) the failure to acknowledge that the caveats were unsustainable; and

(f) the failure to brief counsel with the relevant facts, or if in doubt, obtain counsel’s opinion as to whether the caveats were maintainable.

 

(And finally at paragraph 90): … I am satisfied to a comfortable level of satisfaction on the balance of probabilities that Ms Pasha failed to

act with reasonable competence and that she was negligent and acted in breach of her duties to the Court. The statements and certifications made to the Registrar were egregious. They

resulted in the need for the plaintiff to incur the costs of the proceeding.

 

Conclusion

29.  As noted, the Court concluded in this case that the caveats in question were inherently defective and the solicitor in question failed to act with reasonable competence in lodging the caveat.

 

30.  As a result of those findings, the Court ordered that the caveator and the solicitor pay the applicant’s costs on an indemnity basis.

31. This case confirms how critically important it is to ensure that a caveat has a proper basis for lodgement, and the serious consequences that may flow from not meeting the minimum standards required in assessing the alleged basis of the caveat. 

WG Stark

Hayden Starke Chambers

Can I claim compensation from a lawyer who lodges a caveat on behalf of his or her client?

1.     In Lanciana v Alderuccio [2020] VSCA 152, the Court of Appeal in a joint judgment (Tate, Hargrave and Emerton JJA) considered the circumstances in which it may be appropriate to order that a solicitor pay compensation under section 118 of the Transfer of Land Act 1958 in respect of a caveat lodged on behalf of a client without reasonable cause.

 

Background 

2.     The appellants brought a claim against the lawyers for the caveator, rather than the caveator itself, for compensation for losses sustained by reason of the lodgement of the caveat.

 

3.     Section 118 of the Transfer of Land Act, 1958, provides:

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 a court deems just and orders.

 

4.     At the original trial, the Court posed a preliminary question for determination in the proceeding, as follows:

Whether, assuming that the allegations contained in the further amended statement of claim are true, the [respondents] are ‘a person’ lodging a caveat with the Registrar for the purposes of s 118 of the Transfer of Land Act 1958 (Vic), or whether the [applicant] is confined to seeking compensation from the party identified as the caveator in the relevant caveats.

 

5.     The trial judge concluded that the respondents were not a person lodging a caveat with the Registrar for the purposes of s118 of the TLA.  

 

6.     The central contest between the parties was whether the words ‘[a]ny person lodging’ in s 118 of the Act bear their literal meaning and give rise to a purely factual question as to who in fact lodged the caveat at issue, as the applicant contends; or whether, as the respondents contend, the words ‘[a]ny person lodging’ in s 118 should be construed in the context of the Act as a whole and s 89 in particular, so that ‘any person lodging’ a caveat is to be interpreted in light of the phrase ‘[a]ny person claiming any estate or interest in land’ in s 89(1).

 

7.     In a joint judgment, the Court of Appeal noted (at paragraph 12) that the Trial Judge had found:

… the critical words in s 118 — ‘[a]ny person lodging’ — naturally invited the question, ‘who lodges the caveat?’. The judge found a clear and unambiguous answer to that question in s 89(1) of the Act: ‘Any person claiming any estate or interest in the land … ’. The judge did not accept the applicant’s submission that the Act should be construed on the premise that ss 89(1) and 118 play independent roles, as this ignored the fact that ‘[a]ny person lodging’ a caveat is a statutory concept which has been a feature of the statutory framework since the Real Property Act 1862. Moreover, the fact that s 89(1) expressly authorises a person to lodge a caveat by ‘his agent’ strengthens the conclusion that an agent who lodges a caveat is not ‘any person’ lodging a caveat in his or her own right; the act of lodging is the act of the principal.

 

8.     The Court of Appeal then set out the arguments of both parties, and (at paragraph 31) concluded:

 

…  s 89(1) … confers a right on a person who claims to have an interest in land to lodge a caveat to protect the asserted interest and to do so either directly or by his or her agent. The right is conferred on the person claiming the interest, whether or not the interest is ultimately established. Insofar as the caveat is lodged by an agent of the person claiming the interest, the agent, according to the well-established principles of the law of agency, stands in the shoes of the person claiming the interest. The act of lodging the caveat is the act of the principal, that is, the person claiming the interest in the land.

 

9.     The Court of Appeal then concluded (at paragraph 32):

… It is clear, therefore, that the respondents lodged the caveats as agents for Bloomingdale. In these circumstances, the acts of the respondents in lodging the caveats were the acts of Bloomingdale and the judge correctly so found in answering the first limb of the preliminary question. Bloomingdale lodged the caveats within the meaning of s 118.

