LWB233

Week 2

PRIORITIES

ELEMENT 1: Identify Parties

ELEMENT 2: Classify interests as legal or equitable

  • Use E as the symbol to identify the unregistered parties: ie E1 v E2. – will determine who is 1st in time.
  • Use R as the symbol to identify registered parties: ie R1 v R2. This will highlight first in time also.

ELEMENT 3: Apply the appropriate priority Rule

Legal v. Legal

General Law

  • The earliest interest has priority.

Torrens

  • Under ss.184 & 185 LTA, the second claimant (current registered party) will obtain indefeasible title provided none of the exceptions apply. So the second legal interest is the one that succeeds.

Earlier Legal v. Later Equitable

General Law

  • Generally the earlier legal interest will prevail. However this rule will not apply where there is:
  1. Fraud; or
  2. Negligence on part of the legal interest holder; or
  3. Where Legal Interest Holder allows another to appear to be the true owner of the property.

Therefore the legal interest holder’s disentitling conduct will lead to postponement of that prior legal interest.

Torrens Law

  • Under the Torrens System, the earlier legal interest will ALSO prevail unless the later equitable interest holder falls within an exception to indefeasible title. (ie personal equity or fraud)

Example of an exception to the above general rule:

Barry v. Hyder

-B had a registered title.

-He signed a transfer of the title to Schmidt.

-A new title was being issued. Mr S also persuaded B to write a letter to the registrar directing that the new title be sent to Mr S’s mortgagee and her name was Mrs H.

-Mrs H had given S the mortgage on the basis of the transfer and the letter to the registrar.

-B alleged fraud against S on the basis that he hadn’t been paid for the transfer.

Held:

-HC upheld the claim and cancelled the transfer but didn’t cancel the mortgage.

-They said that B’s legal title would be subject to Mrs H’s equitable mortgage because he had represented by handing over the letter to Mrs H, that S had authority to deal with the land and had a valuable assignable interest. (By giving S the transfer without getting the money, B was guilty of disentitling conduct (Mrs H had done nothing wrong), so B’s legal interest was subject to H’s equitable mortgage.)

Earlier Equitable v. Later Legal

General Law

  • Under the general law, a bona fide purchaser for value WITHOUT NOTICE of any equitable estate takes the legal title free of that equitable estate.
  • NOTE: If he/she HAS NOTICE, they take subject to the equitable estate under the general law.
  • There are 3 kinds of notice:
  1. Actual notice

–must have actual knowledge of the relevant facts (rumours of a fact is not actual knowledge, though it can catch someone under other heads of knowledge).

  1. Constructive notice

–notice which would have come to an inquirer’s notice if he or she had made all the relevant and usual inquiries. (A purchaser under the general law would only be able to plead lack of any constructive notice if they had made all the usual inquiries and nothing had turned up)

  1. Imputed notice

–notice that is acquired or deemed to be acquired by an agent for a principal purchaser of an estate. It’s imputed to the principal by the agent. The knowledge has to come to the agent’s notice during the course of his/her agency.

Torrens

  • Torrens is fundamentally different to the general law.
  • Upon registration, a party usually obtains an indefeasible title to the property. Unless an exception to indefeasibility applies, the interest of the registered proprietor will not be postponed to the earlier equitable interest regardless of notice.
  • Under the LTA, notice is abrogated on registration and a registered proprietor is not bound by anything that is not noted on the register: s.184(2)(a), Friedman v. Barrett

Earlier Equitable v. Later Equitable

Sub-element 1: Has there been Notice?

IF YES:

Where the claimant of a later equitable interest has notice at the time the interest is acquired of the earlier equitable interest, the claimant takes subject to the earlier equitable interest.

  • There are 3 kinds of notice:
  1. Actual notice

–must have actual knowledge of the relevant facts (rumours of a fact is not actual knowledge, though it can catch someone under other heads of knowledge).

  1. Constructive notice

–notice which would have come to an inquirer’s notice if he or she had made all the relevant and usual inquiries. (A purchaser under the general law would only be able to plead lack of any constructive notice if they had made all the usual inquiries and nothing had turned up)

  1. Imputed notice

–notice that is acquired or deemed to be acquired by an agent for a principal purchaser of an estate. It’s imputed to the principal by the agent. The knowledge has to come to the agent’s notice during the course of his/her agency.

  • A caveat and/or a settlement notice lodged under the LTA will provide notice of an equitable interest to anyone who searches the register.
  • It will also provide constructive notice where searching the register is one of those searches that ought reasonably to be done.

IF NO:

  • Where there is no notice, there is a matter of competition b/w equitable interests.
  • If after a thorough examination of all the circumstances the equities are found to be equal, the 1st in time prevails– Under this rule, priority in TIME is a last resort. Rice v Rice

The Ct looked at 3 different things to come to a conclusion:

  1. The nature and condition of each interest
  2. The circumstances and the manner of acquisition
  3. The overall conduct of the parties

 Rice v Rice

Particular attention is focused on the conduct of the earlier claimant to determine whether he or she is guilty of any disentitling conduct.

