Validity of the Lease of the Common Property
66The Owners Corporation contends that for a number of reasons the common property lease is void and unenforceable and not binding on the Owners Corporation. Insofar as it was registered, the registration did not give QRH an indefeasible title because QRH had relevantly engaged in a statutory fraud.
67There are some factual issues which are germane to this issue and which I will set out prior to dealing with the various legal propositions advanced. The relevant chronology is as follows:
(i) On 24 February 1999 a Mr Paul Constantinou was appointed director of Roseprop Pty Ltd;
(ii) On 2 June 1999 Mr Constantinou was appointed a director of the plaintiff, QRH;
(iii) On 22 December 2000 a lease was executed for Unit 35 executed by Roseprop (Constantinou signs as secretary) and the Plaintiff (Constantinou signs as secretary and director of the Plaintiff and executes guarantee of the Plaintiff's obligations under lease);
(iv) On 26 January 2001 the first meeting of the Owners Corporation of SP64025 was held;
(v) On 5 February 2001 Strata Plan 64025 was registered;
(vi) On 26 February 2001 units 33 and 48 in Strata Plan 64025 are transferred from Roseprop to third party purchasers;
(vii) Between 3 March and 4 April 2001 units 12, 13, 30, 37, 38, 39, 40, 44, 45, 47, 50 and 51 are transferred from Roseprop to third party purchasers;
(viii) On 17 April 2001 the common property lease is executed by affixing the common seal by Julie Briffa (purportedly on behalf of the Owners Corporation) and by Paul Constantinou on behalf of QRH;
(ix) On 26 April 2001 unit 25 is transferred from Roseprop to a third party purchaser;
(x) On 27 February 2002 the second meeting of the Owners Corporation of SP64025 is held. A resolution is passed appointing Network Pacific Real Estate as managing agent pursuant to section 27 of the Strata Schemes Management Act;
(xi) On 19 April 2002 the common property lease is registered.
68For the purposes of the argument it is common ground that the lease over the common property was:
not executed pursuant to a special resolution passed at a general meeting of the Owners Corporation as required by section 25 of the SDA;
purportedly executed by affixing the seal of the Owners Corporation by Julie Briffa who at the time was neither a lot owner, member of the executive committee, nor the strata manager of the Owners Corporation in contravention of section 238 of the Strata Schemes Management Act, 1996 (NSW) (SSMA).
69The Owners Corporation relies upon section 21 of the SDA which provides that the common property in the premises may not be dealt with except in accordance with the provisions of the SDA and the SSMA. The Owners Corporation also relies upon section 25 of the SDA which relevantly provides that an Owners Corporation may, pursuant to a special resolution passed at a general meeting, execute a lease of common property.
70The first argument advanced therefore by the Owners Corporation is that the common property lease was executed ultra vires and is therefore void and unenforceable. The Owners Corporation also rely upon the manner in which the common seal was affixed to support an argument of invalidity. The seal was affixed with the attestation of a Ms Julie Briffa.
71It is clear from section 238 of the SSMA that in order to be able to affix the seal of the Owners Corporation, the person has to be a lot owner, a member of the executive, or a strata manager of the Owners Corporation. It is common ground that Ms Julie Briffa was none of these, and therefore it is submitted that section 238 of the SSMA has not been complied with. It is further contended by the Owners Corporation that as the seal was not properly affixed to the common property lease (and hence it was not executed in accordance with the requirements of section 238 of the SSMA) it was not the Owners Corporation's agreement and therefore is not binding on the Owners Corporation.
72QRH responds to both of these arguments on the basis that as the common property lease was registered QRH can avail itself of section 42 of the Real Property Act 1900 (NSW) and hence claim indefeasibility which would overcome what would otherwise be irregularities or defects.
73The Owners Corporation however relies upon a number of authorities to support its contentions. In particular it relies upon Gillett v Halwood Corp Ltd [1998] NSWCA 281. It also relies upon Waldorf Apartment Hotel, The Entrance Pty Ltd v Owners Corp SP 71623 [2010] NSWCA 226 (both decisions of the New South Wales Court of Appeal) and a decision of Justice Black in The Owners - Strata Plan No 44999 v Premier Holdings Corp Pty Ltd and Anor [2012] NSWSC 171.
