PALAZZO HOMES PTY LTD -v- GOH [2010] WASC 407 (23 December 2010)

3 The plaintiff now applies for an order extending the operation of the caveat and an order amending the caveat from an absolute caveat to a subject to claim caveat, that is, a caveat that forbids the registration of any instrument affecting the estate or interest claimed by the plaintiff unless such instrument be expressed to be subject to the claim of the plaintiff.

4 Section 138C of the Act provides that the court may, amongst other things, make an order extending the operation of the caveat if the court is satisfied that the caveator's claim has or may have substance. In this case it is common ground that on the facts asserted by the plaintiff the plaintiff's claim that it has a caveatable interest in the land has or may have substance. However, the defendants submit that the plaintiff was not entitled to lodge an absolute caveat and the court should not extend the operation of the absolute caveat. The defendants further say that the court does not have power to amend, or order to be amended, the absolute caveat so as to make it a subject to claim caveat.

5 The caveat correctly identifies the plaintiff's interest as an equitable charge by virtue of the building contract made between the plaintiff and the defendants. However, a caveator may not lodge a caveat which goes beyond the legitimate claim necessary to protect the caveator's rights: Deputy Commissioner of Taxation v Corwest Management Pty Ltd [1978] WAR 129, 131; Binningup Nominees Pty Ltd v Brogue Tableau Pty Ltd [2004] WASC 14 [35]. A person may not lodge a caveat that is expressed to be an absolute prohibition of dealings when, in the circumstances, it should be expressed to operate only to protect the particular interests claimed: Corwest Management (Burt CJ) (131), (134); Midland Brick Co Pty Ltd v Welsh [2006] WASC 122; (2006) 32 WAR 287 [342] (Hasluck J); Brogue Tableau Pty Ltd v Binningup Nominees Pty Ltd [2007] WASCA 179; (2007) 35 WAR 27 [78] (Buss JA).

6 It is common ground that the absolute caveat lodged by the plaintiff goes beyond the legitimate claim necessary to protect its rights and that the caveat should be expressed to operate only to protect the plaintiff's rights as equitable chargee. That is, the plaintiff should have lodged a subject to claim caveat, not an absolute caveat. It is for that reason that the plaintiff applies to amend its caveat.

7 It is now generally accepted in Australia that the power to make such order as the court considers appropriate, or as to the court seems fit, in dealing with an application to remove a caveat, includes the power to order amendment of the caveat as a condition of its retention: see for example Re The Victorian Farmers' Loan and Agency Co Ltd [1897] VicLawRp 117; (1897) 22 VLR 629; Queensland Estates Pty Ltd v Coownership Land Development Pty Ltd [1969] Qd R 150; Elliott v Blanshard (1970) 17 FLR 7, 11; Midwarren Estates Pty Ltd v Retek & Stivic [1975] VicRp 56; [1975] VR 575; Kerabee Park Pty Ltd v Daley (1978) 2 NSWLR 222, 229 (Holland J); Veloudos v Young [1981] FCA 217; (1981) 56 FLR 182, 186 187 (Davies J); Depsun Pty Ltd v Tahore Holdings Pty Ltd (1990) ANZ Conv Rep 334.

8 Section 138(2) of the Act provides that on a registered proprietor summoning a caveator to show cause why a caveat should not be removed the court may make such order as the court or judge may seem fit. The power to make such order as the court may seem fit includes the power to order that the caveat be amended: Porter v McDonald [1984] WAR 271, 275 (Rowland J with whom Burt CJ agreed); Sulinmo Properties Pty Ltd v Malloney (1985) ANZ Conv Rep 25.

9 The preponderance of authority in Australia is that the power to make such order as the court considers appropriate, or as to the court seems fit, in dealing with an application to remove a caveat does not empower the court to order an amendment of a caveat which would result in the substitution of a different estate or interest than the estate or interest claimed in the caveat.

10 In Midwarren Estates Pty Ltd v Retek & Stivic the respondents lodged a caveat claiming an equitable estate in fee simple under a contract of sale of land made with the defendant and forbidding the registration of any dealing except a transfer of the land to them. The applicant purported to rescind the contract. The respondents treated the contract as at an end and issued a writ claiming the return of the deposit monies paid. On an application to remove the caveat, the respondents sought to have it amended so as to claim an equitable lien over the land and forbidding the registration of any dealing except a mortgage over the land to them. Section 90(3) of the Transfer of Land Act 1958 (VIC) provides that any person who is adversely affected by a caveat may bring proceedings for the removal of the caveat and 'the court may make such order as the court thinks fit'. Menhennitt J held that neither the provisions of s 90(3) of the Victorian Act nor any inherent power in the court authorises the court to order an amendment of a caveat which would result in the substitution of an estate or interest entirely inconsistent with that claimed in the caveat. Counsel for the respondents had relied upon the decision of the Full Court of the Supreme Court of Victoria in Re The Victorian Farmers Loan and Agency Co Ltd which was applied by the Full Court of the Supreme Court of Queensland in Queensland Estates Pty Ltd v Coownership Land Development Pty Ltd. Menhennitt J observed that the Full Court in Re The Victorian Farmers Loan and Agency Co Ltd had held that the language 'the court may make such order as the court thinks fit', permitted an order to be made amending the caveat itself but said that it was significant that in both that case and in the Queensland Full Court decision what was held to be capable of amendment was the protection given and not the estate claimed. His Honour said:

