Introduction to property and commercial law [Second edition.] 9780455239217, 0455239215

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INTRODUCTION TO PROPERTY AND COMMERCIAL LAW Second edition

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EUROPE Thomson Reuters London United Kingdom

INTRODUCTION TO PROPERTY AND COMMERCIAL LAW

compiled by

SCOTT GRATTAN BA LLB (Hons) (Macquarie), LLM (British Columbia), PhD (UNSW) Senior Lecturer University of Sydney

SHEELAGH MCCRACKEN MA (Camb), PhD (Sydney), Cert H.Ed (UNSW) Professor of Finance Law University of Sydney

SECOND EDITION

LAWBOOK CO. 2017

Published in Sydney by Thomson Reuters (Professional) Australia Limited ABN 64 058 914 668 19 Harris Street, Pyrmont, NSW First edition 2016 ISBN 9780 455 239217 © 2017 Thomson Reuters (Professional) Australia Limited This publication is copyright. Other than for the purposes of and subject to the conditions prescribed under the Copyright Act, no part of it may in any form or by any means (electronic, mechanical, microcopying, photocopying, recording or otherwise) be reproduced, stored in a retrieval system or transmitted without prior written permission. Inquiries should be addressed to the publishers. Commonwealth: All legislative material herein is reproduced by permission but does not purport to be the official or authorised version. It is subject to Commonwealth of Australia copyright. The Copyright Act 1968 permits certain reproduction and publication of Commonwealth legislation. In particular, s 182A of the Act enables a complete copy to be made by or on behalf of a particular person. For reproduction or publication beyond that permitted by the Act, permission should be sought in writing. Requests should be submitted online at www.ag.gov.au/cca, faxed to (02) 6250 5989 or mailed to Commonwealth Copyright Administration, Attorney-General’s Department, Robert Garran Offices, National Circuit, Barton ACT 2600. New South Wales: Copyright of NSW legislative material: Copyright continues to reside in the State of NSW. Victoria: All Acts and Statutory Rules © The State of Victoria, the Government Printer (2016). Disclaimer: This product or service contains an unofficial version of the Acts and Statutory Rules of the State of Victoria. The State of Victoria accepts no responsibility for the accuracy, completeness or currency of any legislation contained in this product or provided through this service. Queensland: Copyright of Queensland legislative material: © The State of Queensland (2016). South Australla: Copyright of SA legislative material: Copyright is owned by the Crown in right of the State of South Australia. Tasmania: Copyright of Tasmanian legislative material: Copyright is owned by the State of Tasmania. Editor: Nick Jewlachow Product Developer: Vickie Ma Publisher: Robert Wilson Printed by Ligare Pty Ltd, Riverwood, NSW

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PUBLISHER’S NOTE Text compilation This volume has been designed for use in conjunction with the unit of study outline and other material assigned for the unit. It has been prepared by drawing upon material from the following Thomson Reuters (Professional) Australia titles: • Chambers, An Introduction to Property Law in Australia (3rd ed, Lawbook Co, 2013); • Dal Pont, Equity and Trusts: Commentary and Materials (6th ed, Lawbook Co, 2015); • McCracken et al, Everett & McCracken’s Banking and Financial Institutions Law (8th ed, Lawbook Co, 2013); • Moore et al, Australian Property Law: Cases and Materials (5th ed, Lawbook Co, 2016); • Parkinson (ed), The Principles of Equity (2nd ed, Lawbook Co, 2003); • Pearson et al, Commercial Law: Commentary and Materials (3rd ed, Lawbook Co, 2010). Pagination, paragraphs, cross-references and footnotes The content of this book has been repaginated and reparagraphed to run consecutively. Where a reference is made to text not contained within this publication, the original reference remains, with an indication of its origin, eg (Moore). Footnoting in the text has been renumbered to run chronologically within each chapter. Acknowledgements The judgment in Public Trustee v Bussell (1993) 30 NSWLR 111 has been reproduced with the kind permission of the Council of Law Reporting for NSW. The UK cases published in this text have been reproduced exactly as in the original reports with the kind permission of the Incorporated Council of Law Reporting.

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TABLE OF CONTENTS

Publisher’s note ................................................................................................................................. v Table of Cases .................................................................................................................................. ix Table of Statutes .......................................................................................................................... .. xxi

Part 1: (A) The Concept and Function of “Property” and (B) Real Property – Introduction to Real Property 1 Introduction to General Property Concepts ...................................................... .. 3 2 Tenures, Estates and Native Title ....................................................................... .. 37 3 Legal and Equitable Interests in Land .............................................................. .. 81 4 Old System Title Registration ............................................................................. 129 5 Torrens Title Land .............................................................................................. .. 131 6 General Law and Torrens Title Mortgages ..................................................... .. 143 7 Definition of Land – Fixtures .............................................................................. 149

Part 2: Personal Property – Introduction to Choses in Possession 8 Taxonomy of Personal Property ...................................................................... .. 167 9 Identifying Legal Interests in Choses in Possession: Ownership and Possession .............................................................. .. 199 10 Engaging in Dealings in Choses in Possession: Transfer of Ownership ..................................................................... .. 215 11 Engaging in Dealings in Choses in Possession: Transfer of Possession by Bailment ............................................... .. 299

Part 3: Personal Property – Introduction to Choses in Action 12 The Concept of a Chose in Action ................................................................. .. 331 13 Exploring Equitable Choses in Action ........................................................... .. 345

Part 4: Assignment and Disposition of Interests 14 Legal Assignments of Choses in Action ........................................................ .. 397 vii

Introduction to Property and Commercial Law

15 Equitable Assignments Generally .................................................................. .. 399 16 Equitable Assignments of Legal Interests .................................................... .. 449 17 Assignment of Equitable Interests ................................................................ .. 471 18 “Assignment” of Future Property ................................................................. .. 475

Part 5: (A) Priority Regimes and (B) Commercial Dealings as Security Interests Over Property 19 Priorities Under the Sale of Goods Act ......................................................... .. 483 20 General Law Priority Rules: Contests Between Legal and Equitable Interests ............................................................................................. .. 513 21 General Law Priority Rules: Contests in Equity ........................................... .. 525 22 Traditional Forms of Security ........................................................................... 557 23 Security Within the Scope of the Personal Property Securities Act 2009 (Cth) (PPSA) ..................................................................................... .. 575 Index ..................................................................... .. .................................................................. 629

viii

TABLE OF CASES [Where an extract from a case is reproduced the paragraph number at which the extract appears is in bold.] A ACT Revenue, Commissioner for v Perpetual Trustee Co (Canberra) Ltd (1994) 118 ACTR 1 ..... 13.40 AG(CQ) Pty Ltd v A&T Promotions Pty Ltd [2010] QCA 83 ....................................................... 21.15 Abigail v Lapin [1934] AC 491; (1934) 51 CLR 58 .............................................. 21.05, 21.15, 21.20 Adamson v Hayes (1973) 130 CLR 276 ...................................................................... 15.115, 15.185 Agnew v Commissioner of Inland Revenue [2002] 1 NZLR 30 ....................................... 22.40, 22.55 Agnew and Bearsley v The Commissioner of Inland Revenue [2001] UKPC 28 ........................ 15.415 Agricultural Credit Corporation of Saskatchewan v Pettyjohn [1991] 90 Sask R 206 ........................... Akron Tyre Co Pty Ltd v Kittson (1951) 82 CLR 477 ................................................................ 15.375 Allen v Snyder [1977] 2 NSWLR 685 ........................................................................................... 3.35 Allgemeine Versicherungs-Gesellschaft Helvetia v Administrator of German Property [1931] 1 KB 672 ............................................................................................................................. 12.20 Anning v Anning (1907) 4 CLR 1049 ............................................................................. 15.60, 15.70 Arcabi Pty Ltd (recs & mgrs apptd) (in liq), Re; ex parte Theobald & Herbert (2014) 288 FLR 236 ..................................................................................................................................... 23.75 Archer-Shee v Garland [1931] AC 212 ...................................................................................... 13.15 Archibald Howie Pty Ltd v Commissioner of Stamp Duties (NSW) (1948) 77 CLR 143 .............. 12.30 Armory v Delamirie (1722) 1 Stra 505; 93 ER 664 ................................................................... 10.30 Askrigg Pty Ltd v Student Guild of the Curtin University of Technology (1989) 18 NSWLR 738 ........................................................................................................................... 22.75, 22.80 Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (in liq) (2000) 202 CLR 588 ................... 13.75 Atkins v Mercantile Credits Ltd (1985) 10 ACLR 153 ................................................................. 22.60 Attorney-General (Hong Kong) v Reid [1994] 1 AC 324 .............................................................. 3.35 Attorney-General (NT) v Chaffey (2007) 231 CLR 651 .............................................................. 1.135 Attorney-General for Hong Kong v Reid [1994] 1 NZLR 1 ......................................................... 13.95 Australian Elizabethan Theatre Trust, Re (1991) 30 FCR 491 ................................................... 13.130 Australian Receivables Ltd v Tekitu Pty Ltd (Subject to Deed of Company Arrangement) (Deed Administrators Appointed) [2011] NSWSC 1306 ........................................................ 22.65 Australian Safeway Stores Pty Ltd v Zaluzna (1987) 162 CLR 479; [1987] HCA 7 ...................... 1.115 Australian Tape Manufacturers Association Ltd v Commonwealth (1993) 176 CLR 480 ............. 23.25 Avco Financial Services Limited v White [1977] VR 56 ............................................................... 21.15 Avco Financial Services Ltd v Fishman [1993] 1 VR 90 .................................................... 21.15, 21.20 Azkanaad Pty Ltd v Galanos Bros Pty Ltd (No 2) [2008] NSWSC 476 .......................................... 3.70 Azkanaad Pty Ltd v Galanos Bros Pty Ltd [2008] NSWCA 185 ..................................................... 3.70

B B v B (2000) FLC 93-002 .......................................................................................................... 15.05 B v X [2011] 2 NZLR 405 .......................................................................................................... 13.30 B & B Budget Forklifts Pty Ltd v CBFC Ltd (2008) 216 FLR 274; [2008] NSWSC 271 ................. 22.70 B & B Budget Forklifts Pty Ltd v CBFC Ltd (2008) 216 FLR 294; [2008] NSWSC 271 ...... 22.40, 22.60 Babanaft International Co SA v Bassatne [1990] 1 Ch 13 .......................................................... 13.10 Bacaral Pty Ltd v Bodnar [2000] VSC 523 ............................................................................... 15.380 Backhouse v Judd [1925] SASR 16 ............................................................................................ 1.115 Bahr v Nicolay (No 2) (1988) 164 CLR 604 ............................................................................ 13.120 Bainbridge, Re; Ex parte Fletcher (1878) 8 Ch D 218 ................................................................ 12.25 Baird v Baird [1990] 2 AC 549 ................................................................................................ 15.250 Baker v Archer-Shee [1927] AC 844 .......................................................................................... 13.15 Baloglow v Konstanidis (2001) 11 BPR 20,721; [2001] NSWCA 451 ........................................... 3.70 Bandwill Pty Ltd v Spencer-Laitt [2000] WASC 210 ................................................................. 15.410 Bank of Credit and Commerce International SA (No 8), Re [1998] AC 214 .................................. 9.65 ix

Introduction to Property and Commercial Law

Bank of Montreal v Innovation Credit Union [2010] 3 SCR 3 .............................. 23.50, 23.55, 23.70 Barcelo v Electrolytic Zinc Co of Australasia Ltd (1932) 48 CLR 391 .......................................... 22.60 Barclays Bank Ltd v Commissioners of Customs and Excise [1963] 1 Lloyd’s Rep 81 ................. 22.85 Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 ............ 13.60, 13.105, 13.130, 23.45 Barclays Bank plc, In the matter of [2012] NSWSC 1095 .......................................................... 23.70 Barnes v Addy (1874) LR 9 Ch App 244 ...................................................................................... 3.35 Barnhart v Greenshields (1853) 9 Moo 18; 14 ER 204 .............................................................. 20.30 Bartlett Estates Pty Ltd, Re [1989] 2 Qd R 175 .................................................... 22.60, 22.65, 22.70 Bateman v Hunt [1904] 2 KB 530 ............................................................................................. 15.85 Baumgartner v Baumgartner (1987) 164 CLR 137 .................................................................... 21.30 Beconwood Securities Pty Ltd v Australia and New Zealand Banking Group Ltd (2008) 66 ACSR 116 ...................................................................................................... 22.20, 22.35, 22.40 [1984] VR 947 ................................................................................................................... 7.10, 7.15 Benjamin v Leicher (1998) 45 NSWLR 389 ............................................................................... 15.55 Best v Best (1993) FLC 92-118 .................................................................................................. 15.05 Bevan Ashford (A Firm) v Geoff Yeandle (Contractors) Ltd (in liquidation) [1999] Ch 239 ....... 15.410 Bishop v Taylor (1968) 118 CLR 518; 42 ALJR 277 ...................................................................... 3.70 Blackett v Darcy (2005) 62 NSWLR 392 .................................................................................... 16.20 Bloch v Bloch (1981) 37 ALR 55 ................................................................................................. 3.15 Boardman v Phipps [1967] 2 AC 46 ............................................................................................ 3.35 Bogdanovic v Koteff (1988) 12 NSWLR 472 ............................................................................. 15.25 Booth v Federal Commissioner of Taxation (1987) 76 ALR 375 ............................................... 15.390 Booth, MacDonald and Co (Ltd) v Official Assignee of Hallmond (1913) 33 NZLR 110 ............. 13.70 Bowesco Pty Ltd v Zohar (2007) 61 ACSR 99 ............................................................................ 22.40 Brathwait v Skinner (1839) 5 M & W 313; 151 ER 133 ............................................................. 12.25 Breskvar v Wall (1971) 126 CLR 376 ................................................ 5.70, 5.85, 21.15, 21.20, 21.30 Brightlife Ltd, Re [1986] 3 All ER 673 ........................................................................................ 22.70 Brookfield v Davey Products (1996) 14 ACLC 303 .................................................................. 15.415 Brownsea v National Trustees Executors & Agency Co of Australasia Ltd [1959] VR 243; [1959] ALR 650 ...................................................................................................................... 3.70 Bruce v Tyley (1916) 21 CLR 277 ............................................................................................ 15.420 Brunker v Perpetual Trustee Co Ltd (1937) 57 CLR 555 ................................................. 15.65, 15.70 Brunswick Developments Pty Ltd v Shock Records Pty Ltd (1996) V ConvR 54-604 .................... 3.70 Bruton v London & Quadrant Housing Trust [2000] 1 AC 406 .................................................... 2.15 Butler v Fairclough (1917) 23 CLR 78 ....................................................................................... 21.15 Byrnes v Kendle (2011) 243 CLR 253 .................................................................................... 13.135

C Caisse Populaire Desjardins de L’Est de Drummond v Canada [2009] 2 SCR 94 ........................ 23.45 Camdex International Ltd v Bank of Zambia [1998] QB 22 ..................................................... 15.415 Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd (2006) 229 CLR 386; 229 ALR 58 ................ 12.40 Cancer Care Institute of Australia Pty Ltd (admin apptd), Re (2013) 16 BPR 31,529; [2013] NSWSC 37 ............................................................................................................................ 7.45 Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd (1974) 131 CLR 321 ........................................................................................................................ 18.10 Car and Universal Finance Co Ltd v Caldwell [1965] 1 QB 525 ................................................ 19.45 Caratun v Caratun (1992) 96 DLR (4th) 404 ............................................................................... 1.15 Carlos Federspiel & Co SA v Charles Twigg & Co Ltd [1957] 1 Lloyd’s Rep 240 ..................... 10.120 Carob Industries Pty Ltd (in liq) v Simto Pty Ltd (2000) 23 WAR 515; [2000] WASCA 362 ........ 14.05, 15.40 Carreras Rothmans Ltd v Freeman Matthews Treasure Ltd [1985] 1 All ER 155 .......................... 13.25 Carson, in the matter of Hastie Group Ltd (No 3) [2012] FCA 719 ..................................................... Caunce v Caunce [1969] 1 WLR 286 ........................................................................................ 20.30 Chaka Holdings Pty Ltd v Sunsim Pty Ltd (1987) NSW ConvR 55-367 ........................................ 3.80 Chang v Registrar of Titles (1976) 137 CLR 177 ........................................................................ 15.50 Chapman Bros v Verco Bros & Co Ltd (1933) 49 CLR 306 ........................................................ 11.15 Chellaram v Chellaram [1985] Ch 409 ..................................................................................... 13.10 Chief Commissioner of Land Tax v Macary Manufacturing Pty Ltd (1999) 48 NSWLR 299 ......... 3.25, 3.35 x

Table of Cases

Chief Commissioner of Stamp Duties v ISPT Pty Ltd (1998) 45 NSWLR 639 ................. 15.50, 15.145 Child v Dynes [1985] 2 NZLR 554 ............................................................................................ 21.40 Chipperfield v Carter (1895) 72 LT 487 ...................................................................................... 3.70 Christie v Ovington (1875) 1 Ch D 279 .................................................................................... 13.50 Chronopoulos v Caltex Oil (Australia) Pty Ltd (1982) 45 ALR 481 ............................................... 3.70 Ciaglia v Ciaglia [2010] NSWSC 341 .......................................................................................... 3.95 Cinema Plus Ltd (admins apptd) v Australia and New Zealand Banking Group Ltd (2000) 35 ACSR 1 ................................................................................................................................ 22.60 Circuit Systems Ltd (in liq.) v Zuken-Redac (UK) Ltd [1997] 1 WLR 721 .................................. 15.415 City Motors (1933) Pty Ltd v Southern Aerial Super Service Pty Ltd (1961) 106 CLR 477; [1961] HCA 53 ...................................................................................................................... 1.95 Clark v Raymor (Brisbane) Pty Ltd [No 2] [1982] Qd R 790 ....................................................... 21.15 Clark Equipment of Canada Ltd v Bank of Montreal [1984] 4 WWR 519; 8 DLR (4) 424; 27 Man R (2d) 54 .............................................................................................................................. Clements v Ellis (1934) 51 CLR 217 ............................................................................................ 5.70 Clyne v New South Wales Bar Association (1960) 104 CLR 186 ............................................... 15.410 Cobb v Lane [1952] 1 All ER 1199 .............................................................................................. 3.80 Coggs v Bernard (1703) 2 Ld Raym 909; 92 ER 107 ........................................... 11.05, 11.10, 22.75 Cole, a Bankrupt, Re [1964] 1 Ch 175 ...................................................................................... 10.05 Collyer v Isaacs (1881) 19 Ch D 342 ...................................................................................... 15.390 Colman v Golder [1957] VR 196 ................................................................................................. 3.70 Colonial Bank v Whinney (1885) 30 Ch D 261 ........................................................................... 8.10 Competitive Funerals Pty Ltd v Gurmit Singh Rai t/as Blacktown City Funerals [2005] NSWSC 1171 ......................................................................................................................... 3.70 Comptroller of Stamps (Vic) v Howard-Smith (1936) 54 CLR 614 ..... 15.105, 15.160, 15.180, 17.05 Connell v Bond Corp Pty Ltd (1992) 8 WAR 352 ....................................................................... 13.15 Consolidated Trust Co Ltd v Naylor (1936) 55 CLR 423 ............................................................ 14.05 Construction Engineering (Aust) Pty Ltd v Hexyl Pty Ltd (1984) 155 CLR 541 .......................... 13.85 Consul Developments Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 ................................... 3.35 Cooney v Burns (1922) 30 CLR 216; 28 ALR 181 ....................................................................... 3.40 Cooper v Stuart (1884) 14 AC 286 ............................................................................................. 2.30 Corin v Patton (1990) 169 CLR 540 ............................................. 15.70, 15.75, 15.80, 15.85, 16.10 Corin v Patton (1990) 92 ALR 1 ................................................................................................ 16.10 Cosslett (Contractors) Ltd, Re [1998] Ch D 495 ........................................................................ 22.40 Costa & Duppe Properties Pty Ltd v Duppe [1986] VR 90 ......................................................... 13.15 Costin v Costin (1994) NSW Conv R 55-715 ................................................................. 15.70, 15.80 (1997) NSW Conv R 55-811 ..................................................................................................... 15.70 Coulls v Bagot’s Executor & Trustee Co (1967) 119 CLR 460 .................................................. 15.105 Cranston v CBFC Ltd (unreported, SC(NSW), 11 June 1993) .................................................... 21.40 Crichton v Crichton (1930) 43 CLR 536 .................................................................... 15.210, 15.230 Cummings v Claremont Petroleum NL (1996) 185 CLR 124; [1996] HCA 19 .............................. 1.15

D DHN Food Distributors v London Borough of Tower Hamlets [1976] 3 All ER 462 ................... 15.140 DKLR Holding Co (No 2) Limited v Commissioner of Stamp Duties (NSW) [1980] 1 NSWLR 510 .......................................................................................................... 3.25, 3.30, 3.35, 15.45 DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW) (1982) 149 CLR 431 .................................................................................................................................... 15.205 Daniel Efrat Consulting Services Pty Ltd, Re (1999) 91 FCR 154 .............................................. 15.415 Danish Bacon Co Ltd Staff Pension Fund, Re [1971] 1 WLR 248 .............................................. 15.245 Davis v Heuber (1923) 31 CLR 583 ........................................................................................... 13.70 De Groot, Re (unreported, Qld SC, Muir J, 23 December 1999) ............................................. 15.380 Deeks v Strutt (1794) 5 TR 690; 101 ER 384 ............................................................................. 12.25 Denley’s Trust Deed, Re [1969] 1 Ch 373 ................................................................................. 13.25 Devefi Pty Ltd v Mateffy Pearl Nagy Pty Ltd [1993] RPC 493 .................................................. 15.420 Dive v Maningham (1550) 1 Plowden 96; 75 ER 96 ................................................................. 1.120 Don King Productions Inc v Warren [1993] 3 WLR 276 ........................................................... 15.420 Don King Productions Inc v Warren [1998] 2 All ER 608 ............................................................ 15.15 Don King Productions Inc v Warren [1999] 3 WLR 276 ................................................ 15.05, 15.420 xi

Introduction to Property and Commercial Law

Donald v Suckling (1866) LR 1 QB 585 ......................................................................... 22.75, 22.90 Double Bay Newspapers Pty Ltd v AW Holdings Pty Ltd (1996) 42 NSWLR 409 ............ 21.20, 21.30, 21.35 Dougan v Ley (1946) 71 CLR 141 .......................................................................................... 15.375 Dublin City Distillery Ltd v Doherty [1914] AC 823 ................................................................... 22.80

E Earl of Lucan, Re (1890) 45 Ch D 615 .................................................................................... 15.110 Eastern Distributors Ltd v Goldring (Murphy, Third Party) [1957] 2 QB 600 ............................. 19.25 Elderly Citizens Homes of SA Inc v Balnaves (1998) 72 SASR 210 .............................................. 21.40 Electrical Enterprises Retail Pty Ltd v Rodgers (1989) 15 NSWLR 473 ............................. 22.60, 22.65 Elitestone Ltd v Morris [1997] 1 WLR 687; [1997] 2 All ER 513; [1997] UKHL 15 ........................ 7.15 Ellingsen v Hallmark Ford Sales Ltd 2000 BCCA 458 .......................................................................... Ellis v Torrington [1920] 1 KB 399 .......................................................................................... 15.415 Endacott, Re [1960] Ch 232 ..................................................................................................... 13.25 Equus Corp Pty Ltd v Antonopoulos [2008] VSCA 179 ................................................................ 3.70 Equus Financial Services Limited v Glengallen Investments Pty Ltd (Appeal No 262 of 1993) .... 15.90 Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498; 286 ALR 12 ..................................... 12.45, 16.40 Errington v Errington and Woods [1952] 1 KB 290 ..................................................................... 3.80 Euston Centre Properties Ltd v H&J Wilson Ltd (1982) 262 EG 1079 ........................................... 3.70 Evans v Rival Granite Quarries Ltd [1910] 2 KB 979 ....................................................... 22.60, 22.70 Everett, Re; Executor Trustee and Agency Co of South Australia Ltd v Everett [1917] SALR 52 .... 10.10 Ewing v Orr Ewing (1883) 9 App Cas 34 .................................................................................. 13.10 Ewing’s case Ewing v Orr Ewing (1883) 9 App Cas 34 .............................................................. 13.10

F Facchini v Bryson [1952] 1 TLR 1386 .......................................................................................... 3.80 Fairbanx Corporation v Royal Bank of Canada (2010) 68 CBR (5) 102 ............................................... Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 ............................................. 3.35 Federal Airports v Makucha Developments Pty Ltd (1993) 115 ALR 679 ...................................... 3.80 Ferrishurst Ltd v Wallcite Ltd [1999] Ch 355 ............................................................................. 20.30 Figgins Holdings Pty Ltd v SEAA Enterprises Pty Ltd (1999) 196 CLR 245; [1999] HCA 20 .......... 6.10 Fire Nymph Products Ltd v Heating Centre Pty Ltd (1988) 14 NSWLR 460 .................... 22.65, 22.70 Fire Nymph Products Ltd v Heating Centre Pty Ltd (in liq) (1992) 7 ACSR 365 ......................... 22.70 Fiver Trading Pty Ltd v Spajak Pty Ltd [2005] NSWSC 532 .......................................................... 3.70 Foley v Hill (1848) 2 HLC 28; 9 ER 1002 ..................................................................................... 1.55 Foreman v Hazard [1984] 1 NZLR 586 ................................................................................... 13.125 Forge Group Power Pty Ltd (in liq) v General Electric International, Inc (2016) 305 FLR 101 .... 23.80 Forrest Trust, Re [1953] VLR 246 ............................................................................................... 22.25 Frazer v Walker [1967] 1 AC 569 ..................................................................... 5.15, 5.70, 5.75, 5.80

G Gamer’s Motor Centre (Newcastle) Pty Ltd v Natwest Wholesale Australia Pty Ltd (1987) 163 CLR 236; 61 ALJR 415 ............................................................ 10.15, 10.20, 19.100, 19.105 Garcia v Lam (unreported, NSWCA, Sheller, Powell and Cole JJA, 2 July 1996) .......................... 15.80 Garcia v Lam (unreported, NSWSC, McLaughlin M, 20 February 1997) .................................. 15.395 Gartside v IRC [1968] AC 653 ................................................................................................... 13.25 General Motors Acceptance Corporation Australia v Southbank Traders Pty Ltd (2007) 234 ALR 608 ............................................................................................................................... 22.05 Gibbs v Messer [1891] AC 248 ................................................................................................... 5.75 Giffen, Re (1998) 1 SCR 91; 155 DLR (4) 332 .................................................................................... Gill v Gill (1921) 21 SR (NSW) 400 ........................................................................................... 13.25 Giumelli v Giumelli (1999) 196 CLR 101 .................................................................................. 21.30 Glegg v Blomley [1912] 3 KB 474 .......................................................................................... 15.410 Global Custodians Ltd v Mesh [1999] NSWCA 313 ................................................................. 15.315 Goldcorp Exchange Ltd, Re [1995] 1 AC 74 ............................................................................ 15.375 xii

Table of Cases

Goldcorp Exchange Ltd (In Receivership), Re [1994] 3 WLR 199; [1994] 2 All ER 806 ............ 10.130 Goldsbrough Mort & Co Ltd v Tolson (1909) 10 CLR 470 ........................................................ 12.20 Gosper v Sawyer (1985) 160 CLR 548 .................................................................................... 13.100 Governments Stock and Other Securities Investment Company Ltd v Manila Railway Co Ltd [1897] AC 8 1 ...................................................................................................................... 22.70 Graham v Portacom New Zealand Ltd [2004] 2 NZLR 528 ....................................................... 23.55 Grainge v Wilberforce (1889) 5 TLR 436 ......................................................... 13.40, 15.145, 15.160 Gray v Official Trustee in Bankruptcy (1991) 29 FCR 166 .......................................................... 10.25 Gray v Royal Bank of Canada (1997) 143 DLR (4) 179 ....................................................................... Grey v Australian Motorists & General Insurance Co Pty Ltd [1976] 1 NSWR 427 ................... 15.315 Grey v Australian Motorists and General Insurance Co Pty Ltd [1976] 1 NSWLR 669 ................. 14.10 Grey v Inland Revenue Commissioners [1958] Ch 690 ........................................................... 15.160 Grey v Inland Revenue Commissioners [1960] AC 1 ........................... 15.115, 15.175, 15.185, 17.15 Gurfinkel v Bentley Pty Ltd (1966) 116 CLR 98 ......................................................................... 22.20

H Hali Retail Stores Pty Ltd v Hafaz [2007] NSWSC 412 ................................................................. 3.70 Hamilton v Hunter (1982) 7 ACLR 295 ..................................................................................... 22.60 Hamilton-Snowball’s Conveyance, Re [1959] Ch 308 ............................................................... 15.50 Handevel Pty Ltd v Comptroller of Stamps (Vic) (1985) 157 CLR 177 ....................................... 22.05 Handevel Pty Ltd v Comptroller of Stamps (Vic) (1985) 62 ALR 204 .......................................... 22.20 Hardoon v Belilios [1901] AC 118 ............................................................................................. 13.40 Harrington-Smith on behalf of the Wongatha People v Western Australia (No 8) [2004] FCA 338 ........................................................................................................................................ 2.55 Harris v Anais Holdings Ltd [2002] 3 NZLR 511 ........................................................................ 21.40 Harrold v Plenty [1901] 2 Ch 314 ............................................................................................. 22.35 Harvey v Pratt [1965] 2 All ER 786 (CA); [1965] 1 WLR 1025 ...................................................... 3.70 Heberley (decd), Re [1971] NZLR 325 ...................................................................................... 13.30 Heid v Reliance Finance Corporation Pty Ltd (1983) 154 CLR 326 ..................... 21.10, 21.15, 21.20 Helby v Matthews [1895] AC 471 ............................................................................................ 10.65 Henry v Hammond [1913] 2 KB 515 ........................................................................................ 13.60 Hepples v Federal Commissioner of Taxation (1990) 22 FCR 1 .................................................. 15.05 Herdegen v Federal Commissioner of Taxation (1988) 84 ALR 271 ........................................... 13.50 Hobbs v Petersham Transport Co Pty Ltd (1971) 124 CLR 220 ................................................. 11.30 Hobson v Gorringe [1897] 1 Ch 182 .......................................................................................... 7.40 Hodgson v Marks [1971] Ch 892 .............................................................................................. 20.30 (1872) LR 7 CP 328 .................................................................................................................... 7.15 Holroyd v Marshall (1862) 10 HLC 191 .......................................................... 15.50, 15.365, 15.380 Holroyd v Marshall (1862) 10 HLC 191; [1861-1973] All ER Rep 414 ...................................... 15.370 Holroyd v Marshall (1862) 10 HLC 191; 11 ER 999 ...................................................... 15.410, 22.55 Holt v Heatherfield Trust Ltd [1942] 2 KB 1 .............................................................................. 15.85 Horton v Jones (1935) 53 CLR 475 ........................................................................................... 13.15 Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 ........................ 13.70 Hughes v Kingston Upon Hull City Council [1999] QB 1193 ................................................... 15.410 Hunt v Luck [1902] 1 Ch 428 ................................................................................................... 20.30

I I Trade Finance Inc v Bank of Montreal 2011 SCC 26 ................................................................ 22.05 IAC (Finance) Pty Ltd v Courtenay (1963) 110 CLR 550 ................................................. 21.15, 21.20 ICM Agriculture Pty Ltd v Commonwealth (2009) 240 CLR 140 ............................................... 1.135 IGA Distribution Pty Ltd v King & Taylor Pty Ltd [2002] VSC 440 .............................................. 20.30 ISPT Pty Ltd v Chief Commissioner of Stamp Duties (1997) 98 ATC 4.054; 38 ATR 128 ........... 15.145 Illingsworth v Houldsworth [1904] AC 355 .................................................................... 22.50, 22.55 Industrial Properties (Barton Hill) Ltd v Associated Electrical Industries Ltd [1977] QB 580 .......... 3.70 Inglis v Clarence Holdings Ltd [1997] 1 NZLR 268 ...................................................................... 3.70 Inland Revenue, Commissioner of v Stiassny [2012] NZCA 93 .................................................. 23.10 Insearch Ltd v Kin Hing Pty Ltd [2004] ANZ ConvR 111; [2003] NSWSC 875 ............................. 3.70 xiii

Introduction to Property and Commercial Law

Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 ........ 8.05

J J & H Just (Holdings) Pty Ltd v Bank of New South Wales (1971) 125 CLR 546 .............. 21.15, 21.20 Maitland’s Equity (ed),(2nd revd ed .......................................................................................... 13.10 JS Brooksbank v EXFTX (in rec & in liq) [2009] NZCA 122 ................................................................. Jabbour v Sherwood [2003] FCA 529 ....................................................................................... 21.30 Jacobs v Platt Nominees Pty Ltd [1990] VR 146 .................................................. 20.30, 21.15, 21.20 Jared v Clements [1903] 1 Ch 428 ............................................................................................ 20.30 Jennings v Credit Corp Australia Pty Ltd as assignee from Citicorp Person to Person Financial Services Pty Ltd (2002) 48 NSWLR 709 ................................................................................ 15.90 Jigrose Pty Ltd, Re [1994] 1 Qd R 382 ........................................................................................ 9.70

K KH Enterprise (Cargo Owners) v Pioneer Container (Owners); The Pioneer Container [1994] 2 AC 324 ............................................................................................................................ 11.20 KLDE Pty Ltd v Commissioner of Stamp Duties (Qld) (1984) 155 CLR 288 ............................... 15.95 Kaak v Bank of Montreal 2003 CanLII 38834 ..................................................................................... Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313 .................................. 15.15 Kaufman v Michael (1892) 18 VLR 375 ....................................................................................... 3.70 Kayford Ltd (in liq), Re [1975] 1 WLR 279 ..................................................... 13.60, 13.130, 13.155 [1962] VR 429 ............................................................................................................................ 7.40 Keech v Sandford (1726) 2 Eq Cas Ab 741; 22 ER 629 ................................................................ 3.35 Kekewich v Manning (1851) 1 De GM & G 176 ..................................................................... 15.110 Kelly v Commissioner of Inland Revenue (1969) 1 ATR 380 ....................................................... 18.10 Kelrit Investments Pty Ltd v Transform Composites Holdings Pty Ltd [2004] ANZ ConvR 178; [2003] FCA 662 ............................................................................................................. 3.70 Kenneth Wright Distributors Pty Ltd (in liq), Re; W J Vines Pty Ltd v Hall [1973] VR 161 .......... 15.415 Kern Corporation Ltd v Walter Reid Trading Pty Ltd (1987) 163 CLR 164 .................................. 15.95 King v Brown (1912) 14 CLR 17 ............................................................................................... 12.30 King v David Allen & Sons Billposting Ltd [1916] 2 AC 54 ........................................................ 1.125 King v Greig [1931] VLR 413 .................................................................................................. 15.375 King v Smail [1958] VR 273 ...................................................................................................... 15.25 Kingsnorth Trust Ltd v Tizard [1986] 1 WLR 783 ....................................................................... 20.30 Knapp v Knapp [1944] SASR 257 ...................................................................................... 9.05, 9.60 Konstas v Southern Cross Pumps and Irrigation Pty Ltd (unreported, Fed Ct, Tamberlin J, 3 July 1996) ............................................................................................................................ 15.15 Kreglinger v New Patagonia Meat and Cold Storage Co Ltd [1914] AC 25 ............................... 22.20 Kyriacou v Manakis [2006] NSWSC 804 ..................................................................................... 7.35

