Thursday, June 23, 2011

Caveats - a caveatable interest must be an 'interest in land'

I noted in my previous post on this topic that the following phrase in s89(1) of the Transfer of Land Act 1958 (Vic) (TLA) determines what interests are capable of protection by a caveat: 'any estate or interest in land under any unregistered instrument or dealing or by devolution in law or otherwise'.

Several things are apparent from this sentence. Firstly, the interest to be protected must be an 'interest in land'. Secondly, the interest in land must arise from 'any unregistered instrument or dealing or by devolution in law or otherwise'.

This article and the discussion below concerns what is an interest in land within the meaning of s89(1).

There has been judicial consideration of what is an interest in land. In Composite Buyers v Soong (1995) 38 NSWLR 286 (Composite Buyers) Hodgson J of the New South Wales Supreme Court considered whether a caveatable interest arose from an agreement in which the defendants guaranteed payment of money in respect of the provision of services. The agreement further provided that the defendants 'jointly and severally charge as beneficial owners all freehold and leasehold interests in land which we or any of us now have or during currency of this instrument may acquire with the whole of our obligations hereunder'.

At 288, Hodgson J set out what he considered to be an interest in land under the equivalent New South Wales provision for registering caveats:
In my opinion, what is necessary is that there be an interest in respect of which equity will give specific relief against the land itself, whether this relief be by way of requiring the provision of a registrable instrument, or in some other way giving satisfaction of the interest claimed by the caveator out of land itself, for example by ordering the sale of the land and payment out of the proceeds of an amount in respect of which the caveator has a charge.

In Troncone v Aliperti (1994) 6 BPR 13,291 (Troncone) the New South Wales Court of Appeal considered the outer limits of protected interests. In Troncone, The Court considered an agreement which did not expressly grant a security, but which provided as follows: 'The Debtor authorises the Creditors to lodge a Caveat on any property owned by the Debtors(sic) to protect his interest.' The Court said that this gave rise to an implied equitable interest as 'It is a fundamental principle of construction that "Whoever grants a thing is deemed also to grant that without which the grant itself would be of no effect"' (at 3).

Mahoney JA used a rather extreme example, being a negative covenant, and said as follows at 2:
Second, 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. It is not necessary for this purpose to pursue the nature of the estates or interests in land which, under the conventional law of real property, it was or is possible to create. Nor is it necessary to distinguish between an estate and an interest in land. 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. Accordingly, such an interest would, in my opinion, be within the words "a legal or equitable estate or interest in land" within s74F(1). There is accordingly nothing to prevent the implication from the terms of CL5 of the grant of an interest sufficient to support such a caveat as was contemplated by CL5.
In Redglove Projects v Ngunnawal Local Aboriginal Council [2004] NSWSC 880 the Supreme Court of New South Wales disputed the above example by Mahoney JA and said as follows at [26]:
However Mahoney JA cited no authority and gave no reason for this part of his judgment. With respect, I do not think it is correct. There have been numerous instances where the Courts have held that no equitable estate or interest in land is created by an express or implied promise not to deal with the land except in conformity with a contract. The fact that equity will enforce the negative promise by injunction does not trans-mute a purely personal claim into a proprietary interest. Equity does "nothing more than give the sanction of the process of the Court to that which is already in the contract between the parties" (Doherty v Allman (1878) 3 App Cas 709 at 720).

An example of an interest which is not an interest in land but which has arisen for consideration in the authorities on caveats is an interest in the proceeds of sale of land. The trial which I recently appeared in on behalf of the registered proprietor considered this particular interest. The Court ordered the removal of the caveat on the basis that it appeared to be an interest in the proceeds of sale of the land, rather than an interest in the land itself.

The matter of Epple v Wilson [1972] VR 440 VSC (Epple) is the best and simplest example of an interest in the proceeds of sale of land. In Epple, an employee owed his employer money and the employee and employer executed an agreement dated 3 September 1971 which read as follows: ‘This is to state that any proceeds due to me [the employee] from the sale of my house is to be paid to Victor H. Wilson [the employer] of Messrs. Sam B. Bagley & Sons, 412 Collins Street, Melbourne.’

The Court ordered the removal of the caveat as the agreement only granted an interest in the proceeds of sale, not an interest in the land itself. Gowans J held  (at 444):
In the present case, in my opinion, the contract or assurance or assignment evidenced by the document of 3 September is a conditional or contingent one. It is intended to take effect and only takes effect if there is and when there is a sale of the property effected by the signatory under which proceeds of the sale are left in the hands of some third party. It gives no right to require a sale. Unless there is a sale it does not operate on the fund. It is then that it operates on the proceeds. It is concerned with the money alone and not with the land. It is not concerned with an estate or interest in the land itself.
This ties back to the description of Hodgson J in Composite Buyers in that the interest is not one where equity will give specific relief against the land itself.

In the next post I will discuss the words 'any unregistered instrument or dealing or by devolution in law or otherwise' and the divergence of authority in Victoria on what interests in land are able to be protected.

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