J & H Just (Holdings) Pty Ltd v Bank of New South Wales

On 28th May 1964 the appellant lent Oscar Lewis Josephson $2,000 at interest. It took as security a memorandum of mortgage of the said land duly executed by Mr. Josephson which though in registrable form it did not intend to register. He represented to the appellant that the land was unencumbered. Upon inquiry by the appellant as to the whereabouts of the duplicate certificate of title he said that the certificate of title was with his bank, there held in safe custody. He said he did not want it removed from the bank's custody "as he might die whilst abroad". The money he borrowed from the appellant was for the purpose of paying his air fare to America on a business trip. The appellant's solicitor who prepared the memorandum of mortgage and secured its execution searched the Real Property Register and found that there were no encumbrances noted on the certificate of title nor any caveats. He did not inquire at the Bank as to the terms on which it held the certificate of title. He did not seek its production. He did not notify the Bank of the memorandum of mortgage which had been executed by Mr. Josephson in favour of the appellant. However on 5th June 1964 on behalf of the appellant he did lodge a caveat with the Registrar-General against dealings with the land without notice to the appellant. The lodgment of this caveat was noted by the Registrar-General on the folium of the register book containing the certificate of title on the said land.

In August 1964 the Bank lodged with the Registrar-General for registration the memorandum of mortgage executed by Oscar Lewis Josephson in its favour and for that purpose also lodged with the Registrar-General the duplicate certificate of title to the said land. Thereupon, in compliance with the caveat lodged by the appellant, the Registrar-General notified the appellant of the lodgment of the dealing. The appellant thereafter on 2nd October 1964 commenced the present suit to which the Bank, Oscar Lewis Josephson and the Registrar-General were made defendant parties. The appellant claimed in the suit a declaration that its interest in the land derived from the memorandum of mortgage executed by Oscar Lewis Josephson in its favour has priority over the Bank's interest in the land derived from the memorandum of mortgage of the said land executed in the Bank's favour; and that the memorandum of mortgage of the land in favour of the appellant ought to be registered by the Registrar-General in priority to that of the Bank. Injunctions to restrain the registration of the memorandum of mortgage in favour of the Bank were also sought.

On 16th December 1964 a sequestration order of the estate of Oscar Lewis Josephson was made by the Federal Court of Bankruptcy. On 14th February 1968, Oscar Lewis Josephson died. No representation of his deceased estate having been granted, the Supreme Court in Equity appointed Beryl Catherine Josephson to represent the deceased estate of Oscar Lewis Josephson and the proceedings in the suit were appropriately amended. The official assignee of the bankrupt estate claims no interest in the land.

By a decretal order of 10th November 1969 a judge of the Supreme Court sitting in Equity who heard the suit dismissed it [1] . The learned judge accepted that the appellant by reason of earlier inquiries at the Bank, unconnected with the instant transactions, had formed the opinion that Oscar Lewis Josephson was an honest and reliable man and "creditworthy". He said that the practice of not registering the memorandum of mortgage of land under the Real Property Act given to secure overdraft accommodation and of not lodging any caveat with the Registrar-General in respect of dealings with the land was not unusual. He had evidence of "a solicitor of very great experience" that " anyone who advances money", i.e., to be a charge on land under the Real Property Act "relying simply on his searches on the register without getting the certificate of title produced to him so that he could if necessary or at any time he thought fit register the dealing in his favour, would be mad" "He would know", i.e., from the possession or production of the certificate of title, "having the certificate of title in his hands, he could get his dealing registered immediately; and he would further know that no one had lent money on the security of the property and was holding the certificate of title in an unregistered mortgage in accordance with what is, as I say, a not infrequent practice."

Having considered whether or not the fact that the Bank did not lodge a caveat disentitled it to the priority which its earlier memorandum of mortgage would otherwise have over the memorandum of mortgage given to the appellant, the primary judge concluded that there was no conduct on the part of the defendant Bank that would render it inequitable for it to maintain that priority. His Honour also considered a submission that the appellant was entitled to the benefit of s. 43A of the Real Property Act and that by virtue of that provision the memorandum of mortgage given to the appellant had priority over that given to the Bank. In this connexion he held that "the conduct of the (appellant) in not obtaining possession or production of the certificate of title did not amount to aggravated carelessness", thus not sharing the view of the solicitor from whose evidence 1 have quoted a passage. However, he concluded that the appellant was "not in a position to receive the benefit which s. 43A affords". This was because the appellant, not having possession of the certificate of title or the means of compelling its production, was not in his opinion a person taking an estate or interest "under an instrument registrable" within the meaning of that section.

