The general rule under the Torrens system is that once an interest in land is registered on the Real Property register, the owner of that interest holds it free from all other interests. This is commonly known as indefeasibility of title however it is subject to a few legal exceptions.

This article examines the recent High Court case of Felicity Cassegrain v Gerard Cassegrain & Co Pty Ltd [2015] HCA 2 and in particular the question of indefeasibility of title in circumstances where fraud is involved.

BACKGROUND

Gerard Cassegrain & Co Pty Ltd (GC&Co) was the registered owner of a dairy farm.

In 1993, GC&Co settled proceedings it had brought against the Commonwealth Scientific and Industrial Research Organisation (CSIRO) which saw CSIRO pay GC&Co a settlement sum of $9.5 million.

At the time entries were made in the company books of GC&Co recognising a loan account of $4.25 million on the footing that this part of the money received from CSIRO was owed to Claude Cassegrain, a Director of GC&Co.

On 2 September 1996, Claude and his sister, Ann-Marie Cameron (also a Director of GC&Co), transferred the dairy farm to Claude and his wife Felicity Cassegrain for consideration of $1 million and they became owners of the dairy farm as joint tenants.

In February 1997, the Transfer was registered as 'transfer as exchanged'.

Claude purported to pay for the dairy farm by debiting the loan account standing in his favour in the sum of $4.5million in the books of GC&Co.

The debiting occurred on 30 June 1997. However, Claude was never entitled to this money and GC&Co never owed him any part of the amount recorded in the loan account created in GC&Co’s company books.

On 24 March 2000, Claude transferred 'an estate in fee simple' in the dairy farm to Felicity for $1.00.

RELEVANT LEGISLATION

The relevant Act is the Real Property Act 1900 (NSW) (RPA) and in particular sections 42(1), 100(1) and 118(1) of the RPA.

Section 42(1) of the RPA provides that the estate of a registered proprietor is paramount except in the case of fraud.

Section 100(1) of the RPA provides that 2 or more persons registered as joint proprietors of an estate or interest in land shall be deemed to be entitled to the same as joint tenants.

Section 118(1) of the RPA provides that proceedings for the possession or recovery of land do not lie against the registered proprietor of the land, except proceedings brought by a person deprived of land by fraud against a person who has been registered as proprietor of the land through fraud or a person deriving (otherwise as a transferee bona fide for valuable consideration) from or through a person registered as proprietor of the land through fraud.

SUPREME COURT OF NSW PROCEEDINGS

In September 2008, Denis Cassegrain filed proceedings on behalf of GC&Co in the Supreme Court of NSW against Claude and Felicity. GC&Co alleged that Claude’s assertion of an entitlement to $4.25 million and his causing GC&Co to acknowledge that it was indebted to him in that amount, were fraudulent acts.

It was held that:

  • to the extent that Claude received payments from GC&Co he took moneys of GC&Co that it was not legally obliged to pay to him in breach of his fiduciary duty to GC&Co and dishonestly;
  • there was a lack of evidence to conclude that Claude had exercised actual or implied authority on behalf of Felicity in relation to either transfer of the Dairy Farm so as to bring home fraud to her; and
  • Felicity's title as sole registered proprietor was indefeasible so that GC&Co's claim against Felicity for the possession or recover of the Dairy Farm was precluded.

Claude was ordered to pay an amount of equitable compensation. The proceedings against Felicity were dismissed.

GC&Co and Claude each appealed the decision.

COURT OF APPEAL OF NSW PROCEEDINGS

Claude's appeal failed and his application for special leave to the High Court was refused.

GC&Co's appeal was allowed and it was held by a majority that Felicity held the Dairy Farm on trust for GC&Co absolutely and ordered her to execute a transfer of one half share of the land (being Claude's share) to GC&Co.

In reaching their majority decision, three matters were examined by the Court of Appeal and included agency, joint tenancy and registration through fraud.

AGENCY

The question for the Court was whether Claude was Felicity’s ‘agent’ and whether fraud was brought home to Felicity because Claude was fraudulent and was her ‘agent’.

Importantly, it was not alleged [in any Court] that Felicity was a participant in, or had notice of, Claude’s fraud at the time that the dairy farm was transferred to her and Claude as joint tenants in February 1997.

The majority held that Claude acted as Felicity’s agent with respect to the first transfer and that as a result the second transfer was affected by fraud and therefore Felicity’s title in the dairy farm was defeasible.

JOINT TENANCY

The question for the Court was whether even though the title which Felicity held jointly with Claude was defeasible, it did not follow that the title she took on registration of the transfer of Claude’s interest to her was.

The majority held that there was no relevant fraud of which Felicity had knowledge such as to impugn her indefeasible title as the sole joint tenant. However, that Felicity was infected with Claude’s fraud because she and Claude took title from GC&Co as joint tenants and joint tenants are treated by the law as in effect one person only.

REGISTRATION THROUGH FRAUD – SECTION 118 OF THE RPA

All members of the Court of Appeal agreed that neither section 118 nor section 118(1)(d)(ii) in particular should be read as directed only to fraud in the process of registration and that section 118 of the RPA should be construed in a way consonant with the operation of section 42(1) of the RPA.

Further, the reference in section 118(1)(d)(i) of the RPA to proceedings brought by a person deprived of land by fraud against a person who has been registered as proprietor of the land through fraud must be read as embracing every kind of fraud which falls within the relevant exception to section 42(1) of the RPA.

Felicity appealed and her application for special leave to the High Court was allowed in part.

HIGH COURT PROCEEDINGS

The issue for the High Court was whether Felicity's title as registered proprietor of the dairy farm was indefeasible under the RPA as alleged by her.

Felicity submitted that section 118(1)(d)(i) of the RPA was not applicable unless Claude was found to be her agent in committing the fraud which led to the registration of the first transfer.

The High Court, by majority, held that Felicity's title as joint tenant was not defeasible on account of Claude's fraud. Claude was not her 'agent' in any relevant sense. Nor did it follow from Felicity's registration as joint tenant that her title was defeasible.

Further, section 100(1) of the RPA did not require that the fraud of one of the persons registered as joint proprietors denies all those persons the protection otherwise given by section 42(1) of the RPA. The fraud must be brought home to the person whose title is impeached. Claude's fraud was not brought home to Felicity.

However, as Felicity was not a bona fide purchaser for value of Claude's interest in the dairy farm, the interest which Felicity derived from or through Claude could be recovered by GC&Co.

It was ordered that Felicity holds a half interest in the dairy farm on trust for GC&Co absolutely (being the share Claude transferred to her on 24 March 2000) and that Felicity was to transfer the other half interest in the dairy farm which had been held in her name since 2 September 1996 to GC&Co. In effect the entire dairy farm was returned to GC&Co.

WHAT TO TAKE FROM THIS CASE

If the actual fraud is brought home to the registered proprietor, section 118(1)(d)(i) RPA will be engaged and the general bar to proceedings for the possession or recovery of land against that registered proprietor will be lifted.