NSW Trustee and Guardian v Obeid

Background

1. On 28 May 2018, the Trustee became the registered proprietor of the property situated in North Liverpool Road, Heckenberg. That was the end result of an order made by me on 21 June 2017 in separate proceedings pursuant to s 22 of the Criminal Assets Recovery Act 1990 forfeiting the Heckenberg property to the Crown: see New South Wales Crime Commission v Ali Elskaf [2017] NSWSC 681. Ali Elskaf is Khaled Elskaf's brother.
2. The present proceedings were commenced by the Trustee by statement of claim filed on 1 May 2020 seeking to recover possession of the property from Nazha Obeid who was then in occupation. Ms Obeid voluntarily surrendered possession of the property on 26 May 2020. On 18 June 2020, Khaled Elskaf filed a notice of motion in these proceedings seeking the following orders: 1. The applicant be joined as a defendant to the proceedings pursuant to UCPR 6.24 or pursuant to the inherent jurisdiction of the Court. 2. The plaintiff file and serve an amended statement of claim within 14 days. 3. The defendants to file any defence to the amended statement of claim within 28 days, together with any cross-claims. 4. The plaintiff be restrained from dealing with and/or disposing of the land …known as ** North Liverpool Road, Heckenberg pending conclusion of the proceedings.
3. That notice of motion was supported by the affidavit of John Stonham affirmed on 2 June 2020. Mr Stonham deposed to the following matters: "1. I am the solicitor for the applicant on the motion filed on 23 March 2020. The matters deposed to herein arise from instructions from my client and my perusal of the documentation available to me. 2. I am instructed that Ali Elskaf is the younger brother of the applicant hereinafter referred to as 'Ali'. 3. On 30 May 2017, his Honour Justice Ian Harrison gave judgment in proceedings brought by the NSW Crime Commission against Ali Elskaf wherein his Honour made an unexplained wealth finding against Ali. One of the assets referred to in the judgment is a residential property at ** North Liverpool Road, Heckenberg. Ali is [sic] the registered proprietor of the subject property. 4. On or about 1 September 2007, contracts were exchanged nominating Ali as prospective purchaser. The purchase price was $286,500. Completion was scheduled to take place in about late September or early October 2007. 5. Upon exchange, 10% deposit in the sum of $28,650 was paid. I am instructed that the applicant paid the deposit monies on behalf of Ali. 6. Completion of the purchase took place on about Friday 5 October 2007. Upon completion, I am informed and verily believe the incoming mortgagee ING Bank advanced the sum of $235,622. I am further instructed there was a shortfall of around $30,000 which my client paid on behalf of Ali. 7. On 25 February 2020 [sic, 2008], my client paid the balance of the then mortgage owed by Ali to ING Bank in the sum of $228,800 on behalf of Ali. Payment of the monies was via a card entry transaction at the Liverpool Branch of the ANZ Bank from an account held in the name of Safa Elskaf, the applicant's then wife, now ex-wife. This account was used both by Safa and the applicant during the course of their marriage… 8. To date, Ali has not repaid any of the monies the applicant caused to be paid on his behalf in respect to the property. 9. In the event that the relief is sought in the notice of motion and my client is made a defendant to the proceedings, I am instructed to file a defence and cross-claim in the proceedings."
4. Khaled Elskaf affirmed an affidavit on 5 August 2020. It is sufficient for present purposes to observe that he deposes to the same matters to which Mr Stonham referred.
5. In due course, Khaled Elskaf became a defendant in these proceedings and filed a cross-claim on 16 December 2020 by which he claims the following relief against the Trustee: 1. A declaration that the cross-claimant is the equitable proprietor of the property… 2. A declaration that the [Trustee] holds the whole or such portion as the Court thinks fit of the property…on constructive trust for the cross-claimant. 3. Injunction restraining the [Trustee] from dealing with and/or disposing of the property…pending further order of the Court. 4. An order requiring the [Trustee] to do all things necessary to transfer the legal title of the property…to the cross-claimant. 5. In the alternative to Order 4, an order pursuant to s 66G Conveyancing Act 1919 on such terms as the Court thinks fit as to the proceeds of sale of the property… 6. In the alternative, damages or equitable compensation for breach of trust.
6. The cross-claim in essence pleads the facts to which both Mr Stonham and Khaled Elskaf have deposed. It maintains that Ali Elskaf's interest in the property that was forfeited pursuant to my order was a bare legal title in the sense that it was limited to the interest then held by Ali Elskaf which was itself subject to the equitable interest in the property that Khaled Elskaf now asserts. The cross-claim also alleges that the Trustee was a volunteer, a proposition which for present purposes the Trustee does not contest. Finally, the cross-claim alleges that the Trustee "knows or ought to know that Ali Elskaf held the property on trust for the cross-claimant".
7. The Trustee contests the allegation that Khaled Elskaf has any equitable interest in the property or any such interest to which its legal title is subject. For present purposes, the Trustee is content to oppose Khaled Elskaf's claim for interlocutory relief enjoining any dealing with the property upon the basis that the evidence upon which Khaled Elskaf relies is taken at its highest. However, it is important in that respect to observe that the Trustee completely denies that it took its registered title to the property with notice of Khaled Elskaf's alleged equitable interest, as pleaded in the cross-claim. I also do not understand that there is any dispute that the Trustee became registered as proprietor of the property without any such notice. Indeed, Khaled Elskaf did not assert any beneficial interest in the property of the kind he now alleges, or in fact any interest at all, until 23 March 2020 when he filed a notice of motion in the previous proceedings. Mr Robison of counsel for Khaled Elskaf specifically disavowed any suggestion that the Trustee took with notice of Khaled Elskaf's claimed interest before me on 17 December 2020 and to the extent that the cross-claim pleads that the Trustee had any such notice it is wrong and I propose to disregard it.
8. Khaled Elskaf contends that there is a serious question to be tried. The single issue that arises for determination by me is whether Khaled Elskaf is entitled to interlocutory relief, based upon his asserted equitable interest in the property, enjoining the Trustee as a volunteer from dealing with the property, when the Trustee acquired its registered legal title without notice of his claim.

