Paragreen v Lim Group Holdings Pty Ltd
[2020] VSCA 84
•8 April 2020
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2018 0163
| MICHAEL PARAGREEN | First Applicant |
| and | |
| JUSTINE PARAGREEN | Second Applicant |
| v | |
| LIM GROUP HOLDINGS PTY LTD (ACN 074 598 646) | Respondent |
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| JUDGES: | TATE, KAYE and NIALL JJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 25 March 2020 |
| DATE OF JUDGMENT: | 8 April 2020 |
| MEDIUM NEUTRAL CITATION: | [2020] VSCA 84 |
| JUDGMENT APPEALED FROM: | [2018] VCC 1677 (Judge Macnamara) |
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REAL PROPERTY – Appeal – Applicants registered proprietors of land which includes part of a laneway – Respondent has unregistered restrictive covenant over laneway pursuant to terms of settlement entered into with previous registered proprietor of applicants’ land – Vendor’s statement in applicants’ contract of sale of land attached terms of settlement – Whether trial judge erred in finding applicants bound by terms of settlement – Whether trial judge erred in finding it would be fraud under ss 42 and 43 of Transfer of Land Act 1958 for applicants to disregard restrictive covenant – Construction of contract of sale – Terms of settlement not included in definition of ‘documents concerning title’ – Applicants did not agree to be bound by terms of settlement – No evidence that applicants gave undertaking to be bound by terms of settlement – Knowledge by applicants of terms of settlement insufficient – Leave granted – Appeal allowed – Bahr v Nicolay (No 2) (1988) 164 CLR 604, Body Corporate No 12870 v Aldal Pty Ltd (2010) 29 VR 81 considered; Transfer of Land Act 1958 ss 42 and 43, Property Law Act 1958 s 79.
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| APPEARANCES: | Counsel | Solicitors |
| For the Applicants | Mr S Palmer | Boris Pogoriller |
| For the Respondent | Mr J K Arthur | Ellinghaus Weill Lawyers and Consultants |
TATE JA
KAYE JA
NIALL JA:
The applicants are the registered proprietors of the property known as Unit 3, 38 Walsh Street, West Melbourne. The respondent is the registered proprietor of the neighbouring property, 42–52 Walsh Street. The applicants’ property includes a strip of land (‘the laneway’) on its western side, which abuts the property of the respondent, and which is subject to a registered easement of carriageway in favour of the respondent’s land.
In proceedings in the County Court, the respondent claimed that the applicants had interfered with its rights to access and use the easement. In addition, the respondent also claimed that terms of settlement (‘Terms of Settlement’), that it had entered into with a previous registered proprietor of the 38 Walsh Street property, contained an unregistered restrictive covenant in the laneway, which precluded the applicants from parking their motor vehicle on it.
The judge, who heard the trial of the proceeding, rejected the claims made by the respondent based on the easement. His Honour held that the evidence did not establish any unreasonable interference by the applicants with the respondent’s rights to the easement. However, his Honour held that the Terms of Settlement contained such a restrictive covenant over the laneway, and that notwithstanding that it was unregistered, the applicants were bound by it because it would be fraud, for the purpose of s 42 and s 43 of the Transfer of Land Act 1958, for them to disregard its terms.[1] Accordingly, the judge declared that the applicants were bound by the Terms of Settlement. The applicants seek leave to appeal that decision.
[1]Lim Group Holdings Pty Ltd v Paragreen [2018] VCC 1677 (‘Reasons’).
Background facts
By a contract dated 13 June 1996, the respondent purchased the property at 42–52 Walsh Street, West Melbourne. The property was comprised in four certificates of title. The eastern most section of the property was contained in Volume 2912 Folio 361. The respondent purchased the property with the intention of erecting a multi-unit development on it.
Immediately to the east of the respondent’s property was the laneway. It measured 2.74 metres wide and 28.2 metres in length, and was contained in Certificate of Title Volume 10359 Folio 486. It extended from Walsh Street north to the boundary of another property facing Rosslyn Street, West Melbourne. The laneway was subject to a registered easement of carriageway in favour of that part of the respondent’s land that was contained in Certificate of Title Volume 2912 Folio 361.
To the immediate east of the laneway was land situate at 38 Walsh Street, West Melbourne. That land was contained in Certificate of Title Volume 10359 Folio 500. In 1997, PMP Property Pty Ltd became the registered proprietor of both the laneway and the property at 38 Walsh Street. At that time, there was a warehouse erected on the property at 38 Walsh Street.
In the meantime, the respondent commenced to develop the property at 48–52 Walsh Street. In the course of the development, the respondent’s contractors made extensive use of the laneway in order to carry out the work.
On 25 September 2000, the property at 38 Walsh Street and the laneway were each transferred by PMP Property Pty Ltd to Judisco Pty Ltd (‘Judisco’), which became the registered proprietor of both pieces of land. After Judisco took possession of the property, its employees regularly used the laneway, to park their vehicles during the day. As a result, the respondent commenced proceedings in the County Court against Judisco. Those proceedings were resolved by an agreement contained in Terms of Settlement. They provided (inter alia) that Judisco would cease to park vehicles on the laneway.
By a contract dated 26 June 2009, Judisco sold the laneway and the property at 38 Walsh Street to a property developer, Mr Michael Ryan. As a consequence, Ryan became registered proprietor of both the laneway (Certificate of Title Volume 10359 Folio 486) and 38 Walsh Street (Certificate of Title Volume 10359 Folio 500). In due course, Mr Ryan lodged an application for a redevelopment and subdivision of the two properties. It was to consist of three dwellings. The northern most dwelling formed part of unit 1 on the Plan of Subdivision, but was referred to as unit 3 in the course of the current proceeding. The Plan of Subdivision depicted that unit as covering the northern section of both the property at 38 Walsh Street and of the laneway. In effect, it included some 9.68 metres of the northern section of the laneway. The two units, that were closer to Walsh Street, abutted the laneway, with vehicle garages accessed from the laneway. The Plan of Subdivision depicted the section of the laneway, that was adjacent to those two units, as ‘common property’. The Plan of Subdivision also had noted on it that both sections of the laneway — that which formed part of Unit 3, and that which formed part of the common property — were subject to the easement of carriageway in favour of the land contained in Certificate of Title Volume 2912 Folio 361 (that is, the most easterly of the four lots owned by the respondent).
By a contract of sale dated 4 June 2011, the applicants purchased unit number 3 (the northern most unit in the subdivision) of 38 Walsh Street from Mr Ryan. The contract of sale included a Vendor’s Statement provided by Mr Ryan pursuant to s 32 of the Sale of Land Act 1962. That statement annexed a number of certificates and other documents relating to rates and planning matters, as well as the Terms of Settlement.
When the applicants took possession of their property, the right of way was in the same state in which it had been for a long time, namely as an open laneway. The applicants were a young married couple, and in the years that followed they had two children. During that time, there were a number of intrusions and attempted break-ins to the applicants’ property. The applicants were concerned about their security, and they erected a gate inset two or three metres from their southern boundary across the right of way. At one stage, they also placed a chicken coop, with some chickens in it, and some children’s play equipment on it.
In response, the respondent commenced the proceedings in the County Court. As mentioned, it based its claim against the applicants, first, on its rights under the easement, and, secondly, on rights that it claimed to have against the applicants pursuant to the Terms of Settlement.
The Terms of Settlement
Clause 1 of the Terms of Settlement contained a number of definitions including the following:
·The ‘Defendant’s Land’ (that is, Judisco’s land) was defined as ‘the land situate at and known as 38 Walsh St, Melbourne … being more particularly described in Certificate of Title Volume Number 10359 Folio Number 486’.