L Landall Holdings Ltd v Caratti [1979] WAR 97 .......................................................................... 22.60 Lapin v Abigail (1930) 44 CLR 166 ........................................................................................... 21.15 Laserbem Pty Ltd v Gainsville Investments Pty Ltd [2004] VSC 62 ............................................... 3.70 Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) (1965) 113 CLR 265 ........ 21.15, 21.25, 21.30 Legal Services Commissioner v Dempsey [2008] 2 Qd R 272 ...................................................... 3.25 [1902] AC 157; [1902] UKHL 1 .......................................................................................... 7.15, 7.25 Leigh’s Will Trusts, Re [1970] Ch 277 .......................................................................... 13.20, 13.170 Lewis v Bell (1985) 1 NSWLR 731 ............................................................................................... 3.80 Lift Capital Partners Pty Ltd v Merrill Lynch International (2009) 253 ALR 482 .......................... 22.20 Lighting by Design (Aust) Pty Ltd v Cannington Nominees Pty Ltd [2008] WASCA 23 ................ 3.70 Lind, Re [1915] 2 Ch 345 ....................................................................................................... 15.390 Linden Gardens Trust Ltd v Lenesta Sludge Disposal Ltd [1994] 1 AC 45 ................................ 15.420 Lion Nathan Brewing Investment Pty Ltd v Commissioner for ACT Revenue (1997) 79 FCLR 177 .................................................................................................................................... 15.165 Livingston v Commissioner of Stamp Duties (Qld) (1960) 107 CLR 411 .................................... 13.15 xiv

Table of Cases

Lloyds Bank Plc v Rosset [1989] Ch 350 .................................................................................... 20.30 [1991] 1 AC 107 ....................................................................................................................... 20.30 Lockett v Norman-Wright [1925] Ch 56 ..................................................................................... 3.70 Long Leys Co Pty Ltd v Silkdale Pty Ltd (1991) 5 BPR 11.512 .................................................... 15.90 Long v Piper [2002] ANZ ConvR 43; (2002) NSW ConvR 56-000; [2001] NSWCA 342 ............... 3.70 Longtom Pty Ltd v Oberon Shire Council (1996) 7 BPR 14,799 ................................................ 21.40 Lonsdale Sand and Metal Pty Ltd v Commissioner of Taxation (1998) 81 FCR 419 ................... 15.85 Loxton v Moir (1914) 18 CLR 360 ................................................................................. 12.25, 12.30 Luckins (Receiver and Manager of Australian Trailways Pty Ltd) v Highway Motel (Carnarvon) Pty Ltd (1975) 133 CLR 164 ............................................................................. 22.60 Lyford v Commonwealth Bank of Australia (1995) 130 ALR 267 ................................................ 22.60 Lyne-Stephens and Scott-Miller’s Contract, Re [1920] 1 Ch 472 ............................................... 15.50 Lyons v Lyons [1967] VR 169 .................................................................................................... 22.25 Lysaght v Edwards (1876) 2 Ch D 499 .......................................................... 3.55, 3.60, 3.70, 15.50

M MBF Investments Pty Ltd v Nolan [2011] VSCA 114 .................................................................. 22.25 Mabo v Queensland (No 1) (1988) 166 CLR 186 ....................................................................... 2.30 Mabo v Queensland (No 2) (1992) 175 CLR 1; [1992] HCA 23 ............. 1.55, 2.20, 2.25, 2.30, 2.40 MacEwan Agricentre Inc v Beriault & McLennan (2002) 61 OR (3d) 63 .................................... 23.65 Maciejewski v Telstra Super Pty Ltd (1998) 44 NSWLR 601 ....................................................... 13.25 Maddison v Alderson (1883) LR 8 App Cas 467; [1883] All ER Rep 742 ....................................... 3.70 Magic Menu Systems Pty Ltd v AFA Facilitation Pty Ltd (1997) 142 ALR 198 ........................... 15.410 Manton v Parabolic Pty Ltd (1985) 2 NSWLR 361 ....................................................................... 3.05 Marcroft Wagons Ltd v Smith [1951] 2 KB 496 ........................................................................... 3.80 Margart Pty Ltd (in liq), Re (1984) 9 ACLR 269 ......................................................................... 22.60 Marr v Admiralty Commissioners 1926 SC 842 ....................................................................... 15.405 Martin v Reid (1862) 11 CB (NS) 730; 142 ER 982 ................................................................... 22.80 Masters v Cameron (1954) 91 CLR 353; 28 ALJR 438 ................................................................. 3.70 Matthew Short & Associates Pty Ltd v Riviera Marine (International) Pty Ltd [2001] NSWCA 281 ..................................................................................................................................... 11.40 Maughan, Re (1885) 14 QBD 956 .............................................................................................. 3.70 May v Ceedive Pty Ltd [2006] NSWCA 369 ................................................................................ 7.15 Maye, In re [2008] 1 WLR 315 ............................................................................................... 13.175 McCaughey v Commissioner of Stamp Duties (1946) 46 SR (NSW) 192 ................................... 15.10 McEntire v Crossley Bros [1895] AC 457 ................................................................................... 10.70 McFadden v Public Trustee for Victoria [1981] 1 NSWLR 15 .................................................... 15.245 McGowan v Commissioner of Stamp Duties (Qld) [2001] QCA 236 ............................ 15.05, 15.420 McKinnon Wallace Holdings Pty Ltd v Commissioner of State Revenue [1999] 1 VR 397 ......... 15.140 McLeay v Inland Revenue Commissioner (1963) 9 AITR 265 ................................................... 15.355 McMahon v Ambrose [1987] VR 817 .......................................................................................... 3.70 McMahon’s (Transport) Pty Ltd v Ebbage [1999] 1 Qd R 185 ..................................................... 7.35 Melluish v BMI (No 3) Ltd [1995] 4 All ER 453 ............................................................................ 9.50 Merifield Cooksey Holdings Pty Ltd v Commissioner of State Taxation (WA) (1993) 93 ATC 4 .... 13.15 Meyerstein v Barber (1866) LR 2 CP 38 .................................................................................... 22.80 Meynert v Leafdale Pty Ltd [2005] WASC 102 ........................................................................... 15.10 Milirrpum v Nabalco Pty Ltd (1971) 17 FLR 141 ................................................................ 1.55, 2.30 Millar v Taylor (1769) 98 ER 201 ................................................................................................. 8.05 Mills v Renwick (1901) 1 SR (NSW) (Eq) 173 ............................................................................ 20.30 Milroy v Lord (1862) 4 De GF & J 264 ............................................................ 15.60, 15.100, 15.210 Milroy v Lord (1862) 4 De GF & J 264; 45 ER 1185 ....................................................... 15.70, 16.05 Moffett v Dillon [1999] 2 VR 480 ................................................................................... 20.30, 21.15 Moore, Re; Ex parte Ibbetson (1878) 80 Ch D 519 ................................................................... 12.30 Morice v Bishop of Durham (1804) 9 Ves 399 ........................................................................... 13.25 Moss, Re (1977) 77 DLR (3d) 314 .......................................................................................... 15.220 Motor Auction Pty Ltd v John Joyce Wholesale Cars Pty Ltd (1997) 138 FLR 118 ....................... 15.80 Mountain Road (No 9) v Michael Edgley Corporation Pty Ltd [1999] 1 NZLR 335 .................... 15.85 Movitor Pty Ltd, Re (1996) 64 FCR 380 .................................................................................. 15.415 Muschinski v Dodds (1985) 160 CLR 583 ...................................................................... 13.10, 21.30 xv

Introduction to Property and Commercial Law

Myerson v Collard (1918) 25 CLR 154 ........................................................................................ 9.50

N NT Power Generation Pty Ltd v Trevor (2000) 18 ACLC 885 ................................................... 15.180 National Australia Bank Ltd v Dessau [1988] VR 521 ................................................................. 13.10 National Australia Bank Ltd v Finlay (1995) 13 ACLC 1 ............................................................. 22.70 National Mutual Life Nominees Ltd v National Capital Development Commission (1975) 37 FLR 404 ............................................................................................................................... 15.90 National Outdoor Advertising Ltd v Wavon Pty Ltd (1988) 4 BPR 9732 ....................................... 3.80 National Provincial Bank Ltd v Ainsworth [1965] AC 1175 ........................................................ 23.25 National Trustees Executors and Agency Co of Australasia Ltd v Federal Commissioner of Taxation (1954) 91 CLR 540 ................................................................................................ 23.25 National Westminster Bank plc v Spectrum Plus Ltd [2005] 2 AC 680; [2005] 4 All ER 209 ........ 22.40 National Westminster Bank plc v Spectrum Plus Ltd [2005] 2 AC 680; 4 All ER 209 ........ 22.50, 22.55 Nelson v Nelson (1995) 184 CLR 538 ..................................................................................... 13.100 Neville v Wilson [1997] Ch 144 .............................................................................................. 15.140 New Zealand Bloodstock Ltd v Waller [2006] 3 NZLR 629 ................................................................. Newtons of Wembley Ltd v Williams [1965] 1 QB 560 .............................................................. 19.95 Nokes v Doncaster Amalgamated Collieries Ltd [1940] 3 All ER 549 ........................................ 15.420 Nolan v Nolan [2003] VSC 121 ............................................................................................... 10.50 Nolan v Nolan [2004] VSCA 109 .............................................................................................. 10.53 Noonan v Martin (1987) 10 NSWLR 402 .................................................................................. 15.65 Norglen Ltd v Reeds Rains Prudential Ltd [1999] 2 AC 1 ......................................................... 15.410 Norglen Ltd (in liq.) v Reeds Rains Prudential Ltd [1996] 1 WLR 864 ...................................... 15.415 Norglen Ltd (in liq.) v Reeds Rains Prudential Ltd [1999] 2 AC 1 ............................................. 15.415 Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 ........... 12.25, 15.35, 15.65, 15.105, 15.110, 15.325, 15.335, 15.345, 15.350, 16.30 North Shore City Council v Stiassny [2009] 1 NZLR 342 .................................................................... North Shore Gas Co Ltd v Commissioner of Stamp Duties (NSW) (1940) 63 CLR 52; [1940] HCA 7 .................................................................................................................................... 7.25 North Western Shipping & Towage Co Pty Ltd v Commonwealth Bank of Australia (1993) 118 ALR 453 ........................................................................................................................ 22.70 Northern Counties Fire Insurance Co v Whipp (1884) 26 Ch D 482 ......................................... 20.10

O Oasis Merchandising Services Ltd, In re [1998] Ch 170 .......................................................... 15.415 Odessa, The [1916] 1 AC 145 ........................................................................................ 22.75, 22.90 Official Assignee v Wilson [2008] 3 NZLR 45 ........................................................................... 13.140 Official Receiver in Bankruptcy v Schultz (1990) 170 CLR 306 .................................... 13.20, 13.180 Olsson v Dyson (1969) 120 CLR 365 ................................. 10.10, 12.30, 15.35, 15.65, 16.20, 16.35 Ottaway v Norman [1972] Ch 698 ........................................................................................... 13.25 Oughtred v Inland Revenue Commissioners [1960] AC 206 .......................... 15.115, 15.135, 15.145 Oversea-Chinese Banking Corp Ltd (OCBC) v Malaysian Kuwaiti Investment Co (MKIC) [2003] VSC 495 ................................................................................................................... 20.30

P PT Ltd v Maradona Pty Ltd (1992) 25 NSWLR 643 ................................................................... 12.30 PT Ltd v Maradona Pty Ltd (No 2) (1992) 27 NSWLR 241 .......................................... 15.115, 17.10 Pacific Motor Auctions Pty Ltd v Motor Credits (Hire Finance) Ltd [1965] AC 867; [1965] 2 All ER 105 ........................................................................................................................... 19.75 Palette Shoes Pty Ltd v Krohn (1937) 58 CLR 1 .......................................................... 15.380, 15.395 Palette Shoes Pty Ltd (in liq) v Krohn (1937) 58 CLR 1 .............................................................. 16.35 Palgo Holdings Pty Ltd v Gowans (2005) 221 CLR 249; 215 ALR 253; 79 ALJR 1121; [2005] HCA 28 .................................................................................................................... 22.75, 22.95 Pangallo Estate Pty Ltd v Killara 10 Pty Ltd [2007] NSWSC 1528 .............................................. 11.25 Paradise Motor Co Ltd, Re [1968] 1 WLR 1125 ....................................................................... 15.220 xvi

Table of Cases

Parker v British Airways Board [1982] 1 QB 1004 ............................................... 10.35, 10.40, 10.45 Parker & Parker v Ledsham [1988] WAR 32 ................................................................ 15.105, 15.180 Parker and Parker v Ledsham [1988] WAR 32 ............................................................. 15.165, 15.210 Parsons v McBain (2001) 109 FCR 120; 192 ALR 772 ............................................................... 21.30 Patmore v Upton (2004) 13 Tas R 95 ........................................................................................ 21.30 Pelenoy Pty Ltd v Donovan Oates Hannaford Mortgage Corp [2004] NSWSC 4 ....................... 21.40 Pemberton v Dimitrijevic [2001] NSWSC 54 ............................................................................... 3.70 Penn v Lord Baltimore (1750) 1 Ves Sen 444; 27 ER 1132 ......................................................... 13.10 Pennington v Waine [2002] 1 WLR 2075 .................................................................................. 16.35 Performing Right Society v London Theatre of Varieties [1924] AC 1 ......................................... 15.90 Permanent Houses (Holdings) Ltd, Re (1989) 5 BCC 151 .......................................................... 22.70 Perpetual Trustee Co Ltd v Commissioner of Stamp Duties (1961) 61 SR (NSW) 333 ................ 12.25 Perpetual Trustee Company Ltd v Smith (2010) 186 FCR 566; [2010] V ConvR 54-779 ........... 20.30, 21.15 Phillips Fox (a firm) v Westgold Resources NL [2000] WASCA 85 ................................ 15.340, 15.400 Pico Holdings Inc v Wave Vistas Pty Ltd (2005) 214 ALR 392 ..................................................... 22.35 Picwoods Pty Ltd v Panagopoulos (2005) NSW ConvR 56-120; [2004] NSWSC 978 ................... 3.70 Pilcher v Rawlins (1872) 7 Ch App 259 ......................................................................... 20.20, 20.25 Pitt Son & Badgery Ltd v Proulefco SA (1984) 153 CLR 644 ..................................................... 11.35 Platzer v Commonwealth Bank of Australia [1997] 1 Qd R 266 ........................... 20.30, 21.15, 21.20 Polymer Systems (1999) Ltd v Montgomerie [2002] 3 NZLR 383 ............................................. 13.80 Powercell Pty Ltd v Cuzeno Pty Ltd (2004) 11 BPR 21,429; [2004] NSWCA 51 ........................... 3.70 Probert v Commissioner of State Taxation (1998) 72 SASR 48 ................................................ 15.220 Public Trustee v Bussell (1993) 30 NSWLR 111 ......................................................................... 10.55 Puntoreiro, Re (1991) 104 ALR 523 ........................................................................................ 15.395

Q Quarmby v Keating [2008] TASSC 71 ......................................................................................... 3.25

R R v Jackson (2005) 194 FLR 215 ............................................................................................... 22.60 R v McKay [1957] VR 560 ......................................................................................................... 1.135 R v Toohey; Ex Parte Meneling Station Pty Ltd (1982) 158 CLR 327 .............................. 15.05, 23.25 Rabobank New Zealand Ltd v McAnulty [2010] NZHC 1534 ............................................................. Rabobank New Zealand Ltd v McAnulty [2011] NZCA 212 ................................................................ Rasmussen v Rasmussen [1995] 1 VR 613 ................................................................................. 15.25 Ratto v Trifid Pty Ltd [1987] WAR 237; (1985) 56 LGRA 22; [1985] ANZ ConvR 202 ................... 3.70 Rayner v Preston (1881) 18 Ch D 1 .......................................................................................... 15.50 Redman v The Permanent Trustee Co of New South Wales Ltd (1916) 22 CLR 84 ..................... 15.95 Regent v Millett (1976) 133 CLR 679; 10 ALR 496 ...................................................................... 3.70 Registrar of Titles v Spencer (1909) 9 CLR 641; [1909] HCA 69 .................................................. 7.25 Reid v Smith (1905) 3 CLR 656; [1905] HCA 54 ......................................................................... 7.15 Reynolds Bros (Motors) Pty Ltd v Esanda Ltd (1983) 8 ACLR 422 .............................................. 22.65 Rice v Rice (1853) 2 Drew 73; 61 ER 646 .................................................................................. 21.15 Richard West & Partners (Inverness) Ltd v Dick [1969] 1 All ER 943 ........................................... 13.10 Riseda Nominees Pty Ltd v St Vincent’s Hospital (Melbourne) Ltd (unreported, SC Vic, Balmford J, 25 July 1996) .......................................................................................... 15.15, 15.35 Road Australia Pty Ltd v Commissioner of Stamp Duties [2001] 1 Qd R 327 .................... 2.15, 15.95 Roberts v Investwell Pty Ltd (in liq) (2012) 88 ACSR 689 .......................................................... 22.40 Robinson v Graves [1935] 1 KB 579 ......................................................................................... 10.68 Rodick v Gandell (1852) 1 De GM & G 763 ............................................................................. 18.10 Royal Bank of Canada v Radius Credit Union [2010] 3 SCR 38 .................................................. 23.65 Royal Brunei Airlines v Tan [1995] 3 WLR 64 ............................................................................... 3.35 Rural and Agricultural Management Ltd v West Merchant Bank Ltd (1995) 18 ACSR 793 ........ 13.105 Ruthol Pty Ltd v Mills (2003) 11 BPR 20,793 ............................................................................. 21.30 xvii

Introduction to Property and Commercial Law

S Sabri, Re (1996) 137 FLR 165 ................................................................................................... 21.30 Sainsbury v IRC [1970] Ch 712 ................................................................................................. 13.25 Santley v Wilde [1899] 2 Ch 474 .............................................................................................. 22.20 Saulnier v Royal Bank of Canada [2008] 3 SCR 166 .................................................................. 23.25 Saunders v Vautier (1841) Cr & Ph 240; [1835-42] All ER Rep 58 ............................................ 15.165 Schokker v Commissioner of Taxation (No 2) [2000] 106 FCR 134 ......................................... 15.410 Scott v National Trust for Places of Historic Interest or Natural Beauty [1998] 2 All ER 705 ........ 13.25 Segard Masurel (NZ) Ltd v Nicol [2008] NZHC 109 .......................................................................... Shaw v Foster (1872) LR 5 HL 321 ............................................................................................ 15.50 Shepherd v Federal Commissioner of Taxation (1965) 113 CLR 385 ............ 15.105, 15.325, 15.350, 18.05 Showa Shoji Australia Pty Ltd v Oceanic Life Ltd (1994) 34 NSWLR 548 ............. 14.05, 15.40, 15.90 Simpson & Walton as Receivers of Service Foods Manawatu Ltd (in rec and in liq) v New Zealand Associated Refrigerated Food Distributors Ltd [2006] NZCA 349 ...................................... Singleton v Freehill Hollingdale & Page [2000] SASC 278 ....................................................... 15.410 Skybridge Holidays Inc, Re 1998 CanLII 5525 .................................................................................... Smith v Perpetual Trustee Co Ltd (1910) 11 CLR 148 ............................................................... 16.25 Smith v Smith [1891] 3 Ch 550 ................................................................................................ 22.20 Somma v Hazelhurst [1978] 2 All ER 1011; [1978] 1 WLR 1014 .................................................. 3.80 Sorna Pty Ltd v Flint (1999) 21 WAR 563 ................................................................................ 15.130 Southern Wine Corp Pty Ltd (in liq) v Frankland River Olive Co Ltd (2005) 31 WAR 162 ........... 22.40 [1931] 2 Ch 183 ........................................................................................................................ 7.25 Stack v Brisbane City Council (No 2) (1996) 67 FCR 510 ............................................... 15.35, 15.90 Stamp Duties (Qld), Commissioner of v Jolliffe (1920) 28 CLR 178 ......................................... 13.140 Stamp Duties (Qld), Commissioner of v Livingston [1965] AC 694 ......... 13.15, 13.20, 13.25, 15.10, 15.45 Stephens Travel Service International Pty Ltd v Qantas Airways Ltd (1988) 13 NSWLR 331 ..... 13.130 Stern v McArthur (1988) 165 CLR 489 ..................................................................................... 15.95 Street v Mountford [1985] AC 809 ............................................................................................. 3.80 Strong v Bird (1874) LR 18 Eq 315 ................................................................................ 15.55, 16.20 Supply & Development, Minister for v Servicemen’s Co-operative Joinery Manufacturers Ltd (1951) 82 CLR 621 .............................................................................................................. 10.15 Swanston Mortgage Pty Ltd v Trepan Investments Pty Ltd [1994] 1 VR 672 ............................. 21.30 Swanville Investment Pty Ltd v Riana Pty Ltd [2003] WASCA 121 ................................................ 3.70 Swiss Bank Corp v Lloyds Bank Ltd [1980] 2 All ER 419 ............................................................. 22.40 Swiss Bank Corp v Lloyds Bank Ltd [1982] AC 584 .................................................................... 22.40

T T Choithram International SA v Pagarani [2001] 2 All ER 492 ......................................... 15.55, 15.60 TEC Desert Pty Ltd v Commissioner of State Revenue (2010) 241 CLR 576; [2010] HCA 49 ....... 7.25, 7.30 Tailby v Official Receiver (1888) 13 App Cas 523 ............................................ 15.50, 15.365, 15.380 Tamworth Industries Ltd v Attorney-General [1991] 3 NZLR 616 .............................................. 10.35 Taxation, Commissioner of v Linter Textiles Australia Ltd (in liq) (2005) 220 CLR 592 ................. 3.25 Taxation, Federal Commissioner of v Australia Guarantee Corp Ltd (1984) 54 ALR 209 ........... 15.355 Taxation, Federal Commissioner of v Australia and New Zealand Banking Group Ltd (1979) 143 CLR 499; [1979] HCA 67 ................................................................................................ 9.35 Taxation, Federal Commissioner of v Everett (1978) 38 ALR 625 ............................................. 15.335 Taxation, Federal Commissioner of v Everett (1980) 143 CLR 440 ...... 12.25, 15.95, 15.310, 15.315, 15.340, 18.10 Taylor v Deputy Federal Commissioner of Taxation (1969) 123 CLR 206 .................................. 15.65 Thai Trading Co (A Firm) v Taylor [1998] QB 781 ................................................................... 15.410 Theodore v Mistford Pty Ltd (2005) 221 CLR 612; [2005] HCA 45 .................................. 3.85, 22.35 Thomas v National Australia Bank Limited [2000] 2 Qd R 448 .................................................. 15.90 Thomas Australia Wholesale Vehicle Trading Co Pty Ltd v Marac Finance Australia Ltd (1985) 3 NSWLR 452 ..................................................................................................................... 19.35 xviii

Table of Cases

Three Rivers District Council v Bank of England [1996] QB 292 ................................................ 15.90 Tobin v Ezekiel [2009] NSWSC 1313 ........................................................................................ 15.10 Tolhurst v Associated Portland Cement Manufacturers [1902] 2 KB 660 ................................. 15.420 Toohey v Gunther (1928) 41 CLR 181 ...................................................................................... 22.20 Torkington v Magee [1902] 2 KB 427 ....................................................................................... 12.30 Tottenham Hotspur Football & Athletic Co Ltd v Princegrove Publishers Ltd [1974] 1 WLR 113 ........................................................................................................................................ 3.70 Transphere Pty Ltd, Re (1986) 5 NSWLR 309 .............................................................................. 3.35 Trendtex Trading Corp v Credit Suisse [1982] AC 679 ............................................... 15.410, 15.415 Trepca Mines Ltd (No 2), Re [1962] Ch 511 ........................................................................... 15.410 Tricontinental Corp Ltd v Commissioner of Taxation [1988] 1 Qd R 474 ................................... 22.60 Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 ....... 13.110, 13.115, 13.130 Tritton, Re; Ex parte Singleton (1889) 61 LT 301 ...................................................................... 12.25 Trust Agency Company v Markwell (1874) 4 QS Ct 50 ............................................................. 22.25 Tubantia, The [1924] P 78 ......................................................................................................... 9.30 Twinsectra Ltd v Yardley [2002] 2 AC 164 ............................................................................... 13.140

U UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd (1996) 21 ACSR 457; (1996) 14 ACLC 1610 .................................................................................................................................. 15.415 Union Trustee Co of Australia Ltd v Federal Commissioner of Land Tax (1915) 20 CLR 526 ......... 9.50 Unisource Canada Inc v Laurentian Bank of Canada (1999) 47 OR (3d) 616 ...................................... United Bank of Kuwait Plc v Sahib [1997] Ch 107 ................................................................... 15.125 United Builders Pty Ltd v Mutual Acceptance Ltd (1980) 144 CLR 673 ..................................... 22.60 United States of America & Republic of France v Dollfus Mieg et Cie SA & Bank of England [1952] AC 502 ....................................................................................................................... 9.05

V Valoutin Pty Ltd v Furst (1998) 154 ALR 119 ............................................................................. 15.25 Van Schaik Organic Soils & Bark Supplies Pty Ltd v Woakwine Industries Pty Ltd (2001) 215 LSJS 278; [2001] SASC 297 .................................................................................................... 3.70 Vandepitte v Preferred Accident Insurance Corporation of New York [1933] AC 70 .................. 13.110 Vandervell v Inland Revenue Commissioners [1967] 2 AC 291 ........ 15.115, 15.195, 15.230, 15.255, 15.300, 17.15 Vandervell Trustees Ltd v White [1971] AC 912 ....................................................................... 15.255 Vandervell’s Trusts (No 2), Re; White v Vandervell Trustees Ltd [1974] Ch 269 ........... 15.255, 15.300 Vella v Wah Lai Investment (Aust) Pty Ltd [2004] NSWSC 748 .................................................... 3.70 Vopak Terminals Australia Pty Ltd v Commissioner of State Revenue (2004) 12 VR 351; [2004] VSCA 10 ................................................................................................... 7.25, 7.30, 7.40 Vorster v Vorster’s Trustees (1910) EDL 132 ............................................................................... 10.05

W Wait, Re [1927] 1 Ch 606 ....................................................................................................... 15.375 Walker v Bradford Old Bank (1884) 12 QBD 511 ...................................................................... 15.85 Walker v Corboy (1990) 19 NSWLR 382 ....................................................................... 13.85, 13.90 Walker v Linom [1907] 2 Ch 104 ............................................................................................. 20.15 Walsh v Lonsdale (1882) LR 21 Ch D 9 ............................................................................. 3.65, 3.70 Walsh Bay Developments Pty Ltd v Federal Commissioner of Taxation (1995) 31 ATR 15 ........ 13.130 Walter & Sullivan Ltd v J Murphy & Sons Ltd [1955] 2 QB 584 ................................................. 15.90 Walton Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 ....................................................... 3.70 Warner Bros v Rollgreen [1976] QB 430 ........................................................................ 15.85, 15.90 Weddell v J A Pearce & Major [1988] Ch 26 .............................................................................. 15.90 Weir’s Settlement Trusts, Re [1971] Ch 145 .............................................................................. 13.25 Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 .... 13.30, 13.40 xix

Introduction to Property and Commercial Law

Western Australia v Brown [2014] HCA 8 .................................................................................... 2.35 Western Australia v Commonwealth (1995) 128 ALR 1 ............................................................... 2.30 Western Australia v Ward (2000) 170 ALR 159 ............................................................................ 2.10 Western Australia v Ward (2002) 213 CLR 1; 191 ALR 1 .............................................................. 2.30 Westerton, Re [1919] 2 Ch 104 ................................................................................................ 15.85 Westgold Resources NL v St George Bank (1998) 29 ACSR 396; (1998) 17 ACLC 327 .............. 15.40, 15.340, 15.400 Westpac Banking Corporation v Market Services International Pty Ltd (unreported, SC Vic, Batt J, 1 October 1996) ........................................................................................................ 15.40 Wik Peoples v Queensland (1996) 187 CLR 1 ........................................................................... 1.135 Wilkes v Spooner [1911] 2 KB 473 ............................................................................................ 20.25 William Brandt’s Sons & Co v Dunlop Rubber Co Ltd [1905] AC 454 .............. 15.90, 15.105, 15.120 William Felton & Co Pty Ltd, Re (1998) 145 FLR 211 .............................................................. 15.415 Williams v Commissioner of Inland Revenue [1965] NZLR 395 ............................................... 15.355 Williams and Glyn’s Bank Ltd v Boland [1981] AC 487 .............................................................. 20.30 Wilson v Commissioner of Probate Duties (Vic) (1978) 80 ATR 799 ........................................... 12.25 Wilson v Official Trustee in Bankruptcy (2000) 97 FCR 196 ....................................................... 15.90 Wily v Endeavour Health Care Services Pty Ltd [2003] NSWCA 321 .......................................... 22.20 Wily v St George Partnership Banking Ltd (1997) 150 ALR 329 ................................................. 22.60 (1997) 69 SASR 126; [1997] SASC 6287 ..................................................................................... 7.35 Woodroffes (Musical Instruments) Ltd, Re [1986] 1 Ch 366 ...................................................... 22.60 Wurridial v Commonwealth (2009) 237 CLR 309 ..................................................................... 1.135

Y Yanner v Eaton (1999) 201 CLR 351 ......................................................................................... 1.130 Yorkshire Woolcombers Association Ltd, Re [1903] 2 Ch 284 ......................................... 22.55, 22.60 Yorkshire Woolcombers Association Ltd, Re [1904] AC 355 ............................................ 22.65, 22.70 Young v Cockman (1943) 149 ALR 1006 .................................................................................. 10.05 Youssef v Victoria University of Technology [2005] VSC 223 ...................................................... 21.30

Z Zorbas and Zorbas, In the Marriage of (1990) FLC 92-160 ..................................................... 15.410

xx

TABLE OF STATUTES COMMONWEALTH

Native Title Act 1993: 2.40 s 14: 2.50 s 15: 2.50 s 223: 2.45

Bankruptcy Act 1966: 15.90 s 58: 1.15, 1.120 s 82: 15.385 s 116: 1.120 s 122: 13.160 s 153(1): 15.385

Patents Act 1990 s 13: 22.10 Personal Property Securities Act 2009: 6.05, 7.40, 13.70, 13.80, 19.05, 22.05, 22.10, 22.35, 22.55, 22.75, 23.05 s 3: 23.10, 23.25 s 6: 23.10 s 8: 22.05, 23.45 s 8(1): 23.05, 23.45 ss 8(1)(b) to (c): 23.40 s 8(1)(c): 22.05 s 8(1)(d): 23.45 s 8(1)(f)(x): 13.80 s 8(1)(h): 13.80, 23.45 s 8(1)(j): 7.40, 23.05, 23.25 s 8(2): 22.05, 23.45 s 8(3): 22.05, 23.05, 23.45 s 10: 22.05, 22.10, 23.05, 23.10, 23.15, 23.25, 23.30, 23.65 s 12: 19.95, 23.05, 23.10, 23.45 s 12(1): 23.20, 23.45 s 12(2): 22.05, 23.10, 23.20, 23.30, 23.40 s 12(2)(d): 13.80 s 12(2)(l): 23.45 ss 12(2) to (3): 23.35 s 12(3): 23.20, 23.40 s 12(5): 22.05, 23.05 s 12(6): 22.05, 23.05 ss 12 to 15: 23.15 s 13(1): 23.40 s 13(2)(a): 23.40 s 14(2): 23.40 ss 14(3) to (4): 23.40 s 15: 23.10 s 18: 23.65 s 19: 23.55, 23.60 s 19(1): 23.25, 23.60 s 19(2): 23.60 s 19(2)(a): 23.60 s 19(2)(b): 23.60 s 19(4): 23.60 s 19(5): 23.60 s 20: 23.55, 23.65 s 20(1)(a): 23.65 s 20(2): 23.65 s 21: 23.55, 23.70 s 21(1)(a): 23.55, 23.70 s 21(1)(b)(iii): 23.70 s 21(2): 23.70

Bankruptcy Regulations 1996 reg 6.03: 1.120 Commonwealth of Australia Constitution Act 1901 s 51(xxxi): 1.135 s 96: 1.135 s 122: 1.135 Competition and Consumer Act 2010: 22.20 Copyright Act 1968 s 196: 22.10 Corporations Act 2001: 22.05, 23.10, 23.25 s 9: 22.05 s 51: 22.05 s 51A: 22.05 s 130(2): 23.70 s 262: 13.80 s 588FA: 13.160 s 588FE: 13.160 s 588FL: 23.70 s 763A(1): 12.05 s 764A: 12.05 s 1070A: 22.10 s 1501B: 23.70 Ch 2K: 23.70 Corporations Law s 262: 13.80 Family Law Act 1975 s 68B: 1.50 Imported Food Control Act 1992 s 20(14): 9.50 Income Tax Assessment Act 1936 s 218: 15.90 Lands Acquisition Act 1989: 1.120 National Consumer Credit Act 2009 s 35: 6.05 National Credit Code ss 14 to 17: 6.05 s 72: 6.05 s 76: 6.05 s 88: 6.05 xxi

Introduction to Property and Commercial Law

Personal Property Securities Act 2009 — cont s 21(2)(b): 23.70 ss 21(2)(c)(i) to (v): 23.70 s 21(2)(c)(vi): 23.70 s 21(3): 23.55 s 24(1): 23.70 ss 25 to 29: 23.70 s 32(1)(a): 23.60 s 32(1)(b): 23.60 s 33(1): 23.70 ss 33(2) to (3): 23.70 s 34: 23.70 s 35: 23.70 s 36: 23.70 s 43: 23.70 s 52: 23.70, s 55: 23.70 s 57: 23.70 s 73: 22.05 s 100: 23.70 s 110: 22.05 s 123(4): 23.70 s 126(4): 23.70 s 150(1): 23.70 s 151: 23.55 s 153: 23.70 s 153(1): 23.25 s 164(1): 23.70 s 165: 23.70 s 165(a): 23.70 s 235(5): 23.10 s 254: 23.10 s 263: 23.65 s 267: 23.70 s 268: 23.70 s 273: 23.20 s 300: 23.70 s 306: 23.10 s 340(2): 23.70 s 343: 23.10 Ch 4: 22.05, 23.50 Pt 1.3, Div 3: 23.15 Pt 2.5: 23.60 Pt 5.4: 23.70 Pt 7.2: 23.10 Pt 7.3: 23.10

