Property 101: Warning on caveats on matrimonial properties
The decision of Powell v Stone [2014] NSWSC of the Supreme Court of New South Wales has sounded a clear warning to parties in family law proceedings regarding the lodgment of a caveat over a property which is the subject of a court order.
The decision makes it clear the caveator must have an "interest" in the property as they otherwise face an indemnity costs order being made against them as the Court aims to discourage the lodgment of caveats in these circumstances.
In this Alert, Special Counsel Alexandra Moles and Solicitor David Hall highlight this case as a warning to parties to be careful when attempting to further protect their assets during family law proceedings.
Key take away points
- A Family Court Order giving a party a right to the proceeds of sale of a property is not a caveatable interest; and
- There is a risk of an indemnity costs order being made against parties who lodge a caveat over property in which they have no caveatable interest even if the caveat is subsequently voluntarily withdrawn.
A right to proceeds of sale is not a caveatable interest
Powell involved factual circumstances which are common in family law proceedings. An Order was made in the Family Court of Australia that a husband was ordered to pay a wife a sum of money and if he failed to do so by a specific date then the order required him to sell a property and pay the wife a specific amount out of the proceeds of the sale of that property.
In order to protect her payment the wife lodged a caveat over the property.
In finding that the caveat was 'doomed to be removed' Justice Brereton stated:
'A right to the proceeds of sale of property is not an interest in property'
He cited the cases of Epple v Wilson [1972] VR 440; Simons v David Benge Motors Pty Ltd VR 585 andEfax Proprietary Limited v Charrer (Supreme Court (NSW), Young J 30 October 1987, unreported)
Justice Brereton drew an analogy between the facts in this case and that of a trustee who had an obligation to sell a property and account for the proceeds to the beneficiaries. His Honour considered that in both circumstances a right to part of the proceeds of sale from a property was not a 'caveatable interest in the land itself'.
Parties seeking to protect an entitlement to proceeds of sale must look to an alternative to a caveat. Alternatives may include seeking more prescriptive Orders about the sale of the property or remedies where a party seeks to breach an order.
Risk of an Indemnity Cost Order
In awarding an indemnity cost order Justice Brereton was extremely critical of the caveat being lodged in the circumstance described above and stated it was a practice 'to be depreciated and one which the court would do the utmost to discourage'.
Justice Brereton was also not dissuaded from making an indemnity cost order despite the wife removing the caveat before the hearing, following negotiations between the parties.
Justice Brereton found that the caveat should not have been lodged in the first instance or should have been immediately withdrawn indicating that anything short of that should attract an indemnity cost order.
Conclusion
Caveats are to be used with caution and only after careful consideration. Particularly, a caveat should not be used to protect a party's interest to a part of proceeds of sale of a property following an order under the Family Law Act. Parties who do so risk an indemnity costs order being made against them for any costs incurred by the other side in attempting to remove that caveat.
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