Conclusion
118For these reasons, I propose the following orders:
(1) Allow the appeal and set aside orders 2 and 3 made in the Equity Division on 11 November 2011 and entered on 15 November 2011.
(2) Declare that Felicity Cassegrain holds the property described in Folio identifiers 4/792413, 1/798316, 115/754434, 124/754434, 2/720827, 117/754434, 118/754434 and 174/754434 on trust for Gerard Cassegrain & Co Pty Ltd absolutely.
(3) Order that Felicity Cassegrain execute a Real Property Act transfer the property so described to the previous registered proprietor, Gerard Cassegrain & Co Pty Ltd [ACN 000 342 174] by Friday 14 February 2014.
(4) Order that Felicity Cassegrain pay Gerard Cassegrain & Co Pty Ltd's [ACN 000 342 174] costs of the trial with respect to the relief claimed against her.
(5) Order that Felicity Cassegrain pay the appellant's costs of this appeal.
(6) Grant Felicity Cassegrain a certificate under the Suitors' Fund Act 1951 in respect of the costs of the appeal.
119BASTEN JA: This appeal was run concurrently with the appeal by Claude Cassegrain from orders made against him by Barrett J in the Equity Division: Gerard Cassegrain & Co Pty Limited v Cassegrain [2011] NSW 1156. Barrett J dismissed the claims for relief sought against Felicity Cassegrain. Although there was only one proceeding below and the underlying circumstances are the same in each appeal, this Court has decided to prepare separate judgments. These reasons will assume the factual analysis set out in my judgment in the other matter without repeating it.
120From 10 March 1997 until 18 April 2000 Claude and Felicity Cassegrain were registered proprietors of the dairy farm as joint tenants. On the latter date, Claude Cassegrain executed a transfer of his interest in the land in favour of his wife as transferee, for a nominal payment of $1.
121That transfer followed the judgment of Davies J in the Federal Court and the declaration in respect of the conduct of Claude Cassegrain, on 15 July 1998. Felicity Cassegrain was not a party to the Federal Court proceedings: accordingly the company could not rely in the claim against her on the issue estoppels relied on against her husband.
122The ultimate relief available to the company depends upon the defeasibility of the title presently held by Felicity Cassegrain in her own name. That in turn depends in part upon the title she obtained in March 1997, as joint tenant with her husband. Otherwise it depends on the title obtained from her husband in April 2000. The indefeasibility of her title, upon which she relies, derives from registration: Real Property Act 1900 (NSW), s 42. There are exceptions to that principle, falling into two categories. The first, expressly provided by s 42, arises in the case of fraud. The second involves the availability of a cause of action against the owner personally. The latter was not relied on at trial.
(a) the first transfer - agency
123The exception based on fraud depends upon proof of actual dishonesty on the part of the transferee: Assets Co Ltd v Mere Roihi [1905] AC 176 at 210 (Lord Lindley). However, the fraud of her husband could not be attributed to Felicity Cassegrain unless he was her agent for the purpose of obtaining an interest in land. The mere fact that she gave no valuable consideration (and thus would be described in equity as a volunteer) does not affect the indefeasibility of her title under s 42 of the Real Property Act: Bogdanovic v Koteff (1988) 12 NSWLR 472. It may be inferred that she knew that payment was to be made, purportedly from her husband's loan account with the company, but that did not entail an understanding or knowledge of fraud, let alone participation in it. Nor did the company suggest otherwise.
124The company argued that Claude Cassegrain acted as agent for his wife for the purposes of the transaction and that she was fixed with knowledge of his fraud. The trial judge dealt with this point at [154]-[158]. Noting that the transfer was signed on behalf of the transferees by a solicitor, he said that the only evidence of the appointment of the solicitor was a letter dated 27 February 1997 on the letterhead of the company signed by Claude Cassegrain as managing director. That did not demonstrate Claude Cassegrain giving directions to the solicitor for the transferees (being himself and his wife) on behalf of the transferees, thus evidencing him acting as his wife's agent. This negative finding was challenged on appeal by the company.
125The letter requested the solicitor, Mr McCarron, to register the transfer "as exchanged". The transfer was dated 14 September 1996 (some five months before the date of the letter) and had been signed by Mr McCarron on behalf of the transferees, being Claude and Felicity Cassegrain. Although there are indications that the instruction to register the transfer was given on behalf of the transferees - the letter was headed "Re: Purchase of diary - C & F Cassegrain" - it could not have provided instructions for Mr McCarron to sign on behalf of both Claude and Felicity Cassegrain: those instructions must have been given some months earlier. There was simply no evidence as to how the initial instructions were given on behalf of Felicity Cassegrain. It is entirely plausible that she spoke to the solicitor directly to give such instructions. (The reason for the letter, requesting registration months after the transaction had been effected is obscure.) Given the serious consequence of drawing an inference that the instructions were in fact given by Claude as her agent, the preferable inference is that she acted on her own behalf. (There is no basis for inferring that Mr McCarron signed on her behalf without instructions from her.)
