Caveats - Black v Garnock

WARNING - PURCHASER LOSES PROPERTY

In more recent times purchasers of real estate have not, with ordinary course, seen the need to lodge a caveat on the vendor’s title. Caveats put the world on notice of a purchaser’s interest but they also largely place an embargo on a vendor dealing with his or her own land prior to completion of the purchase.

The Case: Black v Garnock (2007) 237ALR1

However on 1 August of this year, the High Court delivered a short, sharp jolt to standard  conveyancing practice in the decision of Black v Garnock, reminding purchasers to take steps to protect their interests. In Black v Garnock, the Appellants (Mr Black and others, a firm of accountants), obtained a judgment in the District Court for a sum of money against Mrs Smith, the vendor. Rather than being bankrupted by the Appellants, Mrs Smith promised them she would sell her farmland to raise funds to satisfy her debt to them.

A few months after the District Court judgment, Mrs Smith entered into a contract for sale of her farmland with the Garnocks and the Luffs, as purchasers. Upon being informed by Mrs Smith that they were likely to receive only a small sum from the proceeds of sale of the farmland, the Appellants obtained a Writ of Execution against her. The Writ was in favour of the Sheriff and empowered the Sheriff to sell Mrs Smith’s farmland to satisfy the debt to the Appellants. Notably, the purchasers were not put on notice that the Appellants intended to register the Writ. However, the purchasers’ solicitors were aware that the Appellants’ solicitors intended somehow to “stop the sale.”

In accordance with normal conveyancing procedure a title search was carried out by the purchasers’ solicitors on the morning of settlement, although a couple of hours before actual completion. Noting no prior encumbrances, the purchasers went ahead with completion of the sale. However, after settlement, the purchasers were unable to register their transfer because the Appellants had registered their Writ in the time between the purchasers’ final search and completion.

The High Court ultimately had to weigh the effect of the Writ of Execution which was registered by the Appellants on the Torrens Title for the farmland against the rights of the purchasers who settled with no knowledge of the Writ.

In a 3:2 decision, the majority of the High Court held in favour of the Appellants, adopting slightly different reasonings.

Two of the majority judges held that although the recording of a Writ did not create an interest in land, it is capable of registration and therefore gives the Sheriff rights to deal with a property subject to any encumbrances on the register. As no caveat was lodged on behalf of the purchasers, the Sheriff’s interest prevailed over the purchasers’ interest and the Sheriff was entitled to sell the property to obtain his money. It was not relevant that the purchasers had exchanged contracts for sale of the land prior to the issue of the Writ. 

The third majority judge noted that the purpose of the Torrens Title system of land is simplification of conveyancing. The system effectively allows anyone to deal with a property entirely on the face of what is recorded on the Register.  Put simply, the Torrens Title system is based on the principle that what is recorded on the Register is, “the first and last word on all relevant titles and interests.” The judge emphasised that the purchasers could have lodged a caveat, and had they done so, it would have prevented the later registration by the Sheriff as well as having served as a notice to all of the prior interest of the purchasers.

Lessons for Purchasers & Lenders

The decision may seem unduly harsh from a purchaser’s perspective, particularly given that the Appellants and the Sheriff were aware at the time of registration of the Writ that the purchasers had contracted to buy the land. However, it was open to the purchasers to take steps, by way of caveat to secure their position. 

If it seems harsh for a purchaser, spare a thought for a lender. A lender has no caveatable interest prior to settlement, so it cannot lodge a caveat. The authorities need to find a solution to this dilemma. And quickly.

The Property Law Committee of the Law Society of NSW is currently engaged in discussions with the Department of Lands and the Attorney General’s Department regarding the practical implications of Black v Garnock. However, in the meantime, the case highlights the need for a cautionary approach to conveyancing transactions.    

Purchasers who do not wish to suffer the same fate as the purchasers in Black v Garnock should take the following steps:-

• Ensure a caveat is lodged immediately after exchange; and
• Ensure a final search is carried out as close as possible to the time of settlement.

In the case of lenders, it is recommended that they do final searches immediately prior to settlement and register immediately after settlement.

Failure to follow these steps will be at the peril of the incoming parties, including lenders.

