Non-s 42 exceptions to indefeasibility Cameron Stewart (thanks to Shae McCrystal – errors are...

Non-s 42 exceptions to indefeasibility

Cameron Stewart(thanks to Shae McCrystal – errors

are mine)

(c) Cameron Stewart 2009


Rights in personam

• While registration of an interest may extinguish other unregistered interests personal rights of action can still survive – sometimes called “personal equities”

• Frazer v Walker [1967] 1 AC 569 per Lord Wilberforce at 585, the principle of indefeasibility ‘in no way denies the right of the plaintiff to bring against a registered proprietor a claim in personam, founded in law or in equity, for a such relief as a court acting in personam may grant.’

• The in personam exception is based upon personal claims against a registered proprietor of an interest which, if successfully prosecuted before the court, will lead to orders being made requiring the registered proprietor to divest himself or herself of his or her interest, either in whole or part, in favour of the claimant: Hillpalm Pty Ltd v Heaven’s Door Pty Ltd (2004) 220 CLR 472, at 491


Rights in personam

• The existence of in personam rights was referred to in Barry v Heider (1914) 19 CLR 197, at 213, where it was said that the Torrens system in no way destroyed ‘the fundamental doctrines by which Courts of Equity have enforced, as against registered proprietors, conscientious obligations entered into by them’.

• In the Northern Territory and Queensland, legislation gives statutory form to such rights by stipulating that the benefits of indefeasibility do not apply in relation to ‘an equity arising from the act of the registered proprietor’.

• Land Title Act 2000 (NT) s 189(1)(a); Land Title Act 1994 (Qld) s 185(1)(a).


Rights in personam

Examples:• Right of specific performance in a sale of land

contract;• Right of beneficiary to call on performance of trust;• Right to rectify a mistake in a contract which has

bestowed title on the wrong party.• Right of a person to call on protection of a fiduciary

duty• The personal equity must rest on a legal or equitable

cause of action

Contracts for sale of land• A is the owner of a fee simple estate and is listed as the registered

proprietor. A entered into a valid binding contract of sale with B, then A refuses to complete the valid binding contract of sale. Here the purchaser has a right to sue the registered proprietor for breach of that binding contract of sale. Where B sues A for breach of contract A can not raise their indefeasible title as a defence to an action by B for breach of contract. Then, if the purchaser seeks the equitable remedy of specific performance, the court will order the registered proprietor to perform the contract, order the proprietor to execute a transfer and to deliver it to the purchaser in return for purchase price. The purchaser then can register that transfer and title will change on the folio. This is an example of the in personam exception. Indefeasibility did not prevent B from exercising their rights against A in contract and equity in the breach of the contract claim and in seeking the equitable remedy of specific performance.

• Paradise Constructors & Co Pty Ltd v Poyser [2007] VSCA 316, at [36].


Rectification

• A is a registered proprietor who has registered their title under a contract which contains a mistake or a defect (the contract, not the transfer document). The other party to that contract, B, who sold the land seeks rectification of that contract. It is no defence to that claim that the registered proprietor has indefeasible title. They are bound by the common law contract rules. If B was successful in their case, the court would order the land to be retransferred and registered title would revert to the previous holder.

• Tutt v Doyle (1997) 42 NSWLR 10, at 14


Rectification• Lukacs v Wood (1978) 9 SASR 520. Lukacs owned 4 pieces of

Torrens title land, 3 of which were vacant and one of which contained a block of flats. Lukacs entered into a contract to sell the 3 vacant blocks to Wood. There was a typing error in the contract and by the typing error 2 of the vacant lots and the developed lot were transferred to Wood and Wood became the registered proprietor of the 3 blocks of land. Lukacs bought an action against Wood seeking the retransfer of the block of land with the block of flats and Wood refused. Wood argued that he had an indefeasible title to the developed land. The court said that Woods’ indefeasible title was no defence to the contract claim and the contract claim was mistake. The court said there was a mistake and the contract should be rectified. Woods’ registered title did not operate as a defence in the breach of contract claim and the court ordered that the wrong block be retransferred back to Lukacs and the right block be transferred to Wood.


