Christopher Mel Chamberlain trading in his capacity as liquidator of Gerard Cassegrain & Co Pty Ltd (in liq) (ACN 000342174) v Felicity Cassegrain

Background facts

1. The parties to these proceedings were recently the subject of a judgment of the High Court of Australia in Cassegrain v Gerard Cassegrain & Co Pty Ltd [2015] HCA 2 (Cassegrain). The following facts are not in dispute between the parties.
2. The Property is a residential and farm property located near Port Macquarie in New South Wales with frontage on the Hasting River. The House lots comprise the defendant's home and a small guest house, a closed road, and a fenced, vacant lot of land. The House lots have been appraised as having a sale value of between $1.3 and $1.7 million. The improvements made to the House lots are valued at $825,000.
3. The Farm lots comprise around 29 hectares of undulating grass land, a small weatherboard cottage on around 17 hectares of land, 15 hectares with frontage on the Hastings River and mature pecan trees, and around 7 hectares also fronting the Hasting River and also with mature pecan trees.
4. The Farm lots were passed in at auction on 17 October 2015. The fixtures on the Farm lots have been valued at a total of $210,000, and the total value of the improvements to the Farm lots at $350,000.
5. The Company was the sole registered proprietor of the Property prior to around March 1997. In about March 1997 the defendant and her husband, Mr Claude Cassegrain, became registered proprietors of the Property as joint tenants pursuant to a transfer under the Real Property Act 1900 (NSW) from the Company (first transfer).
6. The registration of this transfer was preceded by a resolution of the directors of the Company (in September 1996), who included Mr Cassegrain, to sell the Property and some other associated assets to Mr Cassegrain and the defendant as joint tenants. The directors further resolved, on the same date in 1996, that the Company should: …debit the loan account of Claude Cassegrain in the books of the Company for the amount of the consideration payable…and that the debiting of the…loan account shall be full satisfaction of the amounts payable to the Company.
7. In the High Court it was accepted that Mr Cassegrain's actions in acquiring the Property were fraudulent because the Company never, in fact, owed him the amount recorded in the loan account created in the company's books: Cassegrain [5]-[7].
8. Following the resolution of the directors, but prior to the registration of the transfer, the defendant and Mr Cassegrain made various improvements to the Property, including installing a swimming pool and an extension to the main house.
9. On the face of the March 1997 transfer a value of $1 million was attributed to the Property. However, by reason of the matters outlined above, nothing of value ever passed to the Company as a result of the transfer.
10. On 24 March 2000 Mr Cassegrain transferred his registered interest in the Property to the defendant for consideration of $1 (second transfer). This severed the joint tenancy and left the defendant as the sole registered proprietor of the Property.
11. On 15 October 2004 Westpac registered a mortgage over one of the Farm lots (Folio Identifier 117/754434).
12. On 29 December 2005 the Commonwealth Bank registered a mortgage over two of the House lots (Folio Identifiers 1/798316 and 115/754434) (Commonwealth Bank mortgage). The Commonwealth Bank mortgage is presently at about $985,110.52.
13. On 11 May 2007 the Westpac Mortgage became a "Westpac Equity Access Loan" (Westpac loan). The amount owing is currently $347,147.99.
14. In September 2008 leave was granted to Mr Denis Cassegrain (one of the minority shareholders of the Company) to bring a statutory derivative action in the Supreme Court of New South Wales on behalf of the Company against Mr Cassegrain and the Company. This action sought orders requiring the defendant to transfer the Property to the Company and orders against Mr Cassegrain including equitable compensation for alleged breaches of his duties as a director.
15. In Gerard Cassegrain & Co Pty Ltd v Cassegrain [2011] NSWSC 1156 Barrett J upheld the claims against Mr Cassegrain and dismissed the claims against the defendant. He found that there was no basis for any allegation that Mr Cassegrain had acted with the defendant's actual or implied authority, and thus decided that the defendant held her interest in the Property free from fraud.
16. The Company appealed against the order dismissing the claim against the defendant.
17. The Court of Appeal allowed the appeal and declared that the defendant held the Property on trust for the Company. Orders were made requiring the defendant to execute a transfer of the land to the Company: Gerard Cassegrain & Co Pty Ltd v Cassegrain (2013) 87 NSWLR 284.
18. The defendant appealed to the High Court. By majority, the High Court ruled that the defendant's 1997 registered title as joint tenant was not defeasible on account of Mr Cassegrain's fraud. However, the interest the defendant later acquired through Mr Cassegrain was found to be recoverable by the Company.
19. The High Court declared that the defendant held a half interest in the Property on trust for the Company absolutely and ordered that she execute a transfer of a one-half interest in the Property to the Company: Cassegrain at [67].
20. The defendant subsequently executed transfers of a one-half interest in the Property to the Company as a tenant in common in equal shares. The NSW Office of State Revenue has stamped the transfers. The transfers have not been registered.

