Legal framework.
102 The plaintiff, in written submissions, helpfully summarised the legal principles relevant to the determination of the issues in this trial. The title to the properties, constituting the development site, was under the Real Property Act 1900 ("the Act"). It is the Torrens system. The principle of indefeasibility is fundamental to that system. Section 42 of the Act is in these terms:
"42 Estate of registered proprietor paramount
(1) Notwithstanding the existence in any other person of any estate or interest which but for this Act might be held to be paramount or to have priority, the registered proprietor for the time being of any estate or interest in land recorded in a folio of the Register shall, except in case of fraud , hold the same, subject to such other estates and interests and such entries, if any, as are recorded in that folio, but absolutely free from all other estates and interests that are not so recorded except:
(a) the estate or interest recorded in a prior folio of the Register by reason of which another proprietor claims the same land,
(a1) in the case of the omission or misdescription of an easement subsisting immediately before the land was brought under the provisions of this Act or validly created at or after that time under this or any other Act or a Commonwealth Act,
(b) in the case of the omission or misdescription of any profit à prendre created in or existing upon any land,
(c) as to any portion of land that may by wrong description of parcels or of boundaries be included in the folio of the Register or registered dealing evidencing the title of such registered proprietor, not being a purchaser or mortgagee thereof for value, or deriving from or through a purchaser or mortgagee thereof for value, and
(d) a tenancy whereunder the tenant is in possession or entitled to immediate possession, and an agreement or option for the acquisition by such a tenant of a further term to commence at the expiration of such a tenancy, of which in either case the registered proprietor before he or she became registered as proprietor had notice against which he or she was not protected:
Provided that:
(i) The term for which the tenancy was created does not exceed three years, and
(ii) in the case of such an agreement or option, the additional term for which it provides would not, when added to the original term, exceed three years.
(iii) (Repealed)
(2) In subsection (1), a reference to an estate or interest in land recorded in a folio of the Register includes a reference to an estate or interest recorded in a registered mortgage, charge or lease that may be directly or indirectly identified from a distinctive reference in that folio."
(emphasis added)
103 "Proprietor" is defined in s 3(1)(a) of the Act to mean "any person seised or possessed of any freehold or other estate or interest in land". Accordingly, s 42(1) bestows indefeasibility of title, not only on the registered holder of the fee simple, but also the registered holder of any lesser or derivative interest in the land, such as a mortgagee.
104 The principle of indefeasibility, which is the foundation of the Torrens system of title, was described by the Privy Council in Gibbs v Messer [1891] AC 248, in these words: (at 254)
"The object is to save persons dealing with registered proprietors from the trouble and expense of going behind the register, in order to investigate the history of their author's title, and to satisfy themselves of its validity."
105 In Leros Pty Ltd v Terara Pty Ltd (1992) 174 CLR 407, Mason CJ, Dawson and McHugh JJ said this: (at 418)
"The Torrens system is, as Barwick CJ noted in Breskvar [27] 'not a system of registration of title but a system of title by registration. That which the certificate of title describes is not the title which the registered proprietor formerly had, or which but for registration would have had. The title certifies is not historical or derivative. It is the title which registration itself has vested in the proprietor.' Torrens, in his A Handy Book on the Real Property Act of South Australia (1862), p 11, in a passage quoted by Windeyer J in Breskvar (1971) 126 CLR, described the operation of the legislation as 'cutting off the retrospective or derivative character of the title upon each transfer or transmission, so as that each freeholder is in the same position as a grantee direct from the Crown.'
This passage supports the view that the effect of the registration of a subsequent dealing bringing about the registration of proprietorship of an estate or interest in land is to extinguish all prior unregistered estates or interests which, but for that registration, would have conflicted with the proprietor's estate or interest or encumbered that estate or interest, unless the prior unregistered estate or interest falls within the exceptions to indefeasibility of title mentioned in s 68. In other words, a person seeking to preserve an unregistered interest not falling within those exceptions must register that interest in advance of the registration of a subsequent inconsistent dealing or prevent such registration by caveat or otherwise, and thereby enable registration of the unregistered interest. Once that interest is defeated by [registration of a subsequent inconsistent dealing bringing about the registration of a new proprietor, the first interest is extinguished for all purposes and cannot be asserted against any later proprietor. The first interest does not become an inchoate interest capable of being asserted against a later proprietor or an interest which remains in suspension so that it is capable of subsequent revival against such a proprietor. We adopt the comment of Franklyn J in Osborne Park Co-operative Society Ltd v Wilden Pty Ltd with respect to the impact of s 68 on an option of renewal in a prior unregistered lease not exceeding five years, namely, that 'no ... proprietary right exists as from the date of acquisition of title by the subsequent registered proprietor'."
106 It follows that an interest that a person may have in land, which has not been registered, cannot, absent fraud, prevail against a person registered on the title, in this case, the mortgagee. Fraud, in this context, means "actual fraud" (Bahr v Nicolay (No 2) [1988] 164 CLR 604 at 630) or "actual fraud, moral turpitude" (Butler v Fairclough (1917) 23 CLR 78 per Isaacs J at 97) or "personal dishonesty or moral turpitude" (Butler v Fairclough (supra) per Griffith CJ at 90) or "something more than mere disregard of rights of which the persons sought to be affected had notice" (Wicks v Bennett (1921) 30 CLR 80 per Knox CJ and Rich J at 91).
