Property Law B

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Property B

TOPIC 1: Equitable Interests Arising by Operation of Law

Trusts

What is a trust?

Separation of legal and equitable ownership;

Legal owner = trustee;

Equitable owner = beneficiary;

T holds the property for the benefit of (on trust for) the B. T has a legal fee simple and B has an equitable

fee simple.

Trusts can arise in 2 main ways:

1. Created expressly (express trust) by; or

o Transfer: “A conveys land to T on trust for B”; or

o Declaration: “A owns land. A declares himself as trustee of land for B.”

o Must be created in writing (s 53(1) PLA).

2. By operation of law.

o Resulting, implied or constructive trusts.

o Do not need to be created in writing (s 53(2) PLA).

Resulting trusts

Two types:

1. Voluntary (gratuitous) transfers. S, the owner of property, transfers a whole or part interest to X (a

volunteer). Equity presumes S intended to retain the equitable interest; or

2. Purchase money resulting trust.

Purchase money resulting trust

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In essence, looks at monetary contributions at date of purchase.

Test:

i. What have the parties contributed to the purchase price of the land?

o What counts as a contribution to the purchase price?

Liability under a mortgage (Calverley);

× Money paid after purchase (e.g. mortgage repayments. It is irrelevant that one joint

mortgagor paid off the mortgage, as C did in Calverley, since shares under RT are fixed

at time of purchase).

Exception:

Payments for building of a house (Cummins, in this case the house had to be erected

within 6 months (from covenant in mortgage). Arguably, the wider the timeframe

between purchase of land and construction the more difficult it is to say that it should

be considered part of purchase price).

Note: NSW SC did not even look at Cummins (HC, 2006) in Boumelhelm (2009),

despite similar facts. Instead they used a Baumgartner CT. Question its application in

later cases.

ii. Is there a presumption of resulting trust?

o YES if legal title is not held proportionate to the contributions made to purchase price of land;

o Result: legal title is presumed to be held upon a resulting trust for those who provided the

purchase price in shares proportionate to their contributions (Calverley);

o Trust is dated at the time of the financial contributions to the purchase price of the property;

o E.g. Party A holds legal title on trust for himself and Party B as TICs in equity in the shares of

x% and y%, respectively (where y% = B’s contribution).

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Presumption of RT

P of A relationship?

YES NO

Rebutted – no RT RT

Intention not to gift?Intention to retain

equitable ownership?

Intention to gift? Intention to give away equitable ownership?

YES YES NONO

RT RTNo RT No RT


iii. Is it rebutted by presumption of advancement?

o Applies to transfers from:

Husband wife (not de facto, e.g. Calverley);

Father child;

Mother child (Nelson, 1995);

× Wife husband (e.g. Cummins).

o Result: presumption of RT rebutted; the law presumes transferor intended to make a gift

(‘advancement’).

iv. Is either presumption rebutted by evidence of actual intention at time of the transfer or purchase?

o Presumption of RT is rebutted if evidence of actual intention to have equitable ownership

distributed in that manner.

In Cummins, Sackville J held (HC agreed) that RT rebutted by intention of parties to hold the

land as joint tenants (evidence: registered as joint tenants, matrimonial relationship and land

was matrimonial home). Mr and Mrs C had conducted themselves on the understanding that

they were joint owners in equity.

Similarly, in Muschinski, there was a common intention that both parties would have legal and

equitable half-share in the property (evidence: joint venture, whereby M would provide

purchase price and D would restore cottage and build a home, and land transferred to them as

tenants in common in equal shares).

o Presumption of A is rebutted if evidence of actual intention not to make a gift.

o Intention must be actual – can be express or inferred from words or conduct;

o Onus is on person seeking to rebut presumption.

Constructive trusts

Trusts that equity ‘construes’ from the circumstances in defined situations.

In essence, looks at monetary or non-financial (?) contributions before or after date of purchase.

Common Intention constructive trust

Elements:

i. Existence of a common intention that claimant was to have a beneficial/equitable interest in the

property. ISSUE: Intention must be actual (express or implied) but cannot be imputed. Need

admissible evidence showing a clear common intention (e.g. oral or written agreement referring to

the claimant having an interest in the property);

ii. Claimant has acted to their detriment in reliance on the common intention (i.e. not doing the

detrimental acts solely for love and affection); and

iii. It would be unconscionable in the circumstances for legal owner to deny the common intention

and defeat the beneficial interest that was promised. This will be satisfied if i. and ii. are met.

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Result: Legal owner holds the property on trust for beneficiary to the extent of the common intention.

See ‘When does a CT trust arise?’ (below).

Note: There is debate over whether CI CT actually exists (Dal Pont (2004) says no, Jensen (2004) yes).

Example:

Ogilvie v Ryan

Oral agreement that R would take care of O for the rest of his life and on his death the house would be R’s

for as long as she lived. R cared for O. On his death, his will gave her no interest.

Held: common intention; R suffered detriment in looking after O; and hence it would be unconscionable to

deny common intention. Therefore, O and his executors were holding property on trust for R during her life

(she had an equitable life estate).

Baumgartner or Remedial constructive trust

Elements:

i. Parties intended to enter into a joint venture/endeavour/relationship and property was purchased

for that joint venture;

o Joint involvement in a property;

o Examples:

De facto couple purchase land together with intention that M would provide purchase

price and D would restore cottage and build home (Muschinski v Dodds);

De facto married couple bought land to build a home. Husband provided purchase price

and obtained mortgage loan. H had sole title. Wife and husband pooled earnings to

cover mortgage repayments and household expenses. (Baumgartner);

J purchased land and was sole rp on title. His parents paid $129,000 to construct 2

houses on the property. Property was then to be subdivided and his parents would live

in one of the houses (Boumelhelm).

ii. Pooling of resources for purposes of joint venture (Baumgartner) or contributions made for benefit

of joint venture (Boumelhelm) – contributions may include labour and other non-financial

contributions (obiter of Deane J in Muschinski; also, HC in Baumgartner took into account what

wife would have earned during 3 months of maternity leave). Payment of different expenses

related to the property should be enough, even if there’s no direct pooling of resources;

iii. Failure of joint venture without attributable blame; and

iv. Upon termination of joint venture, it must be unconscionable in the circumstances for legal owner

to retain the benefit of the contributions made by the other.

o Examples:

In Muschinski, joint venture was frustrated before D had made his contribution and

hence it would be unconscionable for him to retain half-ownership;

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In Baumgartner, unconscionable for H to hold sole legal and beneficial title to property

financed through funds pooled by him and his wife;

Again, in Boumelhelm, NSW SC said it would unconscionable for John to deny his

parents an equitable interest in the property.

Result: The parties hold their legal interests upon trust to repay:

1. Joint debts incurred in improving the property;

2. Respective contributions of each; and

3. Anything left over to be shared equally.

(Deane J in Muschinski)

Note: In Boumelhelm, Ward J granted a lien in favour of the parents over the property to secure their

contributions and not an equitable interest. A lien is a static value placed on how much they’ll get back

($x), vs. an equitable interest (y%) which changes according to the value of the property. Lien dated from

date of contributions. Maybe influenced by J being a bankrupt.

When does a CT arise?

Can arise either:

- Automatically, when the requirements are satisfied (“institutional” conception); or

- Only when the court declares it (“remedial” conception).

Important when a 3rd party is involved (whose equitable interest has priority?)

Common intention CT: equitable interest arises at time of common intention and detriment (Parsons).

However, Dal Pont (2004) argues that this case was wrongly decided and is against public policy (in

Parsons, the interests of the wives pre-dated and hence defeated the statutory claim of their husband’s

trustee-in-bankruptcy – as Dal Pont asks, “Why should the creditors…be short-changed even though they

had not behaved unconscionably?” It makes it risky for banks to lend on the security of the matrimonial

home).

Baumgartner CT: unclear. It is an equitable remedy, so court has discretion. The court will presumably

date it in favour of the beneficiary (i.e. “institutional” conception), otherwise declaring the trust would be

meaningless. E.g. in Boumelhelm, the lien was dated from date of contributions.

Dal Pont (2004) argues that the trust should be dated, at the earliest, at the time of the unconscionable

conduct giving rise to the making of the order (ie when one party seeks to assert legal rights in a way which

is unconscionable). Ie this is when all the requirements are satisfied – so “institutional” conception.

Proprietary Estoppel

Elements

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i. Landowner creates or encourages an expectation in P that he or she will acquire a property right;

ii. P acts to his or her detriment in reliance on the expectation; and

iii. It is unconscionable for landowner to depart from the representation.

Examples:

Inwards v Baker: B’s father invited B to build a house on the father’s land. B built house at own expense.

Father’s will left the land to I and others.

Giumelli: R’s parents promised him part of their orchard property for working without wages. After 14

years of working for no wages and building a house, his parents told him to leave.

Donis: Parents bought 40 acres on which stood 2 houses. They told son and his wife (Susie) they would be

rp of 20 acres. In reliance, she moved into house, started a family, stopped working, invested labour and

money into property. Marriage broke down. Susie argued she had a 50% share of that 20 acres.

Effect of an Estoppel

Establishing an estoppel raises an equity in favour of the P (‘equity’ = entitlement to some equitable relief).

How this ‘equity’ is satisfied is within the court’s discretion.

Court may grant:

o Expectation relief: making good the expectation that was induced in the P (Verwayen); or

o Reliance-based relief: the ‘minimum equity’ to relieve the detriment suffered by the P (Walton Stores).

P is prima facie entitled to expectation relief; ie the property (Giumelli).

Unless :

- It would cause injustice to 3rd parties (Giumelli. In this case, R’s brother Steven had moved onto land

with his family and substantially improved the lot. R was awarded damages in lieu of the land1); or

- Expectation is extravagant or out of all proportion to the detriment (Donis. The trial judge awarded

Susie $600,000 (property sold for M$3.97). On appeal, VCA said sum wasn’t out of all proportion).

NB. Either of the CT avenues will give claimant a proprietary interest whereas estoppel may or may not

give him a property interest.

1 Damages = value of lot + interest + share of anticipated profits for future years –allowance for improvements.

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TOPIC 2: Co-ownership

Ownership of an interest in land by >1 person at the same time.

Forms of Co-Ownership

Joint tenants

Joint tenants share the same interest in undivided shares.

Test

Joint tenancy requires 4 unities:

i. Possession – each co-owner is entitled to possession of the whole land;

ii. Interest – each has an interest of the same nature, extent and duration (i.e. same type of estate);

iii. Title – each has acquired title under the same instrument or act; and

iv. Time – the interests have to vest at the same time.

AND

v. No words of severance.

o If instrument that creates the co-ownership uses words of severance, the parties will be tenants

in common and not joint tenants;

o Words of severance indicate intention that transferees will have distinct shares;

o Include: to share equally, between A and B, among, in equal shares, to A and B respectively,

or to A and B share and share alike (=> gives A and B equal shares in property).

Effect:

Right of survivorship rule (the jus accrescendi) – since joint tenants do not have a distinct share, the interest

of a joint tenant does not form part of their estate on death but accrues to the surviving joint tenant/s.

Therefore, JTs cannot leave their interest to another person in their will if there are other surviving JTs.

What if both JTs die at the same time?

Statutory presumption that the younger survived the elder (s 184 PLA).

Hence, property goes along younger JT’s will.

Note: JTs can still sell or give away their interests.

E.g. A and B are joint tenants. A sells his interest to C. C and B are co-owners, but they are now

tenants in common with half shares each, because the unities of title and time have been broken. If C and B

sell to D and E, then D and E would be joint tenants.

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Tenants in common

Tenants in common share the same interest in distinct shares.

Test: unity of possession – each co-owner is entitled to possession of the whole land.

Unlike joint tenants, tenants in common do have a distinct share in the property. The principle of

survivorship does not operate, so TC can leave their interest in a will.

Presumptions

Common law presumption, if told nothing, that co-owners intended to hold as joint tenants where:

1. Four unities are present; and

2. No words of severance used.

Codified in ss 30(2)2 and 33(4)3 TLA: “Statutory presumption that rp’s are holding as JTs.”

