Supreme Court of the NT|1992-05-19|Before: Asche CJ

Hinds v Uellendahl [1992] NTSC 26; 107 FLR 254 (19 May 1992)

COURT IN THE SUPREME COURT OF THE NORTHERN TERRITORY OF AUSTRALIA ASCHE CJ CWDS Conveyancing - Land Titles under the Torrens System -Indefeasability of title : Certificate as evidence - Discussion on the exception of fraud. Real Property Act 1886-1992 (NT) s69. Bahr v Nicolay (No 2) [1988] HCA 16; (1987-1988) 164 CLR 604, considered. Latec Investments Limited v Hotel Terrigal [1965] HCA 17; (1965) 113 CLR 265, distinguished. Loke Yew v Port Swetenham Rubber Company (1930) AC 491, distinguished. Minister Administering the Crown Lands Consolidation Act and Western Lands Act v Tweed Byron Aboriginal Land Council (1990) 71 LGRA 201, considered. Waimiha Sawmilling Company and Waione Timber Company , considered. Wallingford v Mutual Society , considered. Conveyancing - Land Titles under the Torrens System -Knowledge of existence of an unregistered interest - Not evidence of want of bona fides. Real Property Act 1886-1992 (NT) s72. Bahr v Nicolay (No 2) ; , considered. Mills v Stockman ; , considered HRNG DARWIN, 8 May 1992 #DATE 19:5:1992 Counsel for plaintiffs: T Coulehan Solicitors for plaintiffs: David de L Winter Counsel for defendants: J Reeves Solicitors for defendants: Ward Keller ORDER (1) The appeal against the Master is dismissed and the orders of the Master affirmed. (2) Leave to amend paragraph 12.6 by adding subparagraphs (d) and (e) is refused. (3) Plaintiffs to pay the costs of the appeal from the Master and the application before this court to amend the statement of claim. JUDGE1 ASCHE J There are a number of applications before the court and it is plainly convenient to deal with them together since they are interdependent. 2. The plaintiffs allege that, on or about 20 July 1988, they entered into a contract with the first defendants to purchase certain land from the first defendants. At that time the first defendants were not the registered proprietors of the land but had signed a contract with a third party to purchase the land. That contract involved the payment of an initial deposit and the subsequent payment of the balance; upon which the first defendants would become the registered proprietors. 3. The contract between the plaintiffs and the first defendants provided that the plaintiffs would pay those monies to the third party as they fell due, and when the first defendants became the registered proprietors they would then transfer their interest to the plaintiffs. In the meantime the first defendants acknowledged that they would hold their interest in the land as trustees for the plaintiffs. 4. The statement of claim alleges that the plaintiffs paid the initial deposit to the third party. It is not pleaded that they paid the balance owing to the third party, but it is pleaded that they were at all material times ready, willing and able to perform their obligation under their contract with the defendants. 5. It is then pleaded that, on 9 September 1988, the first defendants became the registered proprietors pursuant to the contract with the third party. The statement of claim alleges that the first defendants, upon becoming registered as proprietors, immediately -the statement of claim puts it as within 42 seconds of registration - transferred their title in the land to the second defendant, a company. 6. The statement of claim then proceeds to allege a breach of contract and a breach of trust by the first defendants against the plaintiffs. So far there is nothing in the statement of claim which could be the subject of objection in point of law. The statement of claim then focuses attention upon the second defendant, and I set out paragraph 12 in the amended form as it was accepted by the Master on 6 February 1992: "12: Further, on and prior to 9.39.51 am on 9 September 1988 the second defendant: 12.1: knew that the plaintiffs had paid the deposit owing by the first defendants in respect of the ANRC contract; 12.2: knew that in consideration inter alia of this payment, the first defendants had agreed to transfer the subject land to the plaintiffs upon the transfer of the subject land to the first defendants; 12.3: had actual knowledge of the Hinds' contract and the plaintiffs' interest in the subject land and in the first defendants interest in the ANRC contract; 12.4: alternatively, ought to have known of the Hinds' contract and the plaintiffs' interest in the subject land and in the first defendants' interest in the ANRC contract; 12.5: alternatively, abstained from making enquiries which would have revealed to the second defendant the plaintiffs interest in the subject land in circumstances in which a reasonable person would have made such enquiries; 12.6: further fraudulently colluded with the first defendants to defeat the plaintiff's legal and equitable interests in the subject land. Particulars: between 20 July 1988 and 9 September 1988 the first defendants

