LODGING CAVEATS FOR SPOUSES AND DE FACTO SPOUSES

Lodging Caveats for Spouses and De Facto Spouses  

Lodging Caveats for Spouses & De Facto Spouses in Northern Tasmania

Issue 

This paper examines the issue of whether a solicitor can properly and validly lodge a caveat against the real property of a party to a marriage or a de facto relationship to protect the interest of a spouse or a de facto spouse. It considers that issue in circumstances where there has been no direct financial contribution to the acquisition, conservation or improvement of the property that would give rise to an interest in land under an unregistered dealing, or by virtue of a resulting trust.

This issue is one which commonly faces Family Law practitioners. Often parties to relationships have so arranged their affairs that their family home is registered in the name of one party only, who has provided all of the direct financial contributions for that property, and the other party has either provided no direct financial contributions or has provided funds which have been pooled and utilised by the family in such a way that they are not directly traceable financial contributions to the acquisition, conservation or improvement of the home, or has provided solely physical and emotional contributions to the welfare of the family (hereinafter “non-financial contributions”). 

Background

Section 133 of the Land Titles Act 1980 provides that where “a person claims an interest or estate in registered land under an unregistered dealing, or by devolution in law or otherwise” that person may lodge a caveat to forbid the registration of a dealing affecting that land.

At one time in practice in Tasmania it was common for a solicitor for a spouse or de facto partner (hereinafter both are referred to by the word “spouse”) when instructed in a family law property matter to lodge a caveat on behalf of that spouse to prevent the family home or other real estate from being sold before property division issues were settled. 

At a Family Law conference at Coles Bay in 1995, the late Mr Justice Zeeman commented that where this was done without there being a sufficient interest in land it may well be professional misconduct.

In 1997, a complaint was made against a practitioner for doing just that. The complaint was dealt with by the Council of the Law Society which published a short report saying, among other things:

“The conduct complained of was that the practitioner had lodged a caveat against a property when there was not any sufficient interest to support the caveat. The property owner was a party in matrimonial proceeding and the caveat was lodged in the course of an application for maintenance. The client had instructed that the caveat be lodged. It was noted by the Council members conducting the proceedings that it did not appear to be clearly understood by some in the profession that it was not proper to lodge a caveat to ensure some advantage, whether in family proceedings or otherwise without a sufficient interest to support the caveat”. 

No further facts were published, which shrouded the extent of application of the ruling in uncertainty. However, it had the effect of significantly curtailing the frequency of such lodgements. Usually nothing freezes the heart and hand of the practitioner more than the prospect of a mere suggestion, let alone a complaint, of professional misconduct. The inference was that the relevant spouse had made no direct financial contribution to the property and it therefore fed the lingering foreboding of the profession that to lodge a caveat without the clearest of grounds could be professional misconduct, and inclined practitioners against using a caveat to protect their clients’ interests.

This is regrettable because the alternative of applying for an injunction can involve huge legal expense and delay. In this short paper₁, I question that view and advance the proposition that, even in circumstances where there has been no direct financial contribution, the relevant party may have an interest in land sufficient to ground a caveat, so that it is neither unprofessional conduct nor professional misconduct (to use the better known vernacular) to lodge a caveat to protect that party’s interest.

Of course I must enter my own caveat! Every case turns on its own facts and this is not legal advice. Any practitioner must act on his or her own view of the law and no responsibility is accepted by the author or conference organisers for any action taken or not taken after perusal of this article. 

The Constructive Trust

The constructive trust has developed along two strands, one strand relying upon the existence of a fiduciary relationship between the parties, and the other regarding it as emanating largely from the rule in Keech v Sandforde.₂

It is available as a remedy for unconscionable conduct in a huge variety of factual situations.₃ What conduct amounts to unconscionable conduct is a question of law, at least as viewed through the prism of the relevant judicial officer(s).

Lord Denning thought it to be enough that a party “cannot conscientiously keep the property”.₄
However his progressive view has been trenchantly criticised as a “new fangled creature…a mutant from which further breeding should be discouraged.₅

The High Court has quashed any notion that in Australia there may be a Denning type trust based merely on justice.₆ Deane J rationalised and explained the principles on which constructive trusts in Australia rely, and his views were approved and adopted in Baumgartner.₇

The High Court has said that a constructive trust will arise “to prevent a person from asserting or exercising a legal right in circumstances where the particular assertion or exercise of it would constitute unconscionable conduct”.₈ 

It has been described as a “universal talisman in many fields of equity”.₉ It flows into topics as diverse as undue influence, relief against penalties and forfeiture, estopped, part performance, unilateral mistake, breach of fiduciary duty, misrepresentation, fraud and unconscionable dealings.

