Diemasters v Meadowcorp and Jain v Registrar General

Supreme Court of NSW|2001-04-27|Before: Windeyer J, Mr P

CITATION : Diemasters v Meadowcorp and Jain v Registrar General [2001] NSWSC 495 revised - 20/06/2001 CURRENT JURISDICTION: Equity Division FILE NUMBER(S) : SC 3238 of 2000; 1374 of 2001 HEARING DATE(S) : 26 and 27 April 2001 JUDGMENT DATE : 18 June 2001

Mr D L Warren (Plaintiffs in 3238/2000) COUNSEL : Mr I Sanderson (Mr Jain) Mr Moloney (Mr Chelliah - submitting) Mr I Wales SC with him Mr P Walsh (Registrar General) Peter Zipkis (Plaintiffs in 3238/2000) SOLICITORS : Sullivans Solicitors (Mr Jain) Eddy & Moloney (Mr Chelliah - submitting) Kenneth Charles Hall (Registrar General) CATCHWORDS : CONVEYANCING - land under the Torrens System - discharge of mortgage procured by fraud of mortgagor - property then sold - mortgage remaining registered - mortgagees lodged caveat before transfer lodged - whether mortgagees have priority over purchasers CONVEYANCING - land under the Torrens System - discharge of mortgage procured by fraud - land then sold - whether incoming purchaser entitled to protection of s43A CONVEYANCING - incoming purchasers buying as joint tenants - one joint tenant party to fraud in discharge of mortgage - whether other joint tenant "tainted" or can take title unencumbered CONVEYANCING - land under the Torrens Title System - transfer not stamped - whether incoming purchaser entitled to protection of s43A CONVEYANCING - land under the Torrens Title System - claim against Torrens Assurance Fund - s129(1) of Real Property Act 1900 - whether incoming purchaser suffered damage as a result of the operation of the Act through being deprived of an interest in land through fraud - if would have taken unencumbered title if land under Old System Title Duties Act 1997 s301 Hansard NSW LA 3 May 2000 p 5187 LEGISLATION CITED : Law Reform Commission Report 76 (1996) Torrens Title: Compensation for Loss Real Property Act 1900 s36(6A): s 41; s43A; s43A(1); s74I; s74MA; s126; s129; s129(1); s132(1): s132(2); s133(4) Real Property Amendment (Compensation) Act 2000 Pt 14 Ex parte Adamson: In re Collie [1878] LR 8 ChD 807 Finlay & Ors v R & I Bank of Western Australia & Anor [1993] Conv R 55-686 Finucane v The Registrar of Titles [1902] St R Qd 78 Forsyth v Blundell (1973) 129 CLR 477 Guthrie v ANZ Banking Group Limited [1991] NSW ConvR 55-591 Heid v Connell Investments Pty Limited (1987) 9 NSWLR 628 at 637 J & H Just Holdings Pty Limited v Bank of New South Wales (1960) 90 WN Pt 1 NSW 571 CASES CITED : Jonray (Sydney) Pty Limited v Partridge Brothers Pty Limited (1969) 89 WN Pt 1 NSW 568 Latec Investments Limited v Hotel Terrigal Pty Limited (1965) 113 CLR 265; Lord Abergevenny's case (1607) 6 Co Reports 78B; 77 ER 373 Myers v Smith (1992) 5 BPR 11494 Penny Nominees Pty Limited v Fountain No 3 [1991] NSW ConvR 55-56 Phillips v Phillips [1862] 4 De G F & J 245; 45 ER 1164 Robinson v The Registrar-General [1983] NSW Conv R 55-128 Sinclair v Hope Investments Pty Limited [1982] 2 NSWLR 870 DECISION : See paragraphs 41 and 42