Source Pigott Stinson

 

More from the Opposition - no holding back David Davis

12 November 2008 COUNCIL

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INFORMATION AND COMMUNICATIONS TECHNOLOGY: GOVERNMENT PROJECTS

Mr D. DAVIS (Southern Metropolitan) -- I am pleased to be able to make a contribution to the debate on the motion that has been brought to the chamber today by Mr Rich-Phillips, and I compliment him on his timely and balanced motion. It is a motion that does draw openly and directly on the work of the Auditor-General over the recent period. I want to put on the record my compliments to the Auditor-General for the very important series of reports that have come down that deal with these areas of ICT (information and communications technology) project implementation by this current Labour government. Nine years into this government and we have an enormous list of projects, and I do not need to detail them all. Mr Rich-Phillips and others have looked at particular details in those projects. But it is important to note that today we do not see the Minister for Information and Communication Technology in the chamber; we see the Acting Minister for Information and Communication Technology, who is trying to get a grip on this portfolio, trying to get a grip on this out-of-touch area of government activity that has cost the community an enormous amount of money. The motion of Mr Rich-Phillips is timely, balanced and sensible, and points to a major area of government failure over the last nine years. Again I put on record the importance of the Auditor-General's work in forensically ensuring that these matters come to public and parliamentary notice.

My comments today, beyond what I have just said, will be restricted to the electronic conveyancing issues, which I have raised in the Parliament on a number of occasions previously.

The Acting Minister for Information and Communication Technology will know that in his other role as Minister for Environment and Climate Change he has responsibility -- and I am sure some days he rues the fact that he has this responsibility -- for electronic conveyancing.

To be fair to him, he inherited this white elephant, and I say advisedly it is a white elephant. It is worth putting on record that this project is now tens of millions of dollars -- in all probability more than $40 million -- in the red. It has been mismanaged comprehensively by the department, and there are real questions of probity as to how this process has been undertaken.

I have indicated in the Parliament before that there are serious questions about the involvement of Ajilon, which is indeed a major international contracting company that has, in my view, an unhealthy position in the way it is operating with the Department of Sustainability and Environment.

I make the point that Mr Rick Dixon from that firm is sitting in a position where not only is he in a managerial role in the department but he is also involved with the Ajilon firm, which is a successful tenderer to that department as well. It is hard to think of a more difficult position to be in in terms of avoiding the appearance of a conflict of interest, and it would be hard to avoid the appearance of a conflict of interest in such a situation where you are both in a managerial role and also a contractor for a major contract with that section of the department.

I note that the decisions that have been made by the Council of Australian Governments (COAG) to move towards an electronic conveyancing system nationally are important. I believe this is the way to go nationally. There are enormous transaction costs that can be reduced by the implementation of a successful electronic conveyancing system that is compatible across jurisdictions.

To implement such a system you need to have major buy-in from the stakeholders in the transactions involved in conveyancing -- in this case, hopefully, electronic conveyancing -- and they are the banks particularly, but also building societies and credit unions as well, and solicitors and conveyancers.

The truth of the matter is that this government has not been successful in winning the confidence of the banks in this country, it has not been successful in winning the confidence of the Law Institute of Victoria and solicitors, and there are major concerns about the liabilities that may arise from transactions that occur where there is no satisfactory insurance behind them. The advice to many solicitors is 'Do not take part in the Victorian system because of the insecurity of your legal indemnities and your insurance support in particular'. That is a major concern. The government has not got these factors right. It is important in implementing these systems to ensure that you have the support of the major players.

Ultimately the system will only be used in the way that we would all desire if it does have support across major industry groups.

What is the government's solution to that? It is to belt those who have to pay conveyancing costs across the head. It says, 'We're going to lift the price of paper conveyancing, although we know that there is only one transaction in Victoria that has occurred as a full electronic conveyance transaction' -- one! -- 'at a cost of $40 million for the project'. What a white elephant, what a disaster, and what a disgrace. The minister now has two hats with which to manage this responsibility -- as Acting Minister for Information and Communication Technology on the one hand and as Minister for Environment and Climate Change on the other.

He is now in a position where he can certainly intervene to stop this remarkable merry-go-round of activity where consultants order more work from a consultancy with which they are connected, they grow richer by the day, the money is pumped in by the community and there is no output. One transaction -- $40 million! What a disgrace. The minister should hang his head in shame. Let me just ask the minister how many things he could have used that $40 million for. Health, education or transport? Which of those would have been better to have spent the $40 million on?

Let me now move to the national system. That same group of consultants who have got their grip and their teeth into the department in Victoria -- some might say it in a more prosaic way than I have explained it, and God knows what transactions have transpired outside the department on this matter -- now want to get their teeth into the national system as well. It is a disgrace, and it should be stopped.

