Real Property 5

1. Real Property 5 Associate Professor Cameron Stewart (c) Cameron Stewart 2005

2. Exceptions to indefeasibility- Rights in personam • While registration of an interest may extinguish other unregistered interests personal rights of action can still survive – sometimes called “personal equities” • Examples: • Right of specific performance in a sale of land contract; • Right of beneficiary to call on performance of trust; • Right to rectify a mistake in a contract which has bestowed title on the wrong party. • The personal equity must rest on a legal or equitable cause of action (c) Cameron Stewart 2005

3. Exceptions to indefeasibility- Rights in personam • Bahr v Nicolay (No 2) 1988) 62 ALJR 268. • The registered proprietor (R) was bound by a personal equity where R knew of an unregistered interest and had purchased the property on the basis that R would recognise and be bound by that unregistered interest. (c) Cameron Stewart 2005

4. Exceptions to indefeasibility- Rights in personam • Mercantile Mutual v Gosper (1991) 25 NSWLR 32: Mrs Gosper and the registered proprietor of land subject to a mortgage to Mercantile Mutual. Mr Gosper borrowed money from Mercantile Mutual and it was agreed that the loan would be secured by a variation of the existing mortgage over Mrs Gosper’s property. Mr Gosper forged his wife’s signature to the variation and it was registered. (c) Cameron Stewart 2005

5. Exceptions to indefeasibility- Rights in personam • After her husband’s death Mrs Gosper discovered what had happened. She sought orders removing the variation of the mortgage from her title. The issue before the court was whether Mercantile Mutual had an indefeasible title insofar as the variation was concerned or whether it was defeated on the basis of an in personam claim by Mrs Gosper. By a majority the Court of Appeal held in favour of Mrs Gosper. (c) Cameron Stewart 2005

6. Exceptions to indefeasibility- Rights in personam • In Story v Advance Bank the Court of Appeal had to consider in personam exceptions in the context of a mortgage granted by a corporation to a bank, where the corporation was a ‘family’ company operated by Mr & Mrs Story. The loan was to Mr Story only with the mortgage being over land owned by the corporation. Mr Story forged his wife’s signature on the mortgage documents. Mrs Story claimed an in personam exception against the bank on the basis that the bank failed to make appropriate inquiries to determine that Mrs Story had indeed executed the mortgage. The Court of Appeal ruled against Mrs Story. Gleeson CJ (Cripps J agreeing) held that even if the bank had not made adequate inquiries of what going on in the corporation ‘that does not produce the result that it is against conscience for the bank to rely upon its statutory rights’ to an indefeasible title as to the mortgage. (c) Cameron Stewart 2005

7. Exceptions to indefeasibility- Rights in personam • Vassos v State Bank of South Australia, the bank obtained a mortgage over land owned by three tenants-in-common. One of the tenants-in-common subsequently obtained a substitute mortgage for a greater sum by forging the signatures of the other two tenants-in-common. In this case the bank’s mortgage was not obtained as the result of fraud, nor was there an exception under the in personam exception. On the in personam exception, Hayne J said this case was distinguishable from Mercantile Mutual v Gosper. He reaffirmed that more than a mere forgery was required. Even though the bank was negligent in the manner in which it took the forged mortgage, there was, at 333, ‘no misrepresentation by it, no misuse of power, no improper attempt to rely on its legal rights, no knowledge of wrongdoing by any other party. … Even if by making reasonable enquiries the bank could have discovered the fact of the forgery I do not consider that that fact alone renders its conduct unconscionable’. (c) Cameron Stewart 2005

8. Registrar’s power of correction • RG can fix up administrative errors in the records but no resolve disputes – s 12 not to prejudice the rights of interest holders • State Bank of NSW v Berowra Waters Holdings Pty Ltd (1984) 4 NSWLR 398 • James v Attorney-General (1967) 69 SR (NSW) 361, it was held that the corrections should be made prior to a bona fide purchaser or mortgagee obtains an interest on the faith of the uncorrected register. (c) Cameron Stewart 2005

