Pub­li­ca­tions

Claims made by a per­son deprived of land title by fraud


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].