Critchley v Collins

Critchley v Collins
[2004] SASC 10
Civil

GRAY J. Helena Agnes Collins purchased a house property in suburban Adelaide. The monies paid at settlement allowing for stamp duty and adjustments totalled $388,491.64 (the settlement sum). Ms Collins obtained an indefeasible title. There was no mortgage.
Complications arose some weeks after settlement when it was discovered by the broker, Michael Henry Critchley, that Ms Collins had only provided $5000.00 towards the settlement sum. It transpired that the balance of the settlement sum had come from monies held in Mr Critchley’s trust account on behalf of unrelated third parties. It transpired, as appears later in these reasons, Mr Critchley’s office accepted an assertion by Ms Collins’ agent, Robert Wayne Collins, that the balance of the monies required for settlement had been electronically transferred on behalf of Ms Collins to Mr Critchley’s trust account. This had not in fact occurred.
The Proceedings
Once Mr Critchley understood that the balance of the settlement sum had come from monies that he held on trust for third parties, proceedings were issued. Mr Critchley sought a declaration that he and Ms Collins held an interest in the property as tenants in common in proportions reflecting their contributions to the settlement sum. Mr Critchley alleged that Ms Collins only provided $5000 toward the settlement sum. It was said that through the fraud of her agent, Mr Collins, trust beneficiaries of Mr Critchley paid the major portion of the settlement sum. It was claimed that a resulting trust arose. Mr Critchley applied for immediate relief under Supreme Court Rule 25.02.[1] He sought an order that the property be sold at public auction and the proceeds divided. Mr Critchley claimed that Mr and Ms Collins were liable for any shortfall suffered by Mr Critchley.
[1] 25.02 (1) … the plaintiff may after the time of issuing his summons take out an application for immediate relief.
Initially urgent ex parte injunctive relief was granted:
[R]estraining Helana Agnes Collins whether by herself, her servants or agents from selling, transferring, charging, encumbering, leasing or otherwise dealing with the [property];
[R]estraining Robert Wayne Collins whether by himself, his servants or agents from selling, transferring, charging, encumbering, leasing or otherwise dealing with the [property].
Mr Collins appeared on the adjourned hearing and sought the discharge of the injunctive order. He filed an affidavit alleging that:
-Ms Collins’ funds had been transferred into Mr Critchley’s trust account;
-Ms Patterson, an employee of Mr Critchley, and Mr Critchley had confirmed to Mr Collins personally that Ms Collins’ funds had arrived and that settlement would proceed;
-that Mr Critchley’s claim was vexatious and had a tendency to cause prejudice and embarrassment to Mr and Ms Collins.
Ms Collins was present in court. Mr Collins informed the court that Ms Collins had received a workers compensation settlement, that monies were held on her behalf by the Workers Compensation Tribunal, that he had arranged for the balance of the settlement sum to be forwarded to Mr Critchley’s trust account from this source.
This application was refused. Orders were made extending the injunctive relief and listing the immediate relief application for hearing.
Findings of Fact
At the hearing for immediate relief counsel for Mr Critchley tendered a number of affidavits.[2] Mr Collins did not attend the hearing. Ms Collins attended but was unrepresented. Ms Collins did not oppose the tender of the affidavits. She gave sworn evidence. She was not cross-examined.
[2] Counsel Mr Critchley relied on the following affidavit material:
The affidavit and other evidence allow the following findings to be made:
-Mr Critchley is a registered conveyancer and broker.
-Ms Collins and Mr Collins were once married. At the time of the purchase of the house property they were no longer married.
-the house property, being the property at 59 Northgate Parade, Northgate comprised in certificate of title register book volume 5769 folio 468 was sold by Mr and Mrs LeCornu to Ms Collins. Settlement was to take place on 22 August 2003.
-Mr Collins held a power of attorney permitting him to act for Ms Collins with respect to the purchase of the house property.
-on 26 June 2003 Ms Collins paid a deposit of $5,000.00 with respect to the purchase of the house property.
-on 18 August 2003 Mr Critchley sent a statement to the purchaser specifying the balance of the purchase price to be provided at settlement in the amount of $383, 491.64.
-on 19 August 2003 Mr Collins advised Mr Critchley by letter that he would be handling the purchase of the house property and related negotiations on behalf of Ms Collins. The letter was signed by Ms Collins.
