A contractual agreement to lodge a caveat to secure an obligation to repay money does not necessarily give rise to a caveatable interest. 

From time-to-time parties enter into contractual arrangements in which one party (usually the borrower of money who is also the registered owner of land) provides another party (usually a lender of money) with authority to lodge a caveat on the title of the land with the intention of securing the obligation to repay the money lent. The lodging of a caveat prevents the landowner from dealing with the estate or interest to which the lodging party claims to be entitled.

However, the contractual right to lodge a caveat does not necessarily provide the lodging party with the benefit of a caveatable interest within the meaning of section 74F of the Real Property Act 1900 (NSW) (the Act). (An explanation as to the meaning of ‘caveatable interest’ can be found in our recent article Is your caveat extendable?) Where a caveat is lodged without reasonable cause, such as without having a caveatable interest, the lodging party may be exposed to a liability to pay compensation to any party who suffers loss pursuant to section 74P of the Act. It is therefore necessary to consider the nature of a caveatable interest as provided by section 74F.

How do I create a ‘caveatable interest’?

Section 74F of the Act requires that the lodging party be entitled to a ‘legal or equitable estate or interest in land.’ A contractual right to lodge a caveat does not necessarily imply that a party with the benefit of that clause has such an estate or interest. In order to determine whether a caveatable interest has in fact been created, it is necessary to construe the contract applying the principles of contractual construction. This was explained in Nabeth Taleb v National Australia Bank [2011] NSWSC 1562 (Taleb) by Acting Justice Bryson (as his Honour then was), who considered the relevant authorities and explained at [60]:

‘…the meaning conveyed by a contractual document, including what is conveyed by implication, must be understood by addressing the terms and the whole terms of the document in question, and there is no principle or no true principle establishing what implication must be drawn from authority to lodge a caveat in connection with an obligation to pay money.’

In Ta Lee Investment Pty Ltd v Antonios [2019] NSWCA 24 (Ta Lee Investment), the New South Wales Court of Appeal considered a contract which provided a contractual right to lodge a caveat, to determine whether or not it provided the lodging party with a caveatable interest within the meaning of section 74F. The Court agreed with the observation of Acting Justice Bryson in Taleb, and noted that the Court of Appeal had also endorsed Taleb in Aged Care Services Pty Ltd v Kanning Services Pty Ltd [2013] NSWCA 393. Applying the principles of contractual construction, the Court was of the view at [104] that on a proper construction of the relevant contractual clause, the caveatable interest being contended for (an equitable interest or equitable charge) was not created, as amongst other matters there was:

‘..no reference to “security”, “secured interest”, “charge”, “caveatable interest” or any other language which would point to Ta Lee having an equitable interest. The Deed was a professionally drafted business document. Had the parties intended for Ta Lee to have a secured interest, the Deed could have said so and it is to be expected that it would have made express provision to that effect.’

It follows that if it is the intention of the parties to a contract that one party is to secure the obligation to pay money by lodging a caveat on the title of land, the terms of the contract ought to clearly provide that the intended secured party has the benefit of an interest in land which constitutes a caveatable interest within the meaning of section 74F of the Act. Where this is not the case, and the caveat is found to have been lodged without reasonable cause, the intended secured party may be exposed to liability as a consequence of section 74P of the Act.

How can we assist you?

Craddock Murray Neumann can assist parties seeking to secure an obligation to repay money by drafting contractual clauses which provide the lending party with a caveatable interest which can then be protected by lodging a caveat. In addition, we can help parties to secure money through other forms of security over land, including mortgages.

Alternatively, we can advise parties on recovery options where a party claiming an interest in land has lodged a caveat but does not in fact have a caveatable interest.

Our Litigation and Insolvency team advise and act for a wide range of parties in disputes ranging from routine to complex. If you are in need of legal assistance, please contact us on 1300 123 529, or via email for a confidential discussion about your situation.

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If you are in need of legal assistance, please contact us for a confidential discussion about your situation.

To ensure any caveats you create do in fact give rise to a caveatable interest, or to find out more about recovery options where a party has lodged a caveat but does not have a caveatable interest, get in touch with CMN’s team of experienced Insolvency lawyers.

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