Real property - Torrens system - Application for extension of caveat - Indefeasibility of title - Exceptions - Fraud - In personam exception - Transfer of Land Act 1893 (WA) s 68, s 134 - Whether form of caveat defective - Whether an injunction should be granted to protect the plaintiff's interest in the land - Turns on own facts

Transfer of Land Act 1893 (WA), s 68, s 134, s 137, s 138B

Bahr v Nicolay (No 2) [1988] HCA 16; (1988) 164 CLR 604

Jandric v Jandric [1999] WASC 22

Midland Brick Co Pty Ltd v Welsh [2006] WASC 122; (2006) 32 WAR 287

Permanent Mortgages Pty Ltd v Vandenbergh [2010] WASC 10

1 LE MIERE J: From 22 March 2006 St George Bank Ltd extended various lending facilities to Builders Choice Australia (BCA), a building company. Robert Dunn, the first defendant's husband and a director of BCA, and Monsilk Pty Ltd in its own capacity and its capacity as trustee of the R & P Dunn Family Trust executed a guarantee and indemnity in respect of the amounts owing by BCA to St George Bank Ltd. Monsilk was the registered proprietor of Lot 525 at Lakes Road, Barragup. The first defendant, Ms Dunn, was a director of Monsilk. On 16 November 2007 Monsilk executed a fixed and floating charge (Charge) over its assets in favour of St George Bank. In or about May 2009 the facilities went into default. The bank appointed receivers and managers of BCA. Following completion of the receivership the debt owed to the bank was $3,115,086.

2 On 1 December 2008 St George Bank merged with the first plaintiff, Westpac, pursuant to the Financial Sector (Business Transfer and Group Restructure) Act 1999 (Cth). On 12 April 2010 St George Bank assigned its interest in the Charge to Westpac. It is common ground that Westpac succeeded to St George's interest in and title to the Charge.

3 On 11 August 2009 Monsilk entered into an agreement with Ms Dunn pursuant to which Ms Dunn agreed to purchase Lot 525 from Monsilk free of all encumbrances for $1,140,000. The whole of the purchase price was paid to Macquarie Bank, which held a first registered mortgage over the property. Ms Dunn became the sole proprietor of the property on 8 September 2009. Since then Monsilk has gone into a creditors' voluntary liquidation and Mr Dunn has been declared bankrupt.

4 Since she became the registered proprietor of the property Ms Dunn has spent money on having the property subdivided into lots 201, 202 and 203. In order to fund the purchase and subdivisional works Ms Dunn borrowed $600,000 from Latrobe Bank which is the first registered mortgagee. On 31 August 2010 Westpac lodged a caveat on lots 201, 202 and 203. On 24 September 2010 the Registrar of Titles sent Westpac a notice under s 138B of the Transfer of Land Act 1893 (WA) (TLA). The caveat will lapse unless Westpac obtains a Supreme Court order pursuant to s 138B(2)(a) and s 138B(2)(b) of the TLA extending the operation of the caveat. On 19 October 2010 Westpac commenced these proceedings by originating summons seeking an order that the operation of the caveat continue until further order of the court. On 10 November 2010 Westpac commenced CIV 2812 of 2010 against Ms Dunn by writ of summons in which Westpac claims a declaration that her interest in lots 201, 202 and 203 is subject to the Charge and an injunction restraining Ms Dunn from disposing of or otherwise dealing with her interest in the properties in a manner inconsistent with Westpac's rights under the Charge.

5 Before the court may make an order extending the operation of a caveat the court must be satisfied that the caveator's claim 'has or may have substance', that is, the caveator must show that there is a serious question to be tried, or a prima facie case, that it has a subsisting interest in the land. It is common ground that the Charge gave rise to a caveatable interest. However, the first defendant says that Westpac's interest in the land arising under the Charge was extinguished upon the registration of Ms Dunn as registered proprietor. Westpac says that its interest in the land was not extinguished by Ms Dunn becoming registered proprietor.

6 The primary obstacles to the plaintiff's claim are the indefeasibility provisions of the TLA. In general, the effect of s 68(1) and s 134 of the TLA is that, subject to certain exceptions, they destroy unregistered interests which would have conflicted with, or encumbered, the registered proprietor's interest: Permanent Mortgages Pty Ltd v Vandenbergh [2010] WASC 10 [368]. Westpac says that its interest was not extinguished because it falls within two exceptions to indefeasibility. They are broadly described as the fraud exception and the in personam exception.