74In Gillett's case the Court held that a management agreement by which an owners corporation purported to appoint a manager was unenforceable as against the owners corporation because it had not been authorised by the executive committee of the owners corporation pursuant to the legislation.
75In Waldorf the Court determined that an owners corporation was not bound by a building management agreement because it lacked the necessary resolution passed authorising entry into the agreement and again was thereby contrary to the relevant legislation.
76In Premier, Black J on the other hand rejected an ultra vires argument because in the circumstances he found the defendant was entitled to rely upon the indoor management rule, but did find that the services specified in the relevant management agreement were an unauthorised delegation of the powers of the owners corporation.
77In addition, the Owners Corporation relies upon the decision of the High Court in Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146. Again it is submitted that because the seal was improperly affixed it was not relevantly the act of the Owners Corporation and hence the common property lease was invalid.
78It seems to me that none of the arguments advanced (at least at this stage) by the Owners Corporation have substance. First none of the cases referred to above by the Owners Corporation involved any consideration of section 42 of the Real Property Act and hence the question of indefeasibility. Subject to any relevant exception to section 42 it seems to me that while it is clear various provisions of the relevant legislation may not have been complied with, once registered by operation of section 42 the interest has the benefit of indefeasibility. The whole point of section 42 is that, subject to the fraud exception, it is intended to overcome voidness in the instrument. In relevant circumstances it can cure a forgery, Frazer v Walker [1967] 1 AC 569. It can certainly provide a cure where there has been a lack of authority to authorise the execution of an instrument: Broadlands International Finance Ltd v Sly (1987) 4 BPR 9420.
79The Owners Corporation nonetheless submitted that QRH could not acquire an indefeasible title to the common property when the common property was not dealt with in accordance with the SDA. This was because the requirements of the SDA were said to override or impliedly repeal section 42 of the Real Property Act. This argument was not advanced in oral submissions and I consider it is likewise without substance. Both legislative regimes have their own work to do. Section 42 provides for indefeasible title upon registration subject to for example a relevant fraud. The SDA along with the SSMA regulates the business of strata titles. Both pieces of legislation are dealing with entirely different topics to the Real Property Act and insofar as they may well interact it would be necessarily assumed that both were valid enactments of the New South Wales Parliament. In any event I see no conflict between the respective pieces of legislation.
80The Owners Corporation puts as an alternative argument that what occurred here amounted relevantly to a statutory fraud for the purposes of section 42. It was said that "dishonestly" permitting a dealing to be registered, in circumstances where there was knowledge that there had been a false attestation, was a dealing that fell within the fraud exception in section 42. In particular it was submitted that the relevant director of QRH, Mr Constantinou, was also a director of the company that was the developer and major lot owner in the Owners Corporation when the common property lease was executed, and therefore would have known that the lease was executed without a special resolution being passed and in breach of section 238 of the SSMA. In this regard the Owners Corporation relied upon a number of authorities but in particular Australian Guarantee Corporation Ltd v De Jager [1984] VR 483 and Westpac Banking Corporation v Sansom (1994) 6 BPR 13,790 at 13,795.
81It is therefore necessary to consider the terms of section 42 and the relevant case law in relation to it. The principle of indefeasibility of title is the foundation of the Torrens system of title: Bahr v Nicolay (No 2) (1988) 164 CLR 604 at 613, per Mason CJ and Dawson J.