Relevant statutory provisions

1. The following sections of the Real Property Act) are relevant to the issues in dispute between the parties: 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. (3) This section prevails over any inconsistent provision of any other Act or law unless the inconsistent provision expressly provides that it is to have effect despite anything contained in this section. … 45 Bona fide purchasers and mortgagees protected in relation to fraudulent and other transactions (1) Except to the extent to which this Act otherwise expressly provides, nothing in this Act is to be construed so as to deprive any purchaser or mortgagee bona fide for valuable consideration of any estate or interest in land under the provisions of this Act in respect of which the person is the registered proprietor. (2) Despite any other provision of this Act, proceedings for the recovery of damages, or for the possession or recovery of land, do not lie against a purchaser or mortgagee bona fide for valuable consideration of land under the provisions of this Act merely because the vendor or mortgagor of the land: (a) may have been registered as proprietor through fraud or error, or by means of a void or voidable instrument, or (b) may have procured the registration of the relevant transfer or mortgage to the purchaser or mortgagee through fraud or error, or by means of a void or voidable instrument, or (c) may have derived his or her right to registration as proprietor from or through a person who has been registered as proprietor through fraud or error, or by means of a void or voidable instrument. (3) Subsection (2) applies whether the fraud or error consists of a misdescription of the land or its boundaries or otherwise. … 76 Transferee of land subject to mortgage etc to indemnify transferor In every instrument, transferring an estate or interest in land under the provisions of this Act, subject to mortgage, charge or covenant charge, there shall be implied the following covenant by the transferee, that is to say, that such transferee will pay the interest, or annuity, or rent-charge secured by such mortgage, charge or covenant charge after the rate and at the times specified in the instrument creating the same (or, in the case of a covenant charge, any interest payable in accordance with the terms of the judgment to which the covenant charge relates), and will indemnify and keep harmless the transferor from and against the principal sum secured by the mortgage, charge or covenant charge, and from and against all liability in respect of any of the covenants contained in the mortgage or charge, or by this Act implied on the part of the transferor.
2. Section 66G of the Conveyancing Act provides as follows: 66G Statutory trusts for sale or partition of property held in co-ownership (1) Where any property (other than chattels) is held in co-ownership the court may, on the application of any one or more of the co-owners, appoint trustees of the property and vest the same in such trustees, subject to incumbrances affecting the entirety, but free from incumbrances affecting any undivided shares, to be held by them on the statutory trust for sale or on the statutory trust for partition. (1A) Subject to this section, on the death of a co-owner, any proceedings by or against the co-owner under subsection (1) (whether instituted before or after the commencement of this subsection) survive against or for the benefit of the estate of the deceased co-owner despite, in the case of a joint tenancy, the rule of survivorship. (2) Where the entirety of the property is vested in trustees or personal representatives, those trustees or personal representatives shall, unless the court otherwise determines, be appointed trustees on either of such statutory trusts, but subject, in the case of personal representatives, to their rights and powers for the purposes of administration. (3) (a) Where the entirety of the property is vested at law in co-owners the court may appoint a trust corporation either alone or with one or two individuals (whether or not being co-owners), or two or more individuals, not exceeding four (whether or not including one or more of the co-owners), to be trustees of the property on either of such statutory trusts. (b) On such appointment the property shall, subject to the provisions of section 78 of the Trustee Act 1925, vest in the trustees. (4) If, on an application for the appointment of trustees on the statutory trust for sale, any of the co-owners satisfies the court that partition of the property would be more beneficial for the co-owners interested to the extent of upwards of a moiety in value than sale, the court may, with the consent of the incumbrancers of the entirety (if any), appoint trustees of the property on the statutory trust for partition, or as to part of the property on the statutory trust for sale, and as to part on the statutory trust for partition, but a purchaser shall not be concerned to see or inquire whether any such consent as aforesaid has been given. (5) (a) When such trustees for partition have prepared a scheme of partition they shall serve notice in writing thereof on all the co-owners of the age of eighteen years or upwards, and any of such co-owners dissatisfied with the scheme may, within one month after service upon him or her of such notice, apply to the court for a variation of the same. (b) Where any of the co-owners is a person under mental disability, the notice shall be served on the person charged by law with the management and care of the property of the person under mental disability or, if there is no person so charged, on such officer of the court as may be prescribed by rules of court. (c) Where any of the co-owners is a minor or a person who cannot be found or ascertained, or as to whom it is uncertain whether the co-owner is living or dead, the trustees may act on behalf of the minor or person, and retain land or other property to represent the co-owner's share. (6) In relation to the sale or partition of property held in co-ownership, the court may alter such statutory trusts, and the trust so altered shall be deemed to be the statutory trust in relation to that property. (7) Where property becomes subject to such statutory trust for sale: (a) in the case of joint tenancy, a sale under the trust shall not of itself effect a severance of that tenancy, (b) in any case land shall be deemed to be converted upon the appointment of trustees for sale unless the court otherwise directs. (8) This section applies to property held in co-ownership at the commencement of the Conveyancing (Amendment) Act 1930 and to property which becomes so held after such commencement. (9) This section does not apply to property in respect of which a subsisting contract for sale (whether made under an order in a suit for partition, or by or on behalf of all the co-owners) is in force at the commencement of the Conveyancing (Amendment) Act 1930 if the contract is completed in due course, nor to land in respect of which a suit for partition is pending at such commencement if a decree for a partition or sale is subsequently made in such suit.

