Will a purchaser’s
caveat stand without an undertaking as to damages?
Real estate purchasers register a caveat upon the title
to the property they are purchasing if the deposit paid is
to be released. They register a caveat to protect their
interest as purchaser under the Contract for Sale, to
prevent the vendor dealing with the property.
But will the caveat stand, if the vendor wants it
removed, if the purchaser does not proffer an undertaking as
The answer is found in 2-6 First Ave Pty Ltd v Aquamore
Credit Equity Pty Ltd  NSWSC 980 (27 June 2018), a
decision of Justice Darke in the Supreme Court of New South
2 - 6 First Ave Blacktown Pty Ltd (First Ave) entered
into a contract to purchase a property at 2-6 First Avenue,
Blacktown from Aquamore Credit Equity Pty Ltd (Aquamore)
on 5 March 2018. The price was $10 million, and the deposit
paid was $650,000. It was a development site, sold with
Development Approval for 160 home units + retail/commercial.
The Contract contained a Special Condition which provided
that part of the deposit was to be released “to pay the
Architect’s fees and disbursements for the Development
Approval”; and that upon payment, the vendor would provide
to the purchaser “all documents pertaining to, and
supporting, the relevant Development Approval in DWG
format”. The completion date was to be four months after the
date the documents were provided.
According to Aquamore, the documents were all provided by
26 March 2018. It pressed for the four month completion
period to commence, but the purchaser resisted, claiming
that documents were missing.
By 31 May, 2018, Aquamore had had enough. It took the
view that First Ave had repudiated the contract because of
its failure to confirm that the completion period had
commenced. It therefore terminated the contract and served a
lapsing notice to remove the caveat.
Since 1986, when the lapsing notice procedure was
introduced, all that a registered owner needs to do is to
serve a lapsing notice upon the caveator and wait 21 days.
If the caveator does not apply to the Court to extend the
caveat within that period of 21 days, the Registrar General
will remove the caveat from the title administratively (s
74J Real Property Act 1900).
The Legal Issues
First Ave applied to extend the operation of the caveat
within the 21 day period, by way of a Summons under s 74K(1)
of the Real Property Act 1900; s 74K(2) sets out the
the Supreme Court may, if satisfied that the
caveator's claim has or may have substance, make an
order extending the operation of the caveat concerned
for such period as is specified in the order or until
the further order of that Court, or may make such other
orders as it thinks fit, but, if that Court is not so
satisfied, it shall dismiss the application.
Justice Darke applied the principles applicable to
applications for interlocutory injunctions, namely:
- Was there a serious question to be tried?
- Did the balance of convenience favour the continued
operation of the caveat?
- Were there any discretionary matters?
A serious question to be tried
In the circumstances that the completion date had not
arrived, and more significantly, that different
interpretations of the contract were being advanced, Justice
Darke stated that:
Although “The plaintiff’s case … is in my view not a
strong one … it does ... raise a serious question to be
tried as to the validity of the defendant’s termination
of the contract”.
Therefore he was satisfied that the claim had substance.
The balance of convenience
First Ave did not proffer an undertaking as to damages,
and made no offer of any security by itself or anyone
standing behind it.
In Justice Darke’s opinion, this factor was significant
and led to the conclusion that the application to extend the
operation of the caveat should be dismissed on the balance
Other factors were considered which did not change this
- Aquamore was a mortgagee selling in the exercise of
its power of sale. The mortgage debt on the property
exceeded the value, and the debt was escalating rapidly
with default interest. The loss of opportunity to sell
the property at this time, instead of waiting until
after the hearing at the end of the year, made the
inability “to proffer a meaningful undertaking as to
- First Ave argued that the payment of a deposit, of
which 5% remained after the payment to the architect of
$150,000. was sufficient security. Justice Darke did not
agree: “The deposit, which is paid as an earnest of the
bargain, cannot simply be regarded as a form of security
for an undertaking as to damages” because “the losses
against which a forfeited deposit might be put are not
co-extensive with the losses for which compensation may
be recovered pursuant to an undertaking as to damages.”
- The argument of wrongful termination of contract was
On discretion, Justice Darke considered that “the risk of
injustice to the defendant if the caveat is extended exceeds
the risk of injustice to the plaintiff if the caveat is not
- No claim was made for specific performance of the
contract (which is usually sought in an application to
extend a caveat).
- No weight was to be given to the fact that Aquamore
did not adduce evidence of its ability to compensate
First Ave because there was no reason given to doubt its
wherewithal (being a moneylender). In any event, it was
not the one making the application.
- The continued existence of the caveat inhibited
Aquamore’s ability “to freely deal with the property”.
- This was not a case “where it would be appropriate
to dispense with the usual requirement that an
undertaking as to damages be proffered”.
First Ave failed in its application to extend the caveat
because it was not in a position to proffer (and did not
proffer) an undertaking as to damages that had substance.
Why did it not do so? These are possible explanations:
- First Ave was a new company which was registered
specifically to buy this property. This is done to
quarantine financial risk. It can be assumed the people
behind First Ave made a commercial decision not to
expose their funds or assets to a claim for damages
should First Ave be found to have repudiated the
- It is likely that First Ave was having difficulty in
obtaining a loan approval. This can be inferred from
First Ave’s refusal to agree that the completion period
had commenced, and might explain why specific
performance was not sought.
- The Special Condition for DA documentation was
loosely drafted. The documentation to be provided was
not specified, it was left in general terms “all
documents pertaining to”. Therefore there was
considerable uncertainty as to First Ave’s prospects of