82Section 42 is in the following terms:
42 Estate of registered proprietor paramount
(1) Notwithstanding the existence in any other person of any estate or interest which but for this Act might be held to be paramount or to have priority, the registered proprietor for the time being of any estate or interest in land recorded in a folio of the Register shall, except in case of fraud, hold the same, subject to such other estates and interests and such entries, if any, as are recorded in that folio, but absolutely free from all other estates and interests that are not so recorded except:
(a) the estate or interest recorded in a prior folio of the Register by reason of which another proprietor claims the same land,
(a1) in the case of the omission or misdescription of an easement subsisting immediately before the land was brought under the provisions of this Act or validly created at or after that time under this or any other Act or a Commonwealth Act,
(b) in the case of the omission or misdescription of any profit à prendre created in or existing upon any land,
(c) as to any portion of land that may by wrong description of parcels or of boundaries be included in the folio of the Register or registered dealing evidencing the title of such registered proprietor, not being a purchaser or mortgagee thereof for value, or deriving from or through a purchaser or mortgagee thereof for value, and
(d) a tenancy whereunder the Tenant is in possession or entitled to immediate possession, and an agreement or option for the acquisition by such a Tenant of a further term to commence at the expiration of such a tenancy, of which in either case the registered proprietor before he or she became registered as proprietor had notice against which he or she was not protected:
Provided that:
(i) The term for which the tenancy was created does not exceed three years, and
(ii) In the case of such an agreement or option, the additional term for which it provides would not, when added to the original term, exceed three years.
(2) In subsection (1), a reference to an estate or interest in land recorded in a folio of the Register includes a reference to an estate or interest recorded in a registered mortgage, charge or lease that may be directly or indirectly identified from a distinctive reference in that folio.
(3) This section prevails over any inconsistent provision of any other Act or law unless the inconsistent provision expressly provides that it is to have effect despite anything contained in this section.
83The Owners Corporation used the epithet "dishonest" to describe the conduct of Mr Constantinou, in particular given (it was said) the state of his presumed knowledge. I should observe that neither Mr Constantinou nor Ms Briffa were called to give evidence and the Owners Corporation sought to rely upon their absence in further support of the contention that dishonesty had been afoot.
84It is as well to remember that the notion of fraud in section 42 has been considered by a number of Courts and whilst it may be accepted that fraud for the purposes of section 42 is wider than the common law concept of fraud (because it is not confined to deceit or fraudulent misrepresentation), dishonesty in the sense of moral turpitude is in my opinion an essential element. The definition in section 3(1) of the Real Property Act to the effect that fraud "includes fraud involving a fictitious person" does not affect the necessity for dishonesty or moral turpitude to be present.
85In Assets Co Ltd v Mere Roihi [1905] AC 176 at 210 the Privy Council defined fraud under the Act (there the Land Transfer Act 1870 and 1885) as actual dishonesty. In Butler v Fairclough (1917) 23 CLR 78 the notion of "moral turpitude" was used as an alternative by Isaacs J at 97. In Wicks v Bennett (1921) 30 CLR 80 at 91 Knox CJ and Rich J noted that the fraud is "something more than mere disregard of rights of which the person sought to be affected had notice".
86Mason CJ and Dawson J in Bahr v Nicolay said at 614 that it was by no means the case that all species of equitable fraud were outside the concept of fraud under the Real Property Act. However, the New South Wales Court of Appeal in Grgic v Australian and New Zealand Banking Group Ltd [1994] 33 NSWLR 202 dealt with that authority and Powell JA said at 221:
Those species of "equitable fraud" which are regarded as falling within the concept of "fraud" for the purposes of section 42 of the Act are those ... in which there has been an element of dishonesty or moral turpitude on the part of the registered proprietor of the subject interest or on the part of his or its agent.
87In Russo v Bendigo Bank Ltd and Another [1999] 3 VR 376, Ormiston JA who wrote the leading judgment said at [33]:
Consequently having regard to the manner in which the interpretation of the concept of fraud has changed over the years both in New Zealand and in Australia, I would respectfully suggest that the most satisfactory definition of the concept of fraud was given in 1923 by Salmond J. In the Waimiha Sawmilling Case when heard by the New Zealand Court of Appeal: [1923] NZLR 1137 at 1173:
The term "fraud" is not here used in its most restricted sense as including merely deceit, nor in its widest sense as including the constructive or equitable fraud of the Court of Chancery. It means dishonesty - a wilful and conscious disregard and violation of the rights of other persons.
88The Court of Appeal in Victoria has said that the mere fact that a person might have discovered fraud if further enquiries had been made does not of itself prove fraud. Inquiry is an inquiry for actual dishonesty not for want of due care: Pyramid Building Society (in liq) v Scorpion Hotels Pty Ltd [1998] 1 VR 188 at 194.
