Lincu v Registrar-General

[2019] NSWSC 568

Supreme Court

New South Wales

Medium Neutral Citation:	Lincu v Registrar-General [2019] NSWSC 568
Hearing dates:	9 April 2018; further written submissions 23 April, 6 May, 16 May 2018
Date of orders:	16 May 2019
Decision date:	16 May 2019
Jurisdiction:	Equity - Real Property List
Before:	Kunc J
Decision:	Torrens assurance fund not liable; Cross-claim dismissed
Catchwords:	LAND LAW — Torrens title — Compensation for loss of interest in land — Torrens assurance fund — Whether “breach of trust” exemption from compensation includes fraudulent breach of trust or applies only where sole cause of loss or damage is breach of trust — Real Property Act 1900 (NSW), s 129(2)(f)(i)
Legislation Cited:	Interpretation Act 1987 (NSW) Real Property Act 1857 (SA) Real Property Law Amendment Act 1858 (SA) Real Property Act 1860 (SA) Real Property Act 1861 (SA) Real Property Act 1862 (NSW) Real Property Further Amendment Act 1877 (NSW) Real Property Act 1900 (NSW) Real Property Amendment Act 1970 (NSW) Real Property (Torrens Assurance Fund) Amendment Act 1992 (NSW) Real Property Amendment (Compensation) Act 2000 (NSW) Real Property and Conveyancing Legislation Amendment Act 2009 (NSW) Uniform Civil Procedure Rules 2005 (NSW)
Cases Cited:	Challenger Managed Investments Ltd v Direct Money Group Pty Ltd [2003] NSWSC 1072; (2003) 59 NSWLR 452 Cooper v The General Accident, Fire, and Life Assurance Cooperation Limited (1922) 128 LT 481 Diemasters Pty Ltd v Meadowcorp Pty Ltd [2001] NSWSC 495; (2001) 52 NSWLR 572 Fish v Solution 6 Holdings Limited [2006] HCA 22; (2006) 225 CLR 180 Government Insurance Office of NSW v RJ Green and Lloyd Pty Ltd [1966] HCA 6; (1967) 114 CLR 437 Guns Forest Product Ltd v North Insurances Pty Ltd [2004] VSC 155 Kavanagh v Commonwealth [1960] HCA 25; (1960) 103 CLR 547 Kirkland v Quinross Pty Limited [2008] NSWSC 286; (2008) 14 BPR 26,979 Krnjulac v Lincu [2015] NSWCA 367 Lacey v Attorney-General (Qld) [2011] HCA 10; (2011) 242 CLR 573 Lincu v Krnjulac [2014] NSWSC 532 Parker v Registrar-General [1977] 1 NSWLR 22 Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355 R v Khazaal [2012] HCA 26; (2012) 246 CLR 601 Re Alcan Australia Limited; Ex parte Federation of Industrial, Manufacturing & Engineering Employees Union [1994] HCA 34; (1994) 181 CLR 96 Re Hamilton Irvine (1990) 94 ALR 428 Registrar-General v Behn [1980] 1 NSWLR 589 Registrar-General v Harris (1998) 45 NSWLR 404 Robinson v Registrar-General (1982) 2 BPR 97154; (1983) NSW ConvR 55-138 Saade v Registrar-General (NSW) [1993] HCA 73; (1993) 179 CLR 58 Schmidt v Registrar-General of Land [2015] NZHC 2015; [2016] 2 NZLR 121 TAL Life Ltd v Shuetrim [2016] NSWCA 68; (2016) 91 NSWLR 439 Travelex Ltd v Federal Commissioner of Taxation [2010] HCA 33; (2010) 241 CLR 510 Voudouris v Registrar-General (1993) 30 NSWLR 195 Vrondissis v Stevens [1940] 2 KB 90
Texts Cited:	NSW Law Reform Commission Report 76 (1996) – Torrens Title: Compensation for Loss South Australian Real Property Law Commission Report 1861 Baalman’s The Torrens System in New South Wales (Law Book Co of Australasia Pty Ltd, 1951)
Category:	Principal judgment
Parties:	Matthew Lincu (First Cross-Claimant) Zivadin Kovacevic (Second Cross-Claimant) Zuzana Veres (Third Cross-Claimant)   Community First Credit Union Ltd (First Cross-Defendant) Registrar-General (NSW) (Second Cross-Defendant)
Representation:	Counsel: D D Knoll AM (Cross-Claimants) A B Douglas-Baker (Second Cross-Defendant)   Solicitors: John Allanson & Associates (Cross-Claimants) Solicitor for the Registrar-General (Second Cross-Defendant)
File Number(s):	2015/186766
Publication restriction:	Nil

Judgment

Summary

1. Indefeasibility of title by registration is fundamental to the Torrens title system which applies in New South Wales pursuant to the Real Property Act 1900 (NSW) (“RPA”). Sometimes indefeasibility has harsh consequences for innocent parties. The Torrens Assurance Fund (the “Fund”) exists to pay compensation where loss and damage has been suffered in specified circumstances as a result of the operation of the RPA.

2. One of those circumstances is, in general terms, where there has been fraud. This case is about the exemption from eligibility for compensation in RPA s 129(2)(f)(i) (the “Exemption”), which provides that compensation is not payable from the Fund where “the loss or damage arises from the breach by a registered proprietor of any trust (whether express, implied or constructive)”. The constructional choice posed for the Court is whether the Exemption applies to loss and damage which arose from what the parties agree was a fraud and a breach of trust.

3. Property used for religious worship is often held by trustees under a charitable trust for the advancement of religion. One example of this is the Apostolic Church of Nazarene – Sydney (the “Church”), whose church is located at Arncliffe (the “Church Property”) on land originally held by five trustees.

4. Two of the original trustees died. One of the surviving trustees (Mr Laza Krnjulac (“Mr Krnjulac”)) tricked the other two surviving trustees (Mr Matthew Lincu and Mr Zivadin Kovacevic) into signing documents which enabled Mr Krnjulac to transfer the Church Property to himself and his two sons. Mr Krnjulac borrowed a large amount of money from Community First Credit Union Ltd (the “Credit Union”) secured by a mortgage over the Church Property.

5. Mr Krnjulac was unable to repay the Credit Union and is now a bankrupt. To preserve the Church Property from being sold by the Credit Union, Mr Lincu and others borrowed money. They paid out the Credit Union and took an assignment of the Credit Union’s mortgage. They now seek to recover the amount they borrowed, and other incidental costs from the Fund.

6. The parties have agreed that, if the Exemption does not apply, compensation is payable. They have also agreed on the amount that should be paid.

7. Mr Lincu and the other trustees (represented by Mr D D Knoll AM of Counsel) made three arguments why the Exemption did not apply. As a matter of construction they submitted that the Exemption only applied where fraud was not a material cause such that the sole cause of the loss and damage was a breach of trust. This required the Exemption to be read in one of two, alternative ways (each shown in italics): “the loss or damage (1) solely arises from the (2) non-fraudulent breach by a registered proprietor of any trust (whether express, implied or constructive)”. They relied on the decision of the NSW Court of Appeal in Parker v Registrar-General [1977] 1 NSWLR 22 (“Parker”).

8. The third argument was that the expression “arises from” requires the Court to determine the “true cause” of the loss or damage. In this case that true cause was the fraudulent design of Mr Krnjulac, of which a mere incident was the fact that he breached a trust in implementing that design.

9. The Registrar-General (the “RG”) (represented by Ms A B Douglas-Baker of Counsel) submitted that changes in the legislation governing the Fund since Parker meant that decision was no longer applicable and the natural and ordinary meaning of the Exemption was that no compensation was payable if the loss and damage had been caused by a breach of trust even if another cause was fraud.

10. The Court has concluded that the Exemption applies in the present case for four reasons:

1. The natural and ordinary meaning of the Exemption in the context in which it appears does not require it to be read to the effect that it applies only where the breach of trust is the sole cause of the loss and damage nor does it invite an inquiry as to the “true cause” when there are multiple causes. The Exemption operates in accordance with its terms if one (not de minimis) cause of the loss and damage is a breach of trust, irrespective that there may be other causes;

2. Changes in the statutory language and the scheme of the Fund generally since Parker mean that case is no longer binding or persuasive as to the construction of the Exemption;

3. The legislative history and the various iterations of the RPA make clear that trusts are not a matter to which the legislation is directed, in particular trusts are not to be recorded on the register, and there is therefore no logical reason why the Fund should respond to loss and damage caused by the breach of trust of a registered proprietor;

4. The legislation establishes an administrative method for dealing with claims for compensation from the Fund. As such, a construction of the Exemption which minimises the need for factually and legally complex analyses of questions of causation is to be preferred.

Summary of agreed facts and relevant procedural history

11. This judgment determines a cross-claim seeking compensation from the RG and the Fund, pursuant to RPA s 129(1)(e). The cross-claim forms part of proceedings with a complicated history, which it is not necessary to set out fully here.

12. Mr Matthew Lincu and Ms Zuzana Veres, in their capacities as trustees of the Church (the “Cross-Claimants”), and the RG remain the only active parties in the proceedings. For present purposes, it is sufficient to note that the Cross-Claimants have settled the claims as between themselves and the Credit Union, which was the plaintiff in the primary proceedings.

13. The Second Cross-Claimant, Mr Zivadin Kovacevic, has taken no active part in the proceedings and an aspect of the relief sought in the most recent iteration of the statement of cross-claim is that he be removed as a party to the proceedings. References to the Cross-Claimants are therefore references only to Mr Lincu and Ms Veres.

14. The parties have prepared a Schedule of Agreed Facts (the “Schedule”) and Chronology to assist resolution of the issues which arise for determination in these proceedings, drawing upon evidence filed both in these proceedings and in earlier proceedings in this Court (being proceedings no. 2011/406044 – the “2011 Proceedings”). On 20 March 2018, Darke J made orders by consent pursuant to r 31.9 of the Uniform Civil Procedure Rules 2005 (NSW) granting leave to the parties to adduce evidence from the 2011 Proceedings.

15. Unless otherwise stated, the facts below are drawn from the Schedule.

16. On or about 1 December 1978, five members of the Sydney congregation of the Church purchased the Church Property for use as a place of worship.

17. On 16 January 1979, a transfer was registered whereby Mr Lincu, Mr Djura Liptak, Mr Zivadin Kovacevic, Mr Joca Krnjulac (“Mr J Krnjulac”), and Mr Krnjulac (to whom I will refer, collectively, as the “original trustees”), became registered proprietors of the Church Property in their capacity as trustees of the Church. Mr Krnjulac knew that the Church Property was purchased in the names of those trustees, for the Church.

18. Of the original trustees, Mr J Krnjulac died in 1989, and Mr Liptak in 2001.

19. In May 2004, Mr Krnjulac procured Mr Lincu’s signatures on three separate pages by saying to Mr Lincu words to the effect of, “you need to sign these for a notice of death”. Mr Lincu signed the three pages on the street outside his (Mr Lincu’s) home in Sydney.

20. When Mr Lincu signed the pages, he thought that he was signing to remove the two deceased trustees from the list of trustees. None of the three documents signed by Mr Lincu had the heading “Transfer” and they were not attached to any printed form. The Schedule notes that Mr Krnjulac was the only person present when Mr Lincu signed the three pages and that Kevin John Perram was not present at the time of signature (Mr Perram’s name and signature appear on each of the relevant pages as the purported witness of Mr Lincu’s signature).

21. Prior to 4 June 2004, in either late May or early June of that year, Mr Krnjulac also procured Mr Kovacevic’s signatures on three separate pages by saying to Mr Kovacevic words to the effect of, “you need to sign these for a notice of death”. When Mr Kovacevic signed these pages he, like Mr Lincu, thought that he was signing to remove the two deceased trustees from the list of trustees. Again, none of the three pages had the heading “Transfer”; the pages were not attached to any printed form; Mr Krnjulac was the only person present when Mr Kovacevic signed the pages, and Mr Perram (likewise the purported witness of Mr Kovacevic’s signatures) was not present.