·The Laneway was defined as ‘the Laneway between the Plaintiff’s Land and the Defendant’s Land described in Certificate of Title Volume Number 10359 Folio Number 486’.
·The ‘Right of Way’ was defined as ‘the easement created by a conveyance dated 11 June 1860 … whereby the Grantor granted to the Grantee and to his successors and assigns an easement for right of way over the laneway to go, pass and re-pass at all times and for all purposes’.
Clauses 2, 3 and 7 of the Terms of Settlement provided as follows:
2.The Defendant undertakes not to park vehicles in the Laneway or allow its servants, agents or invitees to park vehicles in or otherwise obstruct the Laneway.
3.The Defendant acknowledges that the Plaintiff has not abandoned its rights to the Right of Way.
…
7.This Agreement shall bind the Defendant and its successors in title to the Defendant’s Land and the Defendant warrants that it will bring the terms of this Agreement to the attention of any prospective purchaser prior to that purchaser agreeing to purchase the Defendant’s Land.
The proceeding
As mentioned, in its amended statement of claim, the respondent based its claims, first, on its rights to the easement of carriageway, and second on the Terms of Settlement. In respect to that second claim, it was pleaded that the applicants had notice of the Terms of Settlement and the covenants at the time that they purchased their property, and, further or in the alternative, the applicants took title to their property subject to the Terms of Settlement and covenants. In response, the applicants, by their defence to the amended statement of claim, raised a number of different defences to the claim based on the Terms of Settlement. They included that at the time at which they took title to the land on which unit 3 was constructed (the land described in Certificate of Title Volume 11274 Folio 024), the respondent had not lodged any caveat on the title to that land, and accordingly the applicants took a transfer of the land free from any unregistered interests or encumbrances by reason of the operation of s 42 and s 43 of the Transfer of Land Act.
By its reply, the respondent pleaded that it ‘joins issue’ with the applicants on that part of the defence, and in the particulars to that reply, the respondent stated that it relied (inter alia) on the decision of Vickery J in Body Corporate No 12870 v Aldal Pty Ltd.[2]
[2](2010) 29 VR 81 (‘Aldal’).
The evidence
The only evidence given at trial, which is relevant to the matters raised on this application, was given by the second applicant (Mrs Paragreen). Mrs Paragreen said that she and the first applicant purchased the property by private treaty. She referred in her evidence to advertisements for the property, which stated that the property had a car parking space appurtenant to it. Mrs Paragreen said that she and her husband were only considering properties that had a car parking space. In particular she referred to one of the advertisements which contained a picture with a vehicle on it. She said that when they purchased the property they believed that they were getting a car parking space on it, and no-one said that they were not entitled to park their car on it. She stated that the existence of that car parking space was ‘factored into’ the amount of their offer to the vendor.
Mrs Paragreen said that as a result of receiving the Vendor’s Statement, she had known of the Terms of Settlement between Judisco and the respondent. However, she and her husband believed that the terms were a ‘private agreement’ between Judisco and the plaintiff. The vendors (Mr Ryan) never asked the applicants to agree to be bound by the terms. She said that she had received legal advice concerning the whole of the document, and she understood that the Terms of Settlement constituted a private agreement with the respondent that bound Judisco.
In cross-examination, Mrs Paragreen stated that the solicitor told them that there were no issues with the contractual documents. When asked as to her belief as to her rights to park the car on the section of the laneway that was behind the gate, she said that she and her husband believed that they bought a property with a car spot on the title.
Reasons for judgment
In detailed reasons for judgment, the judge commenced by determining the claims by the respondent in respect of interference with its rights of carriageway under the easement. His Honour noted that the easement was only appurtenant to the most eastern lot owned by the respondent, and that it did not serve the other three lots owned by it. His Honour considered that the activities, that the respondent intended to carry out on the right of way, were for the benefit of all the four titles, without discrimination between them.[3] Thus, the intended use of the right of way, by the respondent, was excessive.[4]
[3]Reasons [78].
[4]Ibid [79].
The judge further considered that the right of carriageway of the respondent over the easement did not entitle it to use the carriageway for the purpose of carrying out maintenance and construction works on the dominant tenement.[5] His Honour further considered that the gate, installed by the applicants, did not constitute an unreasonable interference with the respondent’s right of way over the easement.[6] Accordingly, he concluded that the present use made by the applicants of the part of their land comprising parts of the laneway did not constitute an unreasonable interference with the respondent’s rights as owner of the dominant tenement.[7]
[5]Ibid [97], [106].
[6]Ibid [111].
[7]Ibid [113], [118].
The judge further noted the evidence that over a period of time the applicants had parked various vehicles on their portion of the right of way.[8] He accepted the contention, made on behalf of the applicants, that there was no reason for the respondent or its licensees to traverse the area to the north of the gate installed by the applicants. Accordingly, the use of that area by the applicants, to park their vehicle, did not constitute an unreasonable interference with the rights of the respondent under the easement.[9]
[8]Ibid [121].
[9]Ibid [122].
The judge then turned to the claim made by the respondent under the Terms of Settlement. His Honour held that the Terms of Settlement constituted a restrictive covenant.[10] He noted that although they were not recorded in the registered book under the Transfer of Land Act, they formed part of the Vendor’s Statement that was received by the applicants before they purchased the property, and the applicants therefore ‘took with notice of this promise not to park’.[11]
[10]Ibid [134].
[11]Ibid [135].
The judge then considered an argument raised on behalf of the applicants that the Terms of Settlement were ambiguous and uncertain, because they referred to both the laneway, and the land owned by Judisco, as the land described in ‘Certificate of Title Volume 10359 Folio 486’. His Honour considered that that constituted a ‘fairly clear error’ in the definition of the ‘Defendant’s Land’ contained in the Terms of Settlement, because it should have referred to the title to include the reference to Folio 500.[12] The judge applied the ‘commonsense’ rule of construction described by McTiernan, Webb and Taylor JJ in Fitzgerald v Masters[13] to construe the definition of the ‘Defendant’s Land’ in the Terms of Settlement to refer to ‘Folio 500’ rather than ‘Folio 486’.[14]
[12]Ibid [138].
[13](1956) 95 CLR 420, 437 (‘Fitzgerald’).
[14]Reasons [139].
His Honour further considered that the effect of clause 7 of the Terms of Settlement, and of s 79 of the Property Law Act 1958, was that the Terms of Settlement should be regarded as promises made by the applicants as successors in title to Judisco.[15]
[15]Ibid [142].
The judge then turned to the reliance by the applicants on s 42 and s 43 of the Transfer of Land Act. His Honour referred to the decision of the High Court in Bahr v Nicolay (No 2)[16] and the decision of Vickery J in Aldal. He noted that Mrs Paragreen did not suggest that either she or her husband were unaware of the existence of the Terms of Settlement. His Honour concluded that the Terms of Settlement were an ‘assumption’ which ‘underlay’ the contract of sale to the applicants, so that it would be fraud, for the purpose of s 42 and s 43 of the Transfer of Land Act, for the applicants to disregard them.[17] His Honour expressed that conclusion in the following passages of his reasons:
[16](1988) 164 CLR 604 (‘Bahr’).
[17]Reasons [165].
161.The Vendor’s Statement given under s 32 of the Sale of Land Act 1962 was annexed to the Contract of Sale. It is not suggested that this was not available to the Paragreens before they entered the contract.
162.Paragraph 1 of the statement read as follows:
“1.RESTRICTIONS — information concerning an easement, covenant or other similar restriction affecting the Property (registered or unregistered):
(a) Description:
* As set out in the attached copy of title document(s)
... .”