(b) the first transfer - a single defective joint interest
126The next question is whether, because a joint tenancy involves a single interest in land shared by two persons, her interest was infected by the fraud of her husband, accepting that she did not participate in it herself. The company relied on the principle stated Dixon J in Wright v Gibbons [1949] HCA 3; 78 CLR 313, at 329, that "in contemplation of law joint tenants are jointly seised for the whole estate they take in land and no one of them has a distinct or separate title, interest or possession". In the more expansive description in Gray and Gray, Elements of Land Law (OUP, 5th ed, 2009) at [7.4.5]:
"Joint tenancy is thus an undifferentiated co-ownership in which an entire estate or interest in land - rather than any defined proportion or aliquot share - is vested simultaneously in all the co-owners. Joint owners are bound up in a 'thorough and intimate union of interest and possession'. So comprehensive is this co-ownership that joint tenants comprise, in the eyes of the law, a collective entity - one composite person - together holding one and the same estate in the subject land, whether that estate be freehold or leasehold. Accordingly any transfer of land to two or more persons as joint tenants 'operates so as to make them, vis a vis the outside world, one single owner'."
The last internal quote was that of Lord Browne-Wilkinson in Hammersmith and Fulham LBC v Monk [1992] 1 AC 478 at 492.
127Dixon J further explained that each joint tenant "has a right shared with his co-tenants to the whole common property but no individual right to any undivided share in it ... for this reason joint tenants should not be spoken of as holding undivided shares": Wright v Gibbons at 330, quoting Radclifffe's Real Property Law, p 33. Dixon J noted that Joshua Williams in his Lectures on the Seisin of the Freehold (1878), p 117, "went as far as saying that joint tenants in fact were considered by the law as one person for most purposes". These statements he described as revealing "many traces of the scholasticism of the times in which [the] principles were developed", namely feudal times. Nevertheless, after giving two examples of possible disposition of parts of jointly held interests involving (as that case did) three joint tenants, he concluded at 332:
"While these two instances may show that, independently of the Torrens system, by the use of appropriate assurances, A and B could have severed the jointure between C and themselves as well as between one another, the objection still remains that they could not have done so by mutual releases one to another nor by mutual grants one at least of which must have operated, if at all, as a release. That objection is probably a good one."
128However, Dixon J noted that the purity of that logic was qualified, and that the logic must in any event give place to the operation of the Torrens systems of title by registration under the Real Property Acts. Gray and Gray also noted the remarks of Lord Nicholls of Birkenhead in Burton v Camden LBC [2000] 2 AC 399 at 404-405 that the concept of co-ownership is "an esoteric notion ... remote from the realities of life. It should be handled with care and applied with caution".
129Support for the proposition that, even under the general law, a joint tenant who was a bona fide purchaser of a value of a legal estate in land without notice enjoyed that entitlement unaffected by a prior equitable interest of which the other tenant had notice, may be found in Myers v Smith (1992) 5 BPR 11,494 at 11,500. Hodgson J (sitting in the Equity Division) stated:
"The circumstance that the joint interest of one co-purchaser is affected by the prior equitable interest, while that of the other co-purchaser is not, does not, in my view, effect a severance of the joint tenancy. It has been established that the grant of a mortgage by way of charge under the Torrens system does not effect a severance: Lyons v Lyons [1967] VR 169; and I think this suggests there is no severance in the present case. This would mean that if the co-purchaser with notice died before any severance was effected or before the equitable interest was secured in some other way, the equitable interest would be extinguished as the property passes by survivorship to the co-purchaser who had no notice; where as if the co-purchaser without notice died before severance or before the equitable interest was somehow otherwise secured, the equitable interest would become enforceable against the survivor's total ownership of the land."
130That authority has been doubted: see Diemasters Pty Ltd v Meadowcorp Pty Ltd [2001] NSWSC 495; 52 NSWLR 572. In that case the sole director of the registered proprietor of land (Meadowcorp) fraudulently obtained a discharge of mortgage from the mortgagees (the plaintiffs) and sold the land to two purchasers. One purchaser was held to be on notice of the fraud, but the other purchaser was held not to be involved. Windeyer J declined to follow Myers v Smith, explaining at [17]:
"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.... 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."
