To caveat or not to caveat
Family Law: 03 November 2023
Author: Paolo Tatti & Jessica Geraghty - Our People
While caveats provide an affordable and effective option to parties to prevent registered landowners from engaging in unauthorised dealings inconsistent with a caveator’s right and interest in land, there are various risks of which parties and solicitors ought to be aware.
Both the Supreme Court and Federal Circuit and Family Court of Australia (FCFCA) possess the ability to make orders against the caveator for the removal of a caveat and legal costs.
Aitken Partners Family Law and Litigation Teams recently acted in a case where family law proceedings had been commenced and a caveat lodged which would have prevented an imminent sale of a property – one that had been ordered in separate family law proceedings.
There is longstanding caselaw that potential claims under s 79 of the Family Law Act 1975 (Cth) do not automatically create caveatable interests in land. Simply stated, just because an individual may have a statutory claim under the Family Law Act, this does not necessarily mean there exists a claim to a freehold interest under an implied, resulting or constructive trust against another individual who may be the registered landowner.
Removing a Caveat
The well-established principles applicable to caveatable interests are set out in the judgment of Piroshenko v Grojsman. A caveator is required to satisfy the two-prong test:
- That there is a serious question to be tried as to their entitlement to the interest that is claimed by the caveat over the property in question sufficient to warrant preventing all dealings with the land; and
- That the balance of convenience favours the protection of that interest.
In Aitken Partner’s recent case, the first defendant was unable to show a serious question for trial that the registered proprietors were trustees for freehold interest under an implied, resulting or constructive trust. On this basis, it was deemed sufficient for the caveat to be removed and for the settlement of the property to proceed.
Family Court’s powers to remove caveats
The Family Court has the power to direct the removal of the caveat and therefore is a court of competent jurisdiction. This rationale was held by Justice Cronin in the Family Court judgement of Green & Walls [2019]. In this case, Cronin J held that in circumstances where there are final property orders (and particularly when made by Consent) requiring a party to withdraw a caveat, the Family Court can enforce compliance to ensure parties meet their obligations. As also held in the decision of Tailor & Tailor [2019], an application for the alteration of property interest (s 79 FLA) was not a caveatable interest, with the Court ordering the Wife to forthwith remove the caveat lodged on her behalf.
Alternatives to caveats
There are other appropriate avenues for parties who may be entitled to a property division pursuant to s 79 of the Act and these include injunctive remedies under s 114 of the Family Law Act.
Parties may be able to seek injunctions to protect their interests against the dealings with land if they do not possess caveatable interest, through seeking interim orders in their Initiating or Responding Court documents. Such injunction would aim to restrain registered proprietors from transacting with the land in question pending further order of the Court or following a written agreement between the parties.
A Bargaining chip?
Courts have long deprecated the use of caveats as a ‘bargaining chip’, lodged only to try and pressure the landowner to negotiate. Justice John Dixon summarised, in this particular case, the circumstances as follows:
[36] The Court does not permit negotiations or bargaining to occur between parties by lodging caveats with the Registrar of Titles that communicate to all of the world a claim against a particular piece of property, unless that claim has a proper basis and is to be appropriately established. The caveat applied maximum leverage on the plaintiff by being lodged only days before the contract of sale was to settle, forcing a real risk of pecuniary loss on the vendors that was likely to be focussed on the plaintiff’s interest.
[37] I consider that the first defendant's intention, whether it was directly his intention or the consequence of strategic advice given by his solicitors, was to use the caveat as a bargaining chip to freeze some of the funds for his ultimate benefit.
Lodging caveats without a basis
Should a party or even their solicitor improperly lodge a caveat, there is a risk that costs may be ordered again the party or their solicitor in their personal capacity. Solicitors face potential personal costs orders and disciplinary actions if caveats are deemed to have been lodged without proper basis.
In one VCAT decision, a solicitor was found to have the charge of lodging an erroneous and defective caveat in breach of the solicitor conduct rules proven. In this decision, the solicitor facilitated the lodgement by her clients of a caveat she knew to be without foundation having advised them to that effect, which ultimately resulted in her suspension.
In Pearl Lingerie Australia, it was also held that solicitors or their firm can be implicated even if they are not the lodging party, but the caveats have been prepared by the solicitor. In this decision, costs were ordered against the solicitor and the trial judge made a disciplinary referral to the Victorian Legal Services Commissioner.
It is also important to note that section 118 of the Transfer of Land Act 1958, a person who has been found to lodge a caveat without reasonable cause exposes themselves to a Court ordering compensation be paid for any damage caused by the lodgement of the caveat.
Conclusion
If you are separating, it is important to obtain advice based on your personal circumstances concerning whether your interest in land is best dealt with by a caveat or alternative injunctions in the Federal Circuit and Family Court of Australia. Not seeking advice, or indeed obtaining advice from lawyers who do not have an understanding of property law, can lead to additional expenses.
Aitken Partners has experienced property and family lawyers who are able to help with lodging caveats and using alternative methods to prevent dealings with the property of a relationship.
Should you wish to protect your interests in family law proceedings, do not wait. Contact our Family Law Team on 8600 6000 for further advice.