In the two Full Court decisions, those in this court and the Queensland Full Court, the amendments made pursuant to s 90(3), or its equivalent, were to the protection given, and that understandably, if I may say so, with respect, falls within the provision for the court to make such order as the court thinks fit (577).

11 In Percy & Michele Pty Ltd v Gangemi [2010] VSC 530 Macaulay J recently said that the power to amend the caveat has been derived from the discretionary power contained in s 90(3) of the Transfer of Land Act 1958 (VIC), or its equivalents in other jurisdictions, for the court to 'make such order as the court thinks fit'. His Honour referred to decisions in Victoria, Queensland and Tasmania in which that power has been recognised to be broad enough to permit an amendment to a caveat. His Honour said:

In Midwarren Estates Pty Ltd v Retek & Stivic Menhennitt J distinguished between a power in the court to make an amendment to the scope of the protection given by a caveat, on the one hand, and, on the other, an amendment to the estate claimed in the caveat. His Honour was of the view that the authorities recognising a power to amend only recognised a power of the former type, and not the latter [94].

Macaulay J said that there is force in the argument that s 90(3) of the Victorian Act should not be construed so as to empower the court to amend the caveat by substituting an entirely different estate or interest claimed for reasons his Honour then stated. His Honour continued:

Having referred to these authorities, and canvassed these views, I do nonetheless recognise that the power expressed in s 90(3) is wide and unqualified. Ultimately, the better view may be that although the power is to be construed as being wide enough to amend the estate or interest claimed, in appropriate circumstances, nevertheless when exercising its discretion the court should generally be less inclined to amend the interest or estate claimed than to amend the grounds of the claim or the scope of the protection asserted [101].

12 This is not an application for the removal of a caveat under s 138. This is an application brought under s 138C for an order extending the operation of the caveat.

13 Section 138C of the Act provides that a caveator who has been served with a notice under s 138B(1) may apply to the court for an order extending the operation of the caveat. Section 138C(2) provides that:

(2) On the hearing of an application under subsection (1), the Supreme Court

(a) if satisfied that the caveator's claim has or may have substance

(i) may make an order extending the operation of the caveat for such period as is specified in the order;

(ii) may make an order extending the operation of the caveat until the further order of the court; or

(iii) may make such other orders as it thinks fit concerning the caveat or the land in respect of which the caveat was lodged;

(b) if not satisfied that the caveator's claim has or may have substance, shall dismiss the application; and

(c) may make such ancillary orders in relation to the application as it thinks fit.

14 Section 138C(2)(a)(iii), amongst other things, empowers the court to make such orders as it thinks fit concerning the caveat. But that power is conditioned by the requirement that the court be satisfied that the caveator's claim has or may have substance. On an application to extend the operation of a caveat s 138C(2)(a)(iii) confers on the court a limited power to allow the terms of the caveat to be amended. Amendment may be permitted so as to enable the caveat to express better or more fully the interest which is claimed in the caveat. However, amendment is not permitted so as to alter the interest which is claimed and therefore a different interest: Professional Services of Australia Pty Ltd v Mila Properties Pty Ltd [2004] WASC 30, [17]; Hamdan v Widodo [2004] WASC 123; Midland Brick Co Pty Ltd v Welsh [397] [399]; Powell v In de Braekt [2006] WASC 264; Devere Holdings Pty Ltd v Verge [2006] WASC 297 [22]; Benson v Benson [2008] WASC 13 [31] [33]; Bashford v Bashford [2008] WASC 138 [51].

15 Section 138C(2) of the Act empowers the court to order that a caveat be amended if the court is satisfied that the caveator's claim has or may have substance. What is encompassed within 'the caveator's claim'? It may refer to the estate or interest being claimed, in this case an equitable charge by virtue of the building contract, or it may extend to the dealings which the caveat forbids, in this case it absolutely forbids the registration of any instrument affecting the estate or interest of the caveator.