-on 21 August 2003 Olivia Tonkin, an employee of Mr Critchley, was advised by Mr Collins that Ms Collins’ funds for settlement had been electronically transmitted to the Critchley trust account.
-no funds were electronically transferred by or on behalf of Mr or Ms Collins to the Critchley’s trust account.
-Mr Critchley failed to undertake the basic checks to ensure that the funds had been received into his trust account.
-On 22 August 2003 settlement occurred. Monies of third parties held in trust by Mr Critchley together with Ms Collins’ $5,000 deposit were used to pay the settlement sum.
-The transfer was executed by the vendors, registered and the duplicate certificate of title forwarded to Mr Critchley and then to Ms Collins. The duplicate certificate of title disclosed Ms Collins as the sole registered proprietor.
As earlier observed, Mr Collins did not appear at the hearing for immediate relief. Ms Collins appeared for herself assisted by her daughter. Ms Collins was highly critical of Mr Critchley’s conduct. However, she accepted the accuracy of the facts contained in the tendered affidavits. Ms Collins gave sworn evidence that Mr Collins had lied to her. She said that Mr Collins had made fraudulent misrepresentations to Mr Critchley. She said she had been misled by Mr Collins.
Mr Critchley’s auditor examined the trust account records and confirmed that no money had been received from either Mr or Ms Collins. Affidavit evidence from Mr Critchley’s bankers disclosed no records of funds having been received from Mr Collins or Ms Collins. Despite Mr Collins’ assertions to the contrary, affidavit evidence from the Worker’s Compensation Tribunal confirmed that no compensation monies were held to the account of Ms Collins or had been transferred to or at the direction of Mr or Ms Collins. The assertions made by Mr Collins were dishonest and fraudulent[3].
[3] Briginshaw v Briginshaw (1938) 60 CLR 336, Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449
The evidence also allows the finding to be made that, of the settlement sum of $388,491.64, $5,000 was paid by Ms Collins and the balance of the settlement sum of $383,491.64 was paid from monies held by Mr Critchley on trust for unrelated third parties.
Fraud as an Exception to Indefeasibility of Title
Pursuant to section 69 of the Real Property Act 1886 (SA) Ms Collins as the registered proprietor of 59 Northgate Parade Northgate held indefeasible title to the property. However, indefeasibility is not an absolute principle. An express statutory exception to the principle is fraud by the registered proprietor or his or her agent.[4] Section 69I of the Real Property Act provides:
The title of every registered proprietor of land shall, subject to such encumbrances, liens, estates, or interests as may be notified on the original certificate of such land, be absolute and indefeasible, subject only to the following qualifications:
Fraud
I. In the case of fraud, in which case any person defrauded shall have all rights and remedies that he would have had if the land were not under the provisions of this Act: Provided that nothing included in this subsection shall affect the title of a registered proprietor who has taken bona fide for valuable consideration, or any person bona fide claiming through or under him:
…
[4] See for example Assets Co Ltd v Mere Roihi [1905] AC 176 at 210
Not all species of fraud constitute an exception to indefeasibility. In Assets Co Ltd v Mere Roihi[5] the Privy Council observed:
[Fraud means] actual fraud, that is, dishonesty of some sort, not what is called constructive or equitable fraud.
[5] [1905] AC 176 at 210
The High Court took a slightly broader view of fraud in Bahr v Nicolay (No 2)[6] but continued to require proof of personal dishonesty by the registered proprietor or his or her agent. Mason CJ and Dawson J referred to the Privy Council’s observations in Assets Co Ltd v Mere Roihi and commented:
These comments do not mean all species of equitable fraud stand outside the statutory concept of fraud. Far from it. In Latec Investments Ltd v. Hotel Terrigal Pty Ltd (In Liquidation) Kitto J held that a collusive and colourable sale by a mortgage company to its subsidiary was a plain case of fraud. According to his Honour "[t]here was pretence and collusion in the conscious misuse of a power", this being a "dishonest course".
