Indefeasibility and Fraud Assoc Prof Cameron Stewart (c) Cameron Stewart 2009

Indefeasibility and Fraud
Assoc Prof Cameron Stewart
(c) Cameron Stewart 2009
Exceptions to indefeasibility
- Fraud
A person who acquires a registered interest
through fraud has a defeasible interest: RPA
ss 42, 43
Eg their interest can be set aside.
The requirements for setting aside such an
interest are:
• the registered proprietor’s interest must
have been acquired through implication in
the fraud; and
• the implication may be personal or through
the acts of an agent.
(c) Cameron Stewart 2009
Section 3
• No comprehensive definition of fraud is set
out in the Real Property Act. However, the Act
stipulates in s. 3(1) that fraud ‘includes fraud
involving a fictitious person’.
• Obviously an attempt to deal with Gibbs v
(c) Cameron Stewart 2009
Section 42
• 42 Estate of registered proprietor paramount
• (1)
Notwithstanding the existence in any other
person of any estate or interest which but for this Act
might be held to be paramount or to have priority, the
registered proprietor for the time being of any estate
or interest in land recorded in a folio of the Register
shall, except in case of fraud, hold the same, subject to
such other estates and interests and such entries, if
any, as are recorded in that folio, but absolutely free
from all other estates and interests that are not so
recorded except: .....
(c) Cameron Stewart 2009
Section 43
• 43 Purchaser from registered proprietor not to be affected by
• (1)
Except in the case of fraud no person contracting or
dealing with or taking or proposing to take a transfer from the
registered proprietor of any registered estate or interest shall be
required or in any manner concerned to inquire or ascertain the
circumstances in or the consideration for which such registered
owner or any previous registered owner of the estate or interest in
question is or was registered, or to see to the application of the
purchase money or any part thereof, or shall be affected by notice
direct or constructive of any trust or unregistered interest, any rule
of law or equity to the contrary notwithstanding; and the
knowledge that any such trust or unregistered interest is in
existence shall not of itself be imputed as fraud.
(c) Cameron Stewart 2009
Section 118
118 Registered proprietor protected except in certain cases
(1) Proceedings for the possession or recovery of land do not lie against the registered proprietor
of the land, except as follows:
(a) proceedings brought by a mortgagee against a mortgagor in default, (b) proceedings
brought by a chargee or covenant chargee against a charger or covenant charger in default,
(c) proceedings brought by a lessor against a lessee in default,
(d) proceedings brought by a person deprived of land by fraud against:
(i) a person who has been registered as proprietor of the land through fraud, or
(ii) 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, (e) proceedings brought by a person deprived of, or claiming, land that (by reason of
the misdescription of other land or its boundaries) has been included in a folio of the Register
for the other land against a person who has been registered as proprietor of the other land
(otherwise than as a transferee bona fide for valuable consideration),
(f) proceedings brought by a registered proprietor under an earlier folio of the Register
against a registered proprietor under a later folio of the Register where the two folios have
been created for the same land.
(c) Cameron Stewart 2009
What is fraud?
• Assets Co Ltd v Mere Roihi [1905] AC 176 - Assets
became registered proprietor of certain lands
formerly owned by certain Maoris. There were
allegations of fraud against predecessors to
Assets and from whom Assets purchased the
land. However, there was no fraud committed by
Assets. The Privy Council ruled that there was ‘no
fraudulent statement made by the company’s
agents … nor any bribery, corruption, or
dishonesty’. Nor had Assets ‘refrained from
making inquiries which an honest purchaser
would have made’.
(c) Cameron Stewart 2009
What is fraud?
• In Assets Co Ltd v Mere Roihi [1905] AC 176, at 210, the Privy
Council defined fraud as follows:
• [B]y fraud in [the legislation] is meant actual fraud, that is
dishonesty of some sort, not what is called constructive or
equitable fraud … [T]he fraud which must be proved in order to
invalidate the title of the registered proprietor for value … must be
brought home to the person whose registered title is impeached or
to his agents. Fraud by persons from whom he claims does not
affect him unless knowledge of it is brought home to him or his
agents. 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. But if it
be shown that his suspicions were aroused, and that he abstained
from making inquiries for fear of learning the truth, the case is very
different and fraud may properly be ascribed to him.
