Merrell Associates Ltd v HL (Qld) Nominees Pty Ltd & Anor [2011] HCATrans 19

[2011] HCATrans 19

[2011] HCATrans 019

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Adelaide  No A18 of 2010

B e t w e e n -

MERRELL ASSOCIATES LTD

Applicant

and

HL (QLD) NOMINEES PTY LTD (AS TRUSTEE FOR THE HARTS AUSTRALIA STAFF SUPERANNUATION FUND)

First Respondent

JOBERA PTY LTD

Second Respondent

Application for special leave to appeal

GUMMOW J
CRENNAN J
KIEFEL J

TRANSCRIPT OF PROCEEDINGS

FROM CANBERRA BY VIDEO LINK TO ADELAIDE

ON FRIDAY, 11 FEBRUARY 2011, AT 10.09 AM

Copyright in the High Court of Australia

MR M.B. MANETTA:   May it please the Court, I appear for the applicant.  (instructed by Bernard Ponting & Co.)

MS H.M. SYMON, SC:   I appear with my learned friend, MR R. SALLIS, for the first respondent.  (instructed by the Australian Government Solicitor)

GUMMOW J:   You have lost your leader.

MR MANETTA:   Yes.  Regrettably, that is inevitable, your Honour.  Higher commitments, I am afraid.  But I have the grasp of it, I think.

GUMMOW J:   There is no appearance for the second respondent, Jobera Pty Limited.

MR MANETTA:   That is correct, your Honour.  The Real Property Act questions that are raised by this case are important because it exposes a fundamental tension, we say, in the Torrens system between the registered proprietor according to the certificate of title on the one hand and the terms of the registered instrument by which title has been purportedly acquired on the other. 

GUMMOW J:   Who was the immediately previous registered proprietor?

MR MANETTA:   HSS, which is the Harts Staff Superannuation Pty Ltd.

CRENNAN J:   I think you can see from application book 47.

MR MANETTA:   Yes, your Honour.

GUMMOW J:   They seem to have had an indefeasible title.

MR MANETTA:   Yes, your Honour.  The first respondent, HLQ was appointed under the Superannuation Industry Act to take over the trust assets that HSS held.  It did so, or purported to do so, by the registering of an inept application, we say, under section 115A, which was incapable of achieving the result of conferring registered title because that is a section that is confined to compulsory acquisition.

KIEFEL J:   But the step that was first taken was that an order was made by the regulator under the Superannuation Industry Act (Cth) vesting the property in HLQ. 

MR MANETTA:   Yes.  Subsection (5) of section 138 withholds the vesting of legal title to assets that are transmissible by registration, ie, real property, until the State laws are complied with.

KIEFEL J:   So the trustee was required to obtain registration?

MR MANETTA:   Indeed, your Honour, before any legal title would pass from HSS to HLQ.

GUMMOW J:   Just stopping you there for a minute.  This does not seem to be a case of a federal law operating exhaustively.  It seems to be a federal law drafted on the basis of interaction with the State system.  It is not surprising really.

MR MANETTA:   Yes.  The federal law mandates compliance with the State Act, in our submission. 

GUMMOW J:   That is a different question, is it not?

MR MANETTA:   Well, it is, but that is really a subsidiary question.  The question of inconsistency is subsidiary because we say they did not register title properly in the first place and they did not acquire, even by default as it were, title through the endorsement on the certificate of title.

KIEFEL J:   They acquired registration, which is what the Commonwealth Act required.

MR MANETTA:   No, your Honour, we say they did not require registered title because on a proper understanding of sections 67 and 68 of the Real Property Act you do not become a registered proprietor unless you are seized of or take an interest under the preceding section, section 67.  This is the tension that I speak of in the Act which is ultimately a tension between those two sections.  At application book 46 you will find section 67 which provides that:

No instrument shall be effectual to pass any land . . . but upon the registration of any instrument in manner herein prescribed, the estate or interest specified in such instrument shall pass –

So it is on the registration of the instrument that the Act contemplates the title will pass.  Then section 68 says –

The person named in or appearing by any certificate or other registered instrument as seized of or taking any estate or interest in land shall be the registered proprietor thereof.