22. On 4 June 2004, Transfer AAXXXX (the “Transfer”) was registered and Mr Krnjulac and his two sons, Steve and Simon Krnjulac, became the registered proprietors of the Church Property. It is agreed between the parties that Mr Krnjulac “tricked” Mr Lincu and Mr Kovacevic “into signing documents the effect of which was to transfer title to the Church’s land out of the names of the surviving, original trustees” and that Mr Krnjulac did so in order to transfer the Church Property into his name and the names of his sons for personal, business purposes. Those purposes – and the fact that Mr Krnjulac would transfer the title to the Church Property into the names of himself and his sons – were not disclosed to either Mr Lincu or Mr Kovacevic, who never intended to transfer the Church Property away from the Church.

23. The parties also agree that Mr Krnjulac and his sons took title to the Church Property as constructive trustees for the charitable purposes of the Church.

24. On 23 July 2004, Mr Krnjulac and his sons granted a mortgage over the Church Property in favour the Credit Union, which mortgage was registered on 3 August 2004 (the “Mortgage”). The parties agree that the Mortgage was signed by Mr Krnjulac and his sons; that it was for private, business purposes; and that its registration was a breach by Mr Krnjulac and his sons of their obligations as trustees.

25. In about April or May 2010, Mr Lincu was informed that Mr Krnjulac had registered a transfer of the Church Property, transferring the Church Property away from the original trustees as trustees of the Church to himself and his sons.

26. On 3 May 2010, Mr Lincu sought advice from Land and Property Information and as a result caused Caveat AFXXXX (the “Caveat”) to be lodged over the Church Property.

27. In the period from April or May 2010 to December 2011, Mr Lincu (and other members of the Church) attempted to resolve the matter with Mr Krnjulac and his sons without recourse to litigation. Mr Lincu first instructed solicitors on 15 December 2011 after he had been served (on 29 November 2011) with a Notice to Caveator of Proposed Lapsing of Caveat with respect to the Caveat.

28. On 16 December 2011, Mr Lincu commenced the 2011 Proceedings by Summons, and then filed a Statement of Claim on 22 December 2011 (which was subsequently amended on 24 October 2012).

29. The 2011 Proceedings were heard before Lindsay J on 26-29 August 2013 and on 28 May 2014 orders were made and reasons for judgment given, in Lincu v Krnjulac [2014] NSWSC 532.

30. By deeds dated 16 October 2014 and 17 December 2014, Ms Veres replaced Mr Kovacevic as a trustee.

31. On 7 May 2015, the Credit Union (as mortgagee) sent Notices of Default to Mr Krnjulac and his sons.

32. On 25 June 2015, the Credit Union commenced the present proceedings (proceedings no. 2015/186766) by filing a Statement of Claim for possession of the Church Property and naming Mr Krnjulac and his sons as defendants.

33. On 11 September 2015, the Credit Union obtained judgment for possession of the Church Property.

34. On 29 September 2015, a Writ of Possession – Notice to Vacate was issued, and it was served at the Church on or about 20 October 2015.

35. On 22 October 2015, the Cross-Claimants’ solicitors wrote to the Credit Union’s solicitors, requesting the Credit Union’s consent to the judgment being set aside and the Cross-Claimants being allowed to defend it. They also requested that the Credit Union instruct the Sheriff to hold off taking any further action. The Cross-Claimants also requested production of the certificate of title to permit registration of a transfer from Mr Krnjulac and his sons to the Credit Union.

36. Following an exchange of correspondence in the period 27 October 2015 to 9 November 2015, the Cross-Claimants approached the Court for relief and, on 13 November 2015, White J (as his Honour then was) made orders on their application, including an order setting aside the order for possession.

37. On 2 December 2015, the Court of Appeal upheld an appeal from Lindsay J’s judgment in the 2011 Proceedings by Steve and Simon Krnjulac: Krnjulac v Lincu [2015] NSWCA 367. The Court of Appeal ordered, inter alia, that:

“[Order 4(e)] Order that [Laza Krnjulac] indemnify [Matthew Lincu and Zuzana Veres] against all claims that may be made against them in relation to the church land by Community First Credit Union Ltd as mortgagee in respect of mortgage AA852414 over the church land (the mortgage); and

[Order 4(f)] Order (in aid of Order (e)) that judgment be entered against [Laza Krnjulac] in favour of [Matthew Lincu and Zuzana Veres], as trustees of the church land, in the sum of $467,134.37, the amount outstanding under the mortgage as at 12 December 2014.”

38. It was common ground between the parties before me, consistently with the findings in the Court of Appeal proceedings, that both the Transfer and the Mortgage were procured by a fraudulent breach of trust. That is, the parties agreed that it would be artificial to characterise the fraud by which the signatures were procured solely as a fraud and not also acknowledge or characterise it as a matter of fact as a breach of trust.

39. On 17 December 2015, a transfer without monetary consideration was registered and the Cross-Claimants again became the registered proprietors of the Church Property.

40. On 13 January 2016, the Credit Union filed an Amended Statement of Claim naming Mr Lincu, Mr Kovacevic, and Ms Veres as Fourth, Fifth, and Sixth Defendants (pursuant to orders made by Darke J by consent on 4 December 2015).

41. On 25 February 2016, the Cross-Claimants filed their defence to the Credit Union’s Amended Statement of Claim.

42. On 26 February 2016, Darke J granted leave to the Cross-Claimants to file a cross-claim against the Credit Union and, pursuant to RPA s 132(2)(b), joined the RG to the proceedings. Pursuant to that leave, on 15 March 2016, the Cross-Claimants filed the First Cross-Claim against the Credit Union and the RG.

43. Inquiries made by the solicitor for the Cross-Claimants during April and May 2016 led to the conclusion that the cross-claim against the Credit Union was bound to fail, because there was no evidence suggesting that the Credit Union was on notice of the Krnjulacs’ fraud. The Credit Union, by Notice of Motion, pressed for an order for possession and an order striking out the cross-claim against it.

44. In the period 21 April 2016 to 16 June 2016, the solicitors for Mr Lincu and Ms Veres received into their trust account funds from Mr Paul Pentsa, Mr Cedimir Bekic, Mr Lincu, and Mr Joseph Ruzeu totalling $654,292.22, as a loan to the Church to pay out the Credit Union to prevent the Credit Union from taking possession of the Church Property. The funds were a loan to the Church and security was required in the form of a transfer of the Mortgage to Messrs Pentsa, Bekic, Lincu and Ruzeu.

45. On 27 April 2016, Mr Krnjulac was made bankrupt.

46. On or about 24 June 2016, the Credit Union and the Cross-Claimants executed a Deed of Settlement and Release. The Cross-Claimants paid to the Credit Union the sum of $648,950.43, and the Credit Union gave the certificate of title for the Church Property, and a transfer of the Mortgage – executed by the Credit Union – to Messrs Pentsa, Bekic, Lincu and Ruzeu, and a deed of assignment to those same persons, also executed by the Credit Union.

47. On 8 July 2016, consent orders were filed as between the Cross-Claimants and the Credit Union, which included that the Credit Union’s Amended Statement of Claim be dismissed as against Mr Lincu, Mr Kovacevic, and Ms Veres; and that the First Cross-Claim, as against the First Cross-Defendant only (the Credit Union) be dismissed.

38. On 15 July 2016, the RG filed a Defence to the First Cross-Claim which had been filed on 15 March 2016 (see paragraph [42] above).

39. On 9 August 2016, the transfer of mortgage referred to in paragraph [46] above was registered and Messrs Pentsa, Bekic, Lincu, and Ruzeu became the mortgagees of the Church Property.

40. On 24 October 2016, the Cross-Claimants filed an Amended Defence to the Amended Statement of Claim and on 3 February 2017, they filed a Further Amended Defence to the Amended Statement of Claim together with an Amended Statement of Cross-Claim which, the parties agree, complied with UCPR r 19.5.

41. On 18 August 2017, the RG filed a Defence to the Amended Cross-Claim filed 3 February 2017.

42. On 9 April 2018 at the hearing before me, the Cross-Claimants filed a Further Amended Statement of Cross-Claim clarifying the heads of loss and damage (including interest) in respect of which they sought compensation.

The legislation – its history and the authorities

53. While I intend to give primacy to the text of the Exception in the context of the RPA, in order to understand the parties’ submissions about the Exception it is convenient at this point to set out the legislative history of the relevant parts of the RPA and the authorities and other developments in chronological order.

54. To appreciate the purpose of, and policy basis for, the inclusion of the Exemption in its current form, one must have regard to the Real Property Act 1857 (SA) (the “SA 1857 Act”), the Real Property Law Amendment Act 1858 (SA) (the “SA 1858 Act”), the Real Property Act 1860 (SA) (the “SA 1860 Act”) and the Real Property Act 1861 (SA) (the “SA 1861 Act”), as well as the South Australian Real Property Law Commission Report in 1861. First, this focus on the South Australian material is necessary because little reference is made to the exception of trusts in any second reading speeches made in respect of the RPA and its amending acts. For example, the second reading speech delivered with respect to the Real Property Amendment (Compensation) Act 2000 (NSW), which enacted Pt 14 of the RPA in substantially its present form (see paragraph [93] below), only made limited reference to s 129(2)(f): “The exceptions provided in proposed sections 129(2)(b), (2)(f) and 2(g) are already made by the existing legislation” ((Mr Yeadon, NSW Legislative Assembly, Hansard, 3 May 2000, p 5188). Moreover, there was no explanation as to whether Parliament had in mind previous interpretations of s 133 (the predecessor to s 129(2)(f)) when drafting this section, nor were any policy justifications offered for its inclusion.

55. Second, as is apparent from the Sydney Morning Herald report of the Parliamentary debate regarding the Real Property Act 1862 (NSW) (dated 17 September 1862), New South Wales simply adopted the 1861 SA Act because the Torrens “system had been in successful operation in the surrounding colonies” and there was “little doubt that it would give public satisfaction, having the advantage of being a much cheaper system than that [which was] in operation” (Mr Plunkett). There was no further elaboration on the reasons for introducing the RPA or adopting the South Australian legislation, nor was there any explanation as to how the RPA was intended to operate. Therefore, it is necessary to turn to the South Australian Acts to examine the original policy justifications for their approach to trusts, and presumably NSW’s adoption of the same provision.

The SA 1857, SA 1858 and SA 1860 Acts

56. The Torrens Assurance Fund was first established under s 35 of the SA 1857 Act. Section 35 provided that the Assurance Fund could be used,

“to [make] good the full amount awarded by any verdict or decree of Court to the rightful heir or proprietor of land under the operation of this Act as hereinafter providing, failing the recovery of such amount from the person who may by fraud, misrepresentation, or error, have become registered as proprietor of the same…”

57. Section 92 of the SA 1857 Act provided:

“Any person who shall, by the decree of any Court having jurisdiction in such case, be declared to be the lawful heir to any land under the operation of this Act, or any person who shall by any such decree be declared to have been deprived of an estate or interest in such land, through the entry in the register book of any memorandum of sale or other instrument affecting such land, made, or procured to be made by fraud, error, misrepresentation, oversight, or deceit, may bring and prosecute an action at law in the Supreme Court for the recovery of damages against the person who may, by fraud or other means as aforesaid, have become registered as proprietor of such land; and the Court or Jury before whom such action is tried shall, if such person obtains a verdict in his favour, find damages against the person so registered as proprietor through fraud, or error…for such sum of money as the Court or Jury may think fit, not exceeding the value of such land at the time when such person did so wrongfully…”

58. Unlike the RPA, s 92 of the SA 1857 Act made no reference to anything like the Exception. The language of “fraud” and “deprivation”, however, is used. Moreover, whilst the Assurance Fund was not defined as the source of the compensation payable to the defrauded (former) registered proprietor, damages could be recovered from it where the fraudulent person failed to pay the damages awarded “within reasonable time”: s 96.

59. The SA 1857 Act did make some reference to trusts, including a form of specified registrable instrument called a “Bill of Trust”. There were other provisions in relation to trusts and trustees, including (in s 70) a covenant to be implied where an instrument was executed by a trustee solely in that capacity. None of these provisions survived the amendments worked by the SA 1858 Act.