9. Overriding statutes • Other statutes can override the provisions of the RPA • EG – rates, taxes and charges on land bind the land regardless of the indefeasibility provisions • Pratten v Warringah Shire Council, part of Pratten’s land was resumed by the Council before he purchased the land. Before purchasing the land Pratten made inquiries to the Council to ascertain if it had any interest in the land. The Council replied that it had no interest in the land. Pratten also thoroughly searched the register. After Pratten became registered proprietor of the land the Council asserted its rights over the land that had been resumed. The Court ruled in favour of the Council on the basis that Pratten's registered interest was subject to overriding legislation, in this case s. 398 of the Local Government Act of that time. (c) Cameron Stewart 2005

10. Overriding statutes • Hillpalm Pty Ltd v Heaven\'s Door Pty Ltd [2004] HCA 59 – right claimed to have easement created pursuant to subdivision plan –Majority found that it was not an exception because there was no evidence that the creation of the easement was a condition (McHugh ACJ, Hayne and Heydon JJ)If there was a right it was a right to create an easement which was in personam, but given that the EPPA Act did not seem to create such a right and given the easement did not appear to be a condition there was no in personam right created. (c) Cameron Stewart 2005

11. Overriding statutes • The Court held that the resumption by the Council was one that created a charge that took effect by force of the statute creating it. It did not depend upon registration. Street J observed that the indefeasibility provisions of the Real Property Act were of no effect in the face of overriding legislation that removed the land from the registration system of the Act as had occurred in this case. The fact that the Council didn’t apply to have its interest notified upon the register when it became possible to do so after an amendment to the Real Property Act did not amount to an estoppel against the Council. Not did an estoppel arise when in response to Pratten’s inquiry, the Council wrote a letter back saying that it had no interest in the land. This was so because the Council had no right to dispose of the land without the consent of the Governor-in-Council. (c) Cameron Stewart 2005

12. Volunteers King v Smail [1958] VR 273 a husband and wife were registered as the proprietors of land as joint tenants. The husband executed a transfer of his interest in the land to the wife by way of gift. Before the transfer was registered the husband executed a deed of arrangement under the bankruptcy legislation. The trustee lodged a caveat claiming an equitable interest in the land under the terms of the deed of arrangement. In proceedings by the wife to remove the caveat the question was whether the trustee had an interest which had priority over the registered title of the wife. Adam J held that s 42 of the Victorian Act (which is equivalent to s 68) did not give the wife priority because she was a volunteer and the doctrine of indefeasibility only protected bona fide purchasers for value. (c) Cameron Stewart 2005

13. Volunteers • Adam J said, at 276: • "Although s 42 of the Transfer of Land Act 1954 in itself affords no ground for distinguishing between thevolunteer and the purchaser for value and would appear to give paramount effect to registered title in either case, other sections in the Act draw a distinction between the volunteer and the purchaser for value and appear tojustify the conclusion that upon the registration of dealings subsequent to initial registration under the Act, it is purchasers for value only who were intended to have the benefit of s 42.” (c) Cameron Stewart 2005

14. Volunteers • Kitto J in IAC (Finance) Pty Ltd v Courtenay (1963) 110 CLR 550 at 572: • "A provision that a person is not to be affected by notice of prior interests has no application to him so long as he remains unregistered. For the same reason, it has no application even to one who has become registered, if he acquired his estate or interest as a volunteer. It is only a person having a legal estate or legal interest acquired for value whose position is prejudiced by his having received, before paying his money, direct or constructive notice of an outstanding equitable interest. This is so even under the Real Property Act (NSW) for a registered interest is not (as was suggested in the course of the appellant's argument) some special kind of statutory interest - it is a legal interest, acquired by a statutory conveyancing procedure and protected from competition to the extent provided for by the Act, but having, subject to the Act, the nature and incidents provided by the general law. So all the provision does which I have quoted from s 43 is to protect against notice of any trust or unregistered interest a legal estate acquired for value". (c) Cameron Stewart 2005

