Unregistered Caveat Gave No Protection
OPINION
by Tim O’Dwyer M.A., LL.B
Solicitor
Consumer Advocate
watchdog@argonautlegal.com.au
In 1987 Igor and Nina Petrov purchased a home near Woollongong in New South Wales, and lived there for 19 years. Because they were in business at that time, and fearing potential trade creditors’ claims on their assets,
Petrovs kept the property out of their own names by buying it in their daughter Olga’s name – apparently on legal advice.
Petrovs would later fraudulently claim and receive pension benefits by not declaring to Social Security their equitable ownership of this residence. Nevertheless more recently they did consult another solicitor, Dino Alfrizzo, about how best to protect their equity in the home.
Last year a District Court ruled on a $350,000 damages suit Petrovs brought against that solicitor.
Petrovs went to Alfrizzo after Olga and another daughter, Nadia, each began experiencing matrimonial and financial difficulties. With their parents’ consent, Olga and Nadia had already jointly borrowed $200,000 from a finance company. This loan was secured by a mortgage over the home. Petrovs now wanted their interest in the home legally quarantined against further borrowings by either Olga or Nadia.
The judge’s decision was not as favourable as Petrovs expected although he took into account that they were elderly folk with medical problems, English was not their first language, they were relatively unsophisticated and were “beset” with their daughters’ difficulties. Although they were intelligent, he found Petrovs were obviously not “sophisticated individuals familiar with the nuances of legal procedures.”
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1 Comment
I would like to think, the majority of legal practitioner’s engaging in conveyancing work today needn’t fall into this trap ( see below “Failure to caveat can be a huge risk”) either – I had an agent tell me last week, that he knows of someone who did this, and obtained independent legal advice along the way.
It to my knowledge and understanding, the conveyancer acting for this clever vendor and the conveyancer acting for buyer A, were totally oblivious to the other representation.
Failure to caveat can be a huge risk
In some situations, failure to lodge a caveat may play a more direct role in postponing an earlier interest to a later one. It is true that no provision in the Real Property Act requires the holder of an unregistered interest to lodge a caveat to preserve the interest’s priority. Nor does lodging a caveat improve the priority an unregistered interest would otherwise enjoy. But it is well established that failure to lodge a caveat may, in certain circumstances, deprive an interest of the priority it would otherwise enjoy.
For example assume that the vendor ( registered proprietor) contracts to sell land to Purchaser A ( or to give a mortgage to A). Purchaser A does not lodge a caveat. Assume then that the vendor contracts to sell the same land to Purchaser B ( or to give a mortgage to B). Purchaser B searches the register before entering into the contract ( or mortgage) but, of course, finds no reference to any interest of Purchaser A. By failing to lodge a caveat, Purchaser A has allowed the vendor(registered proprietor) to create the interest in favour of Purchaser B without the existence of Purchaser A’s interest being brought to Purchaser B’s attention.
As a result, Purchaser A’s interest is almost certainly postponed to Purchaser B.
To understand the procedure of execution here, the Vendor (registered proprietor) hands the certificate of title and a signed transfer acknowledging receipt of the purchase price. Possession of the certificate of title and signed transfer enables Purchaser B to represent herself as the absolute owner.If armed with these documents, Purchaser B creates an equitable interest in favour of Purchaser A, who has failed to lodge a caveat in time to preserve their interest’s as a priority.
In finishing we said that Purchaser A’s interest is “ almost certainly” postponed to B’s. The qualification is added because the position in some jurisdictions is unclear. In NSW the clear weight of authority holds that Purchaser A’s interest is postponed to Purchaser B.
Definition – By “postponing” is meant conduct or inaction of such a kind that it carries the consequence of depriving the earlier interest of the advantage that priority in time would otherwise give it.