AUSTRALIAN CAPITAL TERRITORY

Personal Property Securities Bill 2009: 23.10, 23.70

Contracts Review Act 1980: 22.20

Civil Law (Property) Act 2006 s 201(3): 17.15 s 201 to 203: 3.15 s 204: 3.70 s 205: 14.10 Civil Law (Wrongs) Act 2002 s 168: 1.115 Duties Act 1999: 15.115 Heritage Act 2004: 1.115 Land Titles Act 1925 s 57: 3.10 s 58(1): 5.15 s 59: 5.55 s 60(2): 5.55 s 152: 5.65 s 159: 5.65 Lands Acquisition Act 1994: 1.120 Law of Property (Miscellaneous Provisions) Ordinance 1958 s 3: 15.35, 15.110, 15.310 Legal Profession Act 2006 s 222: 13.95 Real Property Act 1925 s 52: 15.25 s 57: 15.25 s 58: 15.25 Residential Tenancies Act 1997 Sch 1, s 67: 7.30 Sch 1, s 68: 7.30 Sch 1, s 68(4): 7.35 Sale of Goods Act 1954 s 21: 15.30, 15.370 s 55: 15.375

NEW SOUTH WALES Agricultural Tenancies Act 1990 s 10: 7.30, 7.35

Conveyancing Act 1919: 15.75 s 7: 15.155 s 7(1): 17.15 s 12: 12.05, 14.10, 15.35, 15.40, 15.85, 15.110, 15.120, 15.310, 15.315, 15.320, 15.325 s 19(1): 2.15 s 23B(1): 15.25 s 23C: 3.15, 15.25, 15.110, 15.115, 15.150, 15.155, 15.310 s 23C(1): 15.130, 15.255, 15.305

Personal Property Securities Regulations 2010: 23.05, 23.10 reg 1.5: 23.05 Sch 1: 23.25 Sch 1, cl 2.3: 23.15 Sch 1, Pt 2(2.1): 23.25 Racial Discrimination Act 1975: 2.30 Trade Marks Act 1995 s 21: 22.10 xxii

Table of Statutes

Conveyancing Act 1919 — cont s 23C(1)(a): 15.115, 15.120, 15.130, 15.150, 15.165, 15.170, 15.185, 15.220, 15.225, 15.235, 15.240, 15.305, 17.15 s 23C(1)(b): 15.150, 15.185, 17.15 s 23C(1)(c): 15.115, 15.120, 15.125, 15.130, 15.135, 15.155, 15.165, 15.170, 15.175, 15.180, 15.185, 15.195, 15.220, 15.225, 15.235, 15.240, 15.245, 15.250, 15.305, 15.315, 17.15 s 23C(2): 15.130, 15.140, 15.300 s 23D: 3.15 s 23E: 3.15 s 30: 15.75 s 46: 15.25 s 47(1): 2.15 s 47(2): 2.15 s 47(3): 2.15 s 53(1): 20.30 s 53(3): 20.30 s 54A: 3.70, 15.125, 15.150 s 93: 22.20 s 117: 15.15 s 164: 20.30 ss 184A to 184J: 4.05 s 188: 15.15 Pt 3, Div 3: 15.115 Duties Act 1997: 15.115 Factors (Mercantile Agents) Act 1923 s 3: 19.50 Heritage Act 1977: 1.115 Imperial Acts Application Act 1969 s 8: 3.20 Land Acquisition (Just Terms Compensation) Act 1991: 1.120 Legal Profession Act 2004 s 254: 13.95 Maintenance and Champerty Abolition Act 1993 s 3: 15.410 s 4: 15.410 Mining Act 1992 s 244: 7.30 s 245: 7.30 Personal Property Securities (Commonwealth Powers) Act 2009: 23.10 Real Property Act 1900: 15.75, 22.25 s 40(1): 15.25 s 41: 3.10, 15.25 s 42: 15.25 s 42(1): 5.15 s 43(1): 5.55 s 45(1): 5.65 s 45(2): 5.65 s 57(1): 22.05, 22.25

s 97: 15.75 s 118: 5.65 Residential Tenancies Act 2010 s 67: 7.30 s 67(1): 7.35 s 68: 7.30 Sale of Goods Act 1923 s 6(3): 19.95 s 21: 15.30, 15.370 s 22: 10.90, 10.105 s 23: 10.85, 10.90, 10.95, 10.100, 10.105, 10.110, 10.115 s 25A: 10.105 s 26(1): 19.10, 19.15, 19.20 s 27: 19.40, 19.95 s 28(1): 19.50, 19.55 s 28(2): 19.80, 19.85, 19.95 s 56: 15.375 s 60(2): 10.95 28(2) 28(2): 10.20

NORTHERN TERRITORY Heritage Act: 1.115 Land Title Act s 39: 5.25 s 184: 3.10 s 188(1): 5.25 s 188(2)(a): 5.55 s 188(2)(c): 5.65 s 188(3)(b): 5.65 Lands Acquisition Act: 1.120 Law of Property Act s 4: 17.15 s 6: 3.20 s 9 to 11: 3.15 s 10(1)(c): 17.15 s 22: 2.15 s 29: 2.15 s 56: 13.120 s 62: 3.70 s 182: 14.10 Legal Profession Act 2006 s 246: 13.95 Mineral Titles Act s 99: 7.30 Personal Injuries (Liabilities and Damages) Act s 9: 1.115 Residential Tenancies Act s 55: 7.30 Sale of Goods Act 1972 s 21: 15.30, 15.370 s 56: 15.375 xxiii

Introduction to Property and Commercial Law

Stamp Act 1978: 15.115

QUEENSLAND Acquisition of Land Act 1967: 1.120 Duties Act 2001: 15.115 Land Title Act 1994 s 37: 15.25 s 38: 5.15 s 59: 15.75 s 60: 15.25 s 62: 15.25 s 74: 22.05, 22.25 s 165: 15.25 s 181: 3.10 s 184(1): 5.15 s 184(2)(a): 5.55 s 184(2)(b): 5.65 s 184(3)(b): 5.65 Legal Profession Act 2007 s 248: 13.95 Mineral Resources Act 1989 ss 121 to 123: 7.30 ss 228 to 230: 7.30 ss 312 to 314: 7.30 Property Law Act 1974 s 5: 15.25, 15.110, 15.115, 15.155 s 6: 17.15 s 7: 3.20 s 9: 15.25, 15.110, 15.115 s 10(1): 15.25 s 11(c): 17.15 s 11 to 12: 3.15 s 22: 2.15 s 29: 2.15 ss 29(1) to (2): 2.15 s 55: 13.120 s 59: 3.70 s 155: 7.30, 7.35 s 199: 14.10, 15.35, 15.110, 15.310 s 200: 15.35, 15.110, 15.310 s 237(1): 20.30 s 237(6): 20.30 ss 241 to 249: 4.05 s 346: 20.30 Queensland Coast Islands Declaration Act 1985: 2.30 Queensland Heritage Act 1992: 1.115 Residential Tenancies and Rooming Accommodation Act 2008 ss 207 to 209: 7.30 Sale of Goods Act 1896 s 19: 15.30, 15.370 s 53: 15.375

Statute of Frauds Act 1972 s 5: 15.125, 15.150

SOUTH AUSTRALIA Civil Liability Act 1936 ss 19 to 22: 1.115 Heritage Places Act 1993: 1.115 Land Acquisition Act 1969: 1.120 Law of Property Act 1936 s 7: 17.15 s 15: 14.10, 15.35, 15.85, 15.110, 15.310 s 26: 3.70, 15.125, 15.150 s 28(1): 15.25 s 29: 15.25, 15.110, 15.115 s 29(1)(c): 17.15 s 29 to 31: 3.15 s 117: 20.30 Legal Practitioners Act 1981 s 31: 13.95 Mining Act 1971 s 86: 7.30 Property Act 1860 s 19: 15.35, 15.110, 15.310 Real Property Act 1886 s 67: 3.10, 15.25 s 69: 5.25, 5.30, 15.25 s 70: 5.25, 5.30 s 80: 15.25 s 86: 5.55 s 132: 22.05, 22.25 s 187: 5.55 s 207: 5.65 Registration of Deeds Act 1935: 4.05 Residential Tenancies Act 1995 s 70: 7.30 Sale of Goods Act 1895 s 16: 15.30, 15.370 s 51: 15.375 Stamp Duties Act 1923: 15.115

TASMANIA Conveyancing and Law of Property Act 1884 s 5: 20.30 s 35(1): 20.30 s 35(5): 20.30 s 35A: 20.30 s 36(1): 3.70 s 60(1): 15.25 s 60(2): 15.25, 15.110, 15.115 s 60(2)(c): 17.15 s 60(2) to (5): 3.15 xxiv

Table of Statutes

Conveyancing and Law of Property Act 1884 — cont s 61(2): 2.15 s 65: 2.15 s 86: 14.10, 15.35, 15.110, 15.310

Landlord and Tenant Act 1958 s 28: 7.30

Duties Act 2001: 15.115

Mineral Resources (Sustainable Development) Act 1990 s 114: 7.30

Legal Profession Act 2004 s 3.3.13: 13.95

Historic Cultural Heritage Act 1995: 1.115

Property Law Act 1958 s 18(1): 17.15 s 19A: 3.20 s 44(1): 20.30 s 44(6): 20.30 s 52(1): 15.25 s 53: 15.25, 15.110, 15.115 s 53(1)(c): 17.15 s 53 to 55: 3.15 s 54(2): 3.10 s 60(6): 2.15 s 134: 14.05, 15.35, 15.110, 15.310, 15.350 s 154A: 7.30, 7.35 s 199: 20.30 s 199(1)(b): 20.30 s 249: 2.15 Pt I: 4.05

Land Acquisition Act 1993: 1.120 Land Titles Act 1980 s 39: 15.25 s 40: 15.25 s 40(1): 5.35, 5.40 s 40(2): 5.35, 5.40 s 41(1): 5.55 s 41(2): 5.55 s 42: 5.65 s 49(1): 3.10 s 63: 15.75 s 73: 22.05, 22.25 s 149: 5.65 Landlord and Tenant Act 1935 s 26: 7.30 Legal Profession Act 2007 s 242: 13.95

Residential Tenancies Act 1997 s 64: 7.30

Mercantile Law Act 1935 s 6: 15.125, 15.150

Sale of Goods Act 1958 s 21: 15.30, 15.370 s 58: 15.375

Mineral Resources Development Act 1995 s 105: 7.30

Sale of Land Act 1962 s 32: 20.30

Registration of Deeds Act 1935: 4.05 Residential Tenancy Act 1997 s 54: 7.30

Transfer of Land Act 1958 s 40(1): 3.10, 15.25 s 41: 15.25 s 41(1): 5.10 s 42: 5.70, 15.25 s 42(1): 5.05 s 43: 5.45, 5.50, 5.70 s 44(2): 5.55, 5.60 s 74: 22.05, 22.25

Sale of Goods Act 1896 s 21: 15.30, 15.370 s 56: 15.375

VICTORIA Chattel Securities Act 1987 s 6: 7.40

Transfer of Land (Single Register) Act 1998: 4.05

Duties Act 2000: 15.115

Wrongs Act 1958 ss 14A to 14D: 1.115

Goods Act 1958 s 30: 19.50, 19.70, 19.80 s 31: 19.80

WESTERN AUSTRALIA

Heritage Act 1995: 1.115

Chattel Securities Act 1987 s 6: 7.40

Imperial Acts Application Act 1980 s 5: 3.20

Heritage of Western Australia Act 1990: 1.115

Instruments Act 1958 s 126: 3.70, 15.125, 15.150

Land Administration Act 1997: 1.120 Law Reform (Statute of Frauds) Act 1962: 3.70

Land Acquisition and Compensation Act 1986: 1.120

Legal Profession Act 2008 xxv

Introduction to Property and Commercial Law

Legal Profession Act 2008 — cont s 215: 13.95

Land Registration Act 2002 Sch 3, para 2: 20.30

Mining Act 1978 s 114: 7.30 s 119: 15.130

Law of Property (Miscellaneous Provisions) Act 1989 s 2(1): 15.125

Occupiers’ Liability Act 1985: 1.115

Sale of Goods Act 1893 s 18: 15.375

Property Law Act 1969 s 7: 17.15 s 11: 13.120 s 20: 14.10, 15.35, 15.110, 15.310 s 20(3): 16.35 s 23(1): 2.15 s 33(1): 15.25 s 34: 15.25, 15.110, 15.115 s 34(1)(c): 17.15 s 34(2): 15.130 s 34 to 36: 3.15 s 37: 2.15 ss 37(1) to (4): 2.15

Sale of Goods Act 1979 s 16: 15.375 Statute of Frauds 1677: 13.15 s 1-3: 15.115 s 4: 3.70 s 7-9: 15.115 Statute of Quia Emptores 1290: 2.05 Statute of Tenures 1660: 2.05 Statute of Uses: 3.20

Registration of Deeds Act 1856: 4.05

NEW ZEALAND

Residential Tenancies Act 1987 s 47: 7.30 s 47(2)(b): 7.35

Contracts (Privity) Act 1982 s 4: 13.120

Sale of Goods Act 1895 s 16: 15.30, 15.370 s 51: 15.375 Sale of Land Act 1970 s 22: 20.30 Stamp Act 1921: 15.115 Transfer of Land Act 1893 s 58: 3.10, 15.25 s 63: 15.25 s 68: 15.25 ss 68(1) to (4): 5.15 s 106: 22.05, 22.25 s 134: 5.55 s 199: 5.65 s 202: 5.65

GERMANY Civil Code (Bürgerliches Gestetzbuch) s 90: 8.05 s 903: 1.115

IMPERIAL AND UNITED KINGDOM Contracts (Rights of Third Parties) Act 1999: 13.120 Judicature Act 1873: 1.75, 12.25, 15.325 s 25(6): 12.05, 15.35 Land Registration Act 1925 s 70(1)(g): 20.30

Personal Property Securities Act 1999: 23.10 s 16: 23.15 s 36: 23.55 s 40: 23.55 Property Law Act 2007 s 48: 16.35 s 50: 14.10

ONTARIO Personal Property Security Act 1990: 23.10 s 11: 23.55

SASKATCHEWAN Personal Property Security Act 1993: 23.10 s 10: 23.55 s 12: 23.55

SINGAPORE Contracts (Rights of Third Parties) Act 2001: 13.120

UNITED STATES Uniform Commercial Code: 23.10 Art 9: 23.10, 23.15, 23.20

TREATIES AND CONVENTIONS International Convention on the Law Applicable to Trusts and on their Recognition Art 2: 13.40 xxvi

Chapter 1: Introduction to General Property Concepts .................... .. 3 Chapter 2: Tenures, Estates and Native Title ..................................... 37 Chapter 3: Legal and Equitable Interests in Land ........................... .. 81 Chapter 4: Old System Title Registration ......................................... 129 Chapter 5: Torrens Title Land ........................................................... 131 Chapter 6: General Law and Torrens Title Mortgages .................. .. 143 Chapter 7: Definition of Land – Fixtures .......................................... 149

PART1

PART 1: (A) THE CONCEPT AND FUNCTION OF “PROPERTY” AND (B) REAL PROPERTY – INTRODUCTION TO REAL PROPERTY

CHAPTER 1 Introduction to General Property Concepts [1.05]

INTRODUCTION TO WHAT IS PROPERTY ............................................................... 3

[1.10]

DEFINITIONS OF PROPERTY ..................................................................................... 4 [1.15] [1.20]

[1.25]

Assignable Rights .................................................................................... 4 Rights in Rem ........................................................................................... 5

THE ESSENTIAL CHARACTERISTICS OF PROPERTY RIGHTS ................................... 6 [1.30] [1.35] [1.40]

Enforceability ........................................................................................... 6 The Existence of Some Thing ................................................................. 7 Other Essential Characteristics? ............................................................. 7

[1.60]

INTRODUCTION TO TAXONOMY ......................................................................... 10

[1.65]

LAND AND GOODS ................................................................................................ 10

[1.70]

REAL AND PERSONAL .............................................................................................. 11

[1.75]

LEGAL AND EQUITABLE ........................................................................................... 12

[1.80]

TANGIBLE AND INTANGIBLE .................................................................................. 13

[1.85]

PROPERTY CREATING EVENTS ................................................................................ 13

[1.90]

INTRODUCTION TO OWNERSHIP ......................................................................... 14

[1.95]

OWNERSHIP AND POSSESSION ............................................................................. 15

[1.100]

BUNDLE OF RIGHTS ................................................................................................ 16

[1.105]

ALIENABILITY ............................................................................................................ 17

[1.110]

RESPONSIBILITIES OF OWNERSHIP ....................................................................... 18 [1.115] [1.120]

Duty to Prevent Harm .......................................................................... 18 Liability to Execution ............................................................................ 19 [1.125] [1.130]

King v David Allen & Sons Billposting Ltd .................................. 21 Yanner v Eaton ....................................................................... 30

Extracts from Chambers, An Introduction to Property in Australia, Ch 2.

INTRODUCTION TO WHAT IS PROPERTY [1.05] Property rights are rights to things. A basic understanding of them is best achieved in

two stages. The first, which is the subject of this chapter, is to identify the kinds of rights which the law regards as property rights. The second is to identify the kinds of things which can be subject to those rights. That is discussed in Chapter 3 (Chambers).

[1.05]

3

Part 1: (A) The Concept and Function of “Property” and (B) Real Property – Introduction to Real Property

DEFINITIONS OF PROPERTY [1.10] The word “property” means different things to different people and in different

contexts. It is commonly used to refer to the things that people own. For example, when we encounter a sign of “Private Property” on a gate, we assume that the property in question is the land on the other side. When we see “Property Left at Owner’s Risk” posted in a cloakroom, we understand property to mean the coats, hats, etc, that people may choose to leave there from time to time. This is a common and perfectly acceptable use of the word property, but it is a popular or layperson’s usage. When lawyers talk about property, they are usually referring to the rights which people have to things, rather than the things themselves. Lawyers divide legal rights into personal rights and property rights, but they do not always divide them in the same way. Whether a particular right counts as property depends on why it matters. Sometimes, what matters is whether a right can be assigned (that is, transferred) to another person. For that purpose, a right can be counted as property if it is assignable, but that produces a very wide definition of property because most rights are assignable. At other times, the essential issue is the enforcement of the right. In that context, a property right is a right to a thing which can be enforced generally against other members of society and not just against specific persons. This produces a much narrower definition of property since most rights are not enforceable generally against others. The fact that lawyers use different definitions of property for different purposes does not mean that the concept of property is vague or poorly defined. Legal definitions of property are precise and well understood in the contexts in which they are used. However, care must be taken to choose the correct definition and use it consistently. What is commonly regarded as the law of property (and studied as a separate subject in university law schools) is based on the narrow definition of property, set out below. That is what this book is about. However, it is important to be aware that a different and much wider definition of property is used for some purposes. Assignable Rights [1.15] At its widest, property means any right that can be transferred from one person to

another. For example, when someone dies, most of her or his rights form the estate which gets transferred to the executor and then distributed according to law (as discussed in Chapter 22 (Chambers)). The collection of rights available for distribution in this way is often called the property of the deceased, and can include such things as land, personal belongings, bank accounts, company shares, debts due to the deceased, and even legal claims which the deceased had a right to pursue. A similar process occurs when people are unable to meet their financial obligations and become bankrupt. The bankruptcy process is designed, in part, to prevent a stampede of creditors all rushing to get paid. Instead, the “property of the bankrupt” is transferred to the trustee in bankruptcy, who sells it and distributes the proceeds among the bankrupt’s creditors. 1 The “property of the bankrupt” includes most of the bankrupt’s transferable rights, and can even include a right to appeal from a judgment given against the bankrupt in a court of law. 2 For other purposes, we would not regard a right to appeal as a form of property, but it can count as property for the purposes of bankruptcy law. 1 2 4

Bankruptcy Act 1966 (Cth), s 58. Cummings v Claremont Petroleum NL (1996) 185 CLR 124; [1996] HCA 19. [1.10]

Introduction to General Property Concepts

CHAPTER 1

These wide definitions of property are those based on the assignability of rights. When defined in this way, property includes everything that might be regarded as wealth or which an accountant might list as an asset on a balance sheet. Excluded are personal rights, which in this context are those rights which can be used only by the particular person who holds them. For example, the right to vote in a general election cannot be sold or given away. It is always regarded as a personal right, never property. The same is true of an academic or professional qualification, such as a university degree or licence to practise medicine. 3 If property was always defined this way, it would be a very large subject indeed. Since most contractual rights are assignable, it would swallow up most of the law of contract. Similar things could be said of the law of torts. However, for most purposes (including the study of law), the definition of property is based on the enforceability of rights and not their assignability. Rights in Rem [1.20] For most purposes, the distinction between personal rights and property rights is based

on their enforceability. It corresponds to the distinction between rights in personam and rights in rem (using the Latin words for person and thing). Rights in personam are so called because they are enforced against particular persons, without much regard to the things they might have. Rights in rem are rights people have concerning particular things, without much regard to the people against whom those rights might be enforced. Property law is primarily about rights in rem. An example may help. If I borrow $20 from you and promise to repay it, I owe you $20. You do not expect to get the same $20 note back. Instead, I have a personal obligation to pay which corresponds to your personal right to be paid $20. This is a right in personam which can be enforced against me, regardless of what has become of the $20 note I borrowed. If I give that note to a friend or spend it at a shop, you do not acquire any rights against my friend or the shopkeeper. You have no right to that note nor to any other $20 note I may have. In contrast, if I borrow your book and promise to return it, you continue to own the book. In addition to my promise, you have a right in rem which is enforceable against me because I have your book. The property right follows the book, and if I give your book to a friend, you can assert your right in rem against my friend, because he or she has your book. The distinction between rights in rem and rights in personam is important in the law. A right in rem depends upon the continued existence of the thing to which the right relates. For example, if your book is destroyed, your property right is gone. The destruction may give you a right in personam against the person who destroyed your book or against your insurance company, but it brings to an end your right in rem to the book. In contrast, a right in personam does not depend on the existence of any particular thing. Instead, it corresponds to some person’s obligation to fulfil that right. The value of the right in personam depends upon the ability of the person to perform the corresponding obligation. So, for example, if I owe you $20, you have a right in personam which appears to be worth $20. However, if it turns out that I owe money to almost everyone I know and am unable to pay my debts, the practical value of your right may be greatly reduced. Although your right to be paid does not depend on the existence of any particular thing, my lack of sufficient assets to meet my obligations can affect the value of your right. 3

Caratun v Caratun (1992) 96 DLR (4th) 404 (Ont CA). [1.20]

5

Part 1: (A) The Concept and Function of “Property” and (B) Real Property – Introduction to Real Property

THE ESSENTIAL CHARACTERISTICS OF PROPERTY RIGHTS [1.25] Property rights come in a variety of shapes and sizes. For example, the right to use a

book borrowed from the library differs in many ways from a landlord’s right to a home which is rented out. Despite these differences, these and all other property rights share two common characteristics which distinguish them from personal rights. The first is that a property right always relates to, and depends upon the existence of, some particular thing. The second is that a property right can be enforced not just against specific persons, but against a wide range of persons. It will be helpful to look at the second characteristic first. Enforceability [1.30] All legal rights, whether personal or property, have correlating obligations. For

example, if I owe you $20, you have a right to be paid $20 and I have a corresponding obligation to pay that amount. Your personal right and my personal obligation are two sides of the same coin. They form a relationship between specific persons. In this example, the relationship is called debt, in which I am the debtor who owes money to you, the creditor. Property rights, like all legal rights, are also enforced against persons. However, unlike personal rights, there are no specific persons responsible for their fulfilment. Who, for example, owes the obligation which corresponds to your property right to this book? Although the book must exist for your property right to exist, it cannot fulfil that right for you. That right can only be enforced against other persons. The obligation which corresponds to your property right is owed by other members of society. They each have a duty not to interfere with your rights to your book. In an influential essay called “Fundamental Legal Conceptions as Applied to Judicial Reasoning”, 4 Wesley Hohfeld said that the difference between rights in rem and rights in personam is simply the number of rights involved. A personal right is either a unique right enforceable against “a single person” or one of a small group of similar rights enforceable against “a few definite persons”. In contrast, property rights consist of “a large class of fundamentally similar yet separate rights”, which correspond to the obligations of “a very large and indefinite class of people”. In other words, Hohfeld would view your property right to your book as a very large collection of rights against every member of society, each of whom is under an obligation to you not to interfere with your rights relating to your book. Hohfeld used an example to illustrate his point. Suppose I made a contract with Yvonne that she would keep off your land. What is the difference between my contractual, personal right against Yvonne and your property right against her? Both rights have the same content. Hohfeld would say that the only real difference is that I have only one right of that kind, whereas you have a large number of similar rights which are enforceable against an indefinite class of people (including Yvonne). A difficulty with Hohfeld’s portrayal of property rights, as equivalent to an indefinite number of personal rights, is that it devalues the role of the things which are subject to those rights. Also, it does not accord with the way property rights function in society. A property right does not normally involve a set of specific relationships between the person who holds it and everyone who is obligated to respect it. As members of society, we are all under the same general duty not to interfere with the persons and things of others. The identity of the persons 4 6

(1917) 26 Yale Law Journal 710 at 718. [1.25]

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involved is irrelevant until someone interferes with the property right of another. The Hohfeldian analysis of property, as an indefinite number of one-to-one relationships of rights and corresponding obligations, is unnecessary. Assume, for example, that I have an obligation not to trespass on land belonging to others and would breach that obligation if I walked across a lawn without the owner’s consent. As I walk along the street passing lawn after lawn, a Hohfeldian might say that I enter a legal relationship with the owners of each lawn that I pass. They have a right to keep me off their lawn which corresponds to my obligation to stay off. However, I do not know who or how many people live in the houses I pass nor whether they are home or away. It does not matter. The identity of the property owners is irrelevant because I know that (a) I have a general duty not to interfere with the things of others, (b) those are not my lawns, and (c) I do not have permission to tread on them. We have no legal relationship except as members of the same society bound to observe the laws of that society. The Existence of Some Thing [1.35] An essential characteristic of property rights is that they are enforceable generally

against other persons in society. However, this is not a sufficient definition of property. The law also protects people from personal injury by imposing a general duty on members of society not to injure others intentionally or negligently. These rights to personal integrity and freedom from bodily interference correspond to general duties not to touch others intentionally without their consent and to take reasonable care not to harm them. The law protects your body and your things in much the same manner. Someone who wrongly interferes with your arm is guilty of a tort and liable to compensate you for any loss you suffer. The same is true of someone who wrongly interferes with your book. If your right to non-interference with your body is not a property right, but a personal right, what distinguishes these two types of rights? It is clear, using the language of Hohfeld, that both rights are enforceable against an “indefinite class of people”. However, the right to be free from bodily interference is not a property right because our bodies are not “things”. Property rights must relate to things which are separate and apart from ourselves. As James Penner said, “‘Thing’ here is a term of art which restricts the application of property to those items in the world which are contingently related to us, and this contingency will change given the surrounding circumstances, including our personal, cultural or technological circumstances.” 5 Things which are intrinsically connected to us, such as our bodies and reputations, cannot be subject to property rights. Although they are valuable to us and protected by laws such as the rules against assault and defamation, they are not protected by property law. It is possible that the intrinsic connection to something might be severed and reduced to a contingent connection. For example, a lock of hair could be cut off and transformed from being a part of a person into a thing which a person owns. The same is true, perhaps, of a kidney. However, unless the intrinsic connection is broken, they cannot be subject to property rights. 6 Other Essential Characteristics? [1.40] So far, a property right has been identified as a right to a thing, which corresponds to a

general duty placed on other members of society not to interfere with that right. Although 5 6

“The “Bundle of Rights” Picture of Property” (1996) 43 UCLA Law Review 711 at 807. See MJ Radin, “Property and Personhood” (1982) 34 Stanford Law Review 957 at 966. [1.40]

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basic, this definition identifies the two characteristics which separate all property rights from personal rights. Given the wide variety of property rights (discussed in Part III (Chambers)), it is unlikely that anything further can be added to this basic definition. There are several characteristics which the majority of property rights share, such as alienability, excludability, and value. However, as discussed below, not all property rights have these traits, while many personal rights do. Therefore, they are not useful as defining characteristics of property rights.

Alienability [1.45] First, it is sometimes said that property rights are alienable, meaning that they can be

sold or given away to others. Of course, this must be true when a wide definition of property based on assignability is used (as discussed at [1.15]). However, that definition of property includes both rights in rem and rights in personam. While most rights are alienable, many are not. Most non-assignable rights are rights in personam, but there are also a few non-assignable rights in rem. In other words, there is some property that cannot be sold or given away. For example, a non-assignable, residential lease is certainly a property right, even though the tenants are not free to transfer it to others. All property rights can be described as “alienable” if that term is understood to mean “disposable” rather than “transferable”. Since property rights must relate to some thing which is only contingently connected to the right holder, it must be possible for that person to alienate the thing in the sense of severing her or his connection to it. However, that connection can be severed without transferring the right to another. For example, the tenant with a non-assignable lease can surrender it and vacate the dwelling.

Excludability [1.50] The second characteristic often attributed to property rights is excludability, meaning

that the holder of a property right is able to exclude others from making use of the thing subject to that right. Most property rights do include this trait. For example, if you own or rent a home, you have the right to exclude others from it. If you borrow a book from the library, you have the right to exclude others from using the book. However, there are property rights which do not allow the right holder to exclude others from the thing subject to that right. For example, a right of way (discussed at [16.30]ff Chambers) is a property right to cross another person’s land. It meets the definition of a property right in that it relates to some thing (land) and is enforceable against other members of society (including the land owner), who are not permitted to interfere with its proper use. However, the holder of a right of way is not permitted to exclude others from the land subject to it. Just as all property rights do not entitle the right holder to exclude others from the thing, some personal rights do. Hohfeld’s example (discussed at [1.30]) gave me a personal right to exclude Yvonne from your land. Also, sometimes in the course of a domestic dispute, one spouse might be granted the right to exclude the other spouse from the family home, even though that other spouse is the sole or part owner of that home. 7

Value [1.55] Value is a third characteristic which most, but not all, property rights share. They

usually have some market value. Even second-hand clothing can fetch a few dollars in a 7 8

Family Law Act 1975 (Cth), s 68B. [1.45]

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charity shop. However, value is not a necessary characteristic of property. 8 Many things which are subject to property rights have only sentimental value (such as my child’s primary school artwork or an old theatre ticket from a memorable night out). There are other things which are completely valueless. For example, your property right to dirty motor oil drained from your car may create a liability for the cost of discarding it safely. On the other hand, there are many personal rights that have market value, such as a contractual right to be paid a sum of money. In modern Australian society, many of the things for which we pay money are not property rights, but services, such as the right to listen to live music, have our cars washed, or receive medical advice. Some personal rights are commonly regarded as property rights because of their value. The most familiar example is the bank account. Money in the bank may be a person’s most valuable asset, but that does not make it property. If you deposit a $100 note in the bank, your property right to that note passes to the bank and the balance in your account increases by $100. The bank does not keep that $100 note safe for you. It belongs to the bank and is used as the bank sees fit. 9 The deposit does not give you any property rights to any other notes or assets in the bank. Your “money in the bank” does not correspond to anything but the bank’s promise to pay you $100 (plus interest, less fees and taxes) on request. In other words, you have exchanged your property right to the $100 note for a personal right of similar value. You are the bank’s creditor and the bank is your debtor. A personal right against a bank is a valuable asset, not because it relates to any particular thing, but because the bank will almost certainly pay its debts. Most people would rather have money in the bank than large sums of cash, because the risk of a bank not paying is much smaller than the risk of cash being lost, stolen, or destroyed. In other words, a bank account is a desirable form of value precisely because it is not property and does not carry the usual risks of property ownership. It is important not to overstate the essential characteristics of property. This happened in Milirrpum v Nabalco Pty Ltd, 10 and led to the dismissal of the plaintiffs’ claim for native title. The plaintiffs claimed that the defendant’s mining activities were wrongly interfering with their property rights to use certain land to perform ritual ceremonies. The judge, Blackburn J, said, “I think property, in its many forms, generally implies the right to use or enjoy, the right to exclude others, and the right to alienate.” 11 Since the plaintiffs were not entitled to exclude others from the land and could not sell or give their rights to others, Blackburn J decided that they did not have property rights enforceable against other members of society. However, it is clear that the plaintiffs’ rights related to a thing (the land) with which they were contingently connected. Although individual members of the plaintiffs’ clan could not sell or give their rights to others, they had the power to sever their connection with the land by moving away. Also, the right to perform ritual ceremonies on the land, like a right of way, can be a property right so long as it corresponds to a general duty placed on other members of society not to interfere with the exercise of that right. The right to exclude others from the land was not required. The result in Milirrpum would probably be different if that case was decided 8 9 10 11

F Cohen, “Dialogue on Private Property” (1954) Rutgers Law Review 357 at 363-364. Foley v Hill (1848) 2 HLC 28; 9 ER 1002; at 36; 1005-1006. Milirrpum v Nabalco Pty Ltd(1971) 17 FLR 141. Milirrpum v Nabalco Pty Ltd (1971) 17 FLR 141 at 272. [1.55]

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today, now that native title has been recognised by the High Court of Australia in Mabo v Queensland (No 2) as discussed in Chapter 2. 12 Extracts from Chambers, An Introduction to Property in Australia, Ch 5.

INTRODUCTION TO TAXONOMY [1.60] Peter Birks said, “There is no department of human knowledge which can manage

without taxonomy and, equally important, a continuing taxonomic debate.” 13 This is especially true of the law of property. The subject is so large and complex that it can appear to be an overwhelming mass of disorganised details. Without a meaningful system of classification, it is difficult, if not impossible, to make sense of the detail and understand how property rules relate to each other and to other areas of law. There are a number of ways to organise the law of property. Distinctions can be drawn according to the nature of the things subject to property rights or according to the nature of the property rights to which things can be subject. These are the traditional methods of classifying property rights, but they suffer from two limitations: obsolescence and isolation. The first limitation is the product of a long history. Many of the categories into which property rights are divided were created centuries ago. Changes in law and society have rendered some of those categories obsolete and yet they persist as potential sources of confusion. Secondly, the traditional categories of property law tend to isolate it from other areas of law. Categories based on the nature of the thing or the nature of the right have no counterparts outside the law of property. Since personal rights do not depend on the existence of a thing and differ from property rights by nature, it is difficult to make meaningful comparisons between property and other laws. As an aid to solving this problem, this book makes use of a classification system based on the events which create property rights. This provides a useful basis for comparing property and personal rights and makes it easier to understand the law of property itself. This taxonomy is introduced at the end of this chapter and forms the basis of Part IV (Chambers) (Creation of Property Rights). This chapter is only an introduction to methods of classifying property rights. The taxonomy of property law will be explored in greater detail in the chapters which follow, where distinctions are drawn between various kinds of property rights to various kinds of things and between various ways in which property rights can be created. Taxonomy is an ongoing process which is essential for the successful study, practice, or application of the law, and it is an important feature of this book.