60. The SA 1858 Act introduced sections that dealt expressly with trusts and trust instruments. Sections 46 and 47 provided for declarations of trusts and that trust instruments should be deposited with the RG, but not entered into the register-book:

“46.   The trusts which are intended to be declared of any land, estate, or interest vested in trustees as hereinbefore mentioned, may be declared either by a Schedule to the aforesaid instrument effecting such nomination of trustees, or by any separate instrument or deed. Whenever the said trusts are declared by a separate instrument or deed, the same may include as well, land under the operation of this Act, as land which is not under the operation of this Act, provided that the description of the several parcels of land contained in such separate instrument or deed shall sufficiently distinguish the land which is under the operation of this Act, from the land which is not under the operation of this Act; and whenever such trusts are declared by a separate instrument, a duplicate or attested copy of such instrument shall be deposited with the Registrar-General for the purpose of safe custody and reference; but such duplicate or attested copy shall not be registered.

47.   Whenever land, under the operation of this Act, shall be settled, or shall become vested in trustees upon any trust, whether express, implied, or constructive, the Registrar-General shall not make any entry of the said trusts in the register-book; and the trustees, after the entry in the register-book of the nomination of trustees, in manner hereinbefore provided, shall, notwithstanding any trust affecting the said land, be entitled to sell, transfer, mortgage, or otherwise deal with the said land in the like manner as if the said trustees had been the beneficial owners of the said land; and in case the fee simple of such land be so settled or vested in trust, such trustees shall be entitled to receive a certificate of title for the same.”

61. Importantly, s 48 introduced the concept that where the words “no survivorship” were inserted into a trust instrument, those words operated to prevent a lesser number of trustees than named in the instrument from dealing with the land. Moreover, s 48 established that any changes to the nominated trustees must be noted in the register-book. Section 49 provided that:

“[w]henever the words ‘no survivorship’ shall be written upon any instrument intended to operate as a nomination of such trustees, the Registrar-General shall, during the existence of such trust, cause the words…to be written on every certificate of title of land issued to such trustees, and also on the duplicate of every such certificate bound up in the register-book.”

62. The SA 1858 Act also contained provisions that dealt expressly with situations where a person has been defrauded by a fraudulent proprietor, and for suit to be brought against the Registrar-General if the fraudulent proprietor was dead or insolvent:

“78.   In case any person shall have been registered through fraud as proprietor of any land or an estate, or interest in any land, the person defrauded, or any person claiming through him, may at his election, apply by petition, in a summary way, to the Supreme Court in its Equitable Jurisdiction, for the recovery of the said land, estate, or interest, from such fraudulent proprietor, or the person (not being a purchaser or mortgagee bona fide for valuable consideration) claiming under such fraudulent proprietor; or the person so defrauded, or any person claiming through him, may bring and prosecute an action at law in the Supreme Court for the recovery of damages against such fraudulent proprietor, or the person (other than as aforesaid) claiming under such fraudulent proprietor.

…

80.   Any person who may, by the provisions of this Act, be prevented from bringing an action or ejectment for the recovery of land from the registered proprietor thereof, and any person who may have been so defrauded as aforesaid, and shall elect to bring an action-at-law for the recovery of damages against such fraudulent proprietor of any land, or against the person (other than as aforesaid), claiming under such fraudulent proprietor, or any person injured or otherwise damnified in consequence of an error or mistake arising from any entry in the register-book, in respect of which right of action is hereby given against the Registrar-General, may bring and prosecute an action-at-law in the Supreme Court for the recovery of damages against the person who was the registered proprietor of the said land, estate, or interest at the time when the act, error, mistake, or other dealing affecting the said land or easement, and occasioning the said injury, damage, or loss to the plaintiff to the said action was made, done, committed, or took place, but no greater amount of damages for the loss of the said land shall be recovered in the said action than the estimated value of such land at the time when the aforesaid act, error, mistake, or other dealing affecting the said land was originally made, done, committed, or took place.

81.   In case the registered proprietor of the said land, estate, or interest, against whom such action for damages is directed to be brought as aforesaid, shall be dead, or shall have been adjudged insolvent, then, in such case it shall be lawful to bring such action for damages against the Registrar-General, as such nominal defendant, as hereinafter provided, for the purpose of recovering the amount of the said damages and costs against the Assurance Fund hereinbefore described: Provided that the Assurance Fund shall not be liable for payment of any damages after the expiration of six years, to be computed from the time when the act, error, mistake, or other dealing affecting the said land or easement, and occasioning the said injury, damage, or loss to the plaintiff to the said action was made, done, committed, or took place; and the Treasurer of the said Province upon receipt of a certificate of the Chief Justice of the Supreme Court, and of a warrant under the hand of the Governor, as hereinbefore provided, shall pay the amount of such damages and costs, and charge the same to the account of the Assurance Fund.”

63. The SA 1860 Act was intended to “consolidate and amend” the law of real property and repealed the SA 1857 Act and the SA 1858 Act.

64. The SA 1860 Act included in s 41 what is now the familiar provision establishing that, except in the case of fraud, the estate of the registered proprietor is paramount:

“41.   Notwithstanding the existence in any other person of any estate or interest, whether derived by grant from the Crown or otherwise, which, but for this Act, might be held to be paramount, or to have priority, and, except in the case of fraud, the registered proprietor of land, or of any estate or interest in land under the provisions of this Act, shall hold the same subject to such encumbrances, liens, estates, or interests, as may be notified, by entry or memorial, on the folium of the register book, constituted by the land grant, or certificate of title of such land, but absolutely free from all other encumbrances, liens, estate, or interests whatsoever, except the estate or interest of a proprietor claiming the same land under a prior certificate of title, or under a prior grant registered under the provisions of this Act, and except as regards the omission or misdescription of any right of way or other easement, created in or existing upon any land, or the wrong description of any land, or of its boundaries.”

65. Sections 72 to 76 of the SA 1860 Act were in almost identical terms to ss 46 to 48 of the SA 1858 Act, which dealt with the declaration of trusts, the exclusion of trusts from the register-book and the importance of the inclusion of the words “no survivorship” in a trust instrument (see paragraphs [60] and [61] above).

66. The provisions for suit in the SA 1858 Act were replicated, but not in exactly the same terms, by ss 120 to 122 of the SA 1860 Act:

“120.   Any person deprived of any land, or of any estate or interest in land, in consequence of fraud, or in consequence of the issue of a certificate of title to any other person, or in consequence of any entry in the register book, or of any error or omission in any certificate of title, or in any entry in the register book, may bring and prosecute an action-at-law in the Supreme Court for the recovery of damages against the person who derived benefit by such fraud, or in consequence of the issue of such certificate of title, or by such entry, or in consequence of such error, whether by wrong description of land or of its boundaries or otherwise, or omission: Provided always, that no such action shall lie or be sustained unless the same shall be commenced within the period of six years, to be computed from the date of such deprivation: Provided also, that nothing in this Act contained shall be interpreted to subject to any action of ejectment, or for recovery of damages, any purchaser or mortgagee bona fide for valuable consideration, of any land under the provisions of this Act, although his vendor or mortgagor may have been registered as proprietor through fraud or error, or may have derived from or through a person registered as proprietor through fraud or error, whether by wrong description of land, or of its boundaries, or otherwise.

121. In case the person against whom such action for damages is directed to be brought as aforesaid shall be dead, or shall have been adjudged insolvent, or shall have absconded out of the jurisdiction of the Supreme Court, then in such case it shall be lawful to bring such action for damages against the Registrar-General, as nominal defendant, for the purpose of recovering the amount of the said damages and costs against the assurance fund hereinbefore described; and in any such case, and also in any case in which damages may be awarded in any action against the person deriving benefit by any fraud, or in consequence of the issue of any certificate of title or otherwise, as aforesaid, and the Sheriff shall make a return of nulla bona, or shall certify that the full amount, with costs awarded, cannot be recovered from such person, the Treasurer of the said Province, upon receipt of a certificate of the Chief Justice of the Supreme Court, and of a warrant under the hand of the Governor, as hereinafter provided, shall pay the amount of such damages and costs as may be awarded, or the unrecovered balance thereof, as the case may be, and charge the same to the account of the assurance fund: Provided that the assurance fund shall not be liable for payment of any damages after the expiration of six years, to be computed from the time when the cause of action arose: Provided also, that any person so absconding beyond the jurisdiction, if subsequently found within the jurisdiction, shall be liable to be sued, in the name of the Registrar-General, for the amount of the damages and costs so recovered from the assurance fund.

122.   Every action which shall be brought by any person to recover damages for or by reason of any loss or damage occasioned by any omission, mistake, or misfeasance of the Registrar-General, or any of his officers or clerks in the execution of their respective duties, under the provisions of this Act, shall be brought against the Registrar-General, as nominal defendant, and in case in any such action the plaintiff recover final judgment against such nominal defendant, then upon the application or motion of such plaintiff the Chief Justice of the Supreme Court shall, and he is hereby directed to certify to the Treasurer of the said Province the fact of such judgment having been recovered, and the amount of damages and costs recovered, and thereupon or before the expiration of two calendar months after such judgment is so certified, the said Treasurer, upon the receipt of a warrant under the hand of the Governor, countersigned by the Chief Secretary of the said Province, shall pay the amount of such damages and costs to the person recovering the same, his executors or administrators, and shall charge the same to the account of the assurance fund hereinbefore described: Provided always that notice in writing of every such action, and of the cause thereof shall be served upon the Attorney-General of the said Province, and also upon the Registrar-General one calendar month at least before the commencement of such action. Provided also that the Registrar-General shall not be personally chargeable upon any judgment recovered as aforesaid, nor shall any process or notice in or relating to any such action (except as aforesaid) be served upon the Registrar-General, but all such processes and notices shall be served upon the Attorney-General of the said Province for the time being.”

Report of the Real Property Law Commission 1861

67. In February 1861 a commission was appointed by the Governor of South Australia “to inquire into and report upon the measures (if any) that may be necessary to perfect the Act known as the “Real Property Act”.” The Commission included the Chief Justice, Sir Charles Cooper, and the Registrar-General, Mr Robert Richard Torrens, remembered today as the architect of Torrens title.

68. The Report of the South Australian Real Property Law Commission (the “SA 1861 Report”) includes a transcript of the evidence taken by the commissioners and records exchanges between Mr Torrens (as a member of the commission) and witnesses in respect of the protections afforded to trustees under the SA 1860 Act (see paragraphs [1783]-[1787], pp 95-96). One such exchange referred to the practice of the Bank of England not to take notice of trusts:

“1789. (By Mr. Torrens) Be so kind as to point out what facilities are important to give protection to beneficiaries of funds under settlement of funded property, which are not given in the Real Property Act under the settlements of land?—The Bank of England declines to recognize settlements at all, because they have to enter the transfer of the property in their books, and the bank does not choose—and, indeed, it could not carry on its transfer business if the bank was bound to investigate whether the fundholder held his property as a trustee or not; but, supposing that estates were required to appear in a different register from unsettled estates, the mere fact of their so appearing will show that the trustees are not entitled to dispose of the property, unless they have express authority so to do under the settlement or will which constitutes them trustees, or unless the trustees shall have obtained authority from the persons beneficially interested. Under either of these circumstances the persons beneficially interested are protected to as full an extent as can be necessary for them. …

1791. Have you ever seen the evidence taken before the Royal Commission, on ‘Registration of Titles,’ of 1847. Upon this subject there were very many witnesses who deposed to their entire satisfaction in the method of dealing with trust property under the funds? ─ I think trustees in England are, generally speaking, more careful and scrupulous in fulfilling the trusts which are reposed in them; they are moreover, in many cases related to or connected with the person for whom they become trustees; and are, therefore, more likely to carry out the trusts of the settlement or will than the persons who are ordinarily asked to become trustees in this Colony. Here persons will often consent to become trustees duly considering the nature or extent of the trust they are undertaking.”

69. In the SA 1861 Report, the Commission commented explicitly on the protections (or lack thereof) afforded to trustees under the SA 1860 Act:

“…

41. Protection against fraud is afforded by the provision that whenever the words ‘No survivorship’ are inserted, the Registrar is prohibited from giving effect to dealings with the property by a less number of Trustees than were originally nominated.

42. As a further protection ─ Beneficiaries under the trust may lodge caveat forbidding dealings with the property without their concurrence.”

