LODGING CAVEATS OVER PROPERTY WITHOUT A PROPER BASIS
Review of Sovereign MF Ltd (in liq.) v EOS Janus Holdings Pty Ltd  VSC 347
Caveats may only be lodged over another person’s property if you have a legal or equitable interest in the property. The effect of the caveat is to give notice to the world of the interest claimed by the caveator.
In a recent decision of a single judge of the Supreme Court, Justice James Elliot awarded the plaintiff indemnity costs on the basis that the defendant had lodged a caveat over the plaintiff’s property without a proper basis.
The award of indemnity costs is an adverse measure taken by Courts and unlike party-party costs its purpose is to ensure that the other party is not out of pocket (Spencer v Dowling & KL Dowling & Co (a firm)  2 VR 127). This means that all costs incurred by the other party will be allowed, save for any unreasonably incurred amounts.
The decision of His Honour reinforces that the Courts will order a party to be responsible to pay all the landowner’s legal costs and disbursements as a consequence for lodging caveats without any proper basis.
In this case, the defendant lodged a caveat in respect of a property located in Tarneit (first caveat). The defendant’s grounds to support the first caveat were “pursuant to a constructive trust”.
The first caveat lapsed on 25 June 2013 and on 1 July 2013 the defendant lodged a subsequent caveat, with the grounds being “pursuant to rights under an underwriting agreement” (further caveat).
The plaintiff and defendant had entered into an underwriting agreement on 25 February 2010 in respect of sale of lots of the Property. The defendant claimed that it had monies outstanding to it by the plaintiff and on that basis lodged caveats over the Property.
Importantly, there were no terms in the agreement that gave rise to any legal or equitable interest in the Property to provide grounds and proper bases for the defendant to lodge a caveat in respect of the Property.
Accordingly, by summons on originating motion to the Supreme Court, the plaintiff sought orders that the defendant remove the caveat from the register. Between the issuing of the summons and its return date for hearing, the defendant lodged a withdrawal of caveat from the register. As a result, the matter was referred to the Court on the question of costs alone.
In determining whether to order the defendant to pay indemnity costs, Justice Elliott referred to and upheld the factors considered by Justice Forrest in Love v Kempton  VSC 254, which are as follows:
- The nominated basis for lodging the caveat was without a proper basis.
- The other party had put the defendant on notice that if it failed to withdraw the caveat and the plaintiff was required to make an application to the court, it would apply for indemnity costs.
- A caveat is not a bargaining chip.
- Lodging caveats is a serious business as it has the potential to affect commercial transactions and the lives and financial interests of others.
His Honour considered that in light of the “high-handed conduct” of the defendant in not only lodging the first caveat, but lodging the further caveat together with the satisfaction of the above factors in Love v Kempton, costs should be awarded to the plaintiff in respect of the summons on an indemnity basis.
Key Points to remember
- Is there a proper basis for lodging the caveat, that is do you have an equitable or legal interest in the property in which you propose to lodge the caveat over?a) Does any legal instrument, for example a written agreement, make provision for you to lodge a caveat in respect of the other party’s property on satisfaction of particular circumstance?
a) Do you have any equitable interest in the property or has the registered proprietor granted you an interest in the property (e.g. an equitable charge to secure debt)?
- After proceedings have been instituted by the other party for the withdrawal of the caveat and it is withdrawn, if there were no grounds to support that caveat there still may be costs awarded against you despite the withdrawal;
- Costs are likely to be awarded on an indemnity basis if there is no proper basis to lodging the caveat.
In consideration of the above, it is prudent to seek legal advice prior to lodging any caveat.
Please contact Nicholas Brand of our office on 03 9614 7707 for further information.