 

10.  Among other matters considered by the Court of Appeal, they concluded:

(At paragraph 33) Accordingly, ‘any person lodging’ a caveat is a statutory concept, not simply a question of fact. The identity of a person ‘lodging’ a caveat is ascertained by reference to the exercise of the entitlement conferred by s 89(1). As the judge held, the answer to the question, ‘who lodged the caveat?’ is provided clearly and unambiguously by s 89(1): ‘Any person claiming any estate or interest in the land … ’.

…

(At paragraph 34) We also agree with the judge that the proposition, that s 118 involves a factual enquiry about the person who lodged the caveat, proceeds from the false premise that s 89(1) does not provide an answer to the question and fails to appreciate that lodgement involves a statutory concept that can only be understood by reference to the requirements governing eligibility for lodging under the Act.

…

(At paragraph 35) … the primary task of statutory construction is to construe the relevant provision so that it is consistent with the language and purpose of the statute as a whole.

…

(At paragraph 40) In our view, the judge’s construction accords with the requirement to construe the provisions of a statute in a manner that is consistent with the language and purpose of all of the provisions of the statute. It focusses on the language of ss 89(1) and 118 and how those provisions operate together, having regard to the words chosen by the legislature. It accords with authority emphasising the primacy of the text in statutory construction.

 

Conclusion

11.  It seems relatively clear that lawyers should be advising clients about whether the client has a caveatable interest and to refuse to lodge a caveat on a client’s behalf in circumstances where there is no caveatable interest.

 

12.  However, if the lawyer does lodge a caveat on behalf of a client in circumstances where there is no reasonable basis for doing so, it is the client who is claiming the caveatable interest, not the lawyer, and so it is the client who will be liable to pay any compensation under s 118 of the Transfer of Land Act, 1958.

 

WG Stark

Hayden Starke Chambers

What happens if I lodge a caveat over the title to real estate in Victoria when I do not have a caveatable interest?

A caveat is an instrument that protects an unregistrable legal or equitable interest in real property. 

The caveat is a notice to the public that the person lodging the caveat (the caveator) holds an unregistered interest in the property, and provides details of the interest claimed. 

The caveat prevents the registration of any dealings a person has with the property until the caveat is removed or the caveator consents.

Lodging a caveat is a very serious matter, and as a result a caveat should not be lodged ‘without reasonable cause’. 

Section 118 of the Transfer of Land Act 1958 (Vic) provides: 

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 a court deems just and orders.

What does ‘without reasonable cause’ mean?

In 2019, the High Court of Australia explained what it means to lodge a caveat ‘without reasonable cause’ for the purposes of claiming compensation under the NSW provision that is equivalent to section 118. 

The case dealt with the question of what property vests in a trustee in bankruptcy. However, in determining that issue, the High Court has provided some useful insight into the issue of whether a person has lodged a caveat without reasonable cause.

In Boensch v Pascoe [2019] HCA 49; 94 ALJR 112; 375 ALR 15, the High Court (Kiefel CJ, Gageler and Keane JJ and separately Bell, Nettle, Gordon and Edelman JJ) endorsed the two-step ‘reasonable cause’ test that had been applied in Beca Developments Pty Ltd v Idameneo (No 92) Pty Ltd (1990) and other cases.

Background

Mr Boensch was a trustee holding real property on trust for the benefit of his children (Trust Property). Mr Pascoe was appointed as Mr Boensch's trustee in bankruptcy upon Mr Boensch being declared bankrupt. Whilst acting as Mr Boensch’s trustee in bankruptcy, Mr Pascoe lodged a caveat over the Trust Property.

Ultimately, the caveat was removed by a lapsing notice issued by the NSW Registrar General. Mr Pascoe chose not to issue litigation to establish that he had a caveatable interest in the real property (mainly due to the limited equity that appeared to be available in the property). 

Mr Boensch then commenced proceedings against Mr Pascoe seeking compensation under the Act on the grounds that Mr Pascoe had lodged and maintained a caveat over the Trust Property ‘without reasonable cause’.

In determining whether Mr Pascoe had lodged and maintained the caveat over the Trust Property ‘without reasonable cause’, the trial judge applied a two-step test, namely that a caveat is lodged ‘without reasonable cause’ if the lodging party:

1. does not have a caveatable interest; and
2. does not have an honest belief based on reasonable grounds that they have a caveatable interest.