70. Based on the SA 1861 Report, the reasons why no additional notice was to be given in the legislation to trusts and trustees were that it was thought it would be complicated to administer (given that trusts could be altered from time to time) and that there was confidence that the existing measures of entering “no survivorship” (which prohibited the Registrar-General from giving effect to dealings with the property by a lesser number of Trustees than were originally nominated) and for caveats to be lodged by beneficiaries against dealings with the trust property (without their approval) were sufficient. That confidence appears in Mr Torrens’ second circular to users of the Real Property Act (reproduced on p 111 and following of the SA 1861 Report), which includes:

“75. The importance and efficacy of [the trust] provisions may be judged from the evidence give before a commission appointed by the House of Commons, by Mr Freshfield, Solicitor to the Bank of England, to the effect, that whilst trust property in the funds is dealt with by trustees with absolute power of disposal, to the extent of millions annually, frauds are unknown, when these simple precautionary measures are attended to.

71. The relevant part of the SA 1861 Report is:

“The question of trusts is one in respect of which also objections have been made to the provisions of the Real Property Act, which, it is suggested, are not adequate to all the various contingencies which may arise. It has been proposed by Mr. Ingleby and Mr. Belt (1652 to 1657, 1727), in order to meet this alleged difficulty, that there should be two registers, one for ordinary certificates of title and one for settled estates, and that when land is settled it should be transferred to the second register, and be operated upon by deeds under the old method of conveyancing. As the provisions of the Real Property Act, with regard to settlements have not yet been submitted to the test of experience, it is, of course, impossible to say to what extent they may prove adequate; but we see no reason to assume that there will be any such inadequacy in these provisions as would justify the adoption of the suggestion to which we have referred. The provisions for enabling a registered proprietor to alter the nature of his estate, and to register himself as joint tenant, or as tenant for life, with remainder to parties named or described; for the registration of interests in remainder or reversion; for preventing a sole trustee from acting contrary to the intention of the settlor by inserting the words “without survivorship," and for allowing all persons beneficially interested under any trust to protect their interests by a caveat, will, we believe, be found sufficient for all purposes, and will give greater security against fraud or misconduct on the part of trustees than now exists. If, however, experience should disclose defects in these provisions, the same experience will suggest the appropriate means by which such defects may be remedied; and we have deemed it advisable to leave a future legislature to deal with these matters rather than to complicate the working of the Act by attempts to guard against evils which after all may never arise. Our views upon this subject derive confirmation from the report of the Commission appointed in England to consider the subject of the registration of title, and which comprised amongst its members the present Lord Chancellor, the late Solicitor-General, and other gentlemen of eminent professional ability. This report, after describing a system almost identical with that now in operation under the Real Property Act in this Colony, contains remarks in reference to the objections urged against that system, which are so applicable to the similar objections urged in this Colony, as to justify us in quoting it:—

“I. We next proceed to consider whether registration of the legal ownership will be compatible with due protection of the equitable or beneficial interests in land.

It has sometimes been supposed that any system of registration of title will require a decision as to which of certain principles alleged to be irreconcilable touching the theory of disposition of landed property ought to prevail; whether, on the one hand, the stability of settlements, or, on the other, the safety of buyers, or, in other words, the protection of families or the marketability of land, ought to form the paramount consideration. After mature examination, however, we have been led to the conclusion that no such dilemma is in fact involved in the institution of a registry of title.

Were we to allow, however, that such a difficulty does in fact present itself we should be able to rely, as has been well remarked (a) on our ancient law as affording for the present purpose a wise and useful precedent; for just as the feudal law required that the freehold should always be filled by one capable of contributing to national defence, and performing the duties of a feudal follower, so the spirit of commerce now demands that for its purposes also the fee simple in land shall always be represented and be in the possession of persons capable of fulfilling those new duties and offices which the ownership of land in the present state of society entails or involves.

As regards the sale and transfer of land, it is clear (b) that much good would not be obtained by merely registering the fee, or, in other words, the legal title, unless the purchaser could dispense with inquiry into the equitable title, with its incidents. Unless a purchaser be protected from inquiring into trusts, there will not be any advantage to him. In other words, (c) if trusts and limitations are to continue to form part of the title in all respects as they now do, the registry of title will be useless, or at least not worth the danger and difficulty attendant upon the introduction of a new system.

The question, then is, (d) whether the present system of settlements can be modified without materially interfering with the nature or quantum of interests commonly created by them. Any material interference with the nature of such interests would be objectionable; but, under modified forms, the system may, we think, be continued consistently with the objects contemplated by a register of titles.

We are aware that it has been objected (e) to the portion of the proposed system now under consideration, that partial and equitable interests constitute a very large proportion of landed interests, and that while to require them to be registered would be to sacrifice the simplicity of the register, to exclude them from the register would be to jeopardize them, by placing them at the mercy of the registered owner, except so far as the persons entitled to such interests might become active in using the allowed means of restricting his power of disposition. It is remarked with truth, that the owners of these interests may now remain passive, and yet be sufficiently protected. It is therefore contended, that, to deprive them of their present grounds of security, and substitute the necessity of taking active measures, by distringas or otherwise, to protect themselves from improper dealing on the part of the registered owner would be placing such owners in a now and critical condition, requiring much intelligence and caution, and would tend greatly to diminish the value of these numerous and very important interests, which are themselves constantly the subjects of sale and transfer. A settlement of land, it is said, would, (f) under such a system, come not to differ practically from a settlement of a sum of stock, which would be felt by some to be an evil; many preferring an interest in land, because, to use a not uncommon expression, " while they are sleeping, land cannot run away."

We may remark, however, in reference to these objections, that experience and existing practice will furnish the best answer to them. According to the modern practice of conveyancing, the apprehended danger has not been found to arise in analogous cases, where trustees are clothed with as large powers as they would have under the proposed system. That practice has especially been directed to avoid the embarrassment of a complicated system of trusts, which, by the rules of equity, fasten themselves on the land, and provisions are constantly inserted (g) in settlements, to render it unnecessary that purchasers or mortgagees, when dealing with trustees, should be forced to see to the circumstances under which the trust is performed, or the manner in which the proceeds are applied. For example, under the present system most well-drawn settlements of landed estates contain clauses empowering the trustees to sell, with the consent of the tenant for life, if he be living, but if he be dead, at their sole discretion, and to give absolute discharges for the purchase money; and yet no sales, excepting those within the object and provisions of the, trust, are ever heard of. Again, this principle is carried so far that the property is often conveyed to the trustees by one deed, while the trusts are declared be another. And what is the object of these complicated proceedings, except that the trustees may appear to the purchasers, or be treated by them, as absolute owners, and that those purchasers need not know anything of the purposes for which they hold the property? Again, under the present system of conveyancing, a mortgagee has usually a power of sale, which he may exercise without the concurrence of the mortgagor; but experience has shown that this power is very rarely abused, and it is uniformly given without hesitation. We, therefore, think that the practice (h) of inserting powers of sale in settlements and mortgages proves that the proposed scheme of registration, when properly understood, will not be considered objectionable by landowners. Nor should it be forgotten that there are millions of money in the funds, and in railways, canals, docks, and other undertakings, left to a great extent in the names of trustees, and yet it has been found that property so circumstanced is practically safe. Can it be believed that what is safe for beneficial interests in such property, when prudently looked after, will be otherwise than safe when applied to land, especially if these are thrown over it those additional protections which we recommend in this Report? With such protections, prudently claimed and carefully acted on, we conceive the answer must be in the negative. And if any further proof were needed, we should find it in the fact that the legislature itself has recognized (i) the principle upon which we proceed, and applied it to property in British ships, as may be seen by the recent Statute for amending and consolidating the Acts upon that subject.

It may also deserve remark, (j) with reference to the supposed objection arising from the risk of fraudulent sales by trustees, that the contemplated sale of land is usually known to tenants and other persons in the locality; and is therefore less likely to be effected by fraud than transfers of stock.“”

72. In his second circular to users of the SA 1860 Act Mr Torrens wrote:

“69. The following information is for the guidance of proprietors desiring to appoint trustees, and of trustees requiring to fill up vacancies by the appointment of co-trustees; also, to indicate the procedure by which the interests of beneficiaries may be effectually protected under the provisions of the Real Property Act, such transactions being simple in their nature and such as may be conducted by any person of ordinary intelligence.

70.   Parties are referred to their solicitor for the preparation of the deed declaring the nature of trusts confided by the proprietor and accepted by the trustees.

71.   The proprietor, filling up the form of "Nomination of Trustees," will proceed, as directed in former cases, to state his name, residence, trade or calling, and the nature or the estate or interest which he holds in the land proposed to be dealt with, describing the same either by reference to the grant, certificate, lease, or other instrument evidencing his title, or by an accurate description, with diagram, in case the land to be dealt with consists of part only of a Section, or of an allotment described and delineated in such grant or other instrument. He will next proceed to give the names, place of abode, and trade or calling of each trustee, and it is intended that the number of trustees originally nominated should be kept up; he will express that intention by inserting in the form the words "no survivorship". When these words are inserted on the nomination of trustees, the Registrar-General cannot, without the sanction of a Judge of the Supreme Court, give effect to any attempted dealing by such living or continuing trustees until the original number is filled up.

72   The Supreme Court is empowered to make orders for filling up vacancies in the number of trustees, and for the investment or application of proceeds realized upon the trust property.

73   The interests of beneficiaries may be further protected by the proprietor lodging a caveat with the Registrar-General, forbidding dealing by the trustees without the consent of the tenant for life or other beneficiary, whose name and address must be given in the caveat.

74.   The parent, guardian, or committee of any proprietor, incapacitated by infancy or lunacy, may lodge a protecting caveat on behalf of such incapacitated proprietors, and in the event of there being no parent or Guardian, the Registrar-General is authorized to protect the interests of incapacitated persons by caveats.

75.   The importance and efficacy of these provisions may be judged of from the evidence given before a commission appointed by the House of Commons, by Mr Freshfield, Solicitor to the Bank of England, to the effect, that whilst trust property in the funds is dealt with by trustees with absolute power of disposal, to the extent of millions annually, frauds are unknown, when these simple precautionary measures are attended to.

76.   Any number of Sections or allotments belonging to the same proprietor may be included in one form of "Nomination of Trustees."

77.   So soon as the particulars of that instrument are entered in the register-book, the legal estate will vest absolutely in the trustees, who may then proceed to deal with the same in all respects, in manner hereinbefore described.

78.   The Registrar-General is bound to give effect to their transactions, unless barred by caveat, and purchasers or mortgagees have no occasion to look after the appropriation of proceeds.

79. The instrument declaring the trusts under which the land is to be held may include lands not under the Real Property Act, together with the lands under the Act, in respect to which the nomination of trustees is executed, and a duplicate, or an attested copy, must be deposited in the Lands Titles Office for safe custody and reference by the parties entrusted, but may not be registered.

80.   The fee for registering a nomination of trustees is ten shillings. The instrument, endorsed with the certificate of registration, will be returned within half-an-hour after presentation at the Land Titles Office. Example of a nomination of trustees is annexed.”

SA 1861 Act

73. In response to the SA 1861 Report, the South Australian government enacted the SA 1861 Act, which repealed the SA 1860 Act. The SA 1861 Act included provisions that no notice of trusts was to be entered in the register (s 66); a transfer to transferees could be marked “no survivorship” which words were to be entered in the register and on any subsequent certificate of title to be issued to those trustees (s 67); any settlor or beneficiary of a trust could lodge a caveat against land subject to the trust (s 81); a party deprived of land “in consequence of fraud” could bring an action for compensation (s 125); and if the defendant was dead or insolvent, the action could be brought against the Registrar-General as nominal defendant with damages to be paid from the assurance fund.

74. Section 132 was a new provision and stands as the original ancestor of the Exemption:

“132.   The assurance fund shall not, under any circumstances, be liable for compensation for any loss, damage, or deprivation, occasioned by the breach by a registered proprietor of any trust, whether express, implied, or constructive; nor in any case in which the same land may have been included in two or more grants from the Crown; nor shall the assurance fund be liable in any case in which such loss or deprivation has been occasioned by any land being included in the same certificate of title with other land through misdescription of the boundaries or parcels of any land, unless in the case last aforesaid, it shall be proved that the person liable for compensation and damages is dead, or has absconded, or has been adjudged insolvent, or the Sheriff shall certify that such person is unable to pay the full amount and costs awarded in any action for recovery of such compensation; and the said fund shall be liable for such amounts only as the Sheriff shall fail to recover from the person liable as aforesaid.”