But “seized of or taking any interest” must mean taking any interest according to the tenor of the instrument that passes the title in section 67.

CRENNAN J:   Is that the vesting order in this case?

MR MANETTA:   No, it is the section 115A application, which was a request or registered title, though the instrument under 115A was merely a request for registered title under inept section, as it were, or ineptly taken out.  It does not purport to confer title.

CRENNAN J:   Application book 47 shows that there were quite a few transfers of mortgage in respect of this particular certificate of title prior to the final entry.  How, under the Act, are they effected?

MR MANETTA:   If your Honour sees under “Schedule of Endorsements”, the second to last endorsement is the mortgage to HSS which was the previous registered proprietor of the mortgage.  The controversial entry is the next one where it says, “Vesting of mortgage in HL (Qld) ‑ ‑ ‑

CRENNAN J:   Yes, but I am asking you about the penultimate entry.  How would that have been done under the Real Property Act?

MR MANETTA:   A mortgage would have been registered in favour of Harts Staff Superannuation.

CRENNAN J:   I am really asking you, in terms of your argument about section 115A, what section of the Real Property Act does one turn to for the recording of a transfer of a mortgage?

MR MANETTA:   I see.  There is a separate section.  I think it is ‑ ‑ ‑

CRENNAN J:   Section 150, perhaps?

MR MANETTA:   Section 150, yes.  Section 150 allows for the transfer of mortgages in the ordinary way but, of course, in cases of trusts, and this is a mortgage held under trust, you do not always get the co‑operation of the outgoing trustees to execute a transfer.  So there is an alternative method, which is under the Trustee Act, which allows new trustees to simply register a memorandum of appointment of new trustees with an accompanying affidavit.  That is under section 77 of the Trustee Act.

KIEFEL J:   So, does it come down to this, that the application to note vesting under section 115A correctly referred to the capacity of HLQ as trustee and that it had an order entitling it to have the property vested in its name?  But your point is that a different document should have been utilised to obtain registration?

MR MANETTA:   Yes, your Honour, because what the application did was to request, pursuant to section 115A, for, effectively, a compulsory acquisition order and you are not entitled to have those in relation to a mortgage and that meant that the application was inept.  It could never have been acceded to and HLQ could never have obtained the registered title that it sought by that application.  Fortuitously, when that application is described in the memorial, it is called a vesting, and it is no such thing.  It is an application for a request for a compulsory acquisition which does not, of itself, constitute a vesting, though, the Full Court derived title from the notation vesting and rely on section 68 of the Act. 

We say, you must interpret section 68 as linked with section 67.  Section 68 only gives the status of registered proprietor to a person who is seized of or taking an interest and that can only mean seized of or taking an interest pursuant to the instrument registered under section 67 because section 67 is the only way that you can be seized of or that you can take title under the system which is by registered instrument.  Normally there is conformity between the instrument and the endorsement, but where there is a disparity between a registered dealing and the description of it in the certificate title, it really is of the most fundamental significance. 

So here the respondent has presented an instrument which does not comply with the requirements of the Act for the transfer of title, does not in terms purport to confer title, invokes a section under which title does not and cannot lawfully pass and which even then is unaccompanied by the essential process required by that section, that is 115A, namely, the issue of a fresh certificate, so nothing effective in law happened by the registration of the inept application.  Then fortuitously, the inept ‑ ‑ ‑

CRENNAN J:   Does not the final description on the certificate of title where the vesting of the mortgage is referred to, does not vesting carry with it the notion of transfer?

MR MANETTA:   It is a misdescription, though, your Honour.  It was not a vesting.

CRENNAN J:   Why?

MR MANETTA:   That is erroneous, because the endorsement is merely a shorthand description of the instrument that is being registered against the title.  The number, 9597989, is a reference to the number of the document which is the application under section 115A, which is inept.  It is exactly as if, your Honour, a bank registered a mortgage in its favour and then the mortgage were identified in the endorsement as a transfer to the bank.  Now, clearly the mortgage is not a transfer, but it has been misdescribed by the error of a Lands Title Office clerk as a transfer.  The reasoning of the Full Court is that in those circumstances the bank becomes a registered proprietor of the freehold and its title is indefeasible because it is no fraud on the part of the bank to assert a title which it acquired by innocent mistake.