NSW Trustee's submissions

1. It is convenient to deal with these first.
2. It was not until March 2020 that Khaled Elskaf first raised his alleged claim of an interest in the land with the Trustee. There is no suggestion that the Trustee had any prior notice of this claim before it became registered as the proprietor of the land on 28 May 2018. Nor is there any allegation of fraud affecting the registered legal title of the Trustee: s 42 Real Property Act. Accordingly, on 28 May 2018 pursuant to s 42 the Trustee became registered as the proprietor "absolutely free from all other estates and interests" that were not recorded on the title, subject to the exceptions specified in subsections (a) to (d).
3. Even if Khaled Elskaf had a claim against his brother arising from the payment of money on his behalf as the result of which he allegedly acquired an interest in the property binding his brother in equity, and that he thereby became beneficially entitled to an interest in the property, upon registration as the proprietor the Trustee took title free from any such equitable claim. The Trustee relied upon the passage from Butt's Land Law earlier quoted and the authorities referred to there
4. In Arambasic v Veza (No 4) [2014] NSWSC 1109, Sackville AJA (sitting as a single judge in common law) said at [164]: "The New South Wales Court of Appeal has held that a volunteer, in that case a beneficiary under a will, who obtains registration as proprietor of Torrens system land takes free from prior unregistered equities: Bogdanovic v Koteff (1988) 12 NSWLR 472. The same view has been taken in Western Australia (Conlan v Registrar of Titles), but not in Victoria: King v Smail [1958] VicRp 44; [1958] VR 273; Rasmussen v Rasmussen [1995] VicRp 38; [1995] 1 VR 613. Although I think there is much to be said for the Victorian view, I am bound by the decision in Bogdanovic v Koteff."
5. In Guirguis v Girgis [2020] NSWSC 1468, Lindsay J said at [2]: "Of significance to a determination of the proceedings is that ownership of the six home units purchased by the brother in the name of the sister is in each case governed by the Torrens title system of land registration for which the Real Property Act 1900 provides. Once a person becomes registered proprietor of such property legal title vests in the person and the person's title is 'indefeasible' save in exceptional circumstances. For present purposes, it is sufficient to record that a party seeking to displace the title of a registered proprietor generally has to prove that the registered proprietor acquired title through 'fraud' (Real Property Act 1900, section 42), or that the moving party has a personal claim against the proprietor such as where the proprietor holds property on trust for the moving party. In the absence of such exceptional circumstances, a volunteer who becomes registered as a proprietor attains indefeasibility: Bahr v Nicolay (No. 2) [1988] HCA 16; (1988) 164 CLR 604; Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89."
6. As the High Court noted in Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22 at [188], [198], without deciding, volunteers receive the same quality of indefeasibility as purchasers for value: "[197] The Court of Appeal's suggestion that if Mrs Elias and her daughters obtained indefeasible title, Mr Elias and Lesmint would also do so, and that that is absurd, is erroneous. There is no absurdity unless fraud is established against Mr Elias and Lesmint, and this was not done. Had it been done, s 42 would not have assisted them. [198] Hence the registered proprietors prevail over Say-Dee even if they are volunteers."