(c) Cameron Stewart 2009
When is fraud relevant?
• 2 Situations:
• A previously registered proprietor seeks to set
aside a transaction imputed by fraud; or
• A holder of an unregistered instrument seeks
to set aside a later registered instrument in
favour of another on the ground that the
other has been guilty of fraud
(c) Cameron Stewart 2009
Exceptions to indefeasibility
- Fraud
General principle: unless the fraud can be
brought home to the registered proprietor,
registration will confer indefeasibility.
Definition of fraud: actual dishonesty, which
can be attached to the registered proprietor’s
Sometimes said to be “moral turpitude”: Butler
v Fairclough (1917) 23 CLR 604 at 630.
In Wicks v Bennett (1921) 30 CLR 80, at 91,
Knox CJ and Rich J referred to fraud as
‘something more than mere disregard of rights
of which the person sought to be affected had
What about equitable fraud?
(c) Cameron Stewart 2009
Equitable fraud
• Equitable fraud is constructive fraud – when the RP should have
realised that the transaction was fraudulent
• In Bahr v Nicolay (No 2) (1988) 164 CLR 604, Mason CJ and Dawson
J suggested that not all species of equitable fraud were outside the
concept of fraud under the Real Property Act. This approach was
endorsed by the Court of Appeal in Victoria in Russo v Bendigo Bank
Ltd [1999] 3 VR 376 at 382-385, and by the Court of Appeal in NSW
in Grgic v ANZ Banking Group Ltd (1994) 33 NSWLR 202 where, at
221, Powell JA said:
[T]hose species of ‘equitable fraud’ which are regarded as falling
within the concept of ‘fraud’ for the purposes of s. 42 of the Act are
those … in which there has been an element of dishonesty or moral
turpitude on the part of the registered proprietor of the subject
interest or on the part of his or its agent.
(c) Cameron Stewart 2009
Equitable fraud
• ‘[T]he mere fact that a person might have found
out fraud if further enquiries had been made
does not of itself prove fraud. The enquiry is an
enquiry for actual dishonesty not for want of due
care’: Pyramid Building Society (in liq) v Scorpion
Hotels Pty Ltd [1998] 1 VR 188 at 194
• In Grgic, Powell JA cited, as an example, a
collusive or colourable sale by a mortgagee to a
subsidiary company such as occurred in Latec
Investments Ltd v Hotel Terrigal Pty Ltd (1965)
113 CLR 265
(c) Cameron Stewart 2009
Timing of Fraud
• When does the fraud have to exist?
• Ordinarily the fraud must occur in the lead up
to rego
(c) Cameron Stewart 2009
Timing of Fraud
• In Loke Yew v Port Swettenham Rubber Co Ltd [1913] AC 491, Port
Swettenham purchased from Eusope. Loke Yew was part owner of
the land but was not registered. Eusope only agreed to transfer the
land to Port Swettenham when given an assurance that Port
Swettenham would not disturb Loke Yew’s possession of the land.
Upon registration Port Swettenham asserted title to the whole of
the land to the exclusion of Loke Yew. The issue before the court
was whether Port Swettenham’s title was obtained by fraud and
thus defeasible to the interest of Loke Yew.
• The Privy Council found for Loke Yew and that Port Swettenham
acquired title through fraud. Port Swettenham had more than mere
knowledge of Loke Yew’s unregistered interest. The assurances it
made to Eusope had been made to induce Eusope to execute the
transfer of the land and amounted to a deliberate plan to deprive
Loke Yew of his interest.
(c) Cameron Stewart 2009
Timing of Fraud
• Mason CJ and Dawson J in Bahr v Nicolay (No
2) have suggested that post-registration
conduct by the registered proprietor may be
considered on the issue of whether there is
fraud by the registered proprietor. This
approach has been endorsed by Wood J in
Snowlong Pty Ltd v Choe (1991) 23 NSWLR 198
at 212, but rejected by Owen J in Conlan v
Registrar of Titles [2001] WASC 201 at [168].
(c) Cameron Stewart 2009
Timing of Fraud
• However, whether post-registration conduct is
relevant for the fraud exception is to a large
extent an academic question. This is so
because post-registration conduct that would
amount to fraud will be caught under the in
personam exception to indefeasibility which
we shall examine below in detail. This is well
illustrated by the decision in Bahr v Nicolay
(No 2), which we shall examine in detail under
the in personam exception.