CRENNAN J:   But the point about vesting as a description of what has happened is it is important because it is an indication that no documents of transfer, as that would normally be understood, are necessary in relation to the interest held.

MR MANETTA:   They most certainly are necessary, we say, your Honour, either a transfer under section 150 or a memorandum of appointment under section 77 of the Trustee Act which has the same effect as a transfer, but neither of those were registered.  The respondent can point to no registered instrument by which it acquires title.  All it can point to is the misdescribed notation “vesting”, which is a misdescription of a document which does not pass title.

KIEFEL J:   It might be a misdescription of the document, but it is not a misdescription of the trustee’s status and the trustee’s entitlement to registration.

MR MANETTA:   Well, it is, with respect, your Honour, because the trustee does not have the legal title to the asset unless and until it registers a document that passes that title.

KIEFEL J:   But it has the entitlement to registration.

MR MANETTA:   Well, in equity, your Honour.  It might have a right to registration at the time, but that is outside the register.

GUMMOW J:   We are not talking about legal titles actually.  We are talking about title by registration.  We are talking about the Torrens system. 

MR MANETTA:   Yes, indeed, your Honour.

GUMMOW J:   You seek to impugn, I think, what now appears on the face of the register, do you not?

MR MANETTA:   Yes, your Honour.

GUMMOW J:   Does the relief you seek involve rectification of the register?

MR MANETTA:   It would.  In the first instance it would or in the second instance in the alternative it would be a question of fraud which would mean that if there is title, it is defeasible. 

CRENNAN J:   There is no suggestion of fraud in the pleadings, is there?

MR MANETTA:   No, your Honour, because the respondent did not acquire the title by fraud, but it becomes a fraud, we say, to assert it in order to demand money later, or demand priority to money in this case which is the same thing.

GUMMOW J:   I think that would be an adventurous submission for the operation of the Torrens system.

MR MANETTA:   We do not need to go that far, though, your Honour.  This is because the Torrens system ‑ ‑ ‑

GUMMOW J:   You see, it is put against you that – and I am looking at your opponent’s summary at 183 – that what you are seeking to do is to dispute the registered title and to do so by having regard to what you say were defective administrative processes. 

MR MANETTA:   Yes, but the Torrens system allows for administrative correction.  The registrar‑general, under section 54, is given wide powers to correct mistakes on the register, especially his own mistakes.  So we say that even if title is properly to be derived from the mere memorial on the certificate of title, the mistaken memorial, it is not indefeasible unless it is a product of the correct operation of the statutory apparatus of registration.

GUMMOW J:   Are you referring to section 54(3)?

MR MANETTA:   Section 54(1) and (3).  What ought to have happened ideally was that the registrar‑general should have refused the section 115A application under 54(1) as not in conformity with the Act because it is not an application that could be brought in relation to a mortgage.  He should not, in any event, have memorialised it as a vesting and having done so, he should have corrected it under section 54(3) and called it what it was; not a vesting, but an application for compulsory acquisition.  None of that occurred, but the registrar‑general still has the power to make those corrections in defeasance of the asserted title.

KIEFEL J:   But even if you are right, if the registrar did make the correction, that would not alter the date of registration, would it? This is the key plank in your argument, is it not?  The registration argument is the plank for your priority argument?

MR MANETTA:   No, because they are not the registered – they would cease to be the registered proprietor or have any – assuming that they are, they would cease to be the registered proprietor and that would be retrospective ‑ ‑ ‑

KIEFEL J:   What about the concluding words to section 54(3):

and the instrument so corrected shall have the like validity and effect as if the error had not been made.

MR MANETTA:   Yes.  It is retrospective, so it is to be treated as if it always read application for compulsory acquisition and not a vesting.

KIEFEL J:   So how would the correction of error advance your case?

MR MANETTA:   Well, it means that HLQ is not and never was the trustee to these assets and had no standing to sue us in this action.  You see, two months after this inept registration its predecessor in title was deregistered, ceased to exist, and the legal title then escheated under the Corporations Act to the Crown in right of the Commonwealth.  The Crown is the proper trustee and the proper plaintiff in the action.  HLQ was the inept applicant for the status of trustee and by the court clothing with indefeasibility this mistaken memorial, it has seriously undermined, in our respectful submission, the correct operation of the indefeasibility provisions of the Act.

