Fraud and Indefeasibility of title

Torrens title is a system of land registration, in which a single register is used for each land holding and records all details and interests affecting that land, such as easements, mortgages, caveats etc. This is the system we have been using in Australia since the 1850s.

Pursuant to section 42 of the Real Property Act 1900 (NSW) the estate of a registered proprietor is paramount and indefeasible, except in certain situations such as fraud, where some unregistered interests will attain paramountcy over the registered interest of the proprietor.

In the case of Cassegrain v Gerard Cassegrain & Co Pty Ltd [2015] HCA 2 the High Court of Australia considered the issue of whether a wife’s title to property was defeasible as a result of her husband’s fraud, where both were joint tenants.

Facts

Gerard Cassegarin & Co Pty Ltd (“Company”) had previously owned a dairy farm in NSW. The Company transferred the dairy farm to the director of the Company, Claude, and his wife Felicity as joint tenants. The consideration for the transfer was the satisfaction of a ‘debt’ allegedly owed to Claude by the Company. However, Claude knew that the Company did not, in fact, owe him the amount recorded in the loan account. As such, the dairy farm was fraudulently transferred.

Claude then later transferred his share of the property to Felicity for consideration of $1. The Company sought to recover the dairy farm from Felicity. Yet, at all material times Felicity had no knowledge of any of Claude’s fraudulent conduct. The Company did not allege that Felicity was a participant or had notice of Claude’s fraud, but instead it argued that Claude was Felicity’s agent for the purpose of registering her as joint tenant of the land.

High Court

The High Court held that Felicity’s title to land as joint tenant was not defeasible on account of Claude’s fraud, because Claude was not her “agent” in any relevant sense. Claude’s fraud was not within the scope of any authority Felicity had, or appeared to have, given to him.

The High Court noted that section 100(1) of the Real Property Act, which states that “two or more persons who may be registered as joint proprietors of an estate or interest in land under the provisions of this Act, shall be deemed to be entitled to the same as joint tenants”, does not require that the fraud of one of the persons registered as joint proprietors denies all persons registered as joint proprietors the protection otherwise given by section 42. The fraud must be brought home to the person whose title is impeached, and Claude’s fraud was not brought home to Felicity.

The Court also held that because Felicity was not a bona fide purchaser for value of Claude’s interest in the land, section 118(1)(d) was engaged. This section provides that proceedings for the possession or recovery of land do not lie against the registered proprietor of the land, except proceedings brought by a person deprived of land by fraud against:

  1. a person who has been registered as proprietor of the land through fraud, or
  2. a person deriving (otherwise than as a transferee bona fide for valuable consideration) from or through a person registered as proprietor of the land through fraud.

On the above basis the Company was able to recover the interest which Felicity derived from or through Claude for $1.

Take Away

This case demonstrates that although Felicity is an innocent registered proprietor, the fact that she acquired the property for anything other than valuable consideration from a person engaged in fraud her title could be defeated by the Company.

However, the outcome would be different if Felicity had paid Claude the market value for his share of the dairy farm, since in that situation Felicity would be considered as a bona fide purchaser for valuable consideration.

Also be aware that if something is too good to be true then it is, even if it’s from your husban particularly if it’s from your husband.

 

The information contained in this article is not legal advice. This article is intended to provide general information in summary form only. You should not rely on the content of this article as legal advice If you would advice specific to you and your situation, please contact us.

Posted in LCOR