163.The first set of annexures to the Vendor’s Statement entailed the computerised printout particulars of proprietorship. The document setting out the relevant Plan of Subdivision also included the Terms of Settlement.
164.Mr Palmer drew attention to the sale, which was made of the second two-thirds of the interest in the walkway and Aldal as being made for the nominal consideration of one dollar, indicating a devaluation of the land consistent only with its being burdened by the covenant.
165.What led Vickery J in Aldal and Mason CJ and Dawson J in Bahr v Nicolay to find that the broad exception referred to s42 and s43 of the Transfer of Land Act was a finding that disregarding the relevant obligations entailed destroying unregistered interests which were ‘the foundation or assumption underlying the entry into’ the relevant contracts. In the present case, it would plainly be an exaggeration to refer to the Terms of Settlement as the foundation of the Contract of Sale to the Paragreens; however, it plainly was an assumption which underlay it. In my view, it would be contrary to good conscience for the Paragreens, having known of the existence of the Terms of Settlement before entering into the purchase contract, now to disregard its terms. This would be fraud for the purposes of the exception, as it was applied in Aldal and Bahr v Nicolay (No 2)..[18]
[18]Ibid [161]–[165] (emphasis in original) (citations omitted).
Grounds of appeal
The proposed grounds of appeal, contained in the application for leave to appeal, are lengthy and somewhat argumentative. With the assistance of the helpful summary compiled by the parties, the grounds can be sufficiently paraphrased as follows:
(a) The trial judge erred in finding that the applicants are bound by the Terms of Settlement and the restrictive covenant in circumstances in which they were not parties to the Terms of Settlement, and the Terms of Settlement contained mistakes as to the identity of the land burdened by the covenant that rendered them so uncertain as to be unenforceable (grounds 1(i) to 1(iv), 2).
(b) The judge, having found that the respondent’s use of the laneway was excessive, should accordingly have found that the restrictive covenant did not benefit the respondent’s land (ground 1(vi)).
(c) The judge should not have rectified the Terms of Settlement in circumstances in which the respondent had not sought rectification as part of its claim, and had expressly advised the court that it was not seeking rectification of the Terms of Settlement (ground 3).
(d) The Terms of Settlement were, on their proper construction, merely a personal covenant by Judisco not to park on the laneway or permit its servants, agents or employees to park on the laneway (ground 1(v)).
(e) The Terms of Settlement did not provide that the successors in title to Judisco could not park on the laneway (ground 4).
(f) The judge should have found that, upon registration, the applicants obtained an indefeasible title to their property free of all unregistered interests including the Terms of Settlement and the restrictive covenant contained in it by reason of the operation of s 42 and s 43 of the Transfer of Land Act (ground 5).
(g) The judge’s finding that, because the applicants had notice of the Terms of Settlement before registration of their title, it would constitute fraud for them to disregard the Terms and that therefore they did not obtain an indefeasible title pursuant to s 42 of the Transfer of Land Act, was contrary to s 43 of the Transfer of Land Act which provides that mere notice does not constitute fraud for the purpose of the exception in s 42 of the Act (ground 6).
(h) The judge erred in finding that the applicants agreed or assumed that the Terms of Settlement were binding on them. Rather, the applicants purchased their property on the understanding and in the expectation that they were permitted to park on it (grounds 7 and 8).
It can be seen that the first five propositions contained in the grounds of appeal — set out in subparagraphs (a) to (e) above — are directed to issues of the correct construction and effect of the Terms of Settlement. The last three propositions — contained in subparagraphs (f) to (h) — are directed to the conclusion by the judge that it would be fraud, for the purposes of s 42 and s 43 of the Transfer of Land Act, for the applicants to disregard the Terms of Settlement.
Grounds 1, 2 and 3
Counsel for the applicants advanced a number of arguments in support of grounds 1, 2 and 3. They were based on the definition of ‘Defendant’s Land’ in the Terms of Settlement, as being the land described in Certificate of Title Volume 10359 Folio 486. Counsel submitted, first, that the Terms of Settlement thus sought to burden only the land contained in Folio 486, and not Folio 500, with the easement, which, he submitted, was contrary to the principle that the covenant must touch and concern both the burdened land (the servient tenement) and the benefited land (the dominant tenement) and be restrictive of the use of the former.
Secondly, and perhaps more substantively, counsel submitted that the description of ‘the Defendant’s Land’ as that contained in Folio 486 rendered the definition of the term ‘Laneway’, in the Terms of Settlement, meaningless, because that term was defined to mean the laneway ‘between’ the Plaintiff’s Land and the Defendant’s Land. It was submitted that as the Defendant’s Land was described as being in Folio 486, the phrase ‘the Laneway between the Plaintiff’s Land and the Defendant’s Land’ was meaningless, as the land in Folio 486 was itself contiguous with the Plaintiff’s Land. Counsel submitted that the judge erred in applying the principles, discussed in Fitzgerald, to the construction of the definition of the ‘Defendant’s Land’ in the Terms of Settlement, because by doing so the judge impermissibly relied on the principles of contractual construction discussed by the High Court in Codelfa Construction Pty Ltd v State Rail Authority (NSW).[19] Counsel contended that, in Westfield Management Ltd v Perpetual Trustee Co Ltd,[20] the High Court held that it is impermissible to refer to material, that is extrinsic to the instrument creating a restrictive covenant or an easement, for the purpose of construing the terms of that instrument.
[19](1982) 149 CLR 337, 352–3 (Mason J).
[20](2007) 233 CLR 528 (‘Westfield Management’).
Thirdly, in support of ground 3, counsel submitted that, by substituting ‘Folio 500’ for ‘Folio 486’ in the definition of the ‘Defendant’s Land’ in the Terms of Settlement, the judge in effect granted the respondent equitable relief in the form of rectification. Counsel noted that, at the hearing of the proceeding, counsel for the respondent had specifically disavowed seeking such relief.
In our view, the judge was correct in the construction that he gave to the terms ‘Defendant’s Land’ and ‘Laneway’ in the Terms of Settlement. It was clear, from the face of the Terms of the Settlement, that the definitions of those terms were mutually inconsistent and anomalous, by describing both the Laneway, and the Defendant’s Land, as being the land contained in Certificate of Title Volume 10359 Folio 486, yet also describing the laneway to be ‘between the Plaintiff’s Land and the Defendant’s Land’. Well-established principles of construction required the judge to interpret the Terms of Settlement as a whole, and to prefer a construction which gave sense to the document, rather than render it unintelligible. The Terms of Settlement defined ‘Plaintiff’s Land’ to be the land at 42–52 Walsh Street. It defined ‘Defendant’s Land’ to mean the land situate at 38 Walsh Street, being the land described in Certificate of Title Volume 10359 Folio 486. By defining ‘the Laneway’ as being situated between the Plaintiff’s Land and the Defendant’s Land, and being the land contained in Certificate of Title Volume 10359 Folio 486, the Terms of Settlement made it plain that the part of the definition of ‘Defendant’s Land’, which referred to its Folio number, was incorrect. In effect, it was appropriate for the judge to ‘ignore’ that part of the definition of ‘Defendant’s Land’. Plainly, as the judge noted, the definition of ‘Defendant’s Land’ should have referred to the title contained in Folio 500.