1 IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION WINDEYER J

3238/00 DIEMASTERS PTY LIMITED & ORS V MEADOWCORP PTY LIMITED & ORS 1374/01 NARENDRA KUMAR JAIN V REGISTRAR GENERAL

Outline 1 These matters were heard together, the evidence in one being evidence in the other, so far as is relevant. The plaintiff companies in the first action, whom I will call the mortgagees, lent, in various shares, the sum of $367,000 to Meadowcorp Pty Limited on the security of a property at Lakesland owned by Meadowcorp. That company was controlled by a Mr Tooth, who was its sole director. Tooth procured the discharge of the mortgage by means of stolen and forged bank cheques. Meadowcorp then sold the property to Messrs. Chelliah and Jain under contract and transfer, both dated 29 February 2000. The discharge and transfer have not been lodged for registration. The mortgagees have lodged a caveat to protect their interest as unpaid mortgagees, the main purpose of the caveat being to prevent the registration of any discharge of the said mortgage. In the first action the mortgagees seek to uphold their interests against the interest of the purchasers, Messrs Jain and Chelliah. In the event this is successful, Mr Jain, in the second action, seeks compensation from the Torrens Assurance Fund. Parties 2 In the first action the mortgagees are plaintiffs, the mortgagor, Meadowcorp Pty Limited, is the first defendant, Mr Jain is the second defendant and Mr Chelliah the third defendant. I will refer to these parties as Meadowcorp, Jain and Chelliah. Meadowcorp has been served but has not appeared. Chelliah, who was earlier represented by the same solicitor as Jain, has now filed a submitting appearance. This was done at the commencement of the hearing by his new solicitors. He has not filed a defence. In the Assurance Fund proceedings Chelliah was joined as a defendant as it has been alleged he was not willing to be added as a plaintiff. Again he has filed a submitting appearance Pleaded claims 3 In the mortgage proceedings the plaintiff mortgagees claim that: the discharge of mortgage was obtained by fraud of Meadowcorp through Tooth; that Jain and Chelliah knew of this as they knew the cheques used to pay out the mortgagees were stolen and forged; and that the three defendants conspired to defraud the mortgagees, with Jain and Chelliah intending to obtain an indefeasible title by registration of the discharge of mortgage and transfer. The mortgagees seek to have the discharge of mortgage delivered up and set aside. They also seek a declaration that their interests are entitled to priority over the interests of the second and third defendants. Finally they seek an order for possession against Meadowcorp. Jain denies knowledge of stolen and forged bank cheques, he denies he was the agent of Chelliah and he denies fraud. 4 The second proceedings have relevance only if the mortgagees succeed in the first proceedings to set aside the discharge of mortgage or to retain priority over Jain and Chelliah. In that instance Jain, as plaintiff, claims that the discharge of mortgage, being obtained by fraud of Meadowcorp, and the tendering of the fraudulent discharge by Meadowcorp to Chelliah and Jain was itself fraudulent. Although the statement of claim in no way clearly or properly articulates Jain's claim, it is accepted that the claim is made under s129 of the Real Property Act 1900 on the basis that Jain has suffered loss as a result of the operation of the Real Property Act in respect of the land in question in circumstances where the loss has arisen from his having been deprived of the land or an estate or interest in it as a consequence of fraud. Facts 5 Meadowcorp purchased the property 120 Moss Vale Place, Lakesland, in 1997 for $320,000. By mortgage registered No 5034297 dated 29 May 1998, the mortgagees lent to Meadowcorp $367,000 on the security of the property repayable on 29 May 2000. 6 Tooth is and was the sole director of Meadowcorp. He is at present serving a four year sentence for fraud, unconnected with these actions. Meadowcorp fell into arrears under its mortgage in 1999 and Tooth decided to try to sell the property. It failed to sell at auction. Chelliah was an acquaintance of Tooth. After negotiations, during which Jain appeared on the scene as a proposed purchaser with Chelliah, Meadowcorp entered into a contract for sale of the property to Chelliah and Jain for $420,000. The contract was signed by all three of them at the George IV Hotel at Picton on 29 January 2000. It was agreed that the deposit would be $20,000, payable as to $10,000 in cash and as to $10,000 by transfer of a Mercedes motor car. The contract provided for six months for completion. A solicitor, Mr Sullivan, was instructed to act for the purchasers. As there was to be a delayed settlement he lodged a caveat to protect the interest of the purchasers. 7 Tooth became desperate for money to pay his solicitor for legal representation at a sentencing hearing. He had sold the Mercedes for $4,000, which presumably he applied towards legal fees or outstanding debts. He says that he contacted a man, known to him as Daniels, who said he had access to stolen bank cheques, some of which he would sell to Tooth for $85,000. He says that he later told Chelliah that he would sell the property at a reduced price of $180,000 or $200,000, he does not remember which. There is some dispute about this and what happened thereafter and I will come back to this in due course, but deal with the balance of the uncontested facts now. 8 There was a second mortgage on the property to Messrs Staunton & Thompson, whom I understand to be the partners in a firm of solicitors. Tooth contacted them to arrange for a discharge to be executed. He was told the discharge figure on 22 February 2000, namely $24,490. On the same day Mr Peter Zipkis, solicitor acting for the mortgagees, advised him of the discharge figure of the first mortgage, namely $390,627.95. Daniels provided the cheques. Mr Tooth then called at the office of Mr Zipkis to arrange the discharge some time the next day, but he was not going to settle until he was sure that Chelliah and Jain had the funds to settle their purchase from Meadowcorp. Settlement was postponed for a few days. Tooth met Chelliah at Picton on 25 February. He said he was prepared to sell for $130,000 cash, which when added to the deposit would make up $150,000. Settlement was arranged to take place on 28 February, Chelliah saying that Jain would have the money by then. The next day Chelliah told him that only $80,000 was available and this was to be arranged by Jain making credit card withdrawals. It was agreed that amount would be paid on settlement and the balance of $50,000 within thirty days. 9 On 29 February, Tooth attended the office of Messrs Peter Klimpt & Co, solicitors acting for one of the mortgagees and as agents for Mr Zipkis. Mr Klimpt told Tooth that he could not settle without authority of the caveators to hand the deed to him, Tooth, on behalf of Meadowcorp. Tooth told Chelliah of this, who then arranged through Mr Sullivan to send the necessary authority. Settlement was postponed while this was obtained. Later that day, namely 29 February, settlement of the discharge took place. A bank cheque for $390,627.75 was handed over. Another bank cheque for $24,400 together with a personal cheque for $1,000 both in favour of Staunton & Thompson, were handed over to a representative of Messrs Staunton & Thompson present on settlement. In exchange for these cheques, Tooth received mortgage no. 5034297, four discharges, one executed by each of the mortgagees, in respect of that mortgage, certificate of title Folio Identifier 2/592982 and discharge of the Staunton & Thompson mortgage 5474452. On their face all these were in order for registration. 10 After some time and some happenings which are again in issue, Tooth and Chelliah went to Sullivan's office. Mr Sullivan produced three documents. The first was a new contract of sale for $300,000 from Meadowcorp (described as "acting for self") to Jain and Chelliah. The contract provided for the purchasers to indicate whether they took as joint tenants or as tenants in common. Neither box was completed. The contract further stated in that case the alternative in capital letters applied. Joint tenants was in capitals. Tenants in common was not. 11 The contract provided for completion in six months. Sullivan said that was a mistake, having been copied from the previous document. The deposit was to be $10,000 cash and the Mercedes, so that obviously the payments under the first contract were to be the payments under this new contract. The second document was a deed of termination of the contract dated 21 January 2000 and release of rights and claims under that contract. The third document was described as an acknowledgement. Under this Meadowcorp acknowledged receipt of the balance of purchase moneys under the contract of the same date in manner as follows: (a) as to the deposit as previously described; (b) as to $80,000 by bank cheque; (c) as to the sum of $15,000 by transfer of Mercedes QWQ 258; (d) as to $35,000 by bank cheque on or before 14 March; and (e) as to $150,000 "this sum is hereby forgiven and the company waives all rights title and claim thereto". 12 Tooth signed the documents. Chelliah signed the contract and deed of termination. They waited in Sullivan's office for Jain to come. A form of transfer from Meadowcorp to Chelliah and Jain as joint tenants was executed by Meadowcorp, the seal stated to have been affixed in the presence of Tooth as director and Tooth as secretary. Sullivan accepted it for the transferees. Jain arrived with three cheques, two at least procured by making cash withdrawals from credit card accounts. The cheques were made out to Meadowcorp. Jain signed the contract and the deed of termination. The cheques were handed to Tooth. He tried to cash one of the cheques which was for $45,000 and, after some difficulty and with the help of Jain and his wife, achieved this. He said that he gave Daniels $40,000 of this amount. He gave Chelliah $5,000 of the amount that he had agreed to pay him, namely $30,000 for his part in the fraud. The next day Tooth cashed the bank cheque for $10,000. He could not cash the cheque for $25,000 so he opened an account in the name of Meadowcorp with Macquarie Bank, banked the cheque to that account, obtained a special clearance and drew a bank cheque in favour of his wife. His wife cashed this and gave him $20,000 which he gave to Daniels. On these figures Daniels got $60,000. 13 The settlement cheque was paid by Mr Zipkis into his trust account on 2 March. It was dishonoured, Mr Zipkis receiving notice of this on 8 March, whereupon he lodged caveat 6616840 to prevent registration of any discharge of mortgage 5034297. The defendants have not lodged the discharge or transfer for registration, no doubt accepting that the mortgagee's caveat would prevent this. Facts which are in contention 14 Tooth said that at the time when he told Chelliah about the stolen bank cheques and his ability to sell the property for either $180,000 or $200,000 they agreed to go to Jain's office, which he said was in Pitt Street, Sydney. He said that they both went in to see Jain and talked about the immediate settlement rather than a delayed settlement. He said that Jain had asked how this was possible and how were mortgages going to be paid out and that Chelliah had replied that he, Tooth, had "a friend who will be providing the money in the form of stolen bank cheques". In cross-examination Tooth identified the place of this meeting, namely Jain's office, as being in Pitt Street between Martin Place and Hunter Street. If this meeting took place at all, then it must have taken place in the second half of February 2000. Jain said he moved his office to 37 Pitt Street, which is between Bridge and Alfred Streets, at the end of January 2000. He denied the meeting took place. The evidence in Tooth's statement about what happened in Mr Sullivan's office indicates that Mr Sullivan, Chelliah, Jain and Tooth were in the same place, although it is not entirely clear that is what was intended to be said. Jain said that he signed the deed of termination in the reception area, not in Mr Sullivan's office and presumably signed the contract there as well. His evidence about the acknowledgement is contradictory. In early cross-examination on the document it seems perfectly clear he was aware of it and its terms. He explained it by saying that if Meadowcorp went into liquidation the debt of $150,000 would disappear with it, but that somehow the money would still be paid presumably to Tooth. Later he denied seeing the document at all. Mr Sullivan said that he did not remember if he showed it to Jain or not. He said his instructions were not from Tooth, but it appears from a file note of his that they came in a conference when Chelliah and Tooth were present with him, it seems on the afternoon or late morning of 29 February 2000. 