Vikram Misra, Barrister at Clarence Chambers continues his series into caveats as he examines the ability of a contractual right to lodge a caveat support a caveatable interest. For more on his series, read Part 1 here.
The mere contractual right of one party to an agreement to lodge a caveat over another’s real property does not itself support a caveatable interest in land. As such, this is another ground of attacking a caveat on the basis that the caveator does not hold a valid caveatable interest: Murphy v Wright (1992) 5 BPR 11,734. These problems often arise in situations where an authority to lodge a caveat is given in connection with an obligation by one party to pay another party money, without the express grant of a proprietary interest in the subject property (i.e. loan agreements where real property is used as security).
What is required to support the caveatable interest in these circumstances (and secure payment of the money advanced importantly!) is for the caveator to contend that the agreement to lodge a caveat carries with it, by implication, an agreement to confer such an interest in the property as will sustain the caveat. As we will see, this turns effectively on the construction of the document in question and as such, ordinary principles of construction play an important role.
In Troncone v Aliperti (1994) 6 BPR 13,291 (‘Troncone’), the Court of Appeal construed an agreement that creditors could lodge caveats on the debtor’s property as an implied grant by the debtor of an equitable charge. Troncone is cited as authority for the proposition that a contractual clause authorising the lodgement of a caveat carries with it an implication of a relevant caveatable interest. In Troncone, Mahoney JA, in determining that the caveats should not be set aside, stated:
“A caveat cannot be entered against land unless the caveator has the relevant proprietary interest in the land: see Real Property Act 1900 s 74F(1) … Therefore, unless there be evident an intention to the contrary, the grant to the creditors of an authority to lodge a caveat on the relevant property carried with it by implication such an estate or interest in land as was necessary to enable the authority to be exercised.”
His Honour continued:
“… it is not necessary to determine what is the precise nature of the interest in the land which, by this implied grant, was passed to the creditors …
… there is in my opinion no rule of law which prevents the creation of a limited equitable interest of this kind. Thus, if the registered proprietor of land covenants by deed that, until a loan be repaid, he will not sell or deal with the land, that covenant would, in my opinion, create in favour of the covenantee an interest in the land to the extent at least that an injunction would go to restrain the covenantor from dealing with the land in a manner inconsistent with the covenant … The right, by the enforcement of an express or an implied negative covenant, to restrain a dealing with land is in my opinion an interest in land within this branch of the law.”
This line of authority was followed in Coleman v Bone (1996) 9 BPR 16,235 (‘Coleman’) at 16,239:
“… it has been held … in Troncone v Aliperti … that if in a contract between A and B, A grants B authority to lodge a caveat in respect of property of A, that grant carries with it by implication such estate or interest in the property as is necessary to enable that authority to be exercised. 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 payment to B of that money.”
Caution should be taken not to fall into the trap of thinking that Troncone and Coleman stand for the proposition that, in all cases, a clause conferring authority to lodge a caveat carries with it, by implication, the grant of such an interest in the property that will sustain the caveat.
His Honour, Bryson AJ, in Taleb v National Australia Bank Ltd (2011) 82 NSWLR 489;  NSWSC 1562 disagreed that Troncone established any principle that the implication of an intention to create a charge must be drawn in all cases from an authority given to lodge a caveat in connection with an obligation to pay money, stating at  that the “true principle” was rather,
“… the meaning conveyed by a contractual document, including what is conveyed by implication, must be understood by addressing the terms and the whole terms of the document in question … there is no principle or true principle establishing what implication must be drawn in all cases from authority to lodge a caveat in connection with an obligation to pay money. In my opinion Mahoney JA did not state such a principle in Troncone v Aliperti and in my opinion there cannot be such a principle, because a principle of law of that kind would divert the court from addressing the terms of each document to discover what it means, by expression and by implication.”
His Honour’s view was cited with approval in Aged Care Services Pty Ltd v Kanning Services Pty Ltd (2013) 86 NSWLR 174;  NSWCA 393. In that case, Gleeson JA, with whom Meagher and Leeming JJA agreed, observed at  – :
“Whether it is possible to discern from the authorisation to lodge a caveat (given by a registered proprietor), an intention to create a charge which would support a caveat is the subject of conflicting views in the authorities. The conflict relates to whether there is a principle establishing what implication must be drawn in all cases from the authority to lodge a caveat in connection with an obligation to pay money, or whether each case is to be addressed by reference to the terms of the contractual document to discover what it means, by expression and by implication: Taleb v National Australia Bank Ltd  NSWSC 1562; (2011) 82 NSWLR 489 at  per Bryson AJ.