Khaled Elskaf's submissions

1. Khaled Elskaf submitted that the serious question to be tried, and which should only be answered after a trial, is the extent to which a volunteer is in a different position to a purchaser for the purposes of s 42 of the Real Property Act. The existence and extent of the frailty of a Torrens title acquired by a volunteer was expressly left open in Bogdanovic v Koteff. Although Bogdanovic is the subject of citation in many cases which follow it for the general proposition that volunteers have the benefit of indefeasibility, the Trustee has not pointed to, and Khaled Elskaf has not been able to find, any authority to suggest that the position of a volunteer is precisely coextensive with that of a purchaser at all times without exception.
2. Khaled Elskaf does not allege that the Trustee had knowledge of his interest in the property before it became registered proprietor. Rather, he says that even accepting that the Trustee has an indefeasible title, it nevertheless holds the property on trust for him. Khaled Elskaf submitted that "indefeasibility of title cannot be understood as barring the entrance into relationships of trust" and that "if it did mean this, then every trust over land must fail". He submitted further that the proposition for which he contends is neither novel nor unorthodox. He made the following submission: "If the Trustee's contention that it took the property 'absolutely free' is correct prospectively from date of registration of title, then the ramifications of such a submission would be enormous because it would mean that a registered proprietor could never become a trustee. This would mean that, among many other conceivable examples, the provisions of the Duties Act 1997 relating to trusts over land had no work to do. The acquisition of title for the purposes of s 42 of the Real Property Act can only mean that the registered proprietor is protected from then extant interests - not those which arise later (including those in the nature, as here, of constructive trusts)."
3. Khaled Elskaf also relied upon what was said by Lindsay J in Guirguis v Girgis and what he sought to characterise as an acknowledgement of "the less than absolute concept of indefeasibility". He referred to that part of Lindsay J's decision where his Honour said that: "In the absence of such exceptional circumstances, a volunteer who becomes registered as a proprietor attains indefeasibility".
4. Khaled Elskaf submitted that this passage highlights the issue which ought to be tried in the present case, namely, what needs to be established by way of "exceptional circumstances".