15 It is necessary in the light of this conflicting evidence to make some findings on the question of fraud or knowledge of fraud on the part of Chelliah and Jain. So far as Chelliah is concerned he has filed no defence, he was well aware of the allegations against him and for the most part, of the evidence which would be given. He has chosen not to say anything in contradiction. It is clear that he had a reasonably close relationship with Tooth, at least during the time span involved with the various contracts. In the absence of any evidence to the contrary I think it clear that a finding should be made that he was aware of the stolen and forged bank cheques and was party to the fraud of Tooth and therefore took the discharges and transfer with knowledge of that fraud. So far as Jain is concerned the position is not so clear. Tooth is after all an admitted fraudster. He is serving a sentence for a different fraud and he has admitted his fraud in relation to the transactions in question in the first action. In ordinary circumstances therefore one would place little reliance on his evidence, if it were contradicted, unless it were corroborated by some person in whom the court had some reason to repose some confidence. As his evidence of the occasion on which he says Jain was told that Tooth had access to stolen cheques was challenged and as the evidence of Jain as to his moving office was not challenged, I have come to the conclusion that I should not accept the evidence of Tooth as to his attending Jain's office with Chelliah on an occasion when he said the stolen cheques were mentioned as the means of paying out the mortgagees. I have also come to the conclusion for similar reasons that I should not accept Tooth's evidence that Jain was concerned to have the new contract and transfer stamped immediately, but rather should accept Jain's evidence that he knew about the times available for payment of stamp duty and wished payment to be delayed for as long as possible. On the other hand I have the greatest difficulty in accepting Jain's evidence about the intention of ever paying any more than $150,000 for the property. I consider that the evidence points clearly to the fact that he was aware of the contents of the acknowledgement, even though Mr Sullivan was not prepared to say with certainty that Jain had seen that document. Chelliah was a client introduced to Sullivan by Jain. Jain was his principal client. It is unbelievable in my view that Jain was not aware of the actual moneys that were to be paid and I do not accept his evidence that he intended the remaining $150,000 to ever be paid irrespective of the extraordinary decision to put the purchase price of $300,000 on the contract and transfer and therefore incur liability for stamp duty on the basis of that being the actual price. His extraordinary explanation, which could only go to suggest that he was embarking on some conspiracy to defeat the creditors of Meadowcorp, does not encourage one to place any particular reliance on his evidence and the hesitation and, to some extent, the considered manner in which he answered questions makes me unwilling to consider him to be a reliable witness. His original evidence about a valuation was not true. He knew there was a mortgage on the property; he said he did not know of the amount required to discharge it but it is apparent that he must have known that Tooth was desperate for money as otherwise there could have been no possible reason for a purchase price of $420,000 payable in six months being suddenly reduced to a purchase price of $150,000 payable immediately, or perhaps on the best story for Jain, $150,000 payable immediately albeit part by the value of motor cars and a further $150,000 in six months' time. All this makes it difficult to believe that Jain was not involved with the fraud. Nevertheless in view of the seriousness of the finding and the fact that to some extent at least, such a finding must depend upon the uncorroborated evidence of Tooth, I am not satisfied such a finding should be made. It was put by counsel for both the mortgagees and the Registrar General that Chelliah was a witness whom Jain could have been expected to call and I should infer his evidence would not assist Jain's case. I do not think it appropriate to draw such inference. Chelliah was originally represented by Mr Sullivan but this came to an end when he would not contribute to costs. A party should not necessarily be expected to call a fraudster to give evidence in support of that party's case. Claims to set aside the discharge 16 Chelliah was not a bona fide purchaser for value without notice of the interest of the mortgagees. As Chelliah and Jain took whatever interest they took as joint tenants it would seem to follow as a matter of pure land law that each has the same title and interest so that each would take subject to the interest of the mortgagees, otherwise lost by fraud, in which one joint tenant participated. Thus I would have thought that had the land in question been under Old System Title with the discharge of mortgage operating as a re-conveyance with subsequent conveyance from Meadowcorp to Jain and Chelliah as joint tenants with Chelliah having knowledge of the fraud by which the re-conveyance was obtained, it could not have been said that Jain took any interest different from the interest of Chelliah. However in Myers v Smith (1992) 5 BPR 11494 Hodgson J held that where A and B took a legal estate as joint tenants, one with notice of an outstanding interest and another with no notice of that interest, it was only the interest of the tenant with notice which was subject to the equitable interest which in the circumstances of that case was effectively reduced to one half. In coming to that decision he stated that he considered that it was in conformity with Lord Abergevenny's case (1607) 6 Co Reports 78B; 77 ER 373 which was approved in Penny Nominees Pty Limited v Fountain No 3 [1991] NSW ConvR 55-56 and Guthrie v ANZ Banking Group Limited [1991] NSW ConvR 55-591. Those cases dealt with the disposition of the interest of one joint tenant to another, whether by way of old style release or court order and transfer following order. In simple terms they held that where an interest of one joint tenant is subject to or bound by writ of execution or other charge and that joint tenant releases his or her interest to the other by release or transfer, the property released remains bound by such interest, although in the event of the releasee surviving the releasor the liability is defeated by the death of the joint tenant whose interest was so affected. Had enforcement action been taken before release the joint tenancy would have been severed. 