[6] Bahr v Nicolay (No 2) (1988) 164 CLR 604 at 614
The decisions in Assets Co Ltd v Mere Roihi[7] and Schultz v Corwill Properties Pty Ltd[8] establish that the indefeasibility of title of a registered proprietor may be impeached even if the proprietor has not been personally fraudulent. This situation will arise where the registered proprietor’s agent has been engaged in or has knowledge of fraudulent conduct. If an agent acts within the scope of actual or apparent authority, then the fraud of the agent becomes the fraud of the principal. In Lloyd v Grace Smith & Co[9] the Court of Appeal observed:
… [I]n the opinion of the Court a principal must be liable for the fraud of his agent committed in the course of his agent’s employment and not beyond the scope of his agency, whether the fraud be committed for the principal’s benefit or not.
This proposition was affirmed by the High Court in Polkinghorne v Holland[10]. Rich, Dixon, Evatt and McTiernan JJ observed:
By associating themselves in a partnership with Harold Holland, the respondents made themselves responsible, as principals are for an agent, for all his acts done in the course of his authority as a partner. That authority was to do on behalf of the firm all things that it is part of the business of a solicitor to do. If, in assuming to do what is within the course of that business, he is guilty of a wrongful act or default, his partners are responsible, notwithstanding that it is done fraudulently and for his own benefit (Lloyd v. Grace, Smith & Co.).
[7] [1905] AC 176 at 210
[8] (1969) 90 WN(Pt 1) (NSW) 529
[9] Lloyd v Grace Smith & Co [1912] AC 716 at 731 per Lord Macnaghten
[10] (1934) 51 CLR 143 at 156 – 157 per Rich, Dixon, Evatt and McTiernan JJ
Starke J observed:[11]
It may be that G. H. Holland set out to and did defraud Mrs. Polkinghorne, but all the partners are liable for the fraud of one of their number, acting in the ordinary course of the business of the firm, though the fraud was committed for his own benefit and not for the benefit of the firm (Lloyd v. Grace, Smith and Co.).
[11] Polkinghorne v Holland (1934) 51 CLR 143 at 169
In the present case it was not suggested that Ms Collins was personally fraudulent. Rather it is clear that it was her agent and attorney, Mr Collins, who engaged in the dishonest and fraudulent act. However, in the circumstances, the consequences of the fraud fall upon Ms Collins.
Resulting Trust
It is a well recognised principle that a registered proprietor holds his or her title to the property subject to the equitable interests he or she creates. In Bank of South Australia v Ferguson[12] Brennan CJ, Gaudron, McHugh, Gummow and Kirby JJ observed:
The [Real Property Act 1886 (SA)] recognises the principle, propounded in an established line of cases dealing with Torrens system legislation, that an equity arising from the conduct of a registered proprietor before or after registration may be enforced against that registered proprietor notwithstanding the indefeasibility of registered titles.
In Tara Shire Council v Garner & Ors[13] Atkinson J noted:
This principle recognises the in personam exception to indefeasibility. As Wilson and Toohey JJ recognised in Bahr v Nicolay [No 2], indefeasibility does not protect a registered proprietor from the consequences of his or her own actions where those actions give rise to a personal equity in another.
[12] (1998) 192 CLR 248 at 255
[13] [2003] 1 Od R 556 at [53]
Resulting trusts arise where one person transfers title to property to another, but retains beneficial ownership of the property in whole or in part.[14] The purpose of a resulting trust is to give effect to the parties’ presumed intention.[15] A resulting trust was described in Dyer v Dyer[16] as follows:
… [T]he trust of a legal estate, whether freehold, copyhold or leasehold; whether taken in the names of the purchasers and others jointly, or in the name of others without that of the purchaser, whether in one name or several; whether jointly or successive, results to the man who advances the purchase-money.
[14] Cossey v Bach [1992] 3 NZLR 612 at 630
[15] Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] 2 All ER 961
[16] (1788) 30 ER 42 at 43 (emphasis omitted)
In Napier v Public Trustee(WA)[17] Aickin J with the concurrence of Stephen, Mason and Murphy JJ, observed:
The law with respect to resulting trusts is not in doubt. Where property is transferred by one person into the name of another without consideration, and where a purchaser pays the vendor and directs him to transfer the property into the name of another person without consideration passing from that person, there is a presumption that the transferee holds the property upon trust for the transferor or the purchaser as the case may be. This proposition is subject to the exception that in the case of transfers to a wife or a child (including someone with respect to whom the transferor or purchaser stands in loco parentis) there is a presumption of advancement so that the beneficial as well as the legal interest will pass. Each of the presumptions may rebutted by evidence.