Trusts for land

A is a registered proprietor of land that is held on trust for B. The trust prohibits sale of the land. When A seeks to sell the land, indefeasible title would not prevent a personal action against the trustee by a beneficiary to stop him acting in breach of the trust. The injunction, if ordered, will restrict the registered proprietors apparently indefeasible title and require him to comply with the personal obligation under the trust.


Must be a known legal or equitable chose in action

• Justice Owen in the case Conlan v Register of Titles (2001) 24 WAR 299 at 357:It is clear from the authorities that the in personam claim must be based on more than an innate sense of fairness. It must be a recognised legal or equitable cause of action. A court needs to proceed with caution. It must not, through sympathy for the plight of the unregistered investors, develop a rule of equitable principle that is so broad as to make inroads into the principle of indefeasibility. That principle must be paramount. Unless there is identified some personal conduct by the registered proprietor or by some person for whose conduct he or she is responsible, the general rule is the registered title ought to prevail.


Must be a known legal or equitable chose in action

• Grgic v ANZ Banking Company (1994) 33 NSWLR 202 • RP’s son got a bank loan by getting a friend to impersonate

his father. • Grgic lost on the fraud claim against bank• Grgic also tried to make out a personal equities claim. His

lawyer argued that the bank was guilty of deceit, of breaching s 52 of the TP Act, of breaching a statutory duty to check Grgic’s ID.

• H/W bank was also a victim of the fraud – they had not set out to deceive Grgic or to mislead him.

• Carelessness not enough – no duty of care • No known legal or equitable cause of action.



Trust (express of implied)Bahr v Nicolay (No 2) (1988) 164 CLR 604 – sale, lease re-purchase in 3 years – Nicolay sells top Thompson

“the purchaser acknowledges that an agreement exists between the Bahr’s and Markus Nicolay as stamped and signed on the 5th of March 1980”

Wilson Toohey and Brennan JJ took the view that the Thomson’s undertaking with respect to the Bahrs’ right to repurchase the land gave rise to a constructive trust. Mason CJ and Dawson J said that the ‘matrix of circumstances’ was sufficient to establish that there was an intention to create an express trust.

The registered proprietor (R) was bound by a personalequity where R knew of an unregistered interest andhad purchased the property on the basis that R wouldrecognise and be bound by that unregistered interest


The high water mark?

• Mercantile Mutual v Gosper (1991) 25 NSWLR 32: Mrs Gosper and the registered proprietor of land subject to a mortgage to Mercantile Mutual. Mr Gosper borrowed money from Mercantile Mutual ($285K)and it was agreed that the loan would be secured by a variation of the existing mortgage over Mrs Gosper’s property. Mr Gosper forged his wife’s signature to the variation and it was registered.


Rights in personam

• After her husband’s death Mrs Gosper discovered what had happened. She sought orders removing the variation of the mortgage from her title. The issue before the court was whether Mercantile Mutual had an indefeasible title insofar as the variation was concerned or whether it was defeated on the basis of an in personam claim by Mrs Gosper. By a majority the Court of Appeal held in favour of Mrs Gosper – breach of contract?


Rights in personam

• There were other factors, the main one being that, in producing the title to have the variation registered, Mercantile Mutual had acted without the authority of Mrs Gosper. Mercantile Mutual used the title deed in breach of its obligations to Mrs Gosper and its use of the title deed was a necessary step in securing the registration of the variation. The majority concluded that Mercantile Mutual should not be permitted to retain a benefit that had been procured by an act which constituted a breach of its obligations to Mrs Gosper. In effect, Mercantile Mutual’s unauthorized use of the certificate of title constituted unconscientious conduct on its part: Vella v Permanent Mortgages Pty Ltd [2008] NSWSC 505, at [379]-[380].


Rights in personam

• Meagher JA gives a strong dissent• Meagher JA, at 52, argued that, if the loan to

Mr Gosper had proceeded simply by means of discharging the existing mortgage over Mrs Gosper’s land and was replaced by a new, albeit forged, mortgage to Mercantile Mutual in an amount to cover the original loan and the loan to Mr Gosper, Mercantile Mutual would have obtained, pursuant to Frazer v Walker, an indefeasible title. His Honour ruled that the same result should follow where, in effect, the same situation eventuates by variation of the existing mortgage.


