Caveators behaving badly — a solicitor’s responsibility

• Solicitors lodging caveats need to ensure they have a proper basis.
• There can be serious consequences for solicitors who lodge unsustainable caveats, including personal cost orders, disciplinary proceedings and professional negligence claims.
• Exercise your independent duty to satisfy yourself of your client’s prima facie case of an estate or interest in land.

Dating at least from the oft-quoted statement of Dodds-Streeton J that caveats lodged under section 89(1) of the Transfer of Land Act 1958 (TLA) as “bargaining chips” undermine the operation of an essential feature of the Torrens system (Goldstraw v Goldstraw [2002] VSC 491 at [42]), solicitors lodging caveats have been under increasing scrutiny. LPLC regularly sees claims made against solicitors who have lodged unsustainable caveats. This column seeks to guide solicitors lodging caveats to ensure they have a proper basis.

Section 89(1) of the TLA provides that – “any person claiming any estate or interest in land . . . may lodge with the Registrar a caveat . . . forbidding the registration of any person as transferee or proprietor of and of any instrument affecting such estate or interest either absolutely or conditionally . . .”

Generally there are three problem areas involving solicitors and caveats:

1. Failure to caveat leading to completion of a transaction, eg a sale, adverse to your client’s interests or though unlikely (UDP Holdings Pty Ltd v Esposito Holdings Pty Ltd (in liq) (No 2) [2021] VSC 711 at [33]) to loss of priority between equitable interests.

2. Lapse of a caveat due to a failure to observe the 30 day time-limit after a land transfer is registered under ss90(1),(2) of the TLA (eg Tawafi v Weil [2017] VSC 643at [24] - [25]) or s89(3)(b), 5(b) (eg Luna v V & A Luna Pty Ltd [2023] VSC 126).

3. A successful application to remove a caveat in a proceeding under s90(3)). In such a proceeding the caveator must establish: a prima facie case (sometimes stated as a serious question to be tried) of having the claimed estate or interest; and that the balance of convenience favours the maintenance of the caveat until trial (Nicholas Olandezos v Bhatha & Ors [2017] VSC 234 at [16]-[19]).

There are serious consequences for solicitors who lodge unsustainable caveats including disciplinary proceedings, an indemnity costs order as well as a claim for professional negligence, arising for example from advice to lodge a baseless caveat.

Common examples of caveats unsustainable because the caveator has no possible interest in the relevant land, commencing with disciplinary cases (which each resulted in conviction for unsatisfactory professional conduct or professional misconduct) are:

