Caveats and PEXA: a cautionary tale

Caveats: the basics

Caveats, which developed as a result of the Torrens title system of land ownership, act as a “freeze” on anyone dealing with the title to land that is the subject of a caveat until it has been resolved.

Caveats are perhaps best described by Barwick CJ in the leading case of J & H Just (Holdings) Pty Ltd v Bank of New South Wales (1971) 125 CLR 546; BC7100480:

“In simple terms, the purpose of a caveat is to act as a type of injunction to the Registrar-General to prevent registration of dealings and plans regarding the land until notice has been given to the caveator. This enables the caveator to pursue such remedies as may be available against the person lodging the dealing or plan for registration.”

Caveatable interests and lodging caveats

A caveat may be useful when your client has an interest in land that can’t be protected by the registration of another type of dealing. However, it’s important to lodge a caveat only in respect of a caveatable interest, since lodging a caveat that doesn’t protect a caveatable interest may give rise to a claim for compensation by a person who suffers loss as a result.

Generally speaking, for a caveator to hold a caveatable interest, the caveator must have some legally recognised estate or interest in the land in question, such as a signed and dated lease in registerable form, a mortgage, an option to purchase land or a securable interest over goods attached to the land.

It’s a complex area, with each state and territory having its own legislation governing caveats and caveatable interests. The case law, while plentiful, can be inconsistent and contradictory at times. To delve deeper here, head on over to Lexis Nexis Practical Guidance Property Law Module.

Lessons on caveats in an eConveyancing world: Guirgis v JEA Developments Pty Ltd

In the recent case of Guirgis v JEA Developments Pty Ltd [2019] NSWSC 164; BC201901152, Kunc J of the NSW Supreme Court examined a set of facts involving the lodgement of a caveat in the Property Exchange Australia (PEXA). PEXA, as you may know, is an electronic lodgement network (ELN) which is increasingly used by lawyers and conveyancers to prepare, settle and lodge land transactions online.

In this case, Kunc J ordered that a caveat be removed on the basis that there was no caveatable interest.

The caveat had been lodged during a matrimonial dispute. The husband was due to settle the sale of a property that he owned, and before that settlement a conveyancer acting for his wife lodged a caveat in respect of that property. The caveat was lodged on the basis of a “charge” by virtue of an “agreement” between the husband and wife arising due to an “outstanding loan.”

The husband made an urgent application to have the caveat removed, arguing there was no such loan agreement or other arrangement. The court accepted his argument and went on to noted deficiencies in the conduct of the conveyancer who lodged the caveat:

• The facts on which the claim was based, such as the date of the agreement and whether it was oral or in writing, were not included
• The conveyancer needs to do more than a casual or incomplete inquiry to be able to confirm that the caveator has a good and valid claim “to the best of their knowledge”

His Honour also used the concluding remarks of the judgment to highlight two important issues for practitioners:

1. The heightened role of conveyancers or solicitors as we move to electronic conveyancing platforms:

   “Ordinary members of the public are, in practical terms, no longer able to lodge caveats without the intervention of a “Subscriber”, who in many cases will be a solicitor or licensed conveyancer. The requirement to give the requisite representations and certifications operates to confer on them the role of a guardian at the gate.”

2. Costs orders and compensation may not be the only risks for parties and practitioners who lodge a caveat – professional disciplinary proceedings may also follow: 

   “I see no reason why the Court should not draw matters such as the present to the attention of the appropriate authority for it to take such action as it thinks fit.”

Conclusion:

In the new electronic world of eConveyancing, it’s more important than ever to understand the nature and scope of caveatable interests and the obligations imposed on those lodging caveats. Read more about this NSW Supreme Court case in the Australian Property Law Bulletin.

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