entered into an agreement or understanding with the second defendant whereby, (a) the first defendants would sell to the second defendant the subject land; (b) the first defendants would be permitted to remain in occupation of the subject land; (c) the first defendants would be granted an option to purchase 25,000 shares in the unit trust of which the second defendant was trustee. At all material times it was in the contemplation of the defendants that, by reason of the said arrangement or understanding, the plaintiffs legal and equitable interests in the subject land would be defeated and the first defendants would have no interest in the subject land which could be pursued by the plaintiff. 12.7: By reason of the matters aforesaid, (a), was a party to a breach of trust by the first defendants; (b), wrongfully and unlawfully interfered with the plaintiffs contractural relations with the first defendants; (c), obtained title to the subject land by defrauding the plaintiffs." 7. On 6 February 1992 the Master heard an application by the second defendant to strike out paragraph 12.6 and certain consequential paragraphs. On 20 February the Master did strike out those paragraphs and gave written reasons for so doing. The Master also gave the plaintiffs general leave to amend. 8. From the decision of the Master striking out paragraph 12.6 and consequential paragraphs, the plaintiffs have appealed. However, they have also availed themselves of the leave to amend and have sought certain further amendments to paragraph 12. 9. The second defendant submits that the appeal should be dismissed and, insofar as the further amendments might formally be allowed pursuant to the Master's order, they should be allowed only for the purpose of being struck out as being tainted with the same errors which the Master categorised in his reasons for judgment; alternatively, the further amendments should be refused. 10. An appeal from the Master being a rehearing denovo, it was agreed by counsel that Mr Reeves, who appears for the second defendant, should commence proceedings and make the submissions as the matter appeared before the Master that paragraph 12, etcetera, should be struck out and that, in the course of his submissions, he should be permitted to enlarge upon the reasons why the further amendments sought after the Master's ruling should also be struck out or refused. 11. MrCoulehan, who appears for the plaintiffs, in turn submitted that the Master's decision was incorrect but that, if I was of the same view as the Master, I should now permit the further amendments as effectively curing the defects found by the Master. 12. So far as my own approach is concerned, I think the most logical way is to treat the case as it appeared before the Master and deal with the paragraphs of the statement of claim to which the second defendant then took and still takes objection. 13. If I uphold the appeal of the plaintiffs, it may be that little will turn on the consequential amendments since they are designed to cure a defect I would not have found. If, however, on a rehearing denovo and, therefore, coming to my own decision, I find that my decision is substantially in accordance with that of the Master, I should then proceed to examine the further amendments proposed and determine whether they do take the matter further and raise a permissible pleading. 14. For that reason I will not at this stage set out the further amendments sought and will confine myself to the case as it was before the Master. 15. S69 of the Real Property Act states that subject to such encumbrances, liens, estates or interests as may be notified on the original certificate, the title of every registered proprietor shall be absolute and indefeasible, subject only to certain qualification of which the relevant one for these purposes is: "(1) In the case of fraud, in which case any person defrauded shall have all rights and remedies that he would have had if the land were not under the provisions of the Act." 16. Then follows a proviso preserving the right of a registered proprietor taking bona fide for valuable consideration, and those bona fide claiming through or under him. 17. S72 provides that: "Knowledge of the existence of any unregistered estate, interest, contract or trust shall not of itself be evidence of want of bona fides so as to effect the title of any registered proprietor". 18. It follows that no fraud on the part of a registered proprietor can be pleaded if the pleading is directed merely to the registered proprietor acquiring title with notice of an existing unregistered interest or in taking a transfer with knowledge that its registration will defeat such an interest. See Bahr v Nicolay (No 2) [1988] HCA 16; (1987-1988) 164 CLR 604 at 613 per Mason CJ and Dawson J. 19. The statement of claim at 12.6 alleges a fraudulent collusion between the first and second defendants. The particulars, however, go no further than to allege an agreement between the first and second defendants that the first defendants would sell the land to the second defendant; the first defendants would be permitted to remain in occupation of the land; and the first defendants would be granted an option to purchase shares in the unit trust of which the second defendant was trustee. 20. Nothing in those particulars suggests a fraud vis-a-vis the plaintiffs. They merely recite the terms of the contract. The particulars then go on to allege that at all material times it was "in the contemplation" of the defendants that the plaintiffs interest in the land would be defeated. 21. That sort of arrangement seems to be no more than the situation suggested by Kitto J in Mills v Stockman [1967] HCA 15; (1967) 116 CLR 61 at 78, that: "Merely to take a transfer with notice or even actual knowledge that its registration will defeat an existing unregistered interest is not fraud". 22. I do not consider that the balance of paragraph12.6 adds anything which would properly involve an allegation of fraud. It states that it was 'in the contemplation' of the defendants that the first defendants would have no interest in the land which could be pursued by the plaintiffs. 23. If that were something merely "within the contemplation" of the defendants, it was no more than the perceived outcome of the second defendant becoming registered. 24. The meaning of fraud in the context of the sections of the Real Property Act referred to may not have fixed and definite boundaries as the discussion by Lane in 62 Australian Law Journal 1036 illustrates. 25. She suggests that the reasoning of Mason CJ and Dawson J in Bahr v Nicolay (No 2) [1988] HCA 16; (1987-1988) 164 CLR 604, "imports a far wider conception of fraud than has hitherto been recognised; although whether this view will gain acceptance remains to be seen ". Lane was referring to this passage by Their Honours at 614-616: "According to the decisions of this court actual fraud, personal dishonesty or moral turpitude lie at the heart of the two sections and their counterparts. See Butler v