The proposition is that if the financial contributor is permitted to assert title to property unencumbered by any other interest in the non-financial contributors favour, this will amount to unconscionable conduct. The concept of non-financial contributions is well known to practitioners, but usually includes the rendering of household services, the bearing and rearing of children, emotional and sexual companionship, salary sacrifice, the loss of personal investment opportunity, and the provision of employment and investment opportunity for the other partner. As has been said “the cock can feather the nest, because he does not have to spend most of his time sitting on it”.₁₀

In the past a consequence of the failure to recognise and give proper weight to such indirect non-financial contributions to the acquisition, conservation and improvement of property has been the “feminisation of poverty”.₁₁  

Such indirect non-financial contributions have been recognised by the common law as a contribution justifying the imposition of a constructive trust.

Caveatable Interest – Existence

The interest of a beneficiary under a constructive trust is a legal interest in the land itself.₁₂ It is, of course, vital to ensure the facts are sufficient, prima facie to adequately suggest the existence of a constructive trust. 

The dichotomy is between a legal interest on the one hand and a mere personal equity. The latter has been lucidly described as “merely a right to approach a Court of Equity” (for an appropriate remedy).₁₃

The former is an interest in rem-a caveatable interest; the latter is an interest in personam-the interest does not attach to the land.₁₄  

There are numerous cases ₁₅ in the reports where the claimant under a constructive trust has failed. ₁₆ It is an elementary point and practitioners should be reminded that neither a right to make an application for property distribution under S.79 of the Family Law Act nor an interim injunction granted by the Family Court creates any caveatable interest.₁₇

Subject to the facts in each particular case, one can generalise that in many situations where a party to a marriage or relationship has made non-financial contributions as hypothesised at the beginning of this paper, there will be ample grounds for preventing a sole registered proprietor from selling the property without reference to the rights of the other party, who will have an interest as a constructive trust beneficiary.

However, the real question is one of timing. Does the beneficial interest under a constructive trust come into existence at the time of the facts upon which it is based, so that it exists from that time and thereafter, or does the interest only arise at the time the court imposes the constructive trust?

This is a vital question, because if it is the latter, and the trust only arises at the time the Court imposes it, there is no caveatable interest prior to the judgment of the Court and therefore no solicitor can properly lodge a caveat on behalf of a client in that situation.

The classic example of the application of the constructive trust is the well-known case of Baumgardner. In a de facto relationship situation where real estate was in the sole name of the male partner and there were no direct financial contributions to the acquisition, conservation or improvement of that property by the female partner, she was held to have an equitable interest under a constructive trust. This has been applied so as to postpone the rights of creditors under the Bankruptcy Act (see also the decision of the Full Court or the Federal Court of Australia in Official Trustee in Bankrupcy v Lopatinsky [2003] FCA 1256).

Caveatable Interest – When does it Arise?

Deane J in Muschinski said:

“The old maxim that equity regards as done that which ought to be done is applicable to enforce equitable obligations as it is to create them and, not withstanding that the constructive trust is remedial in both origin and nature, there does not need to have been a curial declaration or order before equity will recognise the prior existence of a constructive trust:……where in equity a court would retrospectively impose a constructive trust by way of equitable remedy the availability of such a remedy provides the basis for, and governs the extent of its existence inter partes independently of any formal order declaring or enforcing it…”

However, he also said (at 623):

“Lest the legitimate claims of third parties be adversely affected, the constructive trust should be imposed only from the date of publication of reasons for judgment of this Court”.

As a result the constructive trust operated only from the date of the judgment.

However, that is a course only taken when a third party is in fairness in need of protection. The Full Court of the Federal Court said in Secretary, Department of Social Security v Agnew [2000] FCA 59; (2000) FCR 357 at 365:

"We would adopt the view of AJ Oakley that “in the absence of any judicial order to the contrary, a constructive trust will take effect from the moment at which the conduct which has given rise to its imposition……”

In the present case there is no reason, such as third parties in need of protection, to defer the inception of the trust and accordingly it came into existence when the conduct which gave rise to its imposition occurred.

The Court has a discretion to modify the prima facie date on which the (constructive) Trust takes effect”.
In Parsons v McBain [2001] FCA 376; (2001) 109 FCR 120 the Full Court of the Federal Court again rejected the notion that a constructive trust first comes into existence when so declared by the Court.
This is now well settled law and:

“as a general statement of principle a constructive trust will be treated as coming into existence at the time of the conduct which gives rise to the trust” (per Ward J, Australian Building and Technical Solutions Pty Ltd v Boumelhem [2009] NSWSC 460 at para 145”).