15. Volunteers Bogdanovic v Koteff (1988) 12 NSWLR 472 Mrs B looked after Mr K on the basis of a promise that she would be given an interest in the house which would allow her to stay for life. Son inherited house. Breskvar v Wall applied - no distinction is made between volunteers and purchasers hence indefeasibility is given to the son (c) Cameron Stewart 2005

16. Volunteers Rasmussen v Rasmussen ­[1995] 1 VR 613 • Grandfather farmed a number of properties with his four sons. After he died the property passed through G's will to the grandson H. Hand his father E then argued over who should own the property as E stated that one property was held by the father on trust for E. The purpose behind the trust was to avoid tax. H's response was that he was the registered proprietor and that he had indefeasibility. • It was held that ss 42 and 43 bona fide purchaser for value and volunteers other later sections do make a distinction. On this basis the court held that the in Victoria the legislation only provides indefeasibility to purchasers for value. (c) Cameron Stewart 2005

17. Volunteers • Valoutin Pty Ltd v Furst (1998) 154 ALR 119- a decision on the Victorian legislation. Finkelstein J, having referred to King, Bogdanovic and IAC (Finance) Pty Ltd, said, at 136 - 137: • "When it is accepted, as it must be, that s 43 does not relieve a volunteer from equities which affected his transferor it is difficult to see why s 42 should be held to give that protection. Such a view would be inconsistent with the structure and text of the Transfer of Land Act. It should also be noted that King v Smail was followed by Coldrey J in Rasmussen v Rasmussen [1995] 1 VR 613 in preference to Bogdanovic. In my view King v Smail correctly states the law. (c) Cameron Stewart 2005

18. Volunteers • Conlan (As Liquidator Of Oakleigh Acquisitions Pty Ltd) -v- Registrar Of Titles & Ors [2001] WASC 201 • Position of Bogdonavic is preferred (c) Cameron Stewart 2005

19. Caveats • Protection of unregistered interests • Section 74F - System of lodging a “caveat” by a person who claims to have a legal or equitable interest in the property – any further dealing with the property cannot be recorded unless with the caveator’s approval – freezes any dealing with the land that would impact on the subject of the caveat (c) Cameron Stewart 2005

20. Caveats Different types of caveats: 1. caveat against dealings 2. caveat against improper dealing where CT has been lost 3. caveat against improper exercise of power of sale 4. caveat lodged by RG to protect interest of a person under a legal disability or on behalf of the Queen (c) Cameron Stewart 2005

21. Caveats What is a ”caveatable interest”? Must be an interest in land!!! Not just a contractual right or personal right – the interest must exist at the time of lodgment – no future interests Eg Interest of a purchaser under a contract for sale Interest of an equitable mortgagee Option to purchase land And many many more (c) Cameron Stewart 2005

22. Caveats How can they be removed? Lapsing notice with dealing – serve a notice of lodging a dealing and then 21 days for the caveator to go to SC for extension of time – otherwise the caveat lapses Lapsing notice without dealing – 21 days to obtain SC order extending caveat - otherwise the caveat lapses SC order – no notice (c) Cameron Stewart 2005

23. Caveats • After lapsing further caveat by same person based on same interest will be of no effect unless court leave has been obtained • Wrongful lodgment – if a caveator is found to have wrongfully lodged a caveat they are liable to compensate the person sustaining a pecuniary loss – “wrongfully” means in infringement of the rights of the person against whom the caveat is lodged (c) Cameron Stewart 2005

24. Section 43A On completion of the contract for sale of land and before registration the purchaser has less rights than they would have under the old system as they only have an equitable interest which is subject to any earlier equitable interest (even though they may have taken the interest for value and without notice) – under old system they would have had the legal estate provided they took that estate without notice of earlier interests and for value. (c) Cameron Stewart 2005

