By Russell Cocks, Solicitor

Published April 2018, First published in the Law Institute Journal

I have used Donald Rumsfeld’s phrase ‘unknown unknowns’ once before, to describe the obligations of owner-builders, and it seemed appropriate at the time. But perhaps the epitome of ‘unknown unknowns’ is the Notice of Action.

This is a document that the Registrar of Titles registers on a certificate of title if the Registrar is concerned that some inappropriate action has, or might, occur in relation to the certificate of title. The legislative basis for the Notice is said to be s 106(1)(f) Transfer of Land Act which provides that the Registrar ‘may take any other step necessary to protect the operation, effectiveness and integrity of the Register, including, but not limited to, the making of a notation on a folio of the Register’.

Very little is known about these Notices and the Registrar does not appear to have published any guidelines relating to when a Notice will be registered and, perhaps more importantly, when it will be removed. The same can be said for a Registrar’s caveat (formerly known as a Queen’s caveat) authorised under s 106(1)(a)(iii) that authorises such a caveat ‘for the prevention of any fraud or improper dealing’.

The case of Lee Nyong Pty Ltd & Anor v Di Blasi & Anor [2018] VSC 5 considered a Notice of Action in the context of a dispute between parties relating to which party should pay the costs of the proceedings, on what basis those costs should be calculated and whether the Registrar might have a liability in relation to those costs. There had been an allegation made that a withdrawal of caveat that had been recorded on the Register was a forgery and this allegation was apparently the basis for the Registrar’s concern. The possibility of a forged document tainting the Register would justifiably cause the Registrar concern but the case highlights that the consequence of a Notice of Action in practical terms is that ‘all bets are off’.

In the course of the judgment the court stated that ‘A Notice of Action has no statutory force. It is not a creature of statute and simply indicates that the Registrar has concerns about a particular transaction’. The Registrar ‘described a Notice of Action as an “administrative dealing” that allows [the Registrar] to monitor dealings affecting land to ensure that only those dealings which are appropriate are registered’. Further, he stated that such a notice ‘does not prevent the lodgement or registration of any dealings’.

However, it is hard to imagine that a person expecting to obtain registration of ownership or security in a title will proceed in the face of a Notice of Action or Registrar’s caveat. Unfortunately, there does not appear to be any procedure for ascertaining when, if ever, the Registrar will remove a Notice of Action or a Registrar’s caveat. Indeed, the Registrar advised the court that the Notice of Action ‘is removed at a time I consider appropriate’. It is this uncertainty and lack of direction that causes difficulties for practitioners at the coalface seeking to explain to clients, who are generally innocent third parties, that no guidance can be given in relation to when the dispute may be resolved, if ever.

It appears that the Registrar takes the view that a party who needs to lodge a dealing for registration after a Notice of Action or Registrar’s caveat has been registered on title should simply do so and hope that the Notice of Action or Registrar’s caveat will be withdrawn. This is akin to a risk management protocol of crossing your fingers. The Registrar needs to develop guidelines that establish a procedure that allows these innocent third parties to have some guidance as to when the Notice or caveat will be withdrawn and on what terms. If this requires the Registrar to participate in the settlement process and even attend a settlement so that some certainty can be given to incoming registered interests then that should be a cost that the Registrar bears in exercising vigilance over the Register and avoiding claims on the Assurance Fund.

How such scenarios will be handled in the electronic environment is a mystery for another day. Expecting the Registrar to become a party to a PEXA settlement, and pay the PEXA fee, seems like a bridge too far.

Tips:

• Notice of Action and Registrar’s caveats are mysteries.
• Both are authorised by s 106(1) Transfer of Land Act.
• Guidance should be provided by the Registrar.

 

By Russell Cocks, Solicitor

Published May 2018, First published in the Law Institute Journal

Section 32 Sale of Land Act requires a vendor to provide a purchaser with a Vendors Statement disclosing certain specified information in relation to the property. The purchaser may avoid the contract if there is a breach of s 32, but the vendor has an ‘escape hatch’ in s 32K.

 

Last year McHutchison v Asli [2017] VSC 258 considered whether a vendor could rely on s 32K in circumstances where a planning permit for a septic sewerage system was not disclosed. Downing v Lau [2018] VCC 33 is a County Court decision considering s 32K in the context of non-disclosure of a planning permit relating to future development of the property.

Unlike in McHutchison, where the obligation to disclose the notices was contested by the vendor, Downing proceeded on the concession by the vendor that the planning permit was a ‘notice’ affecting the land within the meaning of s 32D(a). This is consistent with the decision in McHutchinson and must now be beyond doubt. The question in Downing therefore became – could the vendor rely on s 32K?

The two elements to s 32K are:

• that the vendor acted honestly and reasonably and ought to be excused; and
• that the purchaser is substantially in as good a position.

The vendor’s failure to disclose related to a current planning permit that had been obtained some time before the sale and which permitted the construction of four units on the land. Unlike the permit in McHutchinson, which imposed conditions on the use of the property and was therefore restrictive, the permit in Downing did not require construction of the units, it was simply a permissive notice. Nevertheless, it should have been disclosed. That it was not disclosed was a decision of the vendor’s conveyancer, who (mistakenly) was of the view that it did not need to be disclosed.

A vendor who has been personally negligent is not likely to qualify as ‘honest and reasonable’, so the question was whether the vendor would be vicariously liable for the vendor’s representative’s negligence. This had previously been considered by the Supreme Court in Paterson v Batrouney & Anor [2000] VSC 313 where elderly vendors were found not to be responsible for their representative’s negligence. Downing considered the question in the context of the law of agency and decided that the representative was retained by the vendor as an expert and was not the vendor’s agent, at least not for the purpose of preparing the Vendor Statement. Whilst the representative might be the vendor’s agent for other parts of the transaction, that agency did not extend to preparation of the Vendor’s Statement and the vendor was therefore not vicariously liable for the expert’s negligence.

Downing, in adopting Paterson v Batrouney, chose not to follow other authority and it may be that the matter will be reconsidered by the Supreme Court in the future.

Having found that the vendor satisfied the first leg of s 32K, the inquiry then turned to whether the ‘purchaser is in substantially as good a position’. The purchaser felt aggrieved because the purchaser had intended to seek a permit to construct eight (or perhaps seven) units and took the view that the existence of the permit for four units substantially affected the purchaser’s ability to get a permit for 7-8 units, notwithstanding that expiry of the four unit permit was imminent. Alternatively, the purchaser argued that a property with a disclosed four unit permit was worth less than a property without such a permit, as this property had been represented.

No valuation evidence was tendered to prove the second point and the court was not satisfied that the existence of the almost expired four unit permit meant that the purchaser could not achieve its desired outcome of a permit for 7-8 units. The court appeared to take the view that the purchaser regarded the property as ‘tainted’ by the four unit permit without being able to prove in any meaningful way that the purchaser was not substantially in as good a position.

The vendor was therefore held to have been entitled to accept the purchaser’s purported termination of the contract for breach of s 32 as a repudiation of the contract and thereby entitled to judgment for the amount of the unpaid deposit and interest at penalty rates.

Tip: Whilst written for Victoria this article has interest and relevance for practitioners in all states.