7 The exception of fraud relates only to fraud by the current registered proprietor or her agent. There is no fraud on the part of a registered proprietor in merely acquiring title with notice of an existing unregistered interest or in taking a transfer with knowledge that its registration will defeat such an interest: Bahr v Nicolay (No 2) [1988] HCA 16; (1988) 164 CLR 604, 613 (Mason CJ & Dawson J), 653 (Brennan J). In Bahr v Nicolay Mason CJ and Dawson J said that 'not ... all species of equitable fraud stand outside the statutory concept of fraud' (614). Their Honours said that actual fraud, personal dishonesty or moral turpitude lie at the heart of the indefeasibility provisions of the TLA. Their Honours said that s 68 and s 134 of the TLA should be construed strictly and the exception liberally and said:

[TLA s 68] restricts, in the interests of the indefeasibility of title, rights which would exist otherwise at law or in equity. And granted that an exception is to be made for fraud why should the exception not embrace fraudulent conduct arising from the dishonest repudiation of a prior interest which the registered proprietor has acknowledged or has agreed to recognise as a basis for obtaining title, as well as fraudulent conduct which enables him to obtain title or registration? In the context of s 68 there is no difference between the false undertaking which induced the execution of the transfer in Lok Yew and an undertaking honestly given which induces the execution of a transfer and is subsequently repudiated for the purpose of defeating the prior interest. The repudiation is fraudulent because it has as its object the destruction of the unregistered interest notwithstanding that the preservation of the unregistered interest was the foundation or assumption underlying the execution of the transfer. For the same reason the subsequent repudiation by a transferee of property of a limited beneficial interest in that property is fraudulent, when the transferee took the property on terms that the limited beneficial interest would be retained by the transferor. It is immaterial that the transferee 'may have been innocent of any fraudulent intent in taking the conveyance in absolute form' ...(615 - 616).

But an acknowledgement of an antecedent agreement in an appropriate context may amount to an agreement or undertaking to recognise rights arising under that antecedent agreement (616).

8 The plaintiff says that Ms Dunn's conduct was fraudulent because:

1. Between 1 March 2001 and 5 June 2009 Ms Dunn was a director of Monsilk;
2. Ms Dunn personally executed the Charge in her capacity as director of Monsilk;

1. on 23 July 2009 Ms Dunn (in her personal capacity) executed a deed which, amongst other things, acknowledged the existence of the Charge;

1. on 11 August 2009 Monsilk entered into an agreement with Ms Dunn to sell the property to her;
2. on or about 31 August 2009 Ms Dunn entered into a further agreement in which she acknowledged the existence of the Charge and the debt it secured to Westpac.

9 The case is factually distinguishable from Bahr v Nicolay. Ms Dunn did not acknowledge the Charge, or assume the obligations imposed by the Charge, in the agreement by which she became registered proprietor of the property. To the contrary, that agreement specifically provides that Ms Dunn shall purchase from Monsilk the property free from all encumbrances. However, the plaintiff says that it is at least arguable that Ms Dunn's conduct in agreeing to purchase the property free of all encumbrances involved personal dishonesty in circumstances where she was not only aware of the existence of the Charge but had personally executed the Charge as a director of Monsilk and had acknowledged the existence of the Charge in the deed between herself and her husband of 23 July 2009 (and in the binding financial agreement executed on or about 31 August 2009) as a result of which she received $1.9 million from the proceeds of the sale of a residential property.

10 It may be arguable that the circumstances of this case fall within the fraud exception. Before referring further to the fraud argument I will consider the 'in personam' exception. If the circumstances of this case arguably fall within the in personam exception it is not necessary that they also fall within the fraud exception.

11 A recognised exception to the principle of indefeasibility of title is where the registered proprietor has obligations enforceable against them personally. The so-called in personam exception recognises that a registered proprietor remains subject to obligations enforceable against them personally, even if those obligations require that the property in respect of which registration has been obtained must be dealt with in a particular manner. A claimant seeking to make an in personam claim against a registered proprietor must be able to establish an obligation which a court acting in its equitable jurisdiction is competent to enforce.

12 In Bahr v Nicolay Wilson, Brennan and Toohey JJ found that the registered proprietor was bound by an in personam obligation. Their Honours held that the original owner was entitled to specific performance against the registered proprietor because by taking a transfer knowing of and accepting an obligation to resell, the registered proprietor had become subject to a constructive trust in favour of the original owner. Their Honours held that a purchaser who has undertaken to hold his title subject to a third party's right to repurchase remains bound by his undertaking after the registration of his transfer. If he repudiates 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. Brennan J said:

... the title of a purchaser who not only has notice of an antecedent unregistered interest but who purchases on terms that he will be bound by the unregistered interest is subject to that interest (653).

