Caveats - These are the notes I used for the Laws205 end of year open book exam. PDF

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CAVEATS – PRE-WRITTEN ANSWERSINTRODUCTIONWhat is a caveat?A caveat is a Latin term which means “let the person beware”, which acts as a caution lodged to the registry office and will appear on a notice on the registrar. The effect of a caveat is to “prevent registration of any instrument which might...

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CAVEATS – PRE-WRITTEN ANSWERS INTRODUCTION What is a caveat? A caveat is a Latin term which means “let the person beware”, which acts as a caution lodged to the registry office and will appear on a notice on the registrar. The effect of a caveat is to “prevent registration of any instrument which might have the effect of defeating the equitable interest, without giving the caveator the opportunity of invoking the court’s assistance to give effect to that notice” (Butler v Fairclough). A caveat protects existing propriety rights, it does not create new ones or strengthen existing rights (Butler). LODG ING A CAV EAT Sections 138-148 of the LTA 2017 sets out the types of caveats that can be lodged. To lodge a caveat, one must prove that they have an interest in land, however this interest does not need to be of physical possession (Couchman v Taylor). Section 138 LTA 2017 (formally s 137 1952), states that there needs to be an honest belief based on reasonable grounds that the caveator has an interest (Gordon). There are many different interests able to support a caveat. These include legal or beneficial interest (legal = registered, beneficial = no registered in the normal legal way) such as; a potential interest in land, as well as caveatable interests like; an agreement of sale and purchase (ASAP), an agreement to mortgage or an unregistered mortgage, an alleged trust, an unregistered lease or an unregistered easement. An unconditional agreement for sale and purchase involves no conditions. All that needs to happen is for a contract to be formed, and during this time the law states that the vendor is holding the property in trust for the purchaser. The purchaser gets the legal interest once it is registered, until then it is considered a beneficial interest, or an equitable interest, which is enough to support a caveat. There are difficulties when there is no formal contract, however the purchaser’s interest will support a caveat, as supported in Foreman v Hazard. A conditional agreement for sale and purchase involves things which need to be considered. If the conditions have not been fulfilled, then the purchaser’s interest is a conditional one, and will immediately have an equitable interest which will support a caveat. Bevin v Smith – B was the RO and entered an agreement for sale and purchase ASAP with S. The property concerned was a farm- mixture of freehold and leasehold land. There was a paper road which was managed by land-corp that B had a licence to occupy. S’s problem was they had a farm so had to apply to the LV Tribunal to seek consent to purchase P’s farm- a condition of the contract. B decided he did not want to sell anymore, and the condition of S date had passed (solicitor fault). S lodged a caveat: the issue was whether at the time the S had this conditional contract and if there was sufficient interest in land capable of lodging a caveat. Held they did. Bevin is authority for SOME conditional contracts: if it is merely a formality, or for the sole benefit of the purchaser. The purchaser’s interest will generally support a caveat: Bevin v Smith. CA stressed that it always depend on; the terms of the contract itself and the intention of the parties. McDonald v Isaac Construction - The Clarkes sold land to the Bartlett’s under a conditional agreementsubdivided land. Bartlett’s agreed to sell lot 5 to P who paid a deposit. However, this lot was never approved by local authorities. Bartlett’s in financial trouble so sold land to D. P refused to release his contract, he lodged a caveat over the entire subdivision, not just his lot. Issue was whether McDonald could caveat all the land when his interest was only over one small part. Tipping J said the caveat didn’t have to be taken off, because a subpurchaser, even as to only part the land, was entitled to caveat the whole land. Supports Bevin, Isaac appealed.

Option to purchase - Option to purchase is a right to purchase the property. Can be exercised at any time, in Bevin it was held that this gives the grantee of the option an equitable interest in the land as soon as the document is signed. An option to purchase may be contained in a lease. Right of first refusal (right of pre-emption) - A contractual right. If one party wants to sell their property, they must offer it first to that person with the right of first refusal. They are under no obligation to sell, should wait for the vendor to sell and they have no obligation. Fairly loose, and not a caveatable interest (Re Rutherford). Motor works v Westminster Tipping J said there is a possibility for it to go from right of first refusal to an option to purchase. This means it can become a caveatable interest. He said if the vendor decides to sell, there may be a triggering event which then changes it to an option to purchase. 4 stages in this progression from first right; four stages in the progression from first right: 1.

