Lodgement of a caveat requires a reasonable cause


27 September 2020


Introduction

Caveats are instruments commonly used to protect an interest in real property. They can prevent registered owners from undertaking certain dealings with their land until such time as the caveat is removed or consent from the caveator is obtained.

Those intending to lodge a caveat in any Australian jurisdiction should ensure they would not be doing so “without reasonable cause”, as they may become liable to pay compensation to parties who suffer financial loss due to the lodgement of the caveat.

Under South Australian legislation, a caveator who lodges or refuses or neglects to withdraw any caveat wrongfully and without reasonable cause is liable to pay compensation to any person who incurs damage due to the caveator’s actions.

In 2019, the High Court of Australia clarified the meaning of “without reasonable cause” in Boensch v Pascoe [2019] HCA 49 (Boensch case) in respect of New South Wales’ equivalent legislation.

 

Overview of the Boensch case

Mr Boensch, who was a trustee holding property in trust for his children, was declared bankrupt. Mr Pascoe was appointed as Mr Boensch’s trustee in bankruptcy and while acting in this capacity, lodged a caveat over the trust property in order to protect the interests of any creditors. Mr Boensch requested that Mr Pascoe remove the caveat, however Mr Pascoe refused to do so and so the caveat was maintained for several years.

Mr Boensch brought proceedings against Mr Pascoe in the Supreme Court of New South Wales, alleging that Mr Pascoe had lodged and maintained a caveat over the trust property without reasonable cause and that he was therefore entitled to compensation under the New South Wales legislation.

Ultimately, the High Court upheld a finding that Mr Pascoe had lodged the caveat with reasonable cause.

 

The meaning of “without reasonable cause”

In determining whether Mr Pascoe had lodged and maintained the caveat without reasonable cause, the High Court applied a two-step test. The test provides that a caveat is lodged and maintained without reasonable cause if the caveator:

    1. does not have a caveatable interest; and
    2. does not have an honest belief on reasonable grounds that they have a caveatable interest.

Both limbs of the test must be established before a claimant may be awarded compensation.

Mr Pascoe was found to have had a caveatable interest as Mr Boensch’s entitlement to be indemnified out of the trust property for liabilities he had incurred as trustee had vested in Mr Pascoe upon his appointment as trustee in bankruptcy.  Accordingly, the first limb of the test was satisfied and the caveat was deemed to have been lodged with a reasonable cause.

The Court acknowledged that Mr Pascoe’s description of the interest asserted in the caveat was inaccurate, but found that this deficiency did not mean that there was not reasonable cause – because it found that Mr Pascoe had consistently, honestly and reasonably believed that he had a caveatable interest.

 

Conclusion

This case acts as a reminder to those intending to lodge a caveat to give careful consideration to the grounds on which the caveat is asserted. It is essential to confirm the existence of an interest in land before a caveat is lodged.

The findings also confirm that those seeking compensation for the lodgement and maintenance of a caveat against their land not only have to establish that the caveator did not have a caveatable interest, but that the caveator did not act with an honest belief based on reasonable grounds that they had a caveatable interest.

 

 

This article provides general comments only. It does not purport to be legal advice. Before acting on the basis of any material contained in this article, we recommend that you seek professional advice.

 

 

Author:

 

Jacqui Ballard, Law Graduate in our Business Transactions Team 

Contact
Email: jballard@dmawlawyers.com.au
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