Equity normally presumes that joint tenants in law are joint tenants in equity.

Exceptions

Equity presumes a tenancy in common where two or more persons:

1. Make unequal contributions to the purchase price (subject to presumption of advancement);

o E.g. A and B buy a house. A contributes 40% and B 60%. On title, A and B are holding equally as

JTs. In equity, there is a resulting trust, and they are tenants in common with shares proportionate

to their contributions.

2. Advance money as mortgagees (lenders) (equally or not);

3. As partners acquire property for a business venture; or

4. Hold land for their separate business purposes (flexible approach; Jack Chia).

The recognition of a new exception in Jack Chia suggests that the list of exceptions is not closed.

When will equity recognise a new exception?

o Where co-owners make unequal contributions (e.g. in Jack Chia, the two companies leased a floor of

a building and agreed to occupy floor space and share costs and outgoings in different proportions);

o Where equity presumes the co-owners wouldn’t want rule of survivorship to operate (situations 2-4).

E.g. for 3, if one partner dies, it would be unfair for his family to get no assets. Hence partner can

leave their share in will in equity;

o ULTIMATELY, a question of fairness in the circumstances. In Vedejs equity favoured a JT because

it meant that the wife got her home when her partner died intestate (over the Public Trustee, who had

no interest in the property).

2 Where 2 or more persons are registered as joint proprietors they are deemed to be joint tenants.3 Any 2 or more persons named as transferees, mortgagees or lessees in an instrument are deemed to be entitled

jointly.

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For common intention CT: form of ownership (JT or TIC) in equity depends on common intention4 (Vedejs;

in this case, court found actual CI that de facto partners would hold as JT in equity despite unequal

contributions. Intention at time of purchase could be inferred from subsequent conduct – neither party

intended that their interest would go to anyone else).

For Baumgartner CT: remember, assess share based on value of contributions – if no 50:50 share, it would

be harder to argue a JT (no unity of interest – and perhaps time, depending on when court declares trust).

But go back to “When will equity recognise a new exception?” above.

Equitable position prevails.

Severance of JT

Adverse possession between co-owners

Q: Is it possible for one co-owner to extinguish title of another co-owner by AP?

Yes. Under s 14(4) LAA5, possession of, or receipt of rents from, entirety of property or more than their

share can give AP.

Example: Wills v Wills

o Facts: G and E married and had 2 properties in joint names. Separated in early 1970s. E (wife) didn’t

return to marital home after 1976 and left nothing behind and G didn’t pay her any rent from the other

property. G died in 1992. E claimed properties were hers under rule of survivorship. M (G’s new wife)

claimed G had adversely possessed the properties and that they then passed to her;

o Held: G had adversely possessed E’s interest;

o G had been in exclusive possession since the mid-1970s. Since 1976 (at the latest) he had occupied and

used the former matrimonial home and enjoyed the rents from the rental properties as if he were sole

owner. E was totally excluded from both properties. Her intention to maintain her claim for co-

ownership and to take the land by survivorship was irrelevant.

Severance

Severance = JT TIC. Rule of Survivorship implications.

3 ways in which a JT may be severed (Williams v Hensman (1861) per Page Wood VC):4 At the time the elements are made out (Parsons).5 “When any one or more of several persons entitled to any land or rent as joint tenants or tenants in common

have been in possession or receipt of the entirety or more than his or their undivided share or shares of such land

or of the profits thereof or of such rent for his or their own benefit or for the benefit of any person or persons

other than the person or persons entitled to the other share or shares of the same land or rent, such possession or

receipt shall not be deemed to have been the possession or receipt of or by such last-mentioned person or

persons or any of them but shall be deemed to be adverse possession of the land.”

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1. An act by a joint tenant operating on his or her share (i.e. unilateral);

2. Mutual agreement between the co-owners; or

3. A course of dealing sufficient to intimate interests of all were mutually treated as constituting a TIC.

IMPORTANT:

o To sever at law, need registration (e.g. alienation with registration);

Otherwise, it severs in equity (e.g. mutual agreement, course of dealing).

o For >2 JTs: e.g. 3 JTs, A B and C, A severs, A is a TIC with B+C together, but B and C are JTs with

each other. Thus if B dies, C’s interest is “correspondingly enlarged” (he has 1/3+1/3=2/3).

1. Unilateral severance

Alienation

i. To a stranger (e.g. A C, C and B are TIC);

ii. To each other (e.g. A sells their interest to B and B sells it back to A);

iii. To one’s self (s 72(3) PLA – where one JT wants to sever and other doesn’t, that JT can convey land to

themselves to turn it into a TIC);

iv. BUT NOT by notice.

o A JT cannot sever the JT by giving notice to the other JT;

o VLRC (2002) does not recommend allowing severance by written notice (at 3.18) (while this process

would be quick, simple and cheap, it could create uncertainty). Rather, the Commission advocated

allowing severance by registering an ‘instrument of severance’, with no need to provide the DCT

(Recommendations 11-15).

Examples:

- Transferring share to another person by sale or gift with registration;

- Making a specifically enforceable contract of sale, or a gift which is effective in equity.

E.g. A C but no registration. Written contract or note or memorandum in writing complying with s

126 Instruments Act, or oral contract with sufficient acts of part performance, passes equitable interest

to C, so B and C are TIC in equity (severance in equity, but not at law). B is holding that property on

trust for B and C;

- Transferring to him/herself as tenant in common under s 72(3) PLA – severs only on registration;

- Making a written declaration that the JT holds his share on trust for a named beneficiary.

Note: Alienating a life estate = severance. Why? Novel, no case law. Look at effect on 4 unities. Grantor

gets a fee simple reversion (future interest), whereas other co-owner/s have present interest. So no unity of

interest. Hence JT is severed – it is unlikely to suspend, as duration uncertain (cf. lease) and the rationale

for suspension in Frieze was to protect the lessee which is not an issue here.

ENCUMBRANCES

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Mortgage

Lyons v Lyons per McInerney J.

Facts: Mr and Mrs L were jointly registered as proprietors of TS land. Mr L mortgaged his share and

subsequently died.

A legal mortgage at general law severs because the legal fee simple is transferred to the mortgagee,

breaking the unities of time and title.

But a Torrens mortgage operates as a charge, not a transfer (s 74(2) TLA), and hence does not sever.

Effect of T mortgage:

o Mortgage only encumbers (i.e. burdens) the interest of the mortgaging co-owner. When JT dies, their

interest disappears because of Rule of Survivorship and so does mortgage as a property interest;

o Surviving JT takes free of the mortgage (Mrs L was entitled to call on the mortgagee to discharge the

mortgage);

o Mortgagee lost its security but could recover the debt from Mr L’s estate because of the contract.

Note: Equitable mortgages same as legal mortgages.

Note: If TIC, deceased TIC’s share would still be encumbered by mortgage.

Licence

Does not sever; comes to an end when the grantor dies (Frieze v Unger).

Lease

Frieze v Unger per Scholl J (in obiter, since court held agreement was a licence not lease).

A lease by one JT does not sever, but suspends the joint tenancy in equity for the duration of the lease.6

During lease, the non-lessor JT cannot exclude the lessee from any part of the property – as tenants, the

lessee is exercising the lessor’s right as co-owner to possession. Nor can the tenant exclude the other co-

owner (only has right to exclusive possession against lessor). Same applies if the other co-owner also grants

a lease to other parties.

Co-owners remain JTs at law, but are TICs in equity (with lessor holding leasehold reversion and non-

lessor holding a fee simple in possession).

If lessor dies, the lease continues and the rent is due to the lessor’s estate. When lease expires, the joint

tenancy resumes, principle of survivorship operates and other JT takes as sole owner.

6 Note: a 99-year lease or a lease for life will sever the JT, because it’s like alienating the fee simple.

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Cf. if non-lessor dies, their interest would extinguish automatically and the lessor co-owner would be left as

the sole owner in equity and at law since the ‘suspension’ of the JT is effected only so far as necessary to

protect the lessee.

Policy : to protect the lessee’s rights (so they cannot be kicked out before the lease comes to an end), but to

still preserve the Rule of Survivorship.

Easement

Does not sever.

Merger

Merger = where one JT accumulates more interest than they had before (e.g. A has a life estate, remainder

to B and C as JT; A later transfers her life estate to B; A’s life estate passes to B and merges with B’s

interest in remainder, so B and C now hold as TIC).

Severs because the 4 unities have changed.

2. Severance by mutual agreement

Agreement to sever:

o Needs to be express;

o Can be written or oral;

o Does not have to be specifically enforceable (since no need to pass estate across); and

o Not necessary to have agreement as to precise allocation of the proceeds of sale.

For example: Pfeiffle

Husband and wife were RP as JT of 2 properties. After marriage ended they entered into an agreement

approved by Family Court, under which they held legally and equitably ½ share each and that property

would be sold upon remarriage by either party or 3 years from date of agreement. Wife died before sale.

Held: JT severed by agreement. Their agreement to sell the properties and divide proceeds of sale showed a

common intention to immediately sever the JT notwithstanding that the event might never occur. Date of

severance = date of agreement.

3. Severance by course of dealing

No need for express agreement to sever;

Parties conduct their dealings on the assumption that they hold distinct shares;

Need conduct of all co-owners;

E.g. in Williams v Hensman, severance resulted from the execution of documents by co-owners indicating

that their shares in a common fund were to be treated as separate by the manner of payment.

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Devising property by will does not sever JT.

Severance other than by an act of a Joint Tenant

Bankruptcy – where one JT is declared bankrupt, it’s like an alienation (that co-owner has alienated his

share to the Trustee in Bankruptcy);

Homicide – where one JT kills the other, it severs so the murderer doesn’t profit from their crime; or

Court order.

Rights and Duties of Co-owners

Applies to both JT and TIC.

Part IV Property Law Act.

Making a claim

2 types of applications:

1. Co-owners can bring an application for an order for sale or division7 of co-owned land (s 225). At that

time, VCAT can make any order it thinks fit to ensure that a just and fair sale or division occurs (s

228). This brings co-ownership to an end; or

2. Co-owners can bring an application for an order for accounting at any time (i.e. while co-ownership

continues) (s 234). “Accounting” relates to one co-owner receiving more than their just or

proportionate share (s 28A).

Proceedings for sale or division

s 225: A co-owner of land or goods may apply to VCAT for an order for sale and/or the physical division of

land and goods among the co-owners;

s 228(1): VCAT may make any order it thinks fit to ensure that a just and fair sale or division of land

occurs. (2) It may order: (a) sale of land and division of the proceeds of sale; (b) physical division of land;

or (c) a combination of the two.

s 229(1) VCAT must order the sale of the land and the division of the proceeds of sale among the co-

owners unless it would be more just and fair to order physical division, or a combination of the two. In

determining this, VCAT must consider (s 229(2)):

(a) The use being made of the land, including any use of the land for residential or business purposes;

(b) Whether the land is able to be divided and the practicality of dividing the land (including whether

such division will reduce its value, VLRC (2002) at 4.53);

(c) Any particular links with or attachment to the land, including whether the land is unique or has a

special value to one or more of the co-owners.

7 “Division” = physically divide property into portions.

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s 230: VCAT may physically divide co-owned land in proportions that differ from the co-owners’

entitlements, and may order compensation for any discrepancy.

Application 1: Accounting on sale or division

In any proceeding under this Division (ie s 225-233), VCAT may order (s 233(1)):

(a) that compensation or reimbursement be paid or made by a co-owner to another co-owner or other

co-owners;

(b) that one or more co-owners account to the other co-owners in accordance with s 28A;

(c) that an adjustment be made to a co-owner's interest in the land or goods to take account of amounts

payable by co-owners to each other during the period of the co-ownership.