That process of construction was supported by the principle stated in the joint judgment of McTiernan, Webb and Taylor JJ in Fitzgerald, which was relied on by the trial judge. In their judgment their Honours stated:
It is trite law that an instrument must be construed as a whole. Indeed it is the only method by which inconsistencies of expression may be reconciled and it is in this natural and common sense approach to problems of construction that justification is to be found for the rejection of repugnant words, the transposition of words and the supplying of omitted words. Many illustrations may be given of the circumstances in which these processes have been followed but to do so would add nothing to the rule that the intention of the parties is to be ascertained from the instrument as a whole and that this intention when ascertained will govern its construction.[21]
[21]Fitzgerald (1956) 95 CLR 420, 437 (citations omitted). See also Secured Income Real Estate (Australia) Ltd v St Martin’s Investments Pty Ltd (1979) 144 CLR 596, 608–9 (Mason J).
Contrary to the applicants’ submissions, the process, described by their Honours, and followed by the trial judge, did not involve any reliance by the judge on evidence of circumstances that were extrinsic to the document containing the Terms of Settlement. Accordingly, it is not necessary for us to consider the effect of the decision of the High Court in Westfield Management, which was relied on by counsel for the applicants. That case concerned the interpretation of an instrument that conferred an easement of carriageway. The instrument was registered under the Real Property Act 1900 (NSW). The trial judge relied on a substantial body of extrinsic evidence in order to construe the terms of the easement. The New South Wales Court of Appeal, and the High Court, each held that that approach was erroneous.[22]
[22]Westfield Management (2007) 233 CLR 528, 538 [35] (Gleeson CJ, Gummow, Kirby, Hayne and Heydon JJ).
The High Court held that the principles, as to the use of extrinsic facts to assist in the construction of a contract, do not apply to the construction of an instrument that has been registered under the Torrens system.[23] The Court based its decision on the consideration that where an instrument is registered under the Torrens system, a third person, who inspects the register, cannot be expected, consistently with the scheme of the Torrens system, to look further from extrinsic material which might establish facts or circumstances existing at the time of the creation of the registered dealing.[24] In that respect, the Court specifically departed from the previous common law approach to the construction of grants of easement. The decision of the Court left open the question whether the common law approach still applies to the construction of grants of easements, or of restrictive covenants, which have not been registered under the Torrens system. However, it is not necessary for us to be concerned with that question. For, as we have noted, the method by which the judge construed the relevant parts of the Terms of Settlement did not involve reliance on extrinsic circumstances in the manner discussed in Westfield Management.
[23]Ibid 539 [37].
[24]Ibid 539 [39].
Further, and contrary to the submissions made by the applicants in support of ground 3, the approach taken by the judge did not involve rectification of the Terms of Settlement. Rather, as we have explained, by an orthodox process of construction, the judge interpreted the Terms of Settlement in a manner which resolved the manifest inconsistency between the definition of ‘Defendant’s Land’ and the definition of ‘Laneway’ in the Terms of Settlement. The same process was undertaken by the High Court in Fitzgerald, which was conceptually quite different to a grant of relief in equity by way of rectification.
For those reasons, we do not uphold grounds 1(i)–(iv), 2 and 3.
Grounds 1(v) and 4
In effect, grounds 1(v) and 4 claim that the judge erred in finding that the covenant contained in the Terms of Settlement prohibited the successors in title to Judisco from parking on the laneway. In support of those grounds, counsel submitted that the Terms of Settlement provided that Judisco undertook not to park vehicles in the laneway or to allow its servants, agents or invitees to park there or otherwise obstruct the laneway. The judge construed the Terms of Settlement as providing that the applicants, as successors in title to Judisco, also promised not to park ‘on the laneway’.[25] However, it was submitted, the covenant did not refer to Judisco’s successors in title, so that, on its proper construction, the covenant only bound Judisco.
[25]Reasons [142].
The applicants do not appear to have taken issue with, or directed a ground of appeal to, the conclusion by the judge that the covenant contained in clause 2 of the Terms of Settlement constituted a restrictive covenant, and in particular, that it fulfilled the three orthodox requirements which must be satisfied for the passing of the burden of such a covenant.[26] It will be recalled that clause 7 of the Terms of Settlement provided that the agreement should bind the defendant (Judisco) and ‘its successors in title to the Defendant’s Land’. The judge concluded that, by force of clause 7 itself or s 79 of the Property Law Act or their combined effect, the Terms of Settlement (and thus the covenant contained in them) should be regarded as promises made by the applicants as successors in title.[27] It is not clear whether, by ground 1(v) and ground 4, or from the submissions advanced in support of them, the applicants take issue with that conclusion. However, in our view, it was plainly correct. Section 79(1) of the Property Law Act provides:
(1)A covenant relating to any land of a covenantor or capable of being bound by him, shall, unless a contrary intention is expressed, be deemed to be made by the covenantor on behalf of himself, his successors in title and the persons deriving title under him or them, and, subject as aforesaid, shall have effect as if such successors and other persons were expressed.
This subsection shall extend to a covenant to do some act relating to the land, notwithstanding that the subject-matter may not be in existence when the covenant is made.
[26]Ibid [133]–[134].
[27]Ibid [142].
In our view, that section alone was sufficient to constitute the promise, contained in clause 2 of the Terms of Settlement, a covenant binding the applicants. Plainly, the Terms of Settlement did not contain any ‘contrary intention’ expressed in it. Rather, as the judge noted, that conclusion was reinforced by clause 7.
The residual question, arising under grounds 1(v) and 4, is whether the Terms of Settlement, binding the successors in title of Judisco, precluded those successors in title from parking in the laneway, or, rather, whether it required the successors in title to preclude Judisco from parking there. Plainly, the latter construction would be quite incongruous. It is clear, from the Terms of Settlement, that the objective was to preclude the owners of the property at 38 Walsh Street from parking vehicles in the laneway. The identity of the person or persons, who parked the vehicles, was not salient. Applying a commonsense construction, the covenant, contained in clause 2, plainly meant that successors in title to Judisco, would also be bound by the undertaking contained in that clause not to park vehicles in the laneway or to permit their servants, agents or invitees to do so.
For those reasons, grounds 1(v) and 4 must fail.
Grounds 5, 6, 7 and 8
Grounds 5, 6, 7 and 8 are each directed to the conclusion by the judge that notwithstanding that the applicants were registered as proprietors of the land that included part of the laneway, nevertheless they were bound by the Terms of Settlement entered into between the respondent and Judisco.
The Contract of Sale and Vendor’s Statement
The arguments advanced by each party, in respect of grounds 5, 6, 7 and 8, were based in part on some of the terms of the Contract of Sale and of the Vendor’s Statement. It is convenient to set out the relevant parts of those documents before summarising the competing submissions made in respect of those grounds.
The Contract of Sale commenced by providing that the terms of the contract were contained in: the Particulars of sale; the Special conditions (if any); the General conditions; and the Vendor’s Statement; ‘in that order of priority’. It then provided that the Vendor’s Statement, required by s 32(1) of the Sale of Land Act, ‘is attached to and forms part of this contract’.
Clause 1.1(a) of the General conditions of the Contract of Sale provided, under the heading ‘Title’:
1. Encumbrances
1.1 The purchaser buys the property subject to:
(a)any encumbrance shown in the Vendor’s Statement other than mortgages or caveats;
The Vendor’s Statement commenced by stating:
The Vendor hereby provides particulars of the following by —
• attaching documentation, or
• specifying details.
The Vendor’s Statement then provided as follows:
1.RESTRICTIONS — information concerning any easement, covenant or other similar restriction affecting the Property (registered or unregistered):
(a) Description:
*As set out in the attached copies of the title document(s).
Sewer/drains, if any may be laid outside registered easements.[28]
[28]Emphasis in original.
