S v Tasmania Bank
[1991] TASSC 48
•11 April 1991
Serial No 20/1991
List "A"
COURT: SUPREME COURT OF TASMANIA
CITATION: S v Tasmania Bank [1991] TASSC 48; (1991) Tas R 38; A20/1991
PARTIES: S
v
TASMANIA BANK
FILE NO/S: 149/1990
DELIVERED ON: 11 April 1991
JUDGMENT OF: Wright J
Judgment Number: A20/1991
Number of paragraphs: 50
Serial No 20/1991
List "A"
File No 149/1990
S v TASMANIA BANK
REASONS FOR JUDGMENT WRIGHT J
11 April 1991
The applicant, PPS, is the widow of the late LAS, deceased. During his lifetime Mr S borrowed $140,000 from the applicant, who took as security for that loan, a mortgage over land comprised and described in folio of the Register Vol 4221, Fol 71. Mr S was the registered proprietor of an estate in fee simple in that land.
The mortgage was executed on 14 November 1986 in a form which was registrable under the Land Titles Act 1980 but which was neither registered nor lodged for registration. Instead, a caveat forbidding registration of dealing with estate or interest was lodged with the Recorder of Titles by Mrs S's solicitors, in which notice was given that she was "claiming estate or interest as equitable mortgagee by virtue of memorandum of mortgage dated the 14th day of November 1986 and made between the Caveator as Mortgagee of the one part and LAS as Mortgagor of the other part."
The land comprised in the relevant folio of the Register was subdivisional land. On or about 2 April 1987, without the applicant's knowledge or consent, her caveat was partially withdrawn insofar as it related to several of the lots in the subdivision. This withdrawal was signed and lodged by her solicitors who had been induced to do so by fraud on the part of the deceased. It is accepted by the applicant that, notwithstanding absence of actual consent on her part, she cannot now maintain her caveat over this portion of the property.
On 30 November 1987 the deceased borrowed approximately $80,000 from the Tasmania Bank. He executed a mortgage in the Bank's favour and forged his wife's signature to a letter of instruction to her solicitors requesting them to consent on her behalf to the registration of this dealing. As a consequence the applicant's solicitors signed a consent endorsed on the mortgage in the following terms:
"I PPS as Caveator persuant [sic] to Caveat Registered Number B82003 hereby consent to the registration of this dealing".
Mrs S did not authorize her solicitors to give this consent on her behalf and she was unaware that it had been given. The mortgage to the Tasmania Bank was registered on Mr S's title on 18 May 1988.
The applicant accepts that the Bank was not a party to, and had no knowledge of, Mr S's fraud and consequently it is conceded that the registration of the mortgage cannot be impeached. (See Frazer v Walker [1967] AC 569).
However, it is maintained that notwithstanding registration of this instrument the applicant's caveat confers priority upon and preserves the equitable interest which she has claimed. The point at issue in these proceedings is therefore whether in the events which have happened, the Bank's mortgage takes effect subject to the interest notified in Mrs S's caveat.
Central to this problem is a consideration of the nature of a caveat under the Land Titles Act 1980.
It was submitted on behalf of the applicant that a caveat is now registrable as a "dealing" under the legislation, and once a caveat is lodged and registered, the interest which it claims is also effectively registered and thus takes priority over all subsequent dealings.
Pursuant to s3 of the Land Titles Act 1980:
"'dealing' means any document in writing (other than a grant) which is registrable or capable of being made registrable under the Act or in respect of which any recording in the Register is ... required or permitted to be made, and includes a priority notice but for the purposes of Part IX does not include a caveat."
Part IX contains s133 which provides (inter alia) that a person claiming an estate or interest in registered land under an unregistered dealing may, by caveat in the prescribed form lodged with the Recorder, forbid registration of any dealing affecting that land, estate or interest. If the Recorder does not refuse to register a caveat so lodged he must record the caveat on the folio of the Register or registered dealing affected by the caveat. Section 137(1) provides that so long as such a caveat remains in force, "the Recorder shall not, except with the written consent of a person entitled to withdraw the caveat, record any dealing upon the folio of the Register, or the registered dealing affected by the caveat." The necessity for defining a "dealing" so as to exclude a caveat "for the purposes of Part IX" is therefore plain. Unless this exception existed the lodgement and registration of one caveat would preclude the registration of subsequent caveats by the operation of s137(1).