Rights in personam

• Butt, ‘Indefeasibility and Sleight of Hand’ (1992) 66 Australian Law Journal 596 at 597:

• Given that registration confers indefeasibilty, that the mortgagee had no knowledge of the fraud, and that production of the certificate of title was an essential - albeit mechanical - requirement for registration, the personal equities principle should not be used in a case like the present to cut back the benefits of indefeasibility. If H had stolen the certificate of title from W and given it to the mortgagee for registration of the variation, there would have been no argument for a personal equity, even though it had been used without W's authority. The fact that the mortgagee already had possession of the certificate of title should not - in the absence of fraud, or knowledge of fraud, on its part - give rise to a personal equity. Any other result undermines confidence in the Torrens register.


Story v Advance Bank

• In Story v Advance Bank the Court of Appeal had to consider in personam exceptions in the context of a mortgage granted by a corporation to a bank, where the corporation was a ‘family’ company operated by Mr & Mrs Story. The loan was to Mr Story only with the mortgage being over land owned by the corporation. Mr Story forged his wife’s signature on the mortgage documents. Mrs Story claimed an in personam exception against the bank on the basis that the bank failed to make appropriate inquiries to determine that Mrs Story had indeed executed the mortgage. The Court of Appeal ruled against Mrs Story. Gleeson CJ (Cripps J agreeing) held that even if the bank had not made adequate inquiries of what going on in the corporation ‘that does not produce the result that it is against conscience for the bank to rely upon its statutory rights’ to an indefeasible title as to the mortgage.


Story v Advance BankGleeson CJ, at 737 (Cripps J, at 742, agreeing), held that even if the bank had not made adequate inquiries of what was going on in the corporation ‘that does not produce the result that it is against conscience for the bank to rely upon its statutory rights’ to an indefeasible title as to the mortgage.Mahoney JA agreed, but also elaborated more fully on the in personam exception to indefeasibility. His Honour, at 739-41, made the following points:

– not all interests that a person has under the general law or would have against a registered proprietor are personal equities within the in personam exception;

– merely to show that an instrument is a forgery will not of itself give rise to an in personam exception;

– in some cases it could be that an in personam exception may arise by the failure of the registered proprietor to make inquiries as to the execution of an instrument, but the mere failure to make such inquiries does not have this effect;

– under corporations legislation, provisions are set out which prevent a corporation from contending that a document was not validly executed, with the effect that the person relying on that document is relieved from the obligation to make any inquiries as to its execution.


Vassos• Vassos v State Bank of South Australia, the bank obtained a

mortgage over land owned by three tenants-in-common. One of the tenants-in-common subsequently obtained a substitute mortgage for a greater sum by forging the signatures of the other two tenants-in-common. In this case the bank’s mortgage was not obtained as the result of fraud, nor was there an exception under the in personam exception. On the in personam exception, Hayne J said this case was distinguishable from Mercantile Mutual v Gosper. He reaffirmed that more than a mere forgery was required. Even though the bank was negligent in the manner in which it took the forged mortgage, there was, at 333, ‘no misrepresentation by it, no misuse of power, no improper attempt to rely on its legal rights, no knowledge of wrongdoing by any other party. … Even if by making reasonable enquiries the bank could have discovered the fact of the forgery I do not consider that that fact alone renders its conduct unconscionable’.

Carelessness not enough for in personam

• In Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd [1998] 3 VR 133, a bank’s carelessness in failing to check the attesting signatures affixed to a forged mortgage from a trust company was held not to give the trust company an in personam right to have the mortgage set aside. In reaching that conclusion Winneke P, at 136, said:

It is, I concede, logically attractive to argue that legitimate equitable claims should not be emasculated by setting the threshold level of conduct, short of statutory fraud, too high; on the other hand it is, in my view, an argument of equally compelling force that the threshold should not be set so low as to defeat the concept of indefeasibility which is entrenched in and central to the Torrens system of registration of interests in land; a system which itself recognises that the register is paramount and that, save in exceptional circumstances, those who have suffered loss, without any fault on their own part, will have to content themselves with compensation out of the fund made available for the purpose.

• On the basis of the decision in this case, the Victorian Court of Appeal expressed doubts, in Paradise Constructors v Poyser, at [39], as to whether Mercantile Mutual Life Insurance v Gosper would be followed in Victoria.


