By Russell Cocks, Solicitor
First published in the Law Institute Journal
A caveat is a document authorised by s 89 Transfer of Land Act 1958 (Vic.) as a means by which a person claiming an interest in the land of another person can record that interest on the title to land owned by that other person. The virtue of a caveat is that it serves to give notice to the world of the interest of the caveator and generally means that a person dealing with the registered proprietor of the land will require that the caveat be satisfied prior to completion of any transaction. A caveat is often used by a person who is owed money by the registered proprietor to provide quasi-security for that debt.
A caveat must be supported by a caveatable interest in the land and whilst a simple debt owed by the registered proprietor to a creditor will not, of itself, create a caveatable interest, a debt supported by a charging clause will do so. Thus a document that records the debt and charges the land with repayment of that debt will justify a caveat.
Lawyers perform services for clients and are entitled to charge costs for those services. Many lawyers enter into costs agreements with clients in respect of those costs and those costs agreements may include a term whereby the client charges the client’s land, or the client’s interest in the land of another, with payment of those costs: Porter & Anor v Bonarrigo [2009] VSC 500. Prudently, the costs agreement would also include a term whereby the client acknowledges that the lawyer may lodge a caveat over that land to secure payment of those costs.
There may be an argument that the lawyer in such circumstances should advise the client to seek independent legal advice in relation to the proposed charge and caveat, but that is a matter for another day.
In passing it may be noted that the caveat may be lodged against a property even if the client is only one of the registered proprietors and indeed may be lodged against the property of a person other than the client, if it can be established that the client also has an (unregistered interest) in that property, for instance, by way of a constructive trust.
Thus caveats are common in family law disputes where one party may not have access to funds but does have an interest (either registered or unregistered) in matrimonial property. However the case of Brott v Shtrambrandt [2009] VSC 467 highlights a potential problem with such caveats, particularly in the family law area. Beach J. held that lawyers’ costs agreements are, in appropriate circumstances, subject to what was then the Consumer Credit (Victoria) Code, arising out of the Consumer Credit (Victoria) Act 1995, the current equivalent of which is the National Credit Code, arising out of the National Consumer Credit Protection Act 2009 (Cth).
The code is designed to regulate consumer lender. At first glance one might wonder how a costs agreement can constitute lending, but the various definitions in the Act mean that deferral of payment of a debt constitutes the giving of credit and any agreement to secure the payment of that debt constitutes a mortgage. If the agreement includes a provision whereby ‘a charge is or may be made for providing the credit’ then the code applies. Lawyers are entitled to charge interest on unpaid accounts (Legal Profession Act 2004 s 3.4.21(4)) and a costs agreement that provides for the payment of interest will be a ‘credit contract’. A lawyer’s practice clearly satisfies the requirement that the credit be provided in the course of business and so, provided the client is a ‘natural person’ or a ‘strata corporation’ and the ‘credit’ is provided for personal purposes, the costs agreement will be subject to the National Credit Code. These two latter requirements makes the code particularly relevant in a family law environment, but it will apply to all clients who operate as a personal, as opposed to corporate, entity in other than a business environment.
A costs agreement may therefore be a ‘credit contract’ and also constitute a ‘mortgage’ under the National Credit Code. Section 44(1) of the code requires a mortgage to ‘describe or identify the property which is subject to the mortgage’ and subsection (2) provides that ‘a provision in a mortgage that charges all the property of the mortgagor is void’. Thus a provision in a costs agreement that fails to identify the charged property or seeks to charge all the property of the client will be struck down and any caveat lodged pursuant to such a costs agreement will be susceptible to challenge.
This decision later played out in Shtrambrandt & Anor v Hanscombe & Ors [2012] VSC 102. Beach J. had identified the successful legal challenge to the caveats lodged pursuant to the costs agreement independently of arguments advanced by the parties. By that stage Shtrambrandt was self-represented but he had been represented by various solicitors and barristers in the proceedings over several years and he sued those lawyers for failing to have identified this defence. After a 13-day trial in relation to this and other issues Ferguson J. decided that, given the novelty of the argument, the lawyers had not been negligent in failing to identify that defence.
Tip Box
Whilst written for Victoria this article has interest and relevance for practitioners in all states.