Partition and adjustment of the mortgage

1. In Segal v Barel (2013) 84 NSWLR 193 (Segal v Barel) the following remarks were made by Barrett JA: 25 But it is important to pay attention to the way the statute works. If one coowner applies for partition and there is no counter-claim for sale, the only question the court will have occasion to consider is whether or not there should be partition. No question of sale will arise; nor will any question of "preferred remedy". Likewise, if one owner seeks the appointment of trustees for sale and is not met by a counter-claim for partition, the question of termination of co-ownership by sale will be the only question to be decided and there will be no issue of "preferred remedy". If, however, there are competing claims - one for the appointment of trustees for sale and the other for the appointment of trustees for partition - the position will be that, having regard to s 66G(4), the claim for partition will not succeed unless the person pressing that claim satisfies the court that partition is, in the sense referred to in s 66G(4), "more beneficial" than sale. The co-owner who advances the competing claim for sale, by contrast, is not called upon to show that that remedy is "more beneficial" than partition. 26 If the co-owner claiming partition does not satisfy the court that partition is more beneficial than sale, the only remaining alternative would be sale of the property. This does not mean that sale is the "preferred remedy", only that once the court is not satisfied that partition is the more beneficial remedy, sale of the property remains as the only remedy available. 27 If, however, the co-owner claiming partition does satisfy the court that partition is more beneficial than sale, it does not follow that the court must order partition. The court still retains a discretion to choose the remedy of partition over sale. 28 Because of the additional onus that an applicant for the appointment of trustees for partition must always discharge when pitted against an applicant for the appointment of trustees for sale, the situation is not in truth one of choice between two equally available alternatives. 29 Once that onus is discharged, however, the court is in a position to choose between the two outcomes according to the justice of the case. That is the point that Kearney J made in Hayward v Skinner [1981] 1 NSWLR 590, a case the judge cited in connection with the proposition that sale should not be regarded as the "preferred remedy". Kearney J referred at 593 to the possibility that, although partition had been shown to be more beneficial than sale for the owners interested as to more than one-half, there "may, for example, be circumstances imposing considerable hardship on a minority of co-owners if the greater benefit to the majority should prevail". It is only after the s 66G(4) condition is satisfied that any notion of equally available alternatives comes into play. … 109 The parties obtained construction financing from the Commonwealth Bank. The taking of the account proceeded on the footing that each was responsible for one half of all monies owing to the bank. 110 A drawdown of $150,000 was made under the bank facility in August 2005. The referee found at par 19 of his report that the drawdown was obtained "for the benefit of the plaintiff as to $75,000 and the defendant as to $75,000". The judge, having reviewed the evidence, found that to be an incorrect conclusion. His Honour said (at [33] of the second judgment): "[33] The correct analysis of what occurred is that, in the events which happened, the defendant received the benefit of the whole of the drawdown of $150,000. The referee's finding in paragraph [19] of the report that 'a further $150,000 was drawn down on 15 August 2005 for the benefit of the plaintiff as to $75,000 and the defendant as $75,000', represents an incorrect statement of the factual position. In fact, the $75,000 received by the plaintiff was set off against monies due by the defendant. …" 111 He continued, also at [33]: "Whether or not the referee had the benefit of the evidence I received, the correct position should be recognised and acted upon." 112 The primary judge did not identify the evidence to which he referred. It was suggested in submissions before this court that the evidence consisted of an entry in an invoice delivered by the respondent to the appellant in which there is an item dated 26 August 2005 as follows: "Received 75.000 from Phill S". (This was accepted as being a reference to the appellant, Phillip Segal.) 113 There was thus evidence that the appellant paid $75,000 to the respondent and that the respondent received $75,000 from the appellant, with the result that a benefit of $75,000 flowed to the respondent at the expense of the appellant. In the context of pre-existing indebtedness of the appellant to the respondent, that benefit served to reduce that indebtedness of the appellant - or, in the judge's words, "was set off against" what the appellant owed to the respondent. 114 Although the judge's exposition is cryptic, resort to the evidence serves to identify the reasoning process and to show that it was correct. The adjustment should therefore stand. To the extent that that outcome entails rejection of part of the referee's report, that outcome is warranted by what can be seen to have been a patent misunderstanding of the factual position by the referee. … 132 The orders of the primary judge in respect of the referee's report should stand, as should the declarations concerning the balance outstanding under the Commonwealth Bank loan and the entitlement of the respondent to receive money from the appellant upon termination of the co-ownership (but with the latter varied to reflect the fact that the termination will be by sale rather than partition).
2. In Barel v Segal (No 2) [2012] NSWSC 1054 (Barel v Segal (No 2)) at [30]-[34] Pembroke J made the following observations: 30 The defendant also claims an order that partition be conditional on the payment by the plaintiff of an amount that represents his proportionate responsibility for the Commonwealth Bank loan. This is more orthodox. The defendant relied on the evidence of an accountant named Mr Low. There was no competing evidence from the plaintiff and no attempt in cross-examination to demonstrate error in Mr Low's analysis. Subject to one matter, I accept his figures. 31 Mr Low's figures demonstrate that up to 31 March 2009, the amount of the plaintiff's responsibility for the monies outstanding to the bank was $896,942 and the amount of the defendant's responsibility was $7,093. The ratio is 897:7. As at 3 September 2012, the precise sum owing to the bank pursuant to the joint facility was $894,172.29. Mr Low calculated the amount of the defendant's current proportionate responsibility by taking the sum of $7,093 and compounding it at a rate of 7% to August 2012. This equated to $9,050. It is a little more than the figure that would be reached by applying the ratio of 897:7 to the sum of $894,172 but I will act on the basis of Mr Low's calculations. The defendant submitted that I should do so. The amount of the plaintiff's current responsibility was then calculated by deducting $9,050 (the defendant's share) from $894,172 (the current total debt). This leads to an amount of $885,122. 