In determining whether to make an order under s233 VCAT must take into account various things including

(s233(2)):

(a) Whether a co-owner has spent money on improving the property;

(b) Whether a co-owner has spent money on maintenance or insurance;

(c) Whether a co-owner has paid for more than their proportionate share of rates, mortgage repayments,

purchase money, instalments or other outgoings in respect of that land for which all co-owners are

liable;

(d) Whether a co-owner has caused damage to the land by the unreasonable use of the land; and

(e) Whether occupying co-owner should pay an amount equivalent to rent to non-occupying co-owner

(“occupation rent”).

Occupation rent

s 233(2)(e): “whether or not a co-owner who has occupied the land should pay an amount equivalent to rent

to a co-owner who did not occupy the land”.

Only claim at sale or division.

No order for occupation rent unless (s 233(3)):

(a) Occupying CO is seeking compensation, reimbursement or accounting; or

(b) The claimant CO has been excluded from occupation (‘ouster’, where claimant physically cannot stay

on the property - e.g. where one party is violent, so claimant had no option but to leave); or

(c) Claimant CO has suffered detriment because it was not practicable for him or her to occupy the land

(eg because of a breakdown in a relationship, VLRC (2002) at 4.71 – however, the Commission

suggests at 4.72 that this should only apply “where the person in occupation has obtained significant

benefits from remaining on the property, while a co-owner who has left possession has had to find

accommodation elsewhere”).

Improvements

s 233(2)(a): “any amount that a co-owner has reasonably spent in improving the land or goods” and (b)

“any costs reasonably incurred by a co-owner in the maintenance or insurance of the land or goods.”

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Only claim at sale or division.

Common law rule as to improvements:

o Allowance for improvements is the lesser of:

The cost of the improvements; or

The increased value of the property resulting from the improvements.

o Allowance made by the non-improving co-owner is proportionate to his/her share in the property;

o Old CL rule could help interpret the ‘reasonableness’ guideline (uncertain);

o E.g. in Squire v Rogers, one co-owner of caravan park in Darwin spent money on improvements, but

then cyclone Tracey demolished park. Since increased value of property due to improvements was

hardly anything, the other co-owner didn’t have to pay.

o Note: At CL, maintenance costs could not be claimed (can now be under (b)).

Application 2: Order for accounting

s 28A: Liability of co-owner to account

(1) A co-owner is liable, in respect of the receipt by him or her of more than his or her just or proportionate

share according to his or her interest in the property, to account to any other co-owner of the property.

If this right is exercised:

DURING the co-ownership, use s 234.

AT TERMINATION, use s 233(1)(b).

A co-owner of land or goods may apply to VCAT for an order for an accounting in accordance with s 28A

(s 234(1)), whether or not application is made for sale or division ((2)).

s 234B: VCAT may make any order it thinks fit to ensure that a just and fair accounting of amounts

received by co-owners in respect of the land or goods occurs. This includes ordering a co-owner who has

received more than his or her share of rents and payments from 3rd parties to account to the other co-owners

for those payments.

Common law rule:

o Rents received from a 3rd party needed to be shared, but not profits made from co-owner’s own

labour (Henderson v Eason (1851));

o While this case refers to the Statute of Anne, it is assumed that this rule continues to apply to other

statutory provisions for accounting between co-owners for rents and profits, e.g. s 28A.

Structure for Answers for Problems from Topics 1 and 2

Rule of Survivorship questions (someone has died)

AT THE BEGINNING – when prop purchased, are they JTs or TICs?

o At law:

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o Common law presumption of JT?

o Are 4 unities present? And no words of severance?

o In equity:

o Follows law, unless one of the TIC exceptions apply;

o Exception 1: unequal contributions to purchase price.

Go to RT notes;

RT presumed if position at law doesn’t reflect contributions now, TICs;

Can we rebut Presumption of RT?

Need Presumption of Advancement to apply, or Contrary Intention (intention to gift);

If rebutted, back to legal position TICs (because they have distinct shares) OR JTs (e.g. in

Vedejs, single owner at law but JTs even though they contributed different amounts);

Can we rebut Presumption of Advancement?

Need Contrary Intention (intention to retain equitable interest);

If rebutted TICs.

o Then go through other Exceptions;

o Equitable position prevails.

SUBSEQUENT SEVERANCE – at time of death, are they JTs or TICs?

o Any severance at law?

o Any severance in equity?

CONCLUDE

o Position at law;

o Position in equity;

o Equity prevails.

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TOPIC 3: Introduction to the Enforceability of Property Interests

Resolution of Priority Disputes

What rules should be devised?

Two competing policies:

1. Security of title, which protects the existing owner from losing his title to a new purchaser; and

2. Security of transaction, which protects the bona fide new purchaser.

General Law land

GLL priority rules promoted security of title;

Resolution of disputes depended on whether the interest was legal or equitable;

For legal interests, the law applied the principle of nemo dat– cannot pass good title if you do not have good

title yourself. Legal interests are enforceable against any purchaser. In case of conflict between legal

interests, the first in time has priority. Reflects policy choice in favour of ‘security of title.’

Why? At the time when these rules evolved this choice may have been in the interests of the community (or

at least the landholding classes) since land was kept in the hands of the same families for generations and

sale was relatively rare;

Equitable interests are only enforceable against purchasers of a legal interest who took with notice.

GLL Priority rules made conveyancing risky and expensive;

Purchaser may be affected by undiscovered prior legal interests, equitable interests of which they are

deemed to have notice, or the nemo dat rule if there is a void instrument in the chain of title;

Hence purchaser had to trace the history of dealings in the property by examining all documents relating to

the land (known as the ‘title deeds’ or ‘chain of title’). Even an exhaustive search would not give purchaser

complete security (eg where a document from the chain of title was deliberately removed). In Australia,

purchaser would have to commence search by inspecting the Crown grant and then investigate all

succeeding dealings – now limited to 30 years by s 44 PLA, starting with a ‘good root of title’, but this

doesn’t protect purchaser from legal interests >30 years old.

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Registration systems

Two kinds of land registration systems:

1. Registration of deeds – old GLL deeds system (now abolished); and

2. Registration of titles eg Torrens system.

Aims of both were to promote conveyancing, by making it less risky and expensive. Both registration

systems can be effective in reducing the incidence of conflicts by alerting purchasers to the existence of

prior interests.

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TOPIC 4: Torrens System and the Principle of Indefeasibility

Background

Objects of TS

Promotes security of transaction;

To make conveyancing faster, less risky and less expensive;

How?

i. Register should show all the interests in the property, so no need to go behind Register;

ii. State guarantees the title of RP and therefore there’s no need for a purchaser to investigate the history

of the vendor’s title (no nemo dat principle); and

iii. Indemnifies those who suffer loss through Registry mistake or a rule of the system.

Principles of TS

Mirror principle: the register mirrors accurately and completely the current state of the title;

Curtain principle: purchasers can rely on the register and need not investigate how the grantor acquired

their registered title (no need to look beyond registration to see if owner has good title- no nemo dat);

Insurance principle: one who suffers loss through registry error or a rule of the system should receive

monetary indemnity or compensation.

Principle of Indefeasibility

‘Infeasibility of title’ is the legal security provided by the title warranty to RPs;

RP’s title is indefeasible in 2 ways: it cannot be set aside on the ground that he was not entitled to it (except

in case of fraud); and it is not subject to any prior interests (except for specific categories of exceptions, see

Topic 5);

Key provisions of TLA:

o s 40(1): instruments do not pass title, only registration does;

o s 41: ‘conclusive evidence’ provision;

o s 42: ‘paramountcy’ or ‘indefeasibility’ provision;

o s 43: ‘notice’ provision;

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o s 44: ‘protection of purchasers’ provision.

Where does indefeasibility attach?

V is the RP of Torrens land, F forges a transfer from V to A (a bona fide purchaser), A registers transfer

without fraud, and A then sells to B (a bona fide purchaser) who registers without fraud.

Deferred indefeasibility: A gets only a defeasible title (i.e. the register can be rectified to remove A’s title

on the application of V), but when A sells to B, B gets an indefeasible title because they’re one registration

away from the forgery.

Immediate indefeasibility: A gets an indefeasible title. As soon as he registers without fraud, V’s title is

irretrievably lost. V may get compensation from the assurance fund;

Purchasers get high security of transaction, because protected against defeasibility for invalidity in vendor’s

(grantor’s) title and invalidity in the instrument by which they themselves obtain registered title. Owners are

at risk of losing their titles through a forgery or other invalid instrument.

EXAM STRUCTURE

1. Historically, deferred indefeasibility was assumed to be the rule (PC in Gibbs v Messer, 1891), but

immediate indefeasibility is now the preferred approach (PC in Frazer v Walker (1967), unanimously

followed by HCA in Breskvar v Wall (1971));

2. Once a void instrument is registered without fraud, RP obtains an indefeasible title (s 42 and Breskvar);

BUT

3. If a void instrument is registered with fraud, RP’s title is defeasible; however, they still have something to

pass on to a 3rd party (Breskvar). In this case, Bs were RPs of land and as security for a loan they gave

Petrie a signed blank transfer form and DCT. As agent for W, P fraudulently inserted W’s name as

transferee and registered transfer. W then sold to Alban, a bona fide purchaser, but before Alban could

register Bs lodged a caveat. Held: W’s title was defeasible for fraud. However, A has acquired an

equitable property right as purchaser, and this gives rise to a priority conflict with B’s claim to

rectification (which is an equity to set aside the fraudulent registration). Applying equitable priority rules,

A prevails.

Q1: Who has Priority?

Between 2 registered interests

Interest lodged for registration first gets priority (s 34(1) TLA);

If 2 or more instruments are lodged and are awaiting registration, the Registrar may register those

instruments in the order which will give effect to the intentions of all the parties, as expressed in or apparent

to the Registrar from those instruments (s 34(3)).

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Between 1 registered interest and 1 unregistered interest

RP takes free of prior unregistered interests (s 42(1)) unless there’s an exception to indefeasibility (see

Topic 5);

This does not change if the RP had notice of a prior unregistered interest (s 43).

Q2: What is the Scope of Indefeasibility?

To the extent that registration confers an indefeasible title, how far does protection extend?

Leases

Q: Are all covenants in a registered lease indefeasible?

HCA in Mercantile Credits v Shell (1976):

o Held: Registration does not give lessee indefeasibility over every covenant – the covenant needs to

be ‘so intimately connected’ with the leasehold estate that it should be regarded as part of it (per

Gibbs J);

o E.g. indefeasibility of a registered lease extends to an option to renew (in the lease) and the new term

(lease) resulting from the renewal. BUT not an option to purchase (this is giving the lessee the right

to get a fee simple);

o Facts: RP leased land to S and they registered lease. It was a 10-year lease with 5 options to renew

lease for 3-year periods. RP mortgaged prop to MC and they registered mortgage. Reg mortgagee

wanted to exercise power of sale. Issue: Was MC bound by options to renew? Reg lease takes

priority over reg mortgage because it was lodged first (s 34(1)). MC was bound.

Mortgages

A mortgage is a charge on land to secure performance of a personal obligation, usually arising under a

contract of loan or guarantee. The personal covenant to pay may be contained in the registered mortgage or

a separate loan agreement;

In Pyramid Building Society (1998) Hayne J said that the indefeasibility of a registered mortgage ‘plainly’

extends to the mortgagor’s covenant to pay in a forged mortgage.

This statement raises two issues:

ISSUE 1: Where forged loan agreement is not incorporated into the registered mortgage (eg mortgage is

expressed to secure ‘all moneys owing or payable by the mortgagor from time to time under any present or

future loan agreement’), does the indefeasibility of the registered mortgage validate an off-register loan

agreement which is forged?

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Q: Is it a ‘traditional mortgage’ (specifies amount of loan and acknowledges that money has been advanced)

or ‘all moneys’/ ‘facility’ mortgage?

This issue only applies to ‘all moneys’/ ‘facility’ mortgages;

The off-register loan agreement is void because of forgery. While reg mortgage is indef, indef does not

extend to forged loan agreement. In order to enforce the mortgage, mortgagee has to prove the debt. It

cannot use the loan agreement (void and not indef) or the mortgage (doesn’t specify debt), so the mortgage

is unenforceable and “secures nothing” (PT v Tsai).

