A person does not have a caveatable interest unless he or she
holds an instrument that may lead to an entry as registered
proprietor of the property on the Register of Titles or unless he
or she is claiming under a transaction that entitles him or her in
the course of time to such an instrument.
There is still debate within the Courts as to whether a section
120/121 claim under the Bankruptcy Act 1966 ("the
Act") gives rise to a caveatable interest of a Trustee in
bankruptcy. In our view, proceedings should be issued in the Court
immediately to prevent the caveat lapsing as the caveatable
interest only arises as a result of the Trustee's claim against
the registered proprietor/s.
A person is also not permitted to lodge a second caveat on the
same grounds as the first caveat (in the event that the first
caveat lapses or is removed)1. This is also something
further to consider if you agree to remove a caveat on the
understanding that a further caveat will be lodged (for example,
for the purposes of the registered proprietor refinancing a
We refer you to the decision of Costello v Official Trustee
in Bankruptcy, where Justice Beach of the Supreme Court dealt
with the removal of a caveat where the interest was the same as an
The first caveat in that case was lodged on the basis of a
sequestration order being made and the vesting provisions under
section 58(1) of the Act. The registered proprietor (the
non-bankrupt spouse) made an application to the Registrar of Titles
for notice to be given to the Official Trustee that the caveat
would lapse unless proceedings were issued in Court to substantiate
the caveator's claim. The caveat lapsed and a second caveat was
lodged claiming an equitable estate based on a void transfer
pursuant to section 120.
Justice Beach found that section 120(1) of the Act does no more
than identify property which is to be regarded as property of the
bankrupt. Section 58 gives the Official Trustee his interest in the
property. The interest acquired by the Trustee is the same whether
it be acquired pursuant to section 58 or section 120 of the Act.
Therefore, the Trustee was precluded from the lodging the second
caveat as it was on the same grounds as the earlier caveat.
In our view, a Trustee should issue proceedings immediately to
substantiate the basis for a caveat which is lodged over property
on the basis of a section 120/121 claim. However, this will not
always be protection in circumstances where an application is made
to remove the caveat and the Judge hearing the matter will exercise
his or her discretion as to whether the caveat should be
Alternatively, if a registered proprietor requests that a
Trustee remove a caveat for the purposes of refinancing, the
Trustee should enter into a written agreement by which, among other
things, the proprietor grants an equitable charge to the Trustee.
The Trustee can overcome the difficulties regarding lodging a
caveat on the same grounds as an earlier caveat and he or she can
then re-lodge a second caveat on the basis of the equitable charge
contained in the agreement.
In the event that an application is made to remove a caveat, the
Trustee will need to consider whether he or she wishes to defend
the application as substantial evidence will need to be put before
the Court as to the cause of action which the Trustee has to
support a caveatable interest over the property in order to
demonstrate that the caveat should not be removed. There may be
penalties imposed on the Trustee if the Court finds that he or she
does not have a caveatable interest over the property. Those
penalties would usually be the loss (if any) suffered by the
registered proprietor of the property as a result of the caveat
having been lodged over the property. The Court may also order that
the Trustee pay the costs of the application and such costs would
be at the discretion of the Court. The costs in issuing such
application may be considerable.
1 Section 91(4) Transfer of Land Act 1958
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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