Knowing receipt and assistance and in personam?

• Barnes v Addy (1874) 9 Ch App 244• Tara Shire Council v Garner [2002] QCA 232 -

Queensland – Receipt of trust property knowing of a breach of trust is a personal equity enforceable against the purchaser.

• Contra- In the absence of fraud on the part of the new RP, simple knowledge of the prior unregistered interest (beneficiaries interest under a trust) is not actionable as an in personam claim – it is just simple notice. (LHK Nominees Pty Ltd v Kenworthy (2002) 26 WAR 517; Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd [1998] 3 VR 133)



• HC - In relation to the situations where the registered proprietor knowingly receives trust property following a trustee’s breach of fiduciary duty in violation of the ‘knowing receipt’ principle set out in Barnes v Addy, the beneficiary under the trust has no in personam claim against the registered proprietor: Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89, at 169-71; 236 ALR 209, at 267-9.



• However, if a person knowing of a dishonest and fraudulent design on the part of a fiduciary or trustee assists in the furthering of that design in violation of the ‘knowing assistance’ principle set out in Barnes v Addy, and, as a result, becomes a registered proprietor of land, that person’s conduct comes within the fraud exception to indefeasibility



Registrar’s power of correction

• RG can fix up administrative errors in the records but no resolve disputes – s 12 not to prejudice the rights of interest holders

• State Bank of NSW v Berowra Waters Holdings Pty Ltd (1984) 4 NSWLR 398

• James v Attorney-General (1967) 69 SR (NSW) 361, it was held that the corrections should be made prior to a bona fide purchaser or mortgagee obtains an interest on the faith of the uncorrected register.


Overriding statutes• Other statutes can override the provisions of the RPA• EG – rates, taxes and charges on land bind the land

regardless of the indefeasibility provisions• In Quach v Marrickville Municipal Council (1990) 22

NSWLR 55, Justice Young at 61 stated that the prevalence of overriding statutes is the “weakest point in the Torrens system”.


Overriding statutes• Pratten v Warringah Shire Council [1969] 2 NSWR 161,

part of Pratten’s land was resumed by the Council before he purchased the land. Before purchasing the land Pratten made inquiries to the Council to ascertain if it had any interest in the land. The Council replied that it had no interest in the land. Pratten also thoroughly searched the register. After Pratten became registered proprietor of the land the Council asserted its rights over the land that had been resumed. The Court ruled in favour of the Council on the basis that Pratten's registered interest was subject to overriding legislation, in this case s. 398 of the Local Government Act of that time.


Overriding statutes• The Court held that the resumption by the Council was one

that created a charge that took effect by force of the statute creating it. It did not depend upon registration. Street J observed that the indefeasibility provisions of the Real Property Act were of no effect in the face of overriding legislation that removed the land from the registration system of the Act as had occurred in this case. The fact that the Council didn’t apply to have its interest notified upon the register when it became possible to do so after an amendment to the Real Property Act did not amount to an estoppel against the Council. Not did an estoppel arise when in response to Pratten’s inquiry, the Council wrote a letter back saying that it had no interest in the land. This was so because the Council had no right to dispose of the land without the consent of the Governor-in-Council.


Overriding statutes• Hillpalm Pty Ltd v Heaven's Door Pty Ltd (2004)

220 CLR 472 – right claimed to have easement created pursuant to subdivision plan –Majority found that it was not an exception because there was no evidence that the creation of the easement was a condition (McHugh ACJ, Hayne and Heydon JJ)

• If there was a right it was a right to create an easement which was in personam, but given that the EPPA Act did not seem to create such a right and given the easement did not appear to be a condition there was no right created.


Overriding statutes• City of Canada Bay Council v Bonaccorso Pty Ltd [2007] NSWCA 351

– The Canada Bay Council owned two lots of land that it used as a ‘public reserve’. It decided to rezone and sell the land for the purposes of development. However, s 45(1) of the NSW Local Government Act 1993 states that a council has “no power to sell, exchange or otherwise dispose of community land”. The Council sold the land to Bonaccorso and Bonaccorso became the RP of the fee simple on the Torrens Register.