LAND AND GOODS [1.65] The most important division in the law of property may be that which is drawn

between land and other things. Most things other than land are referred to as goods (and less commonly as chattels). There are many things which are neither land nor goods, such as money, shares in a company, or copyright to a song. Goods are those things, other than land, which are tangible, such as a car, dog, or loaf of bread. The distinction between land and goods is a natural starting point. It is easy to understand why the law makes this distinction. 12 13 10

Mabo v Queensland (No 2) (1992) 175 CLR 1; [1992] HCA 23. “Equity in the Modern Law: An Exercise in Taxonomy” (1996) 26 UWA Law Review 1 at 6. [1.60]

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Generally speaking, land is both permanent and stationary. It remains relatively constant while the people who use it come and go. Most other things are transitory. Animals die, clothes wear out, and food gets eaten. Goods can be moved from one place to another. A parcel of land will always be subject to whatever laws apply to that location, while a car made in one State may become subject to the laws of several different States and Territories as it is moved from place to place. Roman law classified things as either movable (res mobiles) or immovable (res immobiles). 14 Countries with civil codes, like France, Germany, and Japan, adopted this classification. Countries like Australia, which adopted the British common law, use a different system under which property is either real or personal (sometimes called realty and personalty). This corresponds roughly with the civilian categories of immovable or movable and our popular notions of the distinction between land and goods. However, it is important to know that the categories of goods and land, personal and real, and movable and immovable do not correspond to one another with precision.

REAL AND PERSONAL [1.70] The distinctions between land and goods and between immovables and movables are

based on the nature of the thing. In contrast, the distinction between real and personal property is based on the nature of the right. It is derived from the forms of legal actions used in 13th and 14th century England. 15 Certain property rights to land were classified as real property because the holder of the right could bring a real action to recover the land from someone who was wrongly in possession of it. Other property rights were classified as personal property because there was no real action available to recover the thing itself. Instead, the holder of a personal property right had a personal action to be compensated for the loss caused by the person who wrongly interfered with that right. The categories of real and personal property continue to be used and are commonly associated with the categories of land and goods. This is because all real property rights are rights to land, while most personal property rights are not. However, the similarity is misleading because there are property rights to land which, strictly speaking, are not real property. A lease of land (discussed at [12.30]ff (Chambers)) was considered not to be real property because there was no real action which would allow a dispossessed tenant to recover the leased land itself. In the 15th century, another form of action, called ejectment, was developed to allow tenants to recover possession of leased land. Since ejectment was not a real action, leases of land were not reclassified as real property, but are sometimes found under the strange heading, chattels real. 16 Ironically, ejectment proved to be a more efficient remedy than the real actions and soon displaced them as the means of protecting real property rights. 17 The end of the real actions removed the original basis for the distinction between real and personal property. The right to recover the thing itself is no longer limited to real property. In addition to leases of land, the law allows the holders of property rights to goods which are difficult or impossible to replace (such as original paintings or made-to-order machine parts) 14 15 16 17

B Nicholas, An Introduction to Roman Law (Oxford, 1962) p 105. TC Williams, “The Terms Real and Personal in English Law” (1888) 4 Law Quarterly Review 394. AWB Simpson, A History of the Land Law (2nd ed, Oxford, 1986) pp 74-76. JH Baker, An Introduction to English Legal History (4th ed, London, 2002) pp 301-303. [1.70]

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Part 1: (A) The Concept and Function of “Property” and (B) Real Property – Introduction to Real Property

to recover those goods from others wrongly in possession of them. So, the categories of realty and personalty no longer indicate with accuracy whether a property right entitles the holder to recover the thing itself or merely receive compensation for its loss. The distinction between real and personal property should not be confused with the distinction between rights in rem and rights in personam. 18 Personal property rights are not personal rights. They are property rights because they relate to external things and are enforceable generally against other members of society. However, they are normally enforced by means of personal rights. For example, a thief who steals your car commits an actionable wrong (the tort of conversion, discussed at [7.20] (Chambers)) and is liable to compensate you for your loss. Your right to your car is a property right, while your right to be compensated is a personal right against the specific person who wrongly interfered with your property right.

LEGAL AND EQUITABLE [1.75] Property rights can also be divided into legal and equitable rights. Like real and

personal property, these categories are based on the nature of the right and were created by legal conditions that have since ceased to exist. Prior to 1875, the common law of England was administered by common law courts, such as the courts of King’s Bench and Common Pleas. Rights which could be enforced in those courts are called legal rights. A separate body of law, called equity, was administered by the Court of Chancery. Rights which could be enforced in Chancery, but not in the common law courts, are called equitable rights. A statute called the Judicature Act 1873 (UK) merged those courts into a single High Court of Justice, which continued to administer common law and equity as separate bodies of law. This process was copied in Australia. In each State and Territory, the courts of common law and equity have been merged into a single superior court empowered to administer both law and equity. 19 So, the separate categories of legal and equitable property rights continue to exist even though the court structure which created them does not. As FW Maitland said: 20 We have no longer any courts which are merely courts of equity. Thus we are driven to say that Equity now is that body of rules administered by our English courts of justice which, were it not for the operation of the Judicature Acts, would be administered only by those courts which would be known as Courts of Equity.

Although the body of law known as equity can be defined only historically, by reference to conditions which have ceased to exist, it continues to be a vital part of the law. The rules of equity were created to fill gaps in the common law and correct perceived injustices. Many of those rules were patterned after the common law and therefore most legal property rights have an equitable counterpart (and vice versa). For example, a lease of land can be either legal or equitable depending on whether that lease would have been recognised in a court of common law or only in a court of equity. The nature of equitable property rights will be discussed in more detail in Chapter 13 (Chambers). It is sufficient at this stage to note that there are still important practical differences between legal and equitable property rights. Two main differences are the manner 18 19 20 12

WN Hohfeld, “Fundamental Legal Conceptions as Applied to Judicial Reasoning” (1917) 26 Yale Law Journal 710 at 752-753. See K Mason, “Fusion: Fallacy, Future or Finished?” in S Degeling and J Edelman (eds), Equity in Commercial Law (Sydney, 2005) p 41. Equity (Cambridge, 1909) p 1. [1.75]

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of their creation and their durability. First, as discussed in Part IV (Chambers) (Creation of Property Rights), most equitable property rights can be created with less formality than the comparable legal property rights. Secondly, as discussed in Part V (Chambers) (Priority of Property Rights), they tend to be less durable than legal property rights and are more easily extinguished by competing property rights to the same thing.

TANGIBLE AND INTANGIBLE [1.80] Property rights are sometimes classified according to whether they are tangible or

intangible. Other terms for these categories are corporeal and incorporeal. All property rights are intangible in the sense that they are rights enforceable against other persons, regardless of the nature of the thing to which those rights relate. The distinction depends on whether the property right entitles the holder to possession of the thing involved. Tangible (corporeal) property rights include the right to possession of some thing, while intangible (incorporeal) property rights do not. Possession is a legal concept which is discussed further in Part II (Chambers). A thing cannot be possessed unless it is something which can be controlled physically, like a book or parcel of land. Therefore, property rights to things which cannot be possessed (such as a copyright to a song or a share in a company) are necessarily intangible. However, the converse is not true. It is possible to have property rights to physical things which do not entitle the holder to possession of that thing. For example, a person can have a right of way to cross another’s land and not be entitled to possession of that land. A right of way (called an easement and discussed at [16.30]ff (Chambers)) is an example of an intangible (or incorporeal) property right to a physical thing. Personal property is often classified as tangible or intangible. A right to possession of goods is called a chose in possession (using the French word for thing) and a personal property right to an intangible thing is called a chose in action. The latter term is also used to refer to purely personal rights, such as a bank account or other rights to receive the payment of money. When used in that sense, the chose (thing) is the obligation to which the personal right corresponds. The terms, tangible, intangible, corporeal, and incorporeal, no longer have great significance in the law of property. However, the essential distinction between the right to possession and other property rights is important. As discussed in Part II (Chambers), possession is the cornerstone of much of the common law of property.

PROPERTY CREATING EVENTS [1.85] Another way to organise property rights is according to the events that create them.

Peter Birks has identified four main categories: “The rights which people bear, whether in personam or in rem, derive from the following events: wrongs, consent, unjust enrichment, and others.” 21 The origins of these categories can be found in Roman law. Most property rights are created by consent, such as a sale of goods, a bequest in a will, or a grant of a mortgage. Property rights can also be created by wrongdoing. For example, an employer may have a property right to a bribe received by an employee. There are property rights created by unjust enrichment, such as the right to recover land or goods transferred by 21

“Equity in the Modern Law: An Exercise in Taxonomy” (1996) 26 UWA Law Review 1 at 8. [1.85]

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Part 1: (A) The Concept and Function of “Property” and (B) Real Property – Introduction to Real Property

mistake. The miscellany of other events includes the creation (and destruction) of property rights brought about by physical changes to things. These events and the distinctions between them are explored in Part IV (Chambers). This taxonomy of property rights is useful because it brings together and invites comparisons between different rights which tend to be studied and applied as discrete compartments of property law. For example, mortgages are often relegated to separate chapters near the end of property law textbooks (and law school subjects) and never related to, say, gifts of chattels. The same types of events create property rights regardless of whether those rights are real or personal, legal or equitable, and tangible or intangible. An important feature of this taxonomy is that it allows comparisons to be drawn between property and personal rights. The archaic language and taxonomy of property law has inhibited this in the past. Overcoming these obstacles will lead to greater consistency among various branches of law and make it easier for lawyers in one field to take advantage of progress in another. For example, recent developments in the law of unjust enrichment have been slow to reach the law of property. Conversely, property law has evolved to enable a fairer distribution of wealth between de facto spouses at the end of their relationships. A better understanding of the events which create legal rights in those relationships need not be limited to property law. A taxonomy based on the events which create legal rights (and obligations) is particularly helpful because these are, perhaps, the most important legal issues affecting our lives. We want to know, for example, whether the purchase of our new home is complete or whether we are at fault in a car accident. In other words, have events in our lives produced legal consequences? The legal profession spends much of its time seeking answers to questions such as these. It is important that the law be applied consistently. Lawyers and judges must sort through the seemingly infinite variety of human affairs in search of legally significant events. Without meaningful bases for comparison, questions regarding the existence of legal rights cannot be answered with certainty. This requires an accepted taxonomy of right creating events, so that people and their legal advisors can know whether rights found to exist in one case should be applied to another. A proper taxonomy can promote the certainty we need to plan our affairs and embark on litigation only when absolutely necessary. Extracts from Chambers, An Introduction to Property in Australia, Ch 10.

INTRODUCTION TO OWNERSHIP [1.90] Most of us have a basic understanding of the concept of ownership. We have at least

some idea of what it means to own a thing and would know how to respond to a visitor who asked, “Do you own this house?” In this chapter, the legal concept of ownership is explored in more detail. To begin, it is important to note that ownership is not the same as property. There are many property rights which are not ownership, such as an easement to cross someone’s land (see [16.30]ff (Chambers)). The person who borrows a library book does not own that book, nor does the tenant own the flat he or she rents. We need to identify what distinguishes ownership from other property rights.

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OWNERSHIP AND POSSESSION [1.95] The first task is to distinguish ownership from possession. Dictionaries provide little

assistance, since most define ownership by reference to possession. It is clear that a person can possess a thing without owning it. However, it is not easy to identify what makes someone an owner and not just a possessor. As discussed at [7.40]ff (Chambers), the law protects ownership and possession in precisely the same way. The remedies available to the owner are triggered by wrongful interference with her or his possession or right to possession, such as trespass, conversion, and detinue. When owners recover their things from others, it is not because they are owners, but because they have better rights to possession. Indeed, if an owner does not have a right to immediate possession, her or his interference with another’s possession is a tort. 22 This leads to the question whether the right is not defined by the remedy. If the law protects ownership by enforcing the owner’s possession or right to possession, how does ownership differ from the best possible right to possession? One feature of ownership, which distinguishes it from possession, is its potential for permanence. While ownership normally includes the right to possess a thing indefinitely, possession without ownership is a temporary right. For example, while you have a library book on loan, no-one is entitled to interfere with your possession. Still, it is clear that the library owns the book, because your right to possession is temporary and will revert to the library. This does not mean that ownership will last forever or even for long. You can own an ice cream cone on a hot summer day, even though it will be gone in minutes, one way or another. Owners are generally free to bring their ownership to an end by selling, giving, or destroying the thing owned. However, when we say that someone has possession, but not ownership, we mean that there is an owner with a greater right to possession which will revive when the possessor’s right comes to an end. It is this reversionary right which characterizes ownership. The owner’s right to possession in the future may be conditional upon the happening of certain events. Under a hire-purchase agreement, the hire-purchaser takes possession of the thing and becomes its owner when all the payments are made. This creates a bailment destined to become ownership if all goes well. Although the owner/bailor may never again have the right to possession, that ownership continues so long as the right to possession remains possible. People can own things even though their rights to possession are delayed for a very long time. For example, the owner of land might lease it for 100 years, in which case the tenant’s right to possession will last over a lifetime and the owner’s right to possession will not return until he or she is dead. Still, the owner has a reversionary right which will endure beyond the tenant’s right. It is a property right which can be enjoyed by another when the time comes. The difference between a sale or gift (which transfers ownership) and a lease or bailment (which transfers possession, but not ownership) is that the former disposes of all the owner’s rights to the thing, while the latter leaves the owner with some residual right. This is true even if the residual right might be destroyed by certain events (such as the sale at the end of a hire-purchase) or will not be enjoyed for more than a lifetime. 22

City Motors (1933) Pty Ltd v Southern Aerial Super Service Pty Ltd (1961) 106 CLR 477; [1961] HCA 53. [1.95]

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Tony Honoré identified this “incident of residuarity” as a necessary element of ownership in an influential essay called “Ownership”. 23 To distinguish ownership from possession, it is necessary to look at the rights a person has to use a thing in the future. An examination of the property rights which can be exercised at present is insufficient. For example, if you owned a house and leased it to me for five years, it might appear to a bystander that I own the house. As discussed at [12.35]ff (Chambers), the lease would entitle me to possession of your house, which means that I would get to use and enjoy it and exclude you from it. My payment of rent would provide a clue about your rights, but would not set me apart from an owner who makes mortgage payments or distinguish you from the bank which receives them. It is your right to possession at the end of the lease which identifies you as the owner. Jeremy Waldron took a similar approach, but looking back in time instead of forward. He said that we cannot “tell who is and who is not an owner by concentrating on the rights, powers, and duties distributed around a society at a particular moment in time”. 24 However, unlike Honoré, who looks to the “incident of residuarity” to mark the owner of a thing, Waldron looks to the past to identify the person who decided how a particular thing would be used: 25 Ownership … expresses the abstract idea of an object being correlated with the name of some individual, in relation to a rule which says that society will uphold that individual’s decision as final when there is any dispute about how the object should be used.

Turning to the previous example, in which you leased your house to me for five years, Waldron would identify you as the owner because you are the person who decided that I should enjoy possession of the house at present. One difficulty with this approach is that it does not distinguish between a sale and a lease. Suppose you buy a house and I lease the house next door. We each take possession and yet you are the owner and I am not. If we ask, “Who decided on this use of these homes?”, we find that in your case it was the vendor (previous owner) and in mine it was the landlord (current owner). The real distinction is that your vendor disposed of all her or his rights to the land, while my landlord retained the right to possession in the future.

BUNDLE OF RIGHTS [1.100] In “Ownership”, Honoré set out to describe the concept of ownership shared by most

legal systems. He listed nine rights, one duty, and one liability as the elements which together constitute ownership. Six of those rights also belong to someone with a right to possession. These are the rights to possess the thing, to use it, to manage how it will be used, to the income from it, to security from interference with the right to the thing, and to transmit that right to successors of choice. The duty and liability would also attach to the person with the right to possession. These are the duty to prevent harm and the liability to execution (which are discussed further at [1.115] and [1.120]). Honoré sets out three rights of ownership which do not belong to a non-owner with a right to possession. The right to capital entitles the owner to destroy or alienate the thing itself. Although the right to possession is a property right which usually can be sold or given away, the destruction of the thing, without the consent of the person with a right to future 23 24 25 16

In AG Guest (ed), Oxford Essays in Jurisprudence (Oxford, 1961) p 113. The Right to Private Property (Oxford, 1986) p 56. The Right to Private Property (Oxford, 1986) p 47. [1.100]

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possession, would be an actionable wrong. The absence of term, meaning the potential to last indefinitely, and the incident of residuarity, discussed at [1.95], are also exclusive to ownership. This provides a useful description of ownership. It should not, however, be confused with a description of property. There are property rights, such as the restrictive covenant (discussed at [16.110]ff (Chambers)), which share very few of these characteristics. Perhaps more importantly, Honoré’s description of ownership should not be used as a definition of property. Focusing on the ways in which people can use their things (sometimes called a bundle of rights) detracts from the essential characteristics which separate property from personal rights. As James Penner said: 26 The bundle of rights perspective on property is entirely innocuous if regarded merely as an elaboration of the scope of action that ownership provides. In that vein, the right to property does comprise a bundle of rights – the right to use, consume, destroy, and transfer what one owns, and so forth. In the same way, the right to make contracts can be elaborated as the right to sell, the right to employ others, the right to take remunerative employment, the right to lend money at interest, and so on. There is nothing wrong with this. On the other hand, as any kind of analysis or substantial thesis about property, the bundle of rights can only be taken as meaning that property is a structural composite, ie, that its nature is that of an aggregate of fundamentally distinct norms. That is quite mistaken.

ALIENABILITY [1.105] Honoré said that the owner has the rights to sell the thing (the capital) and to let it for

value (the income). Penner has challenged this idea, arguing that ownership includes the rights to give the thing away and to share it with others, but not necessarily to do so for value. He sees the right to exchange property rights for value as part of our freedom of contract and not part of the law of property. Penner’s argument is significant for at least two reasons. First, it explains why we can own things we are not permitted to sell, such as human tissue or blood removed for donation. Secondly and more importantly, it identifies the separate interests protected by the law of property and the law of contract. Property protects our interests in using things, while contract protects our interests in dealing co-operatively with others. The rights to own things and make contracts go hand in hand in most societies. Many property rights are acquired through contract and many contracts concern the use of things. However, there is no necessary connection between property and contract. Each can exist independently of the other. If Penner is correct to conclude that the right to make contracts is not part of the law of property, is he also correct when he says that ownership includes the rights to share and give? It is clear that ownership is a property right to something contingently connected to the owner and therefore the owner must be able to alienate the thing by severing that connection. Does the owner’s right to alienate necessarily include the right to make a gift? We are social creatures. As John Donne wrote in 1623 in his famous Meditation XVII, “No man is an island.” Our enjoyment of life is enhanced when we share our experiences with others. Why else do we go with others to the cinema to sit quietly together in the dark? Since ownership is the greatest possible right to use and enjoy a thing, Penner argues that it must include the right to enjoy the thing socially, by giving to or sharing with others. 26

“The “Bundle of Rights” Picture of Property” (1996) 43 UCLA Law Review 711 at 741. [1.105]

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RESPONSIBILITIES OF OWNERSHIP [1.110] As discussed at [1.200] (Chambers), Honoré’s description of ownership includes the

duty to prevent harm and the liability to execution. The issue explored here is whether these are essential aspects of ownership, as Honoré suggests. Duty to Prevent Harm [1.115] There are two types of harm to consider: the duty not to harm others with the thing

owned and the duty not to harm the thing itself. First, it is uncontroversial that people must take care not to harm others with their things. The issue is whether this is a component of ownership or merely part of the general duty we all have not to interfere with other people or their things. If I throw a book and injure you, does it matter whether I own the book? As a book owner, do I have a duty to stop others from throwing it? In other words, does the benefit of ownership carry a burden which is distinct from the responsibilities we all bear as members of society? There are no easy answers. Even if a duty to prevent harm is part of the law of property, it is not clear whether it attaches to ownership or the right to possession. The essence of the wrong is allowing a thing to be used in a way which causes harm to another. The person with possession or the right to immediate possession of a thing has the power to control its use and, therefore, bears some responsibility for its misuse. The owner with a reversionary right to future possession does not necessarily have that power and is at least one step removed from the harm occasioned by the user. The law recognises this in some situations. For example, the liability for injuries caused by the dangerous condition of premises usually falls on the occupier of those premises, regardless of whether he or she is also the owner. 27 The second and perhaps more difficult question is whether the owner of a thing can have a duty not to harm the thing itself. It is clear that the possessor can be liable to the owner for damage to the thing (see, for example, the discussion of waste at [12.125] (Chambers)). However, the sole owner of a thing, to which no-one else has a property right, usually is free to destroy or damage it, provided this causes no harm to others. For example, you are free to throw your own wine glasses into your own fireplace, smash your own musical instruments on stage, or throw your own dinner in the bin. The law does not intervene, even though there are many people in the world who would love to have those things. There are situations in which the owner is not free to harm the thing owned. Usually, the owner of an animal is entitled to have it destroyed, so long as this is done humanely. However, the owner is not entitled to be cruel to the animal. As Napier J said in Backhouse v Judd: 28 There is nothing novel in the idea that property is a responsibility as well as a privilege. The law which confers and protects the right of property in any animal may well throw the burden of the responsibility for its care upon the owner as a public duty incidental to the ownership.

It is interesting that the German Civil Code includes the protection of animals in its statement of the “Powers of the Owner”: 29 27

28 29

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Australian Safeway Stores Pty Ltd v Zaluzna (1987) 162 CLR 479; [1987] HCA 7; Civil Law (Wrongs) Act 2002 (ACT), s 168; Civil Liability Act 1936 (SA), ss 19 – 22; Wrongs Act 1958 (Vic), ss 14A – 14D; Occupiers’ Liability Act 1985 (WA). Also see the Personal Injuries (Liabilities and Damages) Act (NT), s 9. Backhouse v Judd [1925] SASR 16 at 21. German Civil Code (Bürgerliches Gestetzbuch), s 903. See M Raff, Private Property and Environmental Responsibility (The Hague, 2003) pp 191-196. [1.110]

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The owner of a thing may, to the extent that a statute or third-party rights do not conflict with this, deal with the thing at his discretion and exclude others from every influence. The owner of an animal must, when exercising his powers, take into account the special provisions for the protection of animals.

The owners of animals of endangered species might have even greater duties to protect them from harm. Similarly, the owners of land with particular cultural or biological significance might have a duty to preserve that land. For example, the owner of a building listed as a special heritage site is not permitted to demolish or change it without special permission. 30 Murray Raff has argued that the various duties to protect things from harm should include a general duty to preserve land from environmental harm. He said, “an environmental responsibility should be presumed positively, even in the absence of positive legal regulation, as an aspect of property itself and at the deepest jurisprudential level”. 31 Liability to Execution [1.120] For Honoré, ownership includes a liability to execution. This means that the rights of

the owner may be acquired by the government for the greater good and may be seized and sold to pay the owner’s debts. The possibility of compulsory acquisition by the government is a generally accepted limit on ownership. Most of us agree that an owner’s right to determine how her or his things are used must give way at times to society’s need to interfere with that use for purposes such as public transportation, utilities, parks, and other essential services. There are statutory mechanisms for regulating compulsory acquisition and determining the appropriate compensation for the rights expropriated. 32 When people are unable or unwilling to pay their debts, the generally accepted response is to force them to sell their property rights to raise money to pay those debts. If, for example, you obtain a judgment against me for the payment of money and I do not pay that sum, you are a judgment creditor and entitled to instruct the sheriff to seize and sell my things to pay the judgment. Similarly, if I am declared bankrupt (unable to pay my debts), my property rights are transferred to a person (called the trustee in bankruptcy or receiver) who sells those rights and distributes the proceeds among my creditors according to law. 33 It is not clear whether the liability to execution is an inherent limitation of ownership or merely part of everyone’s obligation to pay her or his debts. There are four arguments in favour of the latter view. First, not all rights of ownership are subject to execution. For example, many household items (including one television and one video recorder) are exempt from distribution among a bankrupt’s creditors. 34 Secondly, there is a wide variety of property rights, other than ownership, which are liable to execution. For example, possession of land or goods under a lease may have market value which can be realised to pay the 30

31

32

33 34

See Heritage Act 2004 (ACT); Heritage Act 1977 (NSW); Heritage Act (NT); Queensland Heritage Act 1992 (Qld); Heritage Places Act 1993 (SA); Historic Cultural Heritage Act 1995 (Tas); Heritage Act 1995 (Vic); Heritage of Western Australia Act 1990 (WA). “Environmental Obligations and the Western Liberal Property Concept” (1998) 22 Melbourne University Law Review 657 at 691. Also see M Raff, “Toward an Ecologically Sustainable Property Concept” in E Cooke (ed), Modern Studies in Property Law (Oxford, 2005) Vol 3, p 65. Lands Acquisition Act 1989 (Cth); Lands Acquisition Act 1994 (ACT); Land Acquisition (Just Terms Compensation) Act 1991 (NSW); Lands Acquisition Act (NT); Acquisition of Land Act 1967 (Qld); Land Acquisition Act 1969 (SA); Land Acquisition Act 1993 (Tas); Land Acquisition and Compensation Act 1986 (Vic); Land Administration Act 1997 (WA). Also see the movie, The Castle (1997). Bankruptcy Act 1966 (Cth), s 58. Bankruptcy Act 1966 (Cth), s 116; Bankruptcy Regulations 1996 (Cth), reg 6.03. [1.120]

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possessor’s debts. Thirdly, personal rights (such as a bank account or right to receive wages) can also be taken to pay a judgment debt. Finally, a society could choose to enforce judgment debts in other ways. For example, at one time in England, debts could be enforced by committing the debtor to prison. 35

35

20

JH Baker, An Introduction to English Legal History (4th ed, London, 2002) pp 66-67; Dive v Maningham (1550) 1 Plowden 96; 75 ER 96. [1.120]

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King v David Allen & Sons Billposting Ltd [1.125] King v David Allen & Sons Billposting Ltd [1916] 2 AC 54

[1.125]

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King v David Allen & Sons Billposting Ltd cont.

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King v David Allen & Sons Billposting Ltd cont.

[1.125]

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King v David Allen & Sons Billposting Ltd cont.

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[1.125]

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King v David Allen & Sons Billposting Ltd cont.

[1.125]

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King v David Allen & Sons Billposting Ltd cont.

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[1.125]

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King v David Allen & Sons Billposting Ltd cont.

[1.125]

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King v David Allen & Sons Billposting Ltd cont.

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King v David Allen & Sons Billposting Ltd cont.

[1.125]

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King v David Allen & Sons Billposting Ltd cont.

Extract from Moore, Australian Property Law: Cases and Materials (5th ed), Ch 1.

Yanner v Eaton [1.130] Yanner v Eaton (1999) 201 CLR 351 High Court of Australia [An Aboriginal man used a traditional form of harpoon to catch two juvenile estuarine crocodiles in Queensland. He and some other members of his clan ate some of the crocodile meat and froze the rest. The man did not hold a licence, permit, certificate or other authority under the Fauna Conservation Act. He was charged with one count of taking fauna contrary to that Act. A magistrate found that the man’s clan had a connection with the land from which the crocodiles were taken which had existed before the common law of the colony of Queensland had come into being and which continued thereafter. The magistrate further held that it was a traditional custom of the clan to hunt juvenile crocodiles for food. He dismissed the charge on the basis that s 211 of the Native Title Act applied. The informant applied for review, contending that any native title right or interest to hunt crocodiles, which the man may have enjoyed, had been extinguished prior to the commencement of the Native Title Act by the enactment of s 7(1) of the Fauna Conservation Act.] GLEESON CJ, GAUDRON, KIRBY AND HAYNE JJ: The word “property” is often used to refer to something that belongs to another. But in the Fauna Act, as elsewhere in the law, “property” does not refer to a thing; it is a description of a legal relationship with a thing. It refers to a degree of power that is recognised in law as power permissibly exercised over the thing. The concept of “property” may be elusive. Usually it is treated as a “bundle of rights”. But even this may have its limits as an analytical tool or accurate description, and it may be, as Professor Gray (Gray K and Gray S F, “The Idea of Property in Land”, in Bright and Dewar (eds), Land 30

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Yanner v Eaton cont. Law: Themes and Perspectives (1998) 15, at p 16) has said, that “the ultimate fact about property is that it does not really exist: it is mere illusion”. Considering whether, or to what extent, there can be property in knowledge or information or property in human tissue may illustrate some of the difficulties in deciding what is meant by “property” in a subject matter. So too, identifying the apparent circularity of reasoning from the availability of specific performance in protection of property rights in a chattel to the conclusion that the rights protected are proprietary may illustrate some of the limits to the use of “property” as an analytical tool. No doubt the examples could be multiplied. Nevertheless, as Professor Gray also says, “An extensive frame of reference is created by the notion that ‘property’ consists primarily in control over access. Much of our false thinking about property stems from the residual perception that ‘property’ is itself a thing or resource rather than a legally endorsed concentration of power over things and resources.” “Property” is a term that can be, and is, applied to many different kinds of relationship with a subject matter. It is not “a monolithic notion of standard content and invariable intensity”. That is why, in the context of a testator’s will, “property” has been said to be “the most comprehensive of all the terms which can be used, inasmuch as it is indicative and descriptive of every possible interest which the party can have”. Because “property” is a comprehensive term it can be used to describe all or any of very many different kinds of relationship between a person and a subject matter. To say that person A has property in item B invites the question what is the interest that A has in B? The statement that A has property in B will usually provoke further questions of classification. Is the interest real or personal? Is the item tangible or intangible? Is the interest legal or equitable? For present purposes, however, the important question is what interest in fauna was vested in the Crown when the Fauna Act provided that some fauna was “the property of the Crown and under the control of the Fauna Authority”? The respondent’s submission (which the Commonwealth supported) was that s 7(1) of the Fauna Act gave full beneficial, or absolute, ownership of the fauna to the Crown. In part this submission was founded on the dictum noted earlier, that “property” is “the most comprehensive of all the terms which can be used”. But the very fact that the word is so comprehensive presents the problem, not the answer to it. “Property” comprehends a wide variety of different forms of interests; its use in the Act does not, without more, signify what form of interest is created. There are several reasons to conclude that the “property” conferred on the Crown is not accurately described as “full beneficial, or absolute, ownership”. First, there is the difficulty in identifying what fauna is owned by the Crown. Is the Fauna Act to be read as purporting to deal with the ownership of all fauna that is located within the territorial boundaries of the State but only for so long as the fauna is within those boundaries, or does it deal with all fauna that has at any time been located within those boundaries? That is, does the Fauna Act purport to give the Crown ownership of migratory birds only as they pass through Queensland, or does it purport to give ownership to the Crown of every bird that has ever crossed the Queensland border? Secondly, assuming that the subject matter of the asserted ownership could be identified or some suitable criterion of identification could be determined, what exactly is meant by saying that the Crown has full beneficial, or absolute, ownership of a wild bird or animal? The respondent (and the Commonwealth) sought to equate the Crown’s property in fauna with an individual’s ownership of a domestic animal. That is, it was sought to attribute to the Crown what Pollock called “the entirety of the powers of use and disposal allowed by law”. At common law, wild animals were the subject of only the most limited property rights. At common law there could be no “absolute property”, but only “qualified property” in fire, light, air, water and wild animals. An action for trespass or conversion would lie against a person taking wild animals that had been tamed, or a person taking young wild animals born on the land and not yet old enough to [1.130]

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Yanner v Eaton cont. fly or run away, and a land owner had the exclusive right to hunt, take and kill wild animals on his own land. Otherwise no person had property in a wild animal. “Ownership” connotes a legal right to have and to dispose of possession and enjoyment of the subject matter. But the subject matter dealt with by the Fauna Act is, with very limited exceptions, intended by that Act always to remain outside the possession of, and beyond disposition by, humans. As Holmes J said in Missouri v Holland (1920) 252 US 416, 434: “Wild birds are not in the possession of anyone; and possession is the beginning of ownership.” Thirdly, there are several aspects of the Fauna Act which tend to suggest that the property in fauna conferred on the Crown may not easily be equated with the property an individual may have in a domestic animal. The property rights of the Crown would come and go according to the operation of the exception contained in s 7(1) of fauna taken or kept “otherwise than in contravention of this Act during an open season with respect to that fauna”. As open seasons were declared and fauna taken, what otherwise was the property of the Crown, ceased to be. Next there are the references in ss 71(2) and 83(3) to forfeiture of fauna to the Crown. Even accepting that s 84 says that these sections shall not prejudice or affect the rights of the Crown conferred by s 7, why were ss 71(2) and 83(3) necessary if the Crown owned the fauna? Then there are the provisions of s 7(2) that “[l]iability at law shall not attach to the Crown by reason only of the vesting of fauna in the Crown pursuant to this section”. The Crown’s property is property with no responsibility. None of these aspects of the Fauna Act concludes the question what is meant by “property of the Crown”, but each tends to suggest that it is an unusual kind of property and is less than full beneficial, or absolute, ownership. Fourthly, it is necessary to consider why property in some fauna is vested in the Crown. Provisions vesting property in fauna in the Crown were introduced into Queensland legislation at the same time as provisions imposing a royalty on the skins of animals or birds taken or killed in Queensland. A “royalty” is a fee exacted by someone having property in a resource from someone who exploits that resource. As was pointed out in Stanton v Federal Commissioner of Taxation (1955) 92 CLR 630 at 641: … the modern applications of the term [royalty] seem to fall under two heads, namely the payments which the grantees of monopolies such as patents and copyrights receive under licences and payments which the owner of the soil obtains in respect of the taking of some special thing forming part of it or attached to it which he suffers to be taken. That being so, the drafter of the early Queensland fauna legislation may well have seen it as desirable (if not positively essential) to provide for the vesting of some property in fauna in the Crown as a necessary step in creating a royalty system. Further, the statutory vesting of property in fauna in the Crown may also owe much to a perceived need to differentiate the levy imposed by the successive Queensland fauna statutes from an excise. For that reason it may well have been thought important to make the levy as similar as possible not only to traditional royalties recognised in Australia and imposed by a proprietor for taking minerals or timber from land, but also to some other rights (such as warren and piscary) which never made the journey from England to Australia. In light of all these considerations, the statutory vesting of “property” in the Crown by the successive Queensland fauna Acts can be seen to be nothing more than “a fiction expressive in legal shorthand of the importance to its people that a State have power to preserve and regulate the exploitation of an important resource”. So much was acknowledged in the second reading speech on the Bill which first vested property in fauna in the Crown. The Minister said: It [the fur industry] is an industry that really belongs to the people, and although the Bill, amongst other things, makes it quite clear that the native animals of the State belong to the people of the State, I do not think there is any doubt in the minds of any one regarding that question already. The native animals belong to the people in just the same way as the timber and the minerals belong to the people, and they cannot be sold without permission. 32

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Yanner v Eaton cont. Roscoe Pound (Pound, An Introduction to the Philosophy of Law (Revised ed, 1954, p 111) explained why wild animals and other things not the subject of private ownership are spoken of as being publicly owned. He said: We are also tending to limit the idea of discovery and occupation by making res nullius (for example, wild game) into res publicae and to justify a more stringent regulation of individual use of res communes (for example, of the use of running water for irrigation or for power) by declaring that they are the property of the state or are “owned by the state in trust for the people.” It should be said, however, that while in form our courts and legislatures seem thus to have reduced everything but the air and the high seas to ownership, in fact the so-called state ownership of res communes and res nullius is only a sort of guardianship for social purposes. It is imperium, not dominium. The state as a corporation does not own a river as it owns the furniture in the state house. It does not own wild game as it owns the cash in the vaults of the treasury. What is meant is that conservation of important social resources requires regulation of the use of res communes to eliminate friction and prevent waste, and requires limitation of the times when, places where, and persons by whom res nullius may be acquired in order to prevent their extermination. Our modern way of putting it is only an incident of the nineteenth-century dogma that everything must be owned. The “property” which the Fauna Act and its predecessors vested in the Crown was therefore no more than the aggregate of the various rights of control by the Executive that the legislation created. So far as now relevant those were rights to limit what fauna might be taken and how it might be taken, rights to possession of fauna that had been reduced to possession, and rights to receive royalty in respect of fauna that was taken (all coupled with, or supported by, a prohibition against taking or keeping fauna except in accordance with the Act 1975). Those rights are less than the rights of full beneficial, or absolute, ownership. Taken as a whole the effect of the Fauna Act was to establish a regime forbidding the taking or keeping of fauna except pursuant to licence granted by or under the Act. [The appeal was allowed.]

