A little while ago we posted about the risks of rushing to lodge a caveat when in fact there is no caveatable interest.

It is possible however, for an interest that is caveatable at the time of lodgement to lose its status as an interest in land if the agreement underpinning the interest is disclaimed by a liquidator.

This point was brought home recently in the matter of Golden Goal Pty Limited v Dapto Bowling Club Limited (in liquidation) [2018] NSWSC 1431.

The parties prepared an agreement to lease, obliging the Club to enter into 3 five year leases but which the Club did not sign. The parties did however execute the first of the five year leases contemplated by the agreement to lease.

The plaintiff operated a futsal business and alleged it had spent considerable sums of money improving the leased land with a view to running a futsal competition.

The signed lease (being the first of the intended 3 x 5 year leases) was not registered. Sometime after the lease was entered into, the Club was placed into liquidation, and the plaintiff lodged a caveat to protect its equitable interest in the Club’s land.

The liquidator disclaimed the lease under section 568 of the Corporations Act 2001 (Cth) and lodged a lapsing notice in respect of the caveat.

The plaintiff applied to the Supreme Court of NSW for an order extending the operation of the caveat, arguing that it had acquired a proprietary interest in the land by way of estoppel, because it had spent money in improving the leased portion of the land with an expectation that it would effectively have a 15 year tenure.

Black J held that the plaintiff did not satisfy the Court that there was a serious question to be tried to warrant the extension of the caveat. This was because the plaintiff already had a remedy in damages for breach of contract, for which it could prove as a debt in the liquidation, finding that:

“there is nothing unconscionable about [the plaintiff], as a party with a claim in contractual damages, being left to prove in the same manner as other creditors in the liquidation. Indeed, the Courts have repeatedly recognised that equitable remedies ought not to be used, in the context of insolvency, as a means of preferring one creditor to other creditors who may have claims for debt or for breach of contract.”

A caveator will do well to remember that despite the relatively low threshold to clear when establishing whether a caveat should be extended in the face of a lapsing notice, one still needs to contend with the particular legal principles that apply to the facts at hand that may make commencement of court proceedings a costly exercise.

This article is produced by Pigott Stinson. It is intended to provide general information only. The contents of this Newsletter do not constitute legal advice and should not be relied upon as legal advice. Formal legal advice should be sought from us in respect of the matters set out in this Newsletter. Liability limited by a scheme approved under Professional Standards Legislation.