(c) Cameron Stewart 2009
Fraud against whom?
• Fraud must be shown to have been practised
against the person who seek relief
• Munro v Stuart (1924) 41 SR(NSW) 203 - fraud
by a registered proprietor against a party
other than that seeking to assert an interest
against the registered proprietor does not
bring the case within the fraud exception to
s.42 of the Real Property Act
(c) Cameron Stewart 2009
Fraud against whom?
• Efspratiou v Glantschnig [1972] NZLR 594: Mr G was the registered
proprietor of a house in which he lived with his wife Mrs G. Mrs G
had paid for half the house, but was not listed on the title. On basic
trust law this means that she had a beneficial interest in the
property and that Mr G was holding half of the property on trust for
her. This meant that Mrs G had an unregistered equitable interest in
the property under a trust. The marriage broke down and Mrs G
went to court and obtained a court order barring Mr G from the
house. Mr G upon receiving the injunction, got in touch with a
friend of his who was a real estate agent and instructed him to sell
the house for ₤5,000 which was ₤3,000 below market value. A
buyer was located within a couple of hours and this was Mr E. Mr E
agreed to buy the house, site unseen for ₤5,000 and settlement
occurred the next day. Mr E was registered as owner of the house
some three days after the injunction had been issued. Mr G
immediately spent the ₤5,000.
(c) Cameron Stewart 2009
Fraud against whom?
• When Mr E sought to exercise his rights as registered proprietor, Mrs G
found out and was not happy. She made an application to have the
transfer to E set aside, arguing that E did not have indefeasible title
because of his own fraud. In this case the fraud of Mr G was clear. He had
wilfully breached the trust that Mrs G had a half share in the house. But in
order to establish fraud you need to show the registered proprietor had
committed the fraud. Had Mr E been fraudulent? The court said that in
this case Mr E was “a party to the whole scheme, whereby to his
knowledge the wife was to be deprived of an equitable interest in the
land”. Therefore, in this case the speed of the sale, the low market price,
and the lack of inspection, all demonstrated that Mr E had knowledge of
Mr Gs’ fraud and behaved dishonestly in agreeing to go along with the
scheme. Therefore, Mr Es’ title was defeasible because of the fraud and
the court ordered that his registered title would be held on trust for a half
share for Mrs G, just as Mr Gs’ title had been. So his interest then became
subject to her unregistered interest.
(c) Cameron Stewart 2009
Fraud against whom?
• Australian Guarantee Corporation v De Jager [1984] VR
483: A husband and wife were jointly registered as the
registered proprietors of a property. The husband arranged
a mortgage over the property with AGC but his wife refused
to sign the mortgage. Someone then forged her signature
on the mortgage docs (it was not clear who). An
intermediary of the husband took the mortgage docs to
AGC. When he got there, AGCs employee noted that the
signatures on the document were not attested. The
intermediary said that he had witnessed the husband’s
signature but not the wife’s – but he attested both in front
of AGC’s employee anyway. The mortgage was registered,
the husband defaulted in repayment of the loan and the
mortgagee proceeded to exercise the power of sale.
(c) Cameron Stewart 2009
Fraud against whom?
The question for the court was: could the wife stop the
sale? Was the title of the mortgagee under the mortgage
defeasible against the wife? The wife could only stop the
sale in this case if she could show an exception to the
mortgagee’s indefeasible title to the mortgage. She argued
the fraud exception: the fraud of the mortgagee in lodging
the documents of mortgage in which they had made a
fraudulent representation to the Registrar General. On this
ground the court held that the mortgagee’s title was
defeasible as against the wife because the bank
represented to the Registrar General that the wife’s
consent to the mortgage had been witnessed when they
knew that it hadn’t. Without that attestation of witness,
the RG would not have registered the mortgage.
(c) Cameron Stewart 2009
Fraud against whom?
• In Russo v Bendigo Bank Ltd [1999] 3 VR 376
• A false attestation of a signature on a mortgage as having
been signed in her presence made by a clerk employed by a
solicitor acting for a bank was held not to be fraud by the
• However, in that case, the clerk gave evidence, and the
Court held that it was not shown that she knew the
significance of her attestation in the process of registration
or even that the mortgage was to be submitted for
registration. The Court also said that it was not shown that
the clerk's attestation had the element of dishonesty or
moral turpitude required for fraud.
(c) Cameron Stewart 2009
Fraud against whom?
• However, if a registered proprietor has obtained
registration by a fraud practised on the RegistrarGeneral, that will be fraud for the purposes of s.42
• National Commercial Banking Corporation of Australia
Ltd v Hedley (1984) 3 BPR 9477 (overturned but on
another point) there was fraud by a bank where an
acting manager had falsely certified that a mortgage
was signed in his presence by a mortgagor, knowing
that this mortgage was to be submitted to the
Registrar-General for registration
(c) Cameron Stewart 2009
Fraud against whom?
• Grgic v ANZ Banking Group Ltd (1994) 33 NSWLR 202 a son had carefully practised signing his father's name
for many years and signed his father's name to a
mortgage and had it witnessed by a bank officer.
• Powell JA, with whom Meagher and Handley JJA
agreed, said at 222 that the fact of the bank officer's
"attestation could not, in my view, constitute statutory
fraud unless it could be shown, either, that he knew
that" the person who signed the mortgage was not in
fact the registered proprietor or else "he was acting
recklessly without caring whether or not" the
mortgage was being signed by the registered
(c) Cameron Stewart 2009
Fraud against whom?
• In Bank of South Australia Ltd v Ferguson (1998) 192 CLR 248, 256,
the High Court said that it must be remembered that:
• "(i) statutory fraud embraces less, not more, than a species of fraud
which, at general law, founds the rescission of a conveyance; and
• (ii) statutory fraud is not itself directly generative of legal rights and
obligations, its role being to qualify the operation of the doctrine of
indefeasibility upon what would have been the rights and remedies
of the complainant if the land in question were held under
unregistered title."
• Here the internal bank document that was forged was designed to
speed up the process within the bank and it had no effect on the
mortgagor. The High Court held that the matter of forgery was
irrelevant to statutory fraud.
(c) Cameron Stewart 2009
Fraud against whom?
• Davis v Williams [2003] NSWCA, Young CJ in Eq:
110 Even though anyone who attests a dealing under the Torrens
system falsely is in one sense committing fraud against the Registrar
General, the cases show that that is not enough. It will be enough if
an officer of the interested party which has become registered
knowingly or recklessly certifies so that the registration is effected
(De Jager, Hedley, Sansom). It will not be enough if some officer of
the person who obtains registration without any moral turpitude or
intention of depriving a person of an interest in land makes a false
attestation (Russo). In all cases it must be shown that there was
fraud by the person becoming registered or its agent in obtaining
registration so that an interest which would otherwise take priority
over that interest has been defeated.
(c) Cameron Stewart 2009
Notice of an earlier interest?
What about notice of an earlier interest?
Under old system that would be enough for
actual or constructive fraud if you then
attempted to register and interest.
Under RPA s 43(1) – notice does not have
this effect and is taken to be outside the
definition of “fraud” for the RPA – section
takes effect on registration, not before
(c) Cameron Stewart 2009
Notice of an earlier interest?
Mere prior knowledge of an unregistered interest is not of
itself fraud: Oertel v Horden (1902) 2 SR (NSW)(Eq) 37. It is
also the case that knowledge that the earlier unregistered
interest will be defeated by registration is insufficient of itself
to amount to fraud by the registered proprietor: Bahr v
Nicolay (No 2), per Brennan J.
Mere prior knowledge of an unregistered interest is not of
itself fraud: Mills v Stockman (1967) 116 CLR 61, at 78
(c) Cameron Stewart 2009
Notice of an earlier interest?
This point is in fact confirmed by the provisions of s. 43 of the
Real Property Act which states that ‘the knowledge of any
trust or unregistered interest’ on the part of the registered
proprietor ‘shall not of itself be imputed as fraud’.
However, with respect to s. 43, the courts have interpreted it
in such a way that the section only becomes operative upon
registration: IAC (Finance) Pty Ltd v Courtenay (1963) 110 CLR
550 at 572.
Until that time a purchaser is affected by notice of
unregistered interests. However, once registered the fact of
mere notice of an unregistered interest will not affect the
indefeasible title of the purchaser.
(c) Cameron Stewart 2009
Notice of an earlier interest?
