Caveats, interests in property and contracts – does my contract give me a caveatable interest?

Date: Aug 18, 2014
Document Type: Article

Section 74F of the Real Property Act 1900 (NSW) permits a person who claims to be entitled to a “legal or equitable estate or interest in land” to lodge with the Registrar-General a caveat, prohibiting the recording of any dealing affecting the estate or interest to which the person claims to be entitled.

In determining whether one has a caveatable interest, Hodgson J in Composite Buyers Ltd v. Soong [1995] 38 NSWLR 286 considered that a caveatable interest will exist where equity will grant specific relief against the land in question, or from the proceeds of its sale.

It is not uncommon for a person to lodge a caveat against land following the parties entering into a contractual arrangement, for example, to secure money payable by one party to the other.

In Redglove Projects v. Ngunnawal Local Aboriginal Council [2004] NSWSC 888, White J considered whether a covenant which prohibited a registered proprietor from dealing with their land gave rise to an estate or interest in land sufficient to support a caveat. In that case, a joint venture agreement existed between the caveator and the registered proprietor. Under the agreement, one-half of the proceeds of sale after its development would be payable to the caveator. The agreement did not contain any charge or declaration of trust over the subject land. Instead, the caveator relied upon clauses in the agreement that stipulated that the registered proprietor could not encumber or otherwise deal with its land without the consent to the caveator. 

In determining whether the negative covenant created an equitable interest, Justice White considered the NSW Court of Appeal’s decision in Troncone v Aliperti (1994) 6 BPR 13,291where Mahoney JA commented that:

the right, by the enforcement of an express or an implied negative covenant, to restrain a dealing with land is in my opinion an interest in land within this branch of the law. Accordingly, such an interest would, in my opinion be within the word a “legal or equitable estate or interest in land” within Section 74F(1).”

However, it is not clear that Troncone lays down any principle of general application. The specific agreement being considered by the Court in Troncone expressly permitted a creditor of the registered proprietor to lodge a caveat. Both Priestly JA and Meagher JA contended that such a caveat was supportable because the agreement, properly construed, intended to create an equitable interest the property. Priestly JA referred to the Court’s decision in Murphy v Wright (1992) 5 BPR 11,734, where his Honour joined in the majority in construing an agreement as impliedly granting a charge.

In Redglove, White J considered that the above dicta of Mahoney JA in Troncone was not the ratio of the Court. Instead, White J considered that ratio of Troncone to be that a charge sufficient to support a caveat maybe implied in some circumstances. White J concluded that “the fact that equity will enforce the negative promised by injunction does not transmute a purely person claim into a proprietary interest.” That is, whereas a negative covenant may entitle the covenantee to an injunction, it does not necessarily mean that a proprietary interest in land intended or created.

The effect of the Court of Appeal’s decision in Troncone was also considered by McLelland CJ in Eq in Coleman v Bone (1996) 9 BPR 16,223. His Honour summarised the effect of the decision as follows:

“So far as the "caveat" is concerned, it has been held by the Court of Appeal (in Troncone v Aliperti (1994) 6 BPR 13,291; NSW ConvR 55-703) that if in a contract between A and B, A grants B authority to lodge a caveat in respect of property of A, that grant carries with it by implication such estate or interest in the property as is necessary to enable that authority to be exercised. Where the authority to lodge a caveat is given in connection with an obligation by A to pay money to B, and there is no sufficient indication to the contrary, the implication is that the estate or interest granted is an equitable charge to secure payment to B of that money.”

Accordingly, there will be some instances in which courts will be prepared to infer an agreement between parties where the registered properties has impliedly created an equitable charge or granted a proprietary interest. The question will always be a matter of construction of the particular document said to give rise to the caveatable interest.

In Troncone and Coleman, the implication of a charge or equitable estate was supported by the parties express agreement that a caveat might registered over land. Accordingly, the Court’s implication of an implied charge or granting of an equitable estate was not inconsistent with (and indeed supported) the intention of the parties.

In Iaconis v Laza [2007] NSWSC 1103, in the context of an agreement between a client seeking a loan and a finance broker, Young CJ observed that:

“... if the facts show that there is a pro forma document and a person of limited commercial experience has signed it without evidence being proffered by the lender that the clause has been properly explained to the person who is said to have given the charge by or on behalf of the person providing the financial benefit, that the court may very well come to the conclusion that the former person never intended to give a charge notwithstanding the words used in the document.”

A charge or granting of an equitable estate cannot be implied where to do so would be inconsistent with the manifested intention of the parties. It is clear from how Troncone has been interpreted by subsequent courts that a mere negative covenant in relation to land is itself insufficient to establish an interest in land. Similarly, following decisions such as Iaconis, it is also doubtful that a mere right to lodge a caveat conferred in an agreement is sufficient to create a caveatable interst.

Registering a caveat without proper interest can lead to the caveator becoming liable in damages: s.74P of the Real Property Act 1900.

This article was prepared in July 2014. The law changes rapidly. If you are seeking to create a caveatable interest in a contract, or have any doubts about whether you have caveatable interest, you should speak to a lawyer at Craddock Murray Neumann Lawyers Sydney.

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