If a lender has the right to ‘lodge and maintain a caveat’ with nothing more, then according to the NSW Court of Appeal, that is not enough to support a caveat.
The decision is Ta Lee Investment Pty Ltd v Antonios  NSWCA 24 (22 February 2019) a decision of the Court of Appeal Supreme Court of New South Wales (joint judgment of Bathurst CJ, Beazley P & Macfarlan JA).
In 2011, Ta Lee loaned $1.5 million to a property developer MV Developments (Lane Cove) Pty Ltd (in liq) to finance the development of land in Finlayson Street, Lane Cove into an apartment block. The Deed of Loan and Guarantee provided that the loan was repayable on 10 June 2013, in default of which interest was payable at 20% per annum for 6 months then at 30% per annum.
The Deed also provided that at any time after an Event of Default, the Lender may:
Lodge and maintain a caveat on the titles to the Aurora Site or the consolidated title for the Aurora Site until such time the Lender receives full payment of all moneys payable to the Lender (clause 7.2)
On 16 April 2015, the strata plan was registered, consisting of 56 lots.
The loan was not repaid, and on 23 June 2015 Ta Lee lodged a caveat over lot 34 claiming “a right to caveat under clause 7.2”; and on 4 August 2015, it lodged a second caveat over lot 34 claiming an “equitable charge” by virtue of an “implied right to charge the land” under clause 7.2
In the meantime, on 15 April 2015, MV Developments had entered into a contract to sell lot 34 to Mr Antonios for $910,000. The price was paid in an unusual fashion. Mr Antonios was a professional poker player and Mr Fong, the director of MV Investments, agreed to accept (and was paid) $510,000 in casino chips, $200,000 in cash and $200,000 by cheque. The Court found that the price had been paid in full, even though the method of payment did not comply strictly with the terms of the Contract of Sale.
On 23 May 2015, Mr Antonios was given the keys to lot 34 by Mr Fong and was told he could “move in now”. Mr Antonios had difficulty in obtaining a signed copy of the Contract of Sale, and it was not until 6 June 2016 that he lodged a caveat claiming an ‘equitable interest’ under the Contract of Sale.
The trial judge (Emmett AJA) found that the Caveats lodged by Ta Lee were not valid and ordered that the title to lot 34 be transferred to Mr Antonios, which was done.
Was there an intention to create a charge (to support a Caveat) by Ta Lee?
The Court framed the question of validity of the caveat upon whether clause 7.2 creates an equitable charge over the property to secure repayment of the loan.
There is no standard formulation. The Court quoted with approval this view expressed by Gleeson JA, with whom Meagher and Leeming JJA agreed, that:
 Whether it is possible to discern from the authorisation to lodge a caveat (given by a registered proprietor), an intention to create a charge which would support a caveat is the subject of conflicting views in the authorities. (Aged Care Services Pty Ltd v Kanning Services Pty Ltd (2013) 86 NSWLR 174) (paragraph 98).
In Aged Care Services, the lender was assured “You will be secured” which the Court found to be sufficient intention to create a charge to support the Caveat.
The Court proceeded to give guidance upon acceptable formulations to create an equitable charge to support a caveat:
In our opinion, cl 7.2(a), on its proper construction, did not create an equitable interest or give rise to an equitable charge in favour of Ta Lee … there is no reference to “security”, “secured interest”, “charge”, “caveatable interest”, or any other language which would point to Ta Lee having an equitable interest. (paragraph 104)
There was a further problem with clause 7.2. The Court also considered that clause 7.2 only gave the right to lodge a caveat over the site, not over individual apartment lots after the strata plan was registered. The Court declined to imply such a term into the Loan Deed to give it business efficacy, because the Loan Deed had business efficacy without it.
The Court dismissed the appeal by Ta Lee with costs.
The decision is authority that a clause which gives the ‘right to lodge and maintain a caveat’ is in itself not sufficient to support a caveat. The clause must expressly ‘charge’ the land with the obligation or create an ‘equitable interest’ or ‘caveatable interest’ in the land.
A good example of a clause which ‘charges’ the land is clause 2.8 of the Contract for the Sale and Purchase of Land (NSW):
If any of the deposit or the balance price is paid before completion to the vendor or as the vendor directs, it is a charge on the land in favour of the purchaser until termination by the vendor or completion, subject to any existing right.
In this case, the ‘innocent party’ Mr Antonios prevailed but only because the Loan Deed was defective. The defect had serious consequences for the Lender in that the developer, MV Developments went into liquidation in August 2015. As a result of the decision, the Lender is an unsecured creditor for its loan of $1.5 million together with interest.