16 In Professional Services v Mila Properties Pty Ltd I expressed the view that 'the caveator's claim' refers to the estate or interest claimed in the caveat. Beech J expressed the same view in Bashford v Bashford. In the cases to which I have referred in which it was held that s 138C(2) of the Act does not empower the court to amend a caveat so as to alter the estate or interest which is claimed no issue arose as to the width of the caveat, that is, whether the caveat absolutely forbade the registration of any instrument affecting the estate or interest or did so unless such instrument be expressed to be subject to the claim of the caveator. In my view the caveator's claim has or may have substance if there is a serious question to be tried that the caveator has a caveatable interest in the land notwithstanding that the caveat is an absolute caveat where the estate or interest claimed by the caveator only justifies a 'subject to claim' caveat.

17 Section 137(1) authorises a caveat to be lodged by any person claiming any estate or interest in land. The caveat may forbid the registration of any instrument affecting such estate or interest either absolutely or until after notice or unless it is subject to the caveator's claim. Section 138C(2) empowers the court to make orders if satisfied that the caveator's claim has or may have substance. Having regard to the terms of s 137(1), the reference to the caveator's claim in s 138C(2) is a reference to the estate or interest in land claimed by the person in the caveat. That construction is supported by a consideration of the nature and purpose of a caveat.

18 I turn at this point to consider the nature and purpose of a caveat. In Custom Credit Corp Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42 Malcolm CJ explained at (44 45):

... the concept of a caveat as a form of statutory injunction was clearly stated by Barwick CJ (with whom McTiernan and Owen JJ agreed) in J & H Just (Holdings Pty Ltd v Bank of New South Wales [1971] HCA 57; (1971) 125 CLR 546 at 552. The then Chief Justice said of a caveat:

'Its purpose is to act as an injunction to the RegistrarGeneral to prevent registration of dealings with the land until notice has been given to the caveator. This enables the caveator to pursue such remedies as he may have against the person lodging the dealing for registration. The purpose of the caveat is not to give notice to the world or to persons who may consider dealing with the registered proprietor of the caveator's estate or interest though if noted on the certificate of title, it may operate to give such notice.'

... the primary purpose of a caveat against dealings is not to give notice to the world of an interest. It is to warn the RegistrarGeneral of a claim. The word caveat has long been used in law to describe a notice given to an official not to take some step without giving the caveator an opportunity to oppose it.

It is in the sense stated by Barwick CJ and Windeyer J that a caveat is a form of statutory injunction of an interlocutory character (558).

19 In Multispan Constructions (No 1) Pty Ltd v 14 Portland Street Pty Ltd [2001] NSWSC 696 Barrett J said that central to s 74F of the Real Property Act 1900 (NSW), which authorises the lodgement of a caveat, is the notion that the party lodging a caveat asserts an entitlement to a particular estate or interest and that the caveat prohibits the recording of any dealing affecting the estate or interest to which the person claims to be entitled and a caveat is ineffective to do more than provide protection, by way of notice, commensurate with the extent of the notified estate or interest.

20 The nature and purpose of a caveat is such that technical deficiencies in its form and content should not be allowed to deprive a claimant from obtaining the advantage of lodging a caveat where the claimant establishes there is a serious question to be tried that he or she has a caveatable interest in the land and that caveatable interest is the same caveatable interest that is claimed in the caveat.

21 The defendants rely upon the judgment of Simmonds J in Nigam v Divjakoski [2010] WASC 185 in support of the proposition that the court does not have power under s 138C(2) of the Act to amend an absolute caveat so as to render it a subject to claim caveat. In that case the plaintiff lodged an absolute caveat claiming an interest in the nature of an equitable charge arising under an agreement. In an extempore judgment Simmonds J found that the plaintiff had a caveatable interest but the caveat could not be maintained in its present form as an absolute caveat. His Honour considered that the appropriate order was an injunction to protect the plaintiff's interest. His Honour said:

... the caveat could not be maintained in its present form as an absolute caveat. As it was an irregularity appearing on the face of the caveat, it was not a matter of making an amendment to the caveat, or at least it was not the appropriate response to amend it to become a subject to caveat claim [3].

22 His Honour did not consider whether or not s 138C(2) of the Act empowers the court to amend an absolute caveat. His Honour considered that amending the caveat was not appropriate in the circumstances of that case and the appropriate order was an injunction to protect the plaintiff's interest.

23 I find that the court has power to amend the caveat so that it forbids the registration of any instrument affecting the estate or interest claimed by the plaintiff unless it is subject to the claim of the plaintiff rather than absolutely forbidding the registration of any such instrument. The next question is whether that power should be exercised.