17 I have given very careful consideration to the decision in Myers because as a matter of comity I should follow it unless I were convinced there is good reason not to do so or unless, of course, it can be distinguished. I have come to the conclusion that I should not follow it as I do not consider there is good reason to make additional inroad on the general concept that joint tenants are considered as one. Where two persons, one taking with notice of and being a party to fraud, take as joint tenants under one instrument - as they must - the doctrine of the unities requires unity of title and unity of interest so that one cannot take more than the other. In such a case there does not seem to me to be any proper justification for any inroad upon pure doctrine. In the cases founded upon Lord Abergevenny's case the interest of one joint tenant has become bound during the joint tenancy with some interest: it could not be said to be inequitable that it remain bound as it was always subject to enforcement and severance. That however, is very different from an outstanding interest good as against the whole of Blackacre when owned by A being good against only the interest of one of two joint tenant purchasers of Blackacre because the other joint tenant was not involved in the fraud intended to reduce the interest. If an innocent partner is, and was at common law before the Partnership Acts, responsible for fraudulent actions of a partner in the course of a partnership business (ex parte Adamson: In re Collie [1878] LR 8 ChD 807), it is difficult to see why an innocent party purchasing property as joint tenant with a fraudulent party should be in a better position. While the doctrine of bona fide purchaser for value without notice could operate differently for purchasers taking as tenants in common, because each takes a separate title and on sale proves a separate title, I consider that purchasers taking as joint tenants must be treated as one. I should add that none of this was argued at the original hearing by any counsel and Mr Sanderson, counsel for Jain, seemed to accept that Jain was saddled with the fraud of his co-owner as they were joint tenants. I relisted the matter for further submissions after drawing the attention of counsel to Myers v Smith. It is important to remember that the principle which I think should be maintained would not operate so as to determine the rights of the joint tenants between themselves. On a charge being enforced against the joint estate, bringing about severance, there would be no reason why, on an accounting, the innocent party should not, so far as possible, receive his or her share with the encumbrancee's entitlement being satisfied out of the share of the fraudulent party or the party with notice. In Myers v Smith the plaintiff's one third interest in the remainder could have been charged upon the whole property but as between the joint tenants payable out of the share of the one with notice. That would, I think, have brought about a fairer result than reduction of the interest to a one sixth interest. 18 So far as the mortgagees' action is concerned what I have said in the preceding paragraph is irrelevant. The land in question is under the Real Property Act 1900 (the Act). Chelliah and Jain as purchasers from Meadowcorp hold an unregistered discharge of mortgage and an unregistered transfer. Subject to any effect of s43A of the Act their interest is equitable. It is not necessary to consider the difficult cases dealing with priorities between the holder of a mere equity which may become an interest and a subsequent bona fide purchaser for value of an equitable interest: Latec Investments Limited v Hotel Terrigal Pty Limited (1965) 113 CLR 265; and Phillips v Phillips [1862] 4 De G F & J 245; 45 ER 1164. That is because the mortgagee's mortgage remains registered on the title and is a legal interest; Real Property Act s36(6A) and s41. Subject to any effect of s43A of the Act it is entitled to priority as against Chelliah and Jain. That conclusion is, I think, in conformity with Forsyth v Blundell (1973) 129 CLR 477 and Sinclair v Hope Investments Pty Limited 2 NSWLR 870 Section 43A 19 Assuming for the moment that if the discharge of mortgage and transfer were registered the interest of the mortgagee could only be charged upon the interest of Chelliah, it is necessary to consider the effect of s43A in its application to successive dealings, namely the discharge of mortgage and transfer. Meadowcorp as mortgagor could get no protection from s43A. It obtained the discharge by fraud. Not only did it have notice of the interest of the mortgagees before settlement, but it attempted to deprive the mortgagees of their interest through fraud. It can obtain no protection from s43A. If it can obtain no protection, neither can a purchaser from it prior to registration as what has been described as the successive effect of s43A does not apply: Jonray (Sydney) Pty Limited v Partridge Brothers Pty Limited (1969) 89 WN Pt 1 NSW 568. 20 In these circumstances it is not really necessary to deal in detail with other hurdles in the way of Jain under s43A. I will, however, deal with them briefly as they were argued. Can an unstamped transfer taken on settlement be registrable? 21 The contract and transfer under which Jain claims have not been stamped, although he gave a personal undertaking to the court to pay the stamp duty on the contract to enable it to be admitted into evidence. That, however, was fifteen months after settlement. Section 301 of the Duties Act 1997 is as follows: Part 2---Enforcement