25. Section 43A To remedy this defect in the RPA s43A bestows upon such a purchaser of Torrens land the same rights as they would have under old system – that is the section declares that they take a legal interest after sale but prior to registration. Therefore s 43A allows a purchaser of an interest in land, who takes for value and without notice, to get a legal estate – thus protecting him or her against earlier equitable interests (c) Cameron Stewart 2005

26. Section 43A The interest purchased must had been effected by a “dealing registrable” that is you must be able to lodge the dealing for immediate registration (c) Cameron Stewart 2005

27. Section 43A Successive effect – recall priority rule earlier equitable v later legal – bona fide purchaser for value without notice and the extension on that principle – eg Wilkes v Spooner - later purchasers who buy the original purchaser’s interest with notice are protected by the original purchaser’s title – to allow the purchaser the full right to deal with the property as he or she wishes (c) Cameron Stewart 2005

28. Section 43A • Eg A buys an estate of B, for value and without notice of C’s earlier equitable interest in the property – A takes priority – if a then sells to D and D knows of C’s interest he can still take priority over C • So too does s 43A have this “successive effect” (c) Cameron Stewart 2005

29. Section 43A • Eg if A buys land from B for value and without any knowledge of the prior equitable interest of D, under s 43A A will take the legal estate and D’s interest will be defeated. If before registering his interest, A then executes a mortgage to C, C’s interest will still take priority over D’s, even if C had notice of D’s interest.. (c) Cameron Stewart 2005

30. Section 43A • IAC (Finance) Pty Ltd v Courtenay (1963) 110 CLR 550 • Courtney bought land off Mrs Austin for 15000 pounds. 3000 was paid as deposit and the rest was secured by a mortgage back to Mrs Austin. • The documents were not lodged for registration until seven months after settlement. Mrs Austin's solicitor had retained these documents to allow the mortgage to be registered. Later Mrs Austin and the Courtney's agree that Mrs Austin would buy the land back. The original transfer and mortgage had not been registered by this time. (c) Cameron Stewart 2005

31. Section 43A • Before the second sale was registered Mrs Austin agree to sell the land to Denton Subdivisions Pty Ltd. She did this without the Courtney's knowledge. Mrs Austin's solicitor uplifted the original sale and mortgage documents from the RG. When the sale to Denton was being settled a question was asked about why these documents had been uplifted. Mrs Austin's solicitor lied and said it was part of a deal to finalise the resale back to Mrs Austin. A copy of the second contract for sale was produced as evidence. Denton's purchased was financed by IAC as mortgagee. The documents were lodged by IAC but before they were registered the Courtney's commenced their action (c) Cameron Stewart 2005

32. Section 43A • Held: the Courtney's were entitled to registration. • Unregistered interests are equitable. The effect of s 43A is to confer a legal interest on an equitable interest, to put it into the position of protected received by a bona fide purchaser for value without notice. • Why did IAC fail? (c) Cameron Stewart 2005

33. Section 43A • Kitto - the fact that the solicitor withdrew the registration without authority meant that s 43A did not give priority to IAC • Taylor - The ordinary rules of priority apply. IAC had notice of the equitable interest of the Courtney's hence they could not satisfy the rule. • Dixon - an unauthorised withdrawal was not a withdrawal and was ineffective. Hence the conflict was between an early registrable interest and a later registrable interest. Section 43A meant that two registrable dealings would be determined by the first in time rule (c) Cameron Stewart 2005