Thus it is clear that prima facie the constructive trust arises at the time of the relevant conduct. While the Court has discretion to vary that, it can only be done for some special reason such as protecting the interest of innocent third parties. There seems no doubt that ordinarily the proper starting point is the date of the conduct.

Thus where the requirements for a constructive trust are met, the trust exists ab initio and the consequential interest in land is also in existence so as to properly ground a caveat.

Solicitors – Unprofessional Conduct/Professional Misconduct

The prosecution of the solicitor referred to earlier in this article must be seen in its context. The caveat was lodged in the course of an application for maintenance. On the face of it, there was no basis whatsoever for the claim of an interest in land and the action of lodging a caveat was entirely unjustifiable. 

That can be completely distinguished from the non-financial contributions situation which seems to have troubled practitioners and dissuaded them from lodging caveats in cases where there have been arguably grounds to do so. 

I hope that this elucidation of the authorities demonstrates that there is a solid legal foundation for claiming an interest in land and therefore being entitled to lodge a caveat on behalf of a client who has made no direct financial contribution to the acquisition, conservation and improvement of the property, but who has pooled resources (financial or non-financial) with another party to a relationship, formal or informal, so that there is an arguable case for an equitable interest in land. In such circumstances, no question of unethical conduct howsoever described should arise.

However, uncertainty in the law degrades its utility, and so for the avoidance of doubt, I am suggesting to the Attorney General that the Land Titles Act be appropriately amended. 

S.P. Bishop

1. The contents of this short paper are partly based on a paper prepared by the author entitled Contributors Rights and submitted to the University of Melbourne for assessment as part of a Graduate Diploma in Advanced Family Law in 1995.

2. (1726) 2 Eq. Cas. ABR. 741

3. See generally, Cope, Constructive Trusts; The Law Book Company Ltd, 1992; Marcia Neave; The Constructive Trust as a Remedial Device; (1978) 11 MULR 343; Dewar, The Development of the Remedial Constructive Trust, 60 Canadian Bar Review 265; Dodds, The New Constructive Trust; An Analysis of its Nature and Scope; 1998 16 Melb Uni L Rev 482.

4. Hussy v Palmer [1972] 3 All ER 744 at 746.

5. Meagher, Constructive Trusts: High Court Developments and Prospects; (1998) 4 Aust. Bar Rev 67 at 71;

6. Muschinski v Dodds, (1985) 60 ALJR 52 Deane J.

7. (1987) 164 CLR 137 (the broader notion of unjust enrichment as an acceptable rationale to be relied on as put forward by Toohey J and adopted by Kirby P in Bryson v Bryant (1992) 16 Fam LR 112 rather sadly has not been broadly embraced by the judiciary);

8. Muschinski v Dodds; (1985) 60 ALJR 52 at 67, per Deane J; Baumgartner (1987) 62 ALJR 29;

9. Mason A, ‘Things and Prospects’, Essays in Equity, Finn PD (ed), Law Book Company, 1985, 242 at 244;

10. Quoted by Lord Hodson in Pettit v Pettit [1970] AC 77, at 811;

11. Mitchell & Mitchell 1995 FLC 92.601 at 81, 997;

12. Muschinski v Dodds (Supra); Baumgartner & Baumgartner (Supra); Bennet v Tairua (1982) 15 Fam LR 317;

13. Stilbo v MCC [2003] TASSC 6 at 37; Patmore v Upton [2004] TASSC 77;

14. Woodbury v Gilbert (1907) 3 Tas LR 3; re Pile’s Caveats; Martin v Official Trustee Bankruptcy; Shaw Excavations Pty Ltd v Portfolio Investments Pty Ltd [2000] TASSC 185;

15. Hill v Souerys [1989] TASSC 8; Shaw Excavations v Portfolio Investments Pty Ltd [2000] TASSC 185; Re Caveat [1993] TASSC 45;

16. Connector Park v RV Pty Ltd [2006] TASSC 9; Crane Distribution v Recorder of Titles [2009] TASSC 68; Tuna Tasmania v Alison [2003] TASSC 4; HEC v Pitt [1997] Wright J; Walter v Registrar of Titles [2003] VSCA 122;

17. Elmant v Dickson [2001] VSC 155; Bell v Graham [2000] VSC 142; W&D [2003] FMCA Fam 391; Sabri v Brien [1997] FLC – 732; (1996) Face 137 FLR 165. 

Share by: