Ryan v Starr & 2 Ors [2005] NSWSC 170 | Case summary

29 Sometime between 8 and 19 May 2003 the second defendant noticed that the pavers that had been stacked on the property had been removed. She telephoned Mr Hennessy. He told her that instead of putting down the pavers, he was going to put down cement strips. She asked if they could move in by the end of the month. He agreed to that if the first and second defendants agreed to having cement strips laid on the driveway instead of the pavers. She agreed to that, provided it was done before they moved in. 30 The second defendant spoke to Mr Player on 19 May. His file note of that conversation includes the following: "- neighbour drives across lawn to access to carport. - KS wanted to be able to park … site no obstruction. - no objection to neighbour using - 2 x cement drive strips and rest area paved - still want to buy? Yes." 31 At about the same time the second defendant spoke to Ms Clark's secretary who made a note on the file: "put in contract that vendor will pay for 2 drive strips". 32 On 19 May 2003 Ms Clark wrote to Reid & Reid saying that the purchasers had been advised that the neighbour and the vendor had proposed two cement drive strips with the residue area to be paved, and that they required the relevant area to be sealed in some way to avoid degradation to the lawn and surrounding areas. Reid & Reid replied on 19 or 20 May 2003. They said they were instructed by the vendor that both parties (i.e. the vendor and the purchasers) had agreed that the vendor was to lay two cement driveway strips from the front of the property to the rear of the house and that the pavers were not included in the sale. They asked for advice whether the purchasers were then in a position to exchange contracts. 33 On 20 May 2003 Ms Clark responded in the following terms: "Further to previous correspondence I enclose special condition 40 for approval by your client and if approved for insertion in the contract. If your client is agreeable to the insertion of the attached special condition you are hereby authorised to complete the exchange today." 34 Clause 40 which was enclosed with that letter read: "40. The vendor agrees, as an essential term, that he shall prior to completion and in a proper workmanlike manner, lay and set two cement driveway strips in the area delineated in the sketch plan annexed hereto." 35 There could be only one "sketch plan annexed hereto". It was the sketch plan accompanying the Transfer Granting Easement which was referred to in special condition 39 forwarded by Reid & Reid on 8 May 2003, and which had been conditionally agreed upon by Ms Clark in her letter of 9 May 2003. 36 Ms Clark did not send special condition 39 and the attached Transfer Granting Easement and annexed plan, nor special condition 40, to her clients for them to sign or initial. The vendor's solicitors were already in possession of a signed contract from the purchasers. 37 On 20 May Ms Clark received the contract signed by Mr Hennessy from Reid & Reid. The contract signed by Mr Hennessy included in handwriting the special condition 39 and also included special condition 40 and the Transfer Granting Easement and the annexed plan. The solicitors treated this as an exchange. 38 On 22 May 2003 Ms Clark sent requisitions on title to Reid & Reid. One such requisition was whether the vendor had noticed or was aware of any easement affecting the subject land and not disclosed by the certificate of title. The response was: "right of carriageway as disclosed in contract". No objection was taken to the response. 39 Settlement was fixed for 6 June 2003. The purchasers had already moved into the property. On that day Ms Clark's secretary spoke to the second defendant. Her file note said: "right for us to settle. Driveway has not been done but Kristine has asked them to hold off until they have fixed their backyard." 40 The matter settled on 6 June 2003 without the two cement driveway strips being installed. The reference to "fixing their backyard" appears to be to the intention of the first and second defendants to build an extension to the deck and kitchen at the back of their property and to park their cars under the deck. 41 Ms Clark did not attend on settlement. The transfer to the first and second defendants was not in evidence, but I infer that it was not made subject to the Transfer Granting Easement to the plaintiff which had been included in the contract. I infer that the vendor did not hand over the original Transfer Granting Easement to the incoming mortgagee in order for it to be registered. There is no evidence as to whether the incoming mortgagee, National Australia Bank, had notice of the easement, but it is irrelevant whether it did or did not. There is no evidence that it agreed to take its mortgage subject to the plaintiff's easement. The Dispute Emerges 42 The plaintiff continued to use the driveway from time to time after the first and second defendants moved into 48 Carrington Street. The plaintiff deposed that in late June 2003 he had a conversation with the first and second defendants, in which he told them that he had paid Mr Hennessy for the easement over the property so that he could drive into his garage. According to him, the first defendant (Mr Starr) said that they knew that and did not have a problem with his using the driveway as they were going to extend the deck at the back of their property and park cars under that deck. 43 I do not accept that the defendants told the plaintiff that they knew that he had paid Mr Hennessy for an easement over the property. They denied having any such knowledge and I accept their denial. In any event notice of that fact would be irrelevant, especially when the notice was given after the purchase had been completed. 44 In about late 2003 the plaintiff told the first and second defendants that he intended to buy a new car and asked for the easement to be put in writing. The first defendant said to him in substance that whilst they did not mind the plaintiff using the driveway, they did not want to commit themselves to anything in writing that would make it "legal", meaning, I infer, that would give the plaintiff enforceable rights against them. In early 2004 the plaintiff bought a new car. He wanted to park it in his carport. On a number of occasions he found that he was parked in by the first and second defendants parking their car in the driveway. 45 The plaintiff retained new solicitors. They wrote to Ms Clark on 25 May 2004 and referred to the conditions of the contract for the sale of land between the first and second defendants and Mr Hennessy. I infer that they had obtained a copy of the contract for the sale of land either from Mr Hennessy or, more probably, from his solicitors. After referring to clause 39 they requested that the purchasers, in order to fulfil their obligations under the contract, sign a Transfer Granting Easement for registration. They asked that the purchasers cause the certificate of title to be produced to the Land Titles Office to enable the transfer to be registered. They attached a form of Transfer Granting Easement creating a right of carriageway instead of a right of access, but otherwise on the terms of the document which Mr Hennessy had signed and which was included in the contract of sale. 46 Ms Clark replied on 31 May 2004. Whilst saying that she did not have instructions, she went on to say that she did not anticipate that there would be any difficulty in executing the Transfer Granting Easement and had put the mortgagee on notice in relation to producing the deed. She wrote on the same day to the first and second defendants. She referred to the condition of the contract when they purchased the property, that they would acknowledge the neighbour's right of carriageway as set out in the annexed plan. She asked them to sign the enclosed Transfer Creating Easement and return it to her office. 47 On the same day she wrote to the manager of "Homeside Lending" (which I infer is a name under which the National Australia Bank carries on business). She asked it to produce the certificate of title to the Land Titles Office to allow registration of the Transfer Granting Easement. 48 On 16 June 2004 the National Australia Bank advised that the certificate of title would be produced for the registration of the Transfer Granting Easement but it would require a cheque for $166.50 as its production fee and to pay a fee to the State Government. 49 On 6 July 2004 Ms Clark spoke to the first defendant about her letter of 31 May 2003. She made a file note of the conversation in which she recorded that she was not convinced that he fully understood the issues. It appears that he conveyed to her that he wanted the easement to be 900mm less than the 2.7m indicated on the plan and that he was concerned that the vendor of the property had not completed the driveway. He told Ms Clark that he did not particularly like the plaintiff and that he and the second defendant would come back to her with further instructions. 50 These proceedings were commenced on 29 September 2004. About a month and a half before the hearing, the first defendant constructed a fence along the rear part of 48 Carrington Street where it abuts 50 Carrington Street. The fence blocks any access from 50 Carrington Street to the driveway. The Purchasers' Understanding of the Contract 51 Both the first and second defendants understood that a clause dealing with the plaintiff's right to use the driveway was to be included in the contract before it was exchanged. In cross-examination, the second defendant acknowledged that as at 8 May 2003 when she spoke to the solicitor at Ms Clark's office, she appreciated that contracts had not then been exchanged. She appreciated that at that point in time she was negotiating further inclusions in the contract to allow the plaintiff to use the driveway from time to time. She understood the contract would have a clause included in it that would allow the plaintiff to use the driveway. By 19 May, she and the first defendant had agreed with Mr Hennessy that Mr Hennessy would lay the two cement strips. Although the second defendant did not accept that the reason she told Ms Clark's secretary of that agreement was so that a clause could be included in the contract relating to Mr Hennessy's laying of the two cement strips, I am satisfied that she appreciated that such a clause would be included in the contract. If, as the second defendant seemed to suggest, this was a matter of agreement between them and the vendor which was not to find itself into the contract, there was no purpose in telling the solicitor's secretary what had been agreed. The second defendant acknowledged in cross-examination that she understood that as at 19 May contracts had still not been exchanged. 52 Initially the first defendant denied knowing that there was a term in the contract for purchase of the house, which related to the use of the driveway. I do not accept that part of his evidence. Later in his evidence he accepted that he knew that a term had been included in the contract for the purchase for 48 Carrington Street, which referred to the arrangement for access. He understood that such a term was included in the contract so that he would be bound to recognise the arrangement. He insisted however that the arrangement, as he understood it, was personal to Mr Ryan. Otherwise it was to become "null and void". I accept that was his belief, although I have found that the second defendant understood on 8 or 9 May that the clause the vendor proposed would be for the benefit of the owner from time to time of 50 Carrington Street. Section 42 of the Real Property Act 1900 53 Subject to exceptions which are not presently relevant, s 42(1) of the Real Property Act 1900 provides: "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." 54 Section 43(1) of the Real Property Act provides: "(1) Except in the case of fraud no person contracting or dealing with or taking or proposing to take a transfer from the registered proprietor of any registered estate or interest … shall be affected by notice direct or constructive of any trust or unregistered interest, any rule of law or equity to the contrary notwithstanding; and the knowledge that any such trust or unregistered interest is in existence shall not of itself be imputed as fraud." 55 The plaintiff's interest under his agreement with Mr Hennessy and the instrument executed by Mr Hennessy is not recorded in the register. The plaintiff claims however that the first and second defendants are bound by his interest either on the grounds that it is fraudulent on their part to repudiate his interest and that that is a case of fraud within the meaning of s 42, or because of what is sometimes known as the "personal equity" exception to indefeasibility. There were no relevant personal dealings between the plaintiff and the first and second defendants. However as Barwick CJ said in Breskvar v Wall (1971) 126 CLR 376 at 384-385: "Proceedings may of course be brought against the registered proprietor … by persons setting up matters depending upon the acts of the registered proprietor himself. These may have as their terminal point orders binding the registered proprietor to divest himself wholly or partly of the estate or interest vested in him by registration and endorsement of the certificate of title…" The Contractual Terms 56 The first question is whether the contract between Mr Hennessy and the first and second defendants included special condition 39. It was submitted by counsel for the first and second defendants that the contract did not include that condition, and that Ms Clark had no authority in any event to bind the first and second defendants to its terms. Counsel for the first and second defendants submitted that after Reid & Reid had offered to exchange on the basis of the contract signed by the first and second defendants with the inclusion of special condition 39, the offer was rejected and a counter offer was proposed, namely, that contained in Ms Clark's letter of 9 May 2003. However that counter offer was itself rejected by Reid & Reid in their letter of 15 May 2003. Ms Clark then made a further offer by proposing a condition numbered 40 in her letter of 19 May 2003, which the vendor accepted. Hence it was submitted that on an objective review of the correspondence, the offer by the vendor to exchange on the basis of a contract which included special condition 39, was never accepted. 57 I do not accept this submission. The true position is that the vendor's request for the inclusion of special condition 39 was conditionally agreed upon by Ms Clark for the purchasers. The conditions for the agreement were those set out in Ms Clark's letter of 9 May 2003. There were then negotiations about those conditions. The parties agreed upon those conditions in terms which were ultimately reduced to special condition 40. The vendor's request that special condition 39 be included was not simply rejected by a counter offer in terms of Ms Clark's letter of 9 May 2003. In Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 Heydon JA explained why an analysis in terms of offer and acceptance involving the rejection of an offer by a counter offer, until the last counter offer is accepted, is not always sufficient to explain how a contract is concluded. His Honour said (at 179, [80]): "If offer and acceptance analysis is not always necessary or sufficient, principles such as the general principle that a rejection of an offer brings it to an end cannot be universal. A rejected offer could remain operative if it were repeated, or otherwise revived, or if in the circumstances it should for some other reason be treated, despite its rejection, as remaining on foot, available for acceptance, or for adoption as the basis of mutual assent manifested by conduct." 58 Here the correspondence between the solicitors manifests a mutual assent to the inclusion of the special conditions 39 and 40. Messrs Reid & Reid had set out the agreement reached by the parties that two cement driveway strips would be laid from the front of the property to the rear of the house. That was accepted by the purchasers by Ms Clark enclosing a special condition 40. Had the special condition 39 been rejected, the new clause would not have numbered 40. Special condition 40 referred to the plan which was referred to in special condition 39. The reason for the inclusion of special condition 40 was to provide protection to the purchasers from the degradation to the turf which would follow from the use by the owner of 50 Carrington Street of the driveway. It was the substituted condition upon which the purchasers agreed to the inclusion of special condition 39. 59 This was manifest by the vendor's solicitor sending to Ms Clark the vendor's copy of the contract which included both conditions 39 and 40. That was received without demur. The answer to the requisition which referred to the right of carriageway being disclosed in the contract was also received without demur. 60 In New South Wales the usual method by which parties enter into contracts for the sale of land is by exchange of signed counterparts. If the exchanged counterparts are not identical, questions will arise as to whether the parties intended to be bound notwithstanding the disconformity. However the usual practice is to exchange identical counterparts. That was what was initially intended in this case, with the exchange to be effected through the mail. However the purchasers posted their signed copy of the contract to the vendor before the terms were agreed. This was a modification of the usual practice. In this case exchange should be taken to have occurred when the solicitors for the purchasers confirmed that the vendor's solicitor could treat the signed counterpart with additional clauses agreed in correspondence as the terms on which the purchasers agreed to buy, and the vendor sent his signed counterpart contract containing those same additional clauses to the purchasers' solicitor. The question of what is to be done to create a binding contract depends on what, objectively considered, the parties intended (Sindel v Georgiou (1984) 154 CLR 661 at 667). Although they did not exchange identical signed counterparts, the parties had nonetheless agreed on identical terms, and had agreed to be bound by those terms. 61 For these reasons, subject to the question of Ms Clark's authority, special condition 39 was a term of the agreement between the first and second defendants and Mr Hennessy. 62 It was submitted that Ms Clark had no authority to make such a contract on behalf of the first and second defendants. They did not intend, it was said, to give a permanent right to the plaintiff to use the driveway let alone a right to the plaintiff or his successors in title. They did not sign the clauses. They therefore did not communicate their assent to those clauses to the vendor directly. Nor, it was submitted, did the solicitor have ostensible authority to make a contract on their behalf. (See Pianta v National Finance & Trustees Ltd (1964) 180 CLR 146 at 152; Strangas v Young (1975) 1 BPR 9123 at 9124; Longpocket Investments Pty Ltd v Hoadley (1985) 3 BPR 9606 at 9611; Notter v Girault (2004) ANZ Conv R 503 at [49]-[50]). 