34. Section 43A • Jonray (Sydney) Pty Ltd v Partridge Bros Pty Ltd (1969) 89 WN (NSW) Pt 1) 568 • M contracts to sell land to J. At the date of the contract M was not the registered proprietor but was a purchaser of the land in a contract from A. The land was subject to a mortgage to B. To settle the sale to J M intended to hand over the transfer of the land to J, executed by A at the direction of M, in conjunction with a discharge of mortgage executed by B. J was not happy with this arrangement and said that it wanted to receive the title from M. J wanted the mortgage discharged before the settlement. J sought to rescind the contract. However it had not lodged its objections within the time period for the making of objections to title. The issues were whether a purchaser could refuse a transfer by direction and whether it could require the title free from incumbrances. (c) Cameron Stewart 2005

35. Section 43A • The court found that the purchaser could not object to the sale by direction as it was still a sale from the registered proprietor. A purchaser received the same protection as a purchaser taking directly from a registered proprietor. • As for the objection to the discharge of mortgage, the court found that the purchaser could not object as uon registration it would receive indefeasible title. After completion or prior to registration the purchaser was protected by s 43A against any defects of which it had no notice. (c) Cameron Stewart 2005

36. Section 43A • The fact that the holder of an unregistered instrument has not, at the time of settlement of the transaction, paid the relevant stamp duty and had the instrument stamped by the Office of State Revenue does not mean that such a holder is not able to obtain the protection offered by s. 43A: Diemasters Pty Ltd v Meadowcorp Pty Ltd [2001] NSWSC 495 at para 22. (c) Cameron Stewart 2005

37. Section 43A • Section. 43A cannot be relied upon, if the instrument is actually registered, and the registered proprietor is not a party to any fraud, he or she does get an indefeasible title. • In both Jonray (Sydney) Pty Ltd v Partridge Bros Pty Ltd (1969) 89 WN (NSW) Pt 1) 568 and Mayer v Coe (1968) 88 WN (NSW) (Pt 1) 549 it was suggested that if notice of a void instrument was received after completion of the transaction but before its registration, the true proprietor could prevent registration of it by obtaining an injunction to prevent registration. (c) Cameron Stewart 2005

38. Competing unregistered interests Breskvar v Wall (1971) 126 CLR 376 - Mr and Mrs Breskvar executed a transfer to Petrie as security for a loan. Petrie fraudulently used the transfer and sold to his grandson Wall, who became registered owner. Wall sold to Alban Pty Ltd but before they could register their interest the Breskvars lodged a caveat which injuncted the sale. The conflict was therefore between the interest of Breskvars and the interests of Alban Pty Ltd Barwick : 'title by registration'. What sort of interest did Wall have? What sort of interest does Alban have? What interest do the Breskvars have? (c) Cameron Stewart 2005

39. Competing unregistered interests • Heid v Reliance Finance Corporation Pty Ltd (1983) 154 CLR 326, Heid agree to sell land to Connell Investments. Connell was owned by Newman McKay & Co. Heid accepted advice from Newman to use their employee (Gibby) as a solicitor. The solicitor was unqualified. Hied left for overseas and left Gibby to complete the sale and put part of the proceeds into an investment. The remainder of the proceeds were not to be paid by Connell but to be secured by way of a mortgage in favour of Heid. In fact Connell mortgaged the property to Reliance before it registered the sale from Heid to Connell. After registering the sale but before Reliance's or Heid's mortgage could be registered, Hied discovered the fraud. Whose mortgage took priority? (c) Cameron Stewart 2005

40. Competing unregistered interests • Gibbs CJ focused first on priority based upon the time of creation of the relevant equitable interests, with such priority being displaced only if the equities favoured the holder of the interest created second in point of time. His Honour, at 333, said: • In the present case the interest of the appellant was first in time. The question therefore is whether his conduct … has the consequence that [the holder of the second equitable interest] has the better equity, and the appellant's interest should be postponed to that of [the holder of the second equitable interest]. (c) Cameron Stewart 2005

41. Competing unregistered interests At 341, Mason, Deane JJ observed: It will always be necessary to characterize the conduct of the holder of the earlier interest in order to determine whether, in all the circumstances, that conduct is such that, in fairness and in justice, the earlier interest should be postponed to the later interest. (c) Cameron Stewart 2005