• The land was held to be community land within the meaning of the

Local Government Act. The question for the court was whether or not the sale in breach of that Act meant that Bonaccorso’s title was defeasible due to the later Statute prohibiting the sale. At first instance the NSW Supreme Court held that the LG Act trumped the RPA and the title was defeasible. This was overturned on appeal to the Court of Appeal.


Overriding statutes

Mason P, Tobias JA and Young CJ –• The court held that the critical question was

whether s 45(1) of the LG Act, being a later enactment, prevails over the RP Act. In order to resolve this question, the court has to ask:

• Is a breach of the LG Act so inconsistent with the indefeasibility provisions of the RP Act that the LG Act must prevail? Or in other words, does the LG Act operate as an implied repeal of the RP Act when any land is sold in breach of the LG Act such that indefeasibility is not acquired?


Overriding statutes• The Court of Appeal stated that implied repeal is a serious consequence

and must be examined very carefully to see if it is possible that the two Acts can sit together and to see if there is any legislative intent to repeal the preexisting legislation.

• Can the provisions operate together? They held that they could because: 1. the transfer of land in breach of the Act could be set aside by a court operating on an application for an injunction any time up until registration. The LG Act did not declare that such a transfer was actually void at the time of the transfer – just that the council could not sell the land

2. At registration the purchaser acquired indefeasible title such that any defects in the previous title holder were expunged. The court at [88] stated: “In these circumstances in our opinion it is impossible to discern a legislative intent that s 45(1) was to operate to deny a transferee of community land the benefit upon registration of indefeasibility of title”.


Overriding statutes• Koompahtoo Local Aboriginal Land Council v KLALC

Property Investment Pty Ltd [2008] NSWCA 6. This case involved a sale of land by the Aboriginal Land Council in contravention of the Aboriginal Land Rights Act 1983. The relevant section stated that land could not be dealt with except in accordance with the Act and any dealing in contravention of the Division was void.

• The Land Council argued that the title of the RP was defeasible because the Aboriginal Land Rights Act was later and inconsistent with the RPA. The council argued that Canada Bay Council could be distinguished on the basis that the Local Government Act did not specifically state that dealings in contravention of the Act were void.


Overriding statutes

• The Full Appeal Court Giles JA, Tobia JA and Young CJ (Young dissented on another point) found that the reasoning in Canada Bay was directly applicable to this case. With respect to the fact that the Native Title legislation declared dealings void, the court (per Giles JA at [36]) stated: s40(2) declares the transaction to be void, not the title obtained by registration of that transaction … Looking at the substance of the matter, s 40 of the Act is no more irreconcilable with the indefeasibility provisions of the RPA than s 45(1) of the Local Government Act.


Overriding statutes

• Statutory Amendment – New section 42(3) added this year reads:42(3) This section prevails over any inconsistent provision of any other Act or law unless the inconsistent provision expressly provides that it is to have effect despite anything contained in this section


Overriding statutes• Effect? Can Parliament bind itself?• South Eastern Drainage Board v Savings Bank of South Australia (1939) 62

CLR 603 - 1886 SA Real Property Act said that later statutes would not override indefeasibility unless they expressly state that they will and gave a particular form of language that should be used to show that indefeasibility was overridden.

• The case ended up in court when there was a competition between a mortgage registered on Torrens and statutory charges levied under a 1931 Act which were not registered on title and in which Act the special form of language had not been used.

• The court held that the 1886 Parliament could not bind the 1931 Parliament and the 1931 Parliament could impliedly express an intention to override the 1886 Act even if they didn’t use the form of words dictated by the 1886 Act. They said that the 1886 Act was a guide to interpretation only, that earlier Parliaments can’t bind future Parliaments and if there is a clear legislative intent to override, even if not express, then the section could be overridden.


VolunteersKing v Smail [1958] VR 273 a husband and wife were registered as the proprietors of land as joint tenants. The husband executed a transfer of his interest in the land to the wife by way of gift. Before the transfer was registered the husband executed a deed of arrangement under the bankruptcy legislation. The trustee lodged a caveat claiming an equitable interest in the land under the terms of the deed of arrangement. In proceedings by the wife to remove the caveat the question was whether the trustee had an interest which had priority over the registered title of the wife. Adam J held that s 42 of the Victorian Act (which is equivalent to s 68) did not give the wife priority because she was a volunteer and the doctrine of indefeasibility only protected bona fide purchasers for value.