63 In Pianta v National Finance & Trustees Ltd Barwick CJ said (at 152) that where authority is conferred on a solicitor to settle terms of sale which he could advise his clients to accept and for this purpose to negotiate those terms, the solicitor was not thereby authorised to enter into a contract on behalf of the client for the sale of the land. Such authority must be given expressly or by necessary implication. 64 Here Ms Clark was authorised expressly or by necessary implication to incorporate into the contract for sale special condition 39 and special condition 40. It is not to the point that the first and second defendants may have misunderstood what it was they were agreeing to. They knew and intended that a clause was to be included in the contract dealing with the plaintiff's right to use the driveway. They recognised that such a term was included in the contract and that they would be bound to recognise the arrangement. They left it to their solicitor to incorporate such terms in the contract notwithstanding that they did not sign them. In those circumstances they were bound by their agent's conduct. 65 Next it was submitted for the first and second defendants that such obligations as they may have had under special condition 39 were conditional upon the vendor's performance of special condition 40. Special condition 40 was not performed. However the purchasers decided to complete the purchase without insisting on the performance of special condition 40. They waived the vendor's performance of that clause. 66 In any event, there was nothing in special condition 39 that made its performance conditional on the vendor having performed special condition 40. The purchasers were not bound to complete unless the vendor complied with special condition 40. But if they did complete, they were bound by special condition 39. What Did Special Condition 39 Mean? 67 The next question is whether special condition 39 obliges the first and second defendants to observe and give effect to the unregistered easement to which it refers (whatever that might be), and if so, what is the extent of that obligation. If the clause does no more than contain an acknowledgement that the purchasers had notice of the unregistered easement granted by Mr Hennessy, then, in the absence of fraud, the first and second defendants would on registration acquire a title which was not subject to the easement. 68 In Munro v Stuart (1924) 41 SR (NSW) 203n a contract for sale of land stated that the property was sold "subject to existing tenancies or occupancies". A number of tenants were in occupation of the premises under unregistered leases. After the transfer had been registered the purchaser proceeded to eject the lessees. Harvey J rejected a submission that on the proper construction of the clause, the purchaser had agreed with the vendor to observe and give effect to the occupancies and tenancies which existed at the date of contract. Rather the clause was construed as being a condition that the property was sold subject to the existing tenancies and occupancies, so that the purchaser could not repudiate the contract based on their existence, but would take over the property for whatever those tenancies may be worth. 69 However special condition 39 goes further than merely satisfying the vendor's duty to disclose the interest to which the property was subject, although it also served that purpose. (Clause 10.1.8 provided that the purchaser could not make a claim or requisition or rescind or terminate in respect of any easement the substance of which was disclosed in the contract.) 70 A similar question was considered by the High Court in Bahr v Nicolay (No. 2) (1988) 164 CLR 604. There the Bahrs had agreed to sell land to Nicolay and take a lease back of the land. It was a term of the contract for sale of the land to Nicolay, that the Bahrs agreed that on the expiration of the lease they would enter into a contract with Nicolay for the purchase by the Bahrs of the land for a specified sum. Nicolay sold the land to the Thompsons who were aware of the agreement between the Bahrs and Nicolay. It was a term of the contract of sale between Nicolay and the Thompsons, that the Thompsons acknowledged that an agreement existed between the Bahrs and Nicolay as stamped and signed on a specified (although incorrect) date. Mason CJ and Dawson J held (at 616) that the matrix of circumstances in which the agreement between Nicolay and the Thompsons was made, indicated that the acknowledgement of the agreement between the Bahrs and Nicolay amounted to an agreement or undertaking to recognise the Bahrs' rights under that antecedent agreement. The circumstances that pointed to that conclusion were first, that the agreement between Nicolay and the Thompsons would result in the destruction of the Bahrs' existing rights or allow the destruction of those rights by registration of a transfer in favour of the Thompsons whereby the Bahrs' rights would become unenforceable, which would expose Nicolay to liability for breach of contract. Secondly, in the absence of fraud, the combined effect of ss 68 and 134 of the Transfer of Land Act 1893 (WA) would bring about the destruction of the Bahrs' rights. Thirdly, until registration of the transfer to the Thompsons, the Bahrs' equitable interest under their earlier contract of sale with Nicolay pursuant to which by necessary implication, Nicolay was required to sell the land back to them, was an interest which had priority over the Thompsons' interests as purchasers under their agreement to purchase from Nicolay. Mason CJ and Dawson J said: "Viewed in this setting, cl 4 of the later agreement was designed to do more than merely evidence the fact that the second respondents [the Thompsons] had notice of the appellants' [the Bahrs'] rights. If that were the only purpose to be served by the acknowledgment it would achieve nothing. It would enable the second respondents to destroy the appellants' interest and would leave the first respondent exposed to potential liability for breach of contract at the suit of the appellants. In the circumstances outlined it is evident that the purpose of cl 4 [of the contract between Nicolay and the Thompsons] was to provide that the transfer of title to Lot 340 was to be subject to the appellants' rights under cl 6 of the 1980 agreement [between the Bahrs and Nicolay] in the sense that those rights were to be enforceable against the second respondents." [At 616]. 