Australia: Does The Registration Of A Writ Of Execution Trump The Prior Unregistered Interest Of A Buyer Or Mortgagee?

Latest decision says not in Queensland

A buyer or incoming financier who fails to lodge a settlement notice or caveat to protect their position pending registration of their interest can be at risk that a judgment creditor will register a writ of execution on the title during the period between settlement and registration.

This can have dire consequences in New South Wales, where a purchaser from the Sheriff under a writ of execution during the six month "protected period" acquires title free from all unregistered interests. Is the situation the same in Queensland?

Position in New South Wales

In Black v Garnock [2007] HCA 31 the High Court of Australia considered the effect of registration of a writ under the Real Property Act in New South Wales. A judgment creditor had registered a writ a few hours before settlement of the sale of the property to the buyer. The registration of the writ prevented the registration of the transfer in favour of the buyer.

The High Court held that, during the six month "protected period" following the recording of the writ on the title, the Sheriff could sell the property and a purchaser from the Sheriff would receive title subject only to the interests registered on the title at the time of the recording of the writ. This meant that the third party buyer's interest would be defeated by a sale by the Sheriff.

The High Court decision rang alarm bells for buyers and incoming financiers of New South Wales land. It demonstrated that they were vulnerable to the registration of a writ and subsequent sale by the Sheriff, particularly during any gap between settlement and registration of their transfer or mortgage. The clear message for any person acquiring an interest in land in New South Wales was not to delay in lodging a caveat to protect their position before the recording of any writ.

Position in Queensland

The recent decision of the Queensland Supreme Court in Secure Funding Pty Ltd v Doneley & Anor [2010] QSC 91, handed down on 7 May 2010, has cast doubt on the applicability in Queensland of Black v Garnock. This potentially improves the position of a buyer or incoming financier of land in Queensland.

In Secure Funding the sale had settled and a writ of execution was registered before the buyers' release of mortgage and transfer were lodged for registration. Upon becoming aware of their predicament, the buyers lodged a caveat.

The judgment creditor, seeking to defeat the claims of the unregistered buyers, argued that the decision in Black v Garnock was applicable in Queensland and the Sheriff could sell the land free from the buyers' unregistered interest. The buyers argued that the decision was confined to the New South Wales legislation.

The Queensland decision

Justice Martin held that the relevant provisions of the New South Wales legislation were distinguishable from those of the Land Title Act in Queensland, with the result that Black v Garnock is not applicable in relation to Queensland land.

He held that under the Queensland legislation a purchaser from the Sheriff under a writ of execution gets no better title than the owner had at the time the writ was registered, which means that the Sheriff sells subject to all the registered and unregistered interests affecting the land. In effect, the Sheriff has no interest to sell if the registered owner has already completed a sale of the property to a third party for value – even if the transfer to the third party has not yet been registered.

Implications of the Queensland decision

The decision in Secure Funding suggests that in Queensland an unregistered buyer or incoming financier is less vulnerable to the risk that a writ of execution may be registered before the registration of their transfer or mortgage.

There is no doubt that it is still highly advisable for any buyer to protect their position by lodging a settlement notice immediately after entering a contract of sale. Similarly an incoming financier should lodge a settlement notice before advancing funds. Martin J suggests that lodging either a settlement notice or a caveat will prevent the later registration of a writ of execution (contrary to the position in New South Wales). This will allow the transaction protected by the settlement notice or caveat to proceed according to its terms, rather then being deferred during the six month period following the registration of a writ of execution.

If a caveat or settlement notice is not lodged before the registration of a writ of execution, the buyer or incoming financier's interest will not be able to be registered during the six months following registration of the writ of execution. This is the case even where the interest claimed in the transfer or mortgage arose before the issue or registration of the writ of execution.

Conversely, the decision in Secure Funding limits the utility of registering a writ of execution against land in Queensland as a means of enforcing a judgment by selling the judgment debtor's land. There is the possibility that the register may not accurately reflect the beneficial interest the judgment debtor has in the land as at the date the writ of execution is registered. This will be a powerful disincentive to potential purchasers from the Sheriff as there will be uncertainty regarding the interest being obtained from the Sheriff.

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