75. In the South Australian Parliamentary Hansard (5 November 1861, p1107-1108), introducing the SA 1861 Act, no reference was made to s 132. Moreover, the Assurance Fund, and the policy supporting it, was only mentioned in the debate very briefly:

“He need hardly inform the House that the object of this measure was to render a certificate of title obtained under this Act indefeasible, where in the hands of bona fide purchasers for value; and to enable a person to go into the market and deal with his hand as easily as with ordinary merchandise…In order to effect this it had been necessary to make provisions to compensate persons who might be injured by the operations of this Act, and he need hardly remind them that the mode in which this was effected was by an assurance fund, and in the event of this proving inadequate, the Treasurer was authorised to make good the amount from the revenue of the province; thus the owner of property was guarded against any loss which he might sustain by the operation of this measure”.

Real Property Act 1862 (NSW) (the “1862 NSW Act”)

76. The 1862 NSW Act was in almost identical terms to the 1861 SA Act and included:

“124.   The assurance fund shall not under any circumstances be liable for compensation for any loss damage or deprivation occasioned by the breach by a registered proprietor of any trust whether express implied or constructive nor in any case in which the same land may have been included in two or more grants from the Crown nor shall the assurance fund be liable in any case in which such loss or deprivation has been occasioned by any land being included in the same certificate of title with other land through misdescription of boundaries or parcels of any land unless in the case last aforesaid it shall be proved that the person liable compensation and damages is dead or has absconded or has been adjudged insolvent or the Sheriff shall certify that such person is unable to pay the full amount awarded in any action for recovery of such compensation and damages.”

The RPA

77. The 1862 NSW Act was, with one exception, not relevantly amended before 1900. The exception is s 12 of the Real Property Further Amendment Act 1877 (NSW):

“12.   Where any declaration of trust in relation to land under the provisions of the principal Act shall be lodged under the sixty-sixth section of the said Act, it shall be the duty of the Registrar-General forthwith to enter a caveat forbidding the registration of any instrument not in accordance with the trusts and provisions therein declared and contained so far as concerns the land affected by such declaration; and thereupon the words “Caveat Number ….” (the proper number being filled in) shall be stamped or written upon the folium of the register comprising the land referred to in such declaration of trust. Provided that such caveat may be removed by the Court or Judge on application of the same persons and in the same manner as provided by the eighty-second section of the said principal Act.”

78. The RPA was a consolidation act and there was no debate on it at the time. In the Legislative Council it was noted of it and the other consolidation bills introduced at the same time that they were "certified by Mr C G Heydon as being absolutely in accordance with the present law, except that they are in a consolidated form" (Legislative Council, Hansard, 29 August 1900, p 2362). Charles Gilbert Heydon, sometime Attorney-General and later District and Supreme Court judge, oversaw the consolidation of hundreds of pieces of NSW legislation between 1896 and 1902.

79. In its original form, the RPA continued to provide that “The Registrar-General shall not make any entry in the register-book of any notice of trusts, whether expressed, implied, or constructive” (s 82(1)). It maintained the capacity for a beneficiary of a trust to lodge a caveat (notwithstanding the deletion of the word “beneficiary” from s 72) and the “no survivorship” provision (s 84). Notably for present purposes, it included:

126. (1) Any person deprived of land or of any estate, or interest in land—

(a)   in consequence of fraud; or

(b)   through the bringing of such land under the provisions of this Act; or

(c)   by the registration of any other person as proprietor of such land, estate, or interest; or

(d)   in consequence of any error, omission, or misdescription in any certificate of title, or in any entry or memorial in the register-book,

may bring and prosecute an action at law for the recovery of damages.

…

(5) In any of the following cases, that is to say -

(a)   where such person ceases to be liable for the payment of damages as aforesaid; or

(b)   when the person liable for damages under this section is dead, bankrupt, or insolvent, or cannot be found within the jurisdiction,

such damages with costs of action may be recovered out of the assurance fund by action against the Registrar-General as nominal defendant.

…

133.   The assurance fund shall not, under any circumstances, be liable for compensation for any loss, damage or deprivation occasioned –

(a)   by the breach by a registered proprietor of any trust whether express, implied, or constructive; or

(b)   by the inclusion of the same land in two or more grants; or

(c)   by any land being included in the same certificate of title with other land through misdescription of boundaries or parcels of any land, unless it is proved that the person liable for compensation and damages is dead or has absconded or is insolvent or bankrupt, or the Sheriff shall certify that such person is unable to pay the full amount awarded in any action for recovery of such compensation and damages.”

80. Baalman’s The Torrens System in New South Wales (Law Book Co of Australasia Pty Ltd, 1951) offers an extensive consideration of what has become the Exception (at pp 412-414; citations omitted):

“The Torrens System anticipated, by upwards of 60 years, some of the major reforms which were introduced into England by the property legislation of 1925. An outstanding feature of the English legislation is the “curtain” which it draws between legal and equitable estates. A purchaser from the owner of a legal estate is bound to assume that his vendor has full powers of disposition. If the vendor happens to be a trustee, the cestuis que trust will have remedies for any misuse of his powers, but they are remedies against the trustee – not against the purchaser. In other words, the purchaser is not a policeman for the cestuis que trust.

The Torrens ‘curtain’ is the register-book. There is evidence of a consistent design throughout the Act to confine any supervision of fiduciary dealings to the persons immediately concerned. Section 43 exonerates a person dealing with the registered proprietor from the effect of notice of a trust. A fiduciary applicant for transmission continues, after registration, to be responsible to his cestuis que trust, "but for the purposes of any dealing with such land" he is deemed to be the absolute proprietor thereof, and, no doubt, to have full powers of disposition; s. 96. A bona fide purchaser is absolved from the consequences of any fraud or error (including a breach of trust) which may have attended the "procuring the registration of the transfer to such purchaser"; s. 135.

It is in conformity with the policy expressed in the sections above mentioned that s. 133 relieves the Assurance Fund from liability for loss occasioned by a breach of trust. As the Assurance Fund can be reached only by an action against the Registrar-General — s.126 (5); and as any damages or costs recovered in action against the Registrar-General are to be charged to the account of the Assurance Funds s.129; the exoneration of the Assurance Fund by s. 133 amounts to an exoneration of the Registrar-General.

Even without the express provision of s.133, it was apparent that, except in the limited class of cases contemplated by s.82 (2), the Registrar-General was not intended to supervise the dealings of fiduciary proprietors, at least not to the extent of depriving purchasers of any exonerating curtain which the Act has drawn between legal and equitable estates. As the High Court stated in Wolfson v. Registrar-General, the notification of equities in the register-book "is within the very evil to which the Act is directed".

That which was evil in 1934 has since been made good by the enactment of s. 12(f), which empowers the Registrar-General to enter caveats or notifications "for the protection of any person interested in the land". As the amendment made no attempt to reconcile the new power with the sections which exonerate purchasers, the extent to which it was intended to be exercised must be a matter for speculation. But it is clear that s.12(f) has potentialities for exposing to the public gaze much of that conveyancing untidiness which the curtain was intended to hide. It is possible also that it has some qualifying effect on s. 133, on the basis that, in electing to supervise a trust when he is not required to do so, the Registrar-General would relinquish the protection given by that section to the Assurance Fund. It was made clear in Ex parte Saunders that the Registrar-General owed no duty towards cestuis que trust. It was held in that case that he should have registered a dealing by trustees in which the consideration was by way of compromising an adverse claim without inquiring whether the compromise was a provident one.

It was stated in Templeton v. Leviathan Pty. Ltd (cited in Beckenham & Harris at p. 278) that the Registrar-General should not register a dealing which he knows to be improper, and that to do so would expose the Assurance Fund to liability. It is difficult to see how there could ever be any doubt on that point. But propriety in this context is not measured by doctrines of English equity. We are "here dealing with a totally different land law, namely, a system of registration of title contained in a codifying enactment"; Haji Abdul Rahman v. Mahomed Hassan. In the clearest terms that law excludes breaches of trust from the field of impropriety with which the Registrar-General need be concerned.”

81. Baalman’s commentary reveals similar policy concerns as those propounded in favour of the trust exemption in the SA 1861 Report. Again, the inclusion of the trust exemption reflected the policy that it was not for the RG to provide a further protection for breaches of trust and that trusts were already afforded sufficient protections.

82. Section 84 of the RPA as originally enacted contained the provision permitting the “no survivorship” entry. This was repealed by the Real Property Amendment Act 1970 (NSW), which deleted the "no survivorship" provisions in s 84, but preserved those already entered on the register by introducing what is the current s 84:

“84   Barring of survivorship among trustees in certain cases

Where before the commencement of the Real Property (Amendment) Act 1970 the words "no survivorship" were recorded in the Register it shall not be lawful for any less number of joint proprietors than the number registered at the time those words were so recorded to deal with the land affected by the recording without obtaining an order of the Supreme Court sanctioning that action.”

83. That amending legislation was the product of a substantial review of the law. The Minister of Justice, in moving the bill, explained the purpose of the amendment of s 84 (NSW Legislative Assembly, Hansard, 26 Feb 1970, p 3661):

"It is proposed to withdraw, for the future, the right of trustee-proprietors to have an entry of "no survivorship" made on the relevant title. The effect of such an entry is to require the sanction of the Supreme Court for any disposition by surviving trustees. The hardship and expense entailed made the practice unpopular, and the provisions are virtually obsolete. The bill, however, requires the Registrar-General to continue to police transactions affecting the few titles already noted "no survivorship"."

84. In 1977, s 133 and its related provisions were considered by the Court of Appeal in Parker. Glass JA and Mahoney JA each delivered a judgment, while Street CJ agreed with both of them (which adds a complication insofar as the two judgments are not completely consistent in their analysis of causation).

85. The Cross-Claimants rely heavily on this passage from Glass JA (at 27) :

“The third ground upon which the appellant seeks to subvert the judgment enlists the exemption contained in s. 133 which provides as follows:

“The assurance fund shall not, under any circumstances, be liable for compensation for any loss, damage, or deprivation occasioned— (a) by the breach by a registered proprietor of any trust whether express, implied, or constructive; ….”

It was argued that, upon the rescission of the contract, the company became a constructive trustee of the land in favour of the plaintiffs. Accordingly, the plaintiffs' loss, damage or deprivation was occasioned by the breach of a constructive trust and is not recoverable from the fund. It is necessary to recall the sequence of events. The contract was not disaffirmed until the plaintiffs lodged their caveat on 8th March, 1966. The deprivation of the land occurred on 22nd December, 1965, when transfer to the company was registered. A loss which sounded in damages and flowed from the deprivation occurred on 3rd March, 1966, when the mortgage was registered in favour of the National Mutual Life Association of Australasia Ltd. Since both of these events took place before the company became constructive trustee they could not have been occasioned by a breach of constructive trust then occurring. However, there is much uncertainty concerning the status of the equity of a defrauded party before he exercises his right to rescind, and whether the rescission takes effect retrospectively, Meagher, Gummow & Lehane, Equity: Doctrines and Remedies, pp. 96-99. I am prepared to assume favourably to the appellant that, upon rescission, a trust arose which related back to the original registration so that the company held as constructive trustee ab initio: Latec Investments Ltd. v. Hotel Terrigal Pty. Ltd. (In Liq.). Upon this view, the mortgage given before affirmation should be retrospectively treated as from the time of rescission as having been given in breach of trust. But the matter does not end there. It must be shown that the section, upon its true construction, has a bearing upon such a situation. I do not think it does. I consider that s. 133 (a) protects the fund from claims where the original default is that of the registered proprietor. It is not, in my view, concerned with loss or damage which is suffered because of a deprivation in consequence of a fraud practised upon the proprietor within the meaning of s. 126. To give the two sections any concurrent operation would largely defeat s. 126 (5). They may be given a mutually exclusive operation by treating s. 133 as if the words “occasioned by” meant “solely occasioned by”. Upon this construction the section has no application.”