71 The three circumstances are related. They are all true of the agreement in this case. Their Honours' conclusion is applicable to this case save that it could not be said that nothing could be achieved by merely evidencing the fact that the purchasers had notice of the plaintiff's rights. The acknowledgement of such notice would preclude the purchasers from making a requisition or objection to the unregistered easement granted to the plaintiff. However the same could equally have been said of the clause under consideration in Bahr v Nicolay (No. 2). 72 Brennan J construed cl 4 of the contract between Nicolay and the Thompsons in the same way. His Honour said (at 647): "The consequence of inserting cl 4 into the Thompsons' contract was that the Thompsons acknowledged not only the fact that the Bahrs' contract existed but also that the interest which they were purchasing was subject to the interest which the Bahrs' had under cl 6 of the Bahrs' contract. But cl 4 is more than an acknowledgment of a fact; in its context it appears to be a contractual stipulation. It is one of a number of "Conditions" in the Thompsons' offer to purchase Lot 340 which Nicolay, by his attorney Robertson, accepted, and the offer was expressed to be "subject to the Conditions". By reference to the Bahrs' contract (to which cl 4 refers), it would have been apparent to the parties to the Thompsons' contract - or, more realistically, it ought to have been apparent to their legal advisers - that Nicolay would be in breach of cl 6 of the Bahrs' contract unless cl 4 of the Thompsons' contract is a contractual stipulation that the Thompsons' title on completion was to be subject to the Bahrs' interest. Having regard to the context in which cl 4 is found in the Thompsons' contract and the relationship between the vendor Nicolay and the Bahrs which appears on the face of the Bahrs' contract, I construe cl 4 not as a mere acknowledgment of a fact but as a term of the contract limiting the purchasers' interest by defining the interest to which the purchasers' title should be subject." [At 647-648]. 73 Wilson and Toohey JJ considered that the Thompsons bought the land on the understanding that they were bound by the agreement between the Bahrs and Nicolay, which required Nicolay to re-sell the land to the Bahrs. In reaching that conclusion, their Honours did not rely on cl 4 which they said "may have been, of itself, insufficient for that purpose". Their Honours relied upon other correspondence as putting beyond doubt the Thompsons' acknowledgement of their obligation to the appellants. 74 In the present case special condition 39 goes beyond a mere acknowledgement that an agreement for the grant of an easement, as recorded in the unregistered instrument, existed between Mr Hennessy and the plaintiff. The contract was expressed to be subject to the purchasers' acknowledgement of a right of carriageway: implying that the obligation of the vendor to convey the land to the purchasers was subject to their acknowledging, that is, agreeing to observe and give effect to, the plaintiff's right of carriageway. Moreover the acknowledgement was of a right of carriageway to be enjoyed by the registered proprietors from time to time of 50 Carrington Street. That is inconsistent with the clause merely recording that the purchasers had notice of the existing interest of the plaintiff so that they could not raise a requisition about it. If that were the only effect of the clause, their acknowledgement would not provide any benefit to the registered proprietors from time to time of 50 Carrington Street, because the easement would be defeated on registration of their transfer. 75 By special condition 39 the purchasers agreed to observe and give effect to what was described as "a right of carriageway as set out in the annexed plan" not only for the benefit of the plaintiff, but also for his successors in title. To give effect to the easement to be enjoyed by the plaintiff and his successors in title, not only the purchasers, but their successors in title would have to be bound. Otherwise the persons who would benefit from the right of carriageway referred to in the special condition would not be the registered proprietor from time to time of 50 Carrington Street, West Wallsend, but only such persons as were registered proprietors of 50 Carrington Street whilst the purchasers were registered proprietors of 48 Carrington Street. For the registered proprietors from time to time of 50 Carrington Street to have the benefit of the easement against not only the purchasers, but their successors in title, the purchasers would have to do what was necessary to allow the registration of the easement. Once the purchasers became registered, the Transfer Granting Easement signed by Mr Hennessy would no longer be registrable. Hence special condition 39 necessarily implies that on request the purchasers would execute in registrable form an instrument creating the easement and do what it lay in their power to do to procure its registration. 76 The next question is, what is the easement described in paragraph 39? The easement is described as a right of carriageway as set out in the annexed plan. The annexed plan does not describe a right of carriageway but a right of access. Likewise the Transfer Granting Easement, although not expressly referred to in special condition 39, was one of the documents included in the contract by reference to which special condition 39 is to be construed. It did not provide for a right of carriageway, but a right of access. 77 The ambiguity created by the inconsistency between the words "right of carriageway" and the reference to the annexed plan is to be resolved by reference to special condition 40 and the objective matrix of facts in which the contract was entered into. That objective matrix does not include Reid & Reid's statement in their letter of 14 April 2003 that a right of carriageway was to be granted. However it does include the fact that the plaintiff had started building a carport in his backyard. The first and second defendants had seen him using the driveway to move his car from the street onto his property. The site of the easement was the driveway. As well as this, special condition 40 required the vendor to lay and set two cement driveway strips in the area delineated in the annexed sketch plan. Plainly, the intention was that the site of the easement would be used as a driveway between Carrington Street and the rear of 50 Carrington Street. Equally plainly there was no intention to allow the registered