[1.135]

Notes

1. The judgment points out that property in wild animals is often linked to property in fire, light, air and water. With respect to water, legislation in all States and Territories has vested property in water in watercourses and often that in underground aquifers in the State or Territory. As with the fauna discussed in the above case, water may flow out of the State or Territory or evaporate. The significance of the vesting of property in water is, therefore, as with the fauna, to regulate access to the water so that users require government permission. Private rights to take surface and ground water have been granted by the State in the form of statutory licences that are separate from land ownership. These rights are transferable and, according to economic theory, will be acquired by the person who places greatest value upon them and is the most efficient user: McKenzie, “Water Rights in NSW: Properly Property?” (2009) 31 Sydney Law Review 443. A recent constitutional challenge to a variation of such a licence, as it related to subsurface water in a particular geographical location in New South Wales, will be discussed in Note 4 below. 2. Whilst the case discusses property in relation to resources other than land, the concept of government ownership as a means of control rather than the normal use and enjoyment conferred by private ownership has implications for the nature of the Crown’s interest in land. Traditionally the doctrine of tenure has been taken to mean that all land vests in the [1.135]

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Crown and private rights are lesser interests or estates flowing from grants by the Crown. However in Wik Peoples v Queensland (1996) 187 CLR 1, the High Court concluded that the residuary interest of the Crown after a grant for a limited period of time was different from a private reversion and not inconsistent with continuing native title. It is possible that in Australia the doctrine of tenure does not confer upon the Crown a normal ownership of land but more a form of control over the land. 3. It is rare for the courts to be discussing the meaning of property as opposed to an analysis of the incidents of a particular form of property or less commonly whether property rights exist in a particular situation. The reason for this rarity is that the meaning of so broad a concept as property is seldom the basis for the resolution of a dispute and its analysis tends to be the province of writers seeking to find common strands to a series of decisions. Disputes where the meaning of fundamental concepts are raised are likely to occur where the property issue is the basis of the existence of a general body of protection. For example, criminal laws protect persons with respect to interference with their “property” by others and constitutions protect citizens with respect to the taking of their “property” by governments (see Note 4). 4. Section 51(xxxi) of the Australian Constitution allows the acquisition of property for a purpose for which the Commonwealth has power to make laws, but only on the provision of just terms. This constitutional protection of property rights was recently considered in ICM Agriculture Pty Ltd v Commonwealth (2009) 240 CLR 140. In this case ICM had its rights to take water from the Lower Lachlan Groundwater System, pursuant to a bore licence, replaced with less generous rights (in terms of the volume of water allowed to be taken) under an aquifer access licence. Although the water in the system was vested in the State of New South Wales and the licences had been granted pursuant to New South Wales legislation, four of the seven judges of the High Court who considered the issue found that, if there had been an acquisition of ICM’s property by New South Wales, s 51(xxxi) would be engaged. This was because the compensation paid to ICM, which the Commonwealth conceded did not amount to just terms, was provided by the Commonwealth pursuant to s 96 of the Constitution. Nevertheless, the High Court (Heydon J dissenting) concluded that there had not been an acquisition of property. Although Hayne, Kiefel and Bell JJ (as well as Heydon J) concluded that ICM’s statutory bore licence was a form of property (French CJ, Gummow and Crennan JJ not deciding the issue), six of their Honours held there had been no acquisition of property by New South Wales through its cancellation. This was because New South Wales did not acquire an identifiable and measurable benefit through the cancellation of the licence, as its rights with respect to the subsurface water had not been enlarged. The subsurface water itself in the System was a natural resource in which there were no specific private property rights. The water was vested in the State of New South Wales for the purpose of controlling access to it as a public resource. The statutory licences giving access to take specific volumes of that water were inherently fragile and susceptible to change: the volume of water allowed to be taken could be reduced from time to time, and the licence cancelled altogether in certain circumstances: (at 180, 200 – 202). Although ICM’S property rights had been varied or extinguished, there had been no acquisition of property by New South Wales. Accordingly, the Commonwealth had no obligation to provide just terms to ICM. 5. ICM Agriculture Pty Ltd v Commonwealth demonstrates that a claim for s 51(xxxi) protection of a proprietary interest that has its source in statute may face difficulties over 34

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and above the difficulties faced by a claim for the protection of a proprietary interest that exists at common law or in equity. (Also see Attorney-General (NT) v Chaffey (2007) 231 CLR 651 at 664 on this point.) This is because statutory rights may be seen as inherently vulnerable to amendment, so that the Commonwealth (or other third party) does not receive a benefit that can be characterised as proprietary when the right is so varied. However, the situation may be different where the statutory right is analogous to a proprietary right that exists under the general law. An example of this is the High Court’s decision in Wurridial v Commonwealth (2009) 237 CLR 309. As a part of its Northern Territory National Emergency Response, the Commonwealth compulsory imposed leases and rights of access over land vested in fee simple in the Arnhem Aboriginal Land Trust. A majority of the High Court (Crennan J disagreeing on, and Heydon J not deciding, this point) found that the diminution of the Trust’s interest in the land, to the benefit of the Commonwealth, constituted an acquisition of property. Even though the Trust’s fee simple interest in the land was created and regulated by statute, it nevertheless approximated, just as a common law fee simple does, an exclusive right of ownership (at 361-362, 382-383, 421,466). The final result in Wurridial, however, was that there had not be a contravention of s 51(xxxi) because the Commonwealth had provided just terms for the acquisition. The case is also noteworthy as it confirms that s 51(xxxi) will apply to an acquisition of property effected by a law enacted pursuant to the “Territories power” (s 122) of the Constitution. 6. Introductory legal texts often use the example of the sign “trespassers prosecuted” as a blurring of the distinction between civil and criminal law. They point out that traditionally trespass to land was not of itself a criminal offence. However today criminal sanctions with respect to intentional unauthorised entries onto private land are increasing and the word “trespass”, although clearly from a civil law background as an actionable interference with property, is retained presumably because it conveys strongly the element of wrongfulness. The issues of the right to protect property by force and the imposition of criminal sanctions on those who interfere with property is discussed in R v McKay [1957] VR 560. 7. The existence of constitutional protections and criminal sanctions add to the significance of any property right. However, the existence of a property right depends ultimately on the existence of a legal remedy to protect or enforce that right. As property rights are defined in terms of relationships with persons generally (or enforceability against the whole world) the remedy should be one able to be brought against any other person. Tortious remedies satisfy this requirement and, consequently, the availability of an action in trespass protects both real and personal property.

[1.135]

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CHAPTER 2 Tenures, Estates and Native Title [2.05]

THE DOCTRINE OF TENURE ................................................................................... 37

[2.10]

THE DOCTRINE OF ESTATES ................................................................................... 37 [2.10] [2.20]

[2.25]

Western Australia v Ward ......................................................... 37 Mabo v Queensland (No 2) ..................................................... 43

RECOGNITION OF NATIVE TITLE ........................................................................... 48 [2.25] [2.35]

[2.40] [2.45] [2.50] [2.55]

Mabo v Queensland (No 2) ..................................................... 48 Western Australia v Brown ....................................................... 67

Statutory recognition and protection ................................................. Definition of native title ........................................................................ Validation of acts of the Commonwealth ........................................... Procedures for protecting native title .................................................

77 78 78 79

Extracts from Moore Australian Property Law: Cases and Materials, 5th ed, Ch 2.

THE DOCTRINE OF TENURE [2.05] After the Norman Conquest, William I as sovereign asserted the power to grant land

holdings to any person as he wished. When making grants, the King did not transfer absolute ownership but instead granted rights over the land subject to the grantee fulfilling particular duties and conditions, such as the rendering of services or payment of money. The person who held land directly of the King was the tenant-in-chief. The tenant-in-chief then granted part of the land to another, again in return for the performance of certain duties. The process could be repeated many times with respect to the same piece of land and thus complicated feudal ties were set up. This was called subinfeudination and gave rise to the notion of a feudal pyramid with the King at the top. As time went by the system became extremely complicated. Enforcement of services became a major problem. An attempt to simplify the system of tenure was made in 1290 in the Statute of Quia Emptores 1290 but it was not until 1660 that the Statute of Tenures 1660 abolished most of the incidents of tenure.

THE DOCTRINE OF ESTATES Western Australia v Ward [2.10] Western Australia v Ward (2000) 170 ALR 159 Federal Court of Australia [An extract of the High Court decision in this case and the reasons for decision relating to native title issues can be found at [7.70] (Moore). North J was in dissent in the full Federal Court. This part of his judgment is extracted here as it provides a clear summary of the history and development of doctrines of tenures and estates.] NORTH J: … [2.10]

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Western Australia v Ward cont. Change as a feature of the history of property law Nowhere has modification and change marked the history of property law more clearly than in relation to the doctrine of tenure. This doctrine was the first way in which the ownership of property was fragmented. It underpinned the feudal system, so that the land law reflected the social demands of the time. Through the process of subinfeudation, a hierarchy was set up in which everyone held land of a superior, with the King at the apex. Each person in the hierarchy owed services to the mesne lord above, and was also owed services by those below. Interests in land were therefore not granted outright to tenants, and it was implicit in the relationship of tenure that both the grantor and the tenant have interests in the land at the same time. In the fifteenth century Littleton classified the various tenures by reference to the nature of service which the grant of land required the tenant to render. Thus, for instance, a tenant holding by knight service was required to fight as a knight or supply knights for battle. A tenant who held by castle-gard was obliged to serve in defence of castles, and a tenant holding by grand sergeanty was required to render service of a personal nature, and so on. A major change in the tenurial system reflected the social changes then occurring. Originally the tenures formed the basis of social organisation and reflected the economic, military and spiritual cooperation between all segments of society. In due course the value of fixed services declined and an economy based on contract and the payment of wages grew up. The obligation to render services was replaced by the obligation to pay “rent”. The position today is described by Simpson in A History of the Land Law 2nd ed, 1986, p 1 as follows: Indeed, so unimportant have tenures become that nobody certainly knows what sorts of tenure can still exist, and in practice this matters not at all. As the incidents of land holding changed so did the ability to transfer those interests. In the earliest times the tenant’s interest in land was not heritable as of right. In due course the tenant was entitled to pass his interest to his heir without the consent of the grantor. By the time of the Statute of Quia Emptores 1290 (UK) it was recognised that the tenant had the right to alienate his interest. Each of these steps constituted a radical change which was accommodated within the system of tenure and which reflected the requirements of contemporary society. By demonstrating that several persons could hold proprietary interests in the one piece of land, the doctrine of tenure laid the groundwork for the division of land in ways other than pursuant to the tenurial relationship. Lawson and Rudden in The Law of Property 2nd ed, 1982 state at p 81, that “tenure, since it denied in principle the unity of ownership, created a mental atmosphere favourable to the division of ownership on other lines also”. In particular, with the evolution of the doctrine of estates, property interests came to be fragmented on the basis of time. Whereas the doctrine of tenure recognised that a number of persons could have a proprietary interest in the one piece of land at the same time, by relying upon duration, the doctrine of estates allowed for the creation of successive interests, present and future, in the same piece of land. In essence, the doctrine of estates reflected the idea that a person should be able to have an interest in land giving rise to a present right to possession, while at the same time other persons would also have interests in the same land giving them future rights to possession. Kevin Gray and Susan Francis Gray in The Idea of Property in Land (referred to above at [789]) at pp 28-29 discuss the temporal basis of the doctrine of estates in the following terms: It was left to the doctrine of estates to quantify the grades of abstract entitlement which might be enjoyed by any particular tenant (or landholder) within the tenurial framework. This doctrine spelt out a rich taxonomy of “estates” in the land, each estate representing an artificial proprietary construct interposed between the tenant and the physical object of his tenure. Each tenant owned (and still owns) not land but an estate in land. The precise nature 38

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Western Australia v Ward cont. of the estate was graded by its temporal duration and by the possible attachment of variegated conditions precedent or subsequent. Each common law estate – whether the fee simple, the fee tail, or the life estate – comprised a time-related segment of the bundle of rights and powers exercisable over land; and the doctrine of estates effectively provided diverse ways in which three-dimensional realty might be carved up in a fourth dimension of time. In Walsingham’s Case (1573) 2 Plowd 547 at 555; 75 ER 805 at 816-817 it was said: … the land itself is one thing, and the estate in the land is another thing, for an estate in the land is a time in the land, or land for a time, and there are diversities of estates, which are no more than diversities of time … Lawson and Rudden also discuss how notions of duration could be divided through the doctrine of estates. The authors state (p 88): In relation to land the solution long ago adopted by English law was to create an abstract entity called the estate in the land and to interpose it between the tenant and the land. Since the estate was an abstract entity imagined to serve certain purposes, it could be made to conform to a specification, and the essential parts of the specification were that the estate should represent the temporal aspect of the land – as it were a fourth dimension – that it should be divisible within that dimension in respect of time according to a coherent set of rules, but that the whole of that dimension, the estate, should be regarded as existing in the present moment so that slices of the estate representing rights to successive holdings of the land should be regarded as present estates co-existing at the same time. The change in the importance of the doctrine of estates is explained by Simpson at pp 1-2 as follows: The doctrine of estates too is still with us, though in a guise which would hardly be intelligible to a medieval lawyer. But although the fundamental nature of these two doctrines [the doctrine of tenure and the doctrine of estates] is avowed in the leading modern textbook on real property, estates no longer have the fascination that once they had, and tenure is little discussed. The emphasis of the modern law passes both doctrines by, and rightly so. If we go back into the history of the land law the emphasis changes. In the eighteenth and early nineteenth centuries the ablest property lawyers are concerned to work out the subtleties of the rules governing the limitation of estates, particularly in connection with the elaborate family settlements of the time; when we reach the fifteenth century Littleton’s treatise on the law of real property is traditionally called Tenures, and though he deals at length with the doctrine of estates it is the tenurial quality of the law which bulks largest in his analysis. Thus, it can be seen that while native title is not an estate recognised by the common law, there is nothing inconsistent within the common law in the concept of suspension of property rights. It reflects an idea which lies at the foundation of the doctrine of estates itself. Further, the changes accommodated through history in the elements of the doctrine of estates show the capacity of property law to change as required by contemporary circumstances. It should also be remembered that the original estates in property law were the freehold estates of fee simple, fee tail and life estate. Initially, leaseholds were not classified as estates. Leaseholds created contractual rights only and could be enforced by contractual remedies. Late in the fifteenth century the common law courts permitted leaseholders to recover the land itself in an action for ejectment. Once this remedy became available the common law could no longer deny leaseholders the status of estate holders. The incorporation of leaseholds into the doctrine of estates is yet another example of a change by which circumstances have seen structural alterations in the law of property. Indeed change has continued in this area. Last year the House of Lords decided in Bruton v London & Quadrant Housing Trust [1999] 3 WLR 150 that a leasehold does not always create an estate in land. Mr Bruton occupied a flat under an agreement with the Housing Trust. The flat was in a building owned by the London Borough of Lambeth. The Borough and the Trust entered into an agreement [2.10]

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Western Australia v Ward cont. designated a licence, in which it was agreed that the Borough did not grant an estate or other proprietary interest to the Trust. The question to be decided was whether the Trust and Mr Bruton were landlord and tenant for the purposes of the statutory repairing obligations. The House of Lords considered that the relationship was that of landlord and tenant. In response to the argument that there could be no lease between Mr Bruton and the Trust because the Borough did not grant any proprietary interest to the Trust, Lord Hoffman, with whom Lord Slynn of Hadley, Lord Jauncey of Tullichettle, Lord Hope of Craighead and Lord Hobhouse of Woodborough agreed, said at 156-157: First, the term “lease” or “tenancy” describes a relationship between two parties who are designated landlord and tenant. It is not concerned with the question of whether the agreement creates an estate or other proprietary interest which may be binding upon third parties. A lease may, and usually does, create a proprietary interest called a leasehold estate or, technically, a “term of years absolute”. This will depend upon whether the landlord had an interest out of which he could grant it. Nemo dat quod non habet. But it is the fact that the agreement is a lease which creates the proprietary interest. It is putting the cart before the horse to say that whether the agreement is a lease depends upon whether it creates a proprietary interest. No reference to the adaptability of the law to contemporary needs in relation to property dealing would be complete without reference to the growth of uses and trusts. The Courts of Chancery recognised a division between beneficial enjoyment and legal title – a division which the common law did not entertain … [Discussed further at [2.70]ff (Moore).] The system of law which saw the growth of a concurrent system to take account of the demands of conscience continues today and is sufficiently flexible to accommodate the notion of the suspension of rights and interests dependent upon the existence of native title. Radical change has, thus, been a part of the development of property law. Indeed, in modern times the international community has developed a legal regime governing the ownership and use of the moon. Whilst Art 11 of the Agreement Governing the Activities of States on the Moon and Other Celestial Bodies (New York 1979 ATS (1986) No 14) prevents any nation from claiming property in the moon, its surface or natural resources, Art 6 confers limited usufructuary rights for the purposes of scientific investigation. The various adaptations described in this section have accommodated changes more radical than those necessary to accommodate the concept of suspension of the rights and interests dependent upon the holding of native title for the duration of the existence of inconsistent rights and interests.

Notes&Questions

[2.15]

1.

In Road Australia Pty Ltd v Commissioner of Stamp Duties [2001] 1 Qd R 327, the Queensland Court of Appeal commented on the meaning of the word “estate”. The word “estate” has two meanings in law, one narrow and the other broad. The narrow meaning is: “[T]he fee simple of land and any of the various interests into which it could formerly be divided at law, whether for life, or for a term of years or otherwise.” And the broad meaning is: “[A]ny property whatever”: see Halsbury’s Laws of England, 4th ed, vol 39(2), para 2. Under the narrow meaning, the only interests caught are the fee simple – that is, full ownership – and divisions, by reference to time, of that concept. For example, under the narrow meaning a leasehold interest would be an estate but a charge on land would not be. Under the broad meaning, any proprietary interest in land would be treated as an estate. It will be noted that the exclusion of a mortgagee’s interest from the statutory definition of “land” suggests that the reference to “estate” in the definition was intended to convey the broader meaning.

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The narrow interpretation of the term “estate” conveys a more accurate description of the term and it is in this context that “estate” is used here. 2.

The fee simple is the most extensive estate in duration. It is only the doctrine of tenure which prevents the holder of such an estate from being the absolute owner. The fee simple endures indefinitely and its holder may dispose of the estate inter vivos or by testamentary disposition. The fee simple was not always such an enduring interest: for a description of its development see Moore, Grattan and Griggs, Australian Real Property Law (6th ed, Thomson Reuters, Sydney, 2016), [2.100]; Epstein, “Past and Future: The Temporal Dimension in the Law of Property” (1986) 64 Wash ULQ 667.

3.

The fee tail estate was used only rarely in Australia. The original aim of the fee tail estate was to keep the estate within a particular branch of a family and there was little interest in using the fee tail to effect such a result in Australia: see Moore, Grattan and Griggs, Australian Real Property Law (6th ed, Thomson Reuters, Sydney, 2016). South Australia is the only jurisdiction in which the fee tail may still be created over general law land or Torrens system land. In the other jurisdictions, the fee tail can no longer be created and existing fees tail have either been automatically converted into fees simple or may be so converted by statutory provisions providing for the barring of the entail: see Moore, Grattan and Griggs, Australian Real Property Law (6th ed, Thomson Reuters, Sydney, 2016), [2.125].

4.

The life estate may exist in two forms: it may be granted for the life of the grantee or for the life of a person other than the grantee, an estate pur autre vie. The latter form often arises not pursuant to a direct grant but as a result of the holder of a life interest conveying the estate to another person.

5.

The doctrine of waste is the means whereby the common law balanced the interests of persons with successive interests in land. Any act in respect of the land which affected its ongoing character was potentially regarded as waste. Thus, the holder of a future interest could restrain any harm to the land by the person currently entitled to possession. The doctrine is also relevant to the relationship of a tenant (particularly under a fixed-term lease) and a landlord and probably as between co-owners each at present entitled to possession of the land and of whom one may be acting in a way which is detrimental to the land. There are four types of waste: voluntary waste, permissive waste, ameliorating waste and equitable waste. Voluntary waste is constituted by an intentional act damaging the land or buildings; permissive waste occurs where deterioration to land is allowed (normally a failure to repair); ameliorating waste is an act in relation to the land which benefits the land; equitable waste is a more serious form of voluntary waste – the intentional causing of serious harm. It is difficult to perceive situations in which ameliorating waste will give rise to any legal dispute. Liability for waste depends upon the terms of the instrument creating the limited interest. An owner is liable for voluntary waste unless exempted by the terms of the instrument (described as being made unimpeachable for waste). Such an exemption does not extend to liability for equitable waste unless it is specifically stated to so extend. Liability for permissive waste only occurs where liability is imposed by the [2.15]

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instrument. Voluntary waste includes not only intentional damage to the land or building but some acts which constitute exploitation of the land. The opening of a mine and the cutting of timber are clearly established acts of voluntary waste. For further discussion of the doctrine of waste, see Moore, Grattan and Griggs, Australian Real Property Law (6th ed, Thomson Reuters, Sydney, 2016), [13.45]-[13.65]. See also Moore, Grattan and Griggs, Australian Real Property Law (6th ed, Thomson Reuters, Sydney, 2016), [13.110]–[13.190] for a discussion of the various statutory rights and duties which cover the relationship of the life tenant and the remainderman. 6.

As is discussed in Chapter 14 (Moore), the lease was not originally considered an estate in land: rather it was considered a personal, contractual transaction and relationship between the landlord and tenant. During the 15th century, however, the tenant’s right to recover the land on dispossession was recognised and the estate less than freehold, the leasehold estate, was recognised. What is the defining difference between a freehold estate and a leasehold estate? During the 20th century and beyond, changing social and economic conditions led to an increased importance for the contractual aspects of the landlord-tenant relationship. Many contractual principles which were not formerly applied to the landlord-tenant relationship, have now been held to do so. Nevertheless, until recently, a tenancy was still always seen as giving rise to a proprietary interest, a leasehold estate in the land. However, the House of Lords in Bruton v London & Quadrant Housing Trust [2000] 1 AC 406 held that it is possible to have a lease which does not create a leasehold estate in the land but which is effective only in contract between the parties.

7.

In order to create each of the estates, it was necessary to use a particular form of words, “words of limitation”. However, in all jurisdictions except South Australia, statute has modified the position and it is now the case that a disposition without the correct words of limitation is effective to pass a fee simple estate unless there is a contrary intention. Legislation concerning fee simple: Conveyancing Act 1919 (NSW), s 47(1), (2), (3) after 1 July 1920; Property Law Act 1958 (Vic), s 60(6), from 3l January 1905 to 31 December 1918 – the words “to A in fee” and “to A in fee simple” in addition to the correct words of limitation “to A and his heirs” passed a fee simple estate. Section 60(1), after 31 December 1918 the fee simple passed without the use of correct words of limitation unless there was a contrary intention – “to A”, “to A forever”; Property Law Act 1974 (Qld), s 29(1) – (2) after 4 December 1952; Property Law Act 1969 (WA), s 37(1) – (4), after 1 August 1969; Conveyancing and Law of Property Act 1884 (Tas), s 61(2), after 18 September 1874; Law of Property Act (NT), s 29. Legislation concerning the fee tail: Conveyancing Act 1919 (NSW), s 19(1), after 1 July 1920; Property Law Act 1958 (Vic), s 249 – a limitation which would have created a fee tail, for example, “to A and the heirs of his body” created a fee simple estate from 1 January 1886; s 60(6) – a limitation which showed an intention to create a fee tail, for example, “to A in tail male” created a fee simple estate from 31 January 1905. Query a limitation “to A in fee tail”; Property Law Act 1974 (Qld), s 22 after 1 December 1975; Property Law Act 1969 (WA), s 23(1) after 1 August 1969; Conveyancing and Law of Property Act 1884 (Tas), s 65 after 1 January 1884; Law of Property Act (NT), s 22. In

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Queensland and Western Australia, it appears that where there is a clear intention to create a fee tail but words are used which would not have been sufficient to create a fee tail (for example, “to A in tail”) the common law remains applicable and a life estate by default would result. Neither of the relevant provisions (ss 22 and 29 in Queensland and s 23(1) and s 37 in Western Australia) appear to apply. See Note (1953) ALJ 648. The use of correct words of limitation has never been required in relation to Torrens land. (For a more detailed discussion see Moore, Grattan and Griggs, Australian Real Property Law (6th ed, Thomson Reuters, Sydney, 2016), [2.175] In relation to dispositions by will a more lenient approach has always been adopted, with the courts putting into effect the intention of the testator (see Moore, Grattan and Griggs, Australian Real Property Law (6th ed, Thomson Reuters, Sydney, 2016), [2.185]. [2.195] and [2.205]). 8.

Inherent in the doctrine of estates is a recognition and acceptance of the concept of the creation of successive interests in land. In turn, this involves a clear recognition that future interests in land may exist. See above Note 5. Future interests are discussed in detail in Chapter 11 (Moore). Would it be possible for future interests in land to exist if there were no doctrine of estates? See New Zealand Law Commission, Tenure and Estates in Land (Preliminary paper No 20, June 1992) pp 6-7, 20-23.

9.

The Victorian Law Reform Commission has proposed that the ability to create successive legal interests in land be abolished, and that successive interests only be created in equity, as beneficial interests under a trust. See Victorian Law Reform Commission, Review of the Property Law Act 1958 Final Report (2010), pp 66-70, 73.

10.

Apart from the doctrine of estates other types of proprietary interests in land can exist (for example, the easement, the profit à prendre and the restrictive covenant). These rights do not involve tangible, possessory rights over the land but rather involve particular and specific rights with respect to the land.

Mabo v Queensland (No 2) [2.20] Mabo v Queensland (No 2) (1992) 175 CLR 1 High Court of Australia [The case involved the land rights of the Meriam people: see [2.25]. In its decision, the High Court considered the doctrine of tenure.] BRENNAN J: … A basic doctrine of the land law is the doctrine of tenure, to which Stephen CJ referred in Attorney-General (NSW) v Brown, and it is a doctrine which could not be overturned without fracturing the skeleton which gives our land law its shape and consistency. It is derived from feudal origins. The feudal basis of the proposition of absolute Crown ownership The land law of England is based on the doctrine of tenure. In English legal theory, every parcel of land in England is held either mediately or immediately of the King who is the Lord Paramount; the term “tenure” is used to signify the relationship between tenant and lord (Attorney-General of Ontario v Mercer (1883) LR 8 App Cas 767, 771-772), not the relationship between tenant and land. The characteristic of feudalism “is not tenere terram, but tenere terram de X” (Pollock and Maitland, The History of English Law (2nd ed, 1898, reprinted 1952), Vol 1, p 234n). It is implicit in the relationship of tenure that both lord and tenant have an interest in the land: “The King had ‘dominium directum’, the subject ‘dominium utile’” (Pollock and Maitland, p 773; Co Litt 16). Absent a “dominium directum” in the Crown, there would be no foundation for a tenure arising on the making of a grant of land. When [2.20]

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Mabo v Queensland (No 2) cont. the Crown acquired territory outside England which was to be subject to the common law, there was a natural assumption that the doctrine of tenure should be the basis of the land law. Perhaps the assumption did not have to be made. After all, as Holdsworth observed (Vol 2, p 199), the universal application of the doctrine of tenure is a purely English phenomenon. And Pollock and Maitland may be correct in saying (Vol 2, p 236; accord: Holdsworth, Vol 2 (1923) p 75, n 8) that the notion of universal tenure “perhaps was possible only in a conquered country”. In Scotland, the King was not Paramount Lord of all land: some allodial lands remained in the Orkney and Shetland Islands, though most land that had been held allodially became subject to feudal tenure: Bell, Lectures on Conveyancing (Edinburgh, 1867), Vol 1, Ch I, pp 531-532; Stair, The Institutions of the Law of Scotland (4th ed, 1826), pp 219, 222; Craigie, Scottish Law of Conveyancing (Edinburgh, 1899), pp 27-28; Lord Advocate v Balfour (1907) SC 1360, 1368-1369). However, the English view favoured a universal application of the doctrine of tenure (Pollock and Maitland, op cit, pp 232-233): Every acre of English soil and every proprietary right therein have been brought within the compass of a single formula, which may be expressed thus:- Z tenet terram illam de … domino Rege. The king himself holds land which is in every sense his own; no one else has any proprietary right in it; but if we leave out of account this royal demesne, then every acre of land is “held of” the king. The person whom we may call its owner, the person who has the right to use and abuse the land, to cultivate it or leave it uncultivated, to keep all others off it, holds the land of the king either immediately or mediately. It is arguable that universality of tenure is a rule depending on English history and that the rule is not reasonably applicable to the Australian colonies. The origin of the rule is to be found in a traditional belief that, at some time after the Norman Conquest, the King either owned beneficially and granted, or otherwise became the Paramount Lord of, all land in the Kingdom (Bacon’s Abridgement (6th ed, 1807), Vol V, “Prerogative”, B,1). According to Digby’s History of the Law of Real Property (1897, p 34) William I succeeded to all rights over land held by the Anglo-Saxon kings; he acquired by operation of law the land of those who had resisted his conquest and a vast quantity of land was deemed to have been forfeited or surrendered to William and regranted by him. He may have become the proprietor of all land in England so that no allodial land remained. Or it may be, as Blackstone asserts, that in England, as in France, the allodial estates were surrendered into the king’s hands and were granted back as feuds, the only difference being that in France the change “was effected gradually, by the consent of private persons; (the change) was done at once, all over England, by the common consent of the nation” (Commentaries, Bk II, Ch 4, pp 50–51). But, whatever the fact, it is the fiction of royal grants that underlies the English rule. Blackstone says that: it became a fundamental maxim, and necessary principle (though in reality a mere fiction) of our English tenures, “that the king is the universal lord and original proprietor of all the lands in his kingdom; and that no man doth or can possess any part of it, but what has, mediately or immediately, been derived ‘as a gift from him, to be held upon feodal services’.” For this being the real case in pure, original, proper feuds, other nations who adopted this system were obliged to act upon the same supposition, as a substruction and foundation of their new polity, though the fact was indeed far otherwise. It is not surprising that the fiction that land granted by the Crown had been beneficially owned by the Crown was translated to the colonies and that Crown grants should be seen as the foundation of the doctrine of tenure which is an essential principle of our land law. It is far too late in the day to contemplate an allodial or other system of land ownership. Land in Australia which has been granted by the Crown is held on a tenure of some kind and the titles acquired under the accepted land law cannot be disturbed. Accepting the doctrine of tenure, it was an essential postulate that the Crown have such a title to land as would invest the Sovereign with the character of Paramount Lord in respect of a tenure created by grant and would attract the incidents appropriate to the tenure, especially the Crown’s right to 44