89The Owners Corporation relies upon the decision of Tadgell J in Australian Guarantee Corporation Ltd v De Jager [1984] VR 483. In that case a husband and a wife were jointly registered as registered proprietors of land. The husband arranged a mortgage over the property with AGC however the wife refused to sign the mortgage documents. Someone (unidentified) forged her signature on the mortgage documents. An intermediary of the husband took the documents to AGC. The intermediary noted he witnessed the husband's signature, not the wife's, however attested both in front of AGC's employee. The mortgage was registered. When the husband defaulted the mortgagee sought to exercise its power of sale. The reason the wife was able to claim the fraud exception is because the Court found that AGC had (through its employee) represented to the Registrar General that the wife's consent had been witnessed when it had not. Tadgell J expressly found a fraud sufficient to defeat the registered interest. There was clearly dishonesty in the registration process. This also explains Rolfe J's judgment in Westpac Banking Corporation v Sansom at 13,796 and 13,798.
90In Russo, although there was a false attestation of a signature on a mortgage as having been signed in the presence of a clerk employed by a solicitor, the Court, having heard from the clerk held that it was not shown she knew of the significance of her attestation in the process of registration, or even that the mortgage was going to be submitted for registration (see 387). The Court found it was therefore not shown that the clerk's attestation had the requisite element of dishonesty or moral turpitude required for fraud as explained by Ormiston JA.
91Whilst the Owners Corporation allege dishonesty in terms, the foundation for such an assertion was based upon the knowledge to be inferred of Mr Constantinou in that it is said he must have known that there was no special resolution and that further he must have known Ms Briffa was not authorised to affix the common seal and hence acted dishonestly. I am not so certain about that on the facts. It does seem to me that equally open is that these events occurred through a want of due care. When a Court is considering allegations as serious as that of dishonesty it is necessary to take into account the well known passages of Briginshaw v Briginshaw (1938) 60 CLR 336 and/or the provisions of section 140 (2)(c) of the Evidence Act 1995 (NSW). This is also a matter upon which the Owners Corporation bears the onus.
92The Owners Corporation submitted that such inferences could be drawn by reason of QRH's failure to call either Mr Constantinou and/or Ms Briffa on the question of what inferences could or should be drawn by reason of the failure on the part of QRH to call either evidence. It is as well to remember what Campbell JA recently said in Lym International Pty Ltd v Marcolongo and Another [2011] NSWCA 303 at paragraphs [91] to [92]:
[91] Jones v Dunkel authorises, but does not require, a tribunal of fact to engage in two different types of reasoning. One is to infer that the evidence of an absent witness, if called, would not have assisted the party who failed to call that witness. The other is that the tribunal of fact can draw with greater confidence any inference unfavourable to the party who failed to call the witness, if that witness seems to be in a position to cast light on whether that inference should properly be drawn: Manly Council v Byrne [2004] NSWCA 123 at [51]. It is only the first of those courses that the trial judge followed in the present case.
[92] Glass JA identified a number of propositions for drawing such an inference in Payne v Parker [1976] 1 NSWLR 191 at 201-202. Among these were the following conditions:
(6) Whether the principle can or should be applied depends upon whether the conditions for its operation exist. These conditions are three in number: (a) the missing witness would be expected to be called by one party rather than the other, (b) his evidence would elucidate a particular matter, (c) his absence is unexplained.
