In Cassegrain v Gerard Cassegrain & Co Pty Ltd [2015] HCA 2, the High Court of Australia considered the scope of indefeasibility of a transfer of a property into the name of joint proprietors, where one joint proprietor has procured the transfer by fraud and the other is innocent of the fraud.
Background
Claude and Felicity Cassegrain were dairy farmers. Their dairy farm was owned by a company, which had a number of directors. Claude was one such director. Felicity was not.
In 1993 Gerard Cassegrain & Co Pty Ltd settled legal proceedings brought against CSIRO on the basis that it was paid the amount of $9.5 million. Entries were then made into the company's accounts to create a loan of $4.25 million owing by the company to Claude Cassegrain, one of the directors. In the court proceedings it was accepted that Claude had no entitlement to any part of the compensation and that there was never any moneys owing to him by the company.
In 1996, Claude and his sister, the directors of the company, transferred the dairy farm to Claude and Felicity as joint tenants and fraudulently debited the purchase price of $1 million from the fictitious loan from Claude in the company’s books.
In 1996 Claude's siblings brought oppression proceedings against him in the Federal Court. The Federal Court held that Claude's conduct in relation to recording a loan of $4.25 million and drawing down on that loan was oppressive and unfairly prejudicial to the other shareholders in the company.
In 2000 for a consideration of $1 Claude transferred his interest in the dairy farm property to Felicity.
Subsequently further proceedings were brought seeking to have the whole of the property re-transferred to the company.
The claim was that:
a. Claude had fraudulently effected the transfer of the property;
b. Claude had acted as Felicity's agent for the purpose; and
c. Felicity's interest in the property was tainted by Claude's fraudulent conduct.
The High Court noted that it was not alleged that Felicity was a participant in or had notice of Claude's fraudulent conduct.
The relevant sections of the New South Wales legislation (which is similar to the Western Australia legislation) provide that:
S.42 The registered proprietor ... of an interest in land ... shall except in case of fraud, ... hold the same, absolutely free from all other estates and interest that are not so recorded.
S.118 Proceedings for the possession or recovery of land do not lie against the registered proprietor of the land, except as follows:
Proceedings brought by a person deprived of land by fraud against:
A person who has been registered as proprietor of the land through fraud; or
A person deriving (otherwise than as a transferee bona fide for valuable consideration) from or through a person registered as proprietor of the land through fraud.
There is no equivalent to section 118 in Victoria.
The Court concluded that Claude taking the steps necessary to procure registration of the transfer from the company to Felicity and himself as joint tenants showed no more than that Claude had performed tasks that were for the advantage of Felicity. This alone did not show that his fraud was within the scope of any authority she had given to him. Without further evidence it did not show that knowledge of his fraud was to be imputed to her.
In this case Claude, but not Felicity, was registered as proprietor of an interest in land (as a joint tenant) through fraud. The joint interest which Felicity acquired was indefeasible.
However, by a second transfer, Felicity derived from Claude an interest as tenant in common as to his half. Felicity derived that interest from a person who was registered as proprietor of that interest through fraud. As Felicity was not a transferee for valuable consideration the Court held that the second transfer should be reversed.
The High Court’s findings
The High Court accepted that Claude’s interest in the farm had been acquired through fraud. However, the Court held (with Keane J dissenting) that Felicity had acquired her interest as joint tenant without actual fraud on her part or on the part of an agent for her, and so her joint title in the farm was indefeasible under the usual principles in such cases as Frazer v Walker, Breskvar v Wall, and Bahr v Nicolay (No. 2).
Claude was not her agent in the relevant sense. Though he was the cause of her acquisition of an interest, he was not acting within the scope of any authority she had given him. The High Court applied and approved the approach of Street J to the determination of who is an agent for the purposes of fraud within the meaning of the Torrens legislation, in Schultz v Corwill Properties Pty Ltd [1969] 2 NSWR 576. To be an agent, a person must be acting within the scope of some authority given by the registered proprietor such that knowledge of the fraud by the agent would be imputed to the registered proprietor.
Nor was it any answer that Felicity was a joint tenant such that she and Claude were regarded in law as having a single indivisible estate in the whole of the land. Although Keane J dissented on this point, the majority held that the statute as interpreted by the Courts for well over 100 years provided that only actual fraud on her part could defeat her interest in the land, even as a joint tenant. The statute took priority over mere theoretical considerations derived from speculation on the nature of a joint proprietor’s title.
There was, however, as noted, a second transaction that required consideration by the Court. Claude subsequently transferred his joint interest to Felicity, so that she became owner of the whole fee simple interest in the dairy farm. She was a volunteer, as the transfer was for no consideration ($1). In NSW, s.118(1)(d) of the Real Property Act provides for the title of a volunteer only to have the benefit of indefeasibility on a deferred basis: that is to say, if a registered proprietor was not a transferee for value, the transfer could be set aside if it had been procured by fraud on the part of someone else. This was exactly what had happened in the transfer to her of Claude’s joint half interest.
The second part of the decision is thus not of direct application in Victoria, as it turned on a specific statutory provision in NSW that we do not have here. In Victoria, the question whether a volunteer acquires an indefeasible title is somewhat problematic, given that there are two strong single judge decisions to the effect that indefeasibility only applies to transferees for value (King v Smail [1958] VR 273 per Adam J and Rasmussen v Rasmussen [1995] 1 VR 613 per Coldrey J). Against this, there are two Court of Appeal decisions in NSW on provisions in the Real Property Act, which are remarkably similar to those in our Transfer of Land Act. Those decisions held that volunteers obtain the same protection under the Act as transferees for value. A dictum of the High Court that appears to endorse this view (Bogdanovic v Koteff (1988) 12 NSWLR 472; Farah Constructions Pty Ltd v Say-Dee (2007) 230 CLR 89 at [198]). A decision of the Victorian Court of Appeal is probably required to resolve the matter definitively once and for all. However, as readers will know, decisions of the New South Wales Court of Appeal are very persuasive here, if not binding.
In any event, in Victoria, the same result may have been reached by way of an in personam action against Felicity under s.172 of the Property Law Act, 1958 on the grounds that Claude’s transfer of his half interest to her was probably a disposition of property with the intent to defeat creditors.
W G Stark
Hayden Starke Chambers
