Topic 6 Non-Statutory Exceptions to Indefeasibility In Personam Exceptions Registration will not change or affect the personal, legal or equitable obligations that registered proprietors may be subject to A registered proprietor who owes contractual obligations toward the land will remain contractually bound, despite becoming registered Any equitable obligations that a registered proprietor is subject to will not be removed by registration The title that the Torrens legislation confers upon a registered proprietor in no way denies the right of a plaintiff to bring against a registered proprietor a claim in personam founded in law or in equity, for such relief as a court acting in personam may grant Frazer v Walker (1967) Enforceable against the registered proprietor of interest in land arising form their conduct either before or after they became registered It is a personal right against the registered proprietor, even though it requires the proprietor to deal with the property in a particular way Registration does not effect or change personal, legal or equitable obligations the proprietor may be subject to There is an issue of in personam rights because many equitable actions arise as a result of notice, but registered proprietors are exempt from the doctrine of notice under the Torrens system Types of rights in personam Sale Trust If a registered proprietor enters into a contract to sell the land, the purchaser can seek specific performance of the contract if the registered proprietor refuses to complete it Registered proprietor cannot rely on indefeasibility of title to defeat a claim arising out of the contract Court will ensure that the vendor upholds the obligations that they have created If a registered trustee threatens to deal with trust land in breach of the trust, the beneficiary can enforce the trust against the registered trustee who cannot rely on indefeasibility to defeat their trust obligations In personam exception means that a registered proprietor is subject to contracts they have entered into and to trusts, whether expressed or implied, over the property 41
Rights in rem à enforceable against the whole world Rights in personam à enforceable against a person, contractual right Scope of in personam rights Mere notice is not enough to attract in personam rights in equity in the form of a remedial constructive trust Bahr v Nicolay (No 2) Notice coupled with other inequitable conduct, such as a positive assurance that a registered proprietor will be bound, may be sufficient Registration cannot protect or immunise a registered proprietor from the consequences of their own actions, particularly where those actions give rise to a personal equitable relief Registration does not and was not intended to eradicate personal equitable responsibility - Tara Shire Council v Garner (2003) For an in personam right to be invoked: 1. The legal facts must demonstrate the existence of a known legal cause of action (EG. Deceit), or equitable cause of action (EG. Undue influences) that is enforceable against the registered proprietor 2. Proprietor s conduct must amount to a breach of some obligation owed to the plaintiff 3. The registered proprietor s conscience must be affected, such that it would be unconscionable for the registered proprietor to assert an unencumbered title Alternatively, unconscionability is relevant only where it s an element of a cause of action asserted; where it is not, there is no superadded requirement of unconscionability 4. In personam claim must arise out of the actions of the registered proprietor of his agents Bahr v Nicolay (No 2) (1988) Facts above in Topic 5 HELD: Indefeasibility provisions may not be circumvented; the provisions do not protect a registered proprietor from consequences of his own actions where those actions give rise to a personal equity in another intended to create an express trust out of the terms of the contract in order to provide protection to B The title of a purchaser who has notice of an antecedent unregistered interest and who purchases on terms that he will be bound thereby is subby agreeing to honour the option to repurchase the property as a condition to receiving the transfer of the property from N, they became express trustees; the parties intended to create an express trust out of the terms of the contract in order to provide protection to B 42
Bahr v Nicolay (No 2) (1988) HELD: The title of a purchaser who has notice of an antecedent unregistered interest and who purchases on terms that he will be bound thereby is subject to that unregistered interest Indefeasibility protects transferee from defects and does not free from from the interests that he has burdened his title A registered proprietor who had undertaken that his transfer should be subject to an unregistered interest and who repudiates the unregistered interest, when he repudiates the unregistered interest Applicability of Barnes v Addy principles to Torrens interests Circumstances that may give rise to an in personam claim is where a registered proprietor has purchased property knowing that the property was subject to a trust Constructive trust may be imposed on someone, where that person: Barnes v Addy First limb à Takes transfer of trust property knowing that the transfer is in breach of the trust, and Indefeasibility will be prevented in these circumstances Second limb à Knowingly assists a trustee in misapplying the trust property Transfer in breach of trust can be set aside where the transferee participates in the breach of the trust Principle may be invoked despite registration of the transferee, since such a transfer is treated as fraudulent and fraud is a statutory exception to indefeasibility Exclusion of knowing receipt constructive trust on the ground of statutory interpretation is difficult to justify Receiving trust property knowing that it constitutes a breach of trust does amount to a specifies of fraud that equity will protect Protection occurs through imposition of a constructive trust Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd (1998) Mortgage from 64T, a trust company, to MB was executed; mortgage was forgery; affixing of seal and attestation was attended by K and his wife and were not authorised by 64T; MB undertook a company search but did not check attesting signatures; MB knew that 64T was a trust company and that K did not own it; mortgage was registered and mortgagor sought to have mortgage set aside on basis that mortgagee s title was defeasible because of fraud, as a result 43
Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd (1998) HELD: Rights in personam only include known legal or equitable causes of action; there is no room or need to do so in the Torrens system If the registration of the mortgagee s interest is achieve dishonestly, the registration is liable to be set aside because s 42(1) TLA recognises that fraud renders the interests defeasible Indefeasibility of title not affected by application of the first limb from Barnes v Addy It is inconsistent with the principle of indefeasibility to treat a mortgagee of property that is subject to a trust, registration having honestly obtained, as having received trust property LHK Nominees Pty Ltd v Kenworthy (2002) LHK held land in trust; directors of LHK included three sons who complied with wishes of father, K, to transfer the property to him at which later appeared to be an undervalue; LHK argued that K had received the title knowingly in breach of trust, because the property was sold at an undervalue HELD: In relation to the first limb of Barnes v Addy, the equity arising is defeated by registration of Torrens title, in favour of the recipient; where registration of title is not dishonestly obtained, it is not possible, consistently with received principles of indefeasibility, to treat the holder of the registered title to property that is subject to a trust as having received trust property No authority for the proposition that the registered interest of a purchaser of Torrens title land is defeasible simply because he became registered with knowledge that the transfer by vendor was in breach of trust Second limb requires finding of dishonesty; knowing what they are doing is regarded as dishonest by honest people A constructive trust could only be binding upon a registered proprietor where fraud or dishonesty could be established beyond knowledge of breach of trust Indefeasibility provisions have never destroyed doctrines of equity whereby conscientious obligations entered into by registered proprietors had been enforced against them Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) FC controlled by FE, father to M, S, and J; FC entered into joint venture with SD for property development which they purchased together as tenants in common; Council advised FC that the property was unsuitable and the redevelopment can only proceed by amalgamation with adjoining properties; adjoining properties were purchased by FE s wife, daughters and associated companies 44 ISSUE: Whether the wife and daughters had immediate indefeasibility or if there was breach of fiduciary duty
Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) HELD: An exception operating outside the indefeasibility provisions can exist in relation to certain legal or equitable causes of action against the registered proprietor First limb à Did Mrs E and daughters have notice of breach of duty by Mr E Second limb à Did Mrs E and daughters knowingly participate in the alleged fraudulent scheme The first and second limb in Barnes v Addy cannot be used to undermine indefeasibility provisions; the circumstances under the first limb did not amount to a personal equity that could establish an exception to indefeasibility; the second limb was inapplicable on the facts as the breach of trust or fiduciary duty had to be dishonest Fraud v in personam rights Fraud exception requires actual fraud In personam rights exception requires actions traditionally regarded as equitable fraud In personam rights arise out of conduct of registered proprietor that falls short of fraud but which the courts consider is sufficiently unconscionable that the registered proprietor should not be allowed to assert their title Threshold degree of moral wrongdoing required for in personam liability is lower than that for fraud Fine line between purchasing with mere notice of another s unregistered interest, and purchasing with notice coupled with other factors that together constitutes equitable fraud and render the proprietor liable to claim in personam EG. Prior notice and indication that proprietor will comply, but refuses to comply after registration Overriding legislation Title of registered proprietor may be set aside where subsequent legislation overrides or repeals it Registered title only be set aside where it is very clear that the subsequent legislation was intended to apply to Torrens land and is interpreted as directly inconsistent with the indefeasibility provisions If subsequent legislation is general, rather than specific, it may not abrogate earlier specific indefeasibility provisions If there is a partial or total inconsistency, the Torrens legislation must yield to later statute to the extent of the inconsistency Title of registered proprietor may be set aside where subsequent legislation overrides it 45
If subsequent legislation is general, rather than specific, it may not abrogate earlier specific indefeasibility provisions If there is a partial or total inconsistency, the Torrens legislation must yield to later statute to the extent of the inconsistency Rights, interests and charges relating to land which were created pursuant to a latter statute may be enforceable against the title of the registered proprietor, even though the proprietor did not know of them and/or had no means of finding out about them There is a strong presumption that Parliament does not intend to contradict itself, but rather intend two statutes to operate in given spheres Older authorities adopted an approach to overriding legislation that it had the effect of creating distinct categories of exception, instead of promoting a rigorous process of statutory interpretation Older authorities adopted an approach to overriding legislation that it had the effect of creating distinct categories