Under the Real Property Act 1862, caveats could not be registered. This became possible for the first time under the Land Titles Act 1980. It was submitted that it was of considerable significance that such a course was now permitted and that, except for the purposes of Part IX, a caveat is now regarded as a "dealing". It was further submitted, and not disputed by counsel for the respondent, that in the absence of any statutory provision to the contrary a prior equitable interest will prevail over a subsequent legal interest the holder of which has notice of that prior equitable interest. It was not in dispute that Mrs S's interest under the unregistered mortgage was and is an equitable interest only, whereas the Bank's interest under its registered mortgage was and is a legal interest. It is plain that by seeking and obtaining the consent of Mrs S's solicitors to registration of its mortgage the Bank had notice of her interest prior to such registration.
It was contended by counsel for the applicant that as her caveat was registered on the relevant folio of the Register this was evidence, and conclusive evidence, that she was entitled to an interest in the land as described in her caveat. Reliance was placed upon s39(2) which provides (inter alia) that "except as otherwise provided in this Act, a folio of the Register is conclusive evidence that the person named in the folio as registered proprietor of or as taking an estate or interest is entitled to that land for that estate or interest."
Section 40(2) provides that (subject to irrelevant exceptions) "the title of a registered proprietor of land is indefeasible". "Indefeasible" is defined (s.40(1)) as meaning that the title of a registered proprietor of land is "subject only to such estates and interests as are recorded on the folio of the Register or registered dealing evidencing title to land".
By s40(6) an "interest" is defined as meaning:
"(a) any interest, mortgage, encumbrance, charge, reservation, or right in respect of land;
(b) any covenant, the burden of which runs with freehold land; or
(c) any claim or demand in respect of land,
whether at law or in equity." [My emphasis].
Section 40(5) provides that (except for irrelevant exceptions) the title of a registered proprietor of land prevails, notwithstanding (inter alia) the existence in any other person of any estate or interest, whether derived by grant from the Crown or otherwise which but for this Act, might be held to be paramount, or to have priority.
It is argued that, because of these provisions, defining and protecting an "interest" as they do, s41 which provides that a person dealing with the registered proprietor of an estate or an interest shall not be affected by notice direct or constructive of any trust or unregistered interest, has no application. In short, because Mrs S has a registered caveat she has a registered "interest" in respect of the relevant land, and the Bank, having notice of this registered "interest" takes subject to it. Furthermore it was submitted that her title to that interest was and is "indefeasible". It was submitted that it did not matter that the actual instrument creating the "interest" claimed by the caveat was not lodged with the Recorder because any person suspecting the invalidity or ineffectiveness of such instrument for the purpose of creating the interest claimed, could challenge the caveat in proceedings in the court as provided for in s135 and, if successful, have the caveat removed. An alternative process would be to set in train those events which would lead to the lapsing of the caveat under s136.
It was submitted that this view is consonant with the views of Barwick CJ and Windeyer J in Bursill Enterprises Pty Ltd v Berger Bros Trading Co (1971) 45 ALJR 203 at pp205 and 211 respectively. Barwick CJ said:
"It seems to me that it was not intended that the certificate of title alone should provide a purchaser dealing with the registered proprietor with all the information necessary to be known to comprehend the extent or state of the proprietor's title to the land. ... It is not necessary, in my opinion, to make a memorial effective as the registration of a dealing that the endorsement should particularize to any extent what the instrument does."
Windeyer J said:
"The critical question as I see the matter, is then, whether the interest in respect of buildings that Guy conveyed to Long can be said to have been 'modified' on the folium of the register book constituted by the certificate of title within the meaning of s42 of the Act. If it was, then Bursill holds the land subject to it and that involves no inroad upon an indefeasible title. ... But it seems to me that what is 'notified' to a prospective purchaser by his vendor's certificate of title is everything that would have come to his knowledge if he had made such searches as ought reasonably to have been made by him as a result of what there appears".