Facts: T was RP. Registered mortgage to PT was an ‘all moneys’ mortgage- no acknowledgment of the

amount of the debt in the mortgage. Both the mortgage and separate loan agreement were forged.

Held (NSW SC): PT was not fraudulent, so its reg mortgage was indef. But indef did not extend to separate

loan agreement. No evidence of loan advance to T. PT couldn’t enforce mortgage as it couldn’t prove a debt

which the mortgage secured.

EXCEPTION:

Where loan made by 2 mortgagors who are joint and severally liable and one of the mortgagors has validly

signed (only one forged signature);

NSW SC in PT v Cipri (2008):

o Held: In relation to wife (the forger), loan agreement is valid and enforceable.

Because she was severally liable, she was indebted to the mortgagor for the entire amount advanced.

Under reg and indef mortgage, each mgor charged their interest in the land to secure the amount

owing by either of them under the loan. Therefore, mortgagee was entitled to enforce the mortgage

for amount owed by wife against husband’s as well as wife’s interest in the land;

o Facts: Husband and wife registered as JTs. Mortgagee lent money under loan agreement made by

husband and wife whose liability was expressed to be joint and several. ‘All moneys’ mortgage

registered. Wife had executed both loan agreement and mortgage and forged her husband’s signature

on both. Her signature was valid. Mortgagee sought an order for possession of the land. Held:

mortgagee granted possession.

NB if borrowers only have joint liability and not joint and several liability then mortgage only attaches to

wife’s interest in land (Yazgi v Permanent Custodians Ltd).

ISSUE 2: Does the indefeasibility of the covenant to pay in a forged mortgage makes landowner personally

liable for the debt, entitling the mortgagee to recover from the landowner’s other assets if a sale of the

mortgaged property does not realize enough money to pay out the mortgage debt?

This issue only applies where mortgage specifies the debt;

In Solak (2009), Pagone J held that not every term, covenant or condition in a mortgage gets the benefit of

indefeasibility but a cov to pay found in or incorporated into the registered mortgage does. Not sure what

“found in or incorporated into” requires. Relied on Hayne J’s obiter in Pyramid;

Rationale is that covenant to pay is indefeasible because it defines the quantum of the mortgagee’s security

interest in the property;

Facts: Mr S was RP of land. Fraudulent ‘all moneys’ mortgage registered over his property to the Bank.

Bank not a party to fraud so the registered mortgage is indef against Mr S. Pagone J held that in this

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mortgage the covenant to pay was incorporated into the registered mortgage due to its wording. Therefore,

the cov to pay was covered by indefeasibility.

In New South Wales, the better view is that registration of the forged mortgage is effective to charge the

land with the debt, but does not make the registered owner personally liable (Grgic, 1994).

In Vic, unless or until Vic Court of Appeal or High Court reconsiders the matter, Solak will continue to

apply, despite uncertainty about its correctness (see Stoljar, below).

Policy

Does indef of cov to pay in forged mortgage make RP personally liable for the debt?

Jeremy Stoljar article (ALJ).

Vic cases of Solak and Pyramid support proposition that a personal covenant in a mortgage is so closely

connected with the indef estate or interest created by registration of the mortgage it also achieves indef.

Criticisms of this proposition:

o Inconsistent with the relevant provisions of the Torrens legislation, which are protective of interests

in land not personal rights;

s 42 Real Property Act 1900 (NSW) provides that RP of any ‘estate or interest in land’ shall hold

the same free from all other ‘estates and interests’ that are not so recorded;

Use of words ‘estate or interest in land’ suggest that protection doesn’t extend to personal rights;

Further, a number of sections in Torrens legislation expressly refer to, or regulate, debts arising

under mortgages. Had the legislature intended that the operation of the indef provisions extend

to personal covenants it could easily have made that clear; the absence of such words suggests

the legislature had no such intention (ie expressio unius est exclusio alterius);

NB. In Vic s 42(1) TLA talks about RP ‘of land’ being only subject to ‘encumbrances’ recorded

on Register (it only talks about ‘interest or estate’ when saying that the RP is subject to those

paramount or that have priority)- so query whether this argument applies.

o Inconsistent with reasoning of HC authorities; and

In Mercantile Credits, the HC held that an option to renew in a reg lease is indefeasible because

the covenant was “so intimately connected” to the leasehold estate that it should be regarded as

part of it;

Stoljar argues that a mortgagor’s personal covenant to pay is not connected to the mortgagee’s

interest in land to the same degree as a lessee’s covenant to renew the lease. He says a personal

cov by the mortgagor is “conceptually and contractually independent” of the charge over the

land created by the mortgage (eg personal liability may continue despite mortgage having been

discharged, or mortgagor having ceased to be RP of the land);

o Inconsistent with intermediate appellate decisions in NSW (Grgic and Yazgi).

This proposition is hence incorrect.

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Contention: personal cov to pay does not attract indefeasibility. It may operate to measure the amount of the

mortgagee’s charge over the land, but the mortgagee does not acquire by registration indefeasible title to

any personal liability on the part of the mortgagor.

Stoljar’s contention is also consistent with fairness. The current Vic position could lead to very oppressive

outcomes, where the victim of the fraud loses their house and is under a personal obligation to pay the

shortfall.

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TOPIC 5: Exceptions to Indefeasibility

EXCEPTIONS

Background

For conflict between 1 registered interest and 1 unregistered interest:

Under the concept of immediate indefeasibility, registration confers indefeasible title (Breskvar). The RP

will only be subject to an unregistered interest, or the holder of unregistered interest can only enforce it

against the RP, if there’s an exception to indefeasibility (s 42).

This does not change if the RP had notice of a prior unregistered interest (s 43).

Exceptions include:

1. Fraud;

2. Relief in personam;

3. Paramount interests;

a. Reservations, conditions, exceptions in the Crown grant;

b. Adverse possession;

c. Public right of way;

d. Easements;

e. “Tenant in possession”; and

f. Unpaid land tax, rates, other charges.

4. The Registrar’s power to correct errors;

5. Inconsistent legislation; and

6. Volunteers.

1. Fraud

Express exception (s 42(1): RP has indef title “except in the case of fraud”);

Requirements:

“Fraud” refers to fraud in the acquisition of a currently registered interest.

“Fraud” is not defined in legislation, use common law.

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1. Is there statutory fraud?

i. “Actual fraud, ie, dishonesty of some sort” (Lord Lindley in Assets Co v Mere Roihi).

o Subjective (“A person who presents for registration a document which is forged or has

been fraudulently or improperly obtained is not guilty of fraud if he honestly believes it

to be a genuine document which can be properly acted upon”, per LL);

o Fraud requires “dishonesty, moral turpitude, a want of probity, and a willful and

conscious seeking to defeat or disregard another’s rights” (or at least recklessness as

regards affecting such rights – per Batt JA) (Russo);

o Mere notice is not fraud (s 43). It is not fraudulent to register with notice of a prior

unregistered interest, thereby destroying it.

ii. Fraud must operate on the mind of the person defrauded and induce some detrimental reliance

by that person (Bank of SA v Ferguson).

iii. Fraud must occur before or at the time of registration. BUT may occur after registration (in

obiter in Bahr v Nicolay the court was split 2:2, so the original position stands but it may be

subject to change8).

iv. Willful blindness/ reckless indifference?

o Negligence is not fraud (“The mere fact that he might have found out fraud if he had

been more vigilant and had made further inquiries which he omitted to make, does not

of itself prove fraud on his part” per LL, and “mere carelessness [is not fraud]”, per C

of A of SCV in Pyramid BS);

o BUT willful blindness is fraud (“But if it be shown that he [intentionally] abstained

from making inquiries for fear of learning the truth, the case is very different and fraud

may be properly ascribed to him” per LL, and “If the RP or his agent acted with

reckless indifference as to the truth or falsity of statements in the instrument, that can

be Torrens fraud” per Pyramid BS);

o Australian courts insist that willful blindness is fraud only if the failure to inquire is

actually dishonest (see i., Pyramid BS v Scorpion Hotels).

Examples:

In Loke Yew, the Privy Council held it was fraud for the purchaser’s agent, Mr. Glass, to

give a misrepresentation to the seller, Eusope, that they would respect Loke Yew’s unreg

interest in the land in order to induce Eusope to sell the land, when they had no intention of

ever honouring that representation. PC ordered purchaser execute a transfer of that 58 acres

to LY (not rectification of the register in favour of E);

8 Mason CJ and Dawson J: a dishonest intent formed after registration to repudiate agreement inducing transfer

is fraud. I like this position better because it overcomes evidential issues. Wilson and Toohey JJ: no Torrens

fraud because there is no evidence Ts intended, at time of purchase, to repudiate B’s interest.

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× In Ferguson, a bank officer forged the signature of a mortgage applicant, Ferguson, on an

internal bank document which was used by a regional office of the bank in considering

whether to approve the loan. HC held fraud was not operative because it didn’t induce F to

enter into the mortgage (the fraud was simply to speed up/facilitate an internal application

process) and hence not statutory fraud.

× In Pyramid BS, a mortgage was improperly executed because one of the attesting witnesses

was not a director of the company, as required by the company’s articles of association. The

mortgagee (PBS) had no knowledge of the irregularity and the mortgage was registered. SH

argued that mortgage was defeasible for fraud due to reckless indifference of PBS’s agent as

to the truth of the statements in the document. Vic C of A held that the mortgagee was not

guilty of fraud.

? In Bahr v Nicolay, the purchaser, Thompson, promised to the seller, Nicolay, that he agreed

to be bound by N’s agreement with the Bahrs (representation). On becoming RP, T refused

to honour the agreement with Bs. HCA unanimously granted Bs specific performance

against T by an in personam action. Of those who talked about fraud exception, court split

2:2 about whether the fraud can occur after registration (see Footnote 8).

2. Can the fraud be “brought home” to the person whose registered title is impeached or to his

agents (Lord Lindley)?

RP or their agent must have either:

i. Committed the fraud; or

ii. Known of fraud in the transaction.

In what circumstances is the RP affected by:

i. The fraud of their agent?

o Schultz v Corwill Properties:

o Principle of respondeat superior applies – the agent must be acting within the scope

of his actual or apparent authority;

o If so, fraud will be brought home even if the agent was acting fraudulently and in

furtherance of his own interests;

o If not, and the agent acts fraudulently for his own personal benefit (off on some frolic

of their own), the fraud won’t be brought home to RP.

ii. Their agent’s knowledge of fraud in the transaction?

o Where the agent has actual knowledge of fraud in the transaction, and the agent is

under a duty to communicate it to the principal, there is an irrebuttable presumption

that the agent has communicated it, except where the agent is a party to the fraud (see

facts). Ie the agent’s knowledge of the fraud is imputed to the principal. (Schultz).

Example:

In Schultz, the secretary of CP and Mrs. S’s solicitor, Galea, forged a mortgage over CP’s land to

Mrs. S and registered it. Mrs. S died and Mr. S succeeded her as mortgagee. G fraudulently

induced Mr. S to execute a discharge of the mortgage and registered it. NSW SC held both are

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indefeasible (so CP ends up with clear title). G not acting within scope of his authority, either as

solicitor for Mrs. S or secretary of CP.

False attestation by agent and employees cases

o Is false attestation/witnessing fraud?

Yes, if:

- Agent attested a signature knowing it was a forgery;

- Agent’s suspicions were aroused but he abstained from inquiry for fear of learning the truth;

or

- Agent who registered it knew the attestation was false.

Eg in AGC v De Jager, AGC’s employees lodged a mortgage for registration knowing

that Mr. French, an agent of AGC, falsely attested one of the mortgagors’ signatures;

This was held to be a fraud on the Registrar;

The fraud was putting forward a document for registration knowing it hasn’t been

properly executed (false representation). Ie it was the lodging, not the false attestation

per se, that was the fraud;

Note: Mortgage was held defeasible for fraud – it didn’t even bind Mr. De Jager’s share

(the signature properly attested). Could argue that it should at least bind his share,

depending on wording of mortgage (see Yazgi). However, a counter-argument is that

since it’s fraud on the Registrar, and not fraud on a mortgagor (eg forgery of their

signature), the whole registration should be defeasible.