32 That figure should be adjusted downwards to take account of a factual error in one of the assumptions made by Mr Low. That error was no fault of his and has its origin in the referee's report. Mr Low assumed that a drawdown of $150,000 in August 2005 was for the equal benefit of each of the parties. In fact, the evidence adduced by the plaintiff at the hearing made it reasonably clear that the sum of $150,000 should be wholly characterised as a drawdown in favour of the defendant. No oral or documentary evidence that might have served to contradict this conclusion was elicited from the defendant. 33 The correct analysis of what occurred is that, in the events which happened, the defendant received the benefit of the whole of the drawdown of $150,000. The referee's finding in paragraph [19] of the report that "a further $150,000 was drawn down on 15 August 2005 for the benefit of the plaintiff as to $75,000 and the defendant as $75,000", represents an incorrect statement of the factual position. In fact, the $75,000 received by the plaintiff was set off against monies due by the defendant. Whether or not the referee had the benefit of the evidence that I received, the correct position should be recognised and acted upon. I will deal later in this judgment with the referee's report and the competing claims in relation to it. 34 The result is that Mr Low's figures should be re-worked. The proportionate responsibility of the plaintiff at 31 December 2005 should be $711,016 not $786,016. This will affect the consequential interest calculations and lead to a lower figure than the $885,122 for which the defendant ultimately contends as the plaintiff's responsibility.
3. In Coshott v Prentice (2014) 221 FCR 450 (Coshott) the Full Court of the Federal Court of Australia (Siopsis, Katzmann and Perry JJ) made the following comments: 127 Thirdly, the appellants submitted that s 66G of the Conveyancing Act does not apply because the trustee in bankruptcy is not a co-owner for the purposes of s 66G. Specifically, they contended that he does not have an interest in possession because his interest in the property would vest at law only upon registration. The appellants relied in this regard upon s 58(2) of the Bankruptcy Act to the effect that property will not vest in the trustee in bankruptcy at law until it is registered in accordance with State law, even though it has vested in equity in the trustee by virtue of s 58. 128 The appellants' submission must be rejected. It overlooks the fact that the definition of co-owner in s 66F(1) of the Conveyancing Act includes ownership "whether at law or in equity in possession" (emphasis added). Insofar, therefore, as the submission assumes that the co-owner must have possession in law, it is contradicted by the clear words in s 66F(1). It is sufficient for the co-owner to have ownership in equity in possession and therefore if "each co-owner is as of right as much entitled to possession of any part of the property as the others": Commonwealth Bank of Australia v MacDonald (2000) 10 BPR 18,111 at [36] (Young J) (in equity). No argument was put that the trustee did not have a right to possession in this sense.
4. In Kelly v Kelly [2007] NSWSC 1076 at [23] Austin J considered that: Schultz's case holds that this is so even in the case of a beneficiary of a particular parcel of land in a solvent estate. Their Honours observed (at 311-2): "… the fact that the administration of the deceased estate was incomplete when Mrs Schultz was discharged from her bankruptcy means that the Official Receiver must point to some interest in property which vested in Mrs Schultz prior to her discharge from bankruptcy. That is because the property which is the subject matter of a bequest or devise does not vest in the named beneficiary upon the death of the testator. Section 45 of the Succession Act [approximately equivalent to s 44 of the Wills, Probate and Administration Act 1898 (NSW)] provides: '(1) The property to which a deceased person was entitled for an interest not ceasing on his death … shall on his death and notwithstanding any testamentary disposition devolve to the vest in his executor …' Not only does the legal ownership in the property not vest in the named beneficiary at the time of death of the testator, nor does the equitable ownership. That emerges from the Privy Council's decision in [Livingston]. The reason for this is that, prior to administration of the deceased estate, there is no specific property capable of constituting the subject property of any trust in favour of the beneficiary. It could not be said at that stage what part or parts of the testator's property would need to be realised for the purposes of the administration … So it was held that the beneficiary does not have a proprietary interest in each of the assets which are the subject of the devise or bequest such that he or she can say 'this is mine' or 'this belongs to me'. Although Livingston was concerned with the residuary estate, the observations it contains apply with equal force in the case of a specific bequest or devise."
5. In Arrow Custodians Pty Ltd v Pine Forests of Australia Pty Ltd [2008] NSWSC 839 Bryson AJ made the following remarks at [34]: 34 The end point of the definition is that the trustees hold net proceeds upon such trust as may be requisite for giving effect to the rights of the co-owners. The rights of the co-owners are legal or equitable interests in land which have been converted into equitable interests in a fund. The rights of the co-owners do not in my opinion include equitable or legal claims for money payments which co-owners have against each other. Claims like those are not interests in land or aspects of ownership. If one co-owner has a mortgage, or a charge of any kind legal or equitable over the interests of another co-owner which is an interest in land, that is to be given effect under the statutory trust for sale. If a co-owner has a legal or equitable claim against another co-owner for debt, for contribution to a shared obligation which has been discharged or any other claim other than an interest in land, the statutory trust does not give effect to it. See Re Fettell (1952) 52 SR (NSW) 221, Whitehead v Whitehead [2002] NSWSC 486, (2003) NSW ConvR 56-045.
6. The defendant seeks to rely on the following passages from Harpur v Levy [2013] VSCA 209 (footnotes omitted): 67 Mason, Carter and Tolhurst explain the basis of liability to indemnify a person for an obligation arising out of another person's default as follows. Rights of contribution and recoupment derive from a single source, namely the injustice of the defendant having had its burden relieved by the plaintiff. But a right of recoupment differs in its application from contribution because there is no 'equality': rather the respective positions of P and D are such that it is just that P should throw the whole burden of P's liability to X upon D's shoulders. If it were otherwise, D would be seen to have received an unjust benefit (that is, the effective release of the burden to X) at the expense of P who bore it. Thus, in the standard guarantee situation a guarantor (P), who is forced to meet the creditor's (X's) claim, is entitled as against the principal debtor (D) to recoupment in full for the outlay. This is one example of a broader principle, as Lord Wright MR demonstrated in Brook's Wharf and Bull Wharf Ltd v Goodman Bros: The essence of the rule is that there is a liability for the same debt resting on the plaintiff and the defendant, and the plaintiff has been legally compelled to pay, but the defendant gets the benefit of the payment, because his debt is discharged either entirely or pro tanto, whereas the defendant is primarily liable to pay as between himself and the plaintiff. The