Counsel for the applicant also made reference to s48(5) which provides:
"(5) When registered, dealings affecting the same estate or interest shall, notwithstanding any express, implied, or constructive notice, be entitled in priority the one over the other according to the order in which they are registered and not according to the date of each dealing itself."
It was submitted that a caveat is a dealing capable of "affecting" an interest within the meaning of s48(5) and that this may be seen from the provisions of ss133, 135 and 137(1).
Section 133(3) provides that the Recorder shall "... record the caveat on the folio of the Register ... affected by the caveat."
Section 135 provides that a person "who claims an estate or interest in land affected by a caveat" may take proceedings to have it removed.
Section 137(1) also speaks of a folio of the Register being "affected by" a caveat.
The argument is an interesting one but in my opinion, ss133(3) and 137(1) may be distinguished immediately on the basis that they envisage the folio of the Register and not a specific estate or interest as being "affected" by a caveat. And it seems to me that s135 speaks of "land affected by a caveat" in a somewhat imprecise and non specific sense which would be better expressed as, "land in respect of which a caveat has been registered".
I cannot regard the applicant's argument as leading to the conclusion that a caveat necessarily "affects" an interest in land in the sense in which that concept is introduced in s48(5). In my opinion a caveat is not a dealing affecting an estate or interest in land within the meaning of this subsection, even though it may be a dealing for some purposes of the Act.
By contrast, a mortgage or encumbrance, when registered, has effect as a security and is itself an interest in land pursuant to s73. Incidentally, this provision would appear to be unnecessary and otiose if s40(6) has the full effect contended for by the applicant.
It was submitted that there is a discernible scheme to be seen in the Act enabling caveats to secure and retain priority for the alleged interest in respect of which they make a claim. It was conceded by counsel for the applicant that this would constitute a significant departure from the previous Torrens System legislation in this State. However, it was submitted that whereas under the original legislation, a caveat either prevented the registration of subsequent dealings or was removed, the present scheme provides, for the first time, that a caveator may consent to the registration of a subsequent dealing so that both the caveat and the subsequent dealing remain on title as registered dealings. The force of the submission was somewhat diminished by the belated recognition that a caveator had been given power to consent to the registration of a subsequent dealing as long ago as 1960 when s84 of the Real Property Act 1862 was amended.
If the applicant is correct it means that anybody, by lodging a caveat, can secure an indefeasible interest in the subject property. However to my mind this is manifestly absurd because a caveat is merely a notice preventing registration of any dealing which may impinge upon the interest claimed and, as already noted, it can be removed by the procedures provided for in s135, or it may lapse (s134(4) and s136). This appears to me to be the antithesis of indefeasibility as that term was explained by Barwick CJ in Breskavar v Wall (1971) 126 CLR 376 at pp385–6. Insofar as the caveat can be said to create a registered interest it is plainly defeasible. For this reason, whatever else is achieved by treating a caveat as a dealing, it is insufficient to create an indefeasible interest within the meaning of s40(1).
Opposing the application, counsel for the respondent Bank submitted that it was of cardinal importance to bear in mind that a necessary concomitant of indefeasibility was the statutory scheme that a legal interest in registered land was only achievable by registration of the interest. Execution of the instrument creating the interest is insufficient of itself. Only upon registration does it crystallize into a legal interest. (See Breskavar v Wall (supra) per Barwick CJ at p385):
"The Torrens system of registered title of which the Act is a form is not a system of registration of title but a system of title by registration."
See also Windeyer J at p399 et seq. On this basis it was submitted that the decision in Bursill Enterprises Pty Ltd v Berger Bros (supra) could be distinguished, particularly as a search of the Register in that case would have revealed the interest, a note of which had been made on the certificate of title. It was unnecessary there to go outside the registered material to discover the true nature and extent of the interest in question, whereas in the present case the unregistered mortgage referred to in the caveat is not itself registered and can only be discovered and its terms considered by making further enquiries outside the Registry.