A person must not register in a register of legal or beneficial interests in dutiable property an instrument that effects a dutiable transaction or an instrument chargeable with duty unless:

(b) it is stamped by the Chief Commissioner or in a manner approved by the Chief Commissioner.

Maximum penalty: 100 penalty units. 22 The wording of s43A(1) seems to indicate that a transferee holding an unstamped transfer does not gain protection because s301 of the Duties Act prevents registration and the inclusion of words allowing signature by or on behalf of the transferee after settlement might operate to compel the construction that if further action is required to place the instrument in registrable form then protection is not gained. I would be reluctant to come to that conclusion unless it were necessary to do so in this action, which it is not, because I am aware that there are many conveyancing transactions settled in cases where there is a transfer with no following mortgage, where settlement takes place prior to the transfer being stamped. It would not, I think, be desirable to find that in such cases the protection of s43A was not available, although I should add that the instant case would be quite undeserving as the undertaking was given about eleven months after duty became payable. I discussed matters of this type in Finlay & Ors v R & I Bank of Western Australia & Anor [1993] Conv R 55-686 and there was some consideration of the problem in the first instance decision of Helsham J in J & H Just Holdings Pty Limited v Bank of New South Wales (1960) 90 WN Pt 1 NSW 571. As it is not necessary for this decision I will not take the matter any further. 23 Whatever protection s43A gives, it is my view that the protection is not everlasting. It envisages that a dealing will be lodged for registration. Its purpose is to assist a party who lodges a dealing for registration, not to assist one who makes no effort to get the protection of registration. These dealings have never been lodged. Had they been lodged prior to the mortgagee's caveat, registration would have proceeded in the absence of any court order preventing this. As they were not so lodged the appropriate action would have been to lodge the dealings and to have taken action under s74I to bring about lapse or under s74MA for a court order for removal. As no such action has been taken fourteen months after settlement, if it were necessary to so hold, I would have been of the view that the protection of s43A was lost. 24 The result of all of this so far as the first action is concerned is that the second and third defendants take any interest which they do hold subject to the interest of the first mortgagees. Those mortgagees are entitled to an order for the delivery up of the discharge of mortgage obtained by fraud, together with the mortgage and the certificate of title. They are also entitled to an order for possession of the subject land. There was no dispute about that part of the case. Claim under Torrens Assurance Fund

25 The claim of Jain is made under s129(1) of the Act which is as follows: 129. Circumstances in which compensation payable (1) Any person who suffers loss or damage as a result of the operation of this Act in respect of any land, where the loss or damage arises from: (a) any act or omission of the Registrar-General in the execution or performance of his or her functions or duties under this Act in relation to the land, or (b) the registration (otherwise than under section 45E) of some other person as proprietor of the land, or of any estate or interest in the land, or (c) any error, misdescription or omission in the Register in relation to the land, or (d) the land having been brought under the provisions of this Act, or (e) the person having been deprived of the land, or of any estate or interest in the land, as a consequence of fraud, or (f) an error or omission in an official search in relation to the land,