EG – Has the earlier claimant does some act or omission by which it is reasonably foreseeable that a later interest might be created without notice of the earlier claimants interests.

Rice v Rice

-The vendor handed over a certificate of title without getting paid. That purchaser (who had the title) then got an equitable mortgage.

-The vendor was entitled to an equitable lien for payment of the purchase money, and the equitable mortgagee.

Held

-But what the Ct found was disentitling conduct on the part of the vendor because he had handed over the documents, hadn’t got paid, but represented to the world that the purchaser had legal title (if you have legal title, you can deal with the property).

-Therefore, the vendor’s equitable lien which was first in time, was postponed.

Clark v. Raymor

-Mr and Mrs S owned a house in Brisbane.

-Mr S gave a guarantee to R.

-Part of the wording of that guarantee created an equitable charge over Mr S’s house, but the house wasn’t identified in the statement.

-The S’s sold the house to the C’s. Between completion of that sale and registration of the transfer, R lodged a caveat, claiming as an equitable chargee.

-This left R with an equitable charge (1st in time) competing with an equitable fee simple of the C’s.

Held:

-The Ct looked at the conduct of the parties and said that the Ct wasn’t limited in looking at the facts and the circumstances (crt wasn’t limited in the time in which they could look at the facts). They could look at the WHOLE conduct of the parties across the whole transaction.

-When they signed the K to buy the house, the Clark’s did not search the register first. However they did search the register before they handed over the purchase money and there was nothing there because R did not put the caveat on until after this happened.

-R tried to argue that you only have to consider the conduct of the prior equitable interest holder (which is him) up to the time of creation of that second equitable interest (when C signed k for property). If this was the case, there was no disentitling conduct because the clerk did not search the register before their equitable interest was created.

-But the Ct didn’t look at it like that and the fact that R had not lodged a caveat before settlement was irrelevant. Therefore R lost priority.

Heid v. Reliance Finance

-H had sold land to CI.

-An employee of CI was G and he was represented to H as a solicitor but also as an employee of CI.

-H was told that if he used G in the conveyance, everybody’s cost would be lower.

-G took the transfer and the certificate of title and most of the money remained unpaid, so Mr H had an equitable lien over the land.

-CI granted two equitable mortgages.

-Heid (equitable lien) vs. CI (2 equitable mortgages)

Held:

-H lost priority because of his disentitling conduct, he handed over the title without getting the money.

-Gibbs and Wilson JJ said that it was a question of estoppel. It was an estoppel by representation that caused H to lose his priority.

-Mason, Deane and Murphy JJ did not rely purely on estoppel, but accepted a more flexible approach, followed Rice v. Rice

-Although the conduct of the parties is relevant in the practical sense, look at the conduct of the 1st equitable interest holder. If it is impeccable, there will be no loss of priority. If the conduct of the 1st equitable interest holder is not, their interest may be postponed. But not all the time, because if you then look at the conduct of all the parties, and the 2nd interest holder has also done something wrong, it is equal and the first in time prevails.

  • Whether the first or the second interest holder has priority, depends on the characterisation of that first equitable interest (whether it’s a full equitable interest or a ‘mere equity’…)

Equity (or Mere Equity) v. Full Equitable Interest

  • Mere equities are lesser interests than a full interest, may be assigned.
  • They allow a holder the right to bring an action to obtain an equitable remedy against a person but the enforceability of these rights under the general law and under the LTA is limited.
  • The subsequent appearance of a full equitable interest acquired bona fide without notice will simply get priority (no need to show disentitling conduct on the part of that equity interest holder)

Latec Investments v. Hotel Terrigal

-HT borrowed money from LI and couldn’t repay the money.

-Consequently, LI sold the hotel as mortgagees exercising power of sale.

-But LI sold it to SH which was a subsidiary of LI. There are certain duties that a mortgagee has to comply with when exercising a power of sale and LI didn’t comply.

-HT did nothing for 5 years.

-During that time, the new hotel owners gave the trustees for MLC debenture holdings, security over the hotel in the form of equitable charges.

-The HC had to decide whether HT had a full equitable interest or if it had a mere equity.

Held:

-The Ct was divided.

-Kitto said it was a mere equity because HT did have a right to have the sale set aside for fraud but that it still had another step to go. When the Ct would have made the order setting the sale aside for fraud, still all the hotel would have had would have been an equitable interest.

-Taylor J said that HT did have a full equitable interest but because a third party (who had no notice) had intervened and had got rights (the equitable mortgagee), the HT equitable interest was postponed and one of the elements was that they sat on their hands for 5 years.