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Mabo v Queensland (No 2) cont. escheat. (Wright, Introduction to the Law of Tenures (4th ed, 1792), p 5.) The Crown was invested with the character of Paramount Lord in the colonies by attributing to the Crown a title, adapted from feudal theory, that was called a radical, ultimate or final title: see, for example, Amodu Tijani v Secretary, Southern Nigeria (1921) 2 AC 399, 403, 404, 407; Nireaha Tamaki v Baker [1901] AC 561, 580; cf. Administration of Papua and New Guinea v Daera Guba (1973) 130 CLR 353, 396-397. The Crown was treated as having the radical title to all the land in the territory over which the Crown acquired sovereignty. The radical title is a postulate of the doctrine of tenure and a concomitant of sovereignty. As a sovereign enjoys supreme legal authority in and over a territory, the sovereign has power to prescribe what parcels of land and what interests in those parcels should be enjoyed by others and what parcels of land should be kept as the sovereign’s beneficial demesne. By attributing to the Crown a radical title to all land within a territory over which the Crown has assumed sovereignty, the common law enabled the Crown, in exercise of its sovereign power, to grant an interest in land to be held of the Crown or to acquire land for the Crown’s demesne. The notion of radical title enabled the Crown to become Paramount Lord of all who hold a tenure granted by the Crown and to become absolute beneficial owner of unalienated land required for the Crown’s purposes. But it is not a corollary of the Crown’s acquisition of a radical title to land in an occupied territory that the Crown acquired absolute beneficial ownership of that land to the exclusion of the indigenous inhabitants. If the land were desert and uninhabited, truly a terra nullius, the Crown would take an absolute beneficial title (an allodial title) to the land for the reason given by Stephen CJ in Attorney-General (NSW) v Brown (1847) 1 Legge, 317-318: there would be no other proprietor. But if the land were occupied by the indigenous inhabitants and their rights and interests in the land are recognised by the common law, the radical title which is acquired with the acquisition of sovereignty cannot itself be taken to confer an absolute beneficial title to the occupied land. Nor is it necessary to the structure of our legal system to refuse recognition to the rights and interests in land of the indigenous inhabitants. The doctrine of tenure applies to every Crown grant of an interest in land, but not to rights and interests which do not owe their existence to a Crown grant. The English legal system accommodated the recognition of rights and interests derived from occupation of land in a territory over which sovereignty was acquired by conquest without the necessity of a Crown grant. After the conquest of Ireland, it was held in Case of Tanistry (1608) Davis 28 (80 ER 516); 4th Dublin (1762) English translation 78, 110-111 that the Crown was not in actual possession of the land by virtue of the conquest and that: a royal monarch (who) hath made a new conquest of a realm, although in fact he hath the lordship paramount of all the lands within such realm, so that these are all held of him, mediate vel immediate, and he hath also the possession of all the lands which he willeth actually to seise and retain in his own hands for his profit or pleasure, and may also by his grants distribute such portions as he pleaseth … yet … if such conqueror receiveth any of the natives or antient inhabitants into his protection and avoweth them for his subjects, and permitteth them to continue their possessions and to remain in his peace and allegiance, their heirs shall be adjudged in by good title without grant or confirmation of the conqueror, and shall enjoy their lands according to the rules of the law which the conqueror hath allowed or established, if they will submit themselves to it, and hold their lands according to the rules of it, and not otherwise. Similarly, after the conquest of Wales, in Witrong and Blany (1674) 3 Keb 401, 402 (84 ER 789, 789) and see McNeil, Common Law Aboriginal Title, p 174 it was held that the inhabitants who had been left in possession of land needed no new grant to support their possession under the common law and they held their interests of the King without a new conveyance. In these cases, the courts were speaking of converting the surviving interests into an estate of a kind familiar to the common law, but there is no reason why the common law should not recognise novel interests in land which, not [2.20]

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Mabo v Queensland (No 2) cont. depending on Crown grant, are different from common law tenures. In Amodu Tijani [1921] 2 AC, 403 Viscount Haldane, speaking for the Privy Council, referred to the variable nature of native title to land capable of recognition by the common law: There is a tendency, operating at times unconsciously, to render (native) title conceptually in terms which are appropriate only to systems which have grown up under English law. But this tendency has to be held in check closely. As a rule, in the various systems of native jurisprudence throughout the Empire, there is no such full division between property and possession as English lawyers are familiar with. A very usual form of native title is that of a usufructuary right, which is a mere qualification of or burden on the radical or final title of the Sovereign where that exists. In such cases the title of the Sovereign is a pure legal estate, to which beneficial rights may or may not be attached. But this estate is qualified by a right of beneficial user which may not assume definite forms analogous to estates, or may, where it has assumed these, have derived them from the intrusion of the mere analogy of English jurisprudence. And, in Administration of Papua and New Guinea v Daera Guba (1973) 130 CLR, 397 Barwick CJ was able to say that the indigenous people of Papua New Guinea “were secure in their usufructuary title to land, [but] the land came from the inception of the colony into the dominion of Her Majesty. That is to say, the ultimate title subject to the usufructuary title was vested in the Crown. Alienation of that usufructuary title to the Crown completed the absolute fee simple in the Crown”. In Amodu Tijani, the Privy Council admitted the possibility of recognition not only of usufructuary rights but also of interests in land vested not in an individual or a number of identified individuals but in a community. Viscount Haldane observed [1921] 2 AC, 403-404: The title, such as it is, may not be that of the individual, as in this country it nearly always is in some form, but may be that of a community. Such a community may have the possessory title to the common enjoyment of a usufruct, with customs under which its individual members are admitted to enjoyment, and even to a right of transmitting the individual enjoyment as members by assignment inter vivos or by succession. To ascertain how far this latter development of right has progressed involves the study of the history of the particular community and its usages in each case. Abstract principles fashioned a priori are of but little assistance, and are as often as not misleading. Recognition of the radical title of the Crown is quite consistent with recognition of native title to land, for the radical title, without more, is merely a logical postulate required to support the doctrine of tenure (when the Crown has exercised its sovereign power to grant an interest in land) and to support the plenary title of the Crown (when the Crown has exercised its sovereign power to appropriate to itself ownership of parcels of land within the Crown’s territory). Unless the sovereign power is exercised in one or other of those ways, there is no reason why land within the Crown’s territory should not continue to be subject to native title. It is only the fallacy of equating sovereignty and beneficial ownership of land that gives rise to the notion that native title is extinguished by the acquisition of sovereignty. If it be necessary to categorise an interest in land as proprietary in order that it survive a change in sovereignty, the interest possessed by a community that is in exclusive possession of land falls into that category. Whether or not land is owned by individual members of a community, a community which asserts and asserts effectively that none but its members has any right to occupy or use the land has an interest in the land that must be proprietary in nature: there is no other proprietor. It would be wrong, in my opinion, to point to the inalienability of land by that community and, by importing definitions of “property” which require alienability under the municipal laws of our society (see, for example, National Provincial Bank Ltd v Ainsworth [1965] AC 1175, 1247-1248), to deny that the indigenous people owned their land. The ownership of land within a territory in the exclusive occupation of a people must be vested in that people: land is susceptible of ownership, and there are no other owners. 46

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Mabo v Queensland (No 2) cont. True it is that land in exclusive possession of an indigenous people is not, in any private law sense, alienable property for the laws and customs of an indigenous people do not generally contemplate the alienation of the people’s traditional land. But the common law has asserted that, if the Crown should acquire sovereignty over that land, the new sovereign may extinguish the indigenous people’s interest in the land and create proprietary rights in its place and it would be curious if, in place of interests that were classified as non-proprietary, proprietary rights could be created. Where a proprietary title capable of recognition by the common law is found to have been possessed by a community in occupation of a territory, there is no reason why that title should not be recognised as a burden on the Crown’s radical title when the Crown acquires sovereignty over that territory. The fact that individual members of the community, like the individual plaintiff Aborigines in Milirrpum (1971) 17 FLR, 272, enjoy only usufructuary rights that are not proprietary in nature is no impediment to the recognition of a proprietary community title. Indeed, it is not possible to admit traditional usufructuary rights without admitting a traditional proprietary community title. There may be difficulties of proof of boundaries or of membership of the community or of representatives of the community which was in exclusive possession, but those difficulties afford no reason for denying the existence of a proprietary community title capable of recognition by the common law. That being so, there is no impediment to the recognition of individual non-proprietary rights that are derived from the community’s laws and customs and are dependent on the community title. A fortiori, there can be no impediment to the recognition of individual proprietary rights. Once it is accepted that indigenous inhabitants in occupation of a territory when sovereignty is acquired by the Crown are capable of enjoying – whether in community, as a group or as individuals – proprietary interests in land, the rights and interests in the land which they had theretofore enjoyed under the customs of their community are seen to be a burden on the radical title which the Crown acquires. The notion that feudal principle dictates that the land in a settled colony be taken to be a royal demesne upon the Crown’s acquisition of sovereignty is mistaken. However, that was not the only basis advanced to establish the proposition of absolute Crown ownership and the alternative bases must next be considered. … DEANE and GAUDRON JJ: … The English common law principles relating to real property developed as the product of concepts shaped by the feudal system of medieval times. The basic tenet was that, consequent upon the Norman Conquest, the Crown was the owner of all land in the kingdom. A subject could hold land only as a tenant, directly or indirectly, of the Crown. By 1788, the combined effect of the Statute Quia Emptores 1290 and the Tenures Abolition Act 1660 had been largely to abolish the “pyramid of free tenants” (Gray, Elements of Land Law (1987), p 57) which had emerged under the feudal system of tenure and to confine the practical significance of the basic tenet that all land was owned by the Crown to matters such as escheat and foreshore rights. The “estate” which a subject held in land as tenant was itself property which was the subject of “ownership” both in law and in equity. The primary estate of a subject, the estate in fee simple, became, for almost all practical purposes, equivalent to full ownership of the land itself. Nonetheless, the underlying thesis of the English law of real property remained that the radical title to (or ultimate ownership of) all land was in the Crown and that the maximum interest which a subject could have in the land was ownership not of the land itself but of an estate in fee in it. The legal ownership of an estate in land was in the person or persons in whom the legal title to it was vested. Under the rules of equity, that legal estate could be held upon trust for some other person or persons or for some purpose. If the slate were clean, there would be something to be said for the view that the English system of land law was not, in 1788, appropriate for application to the circumstances of a British penal colony. (See, for example, Roberts-Wray, Commonwealth and Colonial Law (1966), p 626.) It has, however, long been accepted as incontrovertible that the provisions of the common law which became [2.20]

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Mabo v Queensland (No 2) cont. applicable upon the establishment by settlement of the Colony of New South Wales included that general system of land law. (See, for example, Delohery v Permanent Trustee of NSW (1904) 1 CLR 283, 299-300; Williams v Attorney-General for New South Wales (1913) 16 CLR 404.) It follows that, upon the establishment of the Colony, the radical title to all land vested in the Crown. Subject to some minor and presently irrelevant matters, the practical effect of the vesting of radical title in the Crown was merely to enable the English system of private ownership of estates held of the Crown to be observed in the Colony. In particular, the mere fact that the radical title to all the lands of the Colony was vested in the British Crown did not preclude the preservation and protection, by the domestic law of the new Colony, of any traditional native interests in land which had existed under native law or custom at the time the Colony was established. Whether, and to what extent, such pre-existing native claims to land survived annexation and were translated into or recognised as estates, rights or other interests must be determined by reference to that domestic law. …

Extracts from Moore, Australian Property Law: Cases and Materials (5th ed), Ch 7.

RECOGNITION OF NATIVE TITLE Mabo v Queensland (No 2) [2.25] Mabo v Queensland (No 2) (1992) 175 CLR 1 High Court of Australia BRENNAN J: The basis of the theory of universal and absolute Crown ownership It is one thing for our contemporary law to accept that the laws of England, so far as applicable, became the laws of New South Wales and of the other Australian colonies. It is another thing for our contemporary law to accept that, when the common law of England became the common law of the several colonies, the theory which was advanced to support the introduction of the common law of England accords with our present knowledge and appreciation of the facts. When it was sought to apply Lord Watson’s assumption in Cooper v Stuart that the colony of New South Wales was “without settled inhabitants or settled law” to Aboriginal society in the Northern Territory, the assumption proved false. In Milirrpum v Nabalco Pty Ltd Blackburn J said (1971) 17 FLR 141 at 267: The evidence shows a subtle and elaborate system highly adapted to the country in which the people led their lives, which provided a stable order of society and was remarkably free from the vagaries of personal whim or influence. If ever a system could be called “a government of laws, and not of men”, it is that shown in the evidence before me. Faced with a contradiction between the authority of the Privy Council and the evidence, his Honour held that the class to which a colony belonged was a question of law, not of fact (ibid, at p 244; McNeil, Common Law Aboriginal Title (1989), p 292, fn 207; Lester, The Territorial Rights of the Inuit of the Canadian Northwest Territories: A Legal Argument (unpublished doctoral thesis (1981)), pp 100-107, 155-157: Whether or not the Australian aboriginals living in any part of New South Wales had in 1788 a system of law which was beyond the powers of the settlers at that time to perceive or comprehend, it is beyond the power of this Court to decide otherwise than that New South Wales came into the category of a settled or occupied colony. The facts as we know them today do not fit the “absence of law” or “barbarian” theory underpinning the colonial reception of the common law of England. That being so, there is no warrant for applying 48

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Mabo v Queensland (No 2) cont. in these times rules of the English common law which were the product of that theory. It would be a curious doctrine to propound today that, when the benefit of the common law was first extended to Her Majesty’s indigenous subjects in the Antipodes, its first fruits were to strip them of their right to occupy their ancestral lands. Yet the supposedly barbarian nature of indigenous people provided the common law of England with the justification for denying them their traditional rights and interests in land, as Lord Sumner speaking for the Privy Council said in In re Southern Rhodesia [1919] AC 211 at 233-234: The estimation of the rights of aboriginal tribes is always inherently difficult. Some tribes are so low in the scale of social organisation that their usages and conceptions of rights and duties are not to be reconciled with the institutions or the legal ideas of civilised society. Such a gulf cannot be bridged. It would be idle to impute to such people some shadow of the rights known to our law and then to transmute it into the substance of transferable rights of property as we know them. As the indigenous inhabitants of a settled colony were regarded as “low in the scale of social organisation”, they and their occupancy of colonial land were ignored in considering the title to land in a settled colony. Ignoring those rights and interests, the Crown’s sovereignty over a territory which had been acquired under the enlarged notion of terra nullius was equated with Crown ownership of the lands therein, because, as Stephen CJ said, there was “no other proprietor of such lands”. Thus, a Select Committee on Aborigines reported in 1837 to the House of Commons that the state of Australian Aborigines was “barbarous” and “so entirely destitute … of the rudest forms of civil polity, that their claims, whether as sovereigns or proprietors of the soil, have been utterly disregarded”. (Cited by Lindley, op cit, at p 41.) The theory that the indigenous inhabitants of a “settled” colony had no proprietary interest in the land thus depended on a discriminatory denigration of indigenous inhabitants, their social organisation and customs. As the basis of the theory is false in fact and unacceptable in our society, there is a choice of legal principle to be made in the present case. This Court can either apply the existing authorities and proceed to inquire whether the Meriam people are higher “in the scale of social organisation” than the Australian Aborigines whose claims were “utterly disregarded” by the existing authorities or the Court can overrule the existing authorities, discarding the distinction between inhabited colonies that were terra nullius and those which were not. The theory of terra nullius has been critically examined in recent times by the Inter/-national Court of Justice in its Advisory Opinion on Western Sahara (1975) ICJR, at p 39. There the majority judgment read: “Occupation” being legally an original means of peaceably acquiring sovereignty over territory otherwise than by cession or succession, it was a cardinal condition of a valid “occupation” that the territory should be terra nullius – a territory belonging to no-one – at the time of the act alleged to constitute the “occupation” (cf Legal Status of Eastern Greenland, PCIJ, Series A/B, No 53, pp 44 f and 63 f). In the view of the Court, therefore, a determination that Western Sahara was a “terra nullius” at the time of colonisation by Spain would be possible only if it were established that at that time the territory belonged to no-one in the sense that it was then open to acquisition through the legal process of “occupation”. Whatever differences of opinion there may have been among jurists, the State practice of the relevant period indicates that territories inhabited by tribes or peoples having a social and political organisation were not regarded as terrae nullius. It shows that in the case of such territories the acquisition of sovereignty was not generally considered as effected unilaterally through “occupation” of terra nullius by original title but through agreements concluded with local rulers. On occasion, it is true, the word “occupation” was used in a non-technical sense denoting simply acquisition of sovereignty; but that did not signify that the acquisition of sovereignty through such agreements with authorities of the country was regarded as an “occupation” of a “terra nullius” in the proper sense of these terms. On the contrary, such [2.25]

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Mabo v Queensland (No 2) cont. agreements with local rulers, whether or not considered as an actual “cession” of the territory, were regarded as derivative roots of title, and not original titles obtained by occupation of terrae nullius. If the international law notion that inhabited land may be classified as terra nullius no longer commands general support, the doctrines of the common law which depend on the notion that native peoples may be “so low in the scale of social organisation” that it is “idle to impute to such people some shadow of the rights known to our law” (In re Southern Rhodesia [1919] AC, at 233-234) can hardly be retained. If it were permissible in past centuries to keep the common law in step with international law, it is imperative in today’s world that the common law should neither be nor be seen to be frozen in an age of racial discrimination. The fiction by which the rights and interests of indigenous inhabitants in land were treated as non-existent was justified by a policy which has no place in the contemporary law of this country. The policy appears explicitly in the judgment of the Privy Council in In re Southern Rhodesia in rejecting an argument (ibid, at p 232) that the native people “were the owners of the unalienated lands long before either the Company or the Crown became concerned with them and from time immemorial … and that the unalienated lands belonged to them still”. Their Lordships replied (ibid, at 234): the maintenance of their rights was fatally inconsistent with white settlement of the country, and yet white settlement was the object of the whole forward movement, pioneered by the Company and controlled by the Crown, and that object was success-fully accomplished, with the result that the aboriginal system gave place to another prescribed by the Order in Council. Whatever the justification advanced in earlier days for refusing to recognise the rights and interests in land of the indigenous inhabitants of settled colonies, an unjust and discriminatory doctrine of that kind can no longer be accepted. The expectations of the international community accord in this respect with the contemporary values of the Australian people. The opening up of international remedies to individuals pursuant to Australia’s accession to the Optional Protocol to the International Covenant on Civil and Political Rights (see Communication 78/1980 in Selected Decisions of the Human Rights Committee under the Optional Protocol, vol 2, p 23) brings to bear on the common law the powerful influence of the Covenant and the international standards it imports. The common law does not necessarily conform with inter-national law, but international law is a legitimate and important influence on the development of the common law, especially when international law declares the existence of universal human rights. A common law doctrine founded on unjust discrimination in the enjoyment of civil and political rights demands reconsideration. It is contrary both to international standards and to the fundamental values of our common law to entrench a discriminatory rule which, because of the supposed position on the scale of social organisation of the indigenous inhabitants of a settled colony, denies them a right to occupy their traditional lands. It was such a rule which evoked from Deane J (Gerhardy v Brown (1985) 159 CLR 70 at 149) the criticism that: the common law of this land has still not reached the stage of retreat from injustice which the law of Illinois and Virginia had reached in 1823 when Marshall CJ, in Johnson v McIntosh ((1823) 8 Wheat, at p 574 (21 US, at 253)), accepted that, subject to the assertion of ultimate dominion (including the power to convey title by grant) by the State, the “original inhabitants” should be recognised as having “a legal as well as just claim” to retain the occupancy of their traditional lands. Once it is accepted that indigenous inhabitants in occupation of a territory when sovereignty is acquired by the Crown are capable of enjoying – whether in community, as a group or as individuals – proprietary interests in land, the rights and interests in the land which they had theretofore enjoyed under the customs of their community are seen to be a burden on the radical title which the Crown acquires. The notion that feudal principle dictates that the land in a settled colony be taken to be a 50

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Mabo v Queensland (No 2) cont. royal demesne upon the Crown’s acquisition of sovereignty is mistaken. However, that was not the only basis advanced to establish the proposition of absolute Crown ownership and the alternative bases must next be considered. If native title survives the Crown’s acquisition of sovereignty as, in my view, it does, it is unnecessary to examine the alternative arguments advanced to support the rights and interests of the Meriam people to their traditional land. One argument raised the presumption of a Crown grant arising from the Meriam people’s possession of the Murray Islands from a time before annexation; another was the existence of a title arising after annexation in accordance with a supposed local legal custom under the common law whereby the Meriam people were said to be entitled to possess the Murray Islands. There are substantial difficulties in the way of accepting either of these arguments, but it is unnecessary to pursue them. It is sufficient to state that, in my opinion, the common law of Australia rejects the notion that, when the Crown acquired sovereignty over territory which is now part of Australia it thereby acquired the absolute beneficial ownership of the land therein, and accepts that the antecedent rights and interests in land possessed by the indigenous inhabitants of the territory survived the change in sovereignty. Those antecedent rights and interests thus constitute a burden on the radical title of the Crown. It must be acknowledged that, to state the common law in this way involves the overruling of cases which have held the contrary. To maintain the authority of those cases would destroy the equality of all Australian citizens before the law. The common law of this country would perpetuate injustice if it were to continue to embrace the enlarged notion of terra nullius and to persist in characterising the indigenous inhabitants of the Australian colonies as people too low in the scale of social organisation to be acknowledged as possessing rights and interests in land. Moreover, to reject the theory that the Crown acquired absolute beneficial ownership of land is to bring the law into conformity with Australian history. The dispossession of the indigenous inhabitants of Australia was not worked by a transfer of beneficial ownership when sovereignty was acquired by the Crown, but by the recurrent exercise of a paramount power to exclude the indigenous inhabitants from their traditional lands as colonial settlement expanded and land was granted to the colonists. Dispossession is attributable not to a failure of native title to survive the acquisition of sovereignty, but to its subsequent extinction by a paramount power. Before examining the power to extinguish native title, it is necessary to say something about the nature and incidents of the native title which, surviving the Crown’s acquisition of sovereignty, burdens the Crown’s radical title. The nature and incidents of native title Native title has its origin in and is given its content by the traditional laws acknowledged by and the traditional customs observed by the indigenous inhabitants of a territory. The nature and incidents of native title must be ascertained as a matter of fact by reference to those laws and customs. The ascertainment may present a problem of considerable difficulty, as Moynihan J perceived in the present case. It is a problem that did not arise in the case of a settled colony so long as the fictions were maintained that customary rights could not be reconciled “with the institutions or the legal ideas of civilised society” (In re Southern Rhodesia [1919] AC, at 233), that there was no law before the arrival of the British colonists in a settled colony and that there was no sovereign law-maker in the territory of a settled colony before sovereignty was acquired by the Crown. These fictions denied the possibility of a native title recognised by our laws. But once it is acknowledged that an inhabited territory which became a settled colony was no more a legal desert than it was “desert uninhabited” in fact, it is necessary to ascertain by evidence the nature and incidents of native title. Though these are matters of fact, some general propositions about native title can be stated without reference to evidence. First, unless there are pre-existing laws of a territory over which the Crown acquires sovereignty which provide for the alienation of interests in land to strangers, the rights and interests which constitute a [2.25]

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Mabo v Queensland (No 2) cont. native title can be possessed only by the indigenous inhabitants and their descendants. Native title, though recognised by the common law, is not an institution of the common law and is not alienable by the common law. Its alienability is dependent on the laws from which it is derived. If alienation of a right or interest in land is a mere matter of the custom observed by the indigenous inhabitants, not provided for by law enforced by a sovereign power, there is no machinery which can enforce the rights of the alienee. The common law cannot enforce as a proprietary interest the rights of a putative alienee whose title is not created either under a law which was enforceable against the putative alienor at the time of the alienation and thereafter until the change of sovereignty or under the common law. And, subject to an important qualification, the only title dependent on custom which the common law will recognise is one which is consistent with the common law. Thus, in The Case of Tanistry, the Irish custom of tanistry was held to be void because it was founded in violence and because the vesting of title under the custom was uncertain ((1608) Davis [80 ER]; 4th ed Dublin (1762) English translation, at pp 94-99). The inconsistency that the court perceived between the custom of tanistry known to the Brehon law of Ireland and the common law precluded the recognition of the custom by the common law. At that stage in its development, the common law was too rigid to admit recognition of a native title based on other laws or customs, but that rigidity has been relaxed, at least since the decision of the Privy Council in Amodu Tijani. The general principle that the common law will recognise a customary title only if it be consistent with the common law is subject to an exception in favour of traditional native title. Of course, since European settlement of Australia, many clans or groups of indigenous people have been physically separated from their traditional land and have lost their connection with it. But that is not the universal position. It is clearly not the position of the Meriam people. Where a clan or group has continued to acknowledge the laws and (so far as practicable) to observe the customs based on the traditions of that clan or group, whereby their traditional connection with the land has been substantially maintained, the traditional community title of that clan or group can be said to remain in existence. The common law can, by reference to the traditional laws and customs of an indigenous people, identify and protect the native rights and interests to which they give rise. However, when the tide of history has washed away any real acknowledgment of traditional law and any real observance of traditional customs, the foundation of native title has disappeared. A native title which has ceased with the abandoning of laws and customs based on tradition cannot be revived for contemporary recognition. Australian law can protect the interests of members of an indigenous clan or group, whether communally or individually, only in conformity with the traditional laws and customs of the people to whom the clan or group belongs and only where members of the clan or group acknowledge those laws and observe those customs (so far as it is practicable to do so). Once traditional native title expires, the Crown’s radical title expands to a full beneficial title, for then there is no other proprietor than the Crown. It follows that a right or interest possessed as a native title cannot be acquired from an indigenous people by one who, not being a member of the indigenous people, does not acknowledge their laws and observe their customs; nor can such a right or interest be acquired by a clan, group or member of the indigenous people unless the acquisition is consistent with the laws and customs of that people. Such a right or interest can be acquired outside those laws and customs only by the Crown. (This result has been reached in other jurisdictions, though for different reasons: see Reg v Symonds (1847) NZPCC, at p 390; Johnson v McIntosh (1823) 8 Wheat, at 586 (21 US, at 259); St Catherine’s Milling and Lumber Co v The Queen (1887) 13 SCR 577, at 599.) Once the Crown acquires sovereignty and the common law becomes the law of the territory, the Crown’s sovereignty over all land in the territory carries the capacity to accept a surrender of native title. The native title may be surrendered on purchase or surrendered voluntarily, whereupon the Crown’s radical title is expanded to absolute ownership, a plenum dominium, for there is then no other owner (St Catherine’s Milling and Lumber Co 52

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Mabo v Queensland (No 2) cont. v The Queen (1888) 14 App Cas, at 55). If native title were surrendered to the Crown in expectation of a grant of a tenure to the indigenous title holders, there may be a fiduciary duty on the Crown to exercise its discretionary power to grant a tenure in land so as to satisfy the expectation (see Guerin v The Queen (1984) 13 DLR (4th) 321, at 334, 339, 342-343, 356-357, 360-361), but it is unnecessary to consider the existence or extent of such a fiduciary duty in this case. Here, the fact is that strangers were not allowed to settle on the Murray Islands and, even after annexation in 1879, strangers who were living on the Islands were deported. The Meriam people asserted an exclusive right to occupy the Murray Islands and, as a community, held a proprietary interest in the Islands. They have maintained their identity as a people and they observe customs which are traditionally based. There was a possible alienation of some kind of interest in two acres to the London Missionary Society prior to annexation but it is unnecessary to consider whether that land was alienated by Meriam law or whether the alienation was sanctioned by custom alone. As we shall see, native title to that land was lost to the Meriam people in any event on the grant of a lease by the Crown in 1882 or by its subsequent renewal. Secondly, native title, being recognised by the common law (though not as a common law tenure), may be protected by such legal or equitable remedies as are appropriate to the particular rights and interests established by the evidence, whether proprietary or personal and usufructuary in nature and whether possessed by a community, a group or an individual. The incidents of a particular native title relating to inheritance, the transmission or acquisition of rights and interests on death or marriage, the transfer of rights and interests in land and the grouping of persons to possess rights and interests in land are matters to be determined by the laws and customs of the indigenous inhabitants, provided those laws and customs are not so repugnant to natural justice, equity and good conscience that judicial sanctions under the new regime must be withheld (Idewu Inasa v Oshodi [1934] AC 99 at 105). Of course in time the laws and customs of any people will change and the rights and interests of the members of the people among themselves will change too. But so long as the people remain as an identifiable community, the members of whom are identified by one another as members of that community living under its laws and customs, the communal native title survives to be enjoyed by the members according to the rights and interests to which they are respectively entitled under the traditionally based laws and customs, as currently acknowledged and observed. Here, the Meriam people have maintained their own identity and their own customs. The Murray Islands clearly remain their home country. Their land disputes have been dealt with over the years by the Island Court in accordance with the customs of the Meriam people. Thirdly, where an indigenous people (including a clan or group), as a community, are in possession or are entitled to possession of land under a proprietary native title, their possession may be protected or their entitlement to possession may be enforced by a representative action brought on behalf of the people or by a sub-group or individual who sues to protect or enforce rights or interests which are dependent on the communal native title. Those rights and interests are, so to speak, carved out of the communal native title. A sub-group or individual asserting a native title dependent on a communal native title has a sufficient interest to sue to enforce or protect the communal title (Australian Conservation Foundation v The Commonwealth (1980) 146 CLR 493 at 530-531, 537-539, 547-548; Onus v Alcoa of Australia Ltd (1981) 149 CLR 27 at 35-36, 41-42, 46, 51, 62, 74-75). A communal native title enures for the benefit of the community as a whole and for the sub-groups and individuals within it who have particular rights and interests in the community’s lands. The recognition of the rights and interests of a sub-group or individual dependent on a communal native title is not precluded by an absence of a communal law to determine a point in contest between rival claimants. [2.25]

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Mabo v Queensland (No 2) cont. Whatever be the precision of Meriam laws and customs with respect to land, there is abundant evidence that land was traditionally occupied by individuals or family groups and that contemporary rights and interests are capable of being established with sufficient precision to attract declaratory or other relief. The extinguishing of native title Sovereignty carries the power to create and to extinguish private rights and interests in land within the Sovereign’s territory (Joint Tribal Council of the Passamaquoddy Tribe v Morton (1975) 528 Fed 2d 370, at 376 n 6). It follows that, on a change of sovereignty, rights and interests in land that may have been indefeasible under the old regime become liable to extinction by exercise of the new sovereign power. The sovereign power may or may not be exercised with solicitude for the welfare of indigenous inhabitants but, in the case of common law countries, the courts cannot review the merits, as distinct from the legality, of the exercise of sovereign power (United States v Santa Fe Pacific Railroad Company (1941) 314 US 339, at 347; Tee-Hit-Ton Indians v United States (1954) 348 US 272 at 281-285). However, under the constitutional law of this country, the legality (and hence the validity) of an exercise of a sovereign power depends on the authority vested in the organ of government purporting to exercise it: municipal constitutional law determines the scope of authority to exercise a sovereign power over matters governed by municipal law, including rights and interests in land. In Queensland, the Crown’s power to grant an interest in land is, by force of ss 30 and 40 of the Constitution Act 1867 (Q), an exclusively statutory power and the validity of a particular grant depends upon conformity with the relevant statute (Cudgen Rutile (No 2) Ltd v Chalk [1975] AC 520 at 533-534). When validly made, a grant of an interest in land binds the Crown and the Sovereign’s successors (Halsbury, op cit, 4th ed, vol 8, par 1047). The courts cannot refuse to give effect to a Crown grant “except perhaps in a proceeding by scire facias or otherwise, on the prosecution of the Crown itself” (Wi Parata v Bishop of Wellington (1877) 3 NZ (Jur) NS 72 at 77). Therefore an interest validly granted by the Crown, or a right or interest dependent on an interest validly granted by the Crown cannot be extinguished by the Crown without statutory authority. As the Crown is not competent to derogate from a grant once made (Stead v Carey (1845) 1 CB 496 at 523 [135 ER 634 at 645]), a statute which confers a power on the Crown will be presumed (so far as consistent with the purpose for which the power is conferred) to stop short of authorising any impairment of an interest in land granted by the Crown or dependent on a Crown grant. But, as native title is not granted by the Crown, there is no comparable presumption affecting the conferring of any executive power on the Crown the exercise of which is apt to extinguish native title. However, the exercise of a power to extinguish native title must reveal a clear and plain intention to do so, whether the action be taken by the Legislature or by the Executive. This requirement, which flows from the seriousness of the consequences to indigenous inhabitants of extinguishing their traditional rights and interests in land, has been repeatedly emphasised by courts dealing with the extinguishing of the native title of Indian bands in North America. It is unnecessary for our purposes to consider the several juristic foundations – proclamation, policy, treaty or occupation – on which native title has been rested in Canada and the United States but reference to the leading cases in each jurisdiction reveals that, whatever the juristic foundation assigned by those courts might be, native title is not extinguished unless there be a clear and plain intention to do so (Calder v Attorney-General of British Columbia (1973) SCR, at 404; (1973) 34 DLR (3d), at 210; Hamlet of Baker Lake v Minister of Indian Affairs (1979) 107 DLR (3d) 513, at 552; Reg v Sparrow (1990) 1 SCR 1075, at 1094; (1990) 70 DLR (4th) 385, at 401; United States v Santa Fe Pacific Railroad Co (1941) 314 US, at 353, 354; Lipan Apache Tribe v United States (1967) 180 Ct Cl 487, at 492). That approach has been followed in New Zealand (Te Weehi v Regional Fisheries Officer [1986] 1 NZLR 680, at pp 691-692). It is patently the right rule. 54

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Mabo v Queensland (No 2) cont. A clear and plain intention to extinguish native title is not revealed by a law which merely regulates the enjoyment of native title (Reg v Sparrow (1990) 1 SCR, at 1097; (1990) 70 DLR (4th), at 400) or which creates a regime of control that is consistent with the continued enjoyment of native title (United States v Santa Fe Pacific Railroad Co (1941) 314 US, at 353-354). A fortiori, a law which reserves or authorises the reservation of land from sale for the purpose of permitting indigenous inhabitants and their descendants to enjoy their native title works no extinguishment. [Brennan J then considered some of the actions which were argued to constitute extinguishment.] The power to reserve and dedicate land to a public purpose and the power to grant interests in land are conferred by statute on the Governor in Council of Queensland and an exercise of these powers is, subject to the Racial Discrimination Act, apt to extinguish native title. The Queensland Parliament retains, subject to the Constitution and to restrictions imposed by valid laws of the Commonwealth (Mabo v Queensland (1988) 166 CLR 186), a legislative power to extinguish native title. This being so, it is necessary to consider the effect which the granting of leases over parts of the Murray Islands has had on native title before the Racial Discrimination Act came into force. A Crown grant which vests in the grantee an interest in land which is inconsistent with the continued right to enjoy a native title in respect of the same land necessarily extinguishes the native title. The extinguishing of native title does not depend on the actual intention of the Governor in Council (who may not have adverted to the rights and interests of the indigenous inhabitants or their descendants), but on the effect which the grant has on the right to enjoy the native title. If a lease be granted, the lessee acquires possession and the Crown acquires the reversion expectant on the expiry of the term. The Crown’s title is thus expanded from the mere radical title and, on the expiry of the term, becomes a plenum dominium. Where the Crown grants land in trust or reserves and dedicates land for a public purpose, the question whether the Crown has revealed a clear and plain intention to extinguish native title will sometimes be a question of fact, sometimes a question of law and sometimes a mixed question of fact and law. Thus, if a reservation is made for a public purpose other than for the benefit of the indigenous inhabitants, a right to continued enjoyment of native title may be consistent with the specified purpose – at least for a time – and native title will not be extinguished. But if the land is used and occupied for the public purpose and the manner of occupation is inconsistent with the continued enjoyment of native title, native title will be extinguished. A reservation of land for future use as a school, a courthouse or a public office will not by itself extinguish native title: construction of the building, however, would be inconsistent with the continued enjoyment of native title which would thereby be extinguished. But where the Crown has not granted interests in land or reserved and dedicated land inconsistently with the right to continued enjoyment of native title by the indigenous inhabitants, native title survives and is legally enforceable. As the Governments of the Australian Colonies and, latterly, the Governments of the Commonwealth, States and Territories have alienated or appropriated to their own purposes most of the land in this country during the last 200 years, the Australian Aboriginal peoples have been substantially dispossessed of their traditional lands. They were dispossessed by the Crown’s exercise of its sovereign powers to grant land to whom it chose and to appropriate to itself the beneficial ownership of parcels of land for the Crown’s purposes. Aboriginal rights and interests were not stripped away by operation of the common law on first settlement by British colonists, but by the exercise of a sovereign authority over land exercised recurrently by Governments. To treat the dispossession of the Australian Aborigines as the working out of the Crown’s acquisition of ownership of all land on first settlement is contrary to history. Aborigines were dispossessed of their land parcel by parcel, to make way for expanding colonial settlement. Their dispossession underwrote the development of the nation. But, if this be the consequence in law of colonial settlement, is there any occasion now to overturn the cases which held the Crown to have become the absolute beneficial owner of land when British colonists first settled here? Does it make any difference whether native title failed to survive British colonisation or was [2.25]

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Mabo v Queensland (No 2) cont. subsequently extinguished by government action? In this case, the difference is critical: except for certain transactions next to be mentioned, nothing has been done to extinguish native title in the Murray Islands. There, the Crown has alienated only part of the land and has not acquired for itself the beneficial ownership of any substantial area. And there may be other areas of Australia where native title has not been extinguished and where an Aboriginal people, maintaining their identity and their customs, are entitled to enjoy their native title. Even if there be no such areas, it is appropriate to identify the events which resulted in the dispossession of the indigenous inhabitants of Australia, in order to dispel the misconception that it is the common law rather than the action of governments which made many of the indigenous people of this country trespassers on their own land. After this lengthy examination of the problem, it is desirable to state in summary form what I hold to be the common law of Australia with reference to land titles: 1

The Crown’s acquisition of sovereignty over the several parts of Australia cannot be challenged in an Australian municipal court.