classic statement of the general principle is given by Cockburn CJ in Moule v Garrett: Where the plaintiff has been compelled by law to pay, or being compellable by law, has paid money which the defendant was ultimately liable to pay, so that the latter obtains the benefit of the payment by the discharge of his liability; under such circumstances the defendant is held indebted to the plaintiff in the amount. … Absent an express or implied promise to recoup or indemnify, the right of P to recoupment from D for moneys paid to X in relation to D's liability to X appears to depend on three requirements discussed below. These are (1) the need for P's payment to relate to a liability falling upon P and D; (2) P's payment benefited D; and (3) absence of officiousness on the part of P. … 78 Because Rand was both the transferor of the mortgaged property and the trustee, the principle in Waring v Ward, has no direct application. However by analogy that case supports the same conclusion. The Waring v Ward principle appears to have developed independently of the rules governing rights of recoupment and contribution. In Simpson v Forrester all members of the High Court held that the principle in Waring v Ward was good law in Australia and applied to both general law and Torrens system land transferred subject to a mortgage. Stephen J said that: A sale by a mortgagor of his equity of redemption attracts an indemnity from the purchaser to the vendor mortgagor against all liability for the future arising under the mortgage. 79 Gibbs J referred to Errington v Ward, on which the appellant in this case relied. His Honour acknowledged that liability under the covenants in the mortgage did not run to the purchaser but said that 'the obligation of the purchaser, when it exists, is not to pay the mortgagee, but to indemnify the mortgagor'. Stephen J said that it would be against conscience for a purchaser of property subject to a mortgage 'to be permitted to profit from the mortgagor being compelled to pay under the personal covenant, thus discharging the encumbrance the existence of which operated to reduce the price the buyer had to pay'. He considered that if the property was later sold and the proceeds applied to satisfy the mortgage debt, the person who had bought the property subject to the mortgage debt would be liable to indemnify the mortgagor for any balance remaining. 80 The principle in Waring v Ward is not dependent on the purchaser having any contractual obligation to indemnify the mortgagor. Lord Eldon observed: The same principle applies to the purchase of an equity of redemption; for the party means at the time of the contract to buy the estate subject to that mortgage; in relation to which mortgage the personal contract was entered into; and that was not his. If he enters into no obligation with the party, from whom he purchases, neither by bond nor covenant of indemnity to save him harmless from the mortgage, yet this Court, if he receives possession, and has the profits, would, independent of contract, raise upon his conscience an obligation to indemnify the vendor against the personal obligation to pay the money due upon the vendor's transaction of mortgage: for, being become owner of the estate, he must be supposed to intend to indemnify the vendor against the mortgage. 81 It would be illogical to hold that Waring v Ward gave the mortgagor a right to an indemnity against liability arising from the personal covenants in the mortgage, but not under the separate liability arising under the Adjustment Rate Notes. 82 The appellant argues that his Honour wrongly held that the apartment transfers were made for valuable consideration. He further submits that Waring v Ward does not apply to voluntary transfers. In support of that argument he relies on the statement by Stephen J in Simpson v Forrester that: The indemnity obligation arises to overcome what would otherwise be the unconscionable advantage gained by a purchaser, who, having bought the property at a discounted price reflecting the amount of the charge to which it is subject, thereafter benefits by the enforced payment of the charge by the mortgagor at the suit of the mortgagee. 83 The appellant submits that it is not unfair for a donee to seek an indemnity from a donor to meet the liability imposed by the mortgage, although it would be unfair for a purchaser who has bought the property at a reduced price to do so. 84 Even if one accepts the argument that the assignments of the apartments by Rand in his personal capacity to Rand as trustee were, in reality, voluntary transfers, the principle in Waring v Ward should be applied by analogy, to the facts of this case. 85 The beneficiaries of the trust were in the same position as a donee. It is not unfair for a donee who receives the benefit of a gift to be subjected to any burdens associated with that gift. A donee can always reject a gift because that gift carries onerous obligations with it. To require a donor to indemnify the donee for moneys used to discharge a mortgage loan after property is transferred to the donee subject to the mortgage, in the absence of any intention on the part of the donor to do so, would in effect, require the donee to enlarge the gift. Similarly, a person who has established a trust of property subject to a mortgage should not be required to indemnify the beneficiaries against the obligations arising out of the mortgage. 86 Nor was authority cited in support of the argument that Waring v Ward does not apply to a volunteer to whom property is transferred subject to a mortgage. In Simpson v Forrester Gibbs J said that it was not necessary to imply a contract in order for the rule to apply and that: although it may be difficult to imply a contract where there has been a voluntary assignment, it appears that a person who takes the equity of redemption pursuant to a voluntary assignment will be obliged to indemnify the assignor provided that the assignment was subject to the mortgage debt: cf. In re Darby's Estate; Rendall v Darby, and In re Mainwaring; Mainwaring v Verden. 87 In In re Darby's Estate it was assumed that a voluntary assignee of property subject to a mortgage would have an obligation to indemnify the assignor. That decision was approved in Mainwaring. In Mills v United Counties Bank Ltd Farwell LJ observed that the obligation which binds the transferee of property subject to a mortgage to indemnify the transferor against the mortgage debt 'as if it were a legal covenant,' has 'always been treated as one of those equities independent of contract, of which there are so many examples'.
7. In Ryan v Dries [2002] NSWCA 3 it was said by Hodgson JA (with whom Sheller and Giles JJA agreed) that: 70 One point made by Meagher JA is that the claim for contribution in respect of the discharge of a joint debt, such as a mortgage, can be made independently of a partition action or its equivalent. Indeed, it would appear that such a claim could even be made by an action at law, without the need to seek equity at all: see Meagher Gummow & Lehane, Equity, 2nd Ed., pars.1001-1003. If a co-owner makes a claim for contribution to mortgage payments in reliance purely on a legal right, with no reliance on equitable principles, then it would seem that the co-owner is not seeking equity and is not required to do equity. However, if the co-owner does rely on equitable principles in making such a claim, in my opinion the co-owner is seeking equity and is required to do equity, no less than if allowance for improvements was being sought.