There is no interest in land, just a first right of refusal. So not a caveatable interest.

2.

A triggering event occurs that requires an offer to be made to the person with the right of first refusal. Prior to offer being made there’s no interest in the land so no caveatable interest. But there might be evidence in the fact leading you to believe the vendor is prepared to sell and the terms of which. E.g. the vendor’s documents to sell.

3.

An offer has been made pursuant to the right of first refusal. An option to purchase is created, so there is an interest in land and so a caveatable interest.

4.

A contract results from the acceptance of the offer under the right of first refusal. A contract exists, so there is an interest and land and a caveatable interest.

Triggering events - if there is a triggering event, a right of first refusal becomes an option to purchase. Botany Land Development v Auckland Council Property on a beachside, been in family about 150 years. The family wanted to make sure it stayed there and benefited the public. Last 2 siblings entered a cumbrance with the council saying they had a covenant in the fourth schedule, registered covenant on title. The sister share was still available, but she forgot about the covenant. She was a trustee on the trust of the land, this trust had entered an unconditional agreement with P. Did the council have an interest in the land capable of supporting a caveat? HC held no, it was a right of first refusal or at least analogous to this. The triggering event would have been if the sister had left the land. CA said as soon as there was talk of selling to third party, the council could have got an injunction, so even if they do not have a caveat, they can injunction- so held caveat. McLachlan v Mercury Geotherm P lodged a caveat against the title to D’s land. D was in receivership. P claimed as lessee, there was a right of first refusal clause in this agreement. They claimed there was a trigger to change from first refusal to something more substantial. Had the trigger been activated to convert the right of refusal in the lease to an option to purchase? There has to be clear terms on how the vendor wishes to sell. Court found that terms and conditions on which the seller would sell are essential. All that had happened was an invitation of offers, so no. Held only a bare right of first refusal- no interest therefore no caveat. No triggering event that had changed the right of first refusal.

What a caveat must state; According to section 138 LTA 2017; “a caveat against dealings must contain the prescribed information”. A caveat must describe the nature of estate/interest with sufficient certainty, or “a description of the nature of the estate or interest claimed by the caveator” as per the Land Transfer Regulations 2008 (Re Peycher’s, Buddle v Russell, Norrie, Zhong). DEFECTS IN THE CAVEAT Section 138 LTA 2017, states that if a caveat does not comply with the requirements for lodging, then a court order may be removed, and the caveat may lapse. Minor defects that do not affect the operation or effect of a caveat may be okay (Willigers v McFarlane). There are three ways in which a defective caveat can be saved; 1.

2.

3.

Argue Court has power to amend defective caveat under S 143 (1952). On an application for the removal of a caveat the Court may make “such order… as to the court seems meet”. Might not be able to use this with new act. Caveator could apply to the Court for leave under s 148 to lodge second caveat (S 146 LTA 2017). Can apply for that second caveat under the same interest, only in certain circumstances. Problem is there will be a time with no caveat on it, if someone does something in that time you would lose the possibility to caveat. Caveator may be able to obtain an injunction

S21 Registrar’s powers of alteration under LTA 2017, allows the Registrar to alter the register to (b) Correct an error made by a person in preparing or submitting a document or information for registration. BUT not if alteration would materially affect the registered estate or interest of any person. NO CAVEAT CLAU SE A “no caveat” clause prohibits the lodging of a caveat. These are generally enforceable contractual terms, in which relevant considerations include whether the purchaser are commercial entities with business acumen, which have the ability to seek and find expert legal advise (Cash Handling Systems Ltd). Elias J said in this case that it was about the equal strength of both parties. In Lanco Albany, it was acknowledged that concerns of “no caveat” clauses were legitimate, but that this did not necessitate a blanket prohibition, and declined to recognise a public policy position. Per Anderson J; “in our view the integrity of the Torrens system is not depreciated by declining to recognise a public policy invalidation of no caveat clauses, and there are reasonable commercial and private reasons why such clauses may be stipulated and accepted”. The lodgement of a caveat in defiance of such cause will generally constitute a breach of contract, and to cancel a contract one must look at factors such as the importance of the “no caveat” clause in the contract, and whether the lodging of the caveat created any serious consequences that the burden and benefit of the lease were substantially affected. REMOVA L OF CAV EATS The removal of a caveat is done in one of three ways; Withdrawal;