It was further submitted by the respondent that the present proceedings by the applicant seeking declarations as to the respective interests of the applicant and the respondent, constitute "an action for the recovery" of registered land within the meaning of s149(1) of the Land Titles Act 1980. It was submitted that this view is supported by the observations of Barwick CJ in Breskavar v Wall (supra) at p385 and by the Privy Council decision in Frazer v Walker (supra) where it was stated:
"... the appellants' counter claim against the second respondents, in so far as it sought a declaration that the appellants' interest in the land was not affected by the purported mortgage and a declaration that the mortgage was a nullity, was an action for recovery of land within the terms of section 63".
Section 149 of the Land Titles Act 1980 provides:
"149 – (1) An action of ejectment or other action for the recovery of registered land shall not lie or be sustained against the person registered as proprietor of the land under this Act, except in the following cases:–
(a) a mortgagee as against a mortgagor in default;
(b) an encumbrancee as against an encumbrancer in default;
(c) a lessor as against a lessee in default;
(d) a person deprived of land by fraud as against the person registered as proprietor of the land through fraud, or as against a person deriving, otherwise than as a transferee bona fide for value, from or through a person so registered through fraud;
(e) a person deprived of or claiming land included in a folio of the Register evidencing the title to other land, by misdescription of that other land or of its boundaries, as against the registered proprietor of that other land, not being a transferee of that other land, or deriving from or through a transferee of that other land bona fide for value;
(f) the registered proprietor of land which was first brought under this Act or the repealed Act as against another registered proprietor, in a case where 2 or more folios of the Register subsist for conflicting estates in the same land.
(2) In any case not referred to in subsection (1), the production of a certified copy of the relevant folio of the Register, or, in the case of leasehold land where no folio of the Register exists for the leasehold estate, a certified copy of the lease shall be held in every court to be an absolute bar and estoppel to any action referred to in subsection (1) against the person named in that folio as registered proprietor of the land described in that folio or the lessee."
It appears to me that this section is formulated on the basis that no action is to lie (a) where reference to the Register discloses or is capable of disclosing a registered interest inconsistent with the interest claimed in the proceedings of (b) questioning the right of a person to the interest of which he or she is the registered proprietor, (see Galaxy Motors Pty Ltd v Carroll & Weekes (1964) 82 WN NSW 40 at p43 per Taylor J).
In the present proceedings the applicant does not seek to supplant the respondent's registered interest or to have it declared void or to otherwise deprive the Bank of that interest. There is no dispute that both the applicant's caveat and the respondent's mortgage are registered on the title. The question is what priority exists between them and this is a problem which cannot be answered simply by referring to the Register itself as is envisaged in s149. Accordingly, it seems to me that the present application is not an action for the recovery of registered land in any relevant sense and that consequently the application is not barred under the provisions of s149.
I return therefore to the problem at hand. Does the Bank achieve priority over the applicant's equitable instrument by virtue of registration of the legal mortgage? In addition to the statutory provisions and authorities referred to above, extensive reference was made to cases such as Butler v Fairclough (1917) 23 CLR 78 and Abigail v Lapin [1934] AC 491 but I find those decisions of little assistance in resolving the present question.
The only text of any real assistance referred to by counsel was Whalan, The Torrens System in Australia where the learned author discusses and distinguishes between two differing statutory approaches which have been adopted in those jurisdictions where registration of a subsequent instrument is permitted whilst leaving the caveat undisturbed on the Register. He says at p240:
"c Instruments registered with permission of caveator
All jurisdictions have one or more provisions which allow instruments to 'pass through the caveat' as it were on to the Register with the permission of the caveator.
One formula is found in the Australian Capital Territory, Queensland and Western Australia: it provides that a caveat may forbid the registration of any instrument or dealing either absolutely or until after notice of the intended instrument or dealing has been given to the caveator as required in the caveat. (ACT s 104(1); Qld s 98: WA s 137). The 'after notice' alternative is virtually never used in practice. The Victorian provision is much wider and allows the forbidding of registration 'either absolutely or conditionally'; and, indeed, the registration or entry of a particular transfer or dealing may be provided for in the caveat. (Vic. ss 89(1) and 90(1)(e)).