What then is the dividing line between
cases of mere notice of earlier interest
(which will not give rise to fraud on
registration) and cases where notice is
coupled with other factors (which do
give rise to a finding of fraud)?
(c) Cameron Stewart 2009
Notice of an earlier interest?
• Wicks v Bennett (1921) 30 CLR 80 which is another example
of the fraud of another person. A group of tenants took a
lease over land for 12 years at a fixed rent but they didn’t
register that lease on the folio and the tenancy was not an
express exception to indefeasible title. So this meant that
they had an unregistered interest in the land under their
fixed term lease. One of the tenants, Bennett, had a
dispute with the rest of them. After that dispute he agreed
with the property owner to buy the fee simple. Bennett the
former tenant became the registered proprietor and took
over as landlord with respect to the lease. Bennett tried to
raise the rent on the property, but the other partners
resisted. Bennett sold the land to Mr Diplock at a very good
(c) Cameron Stewart 2009
Notice of an earlier interest?
• When Mr Diplock inspected the land he had a conversation with Mr Wicks,
one of the partners, who said that “the land was held by the partners
under an agreement.” Diplock became the registered proprietor and tried
to raise the rent. When the tenants refused to pay the increased rent he
served an eviction notice. Question in this case: was Diplocks title
defeasible with respect to the unregistered lease? The partners raised
Diplocks conversation with Wicks as evidence of fraud. In court it was held
that this evidence did not establish fraud. The court said that you need to
show more than just notice or disregarding of rights. Instead you need to
be able to show Diplocks personal dishonesty, that Diplock knew what
Bennett was doing and was involved in making it happen. The court said
that there was no evidence that Diplock knew who the syndicate members
were, or even that Bennett was a partner. He could have believed that
Bennett was acting on the authority of the partners, or that it was a short
term lease. So in this case it was held that there was no evidence that
Diplock was dishonest in the sense of knowing about Bennetts’ conduct
and participating in that conduct. Therefore, Diplock’s title was
(c) Cameron Stewart 2009
Notice of an earlier interest?
• The decision in this case can be contrasted to R M Hosking
Properties Pty Ltd v Barnes [1971] SASR 100 where Barnes had
an unregistered interest 2 year lease with an option to renew it
for a further term of 2 years.
• During the term of the lease Hosking purchased the property
from the original landlord Hosking knew of the lease and agreed
to accept title subject to the occupation of the land by Barnes.
• When Barnes sought to exercise the option Hosking gave him a
notice to quit the property, stating that he (Hosking) was not
bound by the unregistered lease.
(c) Cameron Stewart 2009
Notice of an earlier interest?
• Hosking prevailed in court. The court ruled that, although
Hosking knew of the unregistered interest, that knowledge was
not enough to establish fraud. Unlike the case of Loke Yew v Port
Swettenham, there was no proven plan of dishonesty or fraud,
and no evidence that the original landlord had been induced to
sign the transfer to Hosking on the basis of Hosking’s
(c) Cameron Stewart 2009
Exceptions to indefeasibility
- Fraud
Fraud where:
Registered proprietor has been given notice of
unregistered interest and then assures that the
interest will be protected and then registers
seeking indefeasibility: Loke Yew;
Registered proprietor receives notice and lulls
unregistered interest holder into not
registering, then seeks to claim indefeasibility:
Heggies Bulkhaul Ltd v Global Minerals
Australia Pty Ltd (2003) 59 NSWLR 312;
(c) Cameron Stewart 2009
Exceptions to indefeasibility
- Fraud
Fraud where:
Notice and deliberate frustration of prior
interest holder’s registration Costin v Costin
(1994) NSW ConvR 55-715;
Actual knowledge of a fraud and then an
attempt to register to defeat the defrauded
party (NOT Constructive knowledge).
(c) Cameron Stewart 2009
Exceptions to indefeasibility
- Fraud
Not fraud where:
You have been given express notice of
unregistered interest and then register to
defeat that interest s43;
You have been given notice and believe that
unregistered interest is enforceable and
discover on registration that it is not: Bahr v
Nicolay (No 2);
You register with the express aim of defeating a
possible interest, which may arise from pending
litigation: Waimiha Sawmilling Co Ltd v Waione
Timber Co Ltd [1926] AC 101.