As a result, in order to claim compensation under the equivalent of section 118 successfully, Mr Boensch was required not only to establish that Mr Pascoe did not have a caveatable interest in the Trust Property but also that Mr Pascoe did not have an honest belief on reasonable grounds that he had a caveatable interest over the Trust Property.

The High Court concluded that Mr Pascoe had a caveatable interest in the Trust Property for the purposes of lodging and maintaining the caveat. This was on the basis that the caveatable interest arose from Mr Boensch’s entitlement to be indemnified out of the Trust Property for liabilities he incurred while he was trustee. This entitlement to be indemnified created an equitable interest which vested in Mr Pascoe upon his appointment as Mr Boensch’s trustee in bankruptcy.

The majority (Bell, Nettle, Gordon and Edelman JJ) noted (at ALR page 46, paragraph 116):

For the reasons earlier stated, there is no reason to doubt that, upon the making of the sequestration order, the ... property vested in equity in Mr Pascoe by reason of Mr Boensch’s right of indemnity and, therefore, that Mr Pascoe had a caveatable interest in the property. Nor is there any reason to doubt that Mr Pascoe honestly believed on reasonable grounds that the property so vested, either on the basis that the trust was void or on the basis of Mr Boensch’s right of indemnity. On the facts as found, Mr Pascoe did not lodge or refuse to withdraw the caveat without reasonable cause.

The minority (Keifel CJ, Gageler and Keane JJ) noted (at ALR page 20, paragraph 12) that:

The existence of a caveatable interest, without more, supplies “reasonable cause” for lodging and maintaining the caveat.

In the circumstances, the High Court concluded that Mr Pascoe did not lodge the caveat ‘without reasonable cause’ and therefore Mr Boensch was not entitled to compensation under the New South Wales provision equivalent to section 118 of the Transfer of Land Act 1958.

Conclusion 

This High Court decision highlights the importance of ensuring that caveats are lodged and maintained with ‘reasonable cause’. 

It also provides guidance on how a Court will approach the issue of whether a caveat has been lodged ‘without reasonable cause’ under the Act, and thus whether an applicant is entitled to compensation under section 118 of the Transfer of Land Act 1958.

Legal practitioners will be aware that if they lodge a caveat without reasonable cause, they may be engaging in unsatisfactory professional conduct, or even professional misconduct. If that happened, the legal practitioner is likely to find themselves the subject of a disciplinary matter initiated by the Legal Services Commissioner, and having their right to engage in legal practice put at risk. 

WG Stark

Hayden Starke Chambers

What is necessary to make an equitable charge over real estate in Victoria valid?

I have appeared in a number of cases in which caveats lodged on the basis of an equitable charge have been upheld as creating a caveatable interest. 

The authorities make it clear that the wording required to create an equitable charge is minimal. An agreement to lodge a caveat is sufficient to grant an equitable interest in the Property. 

Gillard J held in Avco Financial Services Ltd v White [1977] VR 561, at p. 567

Having regard to the width of language contained in s. 89 it is difficult to understand how it can be said that a grantee of an equitable mortgage or charge did not have sufficient estate or interest in land to protect to protect by lodging a caveat.

At page 564, His honour adopted what was said by Romer J in Craddock v Scottish Provident Institution (1893) 69 LT 380 at p. 382:

To constitute a charge in equity by deed or writing it is not necessary that any    general words of charge of charge should be used. It is sufficient if the court   can fairly gather from the instrument an intention by the parties that the property therein referred to should constitute a security.

In King v AGC (Advances) Ltd and anor [1983] VR 682, the full court of the Supreme Court of Victoria (Marks J, with whom Young CJ and Murray J agreed) stated (at page 686):

It is, I think, clear enough that A.G.C. as grantee of an equitable charge, had sufficient estate within the meaning of s. 89 of the Transfer of Land Act to obtain protection of it by lodging a caveat. I agree in the reasons of Gillard, J. when he held that was so in Avco Financial Services Ltd v White, [1977] VR  561, at p. 567. In that case Gillard, J. was concerned with a charge of a similar kind, even similarly expressed … 

In Re Carter Holt Harvey Woodproducts (Australia) Pty Ltd (No 1) [2017] VSC 499, Robson J of the Supreme Court of Victoria had to determine whether the terms of a guarantee and indemnity were enforceable to give an equitable charge of the guarantor/chargee’s property, or whether the terms were ambiguous so as to make the charging clause vague for uncertainty. 