-Menzies J attempted to rationalise the lines of authority and concluded that HT had a mere equity.

-On the one hand there was HT that needed the assistance of the Ct to get a full equitable interest and on the other hand there were the equitable mortgagees (MLC debenture holders)

-HT’s interest was postponed to MLC.

ELEMENT 4: Caveats and Equitable Priorities

  • Look at the role of caveats and their affect on notice.
  • PRIMARY ROLE of a caveat - to freeze the register so that competing equitable interest holders (or equitable interest holders) can work out who’s got the best right.
  • SECONDARY ROLE - the caveat gives notice to anyone who searches the register that there is an equitable interest there.

Does failure to lodge a caveat by that first equitable interest holder amount to disentitling conduct by that first equitable interest holder?

Ct held that the failure to lodge a caveat by G was one of the factors postponing that prior equitable interest:

Connolly v. Noone

-Mrs N gave G a right to cut timber on her land (profit a prendre)

-The right had to be exercised within 5 years.

-N signed an instrument of confirmation of that right on the 16/6/1908.

-G did nothing. Some months later, N gave her certificate of title to a solicitor, C, as security for costs.

-C had an equitable mortgage, because by handing over her certificate of title she created an equitable mortgage by deposit of title deed (LTA s.5 today).

-C lodged a caveat on the 16/11/1908.

-G’s interest in the land went to the Cairn’s timber company and the CTC started to cut the timber.

-C applied for an injunction to stop the timber cutting and evidence was given then that the land without the timber was not of sufficient value to cover the security that was given by N.

-The Ct had to decide who had priority. Was it G with his profit a prendre which had been transferred to CTC (which was 1st in time) or was it C who had the equitable mortgage?

Held:

-Ct held that the right to cut timber was an equitable right which could have been protected by a caveat when it was created but was not.

-N had kept her certificate of title at that time and had been able to represent to the world that she had an unencumbered title and so could therefore grant the mortgage to C.

-Ct held that the failure to lodge a caveat by G was one of the factors postponing that prior equitable interest. So they had to stop cutting the timber.

Delay in lodging a caveat can be disentitling conduct

Butler v. Fairclough

-Mr G was the registered owner of land.

-The land was subject to a registered mortgage.

-On the 30/06/1915 he gave a second mortgage, which was equitable, to B.

-On the 2/07/1915, he agreed to sell the land to Mr F, subject only to the registered mortgage.

-On the 7/07/1915, B lodged a caveat to protect his equitable mortgage.

-When F lodged his transfer for registration, the registrar notified B.

-In October 1915, B and F agreed that F would withdraw his transfer because they both believed that B had priority.

-1/03/1916, F re-lodged that transfer.

-The registrar thought B’s caveat had lapsed and didn’t tell him about the re-lodgment and F got registered.

-B argued that F had been fraudulent in re-lodging that transfer because of their agreement the year before.

Held:

-HC said that there was no fraudulent conduct, and F got indefeasibility.

-They then looked at whether the parties had been correct in thinking that B had priority.

-Griffith J said “a person who has an equitable charge may protect it by lodging a caveat”.

-In his opinion, that operated as notice to all the world that the registered proprietor’s title is subject to the equitable charge alleged in the caveat. He found that the 7-day delay of B in lodging his caveat to protect his equitable mortgage was sufficient to lose him priority. BUT he then said you can’t really draw a line about what is a reasonable time within which to lodge a caveat.

Lack of a caveat has no effect if you would’ve bought the land anyway and lodging a caveat does not give priority:

Lynch v. O’Keefe

-Mr O’K was a purchaser of land who searched the register before he entered the K.

-He didn’t know there was an equitable mortgage over the land because there was not caveat. But he gave evidence in Ct that he still would have bought the land even if he’d known about the mortgage (the failure to lodge the caveat would not altered his decision).

-O’K lodged a caveat himself when a dispute arose about the vendor’s title and he tried to argue that the lodging of that caveat gave him priority.

Held:

-The Ct said the caveat didn’t give him priority. All a caveat does is suspend registration so that the parties can work out in court who has the better interest.

-So the two points from this case: lack of a caveat has no effect if you would’ve bought the land anyway and lodging a caveat does not give priority.

Disentitling conduct – handing over documents:

Abigail v. Lapin

-The holder of the prior equitable interest did not caveat but the holder of the subsequent equitable interest did not search.

-The L’s were the registered owners of land. They signed transfers in favour of Mrs H as security for costs owed to her husband (actually creating a mortgage – if you don’t pay the money back, the mortgagee can get registered).

-When the money was paid, they were entitled to the transfers back, but Mrs H got registered.

-H then gave a mortgage to Mr A who lodged a caveat and then lodged the mortgage for registration.

-Before it could be registered, the L’s lodged a caveat.