You may be interested to know that the High Court today handed down a decision concerning the fraud exception to indefeasibility of title and in particular whether a party (in this case Felicity) who obtained title due to the actions of a fraudster (Felicity’s husband, Claude) can assert indefeasibility on the basis that that she knew nothing of the fraud.  (Cassegrain v Gerard Cassegrain & co Pty Ltd)

The registered proprietor of Torrens system land, Gerard Cassegrain & Co Pty Ltd transferred the land to Felicity and Claude as joint tenants for consideration to be satisfied by debiting Claude's loan account with the company. 

Claude was a director of the company and knew that the company did not owe him the amount recorded in the loan account. 

Claude subsequently transferred his interest in the land to Felicity for a nominal consideration.  Years later the company (following an oppression suit commenced by the siblings of Claude/Felicity) sought to recover title as sole registered proprietor of the land from Felicity. 

The NSW Court of Appeal found that Felicity could not rely on section 42 of the Real Property Act (which provides subject to a fraud exception, indefeasibility of title upon registration).  The NSW Appeal Court having concluded that Claude was acting as Felicity’s agent in arranging for the property to be transferred to them both. 

The High Court though considered the NSW Appeal Court approach to the agency issue was misconceived.  The High Court found that merely because Claude had taken the steps necessary to procure registration of the transfer from the company to Felicity and him as joint tenants it did not follow that his fraud was within the scope of any authority she had, or appeared to have, given to him. Without more, it did not show that knowledge of his fraud was to be imputed (in the sense of "brought home") to her.

The High Court also rejected the notion that joint tenants are considered by the law as one person.  In other words the argument that Claude’s fraud should be sheeted home to Felicity merely because of her joint ownership with Felicity failed.

Finally the Court considered whether the company could challenge the second transfer, that being where Claude subsequently transferred his interest in the land to Felicity for a nominal consideration.

By the second transfer, 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. Felicity was not a transferee of the interest for valuable consideration.

Accordingly the Court found that section 118(1)(d)(ii) of the Real Property Act was engaged.  This section creates a fraud exception to indefeasibility of title where a person (not for valuable consideration) derives his or her title from a person who became registered as proprietor of the land through fraud.

The upshot of the decision was that Felicity only had an indefeasible interest in half the property – the company being entitled to the interest that Felicity obtained from her husband but not the interest she obtain from it.