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Consent to Caveat A PAPER BY PAUL ANDERSON OCTOBER 2008


Consent to Caveat by Paul Anderson

Consent to Caveat

Summary The recent Supreme Court decision of Nguyen v Kaha discusses whether the consent of a registered proprietor is sufďŹ cient to support the lodging of a caveat.

Who Does This Impact? Commercial lenders and borrowers.

What Action Should Be Taken? Lenders should review their loan documentation to ensure that a charge is created as distinct from a mere consent by a registered proprietor/borrower.

Contents:

TURKSLEGAL

Overview

2

Facts

2

Trocone v Aliperti

3

Criticism

3

Judgment

4

Conclusion

4

PAPER


Consent to Caveat by Paul Anderson

The recent Supreme Court Decision of Nguyen v Kaha raises the interesting question of whether the consent of a registered proprietor of land is sufficient to support the lodging of a caveat.

Overview It is well known that in order to lodge a caveat against the title to land of another party a person must first have a ‘caveatable interest’, i.e. a legal or equitable estate or interest in the land (Section 74F Real Property Act 1900). Examples are an unregistered mortgage or charge but an unsecured loan is insufficient. In the context of a loan, the lender’s documentation frequently includes a charging clause. A typical example would be: ‘The Borrower hereby charges all his right, title and interest in any land he presently or hereafter owns with the performance of his obligations under this Loan Agreement and hereby consents to the registration by the Lender of a caveat against the title to such land to protect the charge created by this Loan Agreement.’

In summary, standard documentation both creates a charge and also contains a consent to caveat by the borrower. The consent is strictly unnecessary because a charge has been created. However, the question arises: is a consent without the charge sufficient to allow the lender to register a caveat?

Facts In Nguyen v Kaha, the defendant borrowed $60,000.00 from the plaintiff pursuant to a loan agreement dated 26 October 2007 repayable in three months with interest. Austin, J. commented that the ‘agreement has been drawn by someone whose facility in English is to some extent limited. One infers that the clauses have been taken from precedents, not always appropriately.’

Clause 20 was in part in the following terms: ‘The Borrower acknowledge that he would consent to the lender lodging a Caveat against the title of the following property…’

At the same time, the borrower and the lender also signed a caveat in which the caveator’s interest is expressed to be ‘a legal and equitable interest’ pursuant to the loan agreement dated 26 October 2007 by virtue of the following facts: ‘the registered proprietor had borrowed a lump sum of money from the lender, Thi Hien Nguyen, in the amount of $60,000.00 by way of unsecured loan. The registered proprietor had agreed to execute a caveat by written agreement against her property under the said loan agreement dated 26 October 2007.’

It is not clear from the judgment as to what is meant when it is said that the caveat was signed by the borrower. The standard caveat form only requires execution by or on behalf of the caveator. There is provision at the foot of the standard form for the registered proprietor to consent for the purposes of Section 74F(6) of the Real Property Act 1900. That section provides that the Registrar General is to give notice in writing of the lodging of a caveat to the registered proprietor of the land unless the ‘consent of the registered proprietor is endorsed on the caveat’.

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Consent to Caveat by Paul Anderson

On one view, by signing the consent pursuant to Section 74F(6) the registered proprietor is only consenting to notice of the caveat being dispensed with. On the other hand, a registered proprietor who signs the Section 74F(6) consent would have great difficulty in arguing that he was not consenting to the lodging of the caveat generally. The case came before the Court on an application by the plaintiff for a declaration that she had a caveatable interest in the land.

Troncone v Aliperti The Judge referred to the leading 1994 Court of Appeal decision of Troncone v Aliperti. In that case the wording of the loan documentation was as follows – ‘The borrower authorises the lender to lodge a caveat on any property owned by the borrower to protect the lender’s interest.’

There was no express creation of a charge. In the leading judgment, Mahoney, J. upheld the validity of a caveat lodged by the lender. The Judge said – ‘unless there is evidence of intention to the contrary, the grant to the creditors of an authority to lodge a caveat on its property carried with it by implication such an estate or interest as was necessary to enable that authority to be exercised. There was in the present case no intent to the contrary. It is not necessary to determine what is the precise nature of the interest in the land… It is sufficient to conclude that it was an interest which would support the lodgement of a caveat.’

Criticism It is fair to say that Troncone v Aliperti has been regarded by commentators with less than unqualified enthusiasm. One editor mentioned at the time that ‘the scope of caveatable interests was certainly stretched to the ultimate.’ In Iaconis v Lazar (2007) Young, CJ in Equity in refusing to uphold a similar caveat said that ‘the true principle is that, where the authority to lodge a caveat is given in connection with an obligation by A to pay money to B and there is no sufficient indication to the contrary, the implication is that the estate or interest granted is an equitable charge to secure the payment to B of that money’.

In short, the answer in any case is always dependent upon the proper construction of the instruments before the Court, having regards to all the admissible facts and circumstances. In Express Loans and Finance Pty Limited v Hunter (2004), Bryson, J, pointed out that Troncone v Aliperti turned on the Court of Appeal’s view that with the aid of implication, the documents there under consideration showed an intention to create an interest in land, that is an equitable interest and a charge over the land. On the facts before Bryson, J, there was found to be no such intention.

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Consent to Caveat by Paul Anderson

Judgment In the case of Nguyen v Kaha, Austin, J, placed considerable importance upon the fact that the Loan Agreement and the caveat were executed simultaneously by the borrower. This would support an implication that the parties intended to create an equitable interest by way of charge. However, ultimately the Judge found there was no caveatable interest. This decision turned upon the reference in the caveat itself to the claim to an unsecured loan. Such a claim was clearly contrary to the need for an interest in the land itself, i.e. a secured loan.

Conclusion The decision highlights that the Court will scrutinise any caveat based upon the consent of the registered proprietor before finding by implication the necessary intent to create a charge. Although Troncone v Aliperti is a Court of Appeal decision binding upon single judges of the Supreme Court, many of the decisions in this area are coloured by the fact that many of the lenders involved could loosely be described as ‘loan sharks’ charging exorbitant rates of interest and for this reason the judges have been even more thorough in their scrutiny. The obvious answer for a lender is to ensure that the loan document itself creates a charge or caveatable interest so that there is no need to rely only upon the consent of the borrower. An appropriate charging clause is set out at the start of this paper.

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Consent to Caveat by Paul Anderson

For more information, please contact:

Paul Anderson Partner T: 02 8257 5742 paul.anderson@turkslegal.com.au

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www.turkslegal.com.au

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Consent to Caveat