Difranco v Rattlebay Pty Ltd
[2010] WASC 103
•17 MAY 2010
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: DIFRANCO -v- RATTLEBAY PTY LTD [2010] WASC 103
CORAM: BEECH J
HEARD: 10 MAY 2010
DELIVERED : 10 MAY 2010
PUBLISHED : 17 MAY 2010
FILE NO/S: CIV 1451 of 2010
BETWEEN: JOHNNY DIFRANCO
Plaintiff
AND
RATTLEBAY PTY LTD
First DefendantFARAMIST PTY LTD
Second Defendant
Catchwords:
Real property - Caveats - Whether serious question to be tried - Indefeasibility - Whether arguable basis for unregistered interest to be enforceable against registered proprietor
Bankruptcy and insolvency - Whether undischarged bankrupt may lodge
caveat - Whether interest claimed in caveat is part of property of the bankrupt that vests in trustee in bankruptcy
Legislation:
Transfer of Land Act 1893 (WA), s 138B, s 138D
Bankruptcy Act 1966 (Cth), s 60, s 116(1)
Result:
Application to extend operation of caveats dismissed
Application for leave to lodge a second caveat dismissed
Category: B
Representation:
Counsel:
Plaintiff: Ms L Horwood
First Defendant : Mr T O Coyle
Second Defendant : Mr T O Coyle
Solicitors:
Plaintiff: L Horwood Solicitor
First Defendant : Lavan Legal
Second Defendant : Lavan Legal
Case(s) referred to in judgment(s):
Bashford v Bashford [2008] WASC 139
Coyne v Commercial Equity Corporation (1998) 20 WAR 109
Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89
LHK Nominees Pty Ltd v Kenworthy [2002] WASCA 291; (2002) 26 WAR 517
Oversea-Chinese Banking Corporation Ltd v Becker [2003] QSC 301
Yardley v Favell Gordon (Aust) Pty Ltd [2005] WASC 212
BEECH J:
(These reasons were delivered extemporaneously on 10 May 2010 and have been edited from the transcript.)
Introduction
The plaintiff applies for orders extending the operation of two caveats and for an order 'reinstating' or 'replacing' a third caveat.
The caveats relate to four lots. All four lots were derived from a single parent title which was subdivided in or about 2009.
Caveat L222046 (Caveat 46) is lodged in respect of what have been referred to as Lots 219 and 220. It is an absolute caveat. It claims in interest as sole beneficial owner pursuant to a constructive trust. It is supported by two statutory declarations dated 4 February 2010 and 12 February 2010.
There are various assertions of a conclusionary nature in the statutory declarations. They are not always easy to follow and are not framed in a way that appears consistent with orthodox legal analysis.
It is not necessary to give detailed attention to the content of the statutory declarations in support of Caveat 46. That is because the sustainability of the caveats is to be tested in these proceedings by reference to the affidavit evidence that is before me rather than the contents of the statutory declarations.
On 1 April 2010 the plaintiff filed an application to extend Caveat 46 following the service of a notice under s 138B of the Transfer of Land Act 1893 (WA).
On 6 April 2010, by consent, Simmonds J ordered that this caveat be extended until the hearing on a date to be fixed. Due to an error on the part of the plaintiff's solicitors, that order was not extracted and served on the Registrar of Titles. Consequently, by s 138B(2) of the Transfer of Land Act, the caveat lapsed.
On 6 April 2010 Simmonds J also made programming orders for the filing of further affidavits and submissions. The defendants filed and served an affidavit on 30 April 2010. The plaintiff's further affidavits were due on 7 April 2010, however those affidavits have not been provided at this stage. The plaintiff says through his counsel that he wants to put on further affidavits. I will return to that point.
Caveat 46 is the subject of the application to be 'reinstated'. There is no power for the Court to reinstate a caveat. However, the Court has power to give leave under section 138D(1)(e) of the Transfer of Land Act for the lodgement of a further caveat in respect of the interest the subject of the lapsed caveat.
The other two caveats numbered L222044 and L222045 (Caveats 44 and 45) relate to what have been referred to as Lots 217 and 218. They are in substantially the same terms as Caveat 46 and supported by substantially identical statutory declarations. Notice has been given to the plaintiff under s 138B(1) of the Transfer of Land Act. By summons dated 29 April 2010 the plaintiff seeks an order extending the operation of these caveats.