A provision under which the caveator gives nothing away is one found in the Northern Territory, South Australia, Victoria and Western Australia; an instrument or dealing may be registered if it is expressed to be subject to the rights of the caveator. (NT s 191; SA. s 191; Vic s 90(1)(d); WA s 137).
A true and quite specifically directed concession can be made under the provision found in New South Wales, the Northern Territory, Queensland, Tasmania and Victoria under which an instrument or dealing may be registered with the written consent of the caveator."
Obviously in the Northern Territory, South Australia, Victoria and Western Australia, the present problem would not arise because registration of a subsequent dealing does not depend on the caveator's consent and can only take effect subject to the rights of the caveator. Of course, there may be some discussion in appropriate circumstances as to what "rights" a caveator enjoys, but there is no need to pursue that enquiry further now. The phrase chosen by the learned author, "pass through the caveat", is an interesting one. It tends to suggest the very concept contended for by the respondent viz. that the consent of the caveator allowing registration of a registrable dealing enables that dealing to transcend the otherwise impenetrable barrier constituted by the caveat and to thus pass beyond and ahead of it, whilst leaving it intact for all other purposes. This view is supported by the traditional concept of a caveat as a statutory injunction to the Recorder and a warning to potential registrants. It is also supported by a recognition that the alternative statutory scheme, as it exists in the Northern Territory and other States mentioned above, is a simple one which quite plainly requires any subsequent registered dealing to take its place behind the entitlements of the caveator. It may be appreciated that if this had been intended in Tasmania it was quite simple for Parliament to so specify.
It was also argued that in some circumstances a caveator would willingly permit registration of a legal interest even if the legal interest achieved priority as a consequence because his own interest would not necessarily be diminished thereby. Although there is some validity in this I think that in the overwhelming majority of cases a caveator's interest would be diminished if a subsequent dealing achieved priority and, consequently, a caveator would probably withhold consent in most cases. These considerations do not advance the matter very far, however. It is not difficult to accept that a spouse mortgagee, for example, may well agree to postpone his or her security in favour of a commercial lender for any number of cogent reasons. No doubt this is what the respondent Bank thought was happening in the present circumstances.
It was further submitted that the following passage from Baalman, The Torrens System in NSW, 2nd edn at p315 provides support for the respondent's position.
"Whether a caveator consents to registration of a dealing, or whether he allows his caveat to lapse in respect of that dealing to permit registration thereof, in either case the prohibitory effect of the caveat is diminished only to the extent necessary to enable the new interest to be created by registration of the dealing. It follows, as a matter of principle, that whether the caveator has consented to, or allowed his caveat to lapse in favour of, a dealing, he has forfeited any right to use his caveat to prevent exercise of a power inherent in the interest created by that dealing. This may be illustrated by cases where the dealing is a mortgage or a lease; the caveator who has allowed registration could not rely upon his caveat to prevent the mortgagee selling, or the lessee exercising an option to purchase or renew."
However, the point made is not necessarily inconsistent with the applicant's claim. The mortgagee's power of sale referred to in this passage would necessitate the registration of a subsequent dealing to carry that power into effect and, to allow the mortgagee to disregard, or override, the caveat for this purpose would not necessarily disrupt priorities as between the interest claimed in the caveat and that created by registration of the mortgage.
Although it was virtually conceded in the course of the respondent's argument that a caveat is a "dealing" within the meaning of s3 (a view which no doubt led to the amendment effected by the Land Titles Amendment Act 1981, s4) such a conclusion can lead to puzzling conflicts and difficulties if applied uniformly throughout the principle legislation. To illustrate, I need refer only to s48(7) which provides that, "when registered, a dealing shall have the effect of a deed duly executed by the parties who signed it." How can this apply to a caveat which in form and substance is no more than notice of a claim and is signed by one individual only.
It seems to me that despite the force of the "expressio unius" principle in relation to statutory provisions of this kind, it is possible to mount an argument founded on logic that a caveat is not a dealing, not only for the purposes of Part IX of the Act, but also for the purposes (inter alia) of Parts V and VI. It also seems to me that although a caveat may be regarded as creating an interest in land, it does so only for purposes which are not inconsistent with its statutory character. It seems to me that it is an inseparable and immutable concomitant of the statutory scheme that even though a caveat may be a registered dealing creating an "interest" in the subject land, it can have no priority as such over instruments which achieve registration subsequent thereto and which effect a disposition or acquisition of land, once registered.