86. The also rely on these passages from Mahoney JA (at 30-33):

“…

The words “in consequence of” normally denote a form of causal relation: see Preston v. Norfolk County Council; Iron and Steel Holding & Realisation Agencies v. Compensation Appeal Tribunal; Hay v. Hughes. “Consequence” can include things which are not “effects”: cf. H.L.A. Hart & A.M. Honoré, “Causalities in the Law” pp. 25-26; and may, perhaps, have a wider significance: cf. Re Miller (dec'd). In the present case, the intended effect of the fraud was that the plaintiffs be deprived of their land; it is not necessary to determine whether, in s. 126 (1) (a), the phrase has a wider operation.

But the Registrar-General's argument is that the phrase should be given a more restricted operation.

It is submitted that the s. 126 (1) (a) should apply only to those consequences of fraud which have resulted from the operation of the system of title registration.

…

I do not think that the context of the paragraph requires that the phrase be so limited. As I have said, the section provides a remedy primarily against the person who acquired title to the land through the fraud: s. 126(2) (c). There is, in my opinion, no reason either in the terms or the purpose of the section which would require that a right of recovery against such a person should be so limited. The categories of fraud are not closed; frauds may take on many different forms. There is no reason why a right of recovery should be limited as against the person responsible for the fraudulent deprivation of land according to whether, e.g. the fraud involves the voluntary signing of a transfer induced by fraud, the signing of it by mistake, or the forgery of a document. Where as I have said, the particular fraud was directed to achieving the deprivation of land which occurred, I see no reason why the remedy against the person responsible for that fraud should be limited by reference to the accident of the means chosen to give effect to that fraud.

…

(5) The defence based on s. 133 of the Act:

This section, as far as is here relevant, provides: “The assurance fund shall not, under any circumstances, be liable for compensation for any loss, damage or deprivation occasioned—

(a) by the breach by a registered proprietor of any trust whether express, implied or constructive;….”

It was argued that the company was a trustee for the plaintiffs and that their loss resulted from a breach by the company of its obligations as such trustee.

That which “occasioned” the plaintiffs' loss, damage or deprivation was, in the relevant sense, not any such breach of trust as may have occurred; it was, in my opinion, the antecedent fraud. Such breach of trust as may have occurred was merely one of the intermediate results of the fraud.

…

I shall assume, for the purpose of this argument, that the company was, upon registration as proprietor of the land, a trustee of it for the plaintiffs.

Mr. Horton then submitted that the company, if it was a trustee, acted in breach of trust by mortgaging the land to the life assurance company. Again, for the purposes of this argument, this may be assumed to be so.

But it does not follow that the plaintiffs' loss, damage or deprivation was “occasioned by” that breach of trust. The plaintiffs sue because they were “deprived of land” within s. 126 (1), and they claim the damages flowing from such deprivation. If the relevant deprivation took place, as I have held, when the company was registered as proprietor, then the deprivation took place before the company became a trustee and was not occasioned by it. The quantification of damage flowing from that deprivation may be affected by subsequent events, but it is the damage attributable to the deprivation which is in question.

But Mr. Horton's argument looks to what took place after the company became registered as proprietor, and, in particular, to the fact that the detriment which remained to the plaintiffs in the events which have happened was the detriment of the mortgage which the company gave to the life assurance company. It is for that detriment, it was submitted, that recovery is sought. I do not think that, even if Mr. Horton's argument be so pursued, that which, within the meaning of s. 133 “occasioned” the relevant loss, damage or deprivation, was the postulated breach of trust. The company was party to a fraud which sought, by several steps, to achieve the result that mortgage moneys should be received by it and applied by it to its own purposes. Its becoming registered as proprietor and its granting the mortgage to the life assurance company were merely intended steps in the execution of the fraud. In such a case, that by which the final result was “occasioned” may properly be held to be, not merely the immediately preceding step in the transaction, but the transaction itself: cf. Sheridan v. Midland Great Western Railway Co. of Ireland per FitzGibbon L.J. That which, in the present case, occasioned the loss, damage or deprivation was, in my opinion, not the postulated breach of trust, but the fraud.

In my opinion, therefore, the appeal should be dismissed with costs.”

87. Although the Real Property (Torrens Assurance Fund) Amendment Act 1992 (NSW) made no amendment to s 133, the Cross-Claimants pointed to the second reading speech as evidence for the argument that there is no support for the proposition that some victims of fraud deserve compensation while others do not, and that this proposition does not sit easily with the policy basis of the Assurance Fund.

88. In the debate of the bill, Mr Martin (Member for Port Stephens) emphasised that:

“…the Real Property Act provides for the payment of compensation by the Registrar General to persons defrauded of an interest in land where the fraudulent party is unavailable to be sued or is insolvent. The bill will amend the compensation provisions of the Real Property Act to ensure that compensation is only paid by the State where no other source of compensation exists.”

89. What emerges from this excerpt from the second reading speech is that the only circumstance in which the Parliament has provided for fraudulent conduct not to be compensable by the RG is to the extent that the conduct is compensable from other sources. This is not however inconsistent with the policy, or legislative purpose, that emerges from an examination of the legislative history of the provision, in particular with respect to its South Australian forebears. This was that beneficiaries were adequately protected by what was in the legislation and otherwise had sufficient rights, external to the RPA, which would allow them to be compensated without recourse to the RPA.

90. In 1988 the NSW Law Reform Commission was given the task of reviewing the compensation scheme under the RPA. It published its report in 1996 (NSW Law Reform Commission Report 76 (1996) – Torrens Title: Compensation for Loss) (the “1996 NSW Report”). I shall quote from various parts of the 1996 NSW Report in considering the parties’ submissions below. However, it is convenient at this point to note that the 1996 NSW Report does not expressly deal with the Exemption or the question of trusts at all.

112. To uphold the construction of “solely arising from” now contended for by the Cross-Claimants would be to circumvent the effect of the 2009 amendment, which was to remove the possibility of multiple causes being taken into account. In my opinion the introduction of “where” in lieu of “to the extent to which” confirms that the Exemption is intended to operate in any circumstance where there has been a breach of trust irrespective of the role of another cause such as fraud. By way of contrast, the 2009 amendment left untouched “to the extent to which” prefacing RPA paragraphs 129(2)(a)-(d), which is completely explained by the fact that each of those relate to circumstances which logically lend themselves to dissection of responsibility.

113. The considerations I have referred to in paragraphs [112] to [116] above are also why I reject the Cross-Claimants' alternative interpretation, being that s 129(2)(f)(i) be understood to mean "the non-fraudulent breach by a registered proprietor of any trust". Again, neither the natural and ordinary meaning of the words, the context in which they appear, nor any other consideration supports a construction to that effect. “Breach of trust” means breach of trust of any kind.

114. Finally, notwithstanding the agreement of the parties that fraud and breach of trust were both causes of the Cross-Claimants' loss and damage, it is necessary to deal with the Cross-Claimants' argument that, as a matter of fact, the “true cause” of their loss and damage was Mr Krnjulac’s fraud and that his breach of trust was merely incidental. I disagree. It is clear from the Schedule that the critical steps which led to the Cross-Claimants' loss and damage were as much breaches of trust as acts of fraud. That conclusion is consistent with, and fortified by, the descriptions in the Court of Appeal in this litigation in Krnjulac v Lincu [2015] NSWCA 367 of "fraudulent breach of trust" (per Bathurst CJ at [2], Leeming JA agreeing at [26]; and per Emmett AJA at [28]).

SECTION 129(1) - THE "ENTITLEMENT GATEWAY" PROVISION

119. Although the parties agreed that s 129(1) was satisfied in this case, some submissions were addressed to it because, as I accept, s 129 must be construed as a whole in its context. Perhaps somewhat regrettably given the stated purposes of simplicity and clarity, it is notable that s 129(1) contains not one, but three statutory expressions of causal relationship, what French CJ has referred to as "ambulatory words" where "the nature and breadth of the relationship they cover will depend upon their statutory context and purpose" (R v Khazaal [2012] HCA 26; (2012) 246 CLR 601 at [31]). Those expressions are "as a result of", "arises from" and "as a consequence of". To add to this cornucopia, s 129(2) also introduces "in relation to".

"As a result of the operation of this Act"

120. The opening words of s 129(1) "any person who suffers loss or damage as a result of the operation of this Act in respect of any land…" require identification of the "loss or damage" and the "loss or damage" must have been "a result of the operation of this Act". As noted by Bryson J in Challenger Managed Investments Ltd v Direct Money Group Pty Ltd [2003] NSWSC 1072; (2003) 59 NSWLR 452; ("Challenger") at [74]:

"The overall control mechanism in s 129(1) is that the plaintiff must have suffered loss or damage as a result of the operation of the Act; and the workings of indefeasibility will usually have a part in the plaintiffs' rights' being in a worse situation than he was entitled to have them but for the operation of the Act."

121. In interpreting the meaning of "as a result of this Act", it was held in Diemasters Pty Ltd v Meadowcorp Pty Ltd [2001] NSWSC 495; (2001) 52 NSWLR 572 at [31] and [34], that an unregistered interest in property was still capable of being characterised as "loss or damage as a result of the operation of the Act" as "[i]t is quite unlikely that [Parliament] intended to make access to the Assurance Fund more restrictive than under the old s 126, which it replaced" and where the reference to a person being "deprived of …any interest in the land" included deprivation of an unregistered interest (see also Robinson v Registrar-General (1982) 2 BPR 97154; (1983) NSW ConvR 55-138 (57,002)).

122. The present case however deals exclusively with registered interests in land and therefore comes directly under RPA s 129(1). Despite transfer documents being fraudulently obtained, Mr Krnjulac and his sons were able to register a transfer of title, become the registered proprietors of the Church Property and in their capacity as such, grant the Mortgage over the Church Property, later defaulting in making the required mortgage repayments. The loss or damage arising from the operation of the RPA is the liability acquired by Mr Lincu and the other original trustees upon Mr Krnjulac and his sons' default in repaying the Mortgage.

123. Section 129(1) then sets out that the "loss or damage" must arise out of one of the listed circumstances set out in sub-section (1). In this case, the relevant circumstance is that described in s 129(1)(e), being that the loss or damage arose from "the person having been deprived of the land, or any estate or interest in the land, as a consequence of fraud". As summarised by Bryson J in Challenger at [75]:

"…a person's having been deprived of land as a consequence of fraud, will usually arise in a situation where some fraud has been practised which cannot be said to involve any fault of the Registrar General, who with others was the victim of it."

"Arises from"

124. In address, the RG submitted that the words "arises from" and also the language of "as a consequence of fraud" supported the proposition that the causation test applied in s 129(1) was that the fraud must be "a material operating cause" of the person suffering loss or damage as a result of the operation of the RPA.

125. The statutory meaning of the words "arises from" is considered below in the context of the Exemption.

"Deprived"

126. In Parker (at 26), Glass JA (Street CJ agreeing) set about interpreting the meaning of the word "deprived" as it was then referred to in s 126(1)(a). He held that it was not limited to an involuntary disposition, but rather that a person may be deprived of their land, notwithstanding that they have voluntarily parted with it under the influence of fraud (see also Registrar-General v Behn [1980] 1 NSWLR 589). Moreover, Mahoney JA in Parker found that it was enough that the plaintiffs in that case were "deprived of the land" as a result of the transfer, procured by fraud, in favour of a company and by the registration of that company as registered proprietor of the property in issue (at 28).

"A consequence of"

127. It was submitted by the RG in the present case that one of the components of s 129(1)(e) that had to be considered was that the relevant deprivation of the land must be "a consequence of fraud". It was argued that the use of the indefinite article "a" rather than the definite article "the" meant that "there may be other factors that have been at play in terms of depriving a person of land or an interest, but one need only be able to say that a material or operating cause of the loss included fraud, and it's 'a' consequence, not 'the' consequence of fraud" (Transcript, p 46).

128. In s 126(1), the section which the present s 129 of the RPA replaced, the words "in consequence" were used rather than "a consequence". In Parker, Mahoney JA at 30 made the following comments regarding the meaning of "in consequence":

"The words 'in consequence of' normally denote a form of causal relation. 'Consequence' can include things which are not 'effects' and may, perhaps, have a wider significance. In the present case, the intended effect of the fraud was that the plaintiffs be deprived of their land; it is not necessary to determine whether, in s. 126(1)(a), the phrase has a wider operation" (citations omitted).”