Clause 8 of the Vendor’s Statement then provided:
8.TITLE — Copies of the following documents concerning the title are attached:
(a) *an authorised reproduction of the folio of the Register;
(b) *The proposed plan of subdivision;
(c) Title Plan.[29]
[29]Emphasis in original.
Grounds 5, 6, 7, 8 — Submissions
Ground 5 is that the judge erred in failing to find that the applicants took their title to the property free of all unregistered interests pursuant to s 42 and s 43 of the Transfer of Land Act. Ground 6 is that the judge erred in finding that, because the applicants had notice of the Terms of Settlement at the time at which they purchased their land, it would be fraud for them to disregard the Terms of Settlement for the purpose of the exception to s 42 of the Transfer of Land Act.
In support of those grounds, counsel submitted that, at the time the applicants were registered as proprietors of their land (on 3 August 2011), the respondent had not lodged a caveat and there was no notification of their restrictive covenant recorded on the Register. Accordingly, pursuant to s 42 and s 43 of the Transfer of Land Act, the applicants took an indefeasible title to the land unencumbered by any covenant contained in the Terms of Settlement. The fact that the applicants had notice of the Terms of Settlement did not disentitle them, as registered proprietors, from relying on the indefeasibility provisions contained in the Transfer of Land Act, because s 43 of the Act provides that mere notice of an unregistered interest will not of itself constitute fraud. Counsel submitted that the applicants were entitled to rely on the state of the Register, and they were not obliged to investigate the circumstances surrounding the entry into the Terms of Settlement , even if they would have been able to do so.
Ground 7 contends that the judge erred in finding that the Terms of Settlement were an assumption which underlay the Contract of Sale by which the applicants purchased their land from Mr Ryan and that it was unconscionable for them to deny that they were bound by the Terms of Settlement. Ground 8 contends that the judge erred in finding that the Contract of Sale provided that the applicants agreed to take their title to the land subject to the Terms of Settlement.
In support of those grounds, counsel noted that in reaching the conclusion, in paragraph 165 of the judgment, that the Terms of Settlement were an assumption which underlay the Contract of Sale between the applicants and Mr Ryan, the judge relied on the decision of the High Court in Bahr and the decision of Vickery J in Aldal. However, it was submitted, both of those cases turned on their own particular facts which were relevantly different to the facts in this case. In particular, in each of those two cases, the purchasers of the land had acknowledged to the vendor that they would honour an earlier agreement made by the vendor with the owner of the unregistered interest (the plaintiff), and had expressly acknowledged that agreement with the plaintiff. In the present case, there was no evidence that the applicants had expressly acknowledged or agreed with Mr Ryan that they would take their title subject to the covenant. Rather, it was submitted, the evidence is to the contrary, in that the applicants purchased their land on the assumption that it would include a car parking space. Further, it was submitted, the evidence established that the applicants did not agree to purchase their land subject to the Terms of Settlement.
In support of ground 8, it was submitted that the judge erred, first, in finding that the document setting out the relevant Plan of Subdivision included the Terms of Settlement when in fact they were separate documents, and, secondly, in finding that the Terms of Settlement were a title document. In fact, the Terms of Settlement were provided with, but not referred to in, the Vendor’s Statement. Further, clause 1.1 of the General conditions contained in the Contract of Sale provided that the applicants would take title subject to the encumbrances shown in the Vendor’s Statement. Clause 1 of the Vendor’s Statement under the heading ‘Restrictions’ stated that information concerning any easement, covenant or other restriction affecting the property was set out in the attached copies of ‘title document(s)’. Clause 8 defined title documents in a manner which did not include the Terms of Settlement. Accordingly, it was submitted, if the judge did find that the Contract of Sale provided that the applicants agreed to be bound by the Terms of Settlement, that conclusion was contrary to the express conditions of the Contract of Sale and the provisions of the Vendor’s Statement.
In response to grounds 5 and 6, counsel for the respondent commenced by noting that the Contract of Sale provided that the terms of the contract were contained in a number of documents, including the Particulars of sale, the Special conditions, the General conditions and the Vendor’s Statement. Counsel then pointed to clause 1.1(a) of the General conditions, which provided that the purchaser bought the property subject to any encumbrance shown in the Vendor’s Statement. Counsel submitted that the Terms of Settlement were such an encumbrance. In particular, clause 1 of the Vendor’s Statement, which was entitled ‘Restrictions’, referred to any information contained in the attached copies of the title documents. He submitted that properly construed the Terms of Settlement fell within such a description.
Counsel for the respondent further noted that the Terms of Settlement were included in the Vendor’s Statement for a material purpose, namely, to notify the intending purchaser of the covenant contained in them. The applicants were aware of the content of the Terms of Settlement. Accordingly, it was submitted, the judge was correct to conclude that the Terms of Settlement, and in particular the covenant contained in them, were an assumption which underlay the Contract of Sale by Mr Ryan to the applicants. Counsel further submitted that Mrs Paragreen was evasive in her evidence in not revealing the content of the advice that she had actually received from her solicitors concerning the effect of the Terms of Settlement. Counsel noted that clause 7 of the Terms of Settlement was included in order to ensure that successors in title, to Judisco, were bound by the Terms of Settlement. In those circumstances, it was submitted, the judge was correct to conclude that it would be fraud, for the purpose of the exception contained in s 42 of the Transfer of Land Act, for the applicants to disregard the Terms of Settlement and not comply with the covenant contained in it.
For those reasons, counsel contended that, contrary to ground 7, the judge did not err in finding that the Terms of Settlement were an assumption which underlay the Contract of Sale between Mr Ryan and the applicants. Further, in answer to ground 8, counsel contended that the Vendor’s Statement, which contained the Terms of Settlement, were expressly part of the Contract of Sale. It was contended the judge was correct to conclude that the Terms of Settlement were a title document, as they affected the title to the property. In any event, they were an encumbrance shown in the Vendor’s Statement for the purpose of General condition 1.1 of the Contract of Sale.
Grounds 5, 6, 7 and 8 — analysis and conclusion
The starting point, for considering grounds 5, 6, 7 and 8, is the specific provisions of s 42 and s 43 of the Transfer of Land Act. Those sections are as follows:
42 Estate of registered proprietor paramount
(1)Notwithstanding the existence in any other person of any estate or interest (whether derived by grant from Her Majesty or otherwise) which but for this Act might be held to be paramount or to have priority, the registered proprietor of land shall, except in case of fraud, hold such land subject to such encumbrances as are recorded on the relevant folio of the Register but absolutely free from all other encumbrances whatsoever, except—
(a)the estate or interest of a proprietor claiming the same land under a prior folio of the Register;
(b)as regards any portion of the land that by wrong description of parcels or boundaries is included in the folio of the Register or instrument evidencing the title of such proprietor not being a purchaser for valuable consideration or deriving from or through such a purchaser.
…
43 Persons dealing with registered proprietor not affected by notice
Except in the case of fraud no person contracting or dealing with or taking or proposing to take a transfer from the registered proprietor of any land shall be required or in any manner concerned to inquire or ascertain the circumstances under or the consideration for which such proprietor or any previous proprietor thereof was registered, or to see to the application of any purchase or consideration money, or shall be affected by notice actual or constructive of any trust or unregistered interest, any rule of law or equity to the contrary notwithstanding; and the knowledge that any such trust or unregistered interest is in existence shall not of itself be imputed as fraud.
Those sections are central to the operation of the Torrens system of registration of title, or, more accurately, title by registration.[30] For more than one century, it has been repeatedly and consistently recognised, in the authorities, that the fraud, referred to in s 42 and s 43 (and in the equivalent provisions in interstate legislation), refers to actual fraud, involving dishonesty or ‘moral turpitude’.
