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Supreme Court 28 June 2007

Drake & Anor v Vineyard Marsden Park Schofield Investment Land Auctions

[2007] NSWSC 668

Other
CONVEYANCING LAND TITLES UNDER THE TORRENS SYSTEM INDEFEASIBILITY OF TITLE VENDOR FINANCE FAILURE TO DO SO 2ND CAVEAT OVER REMAINING 4 LOTS LODGED

Citation: Drake & Anor v Vineyard Marsden Park Schofield Investment Land Auctions [2007] NSWSC 668
Court: Supreme Court of New South Wales, Equity Division
Date: 28 June 2007
Judge(s): Gzell J

Background

The plaintiffs purchased 14 lots of land at Riverstone in October 2001 under a vendor finance arrangement. The agreement provided that once the plaintiffs had paid a 10% deposit by instalments, the lots would be transferred to them in exchange for a registered mortgage over the balance. The plaintiffs took possession and built a house on two of the lots.

The plaintiffs reached the 10% deposit threshold in September 2002 but the vendor did not proceed with the transfer as promised. The plaintiffs subsequently fell behind on instalment payments and, after demands for repayment went unanswered, they lodged a caveat over the lots. When the vendor served a lapsing notice, the plaintiffs took no action to oppose it.

Once the caveat lapsed, the vendor transferred all 14 lots to a second party for $100,000. That second party became registered proprietor and subsequently on-sold 10 of the lots to third parties before the plaintiffs lodged a fresh caveat over the remaining four lots. The plaintiffs then commenced proceedings seeking to set aside either all 14 transfers or, at minimum, the four lots still held by the second party.

  • Whether the transfer of the 14 lots from the vendor to the second registered proprietor constituted fraud within the meaning of s 42(1) of the Real Property Act 1900, so as to defeat the indefeasibility of that party's registered title.
  • Whether the second registered proprietor existed as a real person, or whether the transfer was a sham designed solely to extinguish the plaintiffs' interests.
  • Whether, even if the fraud exception did not apply to all 14 lots, the plaintiffs could succeed in obtaining a declaration of entitlement over the four remaining lots.

Decision

Gzell J dismissed the plaintiffs' case on the fraud exception. The court acknowledged circumstantial suspicions: the second registered proprietor's address matched that given for the vendor; there were close personal and business connections between the vendor's principal, his daughter, and the witness to the transfer; and no one could be found who had met the second registered proprietor in person. Despite these irregularities, the court held that the available evidence did not rise to the standard required to find fraud.

Applying the principle from Briginshaw v Briginshaw, the court emphasised that fraud is a serious allegation requiring actual persuasion of its existence before a finding can be made. Inconsistencies in statements and close relationships between the parties involved did not, without more, transform the ordinary steps taken to transfer the land into fraudulent conduct on the part of the registered proprietor.

The court also noted that the steps taken had been procedurally orthodox. The vendor had attempted to transfer the lots while the first caveat was in place, was prevented from doing so, and issued a lapsing notice. The plaintiffs had the opportunity to contest the lapse and chose not to. Once the caveat lapsed, the transfer proceeded through normal channels.

On the alternative claim over the four remaining lots, the court reached the same conclusion for the same reasons. Because fraud had not been established, the registered proprietor's interest in those lots was equally protected under s 42(1). The claims to set aside the transfers in whole or in part were dismissed, with the court noting that the plaintiffs' remedy, if any, lay in a damages claim, which was stood over for further directions.

Orders Made

  • The summons was dismissed except for paragraphs 5, 6 and 7 (the damages claim).
  • The remaining paragraphs of the summons were stood over before the Registrar for directions at 9:30 am on Thursday 5 July 2007.

Key Takeaways

  • Under s 42(1) of the Real Property Act 1900, a registered proprietor holds title free from unregistered interests except in cases of fraud. The fraud exception is narrow and requires actual persuasion of fraudulent conduct, not merely suspicious circumstances.
  • Applying Briginshaw v Briginshaw, the Supreme Court confirmed that the gravity of a fraud allegation demands a correspondingly high degree of satisfaction before a court will make such a finding, even in civil proceedings.
  • A close personal or commercial relationship between a transferor and transferee does not, on its own, convert an otherwise ordinary transfer into a fraudulent one for the purposes of the indefeasibility provisions.
  • Purchasers who allow a caveat to lapse without contesting a lapsing notice do so at their peril. The court treated the plaintiffs' failure to oppose the lapsing notice as a significant factor in assessing the propriety of the subsequent transfer.
  • Where a fraud-based challenge to indefeasibility fails, a plaintiff who has made payments under a vendor finance arrangement may be left to pursue damages rather than recover the land itself.

Legislation and Cases Referenced

Legislation
- Real Property Act 1900 (NSW), s 42(1)

Cases
- Briginshaw v Briginshaw (1938) 60 CLR 336