Caveats and costs agreements in NSW raise important legal and ethical issues for solicitors seeking to secure unpaid fees. Under the Real Property Act 1900 (NSW), a person may only lodge a caveat if they claim a legal or equitable interest in land. A debt alone—such as unpaid legal fees owed to a solicitor—does not amount to a proprietary interest and cannot support a caveat. The caveator (the party lodging the caveat) must instead point to a recognised interest in the land, such as a charge, mortgage, or trust. In the context of a solicitor’s costs agreement, or a related instrument such as a deed of guarantee or security agreement, this generally requires that the document expressly grant the solicitor an interest in the client’s real property, such as an equitable charge or mortgage, in order to support a caveat.
Express Charging Clauses in Caveats and Costs Agreements in NSW
An express charging clause in a costs agreement can create a caveatable interest, provided the drafting clearly grants a proprietary interest. A charging clause allows the client to charge their interest in specific real property as security for legal costs. This clause makes the law firm an equitable mortgagee or chargee of the property. It creates a proprietary interest that can support a caveat. For example, a costs agreement might say, “The client charges their property at [address] in favour of the firm to secure legal costs.” This wording gives the firm an equitable charge. The firm may then lodge a caveat to protect that interest.
By contrast, if the agreement merely acknowledges that the solicitor may lodge a caveat or simply records the client’s consent to a caveat, this is insufficient. Such language does not itself create any estate or interest in land. A contractual right to lodge a caveat does not support a caveat without a charge or mortgage. It creates no proprietary interest.
Judicial Guidance on Caveats and Costs Agreements in NSW
The courts will look to the construction of the agreement to determine whether a caveatable interest exists. Earlier authorities, such as Troncone v Aliperti (1994) 6 BPR 13,291, suggested that, absent a contrary intention, an authority to lodge a caveat implied the grant of an equitable interest necessary to support the caveat. In Troncone, the court construed a contractual clause allowing creditors to lodge caveats as an implied equitable charge in their favour.
However, more recent cases have cautioned that this is not a blanket rule. Courts interpret each document based on its own terms and context. A charge will only arise if the agreement reasonably supports that reading. If the language shows the parties intended only a personal right or protective measure, no caveatable interest exists. The NSW Court of Appeal has confirmed this approach. It held that an authority to lodge a caveat does not automatically create an equitable charge. It must be either explicit or necessarily implied by the agreement’s terms.
In Bellissimo v JCL Investments Pty Ltd [2009] NSWSC 1260, the solicitor sought to establish a caveatable interest under a deed of guarantee. The deed expressly gave the solicitor consent to lodge a caveat and stated the solicitor has a caveatable interest until fees are paid. Despite this language, the Supreme Court found the document did not create a charge or proprietary interest.
Justice White held that the parties must clearly express any intention to create an equitable charge or mortgage. The court will not infer such an interest from unclear wording. In this case, there was no express grant of a security interest. The arrangement appeared to be a negative covenant—a promise not to deal with the property without the solicitor’s consent. This type of promise does not create an interest in land. The court found the consent was a protective device, not a proprietary interest. As a result, the caveat could not be sustained.
Further, in Malouf v Constantinou [2017] NSWSC 923, the court considered both the existence of a caveatable interest and the ethical implications of a solicitor taking security over a client’s property. The solicitor held a costs agreement and a Deed of Charge over all present and future assets. Justice Parker accepted this created an equitable charge but expressed concern about the fiduciary conflict. Under Rule 12 of the Legal Profession Uniform Law Australian Solicitors’ Conduct Rules, a solicitor must obtain informed consent before acting where their personal interest conflicts with the client’s.
The solicitor imposed the charge at the outset, when the client was financially distressed, and extended it to all assets, exceeding likely fees. The solicitor failed to ensure the client or guarantors obtained independent legal advice. Justice Parker stated that solicitors may take reasonable security under the Uniform Law but must do so with care and clarity. This should occur through a separate agreement, with full explanation and independent legal advice. In this case, those standards were not met. The court refused to enforce the charge and ordered the caveats withdrawn. Justice Parker noted that solicitors have a serious duty to avoid conflicts of interest.
The prudent practice is to include a specific charging clause granting an interest in land. One commentary notes that parties should always insist on a proprietary interest in the property to avoid any ambiguity. If the agreement lacks an express provision, a caveat based on it may face legal challenge. The court may then remove the caveat for lacking a valid caveatable interest.
Equitable Doctrines and Caveats and Costs Agreements in NSW
Even without a charging clause, some equitable doctrines may create a caveatable interest in favour of the solicitor. These include constructive trust or proprietary estoppel in limited circumstances. A constructive trust may arise if the solicitor’s work significantly preserved or increased the property’s value. This may occur where the solicitor acted to stop a forced sale or helped secure the property in family law proceedings. In such cases, it may be unconscionable for the client to retain the benefit without paying the solicitor.
A proprietary estoppel may arise if the client clearly promised to give the solicitor an interest in land as security for fees. If the solicitor relied on that promise and suffered detriment—such as continuing to act without payment—then the estoppel may apply. In practical terms, however, relying on estoppel or constructive trust in a costs dispute is difficult. The solicitor must establish strong grounds of unconscionability or prove a clear promise and reliance; however, these are often contested. The more straightforward path for a law firm is to obtain an express contractual charge. Without such a clause, the solicitor is generally an unsecured creditor and has no automatic right to encumber the client’s land.
How This Might Unfold in Reality
In practice, a solicitor may lodge a caveat over a former client’s property based on a claimed caveatable interest. This interest may arise under a charging clause in a costs agreement or related document. The client’s first step is usually to lodge a lapsing notice with NSW Land Registry Services. This notice requires the solicitor, as caveator, to commence Supreme Court proceedings within 21 days to maintain the caveat. If no proceedings are commenced within that time, the caveat lapses automatically.
Under section 194 of the Legal Profession Uniform Law, a law practice may commence such proceedings only if it satisfies two conditions. First, the legal costs must not be the subject of a costs dispute. Second, at least 30 days must have passed since the client was given a bill. Or, where requested, an itemised bill. These statutory requirements act as safeguards. They ensure solicitors do not prematurely or improperly use the caveat process to enforce payment.
Conclusion
Ultimately, a solicitor seeking to secure fees against real property should proceed with transparency and precision. Clients should give informed consent to any charging arrangement, preferably set out in a separate, standalone document. Without these measures, the solicitor may lose the caveatable interest. The court may also set aside the arrangement for ethical reasons. Courts in NSW have confirmed this position. They have stated that caveats must protect genuine proprietary interests. Solicitors cannot use caveats as a method to recover unsecured debts.
Jake McKinley notes that this article is written for the purpose of providing generalised information and not to provide specialised legal advice. If you require qualified legal advice on anything mentioned in this article, our experienced team of solicitors at Jake McKinley are here to help. Please get in touch with us on 02 9232 8033 today to make an enquiry.