131The case, like Myers v Smith, was concerned with the position under the general law. The purchasers from Meadowcorp were not registered as proprietors under the Real Property Act: accordingly no issue arose as to the proper analysis with respect to registered title. Nor is it possible to derive assistance from general law principles relating to the manner in which joint interests are held in other forms of property, in construing the Real Property Act and the consequences of title by registration.
132In Peldan v Anderson [2006] HCA 48; 227 CLR 471 the following statements appears in the joint reasons of the Court at [19]:
"That view of the matter accords with historical understandings of the nature of a jointure at common law. Joint tenants were generally regarded as together composing one single owner, each being seised per my et per tout and consequently having nothing to convey to the other. However, in Wright v Gibbons, Dixon J doubted that this proposition could be regarded as an unqualified truth, because 'the aliquot share of each [joint tenant] existed in contemplation of law as a distinct and ascertained proprietary interest' for the purposes of alienation, including alienation to a co-owner."
133Peldan was concerned with the effect of a transfer lodged by a husband of his interest in land held with his wife as a joint tenancy, thus creating a tenancy in common, for the purposes of s 121 of the Bankruptcy Act 1966 (Cth). That provision allows the trustees of a bankrupt to recover property which would probably have been available to creditors if the property had not been transferred away to prevent that consequence. The Court stated at [29]:
"The interest of Mrs Pinna as tenant in common of the Carindale property cannot be said to have been 'carved out' of any property of her husband. If anything, it represented the transmogrification of her prior interest as joint tenant. What was 'carved out', in a loose sense, from both Mr Pinna's and Mrs Pinna's prior interest as joint tenants was the right of survivorship."
134However, the joint reasons did identify that, after the transfer, Mrs Pinna acquired an interest which she did not previously have, stating "[t]hat interest as joint tenant was transformed into, or extinguished and replaced by, the interest as tenant in common". In the end, nothing turned on this analysis because the onset of bankruptcy itself worked a severance of the joint tenancy: at [48], referring to the trustees of the property of Cummins v Cummins [2006] HCA 5; 227 CLR 278 at [14], adopting the reasoning of Sackville J at first instance: Prentice v Cummins (No 6) (2003) FCA 1002; 134 FCR 449.
135In the present case the company relied upon the terms of s 100 of the Real Property Act to support a submission that, prior to the transfer in April 2000, there was a single interest in the property, held jointly by Claude Cassegrain and Felicity Cassegrain and affected by the fraud of Claude Cassegrain. Section 100 is in the following terms, so far as relevant:
100 Registered co-tenants
(1) Two or more persons who may be registered as joint proprietors of an estate or interest in land under the provisions of this Act, shall be deemed to be entitled to the same as joint tenants."
136The operation of this provision has caused confusion, as it appears to be inconsistent with the terms of the Conveyancing Act 1919 (NSW), s 26, which provides that "a disposition of the beneficial interest in any property ... for two or more persons together beneficially shall be deemed to be made to or for them as tenants in common, and not as joint tenants". In Hircock v Windsor Homes (Development No 3) Pty Ltd [1979] 1 NSWLR 501 at 505-506, Hutley JA considered that the apparent conflict could be resolved by treating the words "who may be registered" as referring, not to their state prior to registration, but as a description of their position on registration. Hircock concerned survivorship as an incident of joint tenancy under the general law.
137On one view, the Real Property Act adopts an allodial system of title by registration which need not reflect the principles of a tenurial system. Nor does s 100(1) of the Real Property Act prescribe that all principles applying to a joint tenancy under the general law operate with respect to registered title, nor indeed that any specific incidents apply. In Wright v Gibbons, Rich J (at 326) noted that "some confusion has occurred by concentrating attention on the principles of common-law conveyancing and not observing the innovation effected by the new or Torrens system". Thus, the Real Property Act recognises that a joint tenant may have an interest in the land which can be severed by unilateral action: s 97. But in any event, under the general law relating to joint tenancy, "the aliquot share of each existed in contemplation of law as a distinct and ascertained proprietary interest": Wright v Gibbons at 333 (Dixon J), cited with approval in Peldan at [19].
138Although the authorities reveal a degree of ambivalence as to the extent to which feudal incidents attaching to joint tenancy (other than the accepted incident of survivorship) continue to apply, it is preferable in principle to treat the shares of the joint tenants, holding title under the Real Property Act, prior to any severance, as differentially affected by the fraud of one, to which the other was not party. The contrary view would impute fraud to a party who was not herself fraudulent. On that approach, Felicity Cassegrain should be treated as having a half interest in the dairy farm, from March 1997, which was indefeasible, because unaffected by her husband's fraud.