Anshun estoppel

1. The defendant seeks to rely upon the well-known principles outlined in Port of Melbourne Authority v Anshun Pty Ltd (No 2) (1981) 147 CLR 589 at 603-4 (footnotes omitted): It has generally been accepted that a party will be estopped from bringing an action which, if it succeeds, will result in a judgment which conflicts with an earlier judgment. In this respect the discussion in Brewer v. Brewer is illuminating. There it was held that the wife's omission to plead matters which would have constituted a discretionary bar to her husband's suit for dissolution of marriage on the ground of adultery did not estop her from raising those matters in subsequent proceedings for maintenance. Fullagar J., with whom Dixon C.J. agreed, said: "In Hoysted's Case the Commissioner was not merely seeking to raise on the second appeal a point which he might have raised but had omitted to raise on the first appeal. He was seeking to raise a point which could not be decided in his favour consistently with the decision on the first appeal. The point had not been argued on the first appeal, and there was therefore no express decision on the point. But the Commissioner had allowed it to be assumed against him, and the assumption was fundamental to the decision in the sense that, if the assumption had not been made, the decision must have been different. As Somervell L.J. said: -'He was therefore seeking to obtain an order which was on the face of it and in form in direct conflict with the order which had been made previously'. The point in question had been 'the groundwork of the decision itself, though not then directly the point at issue' (per Coleridge J. in Reg. v. Township of Hartington)." This was also the conclusion reached by Williams, Webb and Taylor JJ. (76). … The likelihood that the omission to plead a defence will contribute to the existence of conflicting judgments is obviously an important factor to be taken into account in deciding whether the omission to plead can found an estoppel against the assertion of the same matter as a foundation for a cause of action in a second proceeding. By "conflicting" judgments we include judgments which are contradictory, though they may not be pronounced on the same cause of action. It is enough that they appear to declare rights which are inconsistent in respect of the same transaction.
2. The Liquidator makes reference to the remarks of Gibbs CJ, Mason an Aicken JJ at 601-2 (footnotes omitted): However in Yat Tung the adoption of the principle in Henderson v. Henderson was taken too far. Lord Kilbrandon spoke of it becoming "an abuse of process to raise in subsequent proceedings matters which could and therefore should have been litigated in earlier proceedings". As we have seen, this statement is not supported by authority.
3. In Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332 Brennan and Dawson JJ held that (footnotes omitted): A plaintiff who has an unadjudicated cause of action which can be enforced only in fresh proceedings (Duedu v. Yiboe) cannot be precluded from taking fresh proceedings merely because he could have and, if you will, should have counterclaimed on that cause of action in a forum chosen by the opposite party in proceedings in which the opposite party sued him. We do not read the majority judgment in Port of Melbourne Authority v. Anshun Pty. Ltd. as holding the contrary, except in a case where the relief claimed in the second proceeding is inconsistent with the judgment in the first: see especially at pp. 599-601.

On sale or partition

1. The Liquidator submits, correctly in my view, that, in cases like this where there are competing claims, the claim for partition will not succeed unless the person pressing that claim satisfies the Court that partition is "more beneficial". The Liquidator says, again correctly, that the person who advances the competing claim, by contrast, is not required to show that the remedy is "more beneficial" than partition.
2. Relying appropriately on Segal v Barel the Liquidator submits that this claim is confined to financial considerations. The Liquidator says that the disparate values of the lots comprising the Property supports the conclusion that the best course in this case is a "clean break" achieved by the sale of everything. The Liquidator recognises that it will be open to the trustees to market the Property in what is determined by them to be a financially beneficial combination of the existing titles.
3. The defendant has been unable to produce any admissible evidence that would have gone to the question of what might have been more beneficial. The Liquidator says she has not, therefore, discharged her onus in that regard. That has inevitable consequences to which I will return.