(c) Cameron Stewart 2009
The rule in Barnes v Addy
• Knowing receipt of trust property
• In Barnes v Addy (1874) 9 Ch App 244, Lord Selborne LC said
at 251–2:
• Those who create a trust clothe the trustee with a legal power and
control over the trust property, imposing on him a corresponding
responsibility. That responsibility may no doubt be extended in
equity to others who are not properly trustees, if they are found
either making themselves trustees de son tort, or actually
participating in any fraudulent conduct of the trustee to the injury
of the cestui que trust. But, on the other hand, strangers are not to
be made constructive trustees merely because they act as the
agents of trustees in transactions within their legal powers,
transactions, perhaps of which a court of equity may disapprove,
unless those agents receive and become chargeable with some part
of the trust property, or unless they assist with knowledge in a
dishonest and fraudulent design on the part of the trustees.
(c) Cameron Stewart 2009
Knowing receipt
In cases of knowing receipt the plaintiff must
• (1) the defendant has received trust moneys;
• (2) the defendant knew the moneys paid were
trust moneys; and
• (3) the defendant knew of circumstances
which made the payment a misapplication of
trust moneys.
(c) Cameron Stewart 2009
Knowing receipt
• For a person to have ‘receipt’ requires him or
her to have possession of the trust property
for his or her ‘own use and benefit’
• Banks will not generally be treated as having
received of funds placed in accounts, unless
they apply the proceeds to the reduction of an
overdraft, or for security: Evans v European
Bank Ltd [2004] NSWCA 82.
(c) Cameron Stewart 2009
Knowing receipt
• In Baden v Societe Generale pour Favoriser le
Developpment du Commerce et de L’Industrie en
Franc SA [1992] 4 All ER 161 at 235, Peter Gibson J
stated that there were five categories of knowledge
in a recipient that were relevant to the decision to
impose a constructive trust.
(c) Cameron Stewart 2009
Knowing receipt
They were:
• (1) actual knowledge;
• (2) wilfully shutting one’s eyes to the obvious;
• (3) wilfully and recklessly failing to make such
inquiries as an honest and reasonable person would
• (4) knowledge of circumstances which would indicate
the facts to an honest and reasonable person;
• (5) knowledge of circumstances which would put an
honest and reasonable person on inquiry.
(c) Cameron Stewart 2009
Knowing receipt
The first three categories are often collectively
described as ‘actual knowledge’ while the last
two are jointly referred to as ‘constructive
The courts appear to be split between acceptance
of all five categories or with limiting liability to
those cases of actual knowledge. It has been
argued that, in cases of receipt, the recipient
gets the full advantage of the breach of trust
and, as a result, the liability should be strict
(c) Cameron Stewart 2009
Knowing receipt
In Australia, it appears that knowing receipt will
be established in cases 1 to 4 of the Baden
categories, but confusion exists as to whether
the category 5, negligent failure to inquire,
should be included
Consul Developments Pty Ltd v DPC Estates Pty
Ltd (1974) 132 CLR 373
(c) Cameron Stewart 2009
The Bell Group Ltd (in liq) v Westpac Banking
Corporation (No 9) [2008] WASC 239
Owen J at [4748] The resulting law, as I apprehend it, is that for a third party to be
held liable for knowing receipt:
(a) there must be a 'trust';
(b) the trustee must have misapplied 'trust property';
(c) the third party must have received trust property;
(d) at the time of receiving the trust property, the third party must have known
of the trust and of the misapplication of the trust property; and
(e) the third party will be taken to have 'known' in the relevant sense if the third
(i) has actual knowledge of the trust and the misapplication of trust property; or
(ii) has deliberately shut his or her eyes to those things; or
(iii) has abstained in a calculated way from making such enquiries as an honest
and reasonable person would make, about the trust and the application of the
trust property; or
(iv) knows of facts which to an honest and reasonable person would indicate the
existence of the trusts and the fact of misapplication.