S 144 LTA 2017/ S 147 LTA 1952 S 144 LTA 2017: A caveat against dealings may be withdrawn as to the whole or part of the estate or interest protected by the caveat by the caveator or the caveator’s agent under a written authority. Removal via court order; S 142 LTA 2017  S 142 LTA 2017 - “The Court may, on application by a person who has an estate or interest affected by a caveat against dealings, order that the caveat is removed.”  S 143(1) LTA 1952 - “Any such applicant or registered proprietor or any other person having any registered estate or interest in the estate or interest protected by the caveat, may, if he thinks fit, apply to the High Court for an order that the caveat be removed.”  S 143(2) LTA 1952 - “The Court, upon proof that notice of the application has been served on the caveator or the person on whose behalf the caveat has been lodged, may make such order in the premises, either ex parte or otherwise, as to the court seems meet.”  The effect of removing a caveat by order of the court: Loss of existing equitable priority, loss of protection, cannot lodge a 2nd caveat unless by order of court (S 146 LTA 2017/ S 148 LTA 1952) WHEN CAN THE COURT MAKE ON ORDER TO REMOVE THE CAVEAT? Sims v Lowe (1988): When it is clear (no arguable case of the caveator, they hold the onus) the caveat cannot be maintained because there was no ground for lodging it or the ground for lodging it no longer exists, the caveat will be removed. Caveat should remain in force, pending a more substantive hearing on the facts. “unless it is patently clear that the caveat cannot be maintained” “The patent clarity will not exist where the caveator has a reasonably arguable case in support of the interest claimed.” Per Somers J. Lapse of a Caveat; S 143 LTA 2017/ S 145 and 145A LTA 1952  Owner of the land can initiate the lapsing process as can a person who wishes to register an instrument affecting the estate or interest.  Under 1952 Act, two procedures: o S145 – The filing of an instrument for registration triggers the lapsing process. o S145A – The RP may apply for the caveat to lapse  Procedure: s143 LTA 2017: 1. The Registrar gives notice of the application for the lapse of a caveat to the caveator 2. The caveat will lapse unless: a. Within 10 working days from date of notice of application, the caveator gives notice to the Registrar that an application has been made to the Court for an order the caveat not lapse; and b. Within 20 working days from notice to Registrar in (a) the caveator serves a Court order on Registrar  S143(4) LTA 2017: o Orders:  An order the caveat not lapse;  An interim order that the caveat not lapse;  An order adjourning the application  S 143(8) LTA 2017: An application for the lapse of a caveat may be withdrawn: o with the leave of the Court- if application has been made o without the leave of the Court- if Registrar has not yet given notice; if notice given but caveator has not yet applied for order

 Harris v Anais Holdings (2002): P had several blocks, originally owned by D. P gave D first opportunity to purchase. D decided to sell, entered into a ASAP with Z for 1 block. D entered into a ASAP with K for another block, conditional on P not purchasing. P wished to exercise option to purchase, enclosed an ASAP signed by P containing a legal description of the whole property, not just 1 block. Deposit paid. A realised mistake, refunded deposit. P argued that they were given pre-emptive buyback rights in respect of the property. D alleged P knew of sale of 1st block ages ago, P lodged caveat over the titles of both blocks. HC: Caveat over northern blocks should lapse,

PRINCIPLES APPLIED BY THE COURT – TO REMOVE CAVEAT 1.

Caveator must show a reasonably arguable case for the estate or interest claimed . Sims v Lowe. “he will do that if he can show he has a reasonably arguable case for the interest he claims”. The caveat will then be sustained, unless the court removes it using its residual discretion.

2.

The rights of the parties should not be determined on these applications. Re Ede case (1882). NZ Limousin Cattle Breeders Society v Robinson as authority. only time the court can finally determine the rights of the parties is if: a) the parties consent or; b) the facts are not in dispute.

3.