2

On acquisition of sovereignty over a particular part of Australia, the Crown acquired a radical title to the land in that part.

3

Native title to land survived the Crown’s acquisition of sovereignty and radical title. The rights and privileges conferred by native title were unaffected by the Crown’s acquisition of radical title but the acquisition of sovereignty exposed native title to extinguishment by a valid exercise of sovereign power inconsistent with the continued right to enjoy native title.

4

Where the Crown has validly alienated land by granting an interest that is wholly or partially inconsistent with a continuing right to enjoy native title, native title is extinguished to the extent of the inconsistency. Thus native title has been extinguished by grants of estates of freehold or of leases but not necessarily by the grant of lesser interests (for example, authorities to prospect for minerals).

5

Where the Crown has validly and effectively appropriated land to itself and the appropriation is wholly or partially inconsistent with a continuing right to enjoy native title, native title is extinguished to the extent of the inconsistency. Thus native title has been extinguished to parcels of the waste lands of the Crown that have been validly appropriated for use (whether by dedication, setting aside, reservation or other valid means) and used for roads, railways, post offices and other permanent public works which preclude the continuing concurrent enjoyment of native title. Native title continues where the waste lands of the Crown have not been so appropriated or used or where the appropriation and use is consistent with the continuing concurrent enjoyment of native title over the land (eg, land set aside as a national park).

6

Native title to particular land (whether classified by the common law as proprietary, usufructuary or otherwise), its incidents and the persons entitled thereto are ascertained according to the laws and customs of the indigenous people who, by those laws and customs, have a connection with the land. It is immaterial that the laws and customs have undergone some change since the Crown acquired sovereignty provided the general nature of the connection between the indigenous people and the land remains. Membership of the indigenous people depends on biological descent from the indigenous people and on mutual recognition of a particular person’s membership by that person and by the elders or other persons enjoying traditional authority among those people.

7

Native title to an area of land which a clan or group is entitled to enjoy under the laws and customs of an indigenous people is extinguished if the clan or group, by ceasing to acknowledge those laws, and (so far as practicable) observe those customs, loses its connection with the land or on the death of the last of the members of the group or clan.

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Mabo v Queensland (No 2) cont. 8

Native title over any parcel of land can be surrendered to the Crown voluntarily by all those clans or groups who, by the traditional laws and customs of the indigenous people, have a relevant connection with the land but the rights and privileges conferred by native title are otherwise inalienable to persons who are not members of the indigenous people to whom alienation is permitted by the traditional laws and customs.

9

If native title to any parcel of the waste lands of the Crown is extinguished, the Crown becomes the absolute beneficial owner.

These propositions leave for resolution by the general law the question of the validity of any purported exercise by the Crown of the power to alienate or to appropriate to itself waste lands of the Crown. In Queensland, these powers are and at all material times have been exercisable by the Executive Government subject, in the case of the power of alienation, to the statutes of the State in force from time to time. The power of alienation and the power of appropriation vested in the Crown in right of a State are also subject to the valid laws of the Commonwealth, including the Racial Discrimination Act. Where a power has purportedly been exercised as a prerogative power, the validity of the exercise depends on the scope of the prerogative and the authority of the purported repository in the particular case. It remains to apply these principles to the Murray Islands and the Meriam people. The plaintiffs seek declarations that the Meriam people are entitled to the Murray Islands – “(a) as owners (b) as possessors (c) as occupiers, or (d) as persons entitled to use and enjoy the said islands”; that – “the Murray Islands are not and never have been ‘Crown Lands’ within the meaning of the Lands Act 1962 (Qld) (as amended) and prior Crown lands legislation” and that the State of Queensland is not entitled to extinguish the title of the Meriam people. As the Crown holds the radical title to the Murray Islands and as native title is not a title created by grant nor is it a common law tenure, it may be confusing to describe the title of the Meriam people as conferring “ownership”, a term which connotes an estate in fee simple or at least an estate of freehold. Nevertheless, it is right to say that their native title is effective as against the State of Queensland and as against the whole world unless the State, in valid exercise of its legislative or executive power, extinguishes the title. It is also right to say that the Murray Islands are not Crown land because the land has been either “reserved for or dedicated to public purposes” or is “subject to … lease”. However, that does not deny that the Governor in Council may, by appropriate exercise of his statutory powers, extinguish native title. The native title has already been extinguished over land which has been leased pursuant to powers conferred by the Land Act in force at the time of the granting or renewal of the lease. Accordingly, title to the land leased to the Trustees of the Australian Board of Missions has been extinguished and title to Dauar and Waier may have been extinguished. It may be that areas on Mer have been validly appropriated for use for administrative purposes the use of which is inconsistent with the continued enjoyment of the rights and interests of Meriam people in those areas pursuant to Meriam law or custom and, in that event, native title has been extinguished over those areas. None of these areas can be included in the declaration. I would therefore make a declaration in the following terms: Declare – 1

that the land in the Murray Islands is not Crown land within the meaning of that term in s 5 of the Land Act 1962-1988 (Q);

2

that the Meriam people are entitled as against the whole world to possession, occupation, use and enjoyment of the island of Mer except for that parcel of land leased to the Trustees of the Australian Board of Missions and those parcels of land (if any) which have been validly appropriated for use for administrative purposes the use of which is inconsistent with the continued enjoyment of the rights and privileges of Meriam people under native title; [2.25]

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Mabo v Queensland (No 2) cont. 3

that the title of the Meriam people is subject to the power of the Parliament of Queensland and the power of the Governor in Council of Queensland to extinguish that title by valid exercise of their respective powers, provided any exercise of those powers is not inconsistent with the laws of the Commonwealth.

DEANE and GAUDRON JJ: Ordinarily, common law native title is a communal native title and the rights under it are communal rights enjoyed by a tribe or other group. It is so with Aboriginal title in the Australian States and internal Territories. Since the title preserves entitlement to use or enjoyment under the traditional law or custom of the relevant territory or locality, the contents of the rights and the identity of those entitled to enjoy them must be ascertained by reference to that traditional law or custom. The traditional law or custom is not, however, frozen as at the moment of establishment of a Colony. Provided any changes do not diminish or extinguish the relationship between a particular tribe or other group and particular land, subsequent developments or variations do not extinguish the title in relation to that land. The rights of an Aboriginal tribe or clan entitled to the benefit of a common law native title are personal only. The enjoyment of the rights can be varied and dealt with under the traditional law or custom. The rights are not, however, assignable outside the overall native system. They can be voluntarily extinguished by surrender to the Crown. They can also be lost by the abandonment of the connection with the land or by the extinction of the relevant tribe or group. It is unnecessary, for the purposes of this case, to consider the question whether they will be lost by the abandonment of traditional customs and ways. Our present view is that, at least where the relevant tribe or group continues to occupy or use the land, they will not. The personal rights conferred by common law native title do not constitute an estate or interest in the land itself. They are extinguished by an unqualified grant of an inconsistent estate in the land by the Crown, such as a grant in fee or a lease conferring the right to exclusive possession. They can also be terminated by other inconsistent dealings with the land by the Crown, such as appropriation, dedication or reservation for an inconsistent public purpose or use, in circumstances giving rise to third party rights or assumed acquiescence. The personal rights of use and occupation conferred by common law native title are not, however, illusory. They are legal rights which are infringed if they are extinguished, against the wishes of the native title-holders, by inconsistent grant, dedication or reservation and which, subject only to their susceptibility to being wrongfully so extinguished, are binding on the Crown and a burden on its title. As has been seen, common law native title-holders in an eighteenth century British Colony were in an essentially helpless position if their rights under their native title were disregarded or wrongly extinguished by the Crown. Quite apart from the inherent unlikelihood of such title-holders being in a position to institute proceedings against the British Crown in a British court, the vulnerability of the rights under native title resulted in part from the fact that they were personal rights susceptible to extinguishment by inconsistent grant by the Crown and in part from the immunity of the Crown from court proceedings. The vulnerability persists to the extent that it flows from the nature of the rights as personal. On the other hand, as legislative reforms increasingly subjected the Crown or a nominal defendant on its behalf to the jurisdiction of the courts and to liability for compensatory damages for a wrong done to a subject, the ability of native title-holders to protect and vindicate the personal rights under common law native title significantly increased. If common law native title is wrongfully extinguished by the Crown, the effect of those legislative reforms is that compensatory damages can be recovered provided the proceedings for recovery are instituted within the period allowed by applicable limitations provisions. If the common law native title has not been extinguished, the fact that the rights under it are true legal rights means that they can be vindicated, protected and enforced by proceedings in the ordinary courts. 58

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Mabo v Queensland (No 2) cont. In a case where the Crown or a trustee appointed by the Crown wrongly denies the existence or the extent of an existing common law native title or threatens to infringe the rights thereunder (for example, by an inconsistent grant), the appropriate relief in proceedings brought by (or by a representative party or parties on behalf of) the native title-holders will ordinarily be declaratory only since it will be apparent that the Crown or the trustee, being bound by any declaration, will faithfully observe its terms. Further relief is, however, available where it is necessary to protect the rights of the title-holders. One example of such further relief is relief by way of injunction. (See, for example, Nireaha Tamaki v Baker [1901] AC 561, at 578.) Notwithstanding their personal nature and their special vulnerability to wrongful extinguishment by the Crown, the rights of occupation or use under common law native title can themselves constitute valuable property. Actual or threatened interference with their enjoyment can, in appropriate circumstances, attract the protection of equitable remedies. Indeed, the circumstances of a case may be such that, in a modern context, the appropriate form of relief is the imposition of a remedial constructive trust framed to reflect the incidents and limitations of the rights under the common law native title. The principle of the common law that pre-existing native rights are respected and protected will, in a case where the imposition of such a constructive trust is warranted, prevail over other equitable principles or rules to the extent that they would preclude the appropriate protection of the native title in the same way as that principle prevailed over legal rules which would otherwise have prevented the preservation of the title under the common law. In particular, rules relating to requirements of certainty and present entitlement or precluding remoteness of vesting may need to be adapted or excluded to the extent necessary to enable the protection of the rights under the native title. TOOHEY J: The plaintiffs seek a declaration that: the Defendant is under a fiduciary duty, or alternatively bound as a trustee, to the Meriam People, including the Plaintiffs, to recognise and protect their rights and interests in the Murray Islands. They argued that such a duty arises by reason of annexation, over which the Meriam people had no choice; the relative positions of power of the Meriam people and the Crown in right of Queensland with respect to their interests in the Islands; and the course of dealings by the Crown with the Meriam people and the Islands since annexation. However, while the plaintiffs claim the declaration just mentioned, the statement of claim does not seek any specific relief for a breach of fiduciary duty. (i) Existence of the obligation The factors giving rise to a fiduciary duty are nowhere exhaustively defined (Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 68, 96-97, 141-142; Finn, Fiduciary Obligations (1977), p 1). There are certain kinds of relationships which necessarily entail fiduciary obligations, for example, trustee and beneficiary, company director and shareholder, principal and agent. But a fiduciary obligation may arise in a variety of circumstances as a result of a particular relationship. The kinds of relationships which can give rise to a fiduciary obligation are not closed (Hospital Products Ltd ibid, at 68, 96, 102; Tufton v Sperni (1952) 2 TLR 516 at 522; English v Dedham Vale Properties Ltd [1978] 1 WLR 93 at 110; [1978] 1 All ER 382 at 398). In Hospital Products Ltd Mason J said ((1984) 156 CLR 41, at 96-97): The critical feature of (fiduciary) relationships is that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense. The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position. [2.25]

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Mabo v Queensland (No 2) cont. Underlying such relationships is the scope for one party to exercise a discretion which is capable of affecting the legal position of the other. One party has a special opportunity to abuse the interests of the other. The discretion will be an incident of the first party’s office or position (Weinrib, “The Fiduciary Obligation”, (1975) 25 University of Toronto Law Journal 1, at pp 4-8); Guerin [1984] 2 SCR, at 384; (1984) 13 DLR (4th), at 340-341). The undertaking to act on behalf of, and the power detrimentally to affect, another may arise by way of an agreement between the parties, for example in the form of a contract, or from an outside source, for example a statute or a trust instrument. The powers and duties may be gratuitous and “may be officiously assumed without request” (Finn, op cit, 201; Guerin ibid, at 384; 341 of DLR). The defendant argued that there is no source for any obligation on the Crown to act in the interests of traditional titleholders and that, given the power of the Crown to destroy the title, there is no basis for a fiduciary obligation. This can be answered in two ways. First, the argument ignores the fact that it is, in part at least, precisely the power to affect the interests of a person adversely which gives rise to a duty to act in the interests of that person (Hospital Products Ltd (1984) 156 CLR 41, at 97; Weinrib (1975) 25 University of Toronto Law Journal 1, at 4-8); the very vulnerability gives rise to the need for the application of equitable principles. The second answer is that the argument is not supported by the legislative and executive history of Queensland in particular and of Australia in general. In the present case, a policy of “protection” by government emerges from the legislation, examples of which are quoted above, as well as by executive actions such as the creation of reserves, the removal of non-Islanders from the Islands in the 1880s and the appointment of a school teacher and an “adviser” in 1892. More general indications include the stated policy of protection underlying the condemnation of purported purchases of land by settlers from Aborigines as, for example, the John Batman incident referred to earlier. And even the general presumption that the British Crown will respect the rights of indigenous peoples occupying colonised territory, as discussed above, itself indicates that a government will take care when making decisions which are potentially detrimental to aboriginal rights. [The defendant raised further arguments against the imposition of a fiduciary duty and these were also rejected by Toohey J.] Be that as it may, if the Crown in right of Queensland has the power to alienate land the subject of the Meriam people’s traditional rights and interests and the result of that alienation is the loss of traditional title, and if the Meriam people’s power to deal with their title is restricted in so far as it is inalienable, except to the Crown, then this power and corresponding vulnerability give rise to a fiduciary obligation on the part of the Crown. The power to destroy or impair a people’s interests in this way is extraordinary and is sufficient to attract regulation by Equity to ensure that the position is not abused. The fiduciary relationship arises, therefore, out of the power of the Crown to extinguish traditional title by alienating the land or otherwise; it does not depend on an exercise of that power. Moreover if, contrary to the view I have expressed, the relationship between the Crown and the Meriam people with respect to traditional title alone were insufficient to give rise to a fiduciary obligation, both the course of dealings by the Queensland Government with respect to the Islands since annexation – for example the creation of reserves in 1882 and 1912 and the appointment of trustees in 1939 – and the exercise of control over or regulation of the Islanders themselves by welfare legislation – such as the Native Labourers’ Protection Act of 1884 (Q), The Torres Strait Islanders Act of 1939 (Q) under which an Island Court was established and a form of “local government” instituted, and the Community Services (Aborigines) Act 1984 (Q) – would certainly create such an obligation. (ii) Nature of the obligation To say that, where traditional title exists, it can be dealt with and effectively alienated or extinguished only by the Crown, but that it can be enjoyed only by traditional owners, may be tantamount to 60

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Mabo v Queensland (No 2) cont. saying that the legal interest in the traditional rights is in the Crown whereas the beneficial interest in the rights is in the indigenous owners. In that case the kind of fiduciary obligation imposed on the Crown is that of a constructive trustee. In any event, the Crown’s obligation as a fiduciary is in the nature of, and should be performed by reference to, that of a trustee. In Guerin Dickson J said (ibid, at 376; 334 of DLR), referring to the Crown’s duty towards the Musqueam Indians: This obligation does not amount to a trust in the private law sense. It is rather a fiduciary duty. If, however, the Crown breaches this fiduciary duty it will be liable to the Indians in the same way and to the same extent as if such a trust were in effect. Thus, the fiduciary obligation on the Crown, rooted in the extinguishability of traditional title, is in the nature of the obligation of a constructive trustee. The situation where a particular traditional title is dealt with by the Crown is distinguishable. This may occur where a parcel of land is alienated to a third party by the Crown with the consent of the traditional titleholders, as in Guerin. In such a case the Crown is clearly a trustee with respect to the particular traditional titleholders: see Guerin (1984) 2 SCR, per Wilson J at 355; (1984) 13 DLR (4th), at 361. (iii) Content of the obligation The content of a fiduciary obligation or constructive trust will be tailored by the circumstances of the specific relationship from which it arises. But, generally, to the extent that a person is a fiduciary he or she must act for the benefit of the beneficiaries (Hospital Products Ltd; Finn, op cit, 15). Moreover, this general mandate comprises more particular duties with respect to, first, the procedure by which a fiduciary makes a decision or exercises a discretion and secondly, the content of that decision. On the one hand, a fiduciary must not delegate a discretion and is under a duty to consider whether a discretion should be exercised. And on the other hand, a fiduciary is under a duty not to act for his or her own benefit or for the benefit of any third person (Finn, ibid, 15-16). The obligation on the Crown in the present case is to ensure that traditional title is not impaired or destroyed without the consent of or otherwise contrary to the interests of the titleholders. For example, the Crown could not degazette the Islands, thereby terminating the reserve, or simply alienate the Islands contrary to the interests of the Islanders; nor could it take these or any other decisions affecting the traditional title without taking account of that effect. If it did, it would be in breach of its duty and liable therefor … In the present case, extinguishment or impairment of traditional title would not be a source of the Crown’s obligation, but a breach of it. A fiduciary has an obligation not to put himself or herself in a position of conflict of interests. But there are numerous examples of the Crown exercising different powers in different capacities. A fiduciary obligation on the Crown does not limit the legislative power of the Queensland Parliament, but legislation will be a breach of that obligation if its effect is adverse to the interests of the titleholders, or if the process it establishes does not take account of those interests. [Mason CJ and McHugh J agreed with the reasons for judgment of Brennan J. Dawson J dissented. Mason CJ and McHugh J provided a summary of the findings of the court:] In the result, six members of the Court (Dawson J dissenting) are in agreement that the common law of this country recognises a form of native title which, in the cases where it has not been extinguished, reflects the entitlement of the indigenous inhabitants, in accordance with their laws or customs, to their traditional lands and that, subject to the effect of some particular Crown leases, the land entitlement of the Murray Islanders in accordance with their laws or customs is preserved, as native title, under the law of Queensland. The main difference between those members of the Court who constitute the majority is that, subject to the operation of the Racial Discrimination Act 1975 (Cth), neither of us nor Brennan J agrees with the conclusion to be drawn from the judgments of Deane, Toohey and Gaudron JJ that, at least in the absence of clear and unambiguous statutory provision to [2.25]

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Mabo v Queensland (No 2) cont. the contrary, extinguishment of native title by the Crown by inconsistent grant is wrongful and gives rise to a claim for compensatory damages. We note that the judgment of Dawson J supports the conclusion of Brennan J and ourselves on that aspect of the case since his Honour considers that native title, where it exists, is a form of permissive occupancy at the will of the Crown. We are authorised to say that the other members of the Court agree with what is said in the preceding paragraph about the outcome of the case.

Notes&Questions

[2.30]

1.

The decision in Mabo v Queensland (No 2) (1992) 175 CLR 1 reversed what had been considered to be the legal position in Australia over a long period. The major decision prior to Mabo had been that of Blackburn J in the Northern Territory Supreme Court in Milirrpum v Nabalco Pty Ltd (1971) 17 FLR 141. In that case Aboriginal clans at Yirrkala on the Gove peninsula in the Northern Territory brought an action seeking to restrain the mining of bauxite on their traditional lands and challenged the validity of the mining leases granted over their lands by the Commonwealth government to Nabalco Pty Ltd. Blackburn J considered that he was bound by existing authority, in particular the decision of the Privy Council in Cooper v Stuart (1884) 14 AC 286, to the conclusion that Australia was a settled colony and that no previously existing legal rights survived the assertion of British sovereignty. That legal conclusion had in part been based in early decisions on a factual assertion that the indigenous peoples at the time of British settlement did not have in place any system of laws and in particular any laws relating to land ownership. Blackburn J rejected much of this factual basis although he characterised the relationship between the indigenous peoples and the land as something other than proprietary.

2.

As to the existence of a system of law Blackburn J stated: … The Solicitor-General contended that before any system can be recognised by our law as a system of law, there must be not only a definable community to which it applies, but also some recognised sovereignty giving the law a capacity to be enforced. This argument, or something like it, appeared at a number of points in the case for the defendants. I have already referred to the contention that there was no recognisable community to which the rights claimed related, so as to make reputation evidence admissible under the relevant rules of the law of evidence. Elsewhere it was put to me that the claims of the Rirratjingu and the Gumatj to areas of land could not be regarded as in the category of law at all, because there was no authority shown which was capable of enforcing them. Counsel used the analogy of international law, the nature of which as law has often been challenged on the ground that there is no authority capable of enforcing its rules. Implicit in much of the Solicitor-General’s argument on this aspect of the case was, I think, an Austinian definition of law as the command of a sovereign. At any rate, he contended, there must be the outward forms of machinery for enforcement before a rule can be described as a law. He did not deny the deep religious sanctions which underlay the customs and practices of the aboriginals; indeed, he stressed them, and contended that such sanctions as there were were religious and not otherwise. I do not find myself much impressed by this line of argument. The inadequacy of the Austinian analysis of the nature of law is well known. I do not believe that there is utility in attempting to provide a definition of law which will be valid for all purposes

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and answer all questions. If a definition of law must be produced, I prefer “a system of rules of conduct which is felt as obligatory upon the members of a definable group of people” to “the command of a sovereign”, but I do not think that the solution to this problem is to be found in postulating a meaning for the word “law”. I prefer a more pragmatic approach. I cannot complain of any lack of evidence, and I am very clearly of opinion, upon the evidence, that the social rules and customs of the plaintiffs cannot possibly be dismissed as lying on the other side of an unbridgeable gulf. The evidence shows a subtle and elaborate system highly adapted to the country in which the people led their lives, which provided a stable order of society and was remarkably free from the vagaries of personal whim or influence. If ever a system could be called “a government of laws, and not of men”, it is that shown in the evidence before me. But granted that comparison is categorically possible, does it, when made, lead to the conclusion that the plaintiffs’ system was a system of law from which conclusions can be drawn about particular rules of law? One argument much stressed by counsel for the defendants was that the system was not shown to apply to any definable community. The statement of claim uses the phrase: “Pursuant to the laws and customs of the aboriginal inhabitants of the Northern Territory, each clan holds certain communal lands” (par 4). Paragraph 23 similarly refers to “the aboriginal laws and customs of the Northern Territory”. This choice of words was perhaps not beyond criticism, but I do not read it as requiring the plaintiffs to establish a system of laws applicable to all aboriginals in the Northern Territory. What is now in question is the recognition of the plaintiffs’ system of law, and for that purpose the question is asked – To what definable community does the system apply? The statement of claim is capable of being understood, and in my opinion should reasonably be understood, as meaning that the system provided by the plaintiffs is, at least, a part of the totality of the laws and customs of aboriginals in the Northern Territory. After all, it is the plaintiffs’ case that the doctrine of communal native title is part of the law of the Northern Territory. What is shown by the evidence is, in my opinion, that the system of law was recognised as obligatory upon them by the members of a community which, in principle, is definable, in that it is the community of aboriginals which made ritual and economic use of the subject land. In my opinion it does not matter that the precise edges, as it were, of this community were left in a penumbra of partial obscurity. Upon the evidence, the community could possibly be described as the community of the people of those clans which now have members living in the neighbourhood of the Yirrkala Mission, with the qualification that there might now be some clans represented only at Elcho Island or Milingimbi. But the exact definition of the community is inessential. What matters, in my opinion, is the fact that the existence of a community was proved and that it was shown to be in principle definable. I hold that I must recognise the system revealed by the evidence as a system of law.

3.

As to the relationship between the indigenous persons and the land Blackburn J further stated: The next question is whether the proved relationship of the plaintiffs to their defined areas of land is a relationship which ought to be described as proprietary, either in a general sense or in any special sense which may be required by the Lands Acquisition Act. Mr Woodward’s contentions were these. First, he put it that the evidence showed that the aboriginals “think and speak of the land as being theirs, as belonging to them”. It seems to me that to ask what they “think” begs the question: the problem at present before the Court is to characterise what the aboriginal relationship is as manifested by what they say and do, to the land. What they “speak” is in the first place a matter of their own language. About this I had nothing which could strictly speaking be called evidence, except for the fact that much of what the aboriginals said in evidence, both in their own languages as interpreted and sometimes in English, was expressed in language which is consistent with ownership – the phrases “my country”, “our country”, “land [2.30]

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of the Rirratjingu”, “land belonging to Gumatj”, and phrases of that nature. For myself, I do not think that this language is of itself of very much weight. In the English language, the possessive pronouns, and the word “of”, are used with the widest variety of meanings, some of which do, and some of which do not, imply interests of a proprietary nature. For example, a great variety of relationships is indicated by the following phrases – “my house”, “my son”, “my father”, “my occupation”, “my club”, “my journey”, “my birthday”, “my incompetence in mathematics”. There was before the Court in this case only the slightest material upon which any opinion could be formed about the linguistic usages of the aboriginals. The lady who did most of the interpretation of such of the aboriginal evidence as was given in native languages, spoke and understood Gumatj but not Rirratjingu or any other language, and anything spoken to her or by her, not in English, was in Gumatj. At one stage she explained (and I accepted it without reservation) that a certain suffix was used in the Gumatj language to indicate property as distinct from loan or temporary possession. This suffix was being used by the witness in relation to the land. But upon such meagre material it would not be safe to base any generalisations, for there was no investigation of the matter in any depth – for example, what other implication has the same suffix and how are other English uses of possessive pronouns or the preposition “of” rendered into Gumatj? Moreover there could be no justification, without any evidence, for generalising about linguistic usages in the other languages from what the Court was told about Gumatj (which was not evidence). Mr Woodward’s proposition that the aboriginals “think and speak of the land as being theirs” may be properly paraphrased as “they think and speak of the land as being in a very close relationship to them” and in this form there would be no dispute about it. I think this problem has to be solved by considering the substance of proprietary interests rather than their outward indicia. I think that property, in its many forms, generally implies the right to use or enjoy, the right to exclude others, and the right to alienate. I do not say that all these rights must co-exist before there can be a proprietary interest, or deny that each of them may be subject to qualifications. By this standard I do not think that I can characterise the relationship of the clan to the land as proprietary. It makes little sense to say that the clan has the right to use or enjoy the land. Its members have a right, and so do members of other clans, to use and enjoy the land of their own clan and other land also. The greatest extent to which it is true that the clan as such has the right to use and enjoy the clan territory is that the clan may, in a sense in which other clans may not (save with permission or under special rules), perform ritual ceremonies on the land. That the clan has a duty to the land – to care for it – is another matter. This is not without parallels in our law, which sometimes imposes duties of such a kind of a proprietor. But this resemblance is not, or at any rate is only in a very slight degree, an indication of a proprietary interest. The clan’s right to exclude others is not apparent: indeed it is denied by the existence of the claims of the plaintiffs represented by Daymbalipu. Again, the greatest extent to which this right can be said to exist is in the realm of ritual. But it was never suggested that ritual rules ever excluded members of other clans completely from clan territory; the exclusion was only from sites. The right to alienate is expressly repudiated by the plaintiffs in their statement of claim. In my opinion, therefore, there is so little resemblance between property, as our law, or what I know of any other law, understands that term, and the claims of the plaintiffs for their clans, that I must hold that these claims are not in the nature of proprietary interests. … Upon the whole of this aspect of the matter, my conclusion is that the evidence shows a recognisable system of law which did not provide for any proprietary interest in the plaintiffs in any part of the subject land. 64

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4.

The decision of Blackburn J in Milirrpum v Nabalco Pty Ltd (1971) 17 FLR 141 was widely criticised. See, for example, Reynolds, The Law of the Land (Penguin, Ringwood, 1987); Blumm and Malbon, “Aboriginal Title, the Common Law and Federalism: A Different Perspective” in Ellinghaus, Bradbrook and Duggan, The Emergence of Australian Law (1989); Hookey, “The Gove Land Rights Case: A Judicial Dispensation for the Taking of Aboriginal Lands in Australia?” (1972) 5 FLR 85; Hocking, “Does Aboriginal Law Now Run in Australia” (1979) 10 FLR 16; Bartlett R, “Aboriginal Land Claims at Common Law” (1983) UWALR 16.

5.

Once land rights of indigenous persons are held to exist, those rights are given protection in part by the Racial Discrimination Act 1975 (Cth); legislative provisions cannot apply to such interests differently to non indigenous land rights, for example in the form of compensation. In the Mabo dispute itself, the applicant had succeeded in having the Queensland Coast Islands Declaration Act 1985 (Qld) struck down (Mabo v Queensland (No 1) (1988) 166 CLR 186). The 1985 Act had purported to vest native land rights but not other land rights in the Crown in right of the State of Queensland. Unless the 1985 legislation was invalidated, the existence of native title could not arise as an issue. Similarly an attempt by Western Australia to restrict native title was invalidated in Western Australia v Commonwealth (1995) 128 ALR 1.

6.

The decision in Mabo has been the subject of intense and sometimes heated public debate. Recently judicial reservations have re-emerged. Callinan J in Western Australia v Ward (2002) 213 CLR 1; 191 ALR 1 stated: I add this. The first non-indigenous people who occupied this country brought with them their common and statutory law which had long included a doctrine of adverse possession and settled notions about the use and occupation of land. These were closely connected ideas: land was to be used and enjoyed, and those who possessed, used and enjoyed the land should own it, albeit at first, transiently. As Blackstone put it: For, by the law of nature and reason, he, who first began to use it acquired therein a kind of transient property, that lasted so long as he was using it, and no longer: or, to speak with greater precision, the right of possession continued for the same time only that the act of possession lasted. Those early non-indigenous settlers also brought with them a knowledge of agriculture and husbandry, and of domestic, commercial and official construction of a kind completely different from that of the indigenous peoples. To the undiscriminating, and perhaps insensitive and unimaginative eyes of the former it must have appeared that much of this large continent was not in fact being used or enjoyed, or certainly not so in a way that was familiar. After discussing the use and occupation of Crown lands by reference to the Old Testament, Blackstone says of this migration: Upon the same principle was founded the right of migration, or sending colonies to find out new habitations, when the mother-country was over-charged with inhabitants; which was practised as well by the Phoenicians and Greeks, as the Germans, Scythians, and other northern people. And, so long as it was confined to the stocking and cultivation of desert uninhabited countries, it kept strictly within the limits of the law of nature. But how far the seising on countries already peopled, and driving out or massacring the innocent and defenceless natives, merely because they differed from their invaders in language, in religion, in customs, government, or in colour; how far such a conduct was consonant to nature, to reason, or to Christianity, deserved well to be considered by those, who have rendered their names immortal by thus civilizing mankind. [2.30]

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Activities of this kind undoubtedly occurred in Australia. Some were utterly indefensible. It is possible to understand, again without condoning, that others of them might have occurred, in part because of different conceptions about land and how it might be possessed, used or owned. The different conceptions held by the new settlers, much the stronger of the peoples, were bound to prevail. This was inevitable when those who were more powerful had a well settled, longstanding body of property law in written texts, statutes and cases, and those whom they dispossessed depended for the assertions of their rights to occupy and use the land upon traditional oral customs and practices. Perhaps it was equally significant that the new settlers brought with them a transparent system of legal enforcement and courts to give effect to the resolution of disputes over property. To these new settlers, it might also have appeared, whether it was true or not, that the country was so sparsely populated that disputes did not arise between competing indigenous people over land. The problems for the indigenous people were compounded by the difficulty of finding any conceptual common ground between the common and statutory law of real property and Aboriginal law with respect to land. It seems likely that the first settlers would have regarded the two as incompatible, that whatever the Aboriginal peoples possessed by way of title to land was too foreign, fragile and elusive to withstand and survive the common law. Mabo [No 2] was a brave judicial attempt to redress the wrongs of dispossession. But its “recognition” of native title has involved the courts in categorising and charting the bounds of something that, being sui generis, really has no parallel in the common law. The Court has endeavoured to find a way of recognising, and to a degree protecting, that anomalous interest without unduly disturbing the law of Australian property. The results of this enterprise can hardly be described as satisfactory. The decisions of this Court and or lower courts have resulted in something that is not strictly property, as common lawyers would understand it, being regarded as a burden on the Crown’s radical title. Long settled understandings about land law relating to exclusive possession and leases have been questioned. Parliament has been compelled to intervene, repeatedly, to secure the validity of acts that were never before thought to be problematic. And we now have a body of law that is as complicated, shifting and abstruse that it continues to require the intervention of this Court to resolve even the most basic issues, such as the effect of freehold or leases on native title. Judging from the submissions to this Court and the native title legislation that we have had to consider, few people, if any, have been able to thread this labyrinth of Minos unscathed. To these drawbacks flowing from the recognition of native title may be added others: considerable uncertainty has been created; commercial activity and therefore national prosperity has been inhibited; much time and money have been expended on litigation; and, I fear, the expectations of the indigenous people have been raised and dashed. I do not disparage the importance to the Aboriginal people of their native title rights, including those that have symbolic significance. I fear, however, that in many cases because of the chasm between the common law and native title rights, the latter, when recognised, will amount to little more than symbols. It might have been better to redress the wrongs of dispossession by a true and unqualified settlement of lands or money than by an ultimately futile or unsatisfactory, in my respectful opinion, to attempt to fold native title rights into the common law. I remain bound by Mabo [No 2] and Wik to the extent that they are reflected in the Native Title Act. Until such time as parties wish to question their correctness, I must apply them. In the meantime, however, this Court should do what it can to provide indigenous people, governments, lawyers, academics and members of the general community with clear, logical and final rules for determinations of native title. It is for this reason that I have attempted to deal with all interests and, where possible, to avoid remitter to the Federal Court.