(c) Cameron Stewart 2009
Knowing receipt and Torrens
Knowing receipt principles have caused
difficulties for the courts when applied to
interests in land under the Torrens system. In
the Torrens system registered interests can be
set aside if they have been procured by fraud,
where fraud refers to actual fraud, personal
dishonesty or moral turpitude
(c) Cameron Stewart 2009
Knowing receipt
In Macquarie Bank Ltd v Sixty Fourth Throne
Pty Ltd [1998] 3 VR 133, a majority of the
Victorian Court of Appeal decided that a
registered mortgage under the Torrens system
could not be set aside in a situation where the
mortgagee acted honestly but with
constructive knowledge that the mortgage
document was a forgery, in breach of trust
(c) Cameron Stewart 2009
Knowing receipt
But what if the registered proprietor has actual
knowledge that their interest came via breach of
trust? On this issue the authorities are split. In
Tara Shire Council v Garner [2003] 1 Qd R 556, a
majority of the Queensland Court of Appeal
accepted that knowing receipt could apply in
circumstances where a registered properietor
had actual knowledge that the property was trust
property and that the registered transaction was
a breach of trust.
(c) Cameron Stewart 2009
Knowing receipt
A similar approach was taken in Koorootang Nominees Pty Ltd v
ANZ Banking Group Ltd [1998] 3 VR 16 at 105, although that
case is distinguishable because it involved actual dishonesty on
the part of the registered proprietor, in addition to knowing
The plaintiff was a trustee company and the second defendant,
Jeffries, was its managing director. Jeffries' own businesses were in
financial difficulties and owed money to ANZ. Jeffries informed ANZ
that the plaintiff was the trustee of a non-active trust and
consequently security was taken over the trust property. But the
bank had notice that this was not correct; the plaintiff was the
trustee of merged family estates and held the property on trust for
the beneficiaries. Hansen J found that the banks had actual
knowledge that the property was trust property and were wilfully
blind to the question whether the trust property had been
misapplied (which therefore also constituted actual knowledge).
(c) Cameron Stewart 2009
Knowing receipt
In contrast, the Full Court of Western Australia
rejected this use of knowing receipt principles in
LHK Nominees Pty Ltd v Kenworthy (2002) 26
WAR 517. Anderson, Steyler and Pullin JJ all
found that, absent ‘Torrens-style’ fraud,
knowledge of a breach of trust would not defeat
a registered interest, and knowing receipt
principles could not be applied to set aside a
registered interest.
(c) Cameron Stewart 2009
Knowing receipt
Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22
Building development in a joint venture whic stalled due to
lack of land
One party bought up more land and registered it as owner
Claim of breach of fiduciary duty and Barnes v Addy
HC finds that no there was no fiduciary relationship and
that no trust property was received
Obiter: HC says that knowing receipt cannot be applied
apart from types of Torrens fraud
(c) Cameron Stewart 2009
Knowing receipt
"Fraud" in s 42(1) means "actual fraud, moral
turpitude.” The findings above negate actual fraud or
moral turpitude not only on the part of Mrs Elias and
her daughters, but also on the part of Mr Elias; and
Lesmint is in the same position as Mr Elias. Even if
the Court of Appeal's factual findings about
disclosure were not reversed, Mr Elias's nondisclosures cannot be described as amounting to
"actual fraud", and the other parties are in no worse
(c) Cameron Stewart 2009
Fraud and Agency
• A final aspect of fraud to be noted relates to
fraud by the agent of the registered proprietor. If
the fraud by the agent is within the scope of the
agent’s actual or apparent authority, on ordinary
agent principles that fraud binds the registered
proprietor, even if the registered proprietor was
innocent and the agent was acting for his or her
own fraudulent purposes. If the agent’s fraud is
not within his or her actual authority then the
registered proprietor is not affected by that
fraud: Schultz v Corwill Properties Pty Ltd (1969)
90 WN (NSW) (Pt 1) 529.
(c) Cameron Stewart 2009
Fraud and Agency
• Mrs Schultz invested money with a Mr Galea, solicitor,
who lent it on mortgage to Corwill Properties Pty Ltd.
• Mr Galea was in fact the controller of that company.
• Mr Galea used Mrs Schultz's money for his own
purposes, and without authority he had affixed
Corwill's seal to the memorandum of mortgage over its
land and forged his mother's signature as a co-director.
The mortgage was registered.