No, if:

- There is no evidence that the agent understood the consequences of the false attestation for

the registration process (Russo v Bendigo Bank);

In this case, the Vic CA found that Ms. Gerada, a law clerk employed by the solicitor

for the bank, didn’t know that putting falsely attested documents forward on the path to

registration was improper. The solicitor, Reichman, lodged it for registration unaware

of the false attestation (cf. AGC). Thus no fraud;

G was 19 years old, had worked as law clerk for 3 years, and was told by her employer,

R, to never attest a person’s signature unless she saw the person sign. Ormiston JA

refused to infer that she “had the necessary appreciation of the consequences or

significance of her false statement.” She could have believed it was a mere “formality.”

Rodrick (2002) criticises this conclusion as “difficult to accept.” She also disagrees

with the judgment, arguing “it should not be necessary to show that the attesting

witness understood the process of registration” – the witness told a lie and that amounts

to consciously disregarding the victim’s rights.

- Bank officer does not know he is falsely attesting the signature (Grgic);

Here, bank officer witnessed an imposter’s signature on a mortgage and certified that

the mortgagor (G Snr) was personally known to him;

Held (NSWCA): no fraud;

Impersonator had the DCT and other documents relating to the land and had been

introduced to the bank officer in the name of the RP by an established customer to

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whom the RP was known. The fact that the bank officer clearly believed that the

impersonator was the person he purported to be meant that, in attesting the signature,

the officer did not act with conscious knowledge of the falsity of what he had done nor

with reckless indifference to the truth or falsity of what he had signed.

Not sure if false attestation alone is enough to constitute fraud. In AGC, Tadgell J said attestation

was not a mere formality (attestation is an implied requirement in Vic and is fundamental to the

Torrens system – it assists in establishing that an instrument is bona fide; at 497).

o Can the fraud be brought home to the mortgagee?

Yes, if the agent is acting within the scope of his authority.

Examples:

AGC’s employees had right to lodge documents for registration (AGC);

× Fraud by an employee of an agent of the bank could not be brought home to the bank (fraud is

“too remote”, Batt JA in obiter in Russo).

2. Relief in personam

Exception created by common law;

Often pleaded as an alternative to the fraud exception;

The principle of indefeasibility ‘in no way denies the right of a plaintiff to bring against a registered

proprietor a claim in personam9, founded in law or in equity, for such relief as a court acting in personam

may grant’ (Lord Wilberforce in Frazer v Walker);

Ie a claim in personam binds the RP to “the consequences of his own actions where those actions give

rise to a personal equity in another” (Bahr per Wilson and Toohey JJ). “[Indef] provisions are designed to

protect a transferee from defects in the title of a transferor, not to free him from interests with which he

has burdened his own title” (per Brennan J).

Requirements:

Test is unclear; argue by analogy with the cases.

1. Requires a known legal or equitable cause of action (Grgic; Pyramid);

2. The cause of action must give rise to a personal equity to seek equitable relief. There must be

something unconscionable or unconscientious in the RP’s conduct (Vassos); and

3. The cause of action can arise from conduct before or after registration (Bahr).

Examples

i. Purchaser agrees to be bound by an unreg interest (Bahr).

- The purchaser holds the land on trust in favour of the holder of that unreg interest;

- Facts: contract of sale included an ‘acknowledgment’ of Bs’ prior unreg interest and the

purchaser, T, also told Bs that he ‘recognised’ their interest and would agree to fulfill it. HC

held that Bs had an in personam claim against T;

9 In personam = directed toward a particular person.

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- Note: debate over type of trust – express (needs to be in writing; Mason CJ and Dawson J) or

constructive (Wilson and Toohey JJ said it arose from a common intention, and Brennan J

said it arose upon repudiation to stop the purchaser acting unconscionably).

ii.Forgery.

- Mere fact that an instrument is forged is not enough to raise a personal equity (Gosper, Vassos

and Grgic) – “The bare fact that a party has not assented to the transaction recorded in an

instrument registered under Torrens system legislation does not, in my opinion, give that

person a right enforceable by in personam action to have the transaction reversed” per VSC

(Hayne J) in Vassos;

- Need something more – something unconscionable in the bank’s conduct (misrepresentation,

misuse of power, improper attempt to rely upon its legal rights, knowledge of wrongdoing by

another party; Vassos);

- Examples:

Gosper: Variation of mortgage was forged. Acting without fraud, the bank registered

the variation using Mrs. G’s DCT, which they held as mortgagee, without seeking her

permission. Maj held that the unauthorised use of the DCT gave Mrs. G a personal

equity to set aside the forged variation (in the view of Mahoney JA, the personal equity

arose from the mortgagee’s breach of its obligations [and not negligence] to Mrs. G as

custodian of her DCT). This decision has been criticised – where’s the

unconscionability?

× In both Vassos and Grgic, where the banks were unaware of the forgery, the courts

found no in personam claim. In Vassos the VSC said that the bank may have acted with

neglect, but they did not act unconscionably. In Grgic the NSWCA thought that the

bank did not act carelessly (see below).

iii. Negligence.

- Was the bank negligent? DOC + breach;

Examples:

Pyramid BS: No DOC. Mortgagor (Scorpion Hotels) argued that the mortgagee’s (PBS)

solicitor owed a duty to SH to take care to ensure that SH had properly given authority

for the mortgage. VCA doubted that PBS’s solicitor owed SH any such duty, when SH

had a solicitor acting for it in relation to the transaction;

Grgic: DOC, no breach. Powell JA thought that the ANZ was under a duty to exercise

reasonable care in ascertaining that the apparent mortgagor was in fact the rp of the

land and otherwise so to act as not to interfere with the rights of the rp. However, there

was no breach, because the imposter was introduced to the bank’s agents by the bank’s

known customers and he had with him the DCT and other documents.

- Even if negligence was proved, uncertain whether this is enough for an in personam claim –

where’s the unconscionability? As Hayne J said in Vassos, “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.”

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iv. Other possible causes of action (from Grgic): tort of deceit (if bank’s agent put forward a

document which they knew to be false, or were recklessly indifferent as to its truth or falsity);

m&d conduct per s 52 TPA (need statement/conduct on the part of the bank directed to mortgagor

and reliance by mortgagor); and, breach of statutory duty (but Powell JA thought the legislature

did not intend to confer any such right).

3. Paramount interests

TLA s 42(2): Notwithstanding anything in the foregoing, the land which is included in any folio of the

Register or registered instrument shall be subject to-

(a) the reservations, exceptions, conditions and powers (if any) contained in the Crown grant of the

land;

(b) any rights subsisting under any adverse possession of the land;

(c) any public rights of way (eg roads);

(d) any easements howsoever acquired subsisting over or upon or affecting the land;10

(e) the interest (but excluding any option to purchase) of a tenant in possession of the land;

(f) any unpaid land tax, and also any unpaid rates and other charges which can be discovered from a

certificate issued under [various enactments]-

notwithstanding the same respectively are not specially recorded as encumbrances on the relevant folio of

the Register.

s 42(2)(e): the interest (but excluding any option to purchase) of a tenant in possession of the land;

o Who is protected?

“Tenant” = construed widely; includes tenant in a lease, purchaser to a contract of sale who is

given possession before settlement, life tenant under a life estate etc.;

“In possession” = tenant has to have gone into actual occupation;

Unreg lease (remember: only leases >3 years in length can be registered; s 66(1) – if a reg

lease, then use reg vs. reg priority rule in s 34(1)); and

Of any length (not just those ≤3 years).

o What terms in the lease are protected?

NOT an option to purchase (expressly excluded by s 42(2)(e));

Equity of rectification?

10 Note: very wide in comparison with other States – “howsoever acquired” includes express, implied, legal and

equitable easements. Consequence of this width is that even though s 72 allows recording of easements on the

Register, there’s no incentive to do so (why waste $700 in fees when you’re perfectly protected by (d)) and

hence not many easements are recorded in Vic. This is unfair to purchasers of land who find themselves subject

to an easement that might be quite intrusive – seriously detracts from reliability of Register and is inconsistent

with mirror/curtain principles.

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- Downie v Lockwood (VSC, Smith J): Unreg written lease from Tovell (lessor) to D

(lessee). Lessee’s covenant to pay rates and insurance had been deleted in the

counterpart copy but not in the original copy. This gave rise to an equity of rectification

(a right to have the agreement rectified). T’s executrix sold the land to Ls;

- Held: YES;

- Protection is extended to ‘any equitable interest to which his [the tenant’s] occupation

is incident.’ D’s equitable interest only exists because of the specifically enforceable

contract between D and T. The incidents of that interest are determined by the type of

specific performance would have been ordered to enforce it. D was entitled in equity to

sp of the real bargain between himself and T. Hence D’s equitable interest was not

subject to the covenant to pay rates and insurance. This was an equitable interest which

was referable to a tenancy, and so enforceable against Ls as an interest of a tenant in

possession;

- Bradbrook (1988) advocates for reform of the TLA to limit protection to those

covenants in the lease which touch and concern the land (as in Mercantile Credits). At

the present, the protection of indef for reg leases is weaker than the protection for unreg

leases under this provision – where’s the incentive to register long-term leases?

Option to renew? YES (part of the true bargain; obiter in Downie).

4. The Registrar’s power to correct errors

Powers:

o s 103(1) Registrar must make amendment to register if directed by a court;

o s 103(2) Registrar has discretion to correct errors in the register. He cannot erase, delete or render

illegible the original entry or recording. Registrar in practice treats this as a ‘slip rule’ to correct for

minor errors that it would be wasteful to go to court over (eg name spelt incorrectly). But this

means the Registrar cannot correct an entry procured by fraud – have to get a court order;

o s 106(e) Registrar has the power to cancel titles or folios, to create new ones and to amend register

or any other instrument or document- wherever it is necessary to do so by reason of the operation

of this or any other Act (this doesn’t change anything in the title, just the number/identifier);

o s 44H Registrar may amend the Register to correct errors and supply entries or recordings omitted

to be made in the Register if the error or omission resulted from a malfunction of the electronic

lodgement network.

NOTE: Corrections made by Registrar are made without prejudice to any of the rights that had been

acquired by anyone before the correction. Anyone who acquired an interest in land before then is not

affected by the correction; they’ve got an entitlement to rely on Reg as it was when they acquired their

right. Qualification: you’re entitled to rely on Reg as it is, as long as you’re a bona fide purchaser (so you

can’t take advantage of mistakes).

5. Inconsistent legislation

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s 42 (indefeasibility provision) can be overridden by a later statute, but only if the two statutes are

inconsistent.

Test: Are the two statutes inconsistent? If so, later statute prevails.

o Later leg does not have to expressly try to repeal/override TLA, just effect that’s important;

o Must deal with the same subject matter in an inconsistent manner;

o Strong presumption of consistency (ie that legislature did not mean to contradict itself; Calabro

and Horvath);

o s 42 TLA 1958 deals with ownership of land;

o So if later statute also deals with ownership (eg destroys a reg interest, or creates a new reg interest

that is effective without registration) it will override s 42 (Calabro);

Calabro: C’s reg title included a strip of land that was held to be a ‘public highway’. s

203(2) of the Local Government Act 1989 (Vic) provided that a public highway vested in

fee simple in the Council. VSC (Balmford J) held that there was an inconsistency. Later leg

(LGA) prevails. Accordingly, road vested in the Council as from 1 Nov 1989 when s 203

LGA commenced.

o Cf. if later statute deals with contract (eg invalidates a registrable instrument which contravenes

the requirements of the statute). This does not conflict with s 42, because registration vests indef

title even if the instrument is void (Breskvar).

Breskvar: memorandum of transfer executed by Bs was voided by s 53(5) Stamp Act (Qld),

because the name of the transferee was not written at time of execution. Petrie later inserted

Wall’s name as transferee and then registered instrument. Barwick CJ of HC said the

Torrens system is “not a system of registration of title but a system of title by registration.”