139Thus, in 1997 Felicity Cassegrain enjoyed indefeasibility of title with respect to her interest in the joint tenancy which, despite the fact that she made no contribution to the purchase price, may be assumed to be a one-half interest. Given the absence of proof of circumstances which would warrant the company having a claim in equity against her personally at the time of the transfer in 1997, there is no need to consider any further exception to the principle of indefeasibility at that time.
140A different conclusion arises with respect to Claude Cassegrain. The findings with respect to him involve "actual fraud" and "dishonesty" as described by Mason CJ and Dawson J in Bahr v Nicolay [No 2] [1988] HCA 16; 164 CLR 604 at 614, referred to with approval in Farah Constructions Pty Ltd v Say-dee Pty Ltd [2007] HCA 22; 230 CLR 89 at [192]. The indefeasibility principle would not have protected him from an action by the company at a time when he was registered proprietor as joint tenant.
(c) the second transfer - April 2000
141The next question is whether the company has a right as against Felicity Cassegrain as registered sole proprietor of the land. As her right to Claude Cassegrain's interest was not obtained by survivorship, the reasoning of Hodgson J in Myers v Smith is not applicable. Rather, this matter is to be resolved by reference to the terms of s 118 of the Real Property Act, which, so far as relevant provide:
118 Registered proprietor protected except in certain cases
(1) Proceedings for the possession or recovery of land do not lie against the registered proprietor of the land, except as follows:
...
(d) proceedings brought by a person deprived of land by fraud against:
(i) a person who has been registered as proprietor of the land through fraud, or
(ii) a person deriving (otherwise than as a transferee bona fide for valuable consideration) from or through a person registered as proprietor of the land through fraud, ...
142In considering the operation of this provision, the trial judge stated at [177]:
"Reference has been made to the 'new and different indefeasible title' that arose in Felicity through registration of the second transfer. Felicity must be accepted as a person 'deriving' that new and different title 'from or through' Claude, since, had it not been for the effect of the second transfer (by Claude to Felicity), Felicity would not have attained the new and different title. Furthermore, since the transfer registration of which created Felicity's new and different title was for a purely nominal consideration of $1.00, she was not, in relation to the acquisition of that interest, 'a transferee ... for valuable consideration'."
143The company's claim against Felicity nevertheless failed for the reasons set out in the following paragraphs:
"[178] Notwithstanding that the elements on which s 118(1)(d)(ii) depends may be, to that extent, satisfied, one important thing is lacking. Claude, the person 'from or through' whom Felicity derived her interest, was not 'registered as proprietor of the land through fraud'. These are the operative words of the section. Their focus is exclusively on the process by which registration as proprietor was achieved and the question whether that process was achieved by fraud. This is the effect of the words 'registered ... through'. Section 118(1)(d)(ii) thus deals with a much narrower and more specific subject-matter than the 'except in case of fraud' exception in s 42.
[179] The process by which Claude came to be registered as one of two proprietors involved the lodgment of a transfer for registration, followed by registration itself. The transfer was regularly executed under the common seal of GC & Co. It was a genuine instrument, regular on its face and suitable to be registered. There is nothing calling in question the integrity of the transfer or of the registration process to which it was subjected following its lodgment. The process by which the registration of Claude as a registered proprietor was achieved was not attended by fraud. The fact that he had wrongfully drawn funds from GC & Co to satisfy the consideration expressed in the transfer (or, perhaps more accurately, that he gave illusory consideration by reference to the false loan account) is remote from the process of registration and therefore beside the point."
144There are difficulties with this reasoning. First, acceptance that Felicity Cassegrain derived her title "from or through" her husband, adopted a different frame of reference to the consideration of whether Claude Cassegrain became registered as proprietor of the land "through" fraud. Thus it is said that s 118(1) deals with a narrower subject matter than the exception in s 42. That would be surprising, because it would appear to leave no statutory mechanism for the defrauded landowner to recover the land, despite the exception in s 42(1), leaving the transferee's title defeasible. Secondly, the term "through" undoubtedly connotes a connection between the acquisition of title by registration and fraud, but the section does not, as the reasoning suggests, refer to "fraudulent registration". It makes good sense to say that Claude Cassegrain was registered as owner of the land "through fraud", that is through his own act in arranging for the company to transfer title to the land for valuable consideration without that consideration being paid. Just as the company was deprived of its title "by fraud", Claude Cassegrain obtained his title "through fraud".
