You are on Notice: A Careless Description of an Interest is Fatal to a Caveat

You are on Notice: A Careless Description of an Interest is Fatal to a Caveat By Trish Cassimatis & David McCrostie | June 2010 Area of Expertise | Commercial Disputes & Insolvency

Summary The Supreme Court of New South Wales recently examined the description of a caveator’s asserted interest in a piece of land in the caveat. The Court found that the caveat was defective on its terms and its life could not be extended.

Who Does This Impact? Lenders and others with asserted equitable interests in others’ land.

What Action Should Be Taken? A person contemplating whether to lodge a caveat must be certain of the interest it possesses in the land so that the caveat may be accurately expressed. Where a caveat is defective, unless there is clear evidence of the circumstances creating the interest in the land, the Court is likely to take the view that a new caveat may represent an abuse of the caveat process.

Rod Medich Properties Pty Limited v McGurk [2010] NSWSC 552

The Facts Rod Medich Properties Pty Limited (‘RMP’) provided $3.8 million to Mrs McGurk, or to a company under her husband’s control. RMP contended the funds were provided to Mrs McGurk to enable her to discharge a mortgage to BankWest over her property in Cremorne. RMP lodged a caveat against land owned by Mrs McGurk to protect what it said was its equitable interest in the land. Mrs McGurk served a lapsing notice in respect of RMP’s caveat. RMP brought proceedings to have the operation of the caveat extended or alternatively, to be permitted to lodge a further, new caveat against Mrs McGurk’s property. In the event RMP were not permitted to lodge a further caveat, it sought orders restraining Mrs McGurk from discharging her mortgage against the property.

The Interest in the Land The caveat described the interest in the land as: Nature of the estate or interest in the land equitable interest pursuant to a constructive trust By virtue of the facts stated below use of the caveator’s funds to acquire an interest in the property

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You are on Notice: A Careless Description of an Interest is Fatal to a Caveat by Trish Cassimatis & David McCrostie

Justice Palmer observed that the way in which the caveat was expressed would lead the reader to conclude that RMP was claiming Mrs McGurk held her property on constructive trust for RMP. In fact, RMP’s asserted interest in the land could never have been the interest as beneficiary of a constructive trust which it claimed in the caveat. His Honour found on the case presented, RMP’s interest (such as it was) could only have arisen by virtue of the equitable doctrine of subrogation: since, on RMP’s case, it had provided the funds to Mrs McGurk for the purpose of her discharging the mortgage to BankWest. Consequently, RMP claimed it was entitled to the benefit of BankWest’s mortgage – this is clearly not the interest of a beneficiary of a constructive trust.

Extension of Caveat Justice Palmer held that the caveat did not comply with requirements of the Real Property Act since it did not identify the particulars of the interest in the land to which RMP claimed to be entitled. It is a well established principle that a defect of this nature is fatal and cannot be cured by amendment. Further, the caveat breached the Real Property Regulation 2008 because it did not specify the amount of the debt that was secured by the interest referred to in the caveat. This was an additional ground up which his Honour refused the extension of the caveat.

Leave to Lodge a New Caveat Mrs McGurk argued that if RMP intended to retain the same security that was held by BankWest, there must be a loan by RMP to Mrs McGurk. Mrs McGurk submitted there was no evidence whatsoever that RMP lent any funds to Mrs McGurk, let alone for the purpose of Mrs McGurk discharging her BankWest mortgage. Counsel for Mrs McGurk pointed to witness statements and affidavits of Mr Medich made in other proceedings. Mr Medich’s statements and affidavits were contradictory as on the one hand, he said that McGurk was entitled to the $3.8 million funds as a commission for his services in recovering Mr Medich’s investments, and the other was that Mr McGurk misapplied the sum of $4.4 million, which had been intended to be for security of a property in Manly. Justice Palmer noted that in the present proceedings, Mr Medich had ample opportunity to put on affidavit evidence explaining the circumstances surrounding the alleged loan of the $3.8M to Mrs McGurk but he had not done so. In those circumstances Justice Palmer refused to grant leave to RMP to lodge a new caveat as his Honour was unconvinced the caveat would not be an abuse of the caveat procedure.

Injunction Justice Palmer found no basis upon which to grant the injunction restraining Mrs McGurk from discharging the BankWest mortgage. His Honour also refused an application for an adjournment to allow RMP to adduce further evidence concerning the extension of the caveat, the basis for a new caveat and the injunction sought.

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You are on Notice: A Careless Description of an Interest is Fatal to a Caveat by Trish Cassimatis & David McCrostie

Implications There is an increasing volume of authority standing for the proposition that a defect in the wording of the interest described in a caveat is fatal. This decision of Justice Palmer supports this growing trend. Caveators must be vigilant in the way they express their caveats. To articulate their interest accurately, caveators must understand precisely what their interest in the respective land is and how that interest arises. Proper loan and security documentation will go a long way to producing strong evidence of the nature and existence of the caveatable interest asserted.

For more information, please contact: Trish Cassimatis

David McCrostie

Lawyer T: 02 8257 5783 trish.cassimatis@turkslegal.com.au

Partner T: 02 8257 5711 david.mccrostie@turkslegal.com.au

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