Fairclough, Stewart v Kingston. However, from the appellant's point of view the examples may not travel quite far enough because the dishonesty which they exhibit is dishonesty on the part of the registered proprietor in securing his registration as proprietor. This point on which the second respondents heavily relied emerges from the comments made by LordMoulton for the judicial committee in Loke Yew. (And the facts of that case are then set out) Their Honours continue at 615: "Lord Moulton expressed the Judicial Committee's conclusion on the fraud issue by saying that as the transfer had been obtained by fraud the case fell within the statutory exception to the principle of indefeasibility. For our part, we do not see the illustrations given and the statements made in the cases as amounting to definitive pronouncements that fraud is confined to fraud in the obtaining of a transfer or in securing registration. The statements viewed in their context merely express the reasons why particular circumstances fall within the statutory exception. Nor do we see anything in the language or purpose of s68 which warrants such a restrictive interpretation. Indeed, we agree with HigginsJ in Stuart v Kingston when his Honour said there was much to be said for the view expressed by StawellCJ on the equivalent Victorian provision that the section should be construed strictly and the exception liberally. The section restricts, in the interest of indefeasibility of title, rights which would exist otherwise at law or in equity. And, granted that an exception is to be made for fraud, why should the exception not embrace fraudulent conduct arising from the dishonest repudiation of a prior interest which the registered proprietor has

acknowledged or has agreed to recognise as a basis for obtaining title, as well as fraudulent conduct which enables him to obtain title or registration? In the context of s68 there is no difference between the false undertaking which induced the execution of the transfer in Loke Yew and an undertaking honestly given which induces the execution of a transfer and is subsequently repudiated for the purpose of defeating the prior interest. The repudiation is fraudulent because it has as its object the destruction of the unregistered interest notwithstanding that the preservation of the unregistered interest was the foundation or assumption underlying the execution of the transfer. For the same reason the subsequent repudiation by a transferee of