Discernment

1. Khaled Elskaf's approach is based upon the proposition that after-acquired notice of an equitable interest could defeat the registered title of a volunteer. He placed reliance upon what was said by Leeming JA in Fistar v Riverwood Legion and Community Club Ltd [2016] NSWCA 81 at [82]: "[82] Ms Fistar conceded that if the claim were viewed as a personal claim at law for the recovery of money, then indefeasibility of title did not apply. That concession was rightly made. It makes no difference whether a third party recipient of trust property (say, money) buys shares or Torrens title land or a motor vehicle: his or her personal liability is unaffected. To be clear, I do not understand the passage in Farah Constructions at [190]-[198] about the inapplicability of principles governing the receipt of trust property to title derived from registration under Torrens legislation to qualify the principles governing tracing in equity, or the personal liability of a volunteer to account for the value of the traceable proceeds of trust property retained by him or her. The Club made no submission that it did." (Emphasis added)
2. It seems to me with respect that this passage offers no comfort to Khaled Elskaf. The burden of his concern is that he has an equitable proprietary interest in the subject land. Ali Elskaf no longer owns it. The Trustee acquired its legal registered title to the property without notice of any interest that Khaled Elskaf now asserts. Ali Elskaf presumably remains personally liable to his brother for the repayment of the money expended on his behalf in accordance with any agreement between them that Khaled Elskaf can establish.
3. In any event, this further passage from Fistar should be noted: "[12] At the commencement of the trial, the Club formally abandoned its proprietary claim against Ms Fistar and by amendment (which was not opposed) added a personal claim. This was done because, notwithstanding that Ms Fistar's indefeasible title as registered proprietor had not been pleaded, counsel formed the view that the decision of Break Fast Investments Pty Ltd v Perikles Giannopoulos (No 5) [2011] NSWSC 1508, endorsed in Sze Tu v Lowe [2014] NSWCA 462; 89 NSWLR 317 at [243], stood in the way of its proprietary claim. The point was put with commendable clarity by counsel for the Club: '[U]ltimately [Break Fast] was a case where a third party received money as a volunteer, and that money was paid into real property. And the question similarly to that which I submit is applicable in this case was whether or not that third party had to disgorge the benefit they had received. And in terms of the proprietary claim, his Honour found that section 42 prevented such a claim, section 42 of the Real Property Act, but the claim in unjust enrichment was not prevented ... So although, your Honour, section 42 hasn't been pleaded against me in this case, rather than it being raised either by your Honour or on appeal or if it didn't happen, in this case I thought it is clearly appropriate to raise it and proceed on the basis which could be sustained'."
4. In Sze Tu v Lowe [2014] NSWCA 462, Gleeson JA said this at [241]-[243]: "[241] As mentioned, the equitable obligation of a volunteer recipient of stolen funds does not arise until the recipient is put on notice of an unauthorised receipt of funds. If notice comes after the volunteer recipient acquires an indefeasible title, then the notice is too late to impose an equitable obligation on the recipient, as a constructive trustee, to restore the property to the victim of the theft. It is not to the point that the recipient is a volunteer. Authority in this Court is that indefeasibility may be asserted by a volunteer: Bogdanovic v Koteff at 479-480 (Priestley JA; Hope and Samuels JJA agreeing): Gerard Cassegrain & Co Pty Ltd v Cassegrain [2013] NSWCA 453; 305 ALR 612 at [81]-[83] (Beazley P; Macfarlan JA agreeing). [242] The present case is distinguishable from the result in Heperu where, as Allsop P noted (at [167]), no issue had been raised at trial or on appeal by way of a defence under s 42 of the Real Property Act. [243] Subsequently in Break Fast Investments Pty Ltd v Giannopoulos [2011] NSWSC 1508, Black J addressed the defence of indefeasibility in relation to a Black v Freedman claim. There, prior to being placed on notice, a recipient had applied what was claimed to be stolen funds to pay down a mortgage over a property in respect of which he was the registered proprietor. Black J concluded (at [102]-[103]) that the recipient's indefeasible title was an answer to a Black v Freedman claim. Although the facts in Break Fast Investments Pty Ltd v Giannopoulos are different from the present case, his Honour's reasoning reflects, in my view, a correct application of principle." (Emphasis added)
5. These authorities are clear. They lead me to conclude that Khaled Elskaf's claim is misconceived. There is no serious question to be tried. I include in that opinion my view that there is no reason to suspect that a single judge sitting at first instance in this Court would not be bound to follow these authorities. The registered title of the Trustee taken even as a volunteer but without notice of Khaled Elskaf's alleged equitable interest must prevail. Nor is the Trustee's indefeasible title somehow subject to attack upon the basis of, or by analogy with, the equitable principles of tracing.
6. The simple but significant fact is that the Trustee acquired its interest without notice of Khaled Elskaf's alleged equitable interest. None of his submissions, and none of the authorities upon which he seeks to rely, comes to terms with that fundamental difficulty. Indeed, the question left open (as it were) by the Court of Appeal in Bogdanovic was whether volunteers are subject to unregistered interests of which they had notice when they acquired their interest. The Trustee has in my view unarguably acquired its registered legal title free of any interest that Khaled Elskaf maintains that he has. It cannot seriously be contended that there is any issue to be tried.

Further issue

1. At the commencement of these proceedings, Mr Robison submitted that I should disqualify myself from hearing his notice of motion upon the basis of apprehended bias. He submitted that the fact that I had made the original order forfeiting the property to the Crown was such that it could give rise to a question of whether a fair-minded lay observer might reasonably apprehend that I might not bring an impartial and unprejudiced mind to the resolution of the question I am required to decide.
2. In my opinion, no such reasonable apprehension could arise. The decision made by me in the earlier proceedings did not concern Khaled Elskaf. There is no suggestion that he is or was concerned in or with the circumstances that led to the proceedings against his brother. There is no suggestion that Khaled Elskaf's claim to an equitable interest in the property is adversely affected or tainted by reason of his brother's activities. Moreover, the issue for determination before me was conspicuously conducted upon the basis that Khaled Elskaf's evidence concerning the circumstances in which his asserted equitable interest came to be acquired was accepted and uncontested: he was not cross-examined. The strangely pleaded issue suggesting that the Trustee had notice of any such interest was not supported by any evidence and was quite properly not pressed.
3. I do not consider that any fair minded lay observer might reasonably apprehend that I might not bring an impartial and unprejudiced mind to the resolution of the matters I have had to decide.

Orders

1. Khaled Elskaf's application to restrain the Trustee from dealing with and/or disposing of the land known as ** North Liverpool Road, Heckenberg pending conclusion of the proceedings is dismissed with costs.

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