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24 February 2015 Claims made by a person deprived of land title by fraud

By Marc Baddams, Partner and Caterina Meduri, Solicitor


In Brief

In Australia, we use the Torrens system of land title. It is a central tenet of the Torrens system that it is a system of title by registration, not a system of registration of title. It is registration itself which vests title in a proprietor of land.

Section 42(1) of the Real Property Act 1900 (NSW) provides that the estate of a registered proprietor is paramount, except in the case of fraud (there are other exceptions to the general rule). The estate of a registered proprietor is generally 'indefeasible', which means that the proprietor listed on the register holds their estate or interest in the land free of any interests which are not listed on the register.

Section 118(1) of the Real Property Act provides that proceedings for possession or recovery of land do not lie against the registered proprietor of the land, except in certain circumstances, including where the proceedings are brought by a person deprived of land by fraud, where those proceedings are against:

  1. a person who has been registered as proprietor of the land through fraud
    (section 118(1)(d)(i)); or
  2. a person deriving (otherwise than as a transferee bona fide for valuable consideration) from or through a person registered as proprietor of the land through fraud
    (section 118(1)(d)(ii)).

In the recent case of Cassegrain v Gerard Cassegrain & Co Pty Ltd [2015] HCA 2, the High Court considered the ambit of the fraud exceptions to indefeasibility of title found in sections 42(1) and 118(1)(d) of the Real Property Act


Background 

GC & Co Pty Ltd (GC & Co) owned parcels of land referred to as the 'Dairy Farm'.[1]  Claude Cassegrain was a director of GC & Co, along with his sister, Ann-Marie Cameron.[2]  GC & Co transferred its interest in the Dairy Farm to Claude and his wife, Felicity Cassegrain, who became the registered proprietors of the Dairy Farm as joint tenants.[3] 

The consideration GC & Co received for the transfer of the Dairy Farm was effected by a debit of Claude's loan account with GC & Co in the amount of $1 million. By that time, entries had been made in the books of GC & Co to recognise a loan account of $4.25 million, being money owed to Claude. In the High Court it was accepted that Claude was never in fact owed any part of the amount recorded in the loan account.

After two years, Claude transferred his interest in the Dairy Farm to Felicity for $1.[4]  As a result of the transfer, Felicity became the sole registered proprietor of the Dairy Farm.[5]

GC & Co commenced proceedings against Felicity in the Supreme Court of New South Wales seeking to recover the title to the Dairy Farm.[6]  The Supreme Court concluded that Claude had acted fraudulently but dismissed GC & Co's proceedings against Felicity.  GC & Co successfully appealed in the Court of Appeal.  By special leave, Felicity appealed to the High Court.

The arguments put forward by GC & Co in respect of the first transfer, from GC & Co to Claude and Felicity as joint tenants, were:

  1. Claude's assertion to an entitlement of $4.25 million and causing GC & Co to acknowledge that it was indebted to him in that amount, were fraudulent acts;
  2. Claude fraudulently obtained the transfer of the Dairy Farm;
  3. Claude and Felicity were registered as proprietors of the land through fraud; and
  4. Claude was Felicity's agent for the purpose of registering Felicity as joint tenant of the land.[7]

In respect of the second transfer, by which Felicity became the sole registered proprietor of the Dairy Farm, GC & Co argued that:

  1. Felicity derived the remaining interest in the land from a person registered as proprietor through fraud and otherwise than as a bona fide transferee for value;
  2. Claude was Felicity's agent for the purpose of Felicity's registration as sole registered proprietor of the land; and
  3. alternatively, Felicity derived her interest in the land through the fraud of her agent, Claude.[8]

It was not alleged that at any time that Felicity was a participant in or had notice of Claude's fraud at the time the Diary Farm passed to them as joint tenants.[9]

Felicity's interest as a joint tenant

The majority of the High Court found that Felicity's interest as joint tenant was not defeasible by GC & Co. 

Although it was held that Claude acted fraudulently[10], the court was not satisfied that the fraud had been brought home to Felicity in the relevant sense. In that regard, there was no evidence that Claude was Felicity's agent in any respect other than registering the transfer.[11] Claude did not act as Felicity's agent with respect to the negotiation of the sale price, or the debiting of Claude's loan account.[12] None of Claude's fraudulent conduct was within the scope of any authority that Felicity had given to Claude.[13]

The High Court also considered whether Felicity's registration as joint tenant bridged the gap so as to enable Claude's fraudulent conduct to be brought home to Felicity, thus rendering her interest as a joint tenant defeasible and to engage section 118(1)(d)(i).[14] 

In that regard, section 100(1) of the Real Property Act provides that two or more persons who may be registered as joint proprietors of an estate or interest in land shall be deemed to be entitled to the same as joint tenants. In that regard, the High Court considered whether Felicity was infected with Clause's fraud because she and Clause took title from GC & Co as joint tenant or whether it was preferable in principal to treat the shares of joint tenants, holding title under the Real Property Act as differentially affected by the fraud of one, to which the other was not a party.[15]

The High Court said that the concept of joint tenancy does not operate to impute the fraud of one joint tenant on another, when that other person was not a party to the fraud.[16] In that regard, Felicity's registration as joint tenant did not bridge the gap so as to enable Claude's fraudulent conduct to be brought home to Felicity.

Felicity's interest as sole proprietor

In considering whether Felicity's title as sole registered proprietor was defeasible, the High Court considered further section 118(1)(d)(i) and (ii) of the Real Property Act.

The Court determined that GC & Co could recover the interest which Felicity derived through Claude.

In that regard, Claude, but not Felicity, was registered as proprietor of an interest in the Dairy Farm (as joint tenant) though fraud. Accordingly, section 118(1)(d)(i) did not operate to allow a claim against Felicity. However, by the second transfer (to Felicity as sole registered proprietor) Felicity derived from or through Claude an interest as tenant in common as to half. Felicity derived that interest from or through a person registered as proprietor of an interest in the land (as joint tenant) through fraud (i.e. from or through Claude). Accordingly, unless she was a transferee bona fide for valuable consideration, section 118(1)(d)(ii) would operate to allow a claim against Felicity.

Because the consideration for the transfer to Felicity was only $1, she was not a bona fide transferee of Claude's interest in the Dairy Farm, for valuable consideration, and section 118(1)(d)(ii) was engaged so that GC & Co could recover the interest which Felicity derived through Claude.[17]

Conclusion

This case clarifies the operation of the fraud exception to indefeasibility of title and the circumstances in which a claim can be made by a person deprived of land by fraud, in particular, where land has passed from a person engaged in a fraud to another, for anything other than valuable consideration.


[1] Cassegrain v Gerard Cassegrain & Co Pty Ltd [2015] HCA 2, per French CJ, Hayne, Bell and Gageler JJ, [5].
[2] ibid, [7].
[3] ibid, [7].
[4] ibid, [11].
[5] ibid, [11].
[6] ibid, [12].
[7] ibid, [14].
[8] ibid, [14].
[9] ibid, [15].
[10] ibid, [22].
[11] ibid, [41].
[12] ibid, [41].
[13] ibid, [42].
[14] ibid, [55].
[15] Ibid, [44]-[55].
[16] ibid, [53].
[17] ibid, [62].

For more information, please contact:

Marc Baddams, Partner  |  Phone: +61 2 9233 5544  |  Email: mrb@swaab.com.au

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This article is not legal advice and the views and comments are of a general nature only. This article is not to be relied upon in substitution for detailed legal advice.

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