[30]Breskvar v Wall (1971) 126 CLR 376, 385 (Barwick CJ).
In 1905, Lord Lindley, delivering the judgment of the Judicial Committee of the Privy Council in Assets Co Ltd v Mere Roihi said, in terms that have been adopted in innumerable decided cases:
[B]y fraud in these Acts is meant actual fraud, i.e., dishonesty of some sort, not what is called constructive or equitable fraud. … Further, … the fraud which must be proved in order to invalidate the title of a registered purchaser for value … must be brought home to the person whose registered title is impeached or to his agents.[31]
[31][1905] AC 176, 210.
Similarly, in 1917, in Butler v Fairclough, Isaacs J stated:
Now, the ‘fraud’ that is contemplated by sec. 72 is actual fraud, moral turpitude. … And further, it must be the fraud of the registered proprietor himself or his agents.[32]
[32](1917) 23 CLR 78, 97. See also Stuart v Kingston (1923) 32 CLR 309, 329, 356 (Starke J); Bahr (1988) 164 CLR 604, 613–14 (Mason CJ and Dawson J), 630 (Wilson and Toohey JJ); Bank of South Australia Ltd v Ferguson (1998) 192 CLR 248, 255 [10] (Brennan CJ, Gaudron, McHugh, Gummow and Kirby JJ) (‘Ferguson’); Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89, 169 [192] (Gleeson CJ, Gummow, Callinan, Heydon and Crennan JJ).
It is clear, and was not in issue, that the judge based his decision, that the applicants are bound by the Terms of Settlement, on the conclusion that it would be ‘fraud’, within the meaning of s 42 and s 43 of the Transfer of Land Act, for the applicants to disregard the Terms of Settlement. In order that that conclusion be sustained, it would be necessary to find that the conduct of the applicants, in disregarding the Terms of Settlement, would constitute actual fraud by them, that is, dishonesty or moral turpitude in the sense defined in the authorities.
The judge based his conclusion, that that conduct by the applicants’ amounted to fraud, on the joint judgment of Mason CJ and Dawson J in Bahr, and the decision of Vickery J in Aldal. As we will discuss, the facts in each of those two decisions were materially and significantly different from the facts in this case, in important respects. In addition, the conclusion in Bahr by Mason CJ and Dawson J, that fraud had been established, was not shared by the majority. The observation by Vickery J in Aldal, that the conduct of the purchaser in that case might have constituted fraud under s 42 and s 43 of the Transfer of Land Act, was obiter dictum in relation to an issue that was neither pleaded nor agitated before his Honour.
In Bahr, in June 1980 the plaintiffs (Mr and Mrs Bahr) sold their property (referred to as ‘Lot 340’) to the first defendant, Mr Nicolay, for $32,000, under an arrangement which involved a lease back to them of the property for a period of three years. Clause 6 of the contract of sale provided that, at the expiration of the lease, the plaintiffs would repurchase the land from Nicolay for $45,000. The purpose of the arrangement was to enable the plaintiffs to finance the construction of commercial premises on Lot 340. As a result of the arrangement, Nicolay became the registered proprietor of the property. Subsequently, in December 1981, he sold Lot 340 to the second defendants (Mr and Mrs Thompson). By cl 4 of that contract of sale, the Thompsons acknowledged that the June 1980 agreement existed between the plaintiffs and Nicolay. Two days after the contract of sale was completed and the Thompsons had become registered proprietors of the land, they wrote a letter to the solicitors for the plaintiffs confirming that they recognised cl 6 in the contract of sale by the plaintiffs to Nicolay. Subsequently, the Thompsons declined to resell the property to the plaintiffs.
As a consequence, the plaintiffs commenced an action in the Supreme Court of Western Australia against Nicolay and the Thompsons. The trial judge dismissed the action. The plaintiffs unsuccessfully appealed to the Full Court of Western Australia. By special leave, the plaintiffs successfully appealed to the High Court. The Court held that the plaintiffs were entitled to a declaration that the Thompsons were bound specifically to perform, as vendors, the agreement contained in cl 6 of the contract of sale between the plaintiffs and Nicolay. Accordingly, the Court ordered that the Thompsons deliver to the plaintiffs a registrable transfer of Lot 340 on payment by the plaintiffs to the Thompsons of the sum of $45,000 (with adjustments).
In order to understand the basis upon which the High Court reached that conclusion, it is necessary to refer to the facts of the case in more detail. At the time at which the plaintiffs sold the property to Nicolay, Mr Lloyd Callard (‘Callard’) was an employee of the firm of real estate agents who acted on behalf of the plaintiffs. Callard knew the Thompsons personally and also as clients of that firm of estate agents. In that context, Callard acted as their agent in respect of the purchase by them of Lot 340 from Nicolay. At the trial of the proceeding, the solicitor for Nicolay gave evidence that cl 4, of the contract of sale of Nicolay to the Thompsons, was included in that contract at his insistence, in order to protect Nicolay, who was under a contractual obligation to resell the property to the plaintiffs at the expiration of the lease. Callard gave evidence that, before the Thompsons purchased Lot 340 from Nicolay, Mr Thompson discussed with him the effect of cl 4 of the proposed contract of sale. Callard advised Mr Thompson that he doubted that the plaintiffs would have the funds to repurchase the property, but if they were able to do so, nevertheless the Thompsons would be ‘$5,000 in front’. Callard confirmed, in his evidence, that he knew that the solicitor for the plaintiffs was seeking an assurance that the Thompsons would abide by cl 6 of the 1980 contract of sale between the plaintiffs and Nicolay, and he knew that it was for that purpose that cl 4 was included in the contract of sale by Nicolay to the Thompsons. Callard also confirmed that after discussing the matter with Mr Thompson, he (Callard) had obtained from Mr Thompson an assurance that the Thompsons would abide by cl 6 of the 1980 contract.
Based on that evidence, the trial judge concluded that the Thompsons had purchased Lot 340 ‘with the knowledge that they were bound by the terms of the Agreement [between the plaintiffs and Nicolay] and with the belief that the plaintiffs had a right pursuant to the terms of [that Agreement] to repurchase the land for $45,000, and that their purchase was subject to the plaintiffs’ right to repurchase lot 340 from them’.[33]
[33]Bahr (1988) 164 CLR 604, 632 (Wilson and Toohey JJ).
In each of their separate judgments, the High Court in Bahr confirmed that the concept of fraud, referred to in the equivalent to s 42 and s 43 of the Transfer of Land Act, denotes actual fraud, that is, dishonesty or moral turpitude.[34] Their Honours also noted that those provisions do not preclude the establishment in an appropriate case, of an equitable claim in personam, to an interest or estate in land, against a registered proprietor, arising out of acts or omissions of that registered proprietor. Each member of the Court held that, based on the particular circumstances of the case, the plaintiffs had established such a claim, the effect of which was that the Thompsons held Lot 340 subject to the rights of the plaintiffs under the 1980 agreement (by which they sold Lot 340 to Nicolay). In addition, Mason CJ and Dawson J, in their joint judgment, also considered that if they had not reached that conclusion, they would have regarded the subsequent repudiation by the Thompsons, of clause 6 of the 1980 agreement, to constitute actual fraud for the purpose of the exception contained in the statute.
[34]Ibid 614 (Mason CJ, Dawson J), 630 (Wilson and Toohey JJ).