107 In Stuart v Kingston (1923) 32 CLR 309, Starke J said this: (at 359)
"Fraud will no longer be imputed to a proprietor registered under the [ Real Property Act ] unless some consciously dishonest act can be brought home to him. The imputation of fraud based upon the refinements of the doctrine of notice has gone."
108 In Bahr v Nicolay (No 2) (supra), Mason CJ and Dawson J said: (at 613)
"There is no fraud on the part of a registered proprietor in merely acquiring title with notice of an existing unregistered interest or in taking a transfer with knowledge that its registration will defeat such an interest: Mills v Stokman (1967) 116 CLR 61 at 78; Waimiha Sawmilling Co Ltd (in liq) v Waione Timber Co Ltd [1926] AC 101."
109 The plaintiff, in submissions, drew attention to two examples which illustrate the concept, namely:
" Wicks v Bennett (supra) where it was held not to be fraud for a registered proprietor to assert that he held title free of an unregistered lease held by a partnership notwithstanding that prior to his purchase he was told orally by one of the partners that he could not purchase the land because it was held by the partnership under the unregistered lease.
Bahr v Nicolay (No 2) (supra) where it was held to be fraud for registered proprietors to assert they held title free of an antecedent equitable interest where the registered proprietors had purchased the land having previously acknowledged and recognized in writing the antecedent agreement giving the right to a third party to purchase the property and then further after registration confirming in writing that they would honour and comply with the antecedent agreement."
110 Here, the memorandum of 6 September 2004, if authentic, is a document that came into existence after the mortgages of Capital Finance had been registered in May 2004. It cannot therefore prevail against the interests of Capital Finance registered on the title. The plaintiff, in submissions, said this, which I accept:
"3. ... Such alleged interest post-dates the Plaintiff's mortgages but Mr McHardy's supposed interest has never been registered and he would therefore merely be the holder of a subsequent unregistered equitable interest or the holder of a mere equity in Unit 2 (that is, Lot 29). ..."
(parenthesis added)
111 Mr McHardy's case is that the written agreement embodied the terms of an oral agreement made in April 2003, that is before registration. In the context of that agreement, it would be unconscionable and hence an exception to indefeasibility not to recognise that agreement. In the context of that allegation the plaintiff, in submissions, drew attention to two matters. The first was expressed in these terms:
"4. It further ought to be noted that any personal equity must comprise a known legal or equitable cause of action enforceable against the registered proprietor of the interest in question. The expressions 'personal equity' and 'rights in personam' do not supply a blank canvas on which a plaintiff can paint any picture. Mr McHardy must be able to sheet home to the Plaintiff as registered proprietor of the relevant mortgages a liability under a recognized cause of action arising out of the Plaintiff's conduct in acquiring or holding its registered interest such as deceit, misrepresentation, mistake, unconscionable conduct, or duress and its conduct must amount to a breach of some obligation owed to him or to be otherwise unconscionable (Butt, P J, Land Law (6th ed) (2010) at paragraph 20 104, at p 821)."
112 The second matter related to the cogency of the proof offered concerning the alleged oral agreement. Attention was drawn to the judgment of Hammerschlag J in Commonwealth Bank of Australia v Serobian [2009] NSWSC 302, where his Honour said this: (at [362])
"Where a party seeks to rely upon spoken words as a foundation for a cause of action, including a cause of action based on a contract, the conversation must be proved to the reasonable satisfaction of the Court which means that the Court must feel an actual persuasion of its occurrence or its existence. Moreover, in the case of contract, the Court must be persuaded that any consensus reached was capable of forming a binding contract and was intended by the parties to be legally binding. In the absence of some reliable contemporaneous record or other satisfactory corroboration, a party may face serious difficulties of proof. Such reasonable satisfaction is not a state of mind that is obtained or established independently of the nature and consequences of the fact or facts to be proved. The seriousness of an allegation made, inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question of whether the issue has been proved to the reasonable satisfaction of the Court. Reasonable satisfaction should not be produced by inexact proofs, indefinite testimony, or indirect inferences: see Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336 at 362; Helton v Allen [1940] HCA 20; (1940) 63 CLR 691 at 712; Rejfek v McElroy [1965] HCA 46; (1965) 112 CLR 517 at 521; Watson v Foxman (2000) 49 NSWLR 315 at 319."
113 That passage refers to the words of McClelland CJ in Eq in Watson v Foxman (2000) 49 NSWLR 315, where the following was said in the context of conduct and words said to be deceptive and misleading: (at 318/319)
" ... Where the conduct is the speaking of words in the course of a conversation, it is necessary that the words spoken be proved with a degree of precision sufficient to enable the court to be reasonably satisfied that they were in fact misleading in the proved circumstances. In many cases (but not all) the question whether spoken words were misleading may depend upon what, if examined at the time, may have been seen to be relatively subtle nuances flowing from the use of one word, phrase or grammatical construction rather than another, or the presence or absence of some qualifying word or phrase, or condition. Furthermore, human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter or ordinary human experience."
(emphasis added)
114 McClelland CJ in Eq added: (at 319)
" ... What I have said ... is equally applicable, mutatis mutandis, to the causes of action based on contract and on equitable estoppel (with the added requirements, in the case of contract that any consensus reached was capable of forming a binding contract and was intended by the parties to be legally binding ..."
115 Against that background, let me return to the issues in order to make an evaluation of the evidence.