VolunteersAdam J said, at 276:• "Although s 42 of the Transfer of Land Act 1954

in itself affords no ground for distinguishing between thevolunteer and the purchaser for value and would appear to give paramount effect to registered title in either case, other sections in the Act draw a distinction between the volunteer and the purchaser for value and appear tojustify the conclusion that upon the registration of dealings subsequent to initial registration under the Act, it is purchasers for value only who were intended to have the benefit of s 42.”


Volunteers• Kitto J in IAC (Finance) Pty Ltd v Courtenay

(1963) 110 CLR 550 at 572:• "A provision that a person is not to be affected by notice of prior

interests has no application to him so long as he remains unregistered. For the same reason, it has no application even to one who has become registered, if he acquired his estate or interest as a volunteer. It is only a person having a legal estate or legal interest acquired for value whose position is prejudiced by his having received, before paying his money, direct or constructive notice of an outstanding equitable interest. This is so even under the Real Property Act (NSW) for a registered interest is not (as was suggested in the course of the appellant's argument) some special kind of statutory interest - it is a legal interest, acquired by a statutory conveyancing procedure and protected from competition to the extent provided for by the Act, but having, subject to the Act, the nature and incidents provided by the general law. So all the provision does which I have quoted from s 43 is to protect against notice of any trust or unregistered interest a legal estate acquired for value".


VolunteersBogdanovic v Koteff (1988) 12 NSWLR 472 Mrs B looked after Mr K on the basis of a

promise that she would be given an interest in the house which would allow her to stay for life. Son inherited house.

Breskvar v Wall applied - no distinction is made

between volunteers and purchasers hence indefeasibility is given to the son


VolunteersRasmussen v Rasmussen [1995] 1 VR 613:• Grandfather farmed a number of properties with his

four sons. After he died the property passed through G's will to the grandson H. Hand his father E then argued over who should own the property as E stated that one property was held by the father on trust for E. The purpose behind the trust was to avoid tax. H's response was that he was the registered proprietor and that he had indefeasibility.

• It was held that ss 42 and 43 bona fide purchaser for value and volunteers other later sections do make a distinction. On this basis the court held that the in Victoria the legislation only provides indefeasibility to purchasers for value.


Volunteers• Valoutin Pty Ltd v Furst (1998) 154 ALR 119- a

decision on the Victorian legislation. Finkelstein J, having referred to King, Bogdanovic and IAC (Finance) Pty Ltd, said, at 136 - 137:

• "When it is accepted, as it must be, that s 43 does not relieve a volunteer from equities which affected his transferor it is difficult to see why s 42 should be held to give that protection. Such a view would be inconsistent with the structure and text of the Transfer of Land Act. It should also be noted that King v Smail was followed by Coldrey J in Rasmussen v Rasmussen [1995] 1 VR 613 in preference to Bogdanovic. In my view King v Smail correctly states the law.


Volunteers• Conlan (As Liquidator Of Oakleigh Acquisitions

Pty Ltd) -v- Registrar Of Titles & Ors [2001] WASC 201 - Position in Bogdonavic is preferred

• Farah Constructions v Say-Dee Pty Ltd [2007] HCA 22. At para 198 per Gleeson CJ, Gummow, Callinan, Heydon and Crennan JJ the High Court said that the registered proprietors would prevail “even if they are volunteers”

• Tipping J in Regal Castings Ltd v Lightboy [2008] NZSC 87, at [135], it would ‘seem illogical’ if a forged instrument could give an innocent registered proprietor an indefeasible title but a volunteer could not get an indefeasible title upon registration. Finally, in Farah Constructions v Say-Dee, at CLR 172; ALR 269, the High Court, without analysing the issue, stated that a registered proprietor obtains priority even if he or she is a volunteer.

Non-s 42 exceptions to indefeasibility Cameron Stewart (thanks to Shae McCrystal – errors are...

Documents

Transcript of Non-s 42 exceptions to indefeasibility Cameron Stewart (thanks to Shae McCrystal – errors are...