Mason CJ and Dawson J commenced by noting that s 68 and s 134 of the Transfer of Land Act 1893 (WA) (which are the equivalent, respectively, of s 42 and s 43 of the Victorian Act) do not preclude a claim to an estate in equity arising out of the acts of the registered proprietor after the latter has become registered as proprietor.[35] Their Honours noted that while fraud is not established by the registered proprietor merely acquiring title with notice of an existing unregistered interest,[36] nevertheless the fraud, referred to in s 68 and s 134, is not confined to fraud involved in obtaining a transfer or securing registration. Rather, it can embrace fraudulent conduct arising from a dishonest repudiation of a previous interest which the registered proprietor has acknowledged or agreed to recognise as the basis for obtaining title. Their Honours said:
The repudiation is fraudulent because it has as its object the destruction of the unregistered interest notwithstanding that the preservation of the unregistered interest was the foundation or assumption underlying the execution of the transfer.[37]
[35]Ibid 613.
[36]Ibid.
[37]Ibid 615.
Mason CJ and Dawson J held that, in the factual context of the purchase by the Thompsons of Lot 340, cl 4 of the agreement between Nicolay and the Thompsons was designed to do more than merely evidence the fact that the Thompsons had notice of the plaintiffs’ rights. Its purpose was to provide that the transfer of title of Lot 340 to the Thompsons was to be subject to the plaintiffs’ rights under cl 6 of the 1980 agreement, so that those rights were to be enforceable against the Thompsons. Accordingly, they concluded that the Thompsons held Lot 340 on an express trust, by which their registered title was subject to the rights that were created in favour of the plaintiffs by the 1980 contract of sale to Nicolay.[38] Their Honours further stated that if they had not reached that conclusion, then, having regard to the intentions of the parties expressed in cl 4 of the agreement between Nicolay and the Thompsons, the subsequent repudiation by the Thompsons of cl 6 of the 1980 agreement constituted actual fraud within the statutory exception.[39]
[38]Ibid 619.
[39]Ibid.
Wilson J and Toohey J, in their joint judgment, similarly noted that fraud, in the relevant provisions of the Transfer of Land Act, denotes actual fraud. Accordingly, to acquire land with notice of an unregistered interest and to become registered proprietor of it, and to refuse to acknowledge the existence of that interest, is not of itself fraud.[40] However, the evidence in the trial demonstrated that the Thompsons took a transfer of Lot 340, knowing of cl 6, accepting an obligation to resell the property to the plaintiffs, and communicating that acceptance to their agent, but ‘banking’ on the inability of the plaintiffs to find the $45,000 necessary to repurchase Lot 340 from the Thompsons.[41] In addition, shortly after the sale, the Thompsons had written the letter to the plaintiffs acknowledging their obligation to resell the property to the plaintiffs. Also, they made two offers two days later to the plaintiffs, the first of which was to buy another lot owned by the plaintiffs, and the second of which was to buy the business of the plaintiffs, subject to the plaintiffs relinquishing their rights to repurchase Lot 340.
[40]Ibid 629–30.
[41]Ibid 637.
It was in that context that Wilson J and Toohey J held that the Thompsons took their transfer of Lot 340 on the basis that the plaintiffs’ interest, under cl 6 of the contract, constituted an equitable interest in Lot 340, so that the Thompsons became subject to a constructive trust in favour of the plaintiffs which was enforceable as a personal equity against the Thompsons.[42]
[42]Ibid 638.
Brennan J reached the same conclusion. His Honour noted that the contract between the plaintiffs and Nicolay conferred on the plaintiffs an equitable interest in Lot 340. By cl 4 of the contract of sale from Nicolay, the Thompsons acknowledged that interest, and they purchased Lot 340 subject to it. It would have been apparent that Nicolay would have been in breach of cl 6 of the 1980 contract, unless cl 4 stipulated that the Thompsons’ title to Lot 340 was subject to the plaintiffs’ interest.[43] Thus, by the contract of sale, Nicolay and the Thompsons intended that the title to Lot 340, acquired by the Thompsons, would be subject to the plaintiffs’ interest. The extrinsic evidence demonstrated that the Thompsons gave Nicolay an undertaking to hold their title subject to the plaintiffs’ interest.[44] Accordingly, the Thompsons had purchased Lot 340 on the terms that they would be bound by it, so as to give rise to a claim in personam in equity by the owner of the antecedent unregistered interest against the registered proprietor. Brennan J considered that the Thompsons’ repudiation of that interest did not constitute fraud for the purpose of the Transfer of Land Act. However, it did constitute equitable fraud, so as to give rise to a claim against them in equity by way of a constructive trust.
[43]Ibid 647–8.
[44]Ibid 650–52.
Thus, his Honour concluded:
A registered proprietor who has undertaken that his transfer should be subject to an unregistered interest and who repudiates the unregistered interest when his transfer is registered is, in equity’s eye, acting fraudulently and he may be compelled to honour the unregistered interest. A means by which equity prevents the fraud is by imposing a constructive trust on the purchaser when he repudiates the unregistered interest. That is not to say that the registration of the transfer to such a proprietor is affected by such fraud as may defeat the registered title: the fraud which attracts the intervention of equity consists in the unconscionable attempt by the registered proprietor to deny the unregistered interest to which he has undertaken to subject his registered title.[45]
[45]Ibid 654.
At the risk of repetition, three points are clear from the foregoing analysis of the judgments in Bahr.
First, the Court confirmed the long-standing principle that the exception of fraud, in s 42 and s 43 of the Transfer of Land Act, refers to actual fraud, that is, dishonesty or moral turpitude. A finding of equitable or constructive fraud is of itself insufficient to constitute fraud under the Transfer of Land Act, unless the conduct of the registered proprietor, as such, involves actual dishonesty.
Secondly, as the evidence in Bahr revealed, the Thompsons (the registered proprietors) purchased and took title to the property in question with the knowledge and understanding, and having acknowledged, that they were bound by the unregistered interest of the plaintiffs, so that the acquisition by them of their registered interest in the property was subject to the right of the plaintiffs to repurchase the property from them.
Thirdly, in Bahr, each of the five judges held that those facts gave the plaintiffs an in personam right in equity against the Thompsons, that was justiciable at the suit of the plaintiffs. Only two members of the Court — Mason CJ and Dawson J — went further and found that the conduct of the Thompsons, in denying the right of the plaintiffs to repurchase the property from them, constituted actual fraud within the meaning of the Transfer of Land Act.
In the present case, the judge based his conclusion, that it would be fraud for the applicants to disregard the Terms of Settlement, on the circumstance that the contract of sale, by which they purchased the property from Mr Ryan, incorporated the Vendor’s Statement, which in turn had attached to it the Terms of Settlement. It was based on those facts that the judge held that the Terms of Settlement were ‘an assumption which underlay’ the contract of sale to the applicants, so that it would ‘be contrary to good conscience’ for them to disregard its terms.
Plainly, the facts of the present case are not only different, but may be materially distinguished, from those that were before the High Court in Bahr (and which were before Vickery J in Aldal, to which we shall refer). The judge was correct to note that the contract of sale expressly incorporated the Vendor’s Statement, and that General condition 1.1 of the contract provided that the applicants purchased the property subject to ‘any encumbrance shown in the Vendor’s Statement‘. However, it is at that point that his Honour’s analysis breaks down. As we have set out above, cl 1 of the Vendor’s Statement, under the heading ‘Restrictions’, provided that information concerning any easement, covenant ‘or other similar restriction’ affecting the property was ‘set out in the attached copies of title document(s)’. Clause 8 of the Vendor’s Statement defined the phrase ‘documents concerning title’ in terms of three specific categories, namely, an authorised reproduction of the folio of the register, the proposed plan of subdivision, and the title plan. Relevantly and importantly, those categories did not include the Terms of Settlement. Axiomatically, as a matter of construction of the relevant contractual documents, the applicants, by signing the contract of sale with Mr Ryan, did not thereby undertake or agree to be bound by the obligations contained in the Terms of Settlement.