In Calverley v Green[18] Deane J noted that these principles were so well entrenched as to no longer be the subject of argument.
[17] (1980) 32 ALR 153 at 155
[18] (1985) 155 CLR 242 at 265-267. See also Muschinski v Dodds (1985) 160 CLR 583 at 589-590
Where a resulting trust involving several parties arises, the parties will hold an equitable interest in the property in shares proportionate to their contributions to the total purchase price.[19]
[19] Calverley v Green (1984) 155 CLR 242 at 246
The equitable interest arising in the present case is in the form of a resulting trust in favour of third parties who unknowingly contributed the great majority of the purchase price of the property. It was the fraudulent conduct of Ms Collins’ agent that gave rise to the trust. Ms Collins’ indefeasible title is not protected from the innocent third parties’ equitable interest.
In the present case, the property is held on trust in proportions reflecting the financial contributions of the parties:
5,000.00     interest to Ms Collins who contributed $5,000.00 of the
         388,491.64        settlement sum.
383,491.64        interest to Mr Critchley as trustee for the beneficiaries who
388,491.64provided $383,491.64 being the balance of the settlement sum.
Sale and Partition
Counsel for Mr Critchley sought an order for the sale and partition of the property. By virtue of Part VIII of the Law of Property Act 1936 (SA) this court has jurisdiction to make such an order[20]. Sections 69, 70 and 71 of the Law of Property Act relevantly provide:
69.(1) On any application for partition the court may order a partition of the said land or other property, and may give all necessary or proper consequential directions.
(2) On any such application if it appears to the court that, by reason of the nature of the property, or of the number of the parties interested or presumptively interested therein, or of the absence or disability of some of those parties, or of any other circumstance, a sale of the property and a distribution of the proceeds would be more beneficial for the parties interested than a division of the property between or among them, the court may, if it thinks fit, on the request of any of the parties interested, and notwithstanding the absence, dissent or disability of any others of them, direct a sale of the property accordingly, and may give all necessary or proper consequential directions.
70.On any application for partition, if the party or parties interested individually or collectively, to the extent of one moiety or upwards in the property, request the court to direct a sale of the property and a distribution of the proceeds, instead of a division of the property between or among the parties interested, the court shall, unless it sees good reason to the contrary, direct a sale of the property accordingly, and shall give all necessary or proper consequential directions.
71.On any application for partition, if any party interested in the property requests the court to direct a sale of the property and a distribution of the proceeds instead of a division of the property between or among the parties interested, the court may, if it thinks fit, unless the other parties interested in the property, or some of them, undertake to purchase the share of the party requesting a sale, direct a sale of the property, and give all necessary or proper consequential directions, and in case of such undertaking being given the court may order a valuation of the share of the party requesting a sale in such manner as the court thinks fit, and may give all necessary or proper consequential directions.
[20] Croghan v Grosvenor (1992) 57 SASR 545 at 549
Counsel for Mr Critchley informed the court that steps had been taken to ensure that no beneficiary whose funds had been used in the purchase of the property would be disadvantaged. Mr Critchley undertook that there would be no delay in the payment of trust monies upon beneficiaries request and that there would be full protection of all capital and interest. The Court was informed that arrangements had been made with Mr Critchley’s banker to give effect to this undertaking. These matters were later confirmed by affidavit. Mr Critchley’s undertaking is a relevant consideration in determining the orders to be made regarding the proceeds of the sale.
As earlier observed Mr Collins engaged in dishonest and fraudulent conduct. In reaching this conclusion regard has been had to necessary level of satisfaction for such a finding[21] A copy of these reasons should be forwarded to the Attorney General of South Australia for the consideration of possible criminal proceedings against Mr Collins.
Conclusion
It is appropriate to make declarations and order sale and division of the proceeds as follows:
1.There be a declaration that Mr Critchley and Ms Collins each hold an interest in the land situated at 59 Northgate Parade, Northgate in the State of South Australia and described as Allotment 126 Deposited Plan 54462 in the area named Northgate, Hundred of Yatala, and comprised in Certificate of Title Volume 5769 468 (“the Property”) as tenants in common, in the following proportions:
1.1     Mr Critchley being entitled to the following proportion:
383,49164
388,49164
1.2     Ms Collins being entitled to the following proportion:
5,000.00
388,49164
2.The Property be sold by public auction in accordance with the conditions of sale by auction as approved by the Real Estate Institute of South Australia Incorporated by Mr Nick Hogarth of C. R. Browne & Associates trading as Elders Real Estate Regent Gardens (‘the Agent’), with a reserve price of $360,000.00 and on such other terms as Mr Critchley considers to be reasonable.