Thus “a registration which results from a void instrument is effective according to the terms

of the registration.” The invalidity of an underlying instrument is “irrelevant” to

indefeasibility of title;

Horvath: Child aged 15 years and his parents bought a property as JTs and obtained a

mortgage together. They defaulted on loan and CBA wanted possession. On appeal to VCA,

child H argued that mortgage was unenforceable against his interest, relying on s 49(a)

Supreme Court Act 1986 which provided that loan contracts entered into by a minor are

void. Held: not inconsistent as they operated in different spheres: s 49(a) is directed to the

enforceability of loan contracts and says nothing about effect of registration, whereas s 42

deals with effect of registration and does not require a valid instrument/contract.

o Rights in land acquired in pursuance of any Vic/Cth Act can be noted on the Register (s 88(2)).

But there’s no requirement to do so. Notice doesn’t change force or nature of the right (s 88(3)).

6. Volunteers

Volunteer = a person who has taken an interest in property without consideration, for example, a

beneficiary under a will or a person who is given a gift of land;

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Does a volunteer receive the protection of indefeasibility?

NO (in Vic):

o First case, King v Smail, VSC held reg volunteers are not indef. While s 42 is neutral (doesn’t

mention volunteers or purchasers), ss 43 and 44(2) talk about purchasers, so Adam J concluded that

only reg purchaser were intended to be protected. Note: this case is from 1958, when deferred indef

was preferred, which meant emphasis was on s 43 and not s 42. Now it’s the other way around;

o Followed by VSC in Rasmussen (1995).

Coldrey J criticised opposing NSW authority in Bogdanovic saying the NSWCA failed to discuss the

underlying policies and rationale involved here – ie that the Torrens system was only ever intended

to protect purchasers for value (citing Bradbrook) and it would be unfair to allow someone who had

paid nothing for their interest to defeat the rights of someone who might have paid for their interest

and was first in time.11 Furthermore, NSWCA made the mistake of relying on cases that didn’t

involve volunteers to come to its decision (Frazer and Breskvar).

BUT position may change:

o Bogdanovic (NSW, 1988): NSWCA held reg volunteers are indef. Why? Since Frazer we have

immediate indef, so s 42 equivalent is now the paramount provision. It doesn’t distinguish between

purchasers and volunteers. Also, under the Torrens system title is not derivative (no nemo dat) – ie

you get indef and not what previous owner had;

o Say-Dee (HCA, 2007): In obiter, a five member bench of the HCA said in a joint judgment that reg

volunteers are indef (prefer NSW position). Highly persuasive in Vic – so while lower courts will be

bound by King and Rasmussen, Court of Appeal may follow obiter comment in Say-Dee;

o Weigh up policy considerations: for indef (consistent with TS and s 42, preferred by HC), against

indef (fairness, looks at TLA as a whole). I prefer Vic approach. Histed (2007) agrees, saying the best

solution may be to deny protection to the volunteer but only for a certain period of time.

Compensation

Is a person who is deprived of land entitled to be indemnified under the TLA?

Process:

i. Loss suffered by claimant must fall within a head of claim in s 110(1) (losses through fraud are

impliedly included; eg Fairless). If so, claimant is entitled to be indemnified.

BUT no indemnity is payable where the claimant, his legal practitioner or agent caused or

11 Rasmussen is an example of how the Vic position is fair. In this case, Ernest was promised one block of his

father’s farm in exchange for working the farm (a CI CT). However, his father bequeathed the land to his widow

for life and then to E’s son, Harold. Held: H took subject to E’s equitable interest.

Similarly, arguably an unfair decision was reached by NSWCA in Bogdanovic applying the alternative position.

Here, Koteff entered into a specifically enforceable contract of sale with Mrs B, under which she bought a life

estate. K died and son becomes rp. Held: son is indef and Mrs B loses her interest.

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substantially contributed to the loss, by fraud, neglect or willful default (s 110(3)(a) – onus of

negativing such fraud, neglect or willful default on claimant – see below);

ii.A person entitled under s 110(1) may bring an action against the Registrar as nominal defendant (ie if

you can’t find the person who caused the loss) (s 110(2)). The Registrar is then entitled to sue the

person actually responsible (s 109(3)(a));

iii. Or, before commencing such action, claimant may apply for compensation by a claim to the

Registrar in writing supported by affidavit or statutory declaration (s 111).

s 110(3)(a) – Fairless v Registrar of Titles

o Facts: F, an elderly man, was duped by a trusted neighbour, Doran, into signing a transfer to D and

his wife. The transfer was registered, and Ds promptly mortgaged the land. The reg mortgagee, who

was innocent of fraud, sold the land after Ds defaulted. F sought to be indemnified for his loss. The

Registrar argued that no indemnity was payable under s 110(3)(a) – he contended that F was guilty

of ‘neglect’ in signing the transfer to Ds, and alternatively, that F’s claim was precluded by ‘fraud’ of

D who acted as his agent in the transaction;

o Held (VCA):

o ‘Fraud, neglect or willful default’ must be the sole cause of the loss or have made a “considerable,

large or big” contribution to the loss (per Phillips JA, with whom Tadgell and Callaway JJA agreed).

Here, what caused or substantially contributed to F’s loss was not his neglect but D’s deliberate

deception (F was totally deceived by D, he trusted him as a friend, it was not neglect on his part to

trust his neighbour and friend given their previous dealings);

o Fraud of agent will only disentitle claimant if committed by agent in the scope of their authority (see

fraud cases). Here, D’s actions were unauthorised and quite beyond any agency relationship;

o Therefore, F entitled to compensation.

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TOPIC 6: Unregistered Interestsunder the Torrens System

Caveat System

Equitable interests

No instrument until registered shall create, vary, extinguish or pass any estate or interest in land, but upon

registration the estate or interest shall be created, varied, extinguished or passed (s 40(1)). Ie registration

=> legal interest.

Equitable interests have been recognised under the Torrens system (Barry v Heider);

Example: a written contract complying with s 126 Instruments Act (“Parties may have a right to have an

instrument executed and registered; and that right, according to accepted rules of equity, is an estate or

interest in the land”, per Isaacs J).

Caveat System

Caveat procedure:

i. Person claiming “any estate or interest in land under any unregistered instrument or dealing or by

devolution in law or otherwise” can lodge a caveat against dealings (s 89(1));

ii.Caveat is recorded on title (s 89(2)) and the RP is notified (s 89(3));

iii. RP can bring proceedings to have caveat removed (s 89A).

OR, If an inconsistent dealing is lodged for registration, Registrar notifies caveator (s 90(1)) and

caveator has 30 days to withdraw caveat (s 90(1)) or commence legal proceedings to establish

priority (s 90(2)). Any person adversely affected by the caveat can also bring proceedings to have

it removed (s 90(3)).

What is a caveatable interest?

o Caveator must have an “estate or interest in land” (s 89);

o Any equitable interest will support a caveat (Crampton v French per Harper J) – don’t need a

registrable instrument (eg mortgage) or right to call for a registrable instrument (eg purchaser who

has a specifically enforceable contract);

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o A mere equity is not caveatable (Swanston Mortgage). In this case, the mortgagor sought to caveat on

basis of his right to set aside the mortgagee’s improper sale. VCA held that the mortgagor’s right

to set aside was an equity, not a property interest, and not a caveatable interest;

o Can a person lodge a caveat against his own title?

NO, unless the RP has an interest that is separate and distinct from his registered title (Swanston

Mortgage).

Caveat has 2 functions:

1. Notice to the world of the interest claimed (Butler, 1917 HC per Griffiths CJ); and

2. An injunction to the Registrar (Just Holdings, 1971 HC per Barwick CJ). Under s 91(1), the Registrar

cannot register any new dealing when a caveat is in force.

Policy: While all common law countries recognise the existence of equitable interests in registered land,

Australia has far more litigation than other countries relating to priority disputes between holders of

unreg interests. Many of these could be prevented if caveats were lodged promptly when the 1st interest

was acquired. Currently, only 5% of purchasers in Vic lodge a caveat to protect their interests. Are the

courts sending the right signals to the market about the lodgement of caveats?

Equitable vs. Equitable

Test

1. Establish what the interests are: Equitable interests or mere equities? Which is first in time?

o Right to set aside mortgagee’s improper sale = see below;

o Right to have registration set aside for fraud = see below (compare Breskvar and Latec);

o Option to purchase = equitable interest (eg Jacobs);

o Written contract complying with s 126 Instruments Act = equitable interest (eg Barry v Heider);

o Common intention constructive trust = equitable interest (eg Rasmussen) – not sure what

Baumgartner CT would be (should be equitable interest, eg Re Sabri as discussed in Dal Pont).

2. Apply notice test from Moffett v Dillon first (VCA 1999).

o Was 2nd interest acquired with notice of the existence of the 1st interest?

‘Notice’ = notice as opposed to knowledge (Brooking JA);

Under s 199(1) PLA, notice = actual notice (it is within his own knowledge or that of his

agent in the transaction) or constructive notice (it would have come to his (or his agent’s)

knowledge if such inquires and inspections had been made as ought reasonably to have

been made by him (or his agent) – obiter, since in this case Westpac knew about the prior

charge to Moffett).

o If yes, 1st interest holder will have priority;

o Unless he has waived it or is estopped by his conduct.

Waiver: where 1st interest holder agreed to postpone their interest; or

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Estoppel: where 2nd interest holder knew about the 1st interest but was led to believe by

the 1st interest holder’s conduct that it no longer existed.

3. If notice is not clearly established, proceed to the merits test.

Even if notice is established, apply the merits test. In Moffett, Brooking JA still applied the merits test

even though the notice test was satisfied on the facts.

i. Note: two formulations of the merits test – ‘better equity’ (from Rice v Rice, GL rule) and ‘prima facie

first in time’ (from Abigail v Lapin, favored by the weight of authority);

ii.Under the latter, First in time prevails unless there is some act or omission on the part of the 1st interest

holder that makes it inequitable for him to retain his priority (Abigail v Lapin);

iii. Do we have postponing conduct by 1st interest holder? As asked in Just Holdings, is there

conduct by the holder of 1st interest that contributed to a belief by 2nd interest holder that no such

prior interest existed?

o Failure to caveat:

Unsettled ;

Depends on what view you take of the function of the caveat;

In 1917, HC thought caveat acted as a notice to the world (Butler). Accordingly, B’s

failure to caveat alone was postponing conduct (note: this case suggests that HC

expects the 1st interest holder to caveat immediately, as in this case B lodged a caveat

after 5 days and was postponed);

However, HC’s view on this has shifted over time;

In 1971, HC said caveat is an injunction to the Registrar (Just Holdings). Failure to

caveat is not postponing conduct per se. It is only one factor to take into account. In

this case, Josephson (rp) mortgaged land to Bank of NSW, and then mortgaged to JH.

Bank of NSW took DCT but didn’t caveat = no postponing conduct;

Need something more. For example:

- In Abigail (1934 PC), failure to caveat + handing over DCT and signed transfer =

postponing conduct. PC also said that failure to caveat can be postponing conduct

even if 2nd interest holder does not search the register;

- In Breskvar (1971 HC), 4 judges thought failure to caveat + handing over DCT and

signed blank transfer = postponing conduct; and

- In Heid (1983 HC), failure to caveat (H had an equitable mortgage and vendor’s

lien over property he sold to Connell Investments) + H handed over executed

transfer (falsely acknowledging that he had been paid in full) and DCT to Gibby,

an employee of CI. CI registered transfer and then mortgaged to RF. This was

postponing conduct. Here, H should have appreciated that G’s loyalties lay with

his employer.

This position was approved by the full bench of the VSC in Jacobs in 1990;

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STRUCTURE:- State 2

doctrinal justifications;

- Identify conduct

- Is this postponing?

- What about conduct of 2nd holder?