proprietor of 50 Carrington Street to have access to any part of 48 Carrington Street other than the site of the easement. There was no intention that the proprietor of 50 Carrington Street should be permitted to carry out construction works on the site of the easement. In other words, the description of the easement as a right of access in the annexed plan and in the Transfer Granting Easement was mistaken. The easement intended to be created was accurately described in special condition 39 as a right of carriageway, and that right was intended to be granted over the area depicted on the annexed plan. The Fraud Exception in s 42 78 The plaintiff submitted that he had an existing estate or interest in the land by reason of his agreement with Mr Hennessy, his payment of consideration of $17,000, and the execution and delivery to him of the Transfer Granting Easement. It was submitted that the first and second defendants notwithstanding their registration were bound by the plaintiff's interest because for them to deny it would be a fraud within the meaning of s 42 of the Real Property Act. 79 This claim is not made out. 80 The precise nature of the plaintiff's estate in the land is not clear. There are two problems. The first is that the Transfer Granting Easement which he received from Mr Hennessy needed to be rectified to a right of carriageway. The second is that although the plaintiff had provided the full consideration for the agreement for the grant of a right of carriageway over the site of the easement, Mr Hennessy could not procure the registration of that easement without the consent of the existing mortgagee. The only order for specific performance of the agreement between the plaintiff and Mr Hennessy which the plaintiff could have obtained was an order that Mr Hennessy do all that he could do to procure registration of a rectified instrument creating the easement. It is unnecessary further to analyse the nature of such an interest. It was not submitted that the plaintiff did not have an existing equitable proprietary interest. However the consequence of s 42 of the Real Property Act is that except in the case of fraud, and subject to such in personam rights as the plaintiff may have arising from the acts of the first and second defendants, the first and second defendants have acquired their title free of any such interest. 81 In Bahr v Nicolay (No. 2), Mason CJ and Dawson J considered (at 615) that for the purposes of the cognate provision to s 42 of the Real Property Act, fraudulent conduct included the dishonest repudiation of a prior interest which the registered proprietor had acknowledged or had agreed to recognise as a basis for obtaining title, as well as fraudulent conduct which enabled him to obtain title or registration. However Wilson and Toohey JJ, by reference to existing authority, said (at 633) that the fraud referred to in the cognate provisions to ss 42 and 43 of the Real Property Act is fraud committed in the act of acquiring a registered title. It has never been doubted that registration of a transfer is not fraudulent merely because the transferee has notice of an existing equitable interest, which will be defeated by the registration of the transfer. That is the effect of s 43. 82 Nor were the views of Mason CJ or Dawson J in this respect supported by Brennan J. Although his Honour held that as the Thompsons had agreed with Nicolay to recognise the Bahrs' unregistered equitable interest the repudiation of that interest was fraudulent in the eyes of equity, his Honour did not suggest that that was a fraud which would defeat the registered title for the purposes of the cognate provision to s 42 of the Real Property Act. His Honour (at 654) was of the contrary opinion. The fact that such a denial was regarded as fraudulent in the eyes of equity was the basis for the imposition of a constructive trust as an in personam remedy against the registered proprietor arising from his own conduct in making an agreement to recognise the third party's interest. The majority of the Court in Bahr v Nicolay (No. 2) did not extend the ambit of what is considered to be fraud for the purposes of s 42 of the Real Property Act. 83 Fraud for the purposes of that section requires dishonesty or moral turpitude and not what is called constructive or equitable fraud, where there is no dishonesty or intention to cheat. (Assets Co Ltd v Mere Roihi [1905] AC 176; Butler v Fairclough (1917) 23 CLR 78 at 90, 97; Latec Investments Ltd v Hotel Terrigal Pty Ltd (1965) 113 CLR 265 at 273-4; Bahr v Nicolay (No. 2) at 614; Russo v Bendigo Bank Ltd [1993] 3 VR 376; Davis v Williams (2003) 11 BPR 21,313 at 21,318 [26], 21,327 [86], 21,342 [226]-[228]). The first and second defendants did not intend to cheat the plaintiff. At the time they became registered as proprietors of 48 Carrington Street they did not intend by acknowledging the plaintiff's rights in the contract to put themselves in the position of being able to be registered so that they could defeat his rights. This is not a case of fraud within the meaning of s 42 of the Real Property Act. Personal Equities as an Exception to Indefeasibility 84 Section 42 does not deny the right of a plaintiff to bring against the registered proprietor a personal claim founded at law or equity based upon what the registered proprietor has himself done, whether before or after becoming registered. (Frazer v Walker [1967] 1 AC 569 at 585; Breskvar v Wall (1971) 126 CLR 376 at 384-385; Logue v Shoalhaven Shire Council [1979] 1 NSWLR 537 at 563; Bahr v Nicolay (No. 2) at 613, 637-638, 653). Bahr v Nicolay (No. 2) establishes that under this principle the beneficiary of a trust can enforce his interest against a registered proprietor where the trust, whether actual or constructive, is created by or imposed on the registered proprietor by his having agreed with his vendor to recognise and be bound by the beneficiary's unregistered interest. No Enforceable Express Trust 85 In Bahr v Nicolay (No. 2), Mason CJ and Dawson J held that the effect of cl 4 of the contract for sale between Nicolay and the Thompsons created an express trust in favour of the Bahrs. Their Honours said: "If the inference to be drawn is that the parties intended to create or protect an interest in a third party and the trust relationship is the appropriate means of creating or protecting that interest or of giving effect to the intention, then there is no reason why in the given case an intention to create a trust should not be inferred. The present is just such a case. The trust is an express, not a constructive, trust. The effect of the trust is that the second respondents [the Thompsons] hold lot 340 subject to such rights as were created in favour of the appellants [the Bahrs] by the 1980 agreement." [At 618-69]. 