of exception, instead of promoting a rigorous process of statutory interpretation Pratten v Warringah Shire Council (1969) Block of land registered under Torrens system, subsequently affected by enactment of s 398 Local Government Act which vested title to the land in the Council; council did not enter their name as registered proprietor; Pratten purchased land after searching title and receiving assurance from Council it claimed no interest in the land; Pratten was registered on title, and Council sought to enforce its title under the Act HELD: The Local Government Act, when enacted, applied to all applicable land; the absolute indefeasibility ordinarily flowing from registration will not avail where it had been displaced by an overriding legislative provision Such a provision has the effect, since enactment, of automatically removing the registered title The vesting of the estate in council became immediately operative regardless of the fact that the land was registered under another Act in the same of a different party Decision ahs been criticised, suggested provisions such as s 398 of the Act pose the greatest threat to the operation of the Torrens system, and make such substantial inroads into indefeasibility that it is impossible to rely on the register Cf. Quach v Marrickville Municipal Council (1990) The court suggested an appropriate construction would be that the section only applied to vest title in the council where that title had been registered The indefeasibility provisions could not operate to defeat the statutory right of the Council because it is now established that statutory and public rights will override an indefeasible title 46
Horvath v Commonwealth Bank of Australia (1999) CBA advanced money to a family to purchase Torrens title land; loan secured by mortgage; mortgagors were the couple and their son, unknown to bank the son was a minor; transfer to purchasers was registered but mortgage not registered until after son was no longer a minor; mortgagors defaulted, bank obtained judgment for possession against them HELD: The relief provisions in the Supreme Court Act did not conflict with the indefeasibility provisions of TLA; the first act dealt with binding nature of particular agreements made with minors; latter act dealt with the effect and consequences of registration under Torrens framework Neither Act dealt directly with the subject matter in law of the other; they could both be left to operate within their respective spheres If the mortgage is not registered, it would not be enforceable because it would be void by reason of the relief provision Relief provision says nothing about effect of registration of the void instrument on the operation of indefeasibility provisions The difficulty lies in determining whether there is such an inconsistency it must be a true inconsistency Concept of immediate indefeasibility defeats any claim that any transaction giving rise to the registered interest was void, voidable, unenforceable, illegal or otherwise ineffective Exception that if the party has a personal equity requiring registered holder to transfer or surrender the interest so acquired The only inconsistency that would arise is from a provision that directly or by implication denied the consequence of indefeasibility to registration The fact that another statute declares a contract void is generally of no significance once the instrument is registered; on registration, it has the effect of a mortgage, not because of contractual effects, but because of the policy on the Torrens statute HIllpalm v Heavens Door (2004) Land subdivided into two lots; subdivision subject to condition that it provided for the construction of a right of carriageway from Lot 2 for the benefit of Lot 1; Registered subdivision indicated the existence of a proposed right of way; certificates of title for both lots referred to the right of way even though it was not actually created; Lot 2 further subdivided and new plans of subdivision also showed the proposed right of way; the new certificates of title did not include any reference to the proposed easement; HD purchased Lot 1, H purchased one of the subdivisions of Lot 2 ISSUE: Whether HD could insist upon the creation of the right of away against the land owned by H 47
HIllpalm v Heavens Door (2004) HELD: Narrow approach; the Environment, Planning and Assessment Act could not enforce the subdivision condition against subsequent registered proprietor, effectively meaning the two statutory schemes could not be treated as inconsistent Subdivision condition could not be enforced because the consent to the subdivision did not create a right in rem which could constitute a right or interest in the appellant s land which had not been shown on its certificate of title If such a right had been created, there would have been a real and lively question about how the two statutory schemes could have been reconciled The subdivision had been allowed to proceed without the imposition of the condition requiring the creation of an easement; as a result, there was actually not a question of inconsistency between the statutes The availability of rights in personam is entirely consistent with the Torrens system of title The right to indefeasibility does not prevent the bringing of a claim in personam, founded upon law or equity Personal right must be found in the relevant statutory provisions City of Canada Bay Council v Bonaccorso Pty Ltd (2009) Facts set out in Topic 4 HELD: Some acts set up statutory rights which effectively supplant the rights acquired by registered interest holders under the Real Property Act, and that such rights will trump indefeasibility The critical question to determine was whether the breach of a later provision is so inconsistent with the indefeasibility provisions of the Real Property Act that the subsequent provision must prevail It has to be established that the legislature intended, by enacting the Act, that the provision was one with which the indefeasibility provisions could not stand Legislation should be read sequentially if that can be achieved Until registration, there was the opportunity to set aside the transaction and prevent registration; opportunity was lost upon registration; until registration, transfer is void and upon registration, essentially a new Crown grant of fee simple is created There was no implied repeal of indefeasibility provisions by s 45; and so they applied to the fee simple 48