The Council of Australian Governments has said we are going to go to a national system, and that is supported. There should be a national e-conveyancing system, as the national newspaper and others have indicated very strongly, but it should be a clean system. It should not be a corrupt system, it should be a system that is seen to be clean, and it should be a system that the community in all states can have confidence in. I, for one, do not have confidence in the system in Victoria, and that is a very sad fact, given the expenditure of more than tens of millions of dollars of community money.

That same group of consultants now wants to try to ramp the department up to go into bat at the national level. They now want to get their mitts on the money across the nation.

Let me tell you -- and I think some of my federal colleagues have begun to make this point clearly too -- that it is unlikely that the national system will jump at such an offer. I do not think the state governments around the country and the national government are going to be willing to fund at a national level an expansion of a system where only one transaction has been delivered for $40 million.

I think it is worth quoting very briefly the editorial in the Weekend Australian of 12-13 July 2008, and then I will conclude. The heading is 'Nation building' and the subheading is 'Lessons from Victoria's wasted conveyancing efforts'. I will quote several paragraphs from this because I think it is important. It points to the transaction costs that can potentially be saved and the benefits for the national economy. It reads:

The decision of the Council of Australian Governments to build an electronic conveyancing system that spans the nation is by no means glamorous. But history will see it differently.

This is the modern equivalent of the nation building projects of previous generations. It might not have the cachet of a Snowy Mountains scheme, but just like that great project of the 1950s, electronic conveyancing will benefit all succeeding generations.

Industry groups estimate that if this single initiative is implemented properly, it will cut the cost of buying and selling homes by $250 million a year.

That is not just for one year; it is for next year, the year after that and the year after that.

Economic efficiency is about lowering the transaction costs in the economy, and that can be successfully done with an electronic conveyancing system, but not a white elephant like we have got in Victoria. The editorial goes on to say:

The Victorian government appears to have wasted $40 million by building a system that does not comply with the basic requirements of the main players in conveyancing ...

This is the direct result of two mistakes that should be avoided by those who build the national system.

The first mistake was the refusal to accept that conveyancing is primarily a commercial transaction, not a filing procedure for land title bureaucrats.

Those at Land Victoria have a lot to answer for on this.

This is a long-term blunder in management of land procedures that should have been done correctly.

The second mistake was to cede control of the system to private consultants. The Victorian experience shows that those skilled in computer technology are of most value when their role is confined to implementing public policy decisions -- not making them. Responsibility for the national system must remain in the hands of those who are responsible to voters, not shareholders.

To avoid the fate of the ECV --

Electronic Conveyancing Victoria --

the national system should be designed around the business needs of the private sector.

By endorsing the principle of a single national system, COAG's working party is off to a flying start.

I agree. It is something that should be supported, but there are traps for young players. In Victoria this government -- the Bracks and Brumby governments -- has fallen deep into the pit.

 

What next for NECS - lead view from LIXI CEO

The National Electronic Conveyancing System aims to improve property-based transactions and the lodging of land title dealings for registration, by making the transfer of data more efficient.

The National Office of NECS has signed an agreement with the non-profit organisation, Lending Industry XML Initiative (LIXI), which develops standards for movement of electronic data within the Australian lending industry.

The agreement will allow each jurisdiction to become a member of LIXI in their own right, working with LIXI on the standards.

LIXI chief executive officer, Erik Fenna, said LIXI can get land registry and revenue offices to agree on data standards, which is the major obstacle.

“We can. That is one of the real core aspects of LIXI’s role, which will be in less than twelve months.

“We have to have data standards agreed by mid 2009, which is based on the Council of Australian Governments (COAG) timeline of having NECS up and running in 2010.”

Fenna said there is still a lack of support from the main beneficiaries, such as the major brokers and lenders.

“Lenders always give me the message, that unless there is a measurable cost benefit to them, no project will make it to the top of the list.

“There is a cost benefit to them here, but without measuring it, I can’t see it making it to the top of the list either. The cost savings to the parties are once the interfaces have been designed and implemented.

“Lenders have to be involved to make sure it’s right; Commonwealth Bank is heavily involved.”

Fenna said some states are contributing more than others, with New South Wales currently contributing the most.

“Victoria is contributing the least because they built a Victorian conveyancing platform themselves; that is being analysed for suitability nationally, but inherently, being a single state system, it can not be used as is.”