It was never the intention of the Act that you should gain indefeasible title unless you had complied with the requirements of the Act for the registration of title.  If I could put it pithily, if you do what the Act requires, you get indefeasible title whether or not you deserve to, but if you do not do what the Act requires, you do not get indefeasible title whether or not you deserve to, and by not complying with the requirements of the Act for the transfer of title to it, HLQ did not obtain indefeasible title.  It merely obtained a defeasible title by an erroneous endorsement which could be corrected retrospectively at any time by the registrar and just because the registrar has not noticed his mistake, it is incumbent on the court to bring it to his attention when it is pleaded and the title is challenged.  A mere delay on the part of the registrar does not crystallise the title and make it indefeasible.

Could I move on to the questions of privity and consideration.  On those questions, the priority agreement is unsupported by consideration moving from the respondent’s predecessor in title, HSS, and the Full Court has sought to overcome this by an unwarranted extension of the principle of joint promisees expounded by this Court in Coulls v Bagot’s.  It does so by characterising HSS as a joint promisee with HAL to the loan agreement between HAL and Merrell, but to be a joint promisee to a contract you must be a party to the contract and HSS ‑ ‑ ‑

GUMMOW J:   Is this instrument a deed?

MR MANETTA:   No, your Honour, the priority agreement is not a deed.  My time is up.  Can I ask for an extension?

GUMMOW J:   Yes, go on.

MR MANETTA:   HSS is obviously not a party to the loan agreement and on ordinary principles it cannot sue on it.  The Full Court has laid down a new rule that it is enough that HSS “was an active participant in the overall transaction” – and they are the words of his Honour Justice Gray at 135 of application book – to be considered a party to all the separate agreements comprising the transaction.  Now, quite apart from the fact that HSS was anything but an active participant, it was entirely passive, it did nothing and gave nothing to any other participant in this transaction, quite apart from that, the finding that active participation in a transaction is enough to make you a joint promisee with the named parties and signatories to a document seriously undermines, in our submission, the established doctrines of consideration of privity.

Similarly, the Full Court’s treatment of Trident General v McNiece Bros departs radically from the ratio of that case which is confined by the majority to insurance contracts into a truly limitless field of operation.  The rule of privity reaffirmed in Trident with one class of exception, namely, insurance contracts, that class should not be expanded, certainly in not such an amorphous way and if they are to be expanded, that is a matter proper to this Court alone. 

Section 55 of the Law of Property Act (Qld) does not assist the applicant.  HSS could not have had relief under that Act because it is a direct contractual promisee under the priority agreement and thus excluded from the definition of “beneficiary” in subsection (6), though it cannot claim to be a beneficiary of the loan agreement, a beneficiary of a promise of priority in its favour as between HAL and Merrell, because it is already the direct recipient of that promise by a contract which is unsupported by consideration.  Where you are a direct promisee, you are not intended to have the benefit of the Act and that is why promisees are excluded under subsection (6) from the definition of “beneficiary”.  So neither under section 55 ‑ ‑ ‑

GUMMOW J:   We said you could finish, Mr Manetta, but we assume some concision.

MR MANETTA:   Yes, thank you, your Honour.  Lastly, on the constitutional inconsistency point, if we are wrong on all points on our view of the Real Property Act, the respondent still has to surmount the language of section 138(5) of the SIS Act which mandates compliance with the Real Property Act.  His Honour Justice Gray fell into error in effectively reading down the clear words of the federal Act to conform to the operation of State Act indefeasibility provisions and that, of course, turns section 109 on its head.  It is State legislation that must cede to federal legislation, not the other way round.  If the Court pleases.

GUMMOW J:   Thank you.  We do not need to call on you, Ms Symon.

We do not necessarily accept as correct all of the reasoning on which the decision of the Full Court of the Supreme Court of South Australia was based.  Nevertheless, there are insufficient prospects of the applicant obtaining in this Court a different outcome to warrant a grant of special leave.  Special leave is refused with costs.

AT 10.34 AM THE MATTER WAS CONCLUDED