Summary of inconsistent legislation Inconsistent legislation has the effect that a registered proprietor becomes bound by new unregistered proprietor or that existing rights may be destroyed A title will only be set aside if it s clear that subsequent legislation intended to apply to Torrens land and is interpreted as directly inconsistent with the indefeasibility provisions It is a wide exception to indefeasibility Attempts have been made to clear up problems of inconsistent legislation in NSW; not Victoria Volunteers Volunteer = person who gives no valid or recognisable consideration for title When a volunteer becomes registered, courts have argued that the Torrens provision did not intend to confer the full benefit of indefeasible title The conferral of immunity from the consequences of notice, ordinarily conferred upon a registered proprietor, should not be given to a registered volunteer King v Small (1958) Rationale à such protection would be illusory as a volunteer is, on well settled rules of equity, amenable to all equities affect their predecessor in title If the Victorian Torrens legislation intended to change the principle, it would have explicitly set this out Not doing so indicates that volunteers were not intended to gain the protection of indefeasibility upon registration 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 land shall be required or in any manner concerned to inquire or ascertain the circumstances under or the consideration for which such proprietor or any previous proprietor thereof was registered, or to see to the application of any purchase or consideration money, or shall be affected by notice actual or constructive of any trust or unregistered interest, any rule of law or equity to the contrary notwithstanding s 43 TLA Volunteers not afforded same protection as a bona fide purchaser for value Does not relieve volunteer from equities which affect the transfer Except in the case of fraud, a person dealing with the register is not required to ascertain the circumstances under which the proprietor or previous proprietor was registered A person dealing with the register is also not affected by notice of any trust or unregistered interest Abolishes doctrine of notice as soon as purchase is registered, the purchaser will take free from any outstanding unregistered interest, even if they have notice of its existence prior to the registration Mere knowledge that a prior interest existed will be insufficient to constitute fraud 49
King v Small (1958) K transferred land to wife as a gift, subject to a mortgage; K became bankrupt and the land was registered in the name of Mrs K as registered proprietor ISSUE: Whether the beneficial interest of S as trustee for creditors was enforceable against the registered title of Mrs K HELD: s 42 TLA does not distinguish between purchasers and volunteers what is relevant is a person becomes the registered proprietor Other sections in TLA draw distinction between volunteer and purchaser for value; those sections appear to justify conclusion that upon registration of a dealing, subsequent to an initial registration under an Act, it is purchasers for value only who are intended to have the benefit of s 42 In the case of registration of title subsequent to initial registration, it is only the registered proprietors who obtain protection from s 43 (purchasers for value) who gain indefeasible title under s 42 Rasmussen v Rasmussen (1995) Volunteers do not gain protection under s 43 PR wanted to use his farm land so that each of his sons would acquire a viable farm; each for the sons contributed their time and energy to the enterprise, forgoing other employment opportunities; 2 eldest sons received land for farming; 2 younger sons, ER and BR continued farming; some of the land registered in PRs name, some in ER and BRs names One of the properties was assumed to have been in ERs name, but it remained in the name of PR; dispute arose between ER and his son, HR, concerning ownership which had passed to HR under PRs will; ER argued that constructive trusts over all 4 properties arose in his favour HELD: Common intention of PR and ER that ER would be the legal owner of the property; ER acted to his detriment in reliance on common law intention; PR acted unconscionably by assertion through his will of sole beneficial ownership, therefore, there was a constructive trust of the property in ERs favour HR could not rely on the Act to defeat ERs interest in the property, because protection of the Act was not available to a volunteer, and HR would take subject to ERs equitable title, which he had notice of There is an overriding principle of fairness which ought to permit a person whose equity in land will be defeated by the actions of the penultimate registered proprietor in donating such land to a volunteer to enforce that equity in the land against the volunteer, albeit that the volunteer has become the registered proprietor of it The indefeasibility provisions only apply to commercial transactions Found that the decision in King v Small is the law of Victoria 50
Bogdanovic v Koteff (1988) NSW CASE, APPROACH DIFFERENT IN VICTORIA B lived in a house with SK in circumstances which led her to claim she had an equitable interest in the property; SK died leaving a will which left all his property, including the land, to K; transmission application registered as a result of which K became sole proprietor of the land HELD: Court reinforced the primacy of registered title, even where the title-holder is a volunteer; the absence of a specific provision excluding volunteers from the effect of registration, meant that volunteers had to be accorded the same status as other registered proprietors The paramountcy provisions contained no distinguishing provisions which specifically excluded volunteers from the effects of registration 51