Upon the appellant's appeal to the Court of Appeal Division of the Supreme Court [1] , Jacobs J.A., with whose reasons Mason and Moffitt JJ.A. agreed, held that a failure to give notice by lodging a caveat should not be regarded as entitling any person subsequently dealing with the registered proprietor to regard the title as clear of any outstanding equitable interest. He thought it unheard of that one who proposes to become a first mortgagee should dispense with either production or delivery of the duplicate certificate of title upon the faith of a clear register. In this respect he accepted the evidence of the solicitor which I have quoted. He therefore found no ground for postponing the memorandum of mortgage given to the Bank. He further found that, because of its gross carelessness in not sighting or obtaining the duplicate certificate of title, the appellant could not claim any benefit from s. 43A.

Much has been said in the course of this case about the failure of the Bank to lodge with the Registrar-General a caveat against dealings. It is important in this connexion to observe the nature and purpose of what is sometimes called an "unofficial caveat", distinguishing a caveat lodged by a private person from a caveat lodged by the Registrar-General, e.g. under ss. 12 (f) or 83 of the Act. Its form is scheduled to the Act. See 16th Schedule. It is directed to the Registrar-General and may properly be given by a person claiming an estate or interest in the land, against dealings with which it is lodged. It must describe the estate or interest claimed. But it is not a registrable instrument: nor is the Registrar-General required by the Act to enter a notation of it on the relevant certificate of title, though the form of the caveat provided in the schedule to the Act does make provision on its reverse side for a record to be made of the entry of its particulars in the register book. Now by s. 8 (1) (a) of Act No. 30 of 1938 however the Registrar-General is authorized to place "notifications" on the Register. In practice however the caveat is given a number: and a note of its lodgment and of the estate or interest claimed, is made on the relevant certificate of title, but not necessarily at the time of the lodgment of the caveat. Its purpose is to act as an injunction to the Registrar-General to prevent registration of dealings with the land until notice has been given to the caveator. This enables the caveator to pursue such remedies as he may have against the person lodging the dealing for registration. The purpose of the caveat is not to give notice to the world or to persons who may consider dealing with the registered proprietor of the caveator's estate or interest though if noted on the certificate of title, it may operate to give such notice. If the caveator does not take proceedings in due time against the person who has lodged a dealing for registration, and the dealing is registered, awareness of the existence of the caveat, and through it, that an estate or interest is claimed by the caveator, will be irrelevant except possibly as an element in establishing fraud in the procurement of the registration. But of itself such awareness will not vitiate the registration.

In Abigail v. Lapin [1] husband and wife, the respondents, each the registered proprietor of a separate parcel of land each executed a memorandum of transfer in favour of a nominee of a solicitor. The memoranda were executed as security for certain costs and for the payment of a sum due to a bank. As the matter was ultimately viewed, the respondents in executing and handing over the memoranda of transfer had authorized the solicitor to deal with the property but not for his own benefit or for that of his nominee otherwise than as mortgagee. The transfers were subsequently registered in breach of that authority. The transferee became the registered proprietor of the fee simple in each parcel of land. After other dealings, the appellant lent money on the security of registrable memoranda of mortgage of the land executed by the registered proprietor and of the deposit with him of the duplicate certificates of title. Caveats by the respondents prevented registration of these memoranda of mortgage. The respondents sued the appellant and others claiming that they were entitled to an order that the registered proprietor should transfer the land to them free of encumbrances. Thus the case was one in which the equitable interest of the appellant was derived from a registered proprietor who had come to that place on the register by the misuse of his authority from the respondents and possession of the duplicate certificate of title. That interest was in competition with the equitable interest of the respondents, as mortgagors.

The lodgment of a caveat by the respondents even whilst they were still registered proprietors might well have been thought appropriate, once the duplicate certificates of title and executed memoranda of transfer had been given to the mortgagee. This would be a means of safeguarding themselves against an abuse of the authority which they had given their mortgagee. The respondents in this respect were in a very different situation to that of the Bank. The holder of the executed memoranda of transfer and the duplicate certificate of title was in a position to have the transferee registered as proprietor. Once that person was registered the legal estate in the land would vest in the transferee. But in the case of the Bank no change in the register could properly take place without its concurrence. The difference in the need of the parties for protection against the registration of dealings is thus quite clear.