• L W Street J held that Mr Galea was not authorised by
the company to commit the fraud, that fraud did not
affect the registered proprietor. Accordingly Mrs
Schultz's suit failed
(c) Cameron Stewart 2009
Fraud and Agency
• In Dollars & Sense Finance Ltd v Nathan [2008] 2 NZLR
557, a mortgage was registered in favour of a lender as
security for a loan that it had made to a borrower. The
borrower had forged the signature of the mortgagor, in
circumstances where the lender had forwarded the
relevant documentation to the borrower to obtain the
signature of the mortgagor. In these circumstances, the
New Zealand Supreme Court held that the borrower
had acted as agent for the lender and that the forgery
was an act done within the scope of the agency, even
though the lender had no knowledge of the forgery
and the forgery was done exclusively for the benefit of
the lender.
(c) Cameron Stewart 2009
Fraud and agency
• Davis v Williams [2003] NSWCA 371 - Mr and Mrs Williams
purchased a house and land together as joint tenants in 1956.
The property was owned by the Housing Commission and was
to be registered in the Williams' name once payment was
• In 1969 the couple separated, but never formally divorced.
The house was fully paid off in 1987.
• In 1993 Mr Williams saw a solicitor, who arranged for a signed
transfer from the Commission in favour of the Williams as
joint tenants.
(c) Cameron Stewart 2009
Fraud and agency
• Mrs Williams' whereabouts were unknown and attempts were
not made to contact her.
• The registration was effected by documents that had, without
the knowledge of any other parties, been changed by the
registration clerk. She changed the registration from joint
tenancy to tenancy in common
• Later Mrs Williams claimed the whole house and said that her
interest had been affected by fraud
• Did the registration of the transfer effect an indefeasible
tenancy in common?
(c) Cameron Stewart 2009
The clerk
• Hodgson JA at [25] - For my part, however, I do not see that as
being, in this case, a requirement distinct from those I have already
raised. If the registration clerk made a representation to the
Registrar-General, knowing it to be false in a material respect, and
intending that the Registrar-General be induced by the
representation to act in a way materially different from what
otherwise would have been done, then I think that would be
sufficient dishonesty or moral turpitude, irrespective of whether
she had any intention that anyone be disadvantaged by this. If a lie
is material in respects such as these and understood to be so, I do
not think that lack of intent to harm can justify treating it as a
"white lie" and as excluding dishonesty or moral turpitude.
• On the facts there was not enough to find knowledge of dishonesty
(c) Cameron Stewart 2009
The solicitor
• 32 Questions concerning the authority of agents
arise in various circumstances. One area concerns
an agent's authority to make a contract binding
on the principal. Another concerns the vicarious
liability of employers for wrongful acts committed
by their employees. And another concerns a
vicarious liability of persons for wrongful acts
committed by other persons who are not their
employees. This case seems to fall within the last
area: the wrongful act was committed, not by an
employee of the registered proprietor but by a
contractor engaged by his solicitor
(c) Cameron Stewart 2009
The solicitor
• 34 In the case of alleged agents who are not employees, it appears
that a person may be liable as principal on a similar basis to an
employer, if the wrong-doer was carrying out some activity as the
principal's authorised representative in dealing with a third party: ...
A person may also be liable as principal where the wrong-doer is
carrying out a task that the principal has undertaken to do, at least
where the wrong-doing is merely negligent: ...If a person commits
an unauthorised wrong-doing while acting as the authorised
representative of another in dealing with a third party, then it
seems that much the same question would arise as in the case of
an employee, namely whether the connection between the wrongdoing and the authorised acts is sufficiently close to regard the
wrongful act as being within the scope of the engagement. In both
cases, the question whether the wrong-doing was for the benefit of
the wrong-doer or the alleged principal will be a relevant, but not
on its own conclusive, factor.
(c) Cameron Stewart 2009
The solicitor
• No benefit to the RP
• 40 In this case, in substance the only "benefit" of the fraud to Mr.
Williams is that he obtained registration as tenant in common
through the registration of one document rather than two, with a
relatively trivial saving of government charges. Mr. Williams cannot
give up this "benefit" without also giving up what he would have
obtained in the absence of fraud, because, for reasons discussed by
Young CJ in Eq., the second transfer cannot now be registered. In
my opinion, the "benefit" accepted by Mr. Williams is insufficiently
substantial, or insufficiently a matter of choice for Mr. Williams, to
require that he be considered answerable for the fraud of his agent.
According, if I had considered that the registration clerk was guilty
of fraud, I would not have found Mr. Williams to be answerable for
(c) Cameron Stewart 2009