The bankruptcy of the plaintiff
Although not mentioned in the application or in the material filed on behalf of the plaintiff, the plaintiff is an undischarged bankrupt. That was established by evidence filed by the defendants.
On the face of it, the plaintiff's bankruptcy would seem to be a sufficient reason not to make any of the orders sought by the plaintiff. Any interest in the land the subject of these caveats would be part of the 'property of the bankrupt', which is vested in the trustee in bankruptcy under s 58(1)(a) of the Bankruptcy Act 1966 (Cth) s 116(1)(a).
'The property of the bankrupt' is defined in s 5 to mean, relevantly, the property divisible amongst the bankrupt's creditors and any rights and powers in relation to that property that would have been exercisable by the bankrupt if he or she had not become bankrupt. The proprietary interest claimed by the plaintiff is property that belonged to him at the commencement of his bankruptcy. Thus, it is property divisible among his creditors: s 116(1)(a). The capacity to take proceedings for exercising such powers over or in respect of property as might have been exercised by the bankrupt is also property divisible among his creditors: s 116(1)(b).
Further, a proprietary interest in the caveated land is plainly not a personal action of the kind within the exception in s 116(2)(g) of the Bankruptcy Act.
The bankruptcy of the plaintiff would seem to render these proceedings liable to be struck out, see Coyne v Commercial Equity Corporation (1998) 20 WAR 109.
The defendants did not apply for the proceedings to be struck out or stayed on account of the bankruptcy. However the defendants do point to the bankruptcy as a ground in opposing the application.
Counsel for the plaintiff was not able to offer any submission as to the consequences for these proceedings of the bankruptcy of the plaintiff.
The plaintiff invites the exercise of the discretionary power vested in the court under s 138 of the Transfer of Land Act. I am not persuaded that I should make an order on the application of a bankrupt person extending the operation of caveats lodged by that bankrupt person. Nor am I persuaded that I should grant leave to a bankrupt person to file a second caveat claiming for himself an interest in property. It seems to me that any proprietary interest of the plaintiff has vested in the trustee in bankruptcy. Any caveat must be lodged by the trustee in bankruptcy and any proceedings in relation to the caveat or the proprietary interest claimed in the caveat must be brought by the trustee in bankruptcy.
It is, however, not necessary to decide this application solely on the basis of the plaintiff's bankruptcy. That is because for reasons independent of the plaintiff's bankruptcy I would not make the orders sought by the plaintiff.
Legal principles
The principles relevant to an application to extend the operation of a caveat were stated in Bashford v Bashford [2008] WASC 139 [42] ‑ [56]. In summary a plaintiff must establish a serious question to be tried in respect of the proprietary interest claimed in the caveat. The balance of convenience needs also to be considered.
The power to grant leave to lodge a second caveat is a broad discretionary one to be exercised by reference to all the circumstances: Oversea-Chinese Banking Corporation Ltd v Becker [2003] QSC 301 [17].
The principles relevant to an application for leave to lodge a second caveat overlap substantially with the principles relevant to whether a caveat should be extended or removed.
An applicant under this section must also provide a satisfactory explanation as to why the earlier caveat lapsed and for any delay in making the application for leave: Yardley v Favell Gordon (Aust) Pty Ltd [2005] WASC 212 [43]. Those factors do not count against the plaintiff on this application for leave to lodge a second caveat. The reason for the lapse of the Caveat 46 has been explained. There was no delay in applying for leave for the second caveat to 'replace' Caveat 46. To my mind, what is important in this application is the question of whether the interest claimed in each caveat has or may have substance.
The plaintiff's claimed interest
I turn to outline some of the facts and the basis of the plaintiff's claim to a caveatable interest in the land. It should be noticed that, in doing so, I do not rely upon any disputed evidence of the director of the defendants and the plaintiff's brother, Mr Filipo Difranco. (It appears that Mr Filipo Difranco is from time to time referred to as Phillip and I will, without intending any disrespect, refer to him in that way.)
From about 1963 the plaintiff's parents owned the land from which the four lots the subject of the caveats were derived. The plaintiff's case is that:
(a)his parents told him that he had a 25% interest in assets of a trust which included the land; and
(b)it was on that basis that he worked in the family business.
