• 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 loan).
  • 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 earlier caveat.
  • 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 removed.

Equitable Charge

  • 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.

Footnote

1 Section 91(4) Transfer of Land Act 1958 (Vic)

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.