42. Failure to lodge a caveat and postponing conduct • Abigail v Lapin [1934] AC 491 • Lapins executed a transfer to Mrs Heavener (as security for a loan) on the understanding that they could redeem it on repayment. Mrs Heavener became registered and mortgaged it to Abigail. The mortgage was unregistered but Abigail had not notice of the earlier interest. He searched the register and found nothing. Lapins sought to rectify the register (c) Cameron Stewart 2005

43. Failure to lodge a caveat and postponing conduct • Lapins' interest should be postponed - they armed Heavener with the means to deal with the estates. The failure to caveat was one factor to consider in the question of who had the better equity. The question of whether a caveat should be lodged is a question of conveyancing practice or whether it was reasonable. Abigails search of the register was not relevant as it had not been caused by an representation by the Lapins (c) Cameron Stewart 2005

44. Failure to lodge a caveat and postponing conduct • In J & H Just (Holdings) Pty Ltd v Bank of New South Wales (1971) 125 CLR 546, the bank loaned money to Josephson. The bank obtained a mortgage in registrable form as well as the certificate of title but did not register the mortgage. J & H Just advanced further money to Josephson on the security of the land. They asked Josephson about the certificate of title and accepted his statement that it was with the bank for safekeeping. J & H Just lodged a caveat. The issue before the High Court was whether the bank maintained its priority according to time. The High Court ruled in favour of the bank. By receiving the title documents the bank had taken adequate precautions to protect themselves. (c) Cameron Stewart 2005

45. Failure to lodge a caveat and postponing conduct • In Osmanoski v Rose [1974] VR 523, A contracted to sell land to B and then again to C. When C contracted he searched the register and saw that A was the registered proprietor. B had not lodged a caveat in relation to his unregistered interest at that time but did lodge one before C lodged a transfer for registration. The court held that B’s failure to lodge a caveat before C contracted with A was postponing conduct as it led to C contracting in the belief that there was no other interest such as B’s in existence. (c) Cameron Stewart 2005

46. Failure to lodge a caveat and postponing conduct • Person-to-Person Finances Pty Ltd v Sharari [1984] 1 NSWLR 745 Tredgolde had a registered mortgage over Torrens title land. As a registered mortgagee he also held the certificate of title. Sharari took a subsequent mortgage over the property, but his solicitor failed to have that mortgage registered. Sharari did not lodge a caveat to protect his unregistered mortgage. Subsequently Person-to-Person took a mortgage over the property after being told by the owner of the land that Tredgolde had the only other mortgage over the property. (c) Cameron Stewart 2005

47. Failure to lodge a caveat and postponing conduct • Person-to-Person’s search of the register revealed only Treadgolde’s mortgage. Person-to-Person lodged a caveat in respect of its unregistered mortgage. The issue before the Court was whether Sharari’s failure to lodge a caveat amounted to postponing conduct. • McLelland J ruled that Sharari was guilty of postponing conduct and that, therefore, Person-to Person had priority over Sharari. (c) Cameron Stewart 2005

48. Failure to lodge a caveat and postponing conduct • His Honour, at 738, said: • [I]t is the settled practice of competent solicitors ... acting for second or subsequent mortgagees, to ensure either the prompt registration of the mortgage or lodgment of a caveat. The failure by [Sharari] through his solicitor to conform to this practice would lead naturally to those who searched, such as [Person-to-Person], to believe that there was no such outstanding second mortgage, and it is my opinion that the failure of [Sharari], in the absence of registration of his mortgage, to lodge a caveat led [Person-to-Person] to acquire its mortgage on the supposition that no unregistered second mortgage already existed, in circumstances which make it inequitable as between the parties that [Sharari’s] mortgage should have priority over that of [Person-to-Person]. (c) Cameron Stewart 2005