property of a limited beneficial interest in that property is fraudulent when the transferee took the property on terms that the limited beneficial interest would be retained by the transferor. It is immaterial that the transferee `may have been innocent of any fraudulent intent in taking the conveyance in absolute form'. Bannister v Bannister." But even accepting these remarks as going beyond the earlier accepted concepts (c.f. Wilson and Toohey JJ at 631-632, "the emphasis in the authorities is on actual fraud on the part of the registered proprietor"), it does not seem to assist the plaintiffs. There is no allegation here that the second defendant repudiated an obligation accepted by it. 26. In Bahr v Nicolay the evidence was that the registered proprietor had taken a transfer knowing and accepting an obligation to resell to the original owner. Whatever differences their Honours might have had as to the boundaries of the term "fraud" they were all satisfied that it would be unconscionable in the registered proprietor if he failed to honour this sort of obligation. See Mason CJ and Dawson J at 619, Wilson and Toohey JJ at 638, BrennanJ at 653. 27. At 653 Brennan J says: "However, the title of a purchaser who not only has notice of an antecedent unregistered interest, but who purchases on terms that he will be bound by the unregistered interest, is subject to that interest." And I emphasise those words, "but who purchases on terms that he will be bound by the unregistered interest". At 654 Brennan J says: "A registered proprietor who has undertaken that his transfer should be subject to an unregistered interest and who repudiates the unregistered interest when his transfer is registered, is in equity's eye acting fraudulently and he may be compelled to honour the unregistered interest." Nothing of this sort is pleaded here. If the plaintiffs say, as they do in paragraph 12.6, that the circumstances set out mean that the defendants "fraudulently colluded", they, to adopt the succinct phrase employed by the Master, do no more than to attach the label "fraud" to the facts pleaded. Although as Wilson and Toohey JJ say in Bahr, page 630, "The cases on ss68 and 134 of the Western Australian Real Property Act and their counterparts are legion", I am unable to find a case where the facts alleged in paragraph 12.6 (omitting the word "fraudulently" which begs the question) can be the foundation for an allegation of fraud against the registered proprietor. 28. Mr Coulehan refers to Waimiha Sawmilling Company and Waione Timber Company (1926) AC 101, where Lord Buckmaster, speaking for the Judicial Committee, said at 106 to 107: "If the designed object of a transfer be to cheat a man of a known existing right, that is fraudulent, and so also fraud may be established by a deliberate and dishonest trick causing an interest not to be registered and thus fraudulently keeping the register clear." But nothing is pleaded in paragraph12.6 and no facts are alleged that the object was to cheat a man of an existing right or of a deliberate and dishonest trick. 29. One must bear in mind the remarks of the New South Wales Court of Appeal in Minister Administering the Crown Lands Consolidation Act and Western Lands Act v Tweed Byron Aboriginal Land Council (1990) 71 LGRA 201 at 203-204: "In the pleading of fraud some requirements of the law are clear beyond argument. These requirements are not only rules of pleading and practice established by the decisions of the courts. They are rules of ethical conduct binding on

members of the legal profession. It is a serious matter to allege fraud against a party in pleadings to which attach the privileges incidental to court proceedings. Reports of such allegations may be recounted in the community and through the public media. They may do great harm to a party before a word of evidence has been offered and submitted to the searching scrutiny of cross-examination or its rebuttal. It is for this reason, amongst others, that legal practitioners must take care to have specific instructions and an appropriate evidentiary foundation, direct or inferred, for alleging and pleading fraud. We say inferred because it will sometimes be impossible to prove fraud by direct evidence. The tribunal of fact may be invited to draw an irresistible inference of fraud from the facts proved. Of its nature fraud is often perpetrated covertly. The perpetrators of fraud will often take pains to cover their tracks." 30. And Their Honours cite the remarks of Lord Selborne LC, in Wallingford v Mutual Society (1880) 5 AC 685 at 697: "With regard to fraud, if there be any principle which is perfectly well settled, it is that general allegations,

