Limitations of the PEXA system and potential implications on the registration of a proprietary interest

 

In Issue

Whether an inaccurate description of a proprietary interest due to the requirements of the PEXA system constitute a failure to comply with legislation which can be disregarded.

Extension of the operation of caveats where the relevant proprietary interest is formed by way of a common intention constructive trust.

The Background

The first and second plaintiffs, Kellie and Garreth respectively, were the daughter and son-in-law of the first and second defendants, Bruce, and Donna. The third defendant, IJAAMOTT, is a company controlled by Bruce and Donna and is registered as the trustee of their self-managed superannuation fund.

The dispute arose from the family’s intergenerational succession planning, particularly concerning the staged transfer of proprietary interests in five blocks of land to the plaintiffs. The land is largely used in an agricultural capacity, operated in partnership under the name Slade Pastoral Co. Bruce is the registered proprietor of three blocks (The Slade Land), with IJAAMOTT being the registered proprietor of the remaining two (The IJAAMOTT land). 

On 1 July 2019 Bruce, Donna, Kellie and Garreth entered a Deed of Family Arrangement (DOFA). The purpose of the deed was purportedly to develop a clear succession plan which would allow the gradual retirement of Bruce and Donna, with Kellie and Garreth becoming owners of the land and associated agricultural endeavours by 1 July 2026. In the years following the DOFA, the relationship between the parties became strained, with both the plaintiffs and defendants eventually moving to dissolve the partnership.

The proceedings involved an application made under s 74K of the Real Property Act (NSW) (RPA) to extend two caveats held by the plaintiffs over both the Slade Land (Slade Caveat) and the IJAAMOTT Land (IJAAMOTT Caveat) which were registered on 14 September 2022. At the time that the caveats were registered, Bruce had declared his intention to Kellie that no transfer of property would occur despite his previous representations under the DOFA. This was a result of the deterioration of the relationship between the parties. The application to extend the caveats was brought following the issuance of lapsing notices, pursuant to s 74J RPA on 20 October 2022, shortly after which Bruce and IJAAMOTT entered contracts for the sale of all five blocks.

The plaintiffs assert an equitable interest in all five properties, by way of a common intention constructive trust. In the process of lodging these caveats, the Property Exchange Australia (PEXA) system did not allow the input of “an equitable estate or interest in the land in the nature of a constructive trust.” The only option available to the conveyancer to claim an interest of this nature in PEXA was “to select ‘an Estate in Fee Simple’ and then Claim Category ‘Beneficial Interest in Trust.” Accordingly, the plaintiff’s interest was registered incorrectly, with the defendant’s solicitor arguing that this constituted grounds for the application to be denied pursuant to s 74L RPA.

The Decision

In proceedings before the Supreme Court of New South Wales, Kunc J granted an extension of the Slade Caveat and further granted leave for the plaintiffs to file a fresh caveat with respect to the IJAAMOTT land.

His Honour distinguished the present case from COMSERV[1], finding that s74L RPA applied to allow the Court to disregard the misdescription of the plaintiff’s interest as a mere matter of form, largely due to limitations of the PEXA system. Hence, this misdescription was not seen as inherently fatal to the plaintiff’s claim with respect to either caveat. However, it must be noted that His Honour emphasised that the content of the caveats provided clarity as to the nature and basis of the plaintiffs’ claimed interest. It is not clear that, had the caveats failed to effectively set out the plaintiff’s interest in the land in substance, s74L RPA would still have been enlivened despite the PEXA issue.

With respect to the Slade Caveat, His Honour identified both that there was a serious question to be tried, and that the balance of convenience favoured extension of the caveat. The claim was deemed to have sufficient substance, granted by evidence of common intention within the DOFA. The serious question was identified as being whether the defendants held the Slade Land upon common intention constructive trust for the plaintiffs, which would be enforced through transferral of the Land in fee simple to the plaintiffs. On this basis, the Courts discretion under s74K RPA was exercised to extend the Slade Caveat.

The IJAAMOTT Caveat was distinguished from the Slade Caveat, in that the company did not have any expressed common intention with the plaintiffs. The DOFA was taken to evidence common intention between the parties. As IJAAMOTT was not a party to the DOFA, there was seen to be insufficient evidence as to the existence of any shared intentions between Kellie, Garreth and IJAAMOTT. Hence, the application to extend the IJAAMOTT Caveat was rejected. However, to pre-empt further applications by the plaintiff and maintain the status quo pending further litigation, leave was granted under s 74O RPA for a fresh caveat to be filed.

Implications for you

Of particular note to conveyancing practitioners is Kunc J’s commentary on what he calls “the PEXA issue.” His Honour indicated an intention to refer the “systemic issue” of difficulty in using PEXA for the registration of beneficial interests by way of trust to various parties, including the Minister for Customer Service and Digital Government and PEXA.

Accordingly, conveyancers should be alert to the possibility of subsequent updates in the PEXA system. Should Kunc J’s suggestions ultimately be adopted under the system, there is an increased likelihood that an incorrectly registered beneficial interest will be deemed invalid and unenforceable under s 74L RPA.

Ensuring correct categorisation of proprietary interests in PEXA is of crucial importance, beyond the scope of registering beneficial interests. In his judgement, Kunc J identifies mis-categorisation of interests in property as an often-litigated issue. His Honour provides a reminder as to the great care which should be taken in categorising any proprietary interest in PEXA.

Further, we see significant emphasis placed on the wording of the caveats as providing clarity to the basis and nature of the interest claimed. This highlights the significant benefits to be derived from obtaining a clear understanding of a client’s circumstances and intentions, before ensuring that this is communicated effectively in any instrument claiming or conferring an interest in property.  

 

Simon Black &

Oscar Adams

Barry Nilsson Lawyers

This is commentary published by Barry Nillson Lawyers for general information purposes only. This should not be relied on as specific advice. You should seek your own legal and other advice for any question, or for any specific situation or proposal, before making any final decision. The content also is subject to change. A person listed may not be admitted as a lawyer in all States and Territories.

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