13 It is not necessary or appropriate for me to form a final opinion whether or not the in personam exception applies in the circumstances of this case. It is sufficient that there is a serious question to be tried that it does. I find that there is a serious question to be tried, or prima facie case, that Ms Dunn has become subject to a constructive trust in favour of Westpac to the effect that she holds the land subject to the rights created in favour of Westpac by the Charge. Ms Dunn did not acknowledge the Charge, or assume the obligations imposed by the Charge, in the agreement by which she became registered proprietor of the property. But it is arguable that the circumstances referred to in [8] give rise to a constructive trust in favour of Westpac.

14 The first defendant submits that the plaintiff's caveat is defective because it states that the plaintiff claims an interest 'as equitable chargee' but does not specify how that interest arises as against the first defendant as registered proprietor, in circumstances where the charge was granted by the previous registered proprietor, Monsilk.

15 Section 137 of the TLA provides, relevantly, that any person claiming any estate or interest in land may lodge a caveat with the registrar in an approved form. The form which has been approved by the registrar is form C1. That is the form used by Westpac to lodge the caveat. The form requires the caveator to specify the estate or interest claimed (see note 5) and to specify the grounds on which the claim is made (see note 6). In Midland Brick Co Pty Ltd v Welsh [2006] WASC 122; (2006) 32 WAR 287 Hasluck J discussed the requirement that the caveator state the estate or interest being claimed. Hasluck J concluded:

... the primary requirement, as spelt out by the High Court in Leros Pty Ltd v Terara Pty Ltd [1992] HCA 22; (1991) 174 CLR 407 is that the estate or interest should be specified in the sense of being mentioned definitely or explicitly. This would enable the registered proprietor to ascertain the nature of the claim he has to meet and will permit the Registrar to determine whether a dealing lodged for registration is inconsistent with the estate or interest being claimed by the caveator [392].

16 It may be difficult for Westpac to formulate a short and sufficient description of the estate or interest being claimed for the purpose of completing a caveat form. Nevertheless, it must specify the estate or interest claimed in the sense of being mentioned definitely or explicitly. In my opinion the description of the estate 'as equitable chargee' is not a sufficient specification of the estate or interest being claimed by Westpac. Westpac states in the caveat that it claims that estate or interest by virtue of the charge between Monsilk and Westpac. I will not purport to formulate an appropriate description of the estate or interest being claimed. However, I consider that Westpac was obliged to convey to any person perusing the caveat that it claimed that Ms Dunn held the property on express or constructive trust in favour of Westpac to the effect that she held the land subject to rights created in favour of Westpac by the Charge because of fraud or in personam obligations arising from her conduct in executing the Charge on behalf of Monsilk, acknowledging the Charge and Westpac's interest in the land created by the Charge in the deed (and in the binding financial deed) between Ms Dunn and her husband and by entering into an agreement with Monsilk to purchase the land free of all encumbrances.

17 For those reasons the caveat is defective. A caveat in defective form should not be extended: Jandric v Jandric [1999] WASC 22 [48] (Commissioner Buss QC). I will not extend the operation of the caveat.

18 The plaintiff does not submit that the caveat, if defective, should be amended. The plaintiff submits that if the court declines to extend the operation of the caveat on the grounds that it is defective in form then the court should grant an injunction to protect the plaintiff's interest in the land.

19 The court can grant an injunction in lieu of making orders extending the operation of a caveat: Midland Brick Co Pty Ltd v Welsh [406].

20 I have found that Westpac has established that there is a serious question to be tried, or a prima facie case, that Ms Dunn holds the land on express or constructive trust in favour of Westpac to the effect that she holds the land subject to rights created in favour of Westpac by the Charge. In my opinion the balance of convenience favours the grant of an injunction to protect Westpac's interest in the land or in the proceeds of the sale of the land on the basis that the defendant holds the proceeds of sale pursuant to a constructive trust.

21 The balance of convenience favours the grant of an injunction because if the land is sold and the proceeds distributed the first defendant's interest will be extinguished. By contrast, there is no evidence that the defendants will be prejudiced if Ms Dunn is restrained from disposing of the proceeds of the sale after the discharge of the registered mortgage, the real estate agent's fees and any other necessary incidental expenses of the sale. I will grant an injunction restraining Ms Dunn from dealing with the proceeds of the sale of any of the lots except for the payment to the registered mortgagee to discharge the mortgage, any fees due to the real estate agent and any other necessary fees or payments incidental to the sale. I will hear the parties as to the precise terms of the injunction.