In my view, Bryson AJ was correct to observe in Taleb that the statements of Mahoney and Meagher JJA in Troncone v Aliperti (1994) 6 BPR 13,291 are not to be taken as such a principle. Rather, they are to be taken as a proposition to be derived from the facts in Troncone. So much is clear from the summary of the proposition in Troncone, given by McLelland CJ in Eq in Coleman v Bone (1996) 9 BPR 16,235 at 16,239 …”
The courts therefore embark on an exercise in contractual construction to determine whether such an implication can be supported and such an implication must be derived from the facts of the particular case. This view was, once again, recently endorsed in Ta Lee Investment Pty Ltd v Antonios  NSWCA 24 and serves as a timely reminder that Troncone and Coleman do not stand for the general proposition that a clause conferring authority to lodge a caveat always carries with it by implication the grant of an equitable charge.
The critical point here is, when advising on the instrument that gives your client the contractual right to lodge a caveat (‘the Original Instrument’), always insist on the inclusion of a provision that provides for the grant of a proprietary interest in the subject property, for example a charging clause.
If you do however, find yourself in the tricky situation where you were not involved in the preparation of the Original Instrument and are required to defend a caveat that has been lodged in accordance with a mere contractual right to lodge such, an attempt can be made to defend your position on the legal principles discussed above. Ordinary principles of contractual construction will apply and a careful analysis of the document itself will be required.
As these issues concerning the validity of caveatable interests are usually litigated in situations where a lapsing notice has been served on the caveator, another tactical alternative is not seeking an order extending the caveat, but rather, seeking an injunction pending the determination of any legitimate legal relief your client may have.
 Victoria v Tatts Group Ltd  HCA 5; (2016) 90 ALJR 392, -, citing with approval Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104;  HCA 37, -.
 However, note that in Bellissimo v JCL Investments Pty Ltd  NSWSC 1260 at  (White J), it was held that (as regards negative covenants), “[i]t is more likely that the parties intended by clause 2(iii), that by the plaintiff’s being authorised to lodge a caveat, and by its being agreed that he had a caveatable interest in the property, that the parties intended, and intended only, that the company would not be permitted to deal with the land without the plaintiff’s consent. Such a negative covenant does not create an interest in land (Redglove Projects Pty Ltd v Ngunnawal Local Aboriginal Land Council  NSWSC 880.)”.
 See also Iaconis v Lazar  NSWSC 1103; (2007) 13 BPR 24,937, .
 Coleman v Hart-Hughes  NSWSC 656, .
 Coleman v Hart-Hughes  NSWSC 656, .
 Ta Lee Investment Pty Ltd v Antonios  NSWCA 24, .
 Bellissimo v JCL Investments Pty Ltd  NSWSC 1260, . See also Express Loans & Finance Pty Ltd v Hunter  NSWSC 142; (2004) 11 BPR 21,451.
Vikram Misra was admitted as a solicitor in 2012 and called to the NSW Bar in 2015. He maintains a broad commercial practice and is regularly briefed in matters relating to taxation law, property law, construction law and equity. Vikram has completed a Graduate Diploma in Taxation Law at the University of Sydney in 2015 and a Master of Laws majoring in construction law and contract law at the University of Melbourne in 2016. You may connect with Vikram via email firstname.lastname@example.org or LinkedIn
Disclaimer: The statements, analyses, opinions and conclusions in Legalwise Insights are those of the respective authors and not of Legalwise Seminars Pty Ltd which acts only in the capacity as editorial co-ordinator of the content in Legalwise Insights. No part of any article can be regarded as legal or financial advice. Although all care has been taken in the preparation of all articles, readers must not alter their position or refrain from doing so in reliance on any information contained therein. Neither the respective authors nor Legalwise Seminars Pty Ltd accept or undertake any duty of care relating to any part of Legalwise Insights.
Liability limited by a scheme approved under the Professional Standards Legislation