But it was the respondents' conduct in thus arming the mortgagee with the capacity to become the registered proprietor and able to deal with others as such and not any failure by them to lodge a caveat that was decisive in Abigail v. Lapin [1] . Their Lordships' decision was an application of Kindersley V.C.'s judgment in Rice v. Rice [2] from which Lord Wright quotes a passage [3] . A passage from the judgment of Knox C.J. in the case was adopted as setting out the relevant principles for resolving the competition of the parties' interest in the land. Ultimately "the case then becomes one of an agent exceeding the limits of his authority but acting within its apparent indicia" per Lord Wright [4] . I emphasize these aspects of the decision Abigail v. Lapin [1] by the Privy Council because, once it is recognized that the respondents' conduct in handing over the memoranda of transfer and the duplicate certificates of title provided the ratio decidendi, much of what Lord Wright says about the consequences of a failure by a claimant to an equitable interest to lodge a caveat and particularly his comments on Butler v. Fairclough [5] became, in my opinion, obiter.

1. [1934] A.C. 491; 51 C.L.R. 58. 2. (1854) 2 Drew. 73 [61 E.R. 646]. 3. [1934] A.C., at pp. 503-504; 51 C.L.R., at p. 68. 4. [1934] A.C., at p. 508; 51 C.L.R., at p. 72. 5. [1934] A.C. 491; 51 C.L.R. 58. 6. (1917) 23 C.L.R. 78.

Whilst it may be true in some instances that "the register may bear on its face a notice of equitable claims", this is not necessarily so and whilst in some instances a caveat of which the lodgment is noted in the certificate of title may be "notice to all the world" that the registered proprietor's title is subject to the equitable interest alleged in the caveat this, in my opinion, is not necessarily universally the case. To hold that a failure by a person entitled to an equitable estate or interest in land under the Real Property Act to lodge a caveat against dealings with the land must necessarily involve the loss of priority which the time of the creation of the equitable interest would otherwise give, is not merely in my opinion unwarranted by general principles or by any statutory provision but would in my opinion be subversive of the well recognized ability of parties to create or to maintain equitable interests in such lands. Sir Owen Dixon's remarks in Lapin v. Abigail [6] with which I respectfully agree, point in this direction.

Of course, there may be situations in which such a failure may combine with other circumstances to justify the conclusion that "the act or omission proved against" the possessor of the prior equity "has conduced or contributed to a belief on the part of the holder of the subsequent equity, at the time when he acquired it that the prior equity was not in existence" cf. per Knox C.J. in Lapin v. Abigail [7] . This is the relevant principle to apply if it is claimed that the priority of a prior equitable interest has been lost in competition with a subsequent equitable interest.

In general an earlier equity is not to be postponed to a later one unless because of some act or neglect of the prior equitable owner. In order to take away any pre-existing admitted title, that which is relied upon for such a purpose must be shown and proved by those upon whom the burden to show and prove it lies, and it must amount to something tangible and distinct, something which can have the grave and strong effect to accomplish the purpose for which it is said to have been produced: per Lord Cairns L.C. in Shropshire Union Railways and Canal Co. v. The Queen [1] . The Act or default of the prior equitable owner must be such as to make it inequitable as between him and the subsequent equitable owner that he should retain his initial priority. This in effect means that his act or default must in some way have contributed to the assumption upon which the subsequent legal owner acted when acquiring his equity: Lapin v. Abigail per Dixon J. [2] . 1. (1875) L.R. 7 H.L. 496, at p. 507. 2. (1930) 44 C.L.R., at p. 204.

In my opinion, the failure to lodge a protective caveat cannot properly be said necessarily to be such an act or default. It could not properly be said to be so in the present case.

