Is your caveat defective? If you cannot fix it, perhaps seek an injunction instead

A caveator of land, when notified by the Registrar of Titles of the pending registration of an interest or transfer of the land, can seek a court order that such registration be delayed for a period of time. But what if the caveat itself is defective and cannot be fixed? The Supreme Court in TL Rentals Pty Ltd v Youth on Call Pty Ltd[1] has recently clarified the law regarding the ability of the caveator to instead seek an injunction in such circumstances.

The facts

The second defendant, Ms Shannon, was one of two joint proprietors of land in Warrandyte. In December 2017, the plaintiff lodged a caveat over the land claiming a ‘freehold estate’ pursuant to an agreement with the first defendant, Youth on Call Pty Ltd (YAC).

The agreement in question was for the plaintiff’s lease of goods to YAC. Pursuant to that agreement, Ms Shannon (as director of YAC and guarantor) agreed to mortgage her interest in the Warrandyte land to the plaintiff. The agreement also provided that the relevant documentation for the mortgage was to be registered in due course. When YAC defaulted under the terms of the goods lease, the plaintiff demanded repayment of outstanding lease moneys and lodged the caveat.

In January 2018, the fourth defendant (PCL) entered into a loan agreement with Ms Shannon and her partner. Pursuant to that loan agreement, the Shannons agreed to mortgage their land to PCL. Prior to settlement, PCL’s solicitor failed to run a fresh title search which would have revealed the plaintiff’s caveat. That being the case, PCL had at most an unregistered mortgage and therefore a type of equitable mortgage. This all occurred after lodgement of the plaintiff’s caveat.

In February 2018, the plaintiff commenced a proceeding seeking, amongst other things, a declaration that it had an equitable mortgage over the land. Having commenced that proceeding, the plaintiff by summons sought an order pursuant to section 90(2) of the Transfer of Land Act 1958 (Vic) (the TLA) directing the Registrar of Titles to maintain the caveat until the plaintiff’s equitable mortgage could be registered.

The Court’s decision

The section 90(2) summons was heard before Derham AsJ.

Abandoning the attempt to amend the caveat

Given the disparity between what the plaintiff claimed in the caveat (a ‘freehold estate’) and the relief the plaintiff sought in the substantive proceeding (a declaration of an equitable mortgage), the plaintiff initially sought leave to amend the caveat to limit it to a claim for an equitable mortgage. However, at the hearing of the summons the plaintiff abandoned this course — Derham AsJ observed that the position at law regarding the ability to amend the caveat was ‘not entirely consistent’[2] — and instead articulated the key issues at hand as being one of a priority dispute between equitable mortgages and whether the caveat in its present form could be maintained.

Priority dispute between equitable mortgages

In determining the priority dispute, his Honour noted that:

‘The law as to competition between competing equitable interests in land is that the interest which is first in time will prevail … but that may change where the prior equitable interest holder has acted in such a way that it would be unconscionable if his interest were to prevail over the subsequent interest holder’.[3]

The Court found no evidence to demonstrate that it would be unconscionable for the plaintiff’s equitable mortgage to take priority. It was relevant to the Court’s conclusion on this point that PCL had relied on an older title search which had been conducted prior to lodgement of the plaintiff’s caveat, and that any error regarding the way the caveat had been expressed — it had incorrectly asserted a ‘freehold estate’ — could not have misled PCL. His Honour stated that ‘whilst the Caveat displays an error in its drafting, PCL could not rationally argue that the error could have affected its position’.[4] It followed that the plaintiff’s equitable mortgage took priority, and there was nothing unconscionable in the plaintiff asserting such.

The ability to seek an injunction

Given the uncertainty as to its ability to amend the defective caveat, the plaintiff sought an interlocutory injunction in order to protect the priority of its equitable mortgage above that of PCL. Although the summons itself did not seek an injunction, the plaintiff had in its outline of submissions filed with the Court mentioned this form of relief.

PCL submitted that there was no authority permitting a party seeking orders under section 90(2) of the TLA to instead seek an injunction. To that, Derham AsJ held:

‘In my view, there is no substance in PCL’s submission that where the application was one originally made under s 90(2) … there was no basis for the court to grant an interlocutory injunction. What the plaintiff sets out to do is amend its application [by summons] so as to claim an interlocutory injunction to preserve the status quo.’[5]

His Honour noted that the plaintiff had given notice of its intention to seek an injunction, albeit by way of a reference to such in the plaintiff’s submissions rather than on the face of the summons.

His Honour observed that ‘the caveat procedure is essentially a statutory injunction that is granted upon consideration of the same factors as are applied when granting interlocutory injunctions in equity’,[6] and held:

‘[T]he plaintiff’s interest [pursuant to an equitable mortgage] ought not be destroyed or jeopardised merely because the relief sought in the summons was confined to an injunction under s 90(2). This Court ought to give effect to the substance of the parties’ rights over formal or procedural matters. To do otherwise … would elevate form over substance’.[7]

His Honour went on to permit the plaintiff to amend its summons to seek an interlocutory injunction restraining the Registrar of Titles from registering PCL’s mortgage over the land.

Would damages have sufficed for the plaintiff?

PCL resisted any preservation of the caveat in circumstances where, it argued, damages would be an adequate remedy for the plaintiff. Derham AsJ disagreed, noting that ‘there remains a tendency not to regard damages as an adequate remedy for prospective injury to property of [a] plaintiff’.[8] Because the plaintiff in the present case had asserted an equitable mortgage rather than, presumably, something less ‘proprietary’ in nature such as a charge, damages could not be said to be a suitable alternative.

What about the balance of convenience?

PCL argued that the balance of convenience favoured removal of the caveat in circumstances where the plaintiff held, in addition to the equitable mortgage, security over the various items the subject of the lease agreement; the caveat could be removed and the plaintiff would still have security over the leased items. Derham AsJ held, however, that ‘this merely emphasises that the plaintiff’s equitable mortgage is a collateral security’ and asked, ‘Why should that security’s prima facie priority over the PCL mortgage be put back because the plaintiff has other security?’[9] In other words, his Honour was of the view that where there is a priority dispute a caveatable interest ought not be de-prioritised simply because the caveator has some other form of security available to it.

Comment

While it was relevant that the plaintiff had effectively given notice of its intention to seek an injunction in the hearing of its summons pursuant to section 90(2) of the TLA, the decision in TL Rentals Pty Ltd v Youth on Call Pty Ltd provides that an injunction can be sought under that provision. This seems appropriate when one considers the similarly between, on the one hand, the principles applying to an application for removal (or maintenance) of a caveat and, on the other, the principles applying to an application for an injunction. Moreover, this is arguably consistent with the wording of section 90(2) since it empowers a court to ‘make such other order ... as is just’ when determining an application under that provision.


[1]: [2018] VSC 105.

[2]: Ibid [10].

[3]: Ibid [21].

[4]: Ibid [24].

[5]: Ibid [34].

[6]: Ibid [35].

[7]: Ibid.

[8]: Ibid [37].

[9]: Ibid [40].