24 The court should not readily act in a way which might encourage the belief that caveats can be imprecisely formulated and then fixed up later. Caveats act as a form of interlocutory injunction, albeit by an administrative act, and can have powerful and serious consequences. Wrongly formulated caveats should not easily be tolerated: Percy & Michele Pty Ltd [104] (Macaulay J).

25 The court should have regard to the overall merits of the case. It is common ground that there is a serious question to be tried that the plaintiff has an interest in the land in the nature of an equitable charge arising under the building agreement. Whether the plaintiff is entitled to any sum, and the amount to which it is entitled, is the subject of the present arbitration proceedings.

26 Westpac Bank has a first mortgage against the land. The registered proprietors have granted to Westpac a second mortgage over the land. The registered proprietors, or Westpac, have lodged the second mortgage for registration. The registration is presently prevented by the plaintiff's caveat. If the caveat is removed or lapses then the second mortgage will be registered and the plaintiff will lose priority over Westpac's second mortgage. The registered proprietors and Westpac entered into the second mortgage with knowledge of the terms of the building contract and the equitable charge claimed by the plaintiff by virtue of the building contract and with knowledge that the plaintiff had lodged a caveat to protect that equitable interest. Neither the registered proprietors nor Westpac have been misled as to the nature or extent of the equitable charge claimed by the plaintiff. It would be unjust for the plaintiff to lose its priority, and for Westpac to gain priority, by reason of the plaintiff having erroneously formulated its caveat as an absolute caveat rather than a subject to claim caveat in circumstances where neither the registered proprietor or Westpac have been in any relevant sense misled or prejudiced by the error in formulating the caveat. It is appropriate that the court exercise its discretion to allow the amendment of the caveat to prohibit dealings with the land unless they are subject to the plaintiff's claim rather than absolutely.

27 If the caveat is amended then the balance of convenience favours the extension of the operation of the caveat. In Custom Credit Corporation v Ravi Nominees Pty Ltd Owen J (Malcolm CJ & Walsh J concurring) concluded that the balance of convenience was a factor to be considered in an application under s 138 of the Act but that the interlocutory removal of a caveat where an arguable case as to the existence of a caveatable interest has been demonstrated will be unusual. In Navarac Pty Ltd v Moondancer Holdings Pty Ltd [2009] WASCA 95; (2009) 40 WAR 150 Pullin JA (Miller & Newnes JJA concurring) said that balance of convenience issues are usually of little or no significance where the caveator claims an estate in fee simple or a leasehold estate and in those cases it is unusual that once an arguable case is made out by the caveator that there is such a caveatable interest that balance of convenience issues will result in removal. However, if other interests are claimed by the caveator then balance of convenience issues may become decisive.

28 In this case if the operation of the caveat is not extended the plaintiff will lose its priority over the second mortgage to Westpac. I find that the balance of convenience favours the extension of the operation of the caveat. Counsel for the defendants did not submit otherwise.

29 The plaintiff has not offered an undertaking as to damages. Practice direction 4.3.4 [1] provides that the usual undertaking as to damages will be required to be given by any party obtaining the benefit of an order under s 138 of the Act having the effect of extending a caveat lodged under s 137 of the Act pending the determination of the claim in respect of which the caveat was lodged. Counsel for the plaintiff pointed out that the practice direction refers to an order under s 138 of the Act not an order under s 138C of the Act. Furthermore, counsel submitted that the court does not have power to require the plaintiff to give an undertaking as to damages because s 138C of the Act does not confer such a power.

30 Section 138C(2) of the Act does not empower the court to make an order requiring a caveator to give an undertaking as to damages. However, s 138C(2) empowers the court to make an order extending the operation of the caveat on condition that the caveator give the usual undertaking as to damages. The giving of the undertaking is the price for the extension of the operation of the caveat.

31 Practice Direction 4.3.4 [1] says that the usual undertaking will be required to be given by a party obtaining the benefit of an order under s 138 of the Act having the effect of extending a caveat but does not refer to a party obtaining the benefit of an order under s 138C(2) having the effect of extending a caveat. However, it is the usual practice of the court to require such an undertaking as the price of extending the operation of the caveat. The court may dispense with the need for such an undertaking in an appropriate case. However, in this case it is appropriate that the plaintiff give the usual undertaking as to damages.

32 I find that the caveat should be amended to forbid the registration of any instrument affecting the estate or interest claimed by the plaintiff unless such instrument be expressed to be subject to the claim of the caveator. The order previously made by the court that the operation of the caveat be extended until further order should be maintained on the plaintiff giving the usual undertaking as to damages. I will hear the parties as to the precise orders that should be made. The plaintiff should file a minute of proposed orders and serve the minute on the defendants, including the Registrar of Titles, together with notice of when the plaintiff will move for the orders contained in its minute of proposed orders.