129. In my view, the use of the phrase "a consequence", rather than "the consequence", should be given the meaning proposed by the RG because that is the natural and ordinary meaning in this context of the indefinite article. That is, any person who is deprived of an interest in land because of the fraud of another person who takes a registered interest, irrespective of whether deprivation was just one of many consequences of that fraud, is entitled to compensation. This interpretation of the phrase is not inconsistent with that of Mahoney JA in Parker, but also reflects the change of language from s 126 to the present s 129 of the RPA. I also accept the RG’s language of “material or operating cause”, because “consequence” denotes a more direct or proximate causal relationship than “arises from”.

"Fraud"

130. Fraud has been interpreted broadly for the purposes of s 129(1). In Parker at 25 (Street CJ agreeing), Glass JA provided the following explanation of "fraud" in respect of s 126(1) (the predecessor to s 129 of the RPA):

"In my opinion, the section should be construed so as to embrace all frauds within the ordinary legal meaning of that term. I can see every reason why some might think it undesirable that, whenever the fraudulent party absconds, dies or becomes bankrupt, the assurance fund should bear the brunt of the many varieties of moral turpitude normally encompassed by the word fraud. But I can see no warrant for reading down the language of the section so as to restrict it to forgery or quasi-forgery."

SECTION 129(2)(f)(i) - The Exemption

131. Upon the claimant establishing that they have an entitlement to compensation under s 129(1), the claimant is confronted with the limitations and exclusions that apply under s 129(2). Section 129(2) provides that compensation is not payable "in relation to any loss or damage" suffered by any person where one or more of the listed circumstances are applicable. There was no argument in this case about the scope of the words of connection "in relation to", being "a phrase that can be used in a variety of contexts, in which the degree of connection that must be shown between the two subject matters joined by the expression may differ": Travelex Ltd v Federal Commissioner of Taxation [2010] HCA 33; (2010) 241 CLR 510 per French CJ and Hayne J at [25]. It is therefore not necessary for me to say any more about it.

132. In this case, the argument turned on the applicability of the Exemption, with the critical issue being the constructional choice said to be posed by the words "arising from". I note in passing that no party suggested the constructional choice was affected by the fact that "arises from" in the Exemption relates to both sub-paragraphs of s 129(2)(f).

133. The Cross-Claimants argued that the chapeau contained in s 129(2)(f) - "where the loss arises from" - should be construed as if the word "solely" was inserted so that it reads "where the loss arises solely from the breach by a registered proprietor of any trust…", or should be read as having the same meaning as the words "occasioned by". The decision in Parker, as well as parts of the 1996 NSW Report, were relied on as supporting this interpretation. Moreover, it was said to be clear from the structure of the legislation and the legislative history that the Fund was intended to provide insurance, and assurance, for people who have been affected by fraud.

134. In contrast, the RG submitted, and I accept, that the interpretation proposed by the Cross-Claimants is too narrow and does not reflect the natural, ordinary and unambiguous meaning of the words "arises from" in the context in which they appear. The words "arises from" imply a wider pool of causation that covers multiple causes, making it difficult to imply into the section the word "solely". Moreover, it was submitted the difference between the wording of s 129(2)(f)(i) in its current form and s 133, as it was at the time of the decision in Parker, is sufficient for the Court to conclude that it is not bound by Parker. It was also submitted that those parts of the 1996 NSW Report that were identified by the Cross-Claimants as supporting their interpretation of s 129(2)(f)(i) are directed to the broad definition of "fraud" adopted in Parker, rather than preserving the application of the Parker decision, in its entirety, to the section in its current form.

135. In the alternative, the Cross-Claimants argued that the RG’s literal interpretation of the section could be overcome if the "breach" referred to in s 129(2)(f)(i) was read as a "non-fraudulent" breach.

136. Finally, the Cross-Claimants submitted that on the facts of this case, it was mere happenstance that Mr Krnjulac was a trustee and that the “true cause” of their loss and damage was his fraud.

Construction of s 129(2)(f) - "Arises from" - consideration

137. As stated above, with respect to the words "where the loss arises from", the Cross-Claimants argued that the word "solely" should be inserted so that it reads "where the loss arises solely from the breach by a registered proprietor of any trust…" Alternatively, it was submitted that the phrase should be read as having the same meaning as the words "occasioned by".

138. The Cross-Claimants argued that Parker supported this proposed interpretation of s 129(2)(f). Parker was a decision made in respect of s 133(a), the predecessor of the present s 129(2)(f). Relevantly, s 133(a) did not contain the phrase "arises from", rather it used "occasioned by". It will be recalled that in Parker, Glass JA held (at 27) (Street CJ agreeing):

"I consider that s 133(a) protects the fund from claims where the original default is that of the registered proprietor. It is not, in my view, concerned with loss or damage which is suffered because of a deprivation in consequence of a fraud practised upon the proprietor within the meaning of s 126 [the predecessor of the present s 129(1)]. To give the two sections any concurrent operation would largely defeat s 126(5). They may be given a mutually exclusive operation by treating s 133 as if the words 'occasioned by' meant 'solely occasioned by'."

139. Moreover, the Cross-Claimants submitted that the re-enactment of the Exemption in s 129(2)(f) did not change the test of causation expounded by Parker. Mr Knoll referred to paragraphs [2.13] and [4.27] of the 1996 NSW Report, together with Recommendations 3 and 4, for the proposition that not only was Parker correct, but that Parliament intended that "it ought be preserved" (Transcript, pp 39-40) as s 129 was introduced in response to the 1996 NSW Report.

140. In paragraph [2.13] of the 1996 NSW Report, Parker is referred to:

"The difficulties which have arisen with establishing the fraud basis for claiming compensation can be contrasted with the generosity given to its meaning by the New South Wales Court of Criminal Appeal in Parker v Registrar-General…Justice Mahoney in the Court of Appeal stated that [refer to paragraph extracted above at [86]]."

141. In paragraph [4.27], Parker is referred to:

"One of the exceptions to recovery under a 'fraud' basis for wrongful deprivation of land suggested in the Discussion Paper and Issues Paper was where a registered proprietor voluntarily signs documents of title under the influence of fraud. Here, it was suggested that the case for compensation may not be so strong, as the victim could be assumed to have control over what occurred. The Registrar-General in his submission agreed with this proposition. However, as Justice Mahoney pointed out in Parker v Registrar-General, there seems to be no justification for limiting a right of recovery against a fraudulent party according to whether the fraud involves the voluntary signing of a transfer induced by fraud, the signing of it by mistake or the forgery of a document where the fraud is directed to achieving the deprivation of land. Furthermore, limiting compensation to cases of forgery would not fulfil the insurance principle in that it would not compensate losses resulting from fraud, other than those resulting from forgery (for example, where innocent registered proprietors are fraudulently induced to execute transfers). The proposal would also not compensate losses which involve negligence or error of third parties where error of the Registrar-General or forgery has not occurred (for example, where a solicitor negligently completes instruments which transfer title but there is no disconformity between the instrument and the registration on which it is based, so that there is no mistake by the Land Titles Office)."

142. Recommendation 3 and 4 are set out in paragraph [91] above. Each of the recommendations found expression in s 129. Recommendation 3 was reflected in s 129(1) and the first part of recommendation 4 in s 129(2)(a).

143. In particular, the Cross-Claimants argued that paragraph [2.13] and Recommendation 3 referred to the "generous meaning" to Parker and that this "generosity" of meaning suggested that the Parliament did not intend for Parker to be cut down in any way (Transcript, p 40).

144. In my view, however, the RG's submissions correctly identified why the Cross-Claimants' submissions should be rejected.

145. First, the treatment of Parker in paragraphs [2.13] and [4.27] of the 1996 NSW Report is confined to the interpretation of "fraud" for the purposes of the compensation provisions of the RPA in the predecessor provisions to Pt 14 of the RPA, rather than examining or accepting the causation test applied Parker.

146. Second, RPA s 129(1)(e) contains no definition of "fraud" so it is likely that the references to the Parker decision merely reflected Parliament accepting the judicial interpretation of "fraud", as articulated by Mahoney JA in Parker, for the purposes of compensation claims.

147. Third, the recommendations relied upon by the Cross-Claimants do not directly interact with Parker, or the causation test applied in Parker. For what it may be worth, the language of "arising out of" rather than "occasioned by" is used in Recommendation 2.

148. Fourth, the reference to "generosity" in paragraph [2.13] appears to be referring to the generosity in the interpretation of "fraud", as the quoted passage from Parker pertains to this issue, rather than engaging with, or preserving, the causation test applied in Parker.

149. Next, the Cross-Claimants submitted, with references to the treatment by Parliament of the "mischief" in Voudouris v Registrar-General (1993) 30 NSWLR 195 (“Voudouris”), that if Parliament "thought there was a mischief in the ratio of Parker, they could have done that with Parker as well. They didn't" (Transcript, p 40). In the course of making its recommendations, the Law Reform Commission made it clear that it sought to overcome the decision in Voudouris, in which it was held that the former s 127 applied in case of error, omission or misdescription where the plaintiff suffered damage as a result of purchasing property in reliance on an erroneous statement of the dimensions of the property, rather than on a misdescription that appeared on the title itself. Thus, the Cross-Claimants argued, having identified a particular mischief in the decided case, the Commissioners, and as a result Parliament, overcame the mischief by specifically legislating on that issue.

150. In response, the RG argued that, first, it was a "stretch" of the "legal imagination" to assume "close scrutiny [by the Parliament] of all judicial decisions" and that it should not necessarily be accepted that the courts should "infer from [a] later amendment or re-enactment of statutory provisions that Parliament had accepted the construction placed on such provisions by the courts" (Fish v Solution 6 Holdings Limited [2006] HCA 22; (2006) 225 CLR 180 at [125]).

151. Second, it was submitted that, in Parker, the trust exception failed on the facts as the original default was not that of a registered proprietor at the relevant time and therefore "no occasion sensibly arose to amend that aspect of the legislative provision".

152. Third, it was suggested that, given the divergent reasoning in Parker, including Glass JA's focus on what his Honour considered to be the mutually exclusive operation of ss 126(5) and 133(a) (which his Honour resolved by reading "occasioned by" to mean "solely occasioned by") and Mahoney JA's consideration of "occasioned by" as it applied to the factual context, care must be taken when discerning the ratio and applying the decision in Parker. In my view, in light of the following reasons, the RG's submissions summarised in this and the two preceding paragraphs should be accepted.

142. There is longstanding authority which supports the proposition that where the Parliament repeats words which have been judicially construed, it is taken to have intended the words to bear the meaning already "judicially attributed to them" (Re Alcan Australia Limited; Ex parte Federation of Industrial, Manufacturing & Engineering Employees Union [1994] HCA 34; (1994) 181 CLR 96 at [106] (“Re Alcan”). This authority however has been questioned, and it has been held that the re-enactment of identical or similar statutory words should be just one of many factors considered in any statutory interpretation exercise (ibid). In the present case, and contrary to Re Alcan, there is nothing in the legislative history of the RPA, or in the 1996 NSW Report preceding the amending legislation in 2000 which introduced s 129(2)(f), that indicates an intention on the part of Parliament that the language of s 129(2)(f), and in particular the phrase "arises from", should be interpreted consistently with the decision in Parker.

143. The 1996 NSW Report makes no reference to trusts. As I have already noted, references made to Parker in the 1996 NSW Report were limited to Mahoney JA's interpretation of "fraud". The legislative scheme in the current Part 14 is different to that considered in Parker, different words of causal connection are used and former s 126(5), which was at the centre of Glass JA's reasoning, is no longer part of the RPA. The legislative history which I have earlier set out in these reasons and the consistent policy since the inception of the Torrens scheme not to recognise trusts, all support "arises from" being given their natural and ordinary meaning which does not include the sense of "solely". In short, for these reasons in my respectful view, Parker no longer represents the law on this point of causation and is neither binding nor persuasive.

144. It was also argued by the Cross-Claimants that there is no material difference between the phrases "occasioned by" and "arises from". In support of their submissions, the Cross-Claimants referred to the following authorities:

1. Cooper v The General Accident, Fire, and Life Assurance Cooperation Limited (1922) 128 LT 481 at 483, in which the words "occasioned by" were construed to mean "in consequence of".