• A personal caveat by a solicitor over the other party’s property, where the client had not executed a charge in favour of the solicitor. In Legal Services Commissioner v Mercader [2011] VCAT 2062 a solicitor who had acted for a wife in a matrimonial dispute caveated over the husband’s property (in which the wife claimed a share) based on an alleged constructive trust. The wife had, however, not executed a charge securing the solicitor’s costs. But if the client had held an arguable interest in the other party’s property, and had executed such a charge, the solicitor could have caveated: Cressy v Johnson (No 3) [2009] VSC 52 at [4], [11], [201]-[202], [213].
• Caveat in wilful disregard of facts and law. In Legal Services Commissioner v Kotsifas [2014] VCAT 1615 the solicitor acted for a company and its directors in a dispute with another company. A director lodged a caveat, drawn by her, over the other company’s land claiming an “equitable interest as chargee” [22]. In removing the caveat Ferguson J expressed doubt whether the caveator could rely on a resulting or constructive trust. The solicitor then: provided a partially drawn caveat to another director, which that director lodged, claiming that that director was the beneficiary of an implied, resulting or constructive trust, and prepared and lodged a caveat on behalf of the company claiming that interest also. Croft J’s adverse comments in removing the caveats included that they were lodged in wilful disregard of known facts and law. In the ensuing disciplinary proceeding, Senior Member Smithers stated:
  (a) Because of a caveat’s similar effect to an ex parte injunction, the lodging solicitor must exhibit a high level of candour and preparation in gathering evidence to support the existence of the interests claimed;
  (b) A solicitor has an independent non-delegable duty to assess whether a caveat should be lodged;
  (c) The solicitor had an analogous duty, reflected in the Civil Procedure Act 2010, to independently assess whether a proper basis for the caveat existed.
• A fictitious equitable charge. In Legal Services Commissioner v Souki [2022] VCAT 663 the solicitor prepared and provided her clients with caveat forms claiming an “interest as chargee” based on an agreement (which she knew to be non-existent) with the registered proprietor which they lodged.
• A mere fencing dispute. In Victorian Legal Services Commissioner v Fong [2024] VCAT 103 the solicitor acting for a client in a fencing dispute lodged three groundless successive caveats on behalf of his client over the neighbour’s property claiming either “adverse possession by exclusive occupation” (purportedly to defend any possible claim for adverse possession by the neighbour) or “registered proprietor(s) being entitled to possession of the certificate of title . . . and to prevent improper dealings”.
• A caveat based on an interest not yet (if ever) in existence: Boensch v Pascoe (2019) 268 CLR 593at [103] – [104]. Accordingly insufficient are: mere commencement of a proceeding which may establish a caveatable interest (Boensch at [103] – [104]); a mere claim under the Family Law Act (Hermiz v Yousif) [2019] VSC 160 at [39], Sandich v Fasoulis [2023] VSC 65 at [27]) although a subsequent order under that Act could give rise to a caveatable interest; the claimed right to set aside a mortgagee’s sale (Swanston Mortgage Pty Ltd v Trepan Investments Pty Ltd [1994] 1 VR 672) or a fraudulent sale by a mortgage broker (Super Jacobs Pty Ltd v Faalogo [2019] VSC 778).
• A caveat by a claimant for specific performance of a contract concerning the development and sale of land (which contract did not otherwise create the equitable interest): AP Welco Holdings Pty Ltd & Anor v Canterbury Hills Pty Ltd & Anor [2022] VSC 490 at [59], [63], [75], [77].
• A caveat by an unsecured creditor: EZY Global Ltd v Miller Crescent Pty Ltd & Ors [2019] VSC 815 at [5], [72]-[80].
• A caveat by a lender of money to be used to buy land, unless the parties intended that the lender should have security for the loan: Simons v David Benge Motors Pty Ltd [1974] VR 585; EZY Global Ltd v Miller Crescent P/L [2019] VSC 815. But, in contrast, a direct contribution to payment of the price may found a resulting trust (eg. Oz Envision Development Pty Ltd v Yuan [2018] VSC 607)
• A caveat based on the registered proprietor’s promise to pay the profit or a percentage thereof on resale: Epple v Wilson [1972] VR 440; Maxwell v Moorabool Developments Pty Ltd [2004] VSC 392 at [262].
• A caveat based merely on work and labour done: Walter v Registrar of Titles [2003] VSCA 122 at [18]; Yamine v Mazloum [2017] VSC 601. The caveator must rely on either a charging clause or (based on Hewett v Court (1983) 149 CLR 639 at 668) an equitable lien.
• A caveat by a judgment creditor, even resulting in a warrant of seizure and sale: Rubytime Nominees Pty Ltd v Bottiglieri [2011] VSC 678.
• A caveat by a mere shareholder over the company’s land: Alliance Developments Pty Ltd v Arbab [2019] VSC 832 at [56].
• A caveat by a beneficiary over the trust property of a discretionary trust or (probably) of a unit trust. The former beneficiary has no equitable interest (Southage Pty Ltd v Beijing Garden Resort Pty Ltd [2013] VSC 272). Whether the latter beneficiary has an equitable interest depends on interpretation of the trust deed, which is, however, unlikely to have created that interest: Re S & D International Pty Ltd (No 4) [2010] VSC 388 at [139] – [145]; LPY Investments Pty Ltd v JY Property Pty Ltd [2024] VSC 94 at [35], [46], [50], [61]-[65].
• A caveat claiming that the deceased registered proprietor promised to devise the land to the caveator: Goldberg v Campbell and Shaw [2021] VSC 647.
• A caveat by a beneficiary under an unadministered estate which includes land: The matter of the Will of Dorothea Agnes Baird [2019] VSC 59.
• A caveat by an estate beneficiary concerning an allegedly impeachable inter vivos transfer (typically by the deceased to the person named as executor): Van Wyk v Albon [2011] VSC 120 at [14].
• A caveat by a bankrupt: Official Trustee in Bankruptcy v Shaw [2019] VSC 681.

• Exercise your independent duty to satisfy yourself of your client’s prima facie case of an estate or interest in land.
• If the client’s caveatable interest might logically be founded in documentary evidence, such as a charge, then seek and review this evidence before caveating.
• In extremely urgent cases where the client cannot immediately produce the documentary evidence, consider and weigh the risks of potential detriment of not caveating against the risks of a lodging an unsustainable caveat. Ensure comprehensive advice on the risks and consequences is provided to the client and confirmed in writing.
• If the alleged interest in land can arise without writing (such as some types of a constructive trust) properly consider the evidence to satisfy yourself that there is a caveatable interest.
• Satisfy yourself that the client’s claim is not just for work and labour done, or as an unsecured creditor or just has something to do with land (such as a fencing dispute), without actually giving rise to an interest therein.
• Before lodging a caveat, consider whether your client has alternative remedies to safeguard their interests such as an injunction/freezing order.
• When acting for a client in litigation don’t lodge a personal solicitor’s caveat over the other party’s land unless your client has a prima facie interest in that land, and you have taken a charge over your client’s interest for your costs.
• Carefully draft the interest claimed, grounds and extent of prohibition.
• Don’t be pressured into lodging a groundless caveat. Both the client and you risk adverse consequences if you succumb to this pressure.

A further column will be published focusing on caveatable interests based on implied, resulting or constructive trusts and defectively drafted caveats.

This article was written for LPLC by barrister Philip H Barton who practises at the Victorian Bar in commercial, property, and probate law. He is the author of the caveatsvictoria.blog.