Fenna said the conveyancing legal aspects sit with the titles and revenue offices.

“As I understand it, the responsibility for accurately documenting those requirements is with the various state offices, so the titles and revenue offices, the people who are associated with the legislative and regulatory aspects of the conveyancing.

“They are critical parties to the NECS system design, as they bring in other people, subject matter experts to deal will various components of that.”

The Sheet - John Phillips - 13 Nov 08

E-conveyancing funds not wasted, says Victoria

Chris Merritt, Legal affairs editor | November 07, 2008 | The Australian

THE Victorian Government believes the millions of dollars it has spent building a state-based electronic conveyancing system have not been wasted.

The system stands a good chance of being used nationally, it says.

The e-conveyancing system, which cost about $40 million to develop, has been used for just one property settlement since its launch last November and is about to be replaced by a national system.

Victorian Environment Minister Gavin Jennings told state parliament last week the money that had been spent on the state system was not a "sunk investment".

This was because the software and intellectual property that had been developed for Victorian transactions also had been developed with the intention that the Victorian system would become the national system, Mr Jennings said.

He said there were "very good prospects" of the Victorian system, which was known as ECV, being endorsed as the national system.

"We think this is intellectual property and a system that will be in a prime position to be adopted as a national model," Mr Jennings told parliament.

"We are very happy for the model that has been established in Victoria to be considered through the Council of Australian Governments process."

He was responding to questions from Opposition frontbencher David Davis about what steps he had taken to ensure that "the obvious conflict of interest" inside his department "will not lead to further losses on top of the tens of millions" that had already been spent on the project.

While the Victorian system has been in place for a year, most conveyancing in the state is still undertaken using traditional paper-based systems.

Increases in government charges have failed to drive transactions to the new system, because the Government has been unable to persuade the Law Institute of Victoria that the system is safe to use.

The LIV has advice that ECV could expose solicitors to increased potential liability.

The major banks have also refused to use ECV because they do not wish to encourage the use of state-based e-conveyancing systems.

The Council of Australian Governments has agreed that the organisation that will run the proposed national system will assess ECV and "to the extent that it is suitable" use it as the basis for the underlying software for the national system.

The federal Opposition's legal affairs spokesman, George Brandis, told the Senate estimates committee last month there were serious and credible allegations that the process of selecting the national e-conveyancing system had been "corrupted by a conflict of interest within the state of Victoria".

Senator Brandis's allegations were based on reports in The Australian about the links between the Victorian Government and computer contractor Ajilon, which managed the development and implementation of ECV.

Ajilon managing director Giles Nunis said the company's consultants had attended inter-governmental meetings at the request of the Victorian Government to provide briefings onECV.

"Ajilon is not aware or has taken part in any future tender discussions by any state or federal government for the development of an electronic conveyancing system," Mr Nunis said.

In the Victorian parliament, Mr Davis said an Ajilon employee held a decision-making role in Mr Jennings' department.

Mr Davis asked if all tenders between the department and Ajilon had met conflict of interest provisions and been subject to reports by probity auditors. He also asked for any reports to be made public.

Mr Jennings said he had been involved in "sustained conversations" with his department about the probity of of its decisions.

"I continue to be advised by the department that it has satisfied probity considerations through its probity control group," Mr Jennings said.

The department's tendering procedures satisfied the standard procedures that would be expected across the government, he said.

But the additional requirements that had been referred to by Mr Davis were not standard practice and had not been undertaken.

"The department is well satisfied with the probity processes that have been in place -- that a conflict as alleged does not exist," Mr Jennings said.

"In fact there is great confidence within the department in this matter.

"This continues to be the advice that I have sought to verify, to validate, and I continue to be provided by my department in relation to this matter."

Conflict conveyed

HERE'S one to watch. The Victorian Government has confirmed it has an enormous financial incentive in having its flawed electronic conveyancing system transformed into the promised national system.

If that happens, it might save some financial embarrassment for the state Government. But without a radical overhaul, Victoria's system would expose the nation's solicitors to avoidable potential liability.

Davis to Jennings in Victoria State Parliament

Mr D. DAVIS (Southern Metropolitan) -- My question is to the Minister for Environment and Climate Change. What steps has the minister taken to ensure that the obvious conflict of interest in having Mr Dixon from Ajilon holding both a departmental decision-making role and also a contractor role, being contracted to deliver the Electronic Conveyancing Victoria project -- will not allow further losses on top of the tens of millions of dollars already lost on this project?