86 This analysis was criticised by Professor Cope on the ground that the Thompsons did not intend to create between themselves and the Bahrs the relationship of trustee and beneficiary. They agreed to recognise the Bahrs' rights to purchase the land, not to hold the land on trust for them. (Cope, Constructive Trusts, p 602). 87 However no form of words is necessary to create a trust, provided the intention is clear. What is needed is a clear statement of intention by the legal owner to hold the land beneficially for another. (Brisbane City Council v Attorney General [1979] AC 411 at 421). It is not necessary that the person declaring his intentions should know that the relationship he intended is characterised by law as a trust. (Jacobs on Trusts, 6 ed, para [501]). 88 If special condition 39 could be regarded as a declaration of an express trust by the first and second defendants that they will hold part of their land for the benefit of the plaintiff and his successors in title to use the right of carriageway, there is still the difficulty that the first and second defendants did not sign the special condition 39. Nor were their solicitors authorised in writing to commit the first and second defendants to the condition. By s 23C(1)(a) of the Conveyancing Act, no interest in land can be created except by writing signed by the person creating the same or the person's agent thereunto lawfully authorised in writing, or by will, or by operation of law. Unless it would be fraudulent for the first and second defendants to rely on the statute, they cannot be bound by an express trust of the land created by special condition 39. The plaintiff did not submit that it would be fraudulent for the first and second defendants to rely on the statute. 89 Nor was it submitted that Mr Hennessy held the benefit of special condition 39 on trust for the plaintiff, so that the plaintiff could enforce his rights against the first and second defendants in a suit to which he was a party. (Bahr v Nicolay (No. 2) per Brennan J at 656; Snelling v John G Snelling Ltd [1973] QB 87 at 99.) Although Mr Hennessy has been joined as the third defendant to the proceedings, he has not been served. I do not know the reason for that and no order for substituted service has been sought or made. Counsel for the plaintiff said that the plaintiff was not proceeding against him. It is as if he had not been joined. It is not possible in these circumstances to find that Mr Hennessy constituted himself a trustee of the benefit of the first and second defendants' promise in special condition 39. Constructive Trust 90 In Bahr v Nicolay (No. 2), Wilson, Toohey and Brennan JJ held that as the Thompsons agreed with their vendor, Nicolay, that they would be bound by Nicolay's obligation to sell the land to the Bahrs, they became subject to a constructive trust in favour of the Bahrs: (at 638, 654-656). Brennan J said (at 655): "…. A purchaser who has undertaken - whether by contract or by collateral undertaking - to hold his title subject to a third party's right to purchase remains bound by his undertaking after registration of his transfer. If he should repudiate the third party's right to purchase Equity imposes a constructive trust so that the registered proprietor holds his title on trust for the third party to the extent of the third party's interest." 91 However, it was submitted for the first and second defendants that as such a constructive trust is imposed because equity regards it as unconscionable or fraudulent for the purchaser to repudiate the unregistered interest which he had agreed to recognise at the time he acquired the land, it is necessary not only that the purchaser contract to be bound by that interest but that he should know that that was the effect of his contract. As in this case, a person may be bound by his contract in a way which he did not intend. But it was submitted that there is nothing unconscionable in a purchaser denying rights to a third party which he did not subjectively intend to create or recognise, even though on the proper construction of the contract with the vendor he had agreed to so. 92 Undoubtedly the basis for imposing a constructive trust is the unconscientious insistence by the legal owner of the property that he holds his title free of the third party's interest. What makes the repudiation of the third party's interest unconscionable is the purchasers' contractual undertaking to observe and give effect to the plaintiff's interest. To demonstrate that the repudiation of the contractual obligation assumed to the vendor is unconscionable, it is not essential to demonstrate that the purchaser fully appreciated what he had contracted to do. In the passage from the judgment of Brennan J in Bahr v Nicolay (No. 2) which is quoted in paragraph 72, his Honour did not formulate the principle in terms of the purchasers' subjective knowledge of the express or implied terms of the contract. 93 In Lyus v Prowsa Developments Ltd [1982] 1 WLR 1044; [1982] 2 All ER 953 Dillon J did emphasise that the defendant purchaser had "the fullest actual knowledge of the plaintiff's contract with the vendor company", (at 959). However the equitable fraud which provided the foundation for relief in that case was described as the "reneging on a positive stipulation in favour of the plaintiffs and the bargain under which the first defendant acquired the land", (at 962). 94 I do not think that the first and second defendants should be heard to say that they did not know or appreciate what it was they had agreed to. First I am not satisfied that at least the second defendant did not know of the terms of special condition 39. I rather infer that she did for the reasons I have given. They both appreciated that the contract made some provision in favour of the plaintiff giving him a right to use the driveway and they knew that they were bound by the right which was created, whatever it was. If there be any additional requirement based on the purchasers' knowledge of what they had agreed to at the time the property was acquired, I think that the knowledge which the first and second defendants had was sufficient to make the subsequent repudiation of the plaintiff's interest unconscionable. 