Those statements and representations, and his conduct in response to it, are the kernel of the plaintiff's claim to an interest in the land. To my mind, it is of great significance to this application that the land in question does not remain in the ownership of the plaintiff's parents. I will explain why I think that is so later in these reasons.
In 1996 the plaintiff's parents transferred the land to Wirrah Pty Ltd, a company controlled by the plaintiff's brother Phillip. In the material put before me the plaintiff has raised issues about the circumstances of that transfer. I refer in particular to the statutory declaration of the plaintiff's father dated 27 June 2008. It is not necessary to dissect the detail of what is said in that statutory declaration. It appears to raise matters more amenable to complaint by the plaintiff's father than by the plaintiff. What is important is that that material, even if put into acceptable evidentiary form, does not seem to me to give rise to an arguable claim in favour of the plaintiff of the kind asserted in these proceedings. Nothing in the father's statutory declaration suggests that the plaintiff had any proprietary interest in the land.
In October 1999 Wirrah Pty Ltd transferred the land to Faramist Pty Ltd, the second defendant, and to Lena Difranco, the wife of Phillip.
The land was subdivided into four lots in 2009 and it appears that at that time Rattlebay Pty Ltd, the first defendant, became the proprietor or co‑proprietor of some of the lots in question.
In the material filed by the plaintiff, the plaintiff claims to be a beneficiary of the Difranco Investment Trust. The evidence before me does not include any trust deed. There is secondary evidence about the contents of the trust deed which appears to suggest that it creates a discretionary trust. That is not a matter on which I need dwell because the interest claimed in the caveats is an interest as sole beneficial owner under a constructive trust. The caveats do not claim an interest based on a trust deed. Counsel for the plaintiff accepted, rightly in my opinion, that attention in these proceedings must be focused on the claim made in the caveat, not upon any claim to be a beneficiary of an express trust under a trust deed. It would not be open to amend the caveats in a way that alters the interest claimed: Bashford [54].
The plaintiff points to a document annexed to his affidavit which he says indicates or evidences that Impera Pty Ltd was the trustee of the Difranco Investment Trust. The plaintiff points out that Phillip was a director of that company. Counsel for the plaintiff submits that as a director of Impera, Phillip owed fiduciary duties to the beneficiary.
Counsel cited no authority for the proposition that a director of a trustee company owes a fiduciary duty to the beneficiary of the trust. Certainly that is not the conventional view of what duties are owed by whom and to whom. Rather, the trustee company owes duties as trustee to the beneficiary and the director of a company owes fiduciary duties to the company.
In any case, it is clear from the title searches that Impera was never the registered proprietor of the land relevant to this case. That being so, it seems to me that the status of Phillip as a director of Impera is not of central significance to the claim sought to be made by the plaintiff.
The plaintiff's counsel submitted that the fact that Phillip was a director of Impera and that he was also a director of the defendant companies was evidence that the defendants knew of the plaintiff's interest in the land. That submission may give rise to a number of issues but, for present purposes, only one needs to be developed. For reasons to which I will shortly turn, demonstrating that the defendant companies knew of an interest held in favour of the plaintiff is not, in my opinion, sufficient to overcome the indefeasible title of the registered proprietors of the land.
The precise legal and factual foundation of the plaintiff's alleged claim is not entirely clear to me. It appears primarily to be in the nature of a common intention constructive trust or rights arising through proprietary estoppel. In any event, what seems to me to be the crucial question is the enforceability of the alleged interest against the registered proprietors of the land - in other words, whether any interest of the plaintiff survived the registration of the defendants as registered proprietors.
Indefeasibility
There is no evidence of any conduct by the defendants that might create an interest on the part of the plaintiff. That is not the plaintiff's case and counsel did not suggest there was such evidence.
The gist of the plaintiff's claim as articulated in the written and oral submissions is that Phillip knew of the plaintiff's interest in the property, and through him the defendant companies and other entities knew of that interest. It is not necessary to decide whether the evidence supports such a conclusion. That is because, in my opinion, such a conclusion would not arguably defeat the indefeasible registered interest of the defendants.
Section 68 of the Transfer of Land Act makes the title of a registered proprietor indefeasible, subject to limited exceptions. One exception is fraud; another is the 'in personam' exception. Fraud must be the fraud of the registered proprietor. Fraud in this context means actual fraud or moral turpitude: Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 [192].
