Who is liable to pay compensation for an improperly lodged caveat – a solicitor or their client?

Aug 2021 | Insurance

The question of who is liable to pay compensation – a solicitor who physically lodged the caveat or the client on whose behalf it was lodged – has been considered in a number of Australian jurisdictions.

Section 130 of the Land Titles Act 1994 (Qld) (LTA) provides that a caveator under a caveat lodged or continued without reasonable cause must compensate anyone who suffers loss or damage as a result. A similar provision has been enacted in the other Australian states and territories.

The issue can arise whether a solicitor who physically lodges a caveat on a client’s behalf is captured by the wording of s 130 of the LTA and its equivalent provisions in other states and territories. Plaintiffs might prefer to pursue an insured solicitor rather than the potentially impecunious party on whose behalf the caveat was lodged.

The legislation

Previously, s 130 of the LTA stated ‘a person who lodges or continues a caveat’ must compensate a party who suffers loss as a result.

However, the section was amended in 2017 to state compensation may be sought from ‘the caveator’. The amendment was made following confusion regarding whether the reference to ‘a person’ included the caveator’s legal representative or agent, being the person who physically lodged the caveat. A caveator is defined in the LTA as a person in whose favour a caveat is lodged.

The explanatory notes of the amending act¹ state that s 130 was amended ‘to clarify that the caveator is liable to pay compensation for lodging or continuing an improper caveat, rather than the person who lodges the caveat, which could be a legal practitioner or lodging agent’.

While this settles the position in Queensland, similar confusion has arisen regarding the wording of the provision in other jurisdictions, including New South Wales and Victoria, owing to the use of the phrase ‘a person’ in the equivalent provisions in those states.

The case law

In jurisdictions where the wording of the legislation has not been amended in the same manner as Queensland, and prior to the amendment of the Queensland provision, the intended operation of the provision was interpreted in accordance with case law.

Gordon v Treadwell Stacey Smith

A number of Australian authorities consider the New Zealand Court of Appeal case of Gordon v Treadwell Stacey Smith² in which the equivalent provision states ‘any person lodging a caveat’ is liable to compensate a person who suffers loss or damage as a result.

The New Zealand Court of Appeal held that the operation of the provision was capable of extending to solicitors and lodging agents. That finding was qualified on the basis that the solicitor or agent would not be liable to compensate a person if they were not told crucial facts by the caveator, and therefore their advice to lodge the caveat and the lodgement of the caveat was reasonable on the information available to them.

That decision has not been followed by courts in New South Wales, Victoria and Western Australia (and is inconsistent with the Queensland legislation).

Windlock Pty Ltd v Davidovic

The leading decision on this issue in New South Wales is Windlock Pty Ltd v Davidovic³. Similarly to Gordon v Treadwell Stacey Smith, the New South Wales provision includes the phrase ‘any person’.

In Windlock, the plaintiff had mortgages in its favour over three properties owned by V&M Davidovic Pty Ltd (company). When the company defaulted on those mortgages, various caveats were lodged over its properties by persons associated with the company (with the intention of frustrating the sale of the properties). Those caveats were all removed by the court on the basis that they were improperly lodged.

The plaintiff sought compensation pursuant to s 74P of the Real Property Act 1900, for the caveats having been lodged without reasonable cause against the parties who lodged the caveats, including their solicitors.

The Supreme Court of New South Wales ordered judgment in favour of the solicitors against the plaintiff. In doing so, it did not follow the reasoning in Gordon v Treadwell Stacey Smith, holding that the compensation provision’s purpose was to protect a property’s owner from suffering loss or damage as a result of caveats which had no standing or were lodged to cause delay. It found that the purpose of the compensation provision was to discourage people from improperly lodging caveats. The Supreme Court held that ‘it is hard to see how allowing compensation against the person who happened to hand the piece of paper containing the caveat across the counter fulfils that purpose’.

The Supreme Court also considered the circumstances in which the words ‘any person’ may be interpreted as including persons other than the caveator, yet not catch solicitors or filing clerks. That is, a circumstance in which a person other than the caveator lodges a caveat, but is not merely acting as an agent for the caveator. For example, a person:

named as executor of a deceased person’s estate who has not yet taken out probate where the unregistered interest which could be the subject of a caveat is part of the estate and is threatened;
seeking a guardianship order in respect of an incapable person who has such an unregistered interest.

Although those circumstances would uncommonly arise, the Supreme Court considered that the legislature may have opted to use the wide language of ‘any person’ to allow for compensation to be sought in those rare circumstances.

Lanciana v Alderuccio

In this case,⁴ the Victorian Court of Appeal considered whether the plaintiff, who sought to recover compensation pursuant to s 118 of the Transfer of Land Act 1958 against solicitors who lodged caveats over her property (as opposed to the solicitors’ client), was entitled to do so.

At first instance, the Supreme Court of Victoria followed the reasoning in Windlock Pty Ltd v Davidovic, concluding that a reference to ‘a person’ does not include a solicitor lodging a caveat on a client’s behalf.

The Supreme Court’s decision was upheld by the Court of Appeal and the appeal was dismissed. In doing so, the Court of Appeal found that the term ‘any person’ in the Act had to be read in the context of the Act as a whole and that consequently the term meant ‘any person claiming an estate or interest in the land’. That was not the solicitor who lodged the caveat. Further, the Court of Appeal found that where a caveat is lodged by an agent of a person claiming an interest in land, the lodgement of the caveat was the act of the principal and not the act of the agent.

Conclusion

This issue is important to solicitors and their insurers in the defence of claims. It is unambiguous from the wording of the LTA and the explanatory memorandum that compensation can only be sought against the caveator in Queensland, being the person on whose behalf the caveat is lodged.

In the remaining Australian jurisdictions, the equivalent provisions may have a slightly wider ambit, extending to rare circumstances in which a caveat is lodged by a person who is not the caveator, but is not acting merely as the caveator’s agent.

It has however been unanimously held (at least in Queensland, New South Wales, Victoria and Western Australia) that compensation cannot be sought against a caveator’s solicitor or the filing clerk that physically lodges the caveat. We would expect the comparable provisions in other states and territories to be interpretated consistently with those jurisdictions.

Carter Newell Lawyers successfully raised this issue in the defence of a recent claim against a solicitor in Queensland and obtained summary judgment against the plaintiff, with costs.⁵

¹ Land and Other Legislation Amendment Act 2017.
² [1996] 3 NZLR 281.
³ [2014] NSWSC 269.
⁴ Lanciana v Alderuccio [2020] VSCA 152.
⁵ Judgment has not yet been published.

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The material contained in this publication is in the nature of general comment only, and neither purports nor is intended to be advice on any particular matter. No reader should act on the basis of any matter contained in this publication without considering, and if necessary, taking appropriate professional advice upon their own particular circumstances.

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