The mortgage issue

1. The Liquidator characterises this case as one of adjustment between co-owners. The Liquidator says this is consistent with s 66F(2)(a) of the Conveyancing Act which provides that property held under statutory trust for sale "shall be held upon trust to sell the same and to stand possessed of the net proceeds of sale…subject to such powers and provisions as may be requisite for giving effect to the rights of the co-owners". Here, of course, there is no doubt, in my view, that the Liquidator is relevantly a co-owner: Coshott at [128].
2. However, the defendant, on the other hand, says that this case is not an "adjustment" between co-owners. She says the Liquidator's claim with respect to the mortgages is, in reality, a money claim for a debt it alleges is owed to it. She submits that the Liquidator does not adequately acknowledge that the trustees for sale of the Property may only give effect to the legal or equitable interests that the parties actually hold as co-owners of the Property - it is not for the trustees to make adjustments for claims the parties hold against each other.
3. The defendant submits that Div 6 of Part 4 of the Conveyancing Act does not confer on the Court a broad discretion to make alterations to the proprietary interests of the parties. The defendant relies upon the remarks of Bryson AJ in Arrow Custodians, cited above, and says that the relief sought concerning the mortgages does not fall into the first category identified by Bryson AJ because the mortgages were not taken out over the existing interests of the Company. The Company's legal or equitable interest in the Property, it is said, is subject to the register, and therefore the Liquidator's case falls into the second category of case identified - a claim for a contribution to a shared obligation. The defendant therefore submits that Segal v Barel is not relevant to the mortgage issue. In that case, the defendant points out, the applicant and the respondent purchased land together as co-owners and, it appears, took out a mortgage over the property together.
4. The defendant says it is incumbent on the Liquidator to prove how and why there is an entitlement to the "adjustment", and that they have not done so. I do not agree.
5. The Liquidator says that support for the orders sought concerning the mortgage can be found in the reasoning of Segal v Barel, where the Court of Appeal did not interfere with the primary judge's declarations concerning the responsibility of one co-owner for the balance outstanding under a loan from the Commonwealth Bank. By analogy, the Liquidator submits, the defendant alone granted the mortgages and received all the benefit of the monies advanced under them, and alone owes the debts secured by the mortgages. I agree with this proposition. It is clear on a fair reading of the judgment of Barrett JA.
6. However, the defendant makes two further points regarding the mortgage issue. First, the defendant says that as a result of the statutory derivative proceedings it appears that the Company's interest in the Property, prior to the registration of the transfers, is that of a beneficiary of a constructive trust.
7. The defendant also says that it is important to contextualise the issues between the parties with regard to the timing of the mortgages and the parties' positions at the time.
8. The defendant points out that she encumbered the Property well before the commencement of the statutory derivative proceedings. Importantly, the defendant says, she was not a co-owner with the Company at the time, she was not co-owner with Mr Cassegrain, and Mr Cassegrain's fraud was not imputed to her. The defendant says she innocently incurred the mortgage debts in reliance on a state of affairs that was later shown to be false.
9. The defendant also says that after the first transfer and prior to the determination of the statutory derivative proceedings, the Company held only an equitable interest in the form of a chose in action. It was not until the Court of Appeal made orders on 18 December 2013 that the Company had any equitable interest in possession of the Property within the meaning of s 66F of the Conveyancing Act.
10. This is not, the defendant says, a case where a mortgage was taken out by one co-owner over her undivided share. This is a case, the defendant submits, where a sole proprietor took out the mortgage and subsequently transferred half of the Property to a new co-owner. The Company takes the property under the transfer and not by survivorship or through rectification of the register.
11. The defendant further submits that there is no question that the mortgagee's registered legal interests in the Property take priority over any equitable interest the Company might have because they were taken bona fide for value without notice: RPA s 45.
12. The defendant also submits that the estate of a registered proprietor is subject to the estates and interests recorded in the folio of the register: RPA s 42.
13. The defendant says the nemo dat quod non habet rule must apply; the defendant could not convey to the Company an interest that she did not have. The bundle of rights, the defendant says, that constitute the parties' interests in the Property, were diminished on the dates of registration of each mortgage to the extent of those interests on the register.
14. The defendant submits that the general law also provides that a mortgagor's interest is capable of assignment. The defendant says that if a mortgagee is not party to the assignment, there is an implied covenant on the part of the assignee to the assignor to pay the principal and interest under the mortgage, to perform any other covenants in the mortgage, and to indemnify the mortgagor: Re Burton; Ex parte Union Bank of Australia (1901) 27 VLR 437; Simpson v Forrester (1975) 132 CLR 499, 515; Harpur v Levy [2013] VSCA 209.
15. As a consequence, the defendant submits that the Company as an assignee of property subject to mortgage is required to indemnify the defendant in respect of a half-share of the mortgage debt.
16. In response, the Liquidator says that the argument put by the defendant concerning the operation of s 76 of the RPA is misconceived because it is based on the premise that the defendant has, in fact, transferred a half-interest in the property to the Liquidator. I agree with that proposition. In fact, the Liquidator says, the Liquidator has chosen not to register this transfer but instead to rely on the declaration of trust made by the High Court to establish its interest in the property for the purpose of these proceedings. It seems to me the Liquidator is perfectly entitled to do just that.
17. The Liquidator argues that an entitlement to bring proceedings under s 66G applied to "equitable ownership", which includes the right of a party to claim the transfer of the property without having to have had the property transferred to it. "Co-ownership" within the meaning of s 66G, the Liquidator says, means "at law or equity" provided there is "specific property capable of constituting the subject property of any trust in favour of the beneficiary". Again, in my view that is clearly correct.
18. The Liquidator says that to the extent the defendant relies on Harpur, this case is distinguishable because in that case there was a declaration of trust with a consequential transfer of the property in question. The transfer would therefore, the Liquidator says, enliven the statutory covenant (or common law obligation) on the transferee (in this case the trustee) if the Court held that this was the intention of the settlor. With a declaration of constructive trust, the Liquidator says, there is no transfer of property. A constructive trust, the Liquidator says, is in effect not a "trust" at all, but rather an equitable remedy whereby the owner of the property is restrained from asserting their own beneficial interest in the property. Again that is a correct analysis, in my view.
19. In relation to the argument made that the Liquidator is attempting to prosecute "an equitable or legal claim for money" against the defendant, the Liquidator again submits that this argument appears to proceed on the misunderstanding that the Liquidator is the transferee of the subject properties and thus liable for half of the mortgage debts. The Liquidator submits that that is not correct. Again, I agree. The Liquidator says, in my view appropriately, that the judicial order for sale is sought as an "equitable co-owner" who shares no liability with the defendant to the claims on the property made by the mortgagees.
20. The Liquidator, again appropriately, submits that the defendant is wrong to contend that the principle in Segal v Barel is applicable only in situations where a "mortgage is taken out together". The Liquidator submits, again correctly in my view, that Arrow Custodians at [34] does not support the defendant. Properly understood, the defendant says, in that case Bryson AJ was referring to the principle that adjustments made in partition suits (and therefore under s 66G of the Conveyancing Act) are "concerned with the position of the parties as co-owners". In essence, a party cannot claim in a partition suit for an adjustment that is based on some other form of legal or equitable claim unconnected with the parties' respective rights in the subject property.
21. In Arrow Custodians, the Liquidator submits, correctly, Bryson AJ was considering disparate claims from investors in an agricultural plantation, many of which were rights in personam rather than interests in the subject property. What his Honour was explaining in that decision, it seems to me, was that it was not appropriate in the suit he was considering to consider such claims (but he noted at [35] that it may be appropriate in less complicated s 66G applications).
22. The Liquidator submits that none of the cases relied upon by the defendant is authority for the proposition for which the defendant is contending - that unless the relevant adjustment is in respect of a "shared obligation" then it cannot be brought to account in a s 66G application. The Liquidator says this contention is simply a misunderstanding of the statements made by Bryson AJ. What is necessary, the Liquidator says, is that the claimed adjustment must relate to the parties' respective interest(s) in the subject property, not that the adjustment in itself is a "shared interest" in that property. There is no principle of equity of law, the Liquidator says, that would support such a contention. In my view those propositions should be accepted.