Further and importantly, the evidence in the case, on which the judge found the assumption which underlay the contract of sale to the applicants, went no further than the contractual documents.[46] There was no evidence, at all, of the kind adduced in Bahr, which included evidence that the Thompsons’ agent clearly understood the purpose that was served by cl 4 of the contract by which the Thompsons purchased the property. Importantly, there was no evidence that the applicants gave an assurance or undertaking to Mr Ryan, or to Mr Ryan’s agent, of the kind that the Thompsons gave to Callard in Bahr.
[46]Reasons [165].
In addition, there was no evidence that the applicants purchased their property in the understanding that they were bound by the obligations contained in the Terms of Settlement. On the contrary, Mrs Paragreen gave uncontradicted evidence, that was accepted by the judge, that she and her husband purchased their unit on the basis and on the understanding that it had a carpark. That is, they purchased their unit on the understanding that they would be entitled to park their vehicle in the section of the laneway that is contained in their title. The advertisements for the sale of the unit, purchased by the applicants, corroborated the evidence given by Mrs Paragreen to that effect. At its highest, the evidence did no more than establish knowledge by the applicants of the Terms of Settlement when they purchased their unit. As s 43 of the Transfer of Land Act, and longstanding authority, including Bahr, make clear, that evidence was insufficient to bind the applicants as registered proprietors of the unit, or to form a basis for a finding of fraud.
In the conclusion to his reasons, the judge found that it would be ‘contrary to good conscience’[47] for the applicants to disregard the Terms of Settlement. As noted, that finding was the foundation of his conclusion that the applicants’ conduct, in disregarding the Terms of Settlement, would be fraud for the purpose of s 42 and s 43 of the Transfer of Land Act.
[47]Ibid.
From the foregoing discussion, three points may be clearly made concerning that conclusion.
First, it would seem that the judge erroneously conflated what might, conceptually, be the basis of an in personam claim in equity, in an appropriate case, with actual fraud under the Transfer of Land Act. As the High Court recognised in Ferguson,[48] not all species of fraud, which attract equitable remedies, will amount to fraud for the purpose of the Transfer of Land Act. The two concepts are materially different and distinct from each other.[49]
[48](1998) 192 CLR 248, 255 [10] (Brennan CJ, Gaudron, McHugh, Gummow and Kirby JJ).
[49]Pyramid Building Society (in liq) v Scorpion Hotels Pty Ltd [1998] 1 VR 188, 193 (Hayne JA with whom Brooking and Tadgell JJA agreed).
Secondly, in any event, as discussed, in the present case, there was no foundation in the evidence for a finding that it would be ‘contrary to good conscience’[50] for the applicants to not consider themselves bound by the Terms of Settlement, and, in particular, to exercise their legal right, as registered proprietors, to park their vehicle in the section of the laneway owned by them.
[50]Reasons [165].
Thirdly, the conduct of the applicants, in exercising that right, could not, on any analysis of the facts, be found to constitute actual fraud (that is, dishonesty or moral turpitude) for the purpose of the Transfer of Land Act. Nor, we add, could it be sufficient to be the foundation of some kind of claim in equity. At the risk of repetition, the facts in this case fell far short of providing the basis for either finding.
As we have noted, the judge also based his conclusion on the decision of Vickery J in Aldal. As we have earlier indicated, the facts of that case may be readily distinguished from those in the present case.
In Aldal, in 1988, Cantown Pty Ltd (‘Cantown’), the owner of Killians Walk Shopping Arcade in Bendigo, entered into a deed with the owners of Unit 11 on the strata plan (‘the Unit 11 Owners’), by which Cantown covenanted for itself and its successors in title that it would not erect a building wall or other structure over a walkway that was described as Unit 10 in the plan (‘1988 Deed’). Subsequently, in 1989, Cantown sold a one-third interest in Unit 10 to the defendants, who were the owners of a tavern in another shopping arcade that was nearby. The defendants entered into that agreement because Unit 10 provided their business with a permanent pedestrian link which was to the advantage of their business. The Sale Agreement entered into by the defendants acknowledged the 1988 Deed. Subsequently, in 2003 Cantown sold its remaining two-thirds interest in Unit 10 to the defendants for $1. The purchase price reflected the circumstance that Unit 10 had no commercial value as a walkway. The contract provided that the defendants purchased the two-thirds interest in Unit 10 subject to any easements and covenants disclosed in the Vendor’s Statement. The contract also acknowledged the existence of the 1988 Deed. Two years later, in 2005, the defendants erected barriers to block pedestrian access through Unit 10 from Killians Walk to two adjacent arcades. The body corporate, and the executors of the original owners of Unit 11, commenced proceedings in the Supreme Court to enforce the unregistered restrictive covenant contained in the 1988 Deed.
Based on the evidence presented in the trial, Vickery J was satisfied that the provisions contained in the 1989 and 2003 Contracts of Sale were intended by the parties not only to provide notice to the defendants of the interest of the Unit 11 owners in the restrictive covenant. Further, by those terms, it was intended that the title taken by the defendants to Unit 10 would be subject to that interest. His Honour held that the background circumstances aided that construction of the acknowledgement clauses. In particular, the purchase price of $1 for the two-thirds interest in Unit 10 was strong evidence of the intentions of the parties. For that reason, Vickery J held that the conduct of the defendants founded a claim in personam against them in equity at the suit of the parties seeking to enforce restrictive covenants by specific performance.[51]
[51]Aldal (2010) 29 VR 81, 107 [115]–[119].
Pausing there, the facts in Aldal were thus significantly different from those in the present case. In Aldal, the defendants not only had notice of the Unit 11 owners’ interest in the restrictive covenant, but the 1989 and 2003 contracts demonstrated a mutual intention by the parties that the defendants took their title subject to their interest. Vickery J found that in those circumstances the defendants had given an undertaking to that effect. Plainly those facts are quite distinct from the facts in the present case.
In conclusion, Vickery J also noted that although it was not pleaded by the plaintiffs, if fraud had been ‘pressed’ by them, he would have found that the repudiation by the defendants of the two agreements would have constituted fraud within the exceptions referred to in s 42 and s 43 of the Transfer of Land Act.[52] That conclusion by his Honour was plainly obiter dictum, given that fraud was neither pleaded nor (apparently) argued. However, again, the basis for Vickery J expressing that view was materially distinct from the circumstances in the present case.
[52]Ibid 108 [124].
For the foregoing reasons, it must be concluded that the judge in this case erred in holding that the respondent had established fraud, under s 42 and s 43 of the Transfer of Land Act, comprising the conduct of the applicants in disregarding the Terms of Settlement. The evidence in the case fell well short of providing a sufficient basis for such a finding, and indeed was insufficient to constitute the basis of any in personam claim against the applicants. Accordingly, grounds 5, 6, 7 and 8 of the application for leave to appeal must succeed.
Summary of conclusions
For the foregoing reasons, we would grant the applicants leave to appeal on grounds 5, 6, 7 and 8, allow the appeal, and set aside the judgment and orders made by his Honour dated 22 November 2018. In lieu of those orders, we would order as follows:
(1)The proceeding is dismissed.
(2)The plaintiff pay the defendants’ costs of and incidental to the proceeding, including reserved costs, on a standard basis.
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