95 As a beneficiary of a constructive trust the plaintiff can enforce his interest against the trustees (the first and second defendants) directly. (Bahr v Nicolay (No. 2) at 656; Neale v Willis (1968) 19 P & Cr 836 at 839). It is therefore not an answer to the claim that the plaintiff did not proceed against Mr Hennessy. Terms of the Constructive Trust 96 Here the first and second defendants' contractual undertaking went beyond merely acknowledging that they would hold their title subject to the plaintiff's existing interest. The plaintiff's existing interest was as the beneficiary of an agreement to create a right of carriageway, which agreement was not properly documented. The plaintiff needed to secure an order for rectification of the Transfer Granting Easement. Moreover, the consent of Mr Hennessy's mortgagee would have been required to the registration of the easement Mr Hennessy had agreed to grant. The plaintiff's proprietary estate was measured by the extent to which equity would decree specific performance. An order for specific performance against Mr Hennessy would have been limited in the first instance to requiring him to seek the mortgagee's consent. (Butts v O'Dwyer (1952) 87 CLR 267 at 282-3). However, for the reasons which I have given, the first and second defendants contracted with Mr Hennessy that they would recognise that the plaintiff and his successors in title would be entitled to a right of carriageway over the site of the designated easement. The measure of the plaintiff's equitable interest against Mr Hennessy is not the same as his equitable interest under the constructive trust arising from the first and second defendants' agreement with Mr Hennessy to acknowledge that he should be entitled to a right of carriageway over the land. 97 The majority judgments in Bahr v Nicolay (No. 2) establish that where the registered proprietor has agreed with his vendor to recognise and be bound by the unregistered interest of a third party, the registered proprietor is subject to a constructive trust in favour of the third party. In my view the terms of that constructive trust depend upon the terms of the contractual undertaking. In Bahr v Nicolay (No. 2) Toohey and Wilson JJ, after referring to the fact that the Thompsons bought Lot 340 on the understanding common to them and the vendor (Nicolay) that they were bound by Nicolay's obligation to sell the land to the Bahrs, said: "By taking a transfer of Lot 340 on that basis, and the appellants' [the Bahrs] interest under cl 6 constituting an equitable interest in the land, the second respondents [the Thompsons] became subject to a constructive trust in favour of the appellants: Lyus v Prowsa Developments Ltd [1982] 1 WLR 1044; [1982] 2 All ER 953; Binions v Evans [1972] Ch 359 at 368. If it be the position that the appellants' interest under cl 6 fell short of an equitable estate, they nonetheless have a personal equity enforceable against the second respondents [the Thompsons] . In either case ss 68 and 134 of the Act would not preclude the enforcement of the estate or equity because both arise, not by virtue of notice of them by the second respondents, but because of their acceptance of a transfer on terms that they would be bound by the interest the appellants had in the land by reason of their contract with the first respondent." [ At 638-639] . 98 In Snowlong Pty Ltd v Choe (1991) 23 NSWLR 198 at 212 Wood J (as his Honour then was) held that the plaintiff could enforce his equitable interest against the registered proprietor who had agreed with his vendor to recognise that interest, even though the plaintiff could not have enforced those rights against the registered proprietor's predecessor in title. 99 For the reasons in paragraphs 75-77, the first and second defendants are required to execute a memorandum of Transfer Granting Easement to provide a right of carriageway as shown on the annexed plan and to do all things reasonably necessary to procure the registration of that transfer. 100 The National Australia Bank holds a registered mortgage over the property. It appears that it has no objection to the registration of the memorandum of transfer provided that its costs of producing the certificate of title to the Land Titles Office are paid. It follows from the interpretation of special condition 39 referred to in paragraph 75 above, that the first and second defendants are liable to meet those costs. 101 The plaintiff has not proceeded against the third defendant. If the National Australia Bank ultimately takes a different position and refuses its consent to the registration of the Transfer Granting Easement, the plaintiff may have a claim for damages against the third defendant. That question has not arisen in the proceedings before me. I will grant the plaintiff leave to discontinue the proceedings against the third defendant. 102 The plaintiff is entitled in substance to the relief claimed in paragraphs 1-5 of the Amended Statement of Claim. The first and second defendants must remove that part of the fence they constructed which blocks the plaintiff's access to the right of way. The right of way must not be obstructed. It does not give the plaintiff the right to park in the driveway, but he and his successors in title are entitled to use it as a right of carriageway. 103 I cannot leave this case without referring to the lamentable conveyancing practices which it has revealed. The wrong easement was initially drawn up. It was not registered. No caveat was lodged to protect the plaintiff's interest whilst it was unregistered. A clause was inserted in the contract of sale to protect the plaintiff's interest, but it was not signed or initialled by the purchasers. There was not a conventional exchange of contracts. Nothing was done to register the intended easement at the same time as registering the purchasers' transfer. 104 No blame can be attributed to the current solicitors for the plaintiff or the first or second defendants. Nor am I in a position to attribute blame to any previous legal practitioner involved in the transaction. However the parties have been put to the expense of difficult litigation which could have been avoided, or its scope reduced, if proper conveyancing steps had been taken. 105 I make the following orders:

Ryan v Starr & 2 Ors

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