is entitled to payment of compensation from the Torrens Assurance Fund. 26 Jain had earlier obtained leave under s132(2) of the Act to bring the claim for compensation. The claim is under s129(1)(e). Chelliah was joined as a defendant because he was not willing to join as a plaintiff for compensation, for fairly obvious reasons. Section 133(4) of the Act provides that the Registrar-General "may join any person as co-defendant in any court proceedings if of the opinion that the claimant has a cause of action against that person in respect of the compensible loss to which the proceedings relate". This is not a particularly happily expressed provision. In proceedings for compensation the Registrar-General is the defendant (s132(1)). The Registrar-General cannot, as a defendant, join another party as co-defendant in any orderly procedure. Proper procedure would be to join a party by way of cross-claim. No claim is made by Jain against Chelliah and no issue arises as between Jain and Chelliah in this claim for compensation. If the Registrar-General had wished to raise such an issue it could only be done by cross-claim with Chelliah as cross-defendant, not as co-defendant. I only point this out to make it clear the basis on which Chelliah is a defendant in the proceedings. 27 The compensation provisions in the Torrens legislation caused difficulties for many years and the new provisions incorporated in Part 14 by the Real Property Amendment (Compensation) Act 2000 are in some respects an attempt to overcome those difficulties, although it is not certain they do so. 28 I approach this part of the judgment on the assumption that one joint tenant is not bound by or affected by the fraud of the other of which the first is unaware. As I have explained I do not consider that to be the correct position and I consider the claim against the fund fails. Nevertheless I should consider the matter on the basis Jain is not affected by his co-owner's fraud. 29 Counsel for Jain based his claim to entitlement through reasoning that the discharge was obtained by fraud of the mortgagor/vendor; that the handing over of the discharge of mortgage on settlement was fraudulent and that settlement would not have proceeded without such discharge; and that as a result of this Jain has suffered damage through being deprived of an interest in land, although Counsel did not put it this way because he argued Chelliah was innocent and seemed to accept Jain could not recover if Chelliah was party to the fraud. The interest of which he was deprived was an unencumbered estate in fee simple as joint tenant with Chelliah whose interest was encumbered, as opposed to an estate in fee simple subject to the registered mortgage to the plaintiff. This would or could follow from Myers v Smith. 30 The pleaded defence of the Registrar-General and the argument of counsel for the Registrar-General was: (a) Jain has not suffered any loss or damage "as a result of operation of the Act"; and (b) Jain has not been deprived of the land or any estate or interest in it as a consequence of fraud. 31 The words "as a result of the operation of the Act" which appear in s129 did not appear in the earlier s126 which was its predecessor. That section provided as follows: 126 Compensation for party deprived of land

(1) Any person deprived of land or of any estate, or interest in land; (a) in consequence of fraud, or (b) through the bringing of such land under the provisions of this Act, or (c) by the registration of any other person as proprietor of such land, estate, or interest, or (d) in consequence of any error, omission, or misdescription of the Register, may bring and prosecute in any Court of competent jurisdiction an action for the recovery of damages.

