Posted on May 22, 2014 by
Indefeasibility of title and fraud in land transactions
The recent matter of Todd v Jingalong Pty Ltd  NSWSC 362 gives a good example of the principles which qualify the indefeasibility of title guaranteed by section 42 of the Real Property Act 1900 (Act) in the case of fraud. It also deals with situations short of fraud where equity will intervene to assist in rectification of the register.Indefeasibility of title is guaranteed subject to certain qualifications set out in the section including fraud. Todd provides a good example of what may constitute fraud, and how the Courts recognise the in personam exception to indefeasibility
The plaintiff Mr. Todd owned land at Nowra. He verbally agreed to sell some of that land (Lot 1 Land) to a Mr. Pernice, however, the land was not yet subdivided from Todd’s land.
Unable to undertake the subdivision work himself, Todd sold the whole of the land to the Poultons with a term in the contract requiring the Poultons to finalise the subdivision and sell the Lot 1 Land back to Todd for $1.00. Todd would then honour his agreement to Pernice. Todd protected his interest in the Lot 1 Land by lodgement of a caveat.
The Poultons entered into a joint venture agreement with Jingalong Pty Ltd (Jingalong), represented by a Mr. Cameron, to undertake the subdivision work. The joint venture agreement acknowledged the Poultons’ obligation to transfer the Lot 1 Land back to Mr. Todd.
The Poultons, however, then encountered their own financial problems and contracted to sell the land outright to Jingalong.
Mr. Todd’s caveat remained in place but Mr. Cameron persuaded Mr. Todd to remove the caveat. This is where Mr. Todd and Mr. Cameron differ on what was said. There had been several attempts to finalise the subdivision work, with little real progress. Cameron advised Todd that without re-financing, Jingalong’s bank would enforce its mortgage and Todd would lose everything. To achieve the refinancing, Cameron needed the caveat over the Lot 1 Land removed and he expressed this to Mr Todd.
The difference in what they agreed to came down to an alleged representation of Mr. Cameron. In seeking Mr. Todd’s agreement to remove the caveat, Mr Cameron is alleged to have said that the agreement regarding the Lot 1 Land would continue. Mr. Todd understood from what Mr. Cameron had told him that the sale back of the Lot 1 Land was still part of the agreement if Mr. Todd agreed to lift the caveat. Cameron at the hearing denied he had ever made such a representation.
With the caveat removed, however, Mr Cameron and Jingalong disavowed any agreement or understanding about the Lot 1 Land. Section 42 gave them indefeasibility of title, and Mr. Todd’s alleged interest was not recorded or acknowledged on title. Mr. Todd’s claim to the Lot 1 Land, Jingalong argued, could be safely ignored.
There was mediation between the parties, and a Settlement Agreement was reached. His Honour dealt with this at some length, ultimately dismissing it after an extensive discussion on the rules related to accord and satisfaction and accord executory, which I do not analyse here.
Fraud, and In Personam Rights
The question was whether Mr. Cameron’s representation amounted to fraud.
Fraud is difficult to prove. Thus in Stuart v Kingston  HCA 17, it was said that ‘the word “fraud” …..is to be construed as meaning something more than mere disregard of rights of which the person sought to be affected had notice, and as importing something in the nature of personal dishonesty or moral turpitude.’ [my emphasis].
By taking the transfer of the land, including the Lot 1 Land, how can it be said that Jingalong was guilty of anything more than ‘a mere disregard of rights of which it had notice’? Kunc J considered the summary of the law found in the Court of Appeal decision in Gerard Cassegrain & Co Pty Ltd v Cassegrain  NSWCA at paragraphs 11 and following.
Closely aligned with the question of fraud is the issue of an in personam right (that is, a right that exists, not because of indefeasibility but because of the actual facts and circumstances between the parties). Kunc J referred to Bahr v Nicolay  HCA 16 per Brennan J:
‘…An unregistered proprietor who has undertaken that his transfer should be subject to an unregistered interest and who repudiates the unregistered interest when his transfer is registered is, in equity’s eyes, acting fraudulently and he may be compelled to honour the unregistered interest.‘ [my emphasis].
When we read at paragraph 6 of the Todd judgement that: ‘Mr Todd is entitled to Lot 1 because Jingalong’s acquisition …… was either tainted by fraud ….. or gave rise to a personal equity’ [my emphasis] His Honour is not having an each way bet. He is noting that there may be actual fraud involved (namely the representation that the previous arrangement which involved the sale of the Lot 1 Land back to Mr. Todd for $1.00 would continue). In the alternative, Jingalong could not deny Todd’s rights because it knew about them (through the joint venture agreement) and it would be unconscionable to let Jinalong acquire the indefeasible interest in light of both its prior knowledge and its actions in pursuading Mr. Todd to release his mortgage.
The final orders made by the Court declared that Jingalong held the Lot 1 Land as a constructive trustee for Mr. Todd, with a subsequent order that Jingalong should transfer that land to Mr. Todd on the payment of $1.00.