Date: Tue, 29 May 2007 10:15

From: Duncan Sheehan

Subject: Say-Dee in the High Court of Australia

I am not entirely sure I follow the HCA on indefeasibility, which may just be my being English and not knowing the Torrens system, or it may be my shocking ignorance of something else.

Whatever we may think of the NSWCA on whether knowing receipt is strict liability or not, they imposed at the end of the day a constructive trust. On the basis that that's a real trust as it were, I can see that it falls with section 42(1) NSW Real Property Act that the HCA

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.

Which begs two easy (and maybe stupid) questions - 1. can we register trust interests in some way under Torrens, and 2. are there no rectification provisions?

Nonetheless that's fine; seems a bit harsh to my eyes, but there's an insurance fund available to ameliorate any hardship. If, however, knowing receipt generates a constructive trusteeship of the "I know you're not really a trustee, but I'm going to treat you as it you were one" variety, is that really an estate or interest under section 42? Presumably a successful claim (had there been one) for dishonest or knowing assistance would not have been defeated, despite being described in terms of constructive trusteeship. What if Mrs Elias and her daughters no longer had the land, but were prima facie liable for knowing receipt, would the indefeasibility provisions defeat the claim - we're clearly not asking for a proprietary right here, just a personal claim to account.

I hope those questions made some sense; I'd welcome some attempt to clear things up for me.

Duncan

Dr Duncan Sheehan
Senior Lecturer in Law
Director of Research
Norwich Law School
University of East Anglia
Norwich NR4 7TJ
United Kingdom

-----Original Message-----
Sent: Tuesday, May 29, 2007 1:36 AM
To: James Edelman; 'Kit Barker' 
Subject: RE: ODG: Say-Dee in the High Court of Australia  

Dear James

The analysis of the indefeasibility point in the NSWCA decision was frustratingly brief - stemming from the amazing fact that the point apparently was not even pleaded at first instance! (See [2005] NSWCA 309 at [237].) One can only guess that, since it was not thought that Mr Elias could rely on it, and Mr Elias was running the litigation, this possible separate defence available to Mrs Elias and the girls was not really considered.

But as I read their reasons for holding that Mrs Elias etc could not rely on the protection of indefeasibility, they went back to the fact that they held the interests on a constructive trust because "they have benefited from and are in receipt of an interest in the property the acquisition of which constituted a breach by their husband and/or father of his fiduciary duties" - para [238]. So this was not based on any personal fault by the wife and daughters. The only basis for the constructive trust was presumably either the imputation of fault from Mr Elias as their "agent" - [215], or a non-fault-based "restitution" remedy which applied because they could not show they were purchasers for value - [217]. The High Court, of course, rejected both these reasons - Mr Elias was not the agent of his wife and children - [2007] HCA 22 at [124]-[125]; in any case they paid value - [191].

To get back to the more general indefeasibility point: suppose I transfer my property to "Harry" instead of "Larry". Larry has paid the money but somehow Harry gets the documents. We have to pile up a few improbabilities here but we can do it - Harry, delighted at the gift, somehow gets the memorandum of transfer, and my duplicate certificate of title, and lodges it all with the Registrar-General and becomes registered proprietor. Should Larry be able to challenge his title? Of course one wants to say that morally he should; but it seems to me that what the High Court is supporting here is a view that "mere notice" of someone else's rights will not amount to an exception to indefeasibility. It will be different if along the line Harry has told lies - that should amount to fraud, and in most conceivable situations like this one would imagine those lies would have been told. But if somehow he has managed to scrape through without doing so, then I think the better view is that the Torrens system would uphold his title. The "policy" reason for this is that the nature of the Torrens system demands that a line be drawn somewhere where we recognise that sometimes people will lose their title, and the system has an Assurance Fund which will provide monetary compensation to Larry.

This, it seems to me, is what Tadgell JA in Macquarie Bank v Sixty-Fourth Throne is saying when he is quoted extensively at para [196] of the High Court judgement: "[T]o recognise a claim in personam against the holder of a mortgage registered under the Transfer of Land Act, dubbing the holder a constructive trustee by application of a doctrine akin to 'knowing receipt' when registration of the mortgage was honestly achieved, would introduce by the back door a means of undermining the doctrine of indefeasibility which the Torrens system establishes".

This in itself doesn't deny the existence or otherwise of a restitution-based claim at common law, but simply says that the Torrens system won't recognise this as the type of in personam claim that can defeat a registered proprietor.

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