 

Mr JENNINGS (Minister for Environment and Climate Change) -- I thank Mr David Davis for his question. It has been quite a while coming. I know he has taken his lead from one of his preferred leadership members of the federal Parliament, Senator Brandis, in relation to this.

 

Mr D. Davis -- I think it is the other way round in relation to this.

 

Mr JENNINGS -- Is it? Thank you. Senator Brandis made an outstanding contribution in the federal Parliament last week on this matter -- it was outstanding in a variety of ways. He showed himself to be a modern man by having a photo of himself in the Australian last week holding a book about Robert Menzies. Not even Peter Costello's book could be held in his hands in his office last week, which shows how contemporary he is.

 

The PRESIDENT -- Order! I remind the opposition that we do not tolerate stunts in here. If it wants to engage in a stunt, I will respond accordingly.

 

Mr JENNINGS -- The President gave me the benefit of the doubt because I was responding to a question from the other side. In fact it was not a premeditated engagement, I have to say. I note that this is an issue that Mr Davis has asked questions about before. In fact I have responded on a number of occasions, and my substantive answer continues to be that I deny the imputation within the question that we have wasted taxpayers money in relation to this important program. Whilst significant software and intellectual property has been developed to establish an e-conveyancing system that will support the processing of settlements, discharging of mortgages and other aspects of the settlement process for land transactions in the state of Victoria with the intention -- and in fact there are very good prospects for it -- of it becoming a national system, we dispute the notion that this investment on behalf of the people of Victoria is a sunk investment. We think this is intellectual property and a system that will be in a prime position to be adopted as a national model, and we are very happy for the model that has been established in Victoria to be considered through the Council of Australian Governments process. It will go through a variety of benchmarks and gateways in terms of decision-making processes, which include establishing a governance arrangement for a national system under the COAG model. The report-backs have actually been established for this matter to come back and be considered next year. In relation to the article Mr Davis is relying on -- he can be very grateful that he shares the afterglow of Senator Brandis in relation to this; obviously they are a tag team act and he can be a beneficiary of it in his brief moment in the sun on this issue -- and the question about whether this scheme is now being considered by the commonwealth and being prepared to be adopted by other jurisdictions across the nation, in fact attention was drawn to the contributions of various officers of the Department of Sustainability and Environment because of their standing in terms of the development of this program. In relation to another aspect of his question, first of all it is very important to lay the foundation for where econveyancing is travelling nationally. Then I will consider the last aspect of the question, which is in fact the probity considerations and the appropriateness of decision making that has actually occurred within the department. I can assure Mr Davis and the house that I have had sustained conversations with my department about the matter Mr Davis has raised in relation to the contractual arrangements that have led to the development of this system. I continue to be advised by the department that it has satisfied probity considerations through its probity control group that has involved the relevant aspects of the department's structure and decision-making process in relation to contracting arrangements. I continue to be advised that the department is well satisfied with the probity processes that have been in place, that a conflict as alleged does not exist, and in fact there is a great confidence within the department in this matter. That continues to be the advice that I have sought to verify, to validate, and I continue to be provided by my department in relation to this matter.

 

Supplementary question

 

Mr D. DAVIS (Southern Metropolitan) -- I thank the minister for his answer but I do not think it clears up some of the issues involved and therefore I ask: have all tender processes involving the Department of Sustainability and Environment that have awarded a contract to Ajilon Pty Ltd met conflict-of-interest provisions and been subject to full reports by probity auditors; and if so, will he publicly release the probity audits for those contracts between the DSE and Ajilon?

 

Mr JENNINGS (Minister for Environment and Climate Change) -- The answer that I gave was a pretty fulsome answer despite the interjections from Mr Guy, who just wanted to ping me on one word; in fact I gave the complete answer. So in the first instance I gave the complete answer, now Mr Davis has again -- because he is very good at certain contrivances and manipulation of the phrasing of certain questions or propositions he puts to the Parliament; and I will not go beyond describing them as being very good at manipulating phrasing -- where he impugns that the probity process that I have described includes a range of activities that he has now roped in as if they were standard practice, and he knows them not to be. In fact, in terms of the advice that I rely on in relation to the probity controls and tendering arrangements, they satisfy the standard procedures that would be expected across the government, and the additional requirements that are embedded in the question have not been undertaken -- and Mr Davis would have accepted that and understood that to be the case, before he asked the question.