It is, I think, clearly established that an interest in land referred to in the prior s126 included an unregistered interest and it would do so under s129: See Robinson v The Registrar-General [1983] NSW Conv R 55-128. It is also established that deprivation can extend, in the words of Professor Butt: to "being outranked in priority by other interests": Land Law 3rd Ed. paragraph 2085. Heid v Connell Investments Pty Limited (1987) 9 NSWLR 628 at 637; and Robinson . 32 This is a difficult matter. In general the compensation provisions of the Act were introduced because, in the absence of fraud on the part of a person obtaining title by registration, the act of registration conferred an indefeasible title on the transferee. This left the person subject to the fraud with only a claim for compensation or damages from the Fund or, under the old s126, from the fraudster. It follows that in the ordinary case deprivation is the result of some interest lost as a result of the doctrine of indefeasibility, through registration of a subsequent dealing obtained by reason of fraud of a party or of mistake on the part of the Registrar-General, although such lost interest can be an unregistered prior interest such as an unregistered mortgage or a mortgage by deposit of title deeds, defeated by fraudulent application for a new certificate of title and subsequent registered mortgage. In the instant case, however, the interest of the mortgagees, which prevents Jain from obtaining an unencumbered title, is not a subsequently acquired registered interest. It is a right or an interest to retain priority as registered mortgagee by having the discharge delivered up for cancellation. The interest of Jain on the other hand arises under contract to purchase an estate in fee simple free from encumbrance and transfer pursuant thereto it being the obligation of Meadowcorp to deliver a clear title. 33 Had the land been under Old System title Jain, as bona fide purchaser for value without notice, would have taken a clear title had he received a re-conveyance from the mortgagees to Meadowcorp or a statutory discharge operating as a re-conveyance and a conveyance from Meadowcorp. It follows from this that it is because the land is under the Act that the mortgagees have maintained their priority. Thus the fact that Jain has not obtained unencumbered title is because the land is under the Act. The question is whether this failure, which has almost certainly caused damage to Jain, arises as a result of the operation of the Act through Jain having been deprived of an unencumbered title as a consequence of fraud. 34 The words "as a result of the operation of the Act" are new. It is quite unlikely that they were intended to make access to the Assurance Fund more restrictive than under the old s126, which it replaced. That is apparent from the report of the Law Reform Commission: Report 76 (1996) Torrens Title: Compensation for Loss; and the second reading speech of the Minister: Hansard NSW LA 3 May 2000 p 5187. 35 It was submitted by counsel for Jain on the authority of Robinson's case that if the additional words were not present then the claim of Jain would certainly have been successful. I do not accept this follows. In Robinson's case the interest of the Robinsons under their contract for purchase was defeated by fraudulent transfer and mortgage procured by a legal clerk, the mortgagee obtaining an indefeasible title to its mortgage on registration. That interest was lost by subsequent registration not because some prior interest remained. However, it may well be the case that Robinson's case would be decided differently under the new legislation, because the innocent mortgagee as bona fide purchaser without notice would have got a good title irrespective of the operation of the Act, so that the words "as a result of the operation of this Act" may result in a reduction of available claims against the Registrar-General. It is, I think, quite unlikely this would be an intended result. 36 The argument of senior counsel for the Registrar General is that the Act has not operated or been brought to bear on the transaction so as to cause damage as the loss has arisen through fraud, not by reason of the Act. The question however is whether or not the loss has arisen as a result of both. The argument of counsel for the Registrar-General seems to be based upon the assumption that loss as a result of the operation of the Act can only occur by reason of some dealing, later in time to the interest lost or reduced, having achieved priority by registration, thus giving an indefeasible title to the holder of such registered interest. It also seems to assume that loss which would not have arisen had the land been under Old System title is not necessarily loss resulting from the operation of the Act. 37 As I have said this a matter of considerable difficulty. Nevertheless the purpose of compensation by access to the Fund is to balance disadvantage which can otherwise be brought about by indefeasibility of title. In principle I can see no reason to restrict access to the Fund to persons claiming that their interest has been lost through the registration of some subsequent dealing as a result of fraud. There is no particular logical reason why compensation should not be available to persons suffering damage as a result of fraud which has enabled the proprietor of a registered interest to maintain an indefeasible title to such interest based upon its continued registration. Such damage seems to me to arise out of the operation of the Act. 38 The final question is whether or not Jain has been deprived of an interest in land through fraud. He has not got what Meadowcorp contracted to sell him and purported to transfer to him by way of transfer. The reason he has not got it is because the mortgagees are entitled to retain their interest because of fraud of Meadowcorp. The usual meaning of the verb "to deprive" is to take away something from a person or dispossess a person of something. However, the Macquarie Dictionary gives as one of the meanings of "deprive" as a verb: (2) to keep (a person, etc) from possessing or enjoying something; withheld; and the Shorter Oxford English Dictionary gives as one of its meanings: (3) to keep out of; to debar from. These definitions accord with the meaning given under the corresponding Queensland legislation relating to claims on an Assurance Fund in Finucane v The Registrar of Titles [1902] St R Qd 78 at 94-97 As I have said there is every reason to give a reasonably wide meaning to the provision giving right to claim against the Fund. In all the circumstances I have come to the conclusion that the claim of Jain, had he been a sole purchaser, would have fallen within s129(1)(e). 39 I should add that there is, at the present time, no way in which the amount of compensation could be ascertained. Nobody will know the true position until the subject property has been sold by the mortgagee and whether there is any surplus after such sale and payment out of the mortgagees will then be known. Whether the second mortgagees, whose mortgage still remains on the title would have any claim to such surplus is a matter which cannot be determined in these proceedings. Whether there can be any possible damage, apart from recovery of the $90,000 paid by Jain, is a matter which has not been properly argued, although, as I understood it, the claim was limited to the $90,000 or perhaps $80,000 and the value of the motor vehicle. Thus had Jain been entitled to compensation out of the Fund, the calculation of the amount payable would have had to wait the outcome of any mortgagee sale, unless it were accepted that any amount otherwise payable to Jain as a result of such sale, should be paid to the Registrar General. What orders should be made 40 The discharges of the mortgage from Meadowcorp to the mortgagees are part of an exhibit. An order should be made they be delivered up to the mortgagees for cancellation. The discharge of the Staunton and Thompson mortgage is also an exhibit. The mortgagees under that instrument are not parties in these proceedings. It may be appropriate to order that it be delivered to the Registrar General to be dealt with as the Registrar General determines after giving notice to the interested parties. On the evidence of Mr Tooth it was obtained by fraud. It is possible this may be academic but that will depend upon the result of an anticipated mortgagee sale by the first mortgagees. So far as costs are concerned, Chelliah submitted just before the hearing commenced and in any event it was necessary to prove the case against him. In the main proceedings costs should be awarded against all defendants. Orders and Judgment 41 In proceedings 3238/00:

Declare that the plaintiffs are entitled to have mortgage 5034297 remain registered on Certificate of Title Folio Identifier 2/592901 with priority from date of registration.

Order that discharges of the said mortgage executed by the plaintiffs be delivered up to the plaintiffs for cancellation.

Order that Certificate of Title Folio Identifier 2/592902, mortgage 5034297 and the said discharges, all being part of Exhibit 2, be handed out to the plaintiffs' solicitor.

Order that discharge of mortgage 5475552 being part of Exhibit 2 be handed out to the Registrar-General.

Judgment for the plaintiff for possession of the land in Certificate of Title Folio Identifier 2/592902.

Except as otherwise ordered, the exhibits be returned. 42 In proceedings 1374/01:

Order that the amended statement of claim be dismissed.

Order that the plaintiff pay the costs of the first defendant.

No order as to the costs of the second defendant.

Last Modified: 06/21/2001 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.

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