I can see nothing in the Land Titles Act 1980 which detracts from or alters the proposition contained in CPR v District Registrar of Dauphin Land Titles Office (1956) 4 DLR (2d) 518:
"a caveat is merely a notice of a claim which may or may not be a valid one. The validity of the claim must be determined after and not before the filing of the caveat ... a caveat is merely a warning which creates no new rights but protects existing rights, if any."
Under s49(1) an "instrument" itself is not effectual to pass any estate or interest or to render that land liable as security for the payment of money except upon registration. This means, no instrument shall have power to confer an unquestionable and indefeasible title until registered, (O'Regan v Commissioner of Stamp Duties [1921] QSR 283 at p295) and it seems to me that it would be quite contrary to this important, indeed crucial, provision in the scheme of the Land Titles Act 1980, to enable a mere caveat, albeit in respect of a registrable instrument, to override this provision.
Further considerations lead to the same conclusion. For example, although s134(3) provides that the practice, procedure and mode of dealing with a judgment creditor's caveat shall in all (relevant) respects be the same "as if" the judgment creditor claimed an estate or interest under s133, it does not go so far as to equate a s134 caveat with a s133 caveat for other purposes. Nonetheless on the applicant's argument, a s134 caveat would be an "interest" under s40 as a "demand in respect of land" and it would thus be "indefeasible". This would be quite contrary to what was said by the High Court in Hall v Richards (1961) 108 CLR 84, especially per Kitto J at p92 where he said:
"To turn to the case of the appellants is to see the contrast at once. The entry of their caveat gave them no new positive rights. It ensured that they would have time in which to exercise against the land in question the right, which they possessed antecedently, to enforce their judgment by means of a fi fa; but that is all. That was a right, incidentally, which by force of s92 must come to an end on the bankruptcy of the judgment creditor; and in that fact alone there is a formidable answer to the whole of the appellants' contention in the case. But let that be put aside. The appellants had no other right or remedy for the recovery of their money out of the land than any other judgment creditor had. The legal effect of the caveat, as has often been said of caveats under the ordinary caveat provisions of Torrens legislation, was that of a statutory injunction, serving merely to keep property available in case the judgment creditor should wish to have execution against it; and it is clear on the authorities abovementioned that to apply the term 'lien', or even the term 'charge', to anything which has no greater effect than that is to depart from the terminology of the Bankruptcy Act."
In my opinion it would require very clear and unambiguous legislation to vest in a caveator in respect of a judgment debt an unassailable interest over a registered mortgage, albeit one, the registration of which, the caveator had consented to, when heretofore he would not even have achieved a lien or charge upon the subject property.
Finally it may be observed that if a caveator's consent to registration has the effect contended for by the applicant there would be no need for such consent to be given as, according to the applicant's thesis, the caveator's position cannot be adversely affected in any way by a subsequent dealing.
In my opinion, the effect of a caveator consenting to registration of an instrument which of itself is capable of creating an interest in the land upon registration, is to cause the caveat to lapse "pro tanto" in much the same way as is envisaged in s136(5).
There is no need to enter upon the complex, interesting and perhaps not yet fully resolved, question of priority as between holders of competing equitable interests where one only lodges a caveat or as between successive caveators now that a caveat is a registrable dealing for some purposes.
In my opinion, whilst the applicant's claim is permissible under the Act, in the sense that it is not barred by operation of s149(1), it is nonetheless insupportable and cannot succeed. As I understand it, the applicant no longer seeks a declaration in terms of para1 of the application. So far as paras2 and 3 are concerned, I am of the view that the Tasmania Bank has priority over the interest of the applicant in respect of the Lots mentioned (including Lot 3 which was added by way of amendment at the hearing). Again, as I understand it, no declaration is now sought in respect of the interests (if any) of Terralinna Pty Ltd. As the application has failed in substance, the applicant should pay the respondent's costs. I certify for counsel. I will hear counsel further as to the terms of the formal order.
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