The courts residual discretion to remove caveats or allow them to lapse. (i) balance of convenience considerations- who is going to be worst affected. Important factor was if any potential injustice could be compensated by damages rather than an injunction. CA approved this approach in Cattle Breeders. However, this has been questioned today. Holt v Anchorage Management Ltd. Now it has been decided it should only be used and considered in exceptional cases. In Orams Marine v Ports of Auckland. Three points about residual discretion: The discretion must be exercised cautiously Stewart v Kaipara Consultants Ltd. The onus is on the party challenging the caveat. Meaning of “no practical advantage” and “legitimate interests”. Blumenthal v Stewart. If the discretion exists, it application is narrower than the balance of convenience considerations applicable to interim injunctions. Botany Land Development case.

4.

Imposition of terms and conditions. Courts have jurisdiction to impose terms and conditions when it makes an order to preserve a caveat: authority is Raiser Developments v Trefoil Properties. Example is if registered owners pays a sum of money to court, then they may allow the caveat to lapse. Philpott v Noble: a condition was imposed on a caveat, but when it went into the next hearing the court said that condition was too uncertain so said the caveator had a reasonably arguable case that sustained the caveat but removed that uncertain condition.

5.

Undertaking as to damages. Preservation of a caveat on a record of title may cause loss to the registered owner. If caveat lodged without reasonable cause, the registered owner can claim compensation under 146 1952 or 148 2017, but if lodged with reasonable cause the RO has no statutory right to claim compensatory damages. So, the courts require caveator as per a condition that is sustaining the caveator to pay damages if the caveat ought not to be lodged. BP Oil v Van Beers: HC held the court did have the jurisdiction of having a discretion to require the payment of damages of the caveator to protect the RO. Approved by CA I Raiser Developments v Trefoil.

6.

Varying an order made that a caveat remain. Where circumstances have changed since the initial order was made, they have the jurisdiction to vary that order. BP Oil as authority.

NO SECOND CAVEAT 

Section 146 LTA 2017 (formally s 148 1952), states that one must have a court order to be able to lodge a second caveat. If a caveat has lapsed or been removed – NO second caveat may be lodged by if on behalf of the same person in respect of the same interest, except by order of the High Court



If withdrawn – may lodge a second caveat.



The courts are not very keen on these.



Example: land purchased and subject to a lease – the leasee has protected their unregistered leasehold interest by lodging a caveat. The problem with withdrawing and lodging a new one gives an opportunity for another party to lodge a dealing or instrument of the dealing.

BUT: to apply for a second caveat: 

A high threshold to meet

o

Court must consider whether substance of interest in second caveat is the same as that claimed in first – the courts do not want them to go on and on and disputing rights to the property

o

Courts are reluctance to consent second caveat. Cotton v Keogh

o

Standard to be applied is “reasonably arguable” [Symbol] Same as Sim

o

Principles to be applied the same as for those for determining a ceveatable interest.

o

Court has discretion

o

Consider wide range – hardship, prejudice, undue delay

o

Does not take the original caveat’s place in order of priority – Wigglesworth v Mitri

o

Second caveat can be subject to terms and conditions – if lodged went not supposed to be in contravention of S 146 then the court will remove it and the party will be liable to pay compensation under the compensation provisions.

The court has a discretion and will take in a wide range of considerations e.g. undue delay, effect on other parties. If the court allows it, it doesn’t replace the first caveat (Wigglesworth v Mitre). Examples when second caveat allowed: 

Caveat lapsed as there were difficulties complying with the time limits. Muellner v Montagnat: under this case the HC have said the court should consider the following: it will look at the strength of the applicant case to the interest, the explanation of the failure of the caveator to allow the caveat to lapse, and whether there would be unavoidable prejudice suffered by those who have relied on the registrar that there would be no caveat there. Have to show a reasonably arguable case.



Original caveat was defective means the court may allow a second caveat to be lodged where the defect has been amended.



Lawyer is at fault e.g. made the caveat defective, time lapsed. Clearly not caveator fault, may allow it. Zapoor v Te Namu: Caveat lapsed without the caveator knowing as the lawyer had put the wrong address of contact. Opposite happened in Zen v Borman lodge of second caveat declined....