Mention should now be made of a second reason why in this case the failure to lodge a caveat could not be held to be privative of the Bank's priority. The Bank held the certificate of title and a memorandum of mortgage in registrable form. Whilst there is no express provision of the Act which forbids the registration of a dealing without the production of the duplicate certificate of title, it is the practice of the Registrar-General's office to refuse to accept an instrument of transfer or mortgage for registration without production of the duplicate certificate of title, unless the certificate is already in the Registrar-General's hands. See Baalman & Wells: Land Titles Office Practice (N.S.W.), 3rd ed. (1952), at pp. 225, 226 . Thus a person in the situation of the Bank could reasonably rely upon this practice and his possession of the duplicate certificate of title as a reasonably sufficient protection. Of course, a provisional certificate of title may be issued by the Registrar-General if the duplicate is lost, mislaid or destroyed: s. 111. The stringency of proof required by the Registrar-General before issuing a provisional certificate may be gauged by a perusal of the departmental instructions set out in Baalman & Wells, at p. 280. A person in the situation of the Bank in this case does run the remote risk of a fraudulent claim being made to the Registrar-General by the borrower in order to obtain a provisional certificate. But, in my opinion, such a person is not to assume such criminal conduct on the part of the registered proprietor.

In any case the failure by such a person to lodge a protective caveat cannot of itself properly be held to be an act fulfilling the requirements to which I have referred of conduct which will deprive a prior equity of its priority. As I have said, the purpose of the caveat is protective: it is not to give notice. The holder of the subsequent equity in my opinion could not properly rely upon the absence of any notification in the register book of the lodgment of a caveat as a representation or as the basis for a conclusion that no equitable interest in the land existed in any person. In my opinion the conclusion and the reasoning of the Court of Appeal Division were correct on this aspect of the case.

The primary judge appears to have taken the view that s. 43A of the Act was a possible source of priority of the appellant's interest under its memorandum of mortgage. He thought the conduct of the appellant or rather that of his solicitor grossly negligent and such as to prevent the appellant having resort to the provisions of s. 43A. The Court of Appeal endorsed the primary judge's view of the failure of the appellant's solicitor to obtain production of the duplicate certificate of title. I agree with these views in so far as they might affect the rights of the parties. But I am unable to see the relevance of the appellant's solicitor's conduct to the resolution of those rights. As I have pointed out, unless the priority which time gives to the Bank's equitable interest in land is to be lost by reason of the Bank's own conduct, there is no need in my opinion, to consider the conduct of the appellant. That conduct might be relevant if, after the Bank's priority derived simply from earlier creation of its interest had been lost, a further question of the comparative claims of the holders of the equitable interests should arise. But in this case no such question, in my opinion, did arise.

Further, I have been unable to see the relevance of s. 43A to the problem raised by the case. No question of notice of the Bank's interest was suggested to have been obtained by the appellant either at the time of making the loan to Josephson or subsequently until the Registrar-General informed him of the lodgment of the Bank's dealing. I forbear therefore to discuss the nature and operation of the provision inserted by amendment in 1930 by No. 44 of that year. But in taking that course I would not wish to be thought to be differing from what was said by Taylor J. in I.A.C. (Finance) Pty. Ltd. v. Courtenay [1] .

In my opinion the appeal should be dismissed. I agree in the reasons of the Chief Justice.

Like other members of the Court, I do not find it necessary, in the resolution of this appeal, to consider s. 43A of the Real Property Act N.S.W.. For the rest, I agree with the judgment of the Court of Appeal.

I would merely add that, in doing so, I am not, I think, differing at all from what was said by Griffith C.J. in Butler v. Fairclough [1] , or by Lord Wright in Abigail v. Lapin [2] about a caveat operating by way of notice to protect the equitable interest therein alleged. Furthermore, I see wisdom in using a caveat for this purpose. It is not to be disregarded that the form of caveat in the 16th Schedule to the Act makes provision for a record to be made thereon of the entry of its particulars in the register book. This statutory form is not only ample warrant for the Registrar-General making such an entry; it is an indication from the Act itself that this should be done. The reason for such an entry must be to give notice of the caveat.

1. (1917) 23 C.L.R. 78, at p. 91. 2. [1934] A.C. 491, at p. 502; 51 C.L.R., at p. 66. Windeyer J.

In my opinion the decision of the Supreme Court, Court of Appeal Division, was correct for the reasons that Jacobs J.A. there gave, except that I do not find it necessary to consider the effect of s. 43A of the Real Property Act N.S.W.; for in the view that I take it has no direct bearing upon this case. I agree entirely in the judgment of the Chief Justice. Merely to emphasize my agreement I shall briefly state my view of the effect of the Bank's not lodging a caveat against dealings, the matter in the forefront of the appellant's argument.