Anshun estoppel

1. The defendant submits that the Liquidator must be deemed to have had notice of the mortgages once they were on the register. The defendant says that the Court should not use its discretion to allow the Liquidator to litigate matters concerning the mortgages because those matters could and should have been raised in the statutory derivative proceedings. It was unreasonable, the defendant says, for the Liquidator not to have joined the mortgagees to those proceedings and to now "seek in these proceedings to circumvent the practical effect of the High Court's orders and avoid the consequences of the Torrens system of priority of title".
2. The defendant says that had it been asserted in the statutory derivative proceedings that the defendant should effect a re-conveyance of the property unencumbered, or that Mr Cassegrain should pay compensation for the amounts owing on the mortgages, then very different questions would have arisen in relation to the orders to be made against both the defendant and Mr Cassegrain. For example, the defendant says, the Court may have determined issues arising under s 120(1)(a) of the RPA.
3. If the Company had sought such orders, the defendant says, it is likely that a proportionate amount owing under the mortgage would have been included in the quantum of equitable compensation payable by Mr Cassegrain. Alternatively, the defendant could have sought exoneration from Mr Cassegrain for the debt incurred. The opportunity to raise such a defence, the defendant says, has now passed.
4. Instead, the defendant says, the High Court adjusted the interests of the Company and the defendants. They both now have the benefit of a one-half share in the Property, subject to encumbrances. Both parties, the defendant says, now have an equity to redeem the property from the mortgages and both must contribute in proportions commensurate with that equity of redemption. In addition to the receipt of a one-half interest in the Property, the defendant submits, the Company also obtained the benefit of orders for equitable compensation from Mr Cassegrain for the full value of the Property in addition to the full value of certain improvements made to the Property which were apparently paid using the loan account. As a consequence, the defendant says the question of whether the defendant received any benefit from the mortgages is ultimately of little relevance.
5. The defendant says there is no reason the Company should be further permitted to prosecute her personally to profit from, or compound, her loss. The defendant says she herself is a person who has been prejudiced by Mr Cassegrain's fraud.
6. The defendant alleges that the relief sought concerning the mortgage effectively seeks a judgment in conflict with the orders of the High Court. The defendant says that the Liquidator has not provided any reason the matter was not raised in the statutory derivative proceedings. She says it was clearly unreasonable that the matter was not raised, and that she has been conducting her affairs on the basis that the mortgages were not in issue between the parties. The Liquidator's claims in this regards, she submits, should be estopped.
7. The Liquidator submits once again that the defendant's submissions on this point are misconceived. The Liquidator says that an application under s 66G of the Conveyancing Act is only an application for the appointment of trustees and (as in this case) an accounting between the parties based on their existing respective entitlements. It is submitted that the Liquidator is not seeking to vary the orders made by the High Court, rather he is seeking to rely on the form of those orders.
8. The Liquidator says that it is likely that the defendant's Anshun claim is based on the mistaken assumption that the Liquidator brings these proceedings as a transferee rather than as an equitable co-owner. The Liquidator also notes that if the defendant's submissions regarding Anshun were correct, then the defendant would be precluded from bringing her claims for improvements in these proceedings.
9. Again, in my view the Liquidator's submissions are correct. I fail to see how the relevant principles are engaged here. Quite simply, the Liquidator sought and obtained a declaration that the defendant held a half-interest in the Property on trust for the Company absolutely. I am not persuaded it was unreasonable on its part to stop there. Nor could that conduct be regarded as an abuse of process. The Anshun principle in my view is simply not engaged.

Discussion

1. In my view trustees should be appointed for the sale of the remaining portion of the Property (the House lots). I note the defendant does not oppose the persons nominated for that purpose.
2. On the question of sale or partition, therefore, I am of the view that a sale should be ordered. The defendant has not demonstrated by any admissible evidence why partition would be "more beneficial" to both co-owners in the sense referred to in s 66G(4). In particular, there was no admissible evidence as to value or any other factor which might touch the issue. The defendant has simply failed to discharge her onus in that regard.
3. In so far as it is proposed by the defendant that the liability for the mortgage should be born 50/50 by the Company and the defendant, I do not consider she has made out her case for that consequence. I am not persuaded that the provisions of the RPA identified by the defendant are applicable in these circumstances. I see this case as an adjustment between co-owners.
4. The defendant suggested that if s 76 was not applicable, then ss 42 and 45 would be, although she did not put precisely orally or in writing how that would be so. I do not see that ss 42 and 45 are relevant in these circumstances. I consider that the Liquidator's argument concerning s 76 is correct, namely that the Liquidator is not a transferee in the relevant sense as the transfer has not been registered and the Liquidator instead seeks to rely on the declaration of trust made by the High Court. In addition, it seems to me that it can be fairly said the defendant alone granted the mortgages and alone received all of the benefit of the monies advanced and should appropriately bear responsibility for that. The relevant mortgages should therefore, upon a sale, be discharged from the defendant's share of the proceeds of the sale.
5. More particularly, in the circumstances it seems to me appropriate that upon sale the trustees should pay the amounts to secure discharge of registered mortgage AC489222 (the Commonwealth Bank mortgage) and registered mortgage AB54426 (the Westpac loan) from the defendant's share of the proceeds of sale of the Property.
6. Similarly, I accept the Liquidator's submissions concerning Anshun estoppel. I do not accept that the defendant has made out a case that the Liquidator is estopped from seeking the relief claimed.
7. I would invite the parties to bring in short minutes reflecting these reasons and if agreements on the orders or on costs cannot be reached the matter should be relisted for argument.

Amendments 18 November 2016 - adding junior counsel (plaintiff) DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 18 November 2016