however strong may be the words in which they are stated, are insufficient even to amount to an averment of fraud of which any court ought to take notice. And here I find nothing but perfectly general and vague allegations of fraud. No single material fact is condescended upon in a manner which would enable any court to understand what it was that was alleged to be fraudulent." 31. In quoting those passages, of course I make it clear that there is no suggestion of any improper conduct on counsel who settled these pleadings; but the passages are quoted to emphasise the need for fraud to be pleaded specifically. 32. The case, for instance, of Loke Yew v Port Swetenham Rubber Company (1930) AC 491 relied on by Mr Coulehan is, in my view, distinguishable. In that case there was ample evidence of a deliberate scheme to defraud. Similarly, in Latec Investments Limited v Hotel Terrigal [1965] HCA 17; (1965) 113 CLR 265, the facts clearly showed a colourable scheme, including a sale in obviously questionable circumstances by one company to its wholly owned subsidiary. Mr Coulehan refers to remarks of Kitto J at 273-4: "Moral turpitude there must be, but a designed cheating of a registered proprietor out of his rights by means of a collusive and colourable sale by a mortgagee company to a subsidiary is as clearly a fraud, as clearly a defrauding of the mortgagor, as a cheating by other means." 33. One has only to read these remarks in the context in which they were pronounced, to agree with them; but to comment that they hardly cover the facts alleged in paragraph 12.6 of these pleadings. 34. In the event, I agree with the views of the Master and with his orders pronounced on 20 February 1992. It remains therefore, and in the light of the above discussion, to consider whether the further amendments now put forward can be allowed. 35. Those amendments are annexed to the affidavit of the Plaintiffs' solicitor, sworn on 1 April 1992. Paragraph 12.6 then appears in this form: Subparagraphs (a), (b) and (c) remain with a minor amendment to subparagraph (c). Then appear the following: " (d) The transfer of the subject land from the first defendants to the second defendant would be registered immediately after registration of the transfer from ANRC to the first defendants. (e) The defendants would effect the matters referred to in subparagraphs (a), (b), (c) and (d) hereof without the knowledge of the plaintiffs so that the plaintiffs would not

lodge a caveat or otherwise attempt to prevent the transfer of the subject land to the second defendant. At all material times it was in the contemplation of the defendants and the defendants intended that by means of the said arrangement or understanding which was dishonest and unconscionable, the plaintiffs' legal and equitable interests in the subject land would be defeated. The first defendants would be permitted to remain in occupation of the subject land, the first defendants would retain an indirect interest in the subject land which could not be pursued by the plaintiffs and the second defendant would obtain