The clause in question included the phrase: ‘will charge’. The question for the Court to determine was whether that wording was sufficient to demonstrate an immediate intention to create a charge? The Court in that case also considered whether future acquired property can be subject to a charging clause and whether an equitable charge gives  a chargee a right to vacant possession of real property? 

The chargee was the registered proprietor of several real properties located in Victoria. 

The validity of the charge referred to in clause 2.6A of the guarantee was disputed in three separate, but related, proceedings.

The preliminary question to be determined was: is the charge valid and enforceable?

The charging clause in issue was clause 2.6A, which under the heading ‘Property as Security’ stated:

The Guarantor will charge in favour of [the creditor] all estates and interest in any land and any other assets whether tangible in [sic] intangible in which they now have any legal or beneficial interest or in which they later acquire any such interest, with payment of all monies owed by the customer and agree upon request, to execute a registrable instrument transferring to [the creditor] the Guarantor's estate and interest by way of security. 

At paragraph 40 of the judgment, Robson J noted that the creation of a charge does not require any specific wording.  It is sufficient if the grantor of the charge manifests an immediate intention to create a charge by using words that create a present intention to charge land specified as security. The property specified need not be in existence at the time the charge was granted but must be so when the charge is sought to be enforced. Accordingly, the existence of a present intention to create a charge does not require relevant property over which the charge is to be created to be owned by the person granting the charge. 

At paragraph 41, the Honourable Justice Robson noted there are additional requirements, such as the requirement that where the charge is over land, there is the presence of writing, and that where consideration is necessary, it must be valuable, executed consideration.

Further, at paragraph 43, Robson J noted that in Cradock, Romer J concluded that it was not necessary for certain formalities to be present in the creation of a charge in equity if the Court can ascertain an intention on the part of the parties that the relevant property should constitute security.

At paragraph 59, Robson J concluded that ‘will charge’ conveys the manifestation by the person granting the charge of an immediate intention to charge and does not involve a promise to charge in the future. The fact that the charge may not be enlivened until credit was extended to the person granting the charge by the lender does not mean that the person granting the charge did not manifest the present intention to create a charge.

At paragraph 63, Robson J concluded that the promise to execute a registrable instrument of transfer is a separate and distinct promise made under the clause from the person granting the charge creating a charge.

At paragraph 94, Robson J noted that an equitable charge does not give the holder an automatic remedy.  The person obtaining the charge must seek a court order.  Clearly, if the debtor was not in default, the Court would not allow the person obtaining the charge to realise the security.

The person granting the charge argued that the provision permitting the creditor to request the execution of a registerable interest of transfer was vague and uncertain as the circumstances in which it could be requested were not set out.  At paragraph 85, Robson J rejected this submission; he noted that it may be requested at the election of the creditor. The system or registration depends on the interest sought to be registered.  So far as Torrens registered land is concerned, the registrable instrument must be a legal mortgage. 

At paragraph 93, Robson J found that the charging clause was valid and enforceable and enlivened the Court’s power to make appropriate orders in the realisation of the security.

The creditor sought to enforce its rights by lodging caveats over the titles of the properties, registering its security interests and requesting the person granting the charge execute mortgages.  While the creditor did not contend that it had priority over the prior registered mortgagees, it did assert priority over all other creditors of the person granting the charge. 

At paragraph 99, the Court noted that the creditor's claim, as an equitable chargee and mortgagee, are proprietary in nature.  The creditor’s equitable interest created by its charge and mortgage were created in 2003, prior to the events alleged to give rise to a Trust in 2008 to 2010, as alleged in the defence of the person granting the charge. 

Robson quoted from the decision of Kitto J in Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) (1965) 113 CLR 265 (at CLR 276): 

... if the merits [of equitable interests] are equal, priority in time of creation is considered to give the better equity.

The Honourable Justice Robson noted that in such a case, ‘the onus rests on the holder of the later equitable interest to demonstrate why the ordinary rule should be displaced and why that interest should prevail over the earlier one.’

The creditor submitted (and the Court accepted) that this was not a case which comes within any of the recognised exceptions to the general rules about priority between competing equitable interests, and that there is nothing in its conduct to cause its prior equitable interest to be postponed to those other equitable interests claimed.

In the circumstances, it is clear that a caveatable interest  in real estate in Victoria can be readily created by a debtor agreeing (in writing) to charge their real property with repayment of a debt. 

WG Stark

Hayden Starke Chambers