Mr. Baalman's statement, in his helpful work, The Torrens System in New South Wales, at p. 170, that "the price of protection of an unregistered interest is the lodgment of a caveat", would be misleading if it be read as meaning that an equitable interest arising from an unregistered instrument must always succumb unless it be afforded the protection of a caveat. Harvey C.J. in Eq., in Thomson v. Richardson [3] , described the essence of a caveat against dealings - as distinct from a Registrar-General's caveat - as follows: "The caveat is no blot on the title. It is simply a claim by somebody that he shall receive notice before any dealing with the land is carried through."

Too much has I think been read into the statement by Griffith C.J. in Butler v. Fairclough [1] - repeated by Lord Wright in the Privy Council in Abigail v. Lapin [2] :

A person who has an equitable charge upon the land may protect it by lodging a caveat, which in my opinion operates as notice to all the world that the registered proprietor's title is subject to the equitable interest alleged in the caveat. It is the practice of the Registrar-General to note a caveat upon the relevant folium of the register book, although the Act does not require him to do so and a caveat is not a dealing. A caveat noted in the register book is no doubt a notice, to anyone who searches at the Registrar-General's Office, of the caveator's claim. I understand that the Registrar-General records all documents as they are lodged and that he lists caveats as if they were dealings and that this record is available for inspection. It is perhaps a register kept under the Act within the meaning of s. 43 (2). However, the fact that a caveat discoverable by a search of the title is "notice to all the world" of the interest claimed does not mean that the absence of a caveat is a notice to all and sundry that no interest is claimed. To say that would, it seems, be to equate the noting of a caveat in the register book with the registration of a dealing: it would make competing equitable interests depend not upon priority of creation in time and other equitable considerations, but upon priority of the lodgment of caveats. After all, the primary purpose of a caveat against dealings is not to give notice to the world of an interest. It is to warn the Registrar-General of a claim. The word caveat has long been used in law to describe a notice given to an official not to take some step without giving the caveator an opportunity to oppose it. According to the Oxford English Dictionary that sense of the word goes back to 1654. If a person intending to deal with a registered proprietor becomes aware of a caveat, it is notice to him of a claim that an interest is outstanding: and then: caveat emptor; qui ignorare non debuit quod jus alienum emit. But a caveat is not the only way in which a purchaser from the registered proprietor can be made aware of the prior equitable claims of another person. It is merely one way, and no doubt a very sure way, in which such a claimant may protect his interest against its subversion by the registered proprietor in favour of another person. As Jacobs J.A. said in this case - and I agree [3] : The particular way of protecting his interest and giving notice which was dealt with by Griffith C.J. was the lodging of a caveat but I cannot take his words to mean that that is the only way. His words did not touch the long-established practice of equitable mortgage or charge by deposit of that document or those documents without which no reasonable person dealing with an owner of land would proceed to the completion of the conveyancing transaction. 1. (1917) 23 C.L.R., at p. 91. 2. [1934] A.C., at p. 502; 51 C.L.R., at p. 66. 3. (1970) 92 W.N. (N.S.W.) 803, at pp. 806-807.

I can understand that a bank may, for good reasons, not wish to give notice to all the world that it has a charge over a customer's land to secure his overdraft. It may prefer to protect itself by obtaining and retaining possession of the duplicate certificate of title, without producing which no one can register a dealing with the land. I interpolate here that I use the words "duplicate certificate of title" to denote the deed issued to the registered proprietor in distinction from the corresponding folium of the register book. That is the common usage of the term; and it is I think the sense of the words in s. 40; but I am aware that s. 32 (1) states that "The Registrar-General shall keep a book, to be called the "register-book", and shall bind up therein the duplicates of all grants and certificates of title".

If, as I see the case, the equitable interest of the Bank is not to be lost or postponed because the Bank did not lodge a caveat, it seems to me irrelevant to enquire whether the appellant was prudent or imprudent in not prosecuting further enquiries before it lent money to the registered proprietor thinking it had the land as security. The conduct of the appellant would only be material if the Bank, by some conduct on its part, had lost the priority in equity which arose from the priority of its transaction in point of time. The Bank did not by not lodging a caveat warning the Registrar-General represent to the appellant that it had no claim. It relied upon its possession of a registrable instrument and a clean duplicate certificate of title. It is not to suffer because the registered proprietor made a statement to the appellant that was very far from frank in explanation of the Bank's having his duplicate certificate of title.

I have had the opportunity of reading the judgment of the Chief Justice. I agree with it and with the order which he proposes.