145No authority was cited by the primary judge (or in this Court) to support a narrower reading of the provision so as to attach the concept of fraud only to the administrative process of registration, nor would such a construction conform to the scheme of the Real Property Act. But even if the narrow view were to be adopted, and accepting the trial judge's construction of the letter directing registration of the transfer on 27 February 1997, the process of registration was the result of a direction given by Claude Cassegrain in his role as managing director of the company, as a step in the execution of the fraud. Thus, on any view the terms of s 118(1)(d) were satisfied.
146The finding that Felicity Cassegrain was not a transferee bona fide for valuable consideration was not challenged. In principle, it appears to have derived from the conclusion that, although Felicity Cassegrain was not party to the Federal Court proceedings, it is probable that she knew of the declaration made by the Federal Court against her husband and the consequence that if the company were to commence appropriate proceedings for recovery of the property from Claude Cassegrain, such an action would probably succeed because he held the property as constructive trustee for the company alone. However, it is not necessary to consider the point further.
147In the result, the company is entitled to obtain an order that Felicity Cassegrain transfer a half share in the dairy farm (being the share obtained from her husband) to the company.
148There remains a question as to whether the company has a personal action against Felicity Cassegrain with respect to the other half share of the land. The company's argument in favour of such a conclusion was explained by the primary judge at [163] in the following terms:
"Here, GC & Co contends (and I have found), Claude was guilty of fraudulent breach of fiduciary duty against GC & Co in connection with the acquisition of the Dairy Farm by Felicity and him as joint tenants, in that, to satisfy the unpaid consideration for the transfer, Claude drew on the false loan account and thereby obtained from GC & Co value to which he had no entitlement. The situation was thus, in substance, akin to one in which property was purchased with stolen money, albeit that Felicity may not have known at the time that the particular financial advantage had been improperly obtained by Claude. The circumstances were, in that way, the same as those in Heperu Pty Ltd v Belle [2009] NSWCA 252; (2009) 76 NSWLR 230 where a husband paid into his wife's bank account funds misappropriated by him (she being unaware of the misappropriation at the time), from where they were expended for his benefit and also for hers. As Allsop P said at [93] with the concurrence of Campbell JA and Handley AJA:
'The well-known principle is that a person entirely innocent of a fraud who comes to know that he or she has received and still retains the proceeds of, or taken advantage of, a fraud to which he or she was not party, cannot knowingly seek to retain those proceeds or that advantage, without, in effect, becoming a party to that fraud and liable accordingly: Black v S Freedman & Company [[1910] HCA 58, 12 CLR 105], per Griffith CJ (at 109), per Barton J (at 110), per O'Connor J (at 110-111).'"
149It appears that the trial judge accepted that reasoning but subject to her defence based on s 42 of the Real Property Act: at [165]. However, in considering s 42, the trial judge did not address the question of any personal cause of action that the company may have had against Felicity Cassegrain. That appears to have been because the only order sought against Felicity Cassegrain in the further amended statement of claim was a declaration that she held the legal title to the property "on trust for the company absolutely": Relief, par 4. An 'in personam' action against Felicity Cassegrain could not result in such relief.
Conclusions
150In this appeal the Court should make the following orders:
(1) Allow the appeal and set aside orders 2 and 3 made in the Equity Division on 11 November 2011 and entered on 15 November 2011.
(2) Declare that Felicity Cassegrain holds a half interest in the property described in Folio identifiers 4/792413, 1/798316, 115/754434, 124/754434, 2/720827, 117/754434, 118/754434 and 174/754434 on trust for Gerard Cassegrain & Co Pty Ltd absolutely.
(3) Order that Felicity Cassegrain execute a Real Property Act transfer of a one-half interest in the property so described to the previous registered proprietor, Gerard Cassegrain & Co Pty Ltd [ACN 000 342 174].
(4) Order that Felicity Cassegrain pay the company's costs of the trial with respect to the relief claimed against her.
(5) Order that Felicity Cassegrain pay the appellant's costs of this appeal.
(6) Grant Felicity Cassegrain a certificate under the Suitors' Fund Act 1951 (NSW) in respect of the costs of the appeal.
151MACFARLAN JA: I agree with Beazley P as to the orders that should be made in this appeal. Subject to what follows, I also agree with her Honour's reasons.
152The questions that arose in this appeal by the company were, first, whether the company proved in its case against Felicity that Claude acted fraudulently and, secondly, whether, if it did, proof of that fact entitled the company to relief against Felicity because her title to the subject property was defeasible.