3.The costs of the Agent in advertising the property and the improvements for sale be limited to the sum of $5,000.00.
4.If the Property and the fixed improvements thereon are not sold at auction then Mr Critchley shall be entitled to appoint the Agent, or such other registered land agent as Mr Critchley may determine, for 60 days, as the agent of Mr Critchley and Ms Collins, to sell the property at a price no less than $340,000.00 and on such terms as Mr Critchley considers to be reasonable.
5.If the Agent is unable to procure an offer for the purchase of the property which complies with these orders then Mr Critchley may apply to a Master of the Supreme Court of South Australia for approval of such alternative contract for the sale of the property and the fixed improvements by Mr Critchley as the Agent is able to procure.
6.That Mr Critchley is authorised to execute any documents relating to the appointment of the Agent and the sale of the property and the fixed improvements thereon (including a Transfer of the Property by Ms Collins registrable under the Real Property Act) in accordance with these orders.
7.Upon receipt of a request in writing by Mr Critchley to the Registrar of the Supreme Court of South Australia that the duplicate Certificate of Title volume 5769 folio 468 is required for the purposes of a settlement on the sale of the property, the Registrar shall deliver up the duplicate Certificate of Title Volume 5769 Folio 468 to Mr Critchley.
8.Following the sale of the Property and the fixed improvements, the proceeds of the sale, after deduction of all proper expenses (‘the net proceeds’) shall be paid in the following priority as follows:
8.1     Mr Critchley and Ms Collins shall be paid pro rate in the following proportions:
8.1.1   Mr Critchley - the net proceeds x      383,491.64
388,491.64
8.1.2   Ms Collins - the net proceeds x           5,000.00
388,491.64
9.That if the proceeds of sale are insufficient to pay to Mr Critchley the amount of $383,491.64 referred to in paragraphs 8.1 herein, Mr Collins will be liable to pay any shortfall to Mr Critchley.
10.Mr Collins is to pay Mr Critchley’s costs.
11.In the event that Mr Collins does not pay the costs then Mr Critchley is to have access to any surplus from the sale of the property to pay Mr Critchley’s costs as follows:
11.1   of these legal proceedings; and
11.2   incurred in all steps that Mr Critchley has taken to enforce his interest in the Property; and
11.3   incurred by Mr Critchley in the sale of the property.
12.That Ms Collins be entitled to reside in the property until the date of settlement, provided that she:
12.1   keep the premises in good order; and
12.2   not be present during the open inspections.
13.That the injunction ordered by the Honourable Justice Gray dated 31 October 2003 restraining:
13.1          Ms Collins whether by herself, her servants or agents from selling, transferring, charging, encumbering, leasing or otherwise dealing with the property;
13.2   Mr Collins whether by himself or his servants or agents from selling, transferring, charging, encumbering, leasing or otherwise dealing with the property
and extended from 4.00pm on Friday 7 November 2003 until further order be extended until after the distribution of the proceeds of the sale of the property as referred to in paragraphs 8 and 9 herein have finalised.
14.Certified fit for Counsel.
15.Liberty to apply.

(2)The application shall be supported by an affidavit verifying the plaintiff’s claim and exhibiting all relevant documents.

(3) The application shall be returnable not less than two days after service.

Affidavit of Renee Claire Patterson and exhibits sworn 31 October 2003
Affidavit of Renee Claire Patterson and exhibits sworn 6 November 2003
Affidavit of Renee Claire Patterson and exhibits sworn 4 December 2003
Affidavit of Michael Henry Critchley sworn 6 November 2003
Affidavit of Grant Matthew Cushway and exhibits sworn 6 November 2003
Affidavit of Mark Gerard Pilkington sworn 12 November 2003
Affidavit of Christopher McDonnell sworn 6 November 2003
Affidavit of Jennifer Janine Marciniak sworn 2 December 2003
Affidavit of Donald Graham Noblet sworn 4 December 2003

[2004] SASC 10

14 January 2004