Knowledge of a prior or existing equitable interest that will be defeated by registration is not fraud and does not create an in personam exception as a knowing recipient of trust property: Farah Constructions [193] ‑ [196], LHK Nominees Pty Ltd v Kenworthy [2002] WASCA 291; (2002) 26 WAR 517 [185] ‑ [186], [210] and [273] ‑ [292].
The plaintiff has not put forward a case on the basis of fraud on the part of the registered proprietors, nor could he have done so in that the evidence before me does not arguably sustain any such case. Of course, an allegation of fraud is a serious matter. A fraud case cannot be put forward without an explicit statement of the allegation of fraud. There is, and has been, no such claim in this case made by the plaintiff. The plaintiff's case is that the knowledge of the defendant companies through Phillip was sufficient to sustain the equitable interest. Moreover, it is not the conduct of the (now) registered proprietors that is said to have created the plaintiff's interest.
The plaintiff submits that the evidence supports an arguable case to the effect that Phillip breached his fiduciary duty as director of the trustee company and personally benefited from trust assets to the exclusion of other beneficiaries. Whatever other difficulties that submission has (some of which I have already mentioned), to my mind, it does not grapple with the crucial question of how an unregistered equitable proprietary interest survives the registration of the now registered proprietors of this property.
The plaintiff seeks an opportunity to put on more evidence and to put on legal submissions to deal with the indefeasibility issue, and in the meantime for the caveats to be extended.
I am not persuaded that the plaintiff should be afforded a further opportunity to put on legal submissions in support of the claim made in the caveats. The caveats were lodged in February. The plaintiff has had the opportunity to file two sets of submissions in support of these caveats. In my opinion, it was incumbent on the plaintiff to be in a position at this hearing to deal with this legal issue which is, and was, an essential element of any enforceable proprietary interest against the registered proprietors.
It seems to me that no adequate purpose would be served by allowing the plaintiff to prepare, file and serve further evidence of the kind that has been foreshadowed by the plaintiff. There is nothing in what has been put to me that would suggest that any such evidence would remedy what I perceive to be a fatal flaw in the plaintiff's case; the indefeasible title of the registered proprietors. Only fraud would be sufficient to overcome that indefeasibility. It would not be appropriate for a case of fraud to be permitted to be raised for the first time, if that were sought to be done in these proceedings, by way of evidence in reply. As I have said, fraud is a serious allegation which must be made explicitly and on reasonable notice.
For those reasons the plaintiff has not satisfied me that there is a serious question to be tried that the interest claimed in the caveat survived the registration of the proprietor of the land.
Application to tender document
After hearing submissions I adjourned for a short time to deliver my reasons. At the time fixed for the delivery of my decision, counsel for the plaintiff sought to produce a mortgage document to be received in evidence. The defendants opposed that course, submitting that it was too late. The document was said by the plaintiffs to be potentially relevant in two ways. One was that it would go to the credibility and veracity of the evidence of Phillip, who had sworn an affidavit in opposition to the plaintiff's application. However that is not germane to the present application, because Phillip's credibility is not to be determined in these proceedings.
The second basis on which the plaintiff submitted the mortgage document was relevant was that, together with other possible evidence yet to be provided, it would support a conclusion that the trust property was used for the benefit of Phillip, because a debt owed by him under his mortgage was refinanced. If that were established by additional evidence, in my opinion it would not sustain the interest that is claimed in these caveats. It must be remembered that the question before me in these proceedings is not whether there is any room for complaint of some kind about the conduct of Phillip. The question is whether the interest claimed in the caveat in property owned by the two defendant companies has, or may have, substance.
For these reasons, and taking into account the very late stage at which the document was sought to be tendered, I did not accept the tender of the document.
Balance of convenience
Were it necessary to give attention to the balance of convenience, it would be relevant that the defendants would not have the benefit of an undertaking as to damages because any undertaking from the plaintiff as a person who is an undischarged bankrupt would be of no value.
Conclusion
For the reasons I have given, I would dismiss the application. In summary, those reasons are the bankruptcy of the plaintiff and the absence of a serious question to be tried that the claimed interests of the plaintiff are enforceable against the registered proprietors.
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