indefeasible title in the subject land." 36. One can say immediately that the reference in paragraph12.6(e) to the transaction being "dishonest and unconscionabl", must be struck out as a labelling device unless the facts pleaded support the description. 37. Do the further facts pleaded in 12.6(d) and (e) support that description in law? In my view they do not. If one returns to the provisions of s72, knowledge of the existence of an unregistered interest is not of itself evidence of want of bonafides so as to affect the title of any registered proprietor. 38. That being so, paragraph 12.6(d) hardly takes the matter any further. It may well be argued as a case of prudence in the registered proprietor that knowing of an unregistered interest he sought expedition. That in itself can hardly be fraud since the registered proprietor is doing no more than he is permitted to do with knowledge of the unregistered interest. 39. Similarly, paragraph 12.6(e) does no more than allege an agreement or understanding between the first and second defendants, that the registration would be executed without the knowledge of the plaintiff. Whatever the obligations of the first defendant might be, it is not pleaded that the second defendant was under any obligation to bring the registration, or proposed registration of the transfer, to the knowledge of the plaintiffs, nor does s72 suggest any such obligation. 40. The precaution of lodging a caveat is surely one for the person claiming the unregistered interest, and in the context of s72 it would seem not normally a duty cast on the registered proprietor to invite such lodgment. I return to what is said by Their Honours, Mason CJ and Dawson J in Bahr's case supra 615: "And granted that an exception is to be made for fraud, why should the exception not embrace fraudulent conduct arising from the dishonest repudiation of a prior interest which the registered proprietor has acknowledged or has agreed to recognise as a basis for obtaining title as well as fraudulent conduct which enables him to obtain title or registration." 41. Again I have emphasised the words "which the registered proprietor has acknowledged or has agreed to recognise as a basis for obtaining title". Those words indicate, if I may say so with respect, quite clearly the basis upon which their Honours suggest fraud apart from the more egregious types of fraudulent conduct. But it is nowhere pleaded here that the second defendant acknowledged or agreed to recognise the prior interest of the plaintiffs. Indeed it would seem that the plaintiffs' grievance here is precisely the opposite; that the second defendant did not acknowledge or agree to recognise the plaintiffs' claims. As would appear from the Act and the case law, there would seem to be no obligation cast on the second defendant to do this in the circumstances pleaded. 42. The rest of paragraph 12.6(e) is directed to alleging a common intention in the first and second defendants to defeat the plaintiffs interest in the land. Insofar as the first and second defendants may be presumed to have known of the plaintiffs interest that may well be so, but that is no more than a corollary of s79 that knowledge of the existence of any unregistered interest: "shall not of itself be evidence of want of bona fides so as to effect the title of any registered proprietor". 43. Any person knowing of an unregistered interest and proceeding to have his interest nevertheless registered is obviously intending to defeat the unregistered interest. The fact that it may have been deliberately planned between the defendants does not, in my view, take the matter any further unless it can be shown that there was some dishonest or cheating behaviour. 44. Mr Coulehan relies strongly on the words of LordBuckmaster already quoted, that there is fraud if the designed object is to "cheat a man of a known existing right". Mr Coulehan submits that the collusion alleged against the defendants is amply sufficient to infer an intention to cheat the plaintiffs out of their rights. But I think he relies somewhat too broadly on the expression "cheat". 45. No doubt, in virtually every case where an unregistered interest is known, it may be said that the object of registration by another person is to "cheat" the unregistered person out of a right in the sense of depriving him of it. In that sense, s79 does not make the action malafide. 46. But it seems to me that Lord Buckmaster meant something more than this, some fraudulent scheme to deprive a person by trickery. Here it seems that the second defendant was doing no more than it was entitled to do. The plaintiffs of course had a right to lodge a caveat, but there was no trick employed to deprive the plaintiffs of that right. They retained that right up until the registration of the second defendant. And the fact that the second defendant moved more speedily than they did does not suggest that it was indulging in unconscionable conduct. 47. If one vital object of the Torrens System is indefeasibility of title, the statute is designed to achieve that object at the expense of unregistered dealings unless to do so offends against the broad principles of equity. 48. The matter is summed up by the remarks of Mason CJ and Dawson J in Bahr v Nicolay at 613: "Ss 68 and 134 give expression to and at the same time

qualify the principle of indefeasibility of title, which is the foundation of the Torrens System of title. As the Judicial Committee observed in Gibbs v Messer, 'The object is to save persons dealing with registered proprietors from the trouble and expense of going behind the register in order to investigate the history of their author's title and to satisfy themselves of its validity.' Neither the two sections nor the principle of indefeasibility precludes a claim to an estate or interest in man against a registered proprietor arising out of the acts of the registered proprietor himself. Breskvar v Wall. Thus, an equity against a registered proprietor, arising out of a transaction taking place after he became registered as proprietor, may be enforced against him. Barry v Heider. So, also with an equity arising from conduct of the registered proprietor before registration (Logue v Shoalhaven Shire Council), so long as the recognition and enforcement of that equity involves no conflict with ss68 and 134. Provided that this qualification is observed, the recognition and enforcement of such an equity is consistent with the principle of indefeasibility and the protection which it gives to those who deal with the registered proprietor on the faith of the register. There is no fraud on the part of a registered proprietor in merely acquiring title with notice of an existing unregistered interest, or in taking a transfer with knowledge that its registration will defeat such an interest." 49. Consequently I am satisfied that the Master's decision on the material before him was correct and that the additional amendments now sought do not cure the situation. 50. The orders will be, therefore: (1) The appeal against the Master is dismissed and the orders of the Master affirmed. (2) Leave to amend paragraph 12.6 by adding subparagraphs (d) and (e) is refused. (3) Plaintiffs to pay the costs of the appeal from the Master and the application before this court to amend the statement of claim.

Real Property Act 1886

Hinds v Uellendahl [1992] NTSC 26; 107 FLR 254

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Court

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Judgment (11 paragraphs)

Hinds v Uellendahl [1992] NTSC 26; 107 FLR 254 (19 May 1992)

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Cases Cited (3)