2. Guns Forest Product Ltd v North Insurances Pty Ltd [2004] VSC 155, in which Harper J construed the meaning of the term "occasioned by' where an insurer's liability was excluded among other things "in respect of … physical loss, destruction or damage, occasioned by … contamination …" (at [13]). Harper J construed the words "occasioned by" to require that the damage to the woodchips, in respect of which the claim was made, to have been caused by their contamination (at [36]). It was held that, "it nevertheless makes perfectly good sense to say that property which has been damaged by a contaminant is property the damage to which has been occasioned by contamination" (ibid).

3. Vrondissis v Stevens [1940] 2 KB 90 at [96], in which a claim under a marine insurance policy for loss of freight was excluded by the words that "in the event of total loss and/or constructive and/or arranged and/or compromised total loss of vessel, total loss and/or constructive loss of freight arising therefrom is not recoverable". This clause in the policy was construed by the Court as meaning that where a loss of freight was consequential on the total loss of the ship it may be said to arise therefrom.

156. In address, Mr Knoll also referred to Kavanagh v Commonwealth [1960] HCA 25; (1960) 103 CLR 547 at 583-584:

"For, to establish that an accident arose out of a man's employment, it is, Viscount Haldane said, in Thom or Simpson v Sinclair, not enough that something happened to him 'which would not have happened to him if his employment had not caused him to be in the place at which the accident occurred at the time of its occurrence, the place and time having thus been conditions of the result brought into existence by the employment'. More than that is necessary to constitute the kind of causal connexion that the words 'arising out of' postulate. Viscount Haldane's judgment explains the sense of the word cause that is involved in the statement that the words 'arising out of' express a causal relationship. More importantly for present purposes, it also states convincingly that the employment may be a necessary condition without which the accident could not have occurred and yet not, in the relevant sense, causally associated with it. This, in my view, disposes of the argument that to read" in the course of" as meaning that the employment was a condition sine qua non of the accident is to give it the same meaning as the phrase 'arising out of' has."

157. However, I do not agree that there is no material difference between the two phrases. There are other authorities that support the proposition that "arises from" can encompass multiple causes and which, in my respectful view, are examples of the meaning to be given “arises from” in this case. These include, for example:

1. Government Insurance Office of NSW v RJ Green and Lloyd Pty Ltd [1966] HCA 6; (1967) 114 CLR 437 at 443, in which Barwick CJ (with whom McTiernan and Taylor JJ agreed) said that "[b]earing in mind the general purpose of the Act I think the expression "arising out of" must be taken to require a less proximate relationship…than is required to satisfy the words 'caused by'". Moreover, at 445, Menzies J said, "[t]he words 'arising out of the use' have no doubt a wider connotation than the words 'caused by…the use'. To my mind, however, they do import a relationship…which has some causal element in it." And, at 447, Windeyer J said that "'[c]aused by' connotes a 'direct' or 'proximate' relationship of cause and effect. 'Arising out of' extends this to a result that is less immediate; but it still carries a sense of consequence."

2. In Re Hamilton Irvine (1990) 94 ALR 428 at 432, it was held that "'arises out of' imports a relationship which has some causal element, even if not direct or proximate, in it". In that case, the relevant proceeding did not "arise out of" the proceeding in the Family Court as the Family Court proceeding was "in no sense dependent upon, or linked or associated with, the present [proceeding]" (ibid). Thus, in that case, "arises out of" was found to require a less direct or proximate causal relationship between two events, which is arguably inconsistent with an interpretation of "arises from" having a congruent meaning with the words "solely occasioned by" (which denote a direct and proximate causal relationship).

158. The diverging definitions adopted in different cases and statutory contexts in respect of the words "arises from" or “arising out of” reveals the often problematic process of applying decisions about a particular word or phrase in differing statutory or contractual contexts. Leeming JA, after noting that a judge's construction of a provision began with references to dictionary definitions and constructions given to the word "unlikely" in a range of statutory contexts, observed, in a passage which I respectfully adopt, in TAL Life Ltd v Shuetrim [2016] NSWCA 68; (2016) 91 NSWLR 439 at [80]:

"If I may respectfully say so, what clearly emerges from White J's collection of judgments in which the word "unlikely" has been explained in comparable and less comparable contexts is merely that it has been held to denote different meanings in different contexts. That conclusion means merely that "unlikely" is no different from most English words. It also illustrates the inutility of dictionary definitions in construing a legal text (in this case, a clause in an insurance policy). Dictionary definitions may assist in identifying the range of possible meanings a word may bear in various contexts, but will not assist in ascertaining the precise meaning the word bears in a particular context. As much was recognised by a unanimous High Court (and earlier by Learned Hand J) in Thiess v Collector of Customs [2014] HCA 12; 250 CLR 664 at [23] when observing that a mature and developed jurisprudence does not "make a fortress out of the dictionary"…Although the distinction between the dictionary definition of a word and its legal meaning is not often well understood, it is clear that dictionaries are no substitute for the interpretative process, as was observed by R McDougall, "Construction of contracts: The High Court's approach" (2016) 41 Aust Bar Rev 103 at 115…"

159. In the present case, in my view, the RG's proposed interpretation of the section is supported by the text and the purpose of the legislative provision as revealed by its legislative history. As the cases referred to in paragraph [157] above indicate, it is open to the Court to find that the phrase "arises from" encompasses a greater number of causes than the words "occasioned by". Moreover, the history of the provision indicates that the Fund was never intended to provide protection in instances of breach of trust. Thus, it is also open to the Court, in taking, as it must, a purposive approach to the statutory interpretation exercise, to find that, consistent with the identified policy basis for the Exemption, the words "arises from" should be given a broad meaning that prevents recovery from the Fund where one cause of the loss and damage sought to be claimed from the Fund is a breach of trust by a registered proprietor, notwithstanding that another cause of the same loss and damage is fraud by that registered proprietor.

160. There were three other arguments raised by the Cross-Claimants.

161. First, the Cross-Claimants relied on the New Zealand decision of Brewer J in Schmidt v Registrar-General of Land [2015] NZHC 2015; [2016] 2 NZLR 121. I do not think this assists the Cross-Claimants for three reasons. First, the provision his Honour was considering was in terms based on the former s 133 (“under any circumstances…occasioned by”) which is no longer the case here. Second, it is clear from his Honour’s judgment at [29]-[30] that in reaching a conclusion which supports the Cross-Claimant’s construction, the main reason for that conclusion was his Honour’s reliance on s 175 of the legislation he was considering, which has no equivalent in RPA Parts 13 and 14. Third, his Honour’s decision was made in the context of a strike out application rather than a final determination of the issues between the parties.

162. Second, they submitted that the reference in RPA s 129(2)(b)(i) to the “fraudulent, wilful or negligent” conduct of a “solicitor, licensed conveyancer, real estate agent or information broker” showed that if Parliament wanted to exclude fraudulent conduct, it could say so explicitly. I do not think that assists in resolving the construction of the Exemption for at least two reasons. First, the Exemption is directed to the conduct of registered proprietors; s 129(2)(b)(i) is directed to the conduct of professional intermediaries. Second, when read with s 129(2)(b)(ii), it is clear that the reference to “fraudulent, wilful or negligent” conduct has been drawn advisedly to refer to matters which are commonly the subject of professional indemnity insurance, with the intention of ensuring the Fund is not required to pay out to the extent that recovery is available from an insurer. Collaterally, s 133(1) protects the fund from subrogated claims by insurers.

163. Third, the Cross-Claimants submitted that the RPA has been judicially accepted as "beneficial legislation" and that the RG's approach to the present statutory construction exercise was a return to literalism and inconsistent with a beneficial construction of s 129. In particular, the Cross-Claimants referred to Saade v Registrar-General (NSW) [1993] HCA 73; (1993) 179 CLR 58 at 68 ("Saade"), in which the High Court had to decide on competing construction of ss 126(2)(b) and 126(3) (the predecessors to s 129(1)). In that case, the High Court chose to adopt the construction which preserved the "essential protection to persons who are defrauded" (ibid). Moreover, the Cross-Claimants referred to Registrar-General v Harris (1998) 45 NSWLR 404 at 416 ("Harris"), in which Mason P referred to s 126 in the following terms:

"The subject matter of s 126 clearly qualifies it for a beneficial interpretation, however much the sorry history of attempts to make claims on the funds suggests to the contrary. I see no reason why claims should be frustrated by a niggardly interpretation."

164. As the RG, in my view correctly, submitted both the abovementioned cases only dealt with provisions directed to remedies available for persons affected by fraud and mistake within the Torrens system, specifically "the category of persons against whom the statutory cause of action will lie" (Saade at 67), without dealing with provisions expressly limiting or excluding the payment of compensation in respect of an otherwise established entitlement. Moreover, although Mason P said in Harris that that compensation principle was "one of the key planks of the Torrens System", what is revealed from an examination of the legislative history is that the compensation scheme has been subject to limitations, including to the effect of the Exemption, from its earliest days.

"Non-fraudulent" breaches of trust by a registered proprietor

165. An alternative argument put by the Cross-Claimants was that the words "breach of trust" in s 129(2)(f)(i) should be read as referring to only "non-fraudulent" breaches of trust.

166. In my respectful view, however, there is no ambiguity in the statutory language that would expose the statutory text to the meaning proposed by the Cross-Claimants and the considerations which I have set out in relation to “arises from” apply equally against this argument. Section 129(2)(f) is not confined in its terms or operation to unauthorised conduct which is fraudulent. Rather, compensation is excluded for any loss or damage arising from any relevantly unauthorised conduct falling within the provision (breach of trust of a registered proprietor), whether innocent, negligent or fraudulent. If there is a limitation on the kinds of breaches of trust that are encapsulated by s 129(2)(f)(i), it is only that a breach of trust must have been committed by a registered proprietor. Moreover, there is nothing in the legislative history of the provision, or the revealed policy basis for the Exemption, which would indicate that the "breach of trust" referred to in the provision should be limited to "non-fraudulent breaches of trust".

Trust "a mere incident"

167. This was the third way in which the Cross-Claimants put their case. For the reasons set out in paragraph [118] above, this argument is rejected.

CONCLUSION

168. The RG has made out its case that the Exemption affords the RG a complete defence against the Cross-Claimants. The cross-claim will be dismissed and the Court will hear the parties as to costs.

169. In conclusion, I wish to make clear that I have not overlooked the fact, having regard to the history which I have set out at length above, that it could be said that the two main methods said to be protective of trusts in the scheme of the RPA have no application in this case. The possibility of a "no survivorship" entry no longer exists. Insofar as a caveat is concerned, ordinary members of the Church would not have been able to lodge a caveat because they did not have an interest in the Church Property. A charitable trust for the advancement of religion is a trust for purposes and not persons. The other trustees could have lodged a caveat as registered proprietors, but it is difficult to see why they should have done so. Insofar as there was a breach of constructive trust, the beneficiaries of such a trust often become aware of their interest only after the proverbial horse has bolted. That is what happened in this case.

170. It could also be observed that the use of trusts in society generally has grown far beyond what might have been imagined by R R Torrens and his contemporaries, including the Mr Freshfield of an earlier generation referred to in paragraph [70] above. Some of the modern problems posed by the use of trusts have been the subject of the recent NSW Law Reform Commission Report 144 - Laws Relating to Beneficiaries of Trusts.

171. Finally, to some observers the outcome of this case may seem harsh or unfair.

172. Nevertheless, it remains fundamental to the RPA that there is no notice of trusts and the Exemption is carefully drawn to be limited to the conduct of registered proprietors. Whether that should be revisited, as a result of the view I have taken in this case, or because of the matters identified in the preceding three paragraphs, is not something which is relevant to the construction of the Exemption. Those matters may be sufficient to invite the attention of law reform authorities when the operation of the RPA is again considered, as history suggests it inevitably will be. However, in my respectful opinion, especially given the involvement of a charitable trust, those matters are sufficient to invite consideration by the RG as to whether he should make a recommendation to the Minister that the Minister should direct that an ex gratia payment of compensation should be made to the Cross-Claimants from the Fund pursuant to RPA s 130(1).

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Decision last updated: 16 May 2019