- Link


In 2007, Callinan J of HCA said in Black v Garnock in obiter that the caveat served

both as an injunction and notice (middle position). But Gleeson CJ approved the view

of Barwick CJ. Change? In terms of policy, it should change: only 5% of purchasers

in Vic lodge a caveat and Australia has far more priority disputes than other common

law countries as a result. Courts need to encourage unreg interest holders to lodge

caveats (Rodrick (2001)).

o 1st interest holder hands over indicia of title (DCT, signed transfer):

Abigail (1934 PC). PC held that handing over indicia of title and failing to caveat

was postponing conduct. 1st interest holders (Lapins) armed rp (Mrs Heavener) with the

ability to go out and assert that she has clear title;

Breskvar (1971 HC). Bs handed over a signed blank transfer and DCT to Petrie. This

was postponing conduct (per 3 judges – note: the other 4 judges considered failure to

caveat was relevant as well);

Heid (1983 HC). See above, postponing conduct.

o Possession of land, or possession of DCT (as in Just Holdings) is conduct that protects 1st

interest holder.

iv. Given that conduct, is it inequitable for 1st interest holder to retain his priority?

o HC in Heid advanced 2 doctrinal justifications:

1. Estoppel (Gibbs CJ and Wilson J):

o Did the conduct of the 1st interest holder amount to a representation that the rp has

clear title?

AND, did the 2nd interest holder act to their detriment in reliance on the

representation?

If SO, the 1st interest holder is estopped by their actions from asserting priority over

the 2nd interest.

o Estoppel rationale works better with arming cases – ie where RP arms a 3rd party with

the means to represent himself as the unencumbered owner, and this leads to the

creation of a subsequent equitable interest (eg Abigail, Breskvar, and Heid).

2. Reasonable foreseeability (Mason and Deane JJ):

o In fairness and justice, was it reasonably foreseeable that the conduct of the 1st

interest holder would lead to the creation of the 2nd interest in ignorance of the

existence of the 1st interest?

o Reasonable foreseeability rationale works better with inconsistent interest cases – ie

where RP creates a prior interest in A, and then a subsequent inconsistent interest in

B (eg Butler, Just Holdings and Jacobs).

o Example of application: Jacobs v Platt Nominees (1990 VSC)

PN granted option to purchase to J (daughter of the directors, Mr and Mrs P) for value. J

decided not to caveat, to avoid upsetting Mr P. PN then executed contract of sale to PT.

Priority dispute between J’s option to purchase and PT’s interest under contract of sale.

Held: No postponing conduct. Estoppel does not apply because (1) no representation by J

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(failure to caveat is not a representation) and (2) PT suffered no detriment.

Furthermore, reasonable foreseeability does not apply because it was ‘inconceivable’ that PN

would sell to another in breach of the option given to the directors’ daughter, because of this

family arrangement.

v. If there is postponing conduct, is there any conduct of 2nd interest holder which means they should

not get priority?

o Not searching Register (not fatal – 2nd interest holder in Abigail still got priority even though

he did not search the Register, since even if he did, it would have shown clear title as the 1st

interest holder didn’t caveat);

o Not checking where DCT is (in Just Holdings, the 1st interest holder took the DCT but didn’t

caveat, and the 2nd interest holder did a title search but did not check rp’s story that the bank

was holding his DCT for safe keeping – Barwick CJ, having determined that 1st holder’s

priority was not lost, did not consider 2nd holder’s conduct – uncertain).

vi. Would it make any difference to your answer if you applied the ‘better equity’ formulation of the

merits test?

o ‘Better equity’ rule: As between persons having equitable interests, if their equities are in all

other respects equal, priority of time gives the better equity (Rice v Rice per Kindersley VC);

o Look at 3 things in determining whether the equities are equal:

(1) Nature and condition of the respective equitable interests;

(2) Circumstances and manner of acquisition of each interest; and

(3) The whole conduct of each party.

o As observed by Rodrick (2001), when applying this test the courts focus almost entirely on the

conduct of the parties, so it should not produce a different result to the ‘prime facie first in

time’ test. However, it does change the burden of proof (‘better equity’ focuses on balancing

the conduct of both parties without any bias in favour of one or the other, while ‘prima facie

first in time’ places onus on 2nd interest holder to show why 1st interest holder should lose their

priority).

Prior equity vs. Subsequent equitable

Two types of ‘equity’:

1. Personal equity – a right to seek the assistance of a court of equity that is personal to the plaintiff;

2. Proprietary/ ‘mere’ equity – enforceable against the world (in rem), but not assignable (eg an equity

arising out of an estoppel, Inwards v Baker; or an equity of rectification, see Downie).

What about an equity to set aside a fraudulent transaction? See below.

Rule: Bona fide purchaser rule (Latec).

Subsequent equitable interest holder gets priority if they are:

i. a bona fide;

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ii.purchaser who takes for value (ie they’ve paid money for their interest, eg a mortgagee);

iii. without notice of the prior equity (actual, constructive or imputed; s 199 PLA).

For example:

In Latec, L was registered mortgagee of HT’s land. On default by HT, L exercised power of sale. L

fraudulently sold to SH (its wholly owned subsidiary, at an undervalue). SH became registered and MLC

acquired an equitable interest. Priority conflict between HT’s mere equity and MLC’s subsequent

equitable interest. On application of rule, MLC took priority over HT.

Priority Disputes Between a Mortgagor and a Purchaser From a Mortgagee

After registration

On registration of transfer, the purchaser from the mortgagee acquires good title – the title cannot be

impeached/ attacked on the ground that the mortgagee did not have power to sell or exercised that power

improperly; it’s defeasible only for fraud (ss 77(4) and s 42 TLA).

Mortgagor is confined to a remedy in damages against mortgagee.

If purchaser’s title is defeasible for fraud and there’s: no 3rd party interest, then purchaser is treated in

equity as having acquired only the mortgagee’s interest, not the mortgagor’s, so the purchaser holds the

reg title subject to the mortgagor’s right of redemption – if mortgagor pays the debt, the purchaser must

transfer the land to him; or a 3rd party interest (eg Latec), then mortgagor has to show that its interest is

entitled to priority over the 3rd party’s.

Prior to registration

What can the mortgagor do to stop the sale?

o Caveat?

Mortgagor must have an “estate or interest in land” (s 89);

Legal title is not enough (Swanston);

An equitable interest will support a caveat (Crampton) but a mere equity will not (Swanston);

VCA in Swanston held that the mortgagor’s right to set aside the mortgagee’s improper sale is

an equity, not a property interest and not a caveatable interest. This decision was heavily

criticised in Vasiliou, but the VCA concluded that they’re bound by it until it’s overruled after a

full hearing before a bench of 5 appellate judges.

Answer: NO.

o Permanent injunction?

Q1: Was power of sale in s 77(1) exercised improperly?

If so, Q2: Can mortgagor get an injunction to stop registration?

YES, if the mortgagor’s right to set aside transaction has priority over purchaser’s equitable

interest (Forsyth);

Q3: Does mortgagor have priority?

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4 ways to classify mortgagor’s interest for the purpose of a priority dispute:

- Legal interest as RP (Walsh J (Mason J agreeing) in Forsyth) => legal vs. equitable =

legal wins = mortgagor can get injunction;

- Full equitable interest (Forsyth, Breskvar and Taylor J in Latec12) => equitable vs.

equitable = mortgagor prevails as his interest is 1st in time and no postponing conduct

(note: Taylor J in Latec used bona fide purchaser rule);

- Equity – proprietary (Menzies and Kitto JJ in Latec) => equity vs. equitable = equitable

wins if bona fide purchaser without notice = mortgagor cannot get injunction; and

- Equity – not proprietary (Swanston) = mortgagor automatically loses – can be

distinguished because it’s a case about caveats, not priority disputes.

Facts of Forsyth: Mortgagee breached its duty in exercising power of sale. Mortgagor was

granted an injunction to restrain completion of mortgagee sale.

Why difference? Caveats are much easier to obtain than injunctions (for the former, just need to

show an estate or interest in land). Current position prevents angry mortgagors from frustrating

the mortgagee’s sale by lodging a caveat, unless they can actually prove it was improper (and

thereby get an injunction).

12 Menzies J in Latec said when classifying right for purpose of devising it by will = equitable and assignable.

Kitto J said it’s a mere equity because it’s a right to have a transaction set aside, but once the court grants relief

it becomes a full equitable interest.

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PART B:Perpetual Trustees Victoria v English and Anor

[2009] NSWSC 478

Background

Parties:

- Perpetual Trustees Victoria = plaintiff

- Niel English = 1st defendant (no appearance)

- Kerrie English = 2nd defendant.

P claims as against Ds possession of real estate situated at Castle Hill.

Facts:

o Mr and Ms English married and purchased as joint tenants a matrimonial home. They have since

separated but the marriage has never been dissolved, so Mr and Ms English remained owners of the

property in joint tenancy.

o Mr English entered into a contract of loan with Perpetual. The loan purported to be secured by a

mortgage over the property. Mr English signed the loan application, the loan offer and the mortgage

document, and forged Ms English’s signature on all three. Mr Potts, a solicitor, purported to witness

her signature.

o The mortgage was duly registered.

o Salient features of the mortgage:

- It did not expressly incorporate the Loan Agreement (“Loan Agreement” is the signed offer

document and the Terms and Conditions Booklet).

- It did expressly incorporate the provisions of a Memorandum, which included the clauses:

1.1: ‘Secured Money’ means: all amounts which are payable at any time or are

contingently owing or payable to you [mortgagee] under a Secured Agreement.

2.2: Pay Secured Money

The Mortgage is security for payment to you [mortgagee] of the Secured Money and for

the performance of all of my [mortgagor] obligations under the Mortgage. I agree to pay

the Secured Money as and when the Secured Money becomes due and payable in

accordance with the provisions of each Secured Agreement or the Mortgage.

11.7: Joint and several liability

If I am comprised of more than one person, each person will be liable individually, and

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every two or more persons are liable jointly, for all promises and obligations under the

Mortgage.

o Mr English defaulted on the mortgage obligations.

o Perpetual wants an order for possession of the entire property.

o Mr English did not defend the proceedings. He is bankrupt and Perpetual chose not to pursue its in

personam remedy against Mr English if it cannot obtain possession of the property.

Judgment

NSW Supreme Court;

Judgment of Simpson J (“Her Honour”);

Judgment date: 3 June 2009;

Decision: The statement of claim is dismissed. Mortgagor wins.

Rationale:

o Application of NSW authorities

After reviewing the NSW authorities, Simpson J concluded that registration of a forged

mortgage does not “render a forged loan agreement binding upon the landowner, such as to

attract to the mortgagee the benefit of s 42” (at [135]).

So, where the mortgage does not expressly state the quantum of the debt, the banks cannot

rely on the loan agreement to prove that debt because it is void and defeasible, so the

mortgage secures nothing.

Why?

- Indef does not extend to personal covenants, such as the obligation to pay a debt in the

loan agreement- Chandra (at [77] and [124]13); and

- If the terms of the loan agreement are not incorporated in the mortgage, then default does

not engage the mortgagee’s power of sale per s 57(2)(a) of the Real Property Act- Printy

(at [109] and [132]).

“Here, the quantum of the debt was not specified in the mortgage or any incorporated

document” (at [129]). Hence on application of authorities, mortgagee fails in their claim.

o Submissions of the parties

Simpson J held that, on proper construction of the contractual documents, there is: no

“Mortgage” (because there was no form of mortgage executed by both Mr and Ms English, at

[166]) and no “Secured Agreement” (as no agreement acknowledged by both Mr and Ms

English to be an agreement secured by the mortgage, at [156], and furthermore the loan

agreement itself contained no acknowledgement that it is an agreement secured by the

mortgage, at [167]).

Essentially, the outcome turned on her Honour’s interpretation of “I” as meaning both Mr and

Ms English, and not either Mr or Ms English.