(7) The first condition is also described as existing where it would be natural for one party to produce the witness: Wigmore, para 286, or the witness would be expected to be available to one party rather than the other: O'Donnell v Reichard [1975] VR 916, at 921, or where the circumstances excuse one party from calling the witness, but require the other party to call him: ibid [1975] VR 916, at p 920, or where he might be regarded as in the camp of one party, so as to make it unrealistic for the other party to call him: ibid [1975] VR 916, at 920, Regina v Burdett (1820) 4 Barn & Ald 95 ; 106 ER 873, or where the witness' knowledge may be regarded as the knowledge of one party rather than the other: Earle v Castlemaine District Community Hospital [1974] VR 722, at 733, or where his absence should be regarded as adverse to the case of one party rather than the other: ibid [1974] VR 722, at 734. It has been observed that the higher the missing witness stands in the confidence of one party, the more reason there will be for thinking that his knowledge is available to that party rather than to his adversary: ibid [1974] VR 722, at 728. If the witness is equally available to both parties, for example, a police officer, the condition, generally speaking, stands unsatisfied. There is, however, some judicial opinion that this is not necessarily so: ibid [1974] VR 722, at 728. Evidence capable of satisfying this condition has been held to exist in relation to a party's foreman: Cafe v Australian Portland Cement Pty Ltd (1965) 83 WN (Pt 1) (NSW) 280; his safety officer: Earle v Castlemaine District Community Hospital [1974] VR 722; his accountant: Steele v Mirror Newspapers Ltd [1974] 2 NSWLR 348; his treating doctor: O'Donnell v Reichard [1975] BR 916, at 921.
93I should note here that there is no evidence that QRH has (or indeed had) any association with Mr Constantinou or for that matter Ms Briffa and on the basis of the evidence in the case it is not obvious QRH would be expected to call them. Mr Bailey was not asked a single question about this or for that matter any other issue.
94In further written submissions the Owners Corporation however drew my attention to two further authorities. National Commercial Banking Corp of Aust Ltd v Hedley (1984) 3 BPR 9477, and Davis v Williams [2003] NSWCA 371. It is pointed out by the Owners Corporation that the Court in Hedley more comfortably reached the conclusion of dishonesty by reason of the bank there having failed to call the relevant manager to give evidence in the case. Nonetheless Hedley did involve a finding that the registered proprietor had not in fact signed the relevant instrument and that the proprietor's signature had been falsely attested to. In Davis the relevant person (without the knowledge or instructions of any of the parties) altered a transfer prior to registration by deleting the claim "joint tenants" and substituting "tenants in common" in the mistaken belief that that the alteration may save stamp duty. Hence the particular person had a dishonest motive in making the alteration.
95Having considered these authorities it seems to me that they highlight the importance of the presence of what may be described as moral turpitude or an intention of depriving a person of an interest in the land by some dishonest act. It was submitted on behalf of the Owners Corporation that there is no relevant distinction between a forged instrument and an instrument created and sealed without the authority of the registered proprietor. I disagree. One is necessarily created by reason of a dishonest act, whereas the other may well occur through a want of due care.
96There are many authorities where a lack of authority as well as other irregularities have been cured by registration. For example the cases discussed by Professor Peter Butt in Land Law, 4th Edition, at [2017] where, for example, powers of attorney have been deficient, statutory provisions concerning subdivisions breached, etc. In other words there are many cases where instruments were created and sealed and registered without there being any authority to do so and yet registration provided the cure.
97It was further submitted by the Owners Corporation that in any event as explained by Dawson and Toohey JJ in Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146 at 201 and 207 - 208, the unauthorised affixing of a corporate seal as here, is a form of forgery and as a consequence, as I understand the argument, should be regarded as fraud for the purposes of section 42.
98However in Northside, Mason CJ thought forgery may be an exception to the indoor management rule but again did not apply in that case (at 157-158). Brennan J thought one must go further than affixing the genuine seal of the company for there to be the forgery exception to the indoor management rule (at 180 - 185).
99Dawson J drew distinctions between different types of forgery. For example he distinguished between a forgery which involved a counterfeit signature or seal and that which did not. He thought the former was clearly a nullity. His Honour did consider there may be mixed answers subject to whether or not there was an intention to defraud present (at 200).
100Toohey J on the other hand thought if there was no actual forgery in the strict sense, the consequences would depend upon the conduct of the company.
101In this case before me the actual seal of the company was affixed. Authority was however lacking but I do not consider the decision in Northside assists the Owners Corporation in their argument on fraud. In any event of course Northside was not a case concerning section 42.
102I do not consider in all the circumstances that the evidence permits an inference to be drawn that Mr Constantinou knew there was no special resolution and that Ms Briffa had no authority to affix the seal such that his conduct could be said to amount to dishonesty or indeed even moral turpitude. I do not therefore consider there has relevantly been a fraud for the purposes of section 42.