Cassegrain v Gerard Cassegrain & Co Pty Ltd [2015] HCA 2

FACTS

Gerard Cassegrain & Co Pty Ltd (Cassegrain) owned several parcels of land in NSW known as the “Dairy Farm”. 

Claude Cassegrain was a director of Cassegrain. In an act of fraud, he transferred title of the Dairy Farm to himself and his wife, Felicity, as joint tenants. Felicity was not aware of the fraud.

Later, Claude transferred his interest in the Dairy Farm to Felicity for $1.

A derivative action was brought by one of Cassegrain’s shareholders in the name of the company against Claude and Felicity seeking orders that the Dairy Farm be transferred back to Cassegrain because the title was procured by fraud.

ISSUES ON APPEAL

In seeking orders for the return of the property, Cassegrain ran into section 42 of the Real Property Act. Other than in the case of fraud, section 42 of the Act operates to ensure that the title of the registered proprietor is paramount. Because Felicity took title without any actual knowledge of Claude’s fraud, Cassegrain sought to argue that the fraud of Claude was imputed to Felicity, thereby engaging the exception to indefeasibility. It did so by contending that:

  1. Claude was Felicity’s agent, and therefore Claude’s fraud was “brought home” to Felicity as the principal; or alternatively
  2. the creation of the joint tenancy had the effect of deeming Claude and Felicity as one person for the purpose of the Act, such that Felicity became “infected” with Claude’s fraud.

Cassegrain also argued that, if Claude’s fraud could not be imputed to Felicity, Cassegrain was nonetheless entitled to recover the interest in the Dairy Farm that Claude transferred to Felicity by reason of section 118(d)(ii) of the Real Property Act. Section 118 permits proceedings for the recovery of land in certain limited situations, including where title was acquired without valuable consideration from or through a person who acquired their title by fraud. Cassegrain contended that Claude acquired his interest from Cassegrain by fraud, and that the transfer of that interest to Felicity for $1 did not amount to a transfer for valuable consideration.

HIGH COURT’S REASONS

All judges of the High Court rejected Cassegrain’s agency argument. The plurality (French CJ, Hayne, Bell and Gageler JJ) concluded that Felicity was a “passive recipient” of the joint tenancy interest in the Dairy Farm, and that committing a fraud to acquire that interest was not within the scope of any authority that Felicity may have conferred on Claude. Hence, any fraud by Claude could not be imputed to Felicity as the principal.   

Cassegrain’s joint tenancy argument turned on the operation of section 100(1) of the Real Property Act, which provides:

“Two or more persons who may be registered as joint proprietors of an estate or interest in land under the provisions of this Act, shall be deemed to be entitled to the same as joint tenants.”

Cassegrain contended that, by reason of this deemed relationship, joint tenants were to be treated as, in effect, the one person.  In that way, where two or more parties became registered as joint tenants, the fraud on the part of any one of those tenants infected the others, regardless of their awareness or participation in the fraud. The plurality of the High Court disagreed, holding that a fraud for the purpose of section 42 of the Act was one which needed to be brought home to the person whose title was impeached. If one of the joint tenants was not involved in the fraud, that tenant’s title could not be challenged. 

Keane J dissented on this issue. His Honour was concerned that, had Claude acquired full title to the Dairy Farm by fraud, and then transferred that title to Felicity for $1, Cassegrain would have been able to defeat Felcity’s title. On that basis, and by virtue of the deeming brought about by section 100 of the Act, Keane J saw no reason to distinguish between, on the one hand, a single party acquiring by fraud, and on the other, joint tenants who acquire their interest by the fraud of one of those tenants. According to Keane J, those joint tenants acquired a single title to the Dairy Farm as joint tenants, and it was that title which could be impugned by the fraud – not the interests acquired by each of them separately.    

It was only on the last of its arguments that Cassegrain had any success. At first instance, Barrett J had rejected Cassegrain’s argument under section 118 of the Act on the basis that the section only operated where the process of registration was itself affected by fraud. All judges of the High Court rejected that argument, holding instead that section 118(d)(ii) expanded the fraud exception in section 42 of the Act, giving rise to an additional basis to challenge registration an interest in land. Because Felicity had not provided valuable consideration to acquire Claude’s joint tenancy interest in the Dairy Farm, Felicity’s acquisition of that interest could be defeated.

OBSERVATIONS                                                

Plainly, the facts of this case are unique. However, it serves to highlight the risks associated with fraud in the context of real property transactions. While the agency argument run by Cassegrain failed ultimately because of the facts, it is conceivable that type of argument could succeed in the context of joint venture developments where joint venture participants are expressly authorised to take certain steps on behalf of others. The High Court’s conclusion on the effect of the joint tenancy also leaves open the worrying possibility that Claude was just moments away from effecting an unimpeachable title to the property in the hands of his wife – if she had paid value for the property, Cassegrain would have been left with no more than a damages claim.