13 All references are to the prescribed case English.

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Her Honour rejected Perpetual’s proposition that “I” ought to be read as meaning Mr English

only. Even though clause 1.2 provides that “a word importing the singular includes the plural

and vice versa”, her Honour thought that this clause does not affect the definitions contained

in clause 1.1 (at [152]). Also, Ms English’s construction has “the advantage of reasonableness,

fairness and justice” (at [154]). Her Honour observed that if “I” was given Perpetual’s

definition, then, for example, if five co-owners of property enter into a mortgage, a further

loan agreement entered into by one co-owner without the consent of the others would further

encumber the property (at [155]).

o Only recourse for P is to sue Mr E personally, which they have elected not to do. Unlikely

they’d get any money from him anyway, as he is bankrupt.

Criticisms of her Judgment

Criticisms:

o Contractual construction arguments are flimsy.

Importance?

Although Simpson J decided, on application of NSW authorities, that the mortgage secures

nothing, her Honour also noted in obiter that the loan agreement is enforceable against Mr E

(at [163]). Therefore, P could enforce mortgage against entire property based on Cipri (see

below). However, because of these arguments there is no “Mortgage”.

No sound reasons are given for her assertion that “[clause 1.1] is not altered or

modified by clause 1.2” (at [152]). On a natural reading of “In the Mortgage…” in clause 1.2,

it should apply to definitions in clause 1.1.

It’s a decision based on public policy. As Simpson J says at [154], “Ms English’s

construction has the advantage of reasonableness, fairness and justice.” If “I” meant any

mortgagor, not all, then one borrower could further encumber the property without the

knowledge or consent of the other/s. “That cannot be what the contract meant” (at [155]).

However, it’s what the contract says – judges should not change contracts to make

them fairer. It’s up to the legislature to set rules if they think it’s necessary (eg Consumer

Credit Code from Prop A).

o Correct application of authorities?

According to Stoljar’s (2008) interpretation of Chandra, while the personal covenant to pay

does not achieve indef, it is validated to the extent necessary to enable enforcement of the

charge – so the mortgagee has remedies against the land (p39). This seems inconsistent with

what Simpson J says at [124] and in dismissing Perpetual’s submission at [132]. At [124], her

Honour states that if the debt is specified in a personal covenant, that does not confer

indefeasibility (I think by “indefeasibility” her Honour means an interest in the property, as by

registration the mortgage is indefeasible; Breskvar).

Her Honour also relies on Printy at [132], which essentially requires incorporation of the

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personal covenant in the mortgage for the power of sale to arise. However, this decision was

criticised by Grattan (2009) at p61 and may prove an unsound basis for a decision.

Hence Chandra stands, which Simpson J arguably misapplied. So on application of the

authorities, Perpetual should have got possession of the land. Note, of course, that this

discussion is moot as Simpson J found no “Mortgage” to exist.

Judgment if decided in Victoria

Construction of contracts

o Given the tenuous basis of Simpson J’s decision regarding construction of the documents, it is

questionable whether this decision would be made in Vic.

o Furthermore, a similar construction argument was rejected by Pagone J of the VSC in Solak earlier this

year (March 2009). In this case it turned on the interpretation of “you” in the mortgage and loan

contract. This suggests Vic courts, or at least Pagone J, are less likely to reinterpret provisions that

are “properly to be seen as a drafting device” (see [15] of his judgment).

Is Perpetual entitled to an order for possession of the property?

o Registration confers an indef title (Breskvar) – question is “Indefeasibility for what?”

o Here, “all moneys” mortgage (per clause 1.1- “Secured Money” means “all amounts which are payable

at any time or are contingently owing or payable…” and the mortgage does not specify the amount of

the loan, at [80]).

o Two ways the mortgagee would win in Vic:

1. Difference in authorities

In Vic, covenant to pay achieves indefeasibility (obiter in Pyramid, cf. NSW position in

Chandra) if it’s found in or incorporated into the mortgage (Solak).

Despite a different mortgagee, the mortgage in the present case is very similar to that in

Solak. In Solak it was enough for incorporation of the loan contract that there was a

reference to “a Bank Document” in the mortgage (see [16] of Solak).14

Therefore, in Vic, the forged loan agreement would be indefeasible. The court can thus

use it as evidence of the debt secured, and P is entitled to an order for possession, there

having been a default in its payment.

Note: in Tsai, Young CJ in Eq of the NSWSC held that the personal covenant is indef, but

regardless the mortgagee did not get possession – this is because in that case there was no

evidence that money had been advanced (the personal cov granted a facility to draw down

the specified sum).

2. Joint and several liability

Following the reasoning of Hall J of the NSWSC in Cipri (at [88]-[90] of Cipri):

1. Mr English is still liable under loan agreement (Simpson J in obiter at [163]). He is

liable for the entire amount (due to “clause 20.3 Joint and several liability” of the Terms

14 This is quite remarkable, given that Grattan (2009) remarked that “the [NSW] cases suggest that there is little

hope for a mortgagee to rely on the doctrine of incorporation” (p67).

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and Conditions Booklet).

2. By reason of “clause 11.7 Joint and several liability” of the Mortgage, the Mortgage

itself secured all of Mr English’s indebtedness under the loan. Note: Under Simpson

J’s analysis of the case, there was no Mortgage, so this argument would fail.

3. Given that the Mortgage secured Mr English’s indebtedness for the entire amount and

as the whole of the property was subject to the Mortgage, P is entitled to enforce the

Mortgage against both Mr and Ms English’s interests in the property.

However, not certain if Vic courts will follow this approach.

o Either way, Ms English loses the property.

Is Ms English personally liable for the debt?

o In NSW, Ms English would not be liable since cov to pay is not indef (Grgic).

Even if cov to pay was indef (ie Tsai preferred over Chandra), it would not be enforceable

independently of, or other than by way of, the enforcement provisions of the Act and against the land

– ie mortgagor is not personally liable (see comments of Simpson J at [63]).

o In Vic:

o As discussed above, cov to pay is incorporated into the reg mortgage and so Ms English will be

personally liable if there is a shortfall (Solak). There was no suggestion in that case that the cov to

pay is only enforceable against the land.

Policy: Which judgment is better?Should covenant to pay achieve indefeasibility?

NSW position:

Consistent with fairness.

Two innocent parties. Who is more blameworthy? The RP/mortgagor allowed another to access

their DCT. However, it’s unreasonable to expect a RP to ensure that only they have access where

there is more than one owner (eg should a wife presuppose that her husband will use the DCT

without her consent or vice versa?). Also, it may not even occur to them that possession of the

DCT could be so detrimental – it’s reasonable to think that the signature requirement would

protect them.

Conversely, the mortgagee approved the forged mortgage. There are simple steps that a mortgagee

could take to minimise the likelihood of forgeries, for example, by requiring the mortgagor to

provide evidence of identity (eg a driver’s licence) and by improving attestation procedures (eg by

requiring attesting witnesses to be employees of the mortgagee).

Given that the mortgagee could do more to prevent the situation arising, it’s only fair that they bare

the burden of failing to do so.

The NSW position encourages mortgagees to adopt better business practices (see above) by placing

onus on mortgagee to ensure there’s no forgery. As Rodrick (2002) observes, “At present, the

Torrens System is operating in a faulty manner in so far as it relies heavily upon banks and lawyers

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to do all the checks in mortgage transactions, whilst at the same time supplying them with little or

no incentive to do so” (p129).

× Simpson J herself criticised the NSW position – saying it was “surprising” at [122] and “odd,

perhaps, and even unsatisfactory” at [128] that “the fate of an innocent owner, entirely ignorant of

a purported loan and mortgage in his/her name, can depend upon the fortuitous circumstance that

the mortgagee has or has not included, with sufficient specificity in the mortgage documents, the

debt the subject of the mortgage” (at [126]). But this criticism could also be directed at Vic

position, especially with Pagone J’s requirement of “incorporation” in Solak.

Vic position:

Consistent with objective of Torrens System to promote security of transaction. The Torrens System

can produce unfair outcomes (eg Breskvar), but that is accepted in order to make conveyancing

faster and less risky. Under the NSW position, how are purchasers of mortgages (ie

‘securitisation’, Prop A) to know of the defect? It instils a system of derivative title in the Torrens

System, because if the mortgage documents are forged and it’s an “all moneys” mortgage, then

under the NSW position the mortgage secures nothing and this defect cannot be cured by

registration. Purchasers of the mortgage are essentially buying nothing. This was observed in the

case of Calabro (the land vested in the Council 10 years before this was reflected on the Register),

however, such instances should be minimised and only created when there is no other alternative –

here there is, the Vic position.

It’s up to the legislature and not the courts to authorise deviations from this objective. For example, the

Vic Pmt could adopt amendments similar to those in Qld (and NSW), which require a mortgagee,

in order to obtain an indef interest, to take reasonable steps to ensure that the mortgage was

executed by the mortgagor rather than an imposter (footnote 2, Grattan).

× Inconsistent with relevant provisions of the Torrens legislation and reasoning of HC authorities.

o Jeremy Stoljar (2008);

o Contention: personal cov to pay does not attract indefeasibility;

o Provisions of the Torrens legislation are protective of interests in land not personal rights:

s 42 Real Property Act 1900 (NSW) provides that RP of any ‘estate or interest in

land’ shall hold the same free from all other ‘estates and interests’ that are not so

recorded. Use of words ‘estate or interest in land’ suggest that protection doesn’t

extend to personal rights;

Further, a number of sections in Torrens legislation expressly refer to, or regulate,

debts arising under mortgages. Had the legislature intended that the operation of the

indef provisions extend to personal covenants it could easily have made that clear;

the absence of such words suggests the legislature had no such intention (ie expressio

unius est exclusio alterius);

NB. In Vic s 42(1) TLA talks about RP ‘of land’ being only subject to

‘encumbrances’ recorded on Register (it only talks about ‘interest or estate’ when

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saying that the RP is subject to those paramount or that have priority)- so query

whether this argument applies in Vic.

o Inconsistent with reasoning of HC authorities:

In Mercantile Credits, the HC held that an option to renew in a reg lease is

indefeasible because the covenant was “so intimately connected” to the leasehold

estate that it should be regarded as part of it;

Stoljar argues that a mortgagor’s personal covenant to pay is not connected to the

mortgagee’s interest in land to the same degree as a lessee’s covenant to renew the

lease. He says a personal cov by the mortgagor is “conceptually and contractually

independent” of the charge over the land created by the mortgage (eg personal

liability may continue despite mortgage having been discharged, or mortgagor having

ceased to be RP of the land);

Similarly, the HC in Gumland held that while a tenant’s obligation to pay rent under

a lease touches and concerns land, a mortgagor’s personal covenant to pay does not.

Grattan (2009) argues “that it is a necessary condition for indefeasibility that a

covenant touches and concerns the land.”

× Unpredictable – there are no criteria to ascertain whether incorporation is made out. The decision

of Pagone J in Solak seems to be very ad hoc, and may be easily circumvented in other cases by

declaring ‘there’s no incorporation’.

× The Vic position puts a mortgagee whose interest arose under a forged mortgage in a better

position than one who took under a valid mortgage (Grattan (2009)). If indef attaches to the

personal covenant to pay, then the mortgagee has a claim against the assurance fund for the value

of the debt, instead of just the value of the land. Grattan argues that the state should not have to

compensate a mortgagee who takes inadequate security.

Overall

I submit that the approach should be a hybrid- Personal covenant to pay is validated only to the extent

necessary to enable the enforcement of the charge (NZ Court of Appeal in Duncan v McDonald, and

arguably the correct reading of Chandra according to Stoljar). The landowner is not personally liable for

any shortfall. The constructionist approach should not be used, as it provides unpredictability.

Furthermore, legislation similar to that in Qld should be enacted so bank loses indef if they fail to take

reasonable steps to ensure no forgery.

Reasons: fair (mortgagor loses land but not assets and they have access to indemnity provided they were

not neglectful- s 110(3)(a), mortgagee gets money back), mortgagee has incentives to protect landowner,

the Register mirrors the title (any potential purchaser will know value of mortgage = value of land), and

is consistent with provisions of TS. It also fixes the “unsatisfactory” difference between the enforceability

traditional and ‘all moneys’ mortgages, as described by Simpson J in English (at [128]).

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Documents

Property Law B