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Western Australia v Brown [2.35] Western Australia v Brown [2014] HCA 8 FRENCH CJ, HAYNE, KIEFEL, GAGELER AND KEANE JJ 1 In 1964, the State of Western Australia made an agreement with some joint venturers about the development and exploitation of iron ore deposits at Mount Goldsworthy. The agreement was approved by s 4(1) of the Iron Ore (Mount Goldsworthy) Agreement Act 1964 (WA) and it is convenient to refer to it as “the State Agreement”. The State Agreement obliged the State to grant, and the State did grant, to the joint venturers mineral leases for iron ore (in a form provided by the agreement). Two leases are relevant to this matter. Each was for a term which expired in 1986, with the right to renew from time to time for further periods each of 21 years. Each has been renewed and is still in force. 2 The parties to this litigation agree that, subject to the question of extinguishment, the Ngarla People hold native title to the land which is subject to the two mineral leases. The parties agree that the relevant native title rights and interests are non-exclusive rights (a) to access and camp on the land; (b) to take flora, fauna, fish, water and other traditional resources (excluding minerals) from the land; (c) to engage in ritual and ceremony on the land; and (d) to care for, maintain and protect from physical harm particular sites and areas of significance to the native title holders. 3 Did the grant of the mineral leases extinguish those native title rights and interests in relation to the land subject to the mineral leases? This Court’s decision in Western Australia v Ward 1 requires that the question be answered “No”. The rights granted under the mineral leases are not inconsistent with the claimed native title rights and interests. The State Agreement 4 The Mount Goldsworthy iron ore project was a very large development. The State Agreement made detailed provisions about the rights and obligations of the State and of the joint venturers. It is enough, for present purposes, to notice only the following provisions. 5 The State Agreement provided 2 that, “[a]s soon as conveniently may be” after the commencement date specified in the agreement, and after application by the joint venturers, the State would grant the joint venturers “a mineral lease … for iron ore” in the form provided in the schedule to the agreement and later grant 3 similar mineral leases over other areas. The form of mineral lease provided by the State Agreement was generally similar to the form of mineral lease then provided by the Mining Act 1904 (WA). 6 The State agreed 4 that, subject to the joint venturers performing their obligations under the State Agreement, the State and its authorities would not resume any property used for the purposes of the agreement. The State further agreed 5 not to rezone the land which was the subject of a mineral lease granted in accordance with the State Agreement. 7 The joint venturers agreed 6 that, within three years of the commencement date fixed by the State Agreement, they would do all that was necessary to enable them to mine iron ore from the land the subject of the initial mineral lease, to transport ore by rail to the joint venturers’ wharf and to commence shipment of ore from the wharf at an annual rate of not less than one million tons of ore. In 1 2

(2002) 213 CLR 1; [2002] HCA 28. Iron Ore (Mount Goldsworthy) Agreement Act 1964 (WA), Schedule, cl 8(2)(a).

3 4 5 6

Iron Ore (Mount Goldsworthy) Agreement Act 1964, Schedule, cl 11(6). Iron Ore (Mount Goldsworthy) Agreement Act 1964, Schedule, cl 8(5)(b). Iron Ore (Mount Goldsworthy) Agreement Act 1964, Schedule, cl 10(g). Iron Ore (Mount Goldsworthy) Agreement Act 1964, Schedule, cl 9(1). [2.35]

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Western Australia v Brown cont. particular, the joint venturers agreed 7 to construct a railway, to make roads, to construct a wharf, to lay out and develop townsites and to provide suitable housing, recreational and other facilities and services. Some of this was to be done on the land the subject of a mineral lease but some of it had to occur elsewhere. 8 The joint venturers agreed 8 that, “[t]hroughout the continuance” of the State Agreement, they would: allow the State and third parties to have access (with or without stock vehicles and rolling stock) over the mineral lease (by separate route road or railway) PROVIDED THAT such access over shall not unduly prejudice or interfere with the Joint Venturers’ operations [under the State Agreement]. 9 The State Agreement has been varied three times since it was first made. Nothing turns on those variations. There have been assignments of interests in the joint venture and in the mineral leases. Again, nothing turns on the detail of those changes and it is convenient to refer to the “joint venturers” without distinguishing between the differing compositions of the joint venture over the years. The mineral leases 10 The State has granted two mineral leases that are relevant to this litigation. The first (variously referred to as “ML 235”, “ML 235SA” or “AML 7000235”) was granted by instrument dated 17 February 1966. The second (referred to as “ML 249”, “ML 249SA” or “AML 7000249”) was granted by instrument dated 8 May 1974. Both mineral leases were granted before the enactment of the Racial Discrimination Act 1975 (Cth) and long before the enactment of the Native Title Act 1993 (Cth). 11 Argument in this Court proceeded on the basis that there is no relevant difference between the two mineral leases and that each was in the form provided for by the State Agreement. It is therefore convenient to refer only to the first of them (ML 235). 12 The recitals to the instrument recorded that, by the State Agreement, the State had agreed to grant the joint venturers “a mineral lease”, that the State Agreement had been ratified by the Iron Ore (Mount Goldsworthy) Agreement Act 1964 and that the Act had authorised the grant of a mineral lease or leases to the joint venturers. 13 The instrument provided that, “in consideration of the rents and royalties reserved by and of the provisions of the [State] Agreement”, the Crown “do[es] by these presents grant and demise” to the joint venturers as tenants in common in equal shares: ALL THAT piece or parcel of land [identified in the instrument] and all those mines, veins, seams, lodes and deposits of iron ore in on or under the said land (hereinafter called ’the said mine’) together with all rights, liberties, easements, advantages and [appurtenances] thereto belonging or appertaining to a lessee of a mineral lease under the MINING ACT, 1904 … or to which the JOINT VENTURERS are entitled under the [State] Agreement TO HOLD the said land and mine and all and singular the premises hereby demised for the full term of twenty one years … for the purposes but upon and subject to the terms, covenants and conditions set out in the [State] Agreement and to the Mining Act (as modified by the [State] Agreement) YIELDING and paying therefor the rent and royalties as set out in the [State] Agreement. 14 The instrument further provided that “this lease is subject to the observance and performance” by the joint venturers of certain covenants and conditions, including that the joint venturers “use the land bona fide exclusively for the purposes of the [State] Agreement”. 7 8 68

Iron Ore (Mount Goldsworthy) Agreement Act 1964, Schedule, cl 9(1)(c), (d), (e), (f)(ii). Iron Ore (Mount Goldsworthy) Agreement Act 1964, Schedule, cl 9(2)(g). [2.35]

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Western Australia v Brown cont. Subsequent activities 15 In accordance with their obligations under the State Agreement, the joint venturers developed the Mount Goldsworthy iron ore project. Construction of the townsite and mine operations on the land the subject of ML 235 began in 1965. A town of over 200 houses (and separate single men’s quarters) was built, together with roads, a shopping centre, a school, clubs and sporting facilities, a medical centre, a police station and other associated works. In 1977, the town reached a maximum population of 1400 people. 16 Together, the minesite infrastructure and the town covered about one third of the area of ML 235. (The parties agreed that there was no evidence that any significant construction was carried out on the remainder of the area of ML 235.) 17 Mining was conducted using open pit mining. Before mining began, the peak of Mount Goldsworthy was about 132 metres above sea level. When mining stopped, Mount Goldsworthy had been transformed into a pit about 135 metres below sea level. 18 The mine was closed in December 1982. The town was closed in 1992. The town has since been completely removed and the land on which it stood restored. The pit remains, but is now filled with water. Procedural history 19 Alexander Brown and others (on behalf of the Ngarla People) applied to the Federal Court of Australia for native title determinations in respect of land and waters in the Pilbara region of Western Australia. The claimed areas included the areas subject to the two mineral leases referred to at the start of these reasons. On 30 May 2007, the primary judge (Bennett J) made 9 a consent determination of native title with respect to part of the claimed areas other than the areas the subject of the mineral leases. 20 On 5 October 2007, the primary judge ordered the trial of some questions relating to the effect of the grant of the mineral leases. The order recorded that it was agreed that, subject to the answers given to the questions, “native title exists in the land [the subject of the mineral leases] in the manner recognised” in the consent determination which had been made on 30 May 2007. The questions included 10 the following: (1)

Did the grant of the [mineral] leases pursuant to the … State Agreement confer on the holders of those leases a right of exclusive possession such that any native title rights and interests were wholly extinguished?

(2)

If the grant of the [mineral] leases did not confer exclusive possession so as to extinguish any native title rights and interests, are the rights granted pursuant to the [mineral] leases and the … State Agreement inconsistent with any or all of the bundle of native title rights and interests recognised in [the consent determination of 30 May 2007]? If the answer is “yes”, which ones?

(3)

If the answer to (2) is “yes”, in relation to any and each of such native title rights which are inconsistent, are these rights wholly extinguished?

(4)

Was native title wholly extinguished to the area (or part of the area) of the [mineral] leases through the rights as exercised under the [mineral] leases and the … State Agreement?

(5)

If the answer to (4) is “yes”, in which areas has native title been wholly extinguished?

21 For the purposes of the trial of those separate questions, the parties submitted a statement and chronology of agreed relevant facts and a statement and chronology of further undisputed facts, the relevance of which was contested. 9 10

Brown (on behalf of the Ngarla People) v State of Western Australia [2007] FCA 1025. Brown (on behalf of the Ngarla People) v Western Australia (No 2) (2010) 268 ALR 149 at 153–154 [3]. [2.35]

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Western Australia v Brown cont. 22 On the trial of the separate questions, the primary judge held 11 that the mineral leases (ML 235 and ML 249) did not confer on the joint venturers a right of exclusive possession such that any native title rights and interests were wholly extinguished. The primary judge further held 12, however, that the rights granted pursuant to ML 235 and ML 249 and the State Agreement were inconsistent with the continued existence of any of the determined native title rights and interests “in the area where the mines, the town sites and associated infrastructure were constructed”. The rights which the joint venturers exercised with respect to this “developed” area were said 13 to be “analogous to rights of exclusive possession”. But the analogy was neither explored nor explained further. Her Honour subsequently made 14 a determination of native title reflecting the conclusions which have been described. 23 The holding of inconsistency, and consequent extinguishment of native title, on account of activities undertaken by the joint venturers on the land the subject of the mineral leases subsequent to the grant of those interests, followed from the decision of the Full Court of the Federal Court in De Rose v South Australia (No 2) 15. It will be necessary to say more about that decision but, in order to understand the subsequent procedural history of this matter, two points should be made about it now. The Full Court held 16 in De Rose (No 2) that the grant in a pastoral lease of the right to construct improvements on the land (such as a dwelling house or shed), when exercised, was inconsistent with native title rights to access and move about the land, hunt and gather on the land, camp on the land, engage in ceremonies and cultural activities on the land and maintain and protect places of significance. The Full Court further held 17 that construction of improvements by the holders of the pastoral lease on the land extinguished native title rights and interests in the land on which the improvements were constructed and in any adjacent land reasonably necessary for or incidental to the operation or enjoyment of the improvements. 24 In the present matter, the native title holders appealed to the Full Court of the Federal Court against the orders and determination made by the primary judge. They alleged, in effect, that her Honour should have held that their native title rights and interests were not extinguished to any extent by the grant of the mineral leases or by any subsequent activities on the leased land. 25 The State of Western Australia and the joint venturers each cross-appealed against the determination. Each alleged that the claimed native title rights and interests were wholly extinguished over the whole of the area of the mineral leases, either because those leases conferred on the holders a right of exclusive possession or because the rights granted by the leases and the State Agreement were inconsistent with all of the native title rights and interests. 26 On 5 November 2012, the Full Court (Mansfield, Greenwood and Barker JJ) published 18 reasons for judgment and made orders that the appeal by the native title holders “be upheld” and the cross-appeals by the State and the joint venturers be dismissed. 27 The Full Court divided in opinion, principally about what consequences followed from the joint venturers having exercised their rights under the mineral leases to build the mine, the town and 11

Brown (on behalf of the Ngarla People) v Western Australia (No 2) (2010) 268 ALR 149 at 205 [230].

12 13 14

(2010) 268 ALR 149 at 205 [231]. (2010) 268 ALR 149 at 200 [202]. Brown (on behalf of the Ngarla People) v State of Western Australia (No 3) [2010] FCA 859.

15 16 17 18

(2005) 145 FCR 290. (2005) 145 FCR 290 at 331–332 [149]. (2005) 145 FCR 290 at 333 [157], 335 [166]. Brown v Western Australia (2012) 208 FCR 505.

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Western Australia v Brown cont. associated facilities. Mansfield J concluded 19 that the orders and reasons of the primary judge were correct. Greenwood J held 20 that the native title rights and interests of the Ngarla People were not extinguished by the grant of the mineral leases but that the exercise of the rights granted by the leases would prevent the exercise of native title rights over any part of the leased land for so long as the joint venturers hold rights under the leases. Barker J also held 21 that the native title rights and interests were not extinguished but held 22 that, to the extent that native title rights and interests could not be exercised or enjoyed by reason of the incompatibility of activities conducted by the joint venturers, the exercise of the native title rights and interests “yielded” to the joint venturers’ exercised rights. 28 Subsequently, on 22 February 2013, the Full Court set aside 23 the determination of native title made by the primary judge and made a new determination in a form proposed by the native title holders. Because these reasons will show that subsequent use of the land the subject of the mineral leases is irrelevant to the issue of extinguishment, it is not necessary to explore the differences between the members of the Full Court or the particular resolution of those differences which was reflected in the substituted determination of native title. 29 It is sufficient to complete the description of the procedural history of the matter by noting that, by special leave, the State appeals to this Court against the orders of the Full Court. The State again advances the argument (advanced in the Full Court) that native title rights and interests were wholly extinguished over the whole of the area of the mineral leases, either because those leases conferred on the holders a right of exclusive possession or because the rights granted by the leases and the State Agreement were inconsistent with all of the native title rights and interests. In the alternative, the State submits that the native title rights and interests were extinguished “in respect of those lands … on which the [joint venturers] exercised their rights to develop and construct mines, a town and associated works”. 30 The joint venturers did not appeal against the orders made by the Full Court. They made submissions supporting the State in its appeal. The Attorney-General for the State of South Australia was granted leave to appear and make submissions as amicus curiae. Extinguishment 31 This is an appeal against a determination of native title made under the Native Title Act 1993. The Native Title Act 1993 therefore “lies at the core of this litigation” 24. As noted earlier in these reasons, both of the mineral leases (ML 235 and ML 249) were granted before the enactment of the Racial Discrimination Act 1975. No party submitted that the provisions of that Act are engaged in any relevant way. In both the Full Court of the Federal Court 25 and this Court, it was common ground that none of the provisions of the Native Title Act 1993 dealing with “past acts”, “intermediate period acts” or “previous exclusive possession acts” applied. That is, it was common ground, in both the Full Court and this Court, that the question of extinguishment which lies behind the determination sought under the Native Title Act 1993 was not governed by statute. 32 Did the grant of the mineral leases extinguish some or all of the claimed native title rights and interests? 19 20 21 22 23 24 25

(2012) 208 FCR 505 at 526 [94]. (2012) 208 FCR 505 at 586–587 [431]. (2012) 208 FCR 505 at 596 [479]. (2012) 208 FCR 505 at 597 [479]. Brown (on behalf of the Ngarla People) v State of Western Australia (No 2) [2013] FCAFC 18. Ward (2002) 213 CLR 1 at 60 [2]. See also Akiba v The Commonwealth (2013) 87 ALJR 916 at 930 [54]; 300 ALR 1 at 19; [2013] HCA 33. (2012) 208 FCR 505 at 511–513 [23]–[27]. [2.35]

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Western Australia v Brown cont. 33 To answer this question, it is necessary, as the plurality held 26 in Ward, to ask “whether the rights [granted] are inconsistent with the alleged native title rights and interests”. This question is 27 “an objective inquiry which requires identification of and comparison between the two sets of rights”. Each stage of this inquiry – identification of rights and comparison between rights – will be considered in turn. Identifying the rights 34 The identification of the relevant rights is an objective inquiry. This means that the legal nature and content of the rights must be ascertained 28. The nature and content of a right is not ascertained by reference to the way it has been, or will be, exercised. That is why the plurality in Ward said 29 that consideration of the way in which a right has been exercised is relevant only in so far as it assists the correct identification of the nature and content of the right. The claimed native title rights and interests 35 As was said 30 in Ward, “[q]uestions of extinguishment first require identification of the native title rights and interests that are alleged to exist”. As already noted, the nature and extent of those rights was agreed in this case. It was agreed that those rights were non-exclusive rights to access and camp on the land, to take flora, fauna, fish, water and other traditional resources (excluding minerals) from the land, to engage in ritual and ceremony on the land and to care for, maintain and protect from physical harm particular sites and areas of significance. 36 It is important to recognise that particular considerations apply to the identification of native title rights and interests. In examining the “intersection of traditional laws and customs with the common law” 31 (or, in this case, the intersection with rights derived from statute), it is important 32 to pay careful attention to the content of the traditional laws and customs. It is especially important not to confine 33 the understanding of rights and interests which have their origin in traditional laws and customs “to the common lawyer’s one-dimensional view of property as control over access”. Yet it is no less important to recognise that, as Fejo v Northern Territory made clear 34, a right of exclusive possession affords the holder the right to “use the land as he or she sees fit and [to] exclude any and everyone from access to the land” (emphasis added). The grant of a right to exclude any and everyone from access to the land for any reason or no reason is inconsistent with the continued existence not only of any right in any person other than the grantee to gain access to the land but also of any right which depends upon access to the land. Determining inconsistency 37 The determination of whether two or more rights are inconsistent is also an objective inquiry. The question of inconsistency of rights can always be decided at the time of the grant of the allegedly inconsistent rights. And it must be decided by reference to the nature and content of the rights as they stood at the time of the grant. At that time, were the rights as granted inconsistent with the relevant native title rights and interests? As these reasons will later demonstrate, to the extent to which the 26 27 28 29 30

(2002) 213 CLR 1 at 89 [78]. (2002) 213 CLR 1 at 89 [78]. cf Wik Peoples v Queensland (1996) 187 CLR 1 at 71–72 per Brennan CJ, 185 per Gummow J; [1996] HCA 40. (2002) 213 CLR 1 at 89 [78]. (2002) 213 CLR 1 at 208 [468]. See also at 91–95 [83]–[95]; Akiba (2013) 87 ALJR 916 at 930 [51]; 300 ALR 1 at 19.

31 32 33 34

Fejo v Northern Territory (1998) 195 CLR 96 at 128 [46]; [1998] HCA 58. Ward (2002) 213 CLR 1 at 92 [85]. Ward (2002) 213 CLR 1 at 95 [95]. (1998) 195 CLR 96 at 128 [47].

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Western Australia v Brown cont. decision in De Rose (No 2) countenances a notion of contingent extinguishment (contingent on the later performance of some act in exercise of the “potentially inconsistent” rights granted), it is wrong and should not be followed. In the present case, then, the question of inconsistency is to be determined at the time of the grant of the relevant mineral leases. What the joint venturers did or did not do in exercise of the rights granted under the mineral leases is important 35 only to the extent to which it directs attention to the nature and content of the rights which were granted. 38 There cannot be “degrees of inconsistency of rights”. “Two rights are inconsistent or they are not. If they are inconsistent, there will be extinguishment to the extent of the inconsistency; if they are not, there will not be extinguishment.” 36 As counsel for the native title holders put the point in argument in this Court, inconsistency is that state of affairs where “the existence of one right necessarily implies the non-existence of the other”. And one right necessarily implies the nonexistence of the other when there is logical antinomy between them: that is, when a statement asserting the existence of one right cannot, without logical contradiction, stand at the same time as a statement asserting the existence of the other right. 39 The joint venturers and South Australia sought to formulate a test for determining whether rights granted are inconsistent by analogy with s 109 of the Constitution. Reference was made to notions of “direct” and “indirect” inconsistency and to whether the existence or enjoyment of native title rights would alter, impair or detract from the enjoyment of a right conferred by statute. Yet, as was acknowledged in argument, the analogy is necessarily imperfect. An inconsistent State law is inoperative 37 only for so long as there is inconsistent federal law. A native title right, once extinguished, cannot be revived 38. More fundamentally, however, the analogy is apt to mislead, at least to the extent to which it directs attention to the enjoyment of rights rather than the necessary comparison between the legal nature and content of the right granted and the native title right asserted. The analogy should not be pursued. 40 It is convenient to turn to the task of identifying the rights which the State granted to the joint venturers pursuant to the Iron Ore (Mount Goldsworthy) Agreement Act 1964 and comparing those rights with the claimed native title rights and interests. Exclusive possession? 41 As noted earlier, the State (supported by the joint venturers) submitted that the mineral leases granted the joint venturers exclusive possession of the land the subject of the instruments. 42 Three points may be made about ML 235 which apply equally to ML 249. 43 First, like any mineral lease granted under the Mining Act 1904, ML 235 was described as a kind of lease: a “mineral lease”. The instrument used the term “demise”. It granted and demised identified land as well as mines, veins, seams, lodes and deposits of a mineral in, on or under that land. As with the mining leases considered in Ward, the rights and obligations of the joint venturers are not to be determined 39 by fastening upon the use of the words “lease” or “demise”, or by noticing that there was a demise of land as well as mines. As Toohey J said 40 in Wik Peoples v Queensland, “[a] closer 35

Ward (2002) 213 CLR 1 at 89 [78].

36 37 38 39

Ward (2002) 213 CLR 1 at 91 [82]. Butler v Attorney-General (Vict) (1961) 106 CLR 268; [1961] HCA 32. Fejo (1998) 195 CLR 96 at 131 [56]-[58]. Ward (2002) 213 CLR 1 at 158 [284]-[287]; Wik (1996) 187 CLR 1 at 117 per Toohey J. See also Wade v New South Wales Rutile Mining Co Pty Ltd (1969) 121 CLR 177 at 192-193 per Windeyer J; [1969] HCA 28; Goldsworthy Mining Ltd v Federal Commissioner of Taxation (1973) 128 CLR 199 at 212-219; [1973] HCA 7; O’Keefe v Malone [1903] AC 365 at 377. (1996) 187 CLR 1 at 117.

40

[2.35]

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Western Australia v Brown cont. examination is required”. It is necessary to identify the rights which are actually conferred upon the joint venturers. And that leads to the second point to be noticed. 44 The grant was expressed to be “for the purposes but upon and subject to the terms, covenants and conditions set out in the [State] Agreement”. The joint venturers were required to use the land “bona fide exclusively for the purposes of the [State] Agreement”. Read as a whole, in the context provided by the State Agreement, the instrument provided for a “mineral lease” of the kind understood by the common law and described in Newcrest Mining (WA) Ltd v The Commonwealth 41. That is, the instrument gave the joint venturers liberty to go into and under the land, during the currency of the mineral lease, and to get and take away the iron ore that they found there. 45 This being the nature of the right granted to the joint venturers, the third point to be made is that neither the instrument itself nor the State Agreement provided expressly that the joint venturers were not only to have possession of the land which was the subject of the mineral lease for the purposes which have been described but also to have the right to exclude any and everyone from that land for any reason or no reason at all. On the contrary, as already noted, the State Agreement provided expressly that the joint venturers must allow not only the State but also third parties to have access over the land the subject of the mineral lease, provided that the access did not “unduly prejudice or interfere with” the joint venturers’ operations. This express provision precludes construing the leases as impliedly providing a right of exclusive possession. 46 It follows that neither ML 235 nor ML 249 gave the joint venturers a right of the kind identified 42 in Fejo: the unqualified right to exclude any and everyone from access to the land, for any reason or no reason. The joint venturers could prevent anyone else from using the land for mining purposes and could use any part of the land for the extraction of iron ore or for any of the associated purposes described in the State Agreement (such as building a town, roads and railway). It may be accepted that the grant of these rights would be inconsistent with a native title right of the kind which was at issue in Ward: a native title right to control access to land (for any purpose or no purpose). But no right of that kind was in issue in this case. Neither instrument gave the joint venturers the right to exclusive possession of the land. 47 The first branch of the State’s argument must be rejected. Extinguishment by actual or potential conflicting use? 48 The alternative arguments advanced by the State depended, directly or indirectly, on the proposition that extinguishment could be demonstrated by showing that native title rights could clash with rights under the mineral leases in the sense that the rights could not be exercised simultaneously in the one place. That is, the State’s alternative arguments were founded in the observation that a native title holder could not hunt over land being excavated to recover iron ore or over land on which there stood one of the houses in the town. And because the mineral leases gave the joint venturers the right to mine anywhere on the land and the right to build many and very large improvements anywhere on the land, the State submitted that the rights granted by the leases were wholly inconsistent with the claimed native title rights and interests at the time of the grant of the mineral leases, or at least became so when the joint venturers exercised their rights. 49 It follows from what has already been said in these reasons that these arguments must be rejected. It is as well, however, to examine further the flawed premises upon which the arguments depend. 50 The State sought to support its broader proposition (that a right to mine or build anywhere on the land was wholly inconsistent with the claimed native title rights and interests) by reference to the 41 42 74

(1997) 190 CLR 513 at 616 per Gummow J; [1997] HCA 38, citing Gowan v Christie (1873) LR 2 Sc & Div 273 at 284 per Lord Cairns. (1998) 195 CLR 96 at 128 [47]. [2.35]

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Western Australia v Brown cont. reasons of Brennan CJ in Wik. Particular emphasis was given to his Honour’s statement 43 that “[t]he law … cannot recognise the co-existence in different hands of two rights that cannot both be exercised at the same time”. This statement must be understood in the context in which it appears. 51 In particular, it is important to notice that, in the very paragraph from which the statement relied on by the State was taken, Brennan CJ emphasised that extinguishment of native title does not depend upon the exercise of the allegedly inconsistent right: the inconsistency is, as his Honour said 44, “between the rights” and not “between the manner of their exercise” (emphasis added). That is, questions of extinguishment must be resolved 45 as a matter of law, not as a matter of fact. Hence, inconsistency arises 46 “at the moment when those [inconsistent] rights are conferred”. These propositions, though stated in a dissenting judgment, state principles which must now be taken to be firmly established. 52 In Wik, the Court divided on whether the pastoral leases in issue in that case gave the holders a right of exclusive possession (in the sense of a right to exclude any and everyone from the land for any reason or no reason). The majority concluded that the relevant pastoral leases did not give such a right to their holders and that it followed 47 that there was no necessary extinguishment of native title rights and interests. Brennan CJ, and other Justices who dissented, concluded that the pastoral leases did give the holders exclusive possession. 53 The statement by Brennan CJ, on which the State placed such emphasis, responded to the argument advanced on behalf of the Wik and Thayorre Peoples that only practical inconsistency between the exercise of competing rights can extinguish native title rights and interests. The observation which Brennan CJ made about simultaneous exercise of rights was made in answer to the argument that the manner of exercise of the competing rights was relevant to the question of extinguishment. As has already been seen, that argument was rejected. But the observation answered that argument because, even if the argument were correct, the rights that could not both be exercised at the same time were, on the one hand, rights such as a right to hunt and gather on the land and, on the other, the leaseholder’s right to exclude any and everyone from the land for any reason or no reason. 54 Two other submissions made by the State may be noted at this point, but put aside from consideration. It is not to the point to observe, as the State did, that other forms of land tenure might have been granted to the joint venturers. Nor is it to the point to observe, as the State did, that the State Agreement obliged the State not to resume or rezone the land which was the subject of the mineral leases and that the holder of an interest in fee simple in land will seldom have the benefit of such obligations. Even if it is right to say, as the State did, that in these respects the joint venturers had rights that were greater than those of the holder of a fee simple, the observation is irrelevant to the question of extinguishment. The joint venturers’ rights to insist upon performance of these obligations did not intersect in any way with the claimed native title rights and interests. 55 The decisions in both Wik and Ward established that the grant of rights to use land for particular purposes (whether pastoral, mining or other purposes), if not accompanied by the grant of a right to exclude any and everyone from the land for any reason or no reason, is not necessarily inconsistent with, and does not necessarily extinguish, native title rights such as rights to camp, hunt and gather, conduct ceremonies on land and care for land. As the State rightly pointed out, both Wik and Ward were decided before the native title rights claimed had been determined. But neither case could have 43

(1996) 187 CLR 1 at 87 (footnote omitted).

44

(1996) 187 CLR 1 at 87.

45

(1996) 187 CLR 1 at 87.

46

(1996) 187 CLR 1 at 87.

47

(1996) 187 CLR 1 at 132-133 per Toohey J (Gaudron, Gummow and Kirby JJ concurring). [2.35]

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Western Australia v Brown cont. been determined as it was if, as the State submitted, the grant of rights to perform acts or erect structures on land was necessarily inconsistent with the native title rights and interests claimed in this case. And contrary to the submissions made by the State, observing that the Mount Goldsworthy iron ore project was very large, requiring a large mine and extensive associated facilities, founds no tenable legal distinction between this case and the earlier decisions of this Court. 56 Rather, it is necessary to ask whether the existence of the rights granted to the joint venturers necessarily implied that the claimed native title rights and interests could no longer exist. 57 For the reasons which have been given, the mineral leases in issue in this case did not give the joint venturers a right of exclusive possession. In this respect, the mineral leases were no different from the pastoral leases considered in Wik, the mining leases considered in Ward or the Argyle mining lease also considered in Ward. The mineral leases did not give the joint venturers the right to exclude any and everyone from any and all parts of the land for any reason or no reason. The joint venturers were given more limited rights: to carry out mining and associated works anywhere on the land without interference by others. Those more limited rights were not, and are not, inconsistent with the coexistence of the claimed native title rights and interests over the land. (No party submitted that any distinction should be drawn between the several native title rights and interests that were claimed.) That the rights were not inconsistent can readily be demonstrated by considering the position which would have obtained on the day following the grant of the first of the mineral leases. On that day, the native title holders could have exercised all of the rights that now are claimed anywhere on the land without any breach of any right which had been granted to the joint venturers. That being so, there was not then, and is not now, any inconsistency between the rights granted to the joint venturers and the claimed native title rights and interests. 58 The State’s larger alternative submission (that the grant of rights to mine and build improvements anywhere on the land was wholly inconsistent with the claimed native title rights and interests) should be rejected. There remains for consideration the State’s narrower alternative submission that the claimed native title rights and interests were extinguished when the joint venturers exercised their rights to develop and construct mines, a town and associated works. It is convenient to refer to this submission as asserting extinguishment by development. Extinguishment by development? 59 The submission that there could be (and in this case was) extinguishment of native title by the exercise of rights granted by or under statute should be rejected. As has already been explained, the submission is directly contrary to the principles established and applied in both Wik and Ward and postulates a test for inconsistency which turns upon the manner of exercise of one of the allegedly competing rights rather than upon the right’s nature and content. As Brennan CJ said 48 in Wik, that would deny the law’s capacity to determine the priority of rights over or in respect of the same piece of land. No less importantly, as Brennan CJ also pointed out 49, “[t]o postulate extinguishment of native title as dependent on the exercise of the private right of the lessee (rather than on the creation or existence of the private right) would produce situations of uncertainty, perhaps of conflict” (emphasis added). 60 The decision of the Full Court of the Federal Court in De Rose (No 2) has already been mentioned. The decision proceeded from a misunderstanding of what was decided in Ward. It assumed, wrongly, that the principles applied in Ward permit the deferral of consideration of extinguishment until the manner of exercise of the allegedly inconsistent and extinguishing rights is known. So to proceed would be to return to and adopt the argument about practical inconsistency advanced but rejected in Wik. 48 49 76

(1996) 187 CLR 1 at 87. (1996) 187 CLR 1 at 87. [2.35]

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Western Australia v Brown cont. 61 De Rose (No 2) was not, and this is not, a case in which the “operation of a grant of rights [was] subjected to conditions precedent or subsequent” 50. That is, De Rose (No 2) was not, and this is not, a case in which the rights were 51 “incapable of identification in law without the performance of a further act or the taking of some further step beyond that otherwise said to constitute the grant”. To understand 52 the grant of a right as being subject to a “condition precedent” that consists in the granted right being exercised is to fall into confusion. 62 The decision in De Rose (No 2) assumed, again wrongly, that the permitted construction of an improvement on land held under a “lease” which did not give a right of exclusive possession necessarily affected the existence of native title rights and interests rather than the manner of their exercise. That is, the decision treated extinguishment as determined by the manner of exercise of the allegedly inconsistent right rather than, as it must be, by the nature and content of the two rights which are said to be inconsistent. 63 As the State rightly pointed out, the mineral leases gave the joint venturers the right to mine anywhere on the land and the right to build improvements anywhere on the land. But the mineral leases did not provide that the joint venturers must use the whole of the land for mining or associated works. Had the mineral leases provided that the whole of the land must be used in a way which would not permit any use of the land by native title holders, it may have been open to construe the mineral leases as providing for the joint venturers to exclude any and everyone from the whole of the land for any reason or no reason. But, as has been explained, that is not what these mineral leases provided. 64 In the end, then, the State’s narrower alternative argument reduces to the practical observation that two persons cannot occupy the one place. When the joint venturers built a house in the town, native title holders could not (for example) hunt and gather on the land which that house occupied. And the rights which the joint venturers had, and exercised, took and continue to take priority over the rights and interests of the native title holders for so long as the joint venturers enjoy and exercise those rights. Any competition between the exercise of the two rights must be resolved in favour of the rights granted by statute. But when the joint venturers cease to exercise their rights (or their rights come to an end) the native title rights and interests remain, unaffected. Conclusion and orders 65 For these reasons, the State’s appeal must be dismissed with costs. The joint venturers should bear their own costs. There being no cross-appeal against the determination made by the Full Court, that determination stands.

STATUTORY RECOGNITION AND PROTECTION OF NATIVE TITLE Statutory recognition and protection [2.40] Native title is now a creature of statute. The Native Title Act 1993 follows the

reasoning of the High Court in Mabo v Queensland (No 2) (1992) 175 CLR 1 but today it is the Act which confers the entitlement to native title. The Act also provides procedures to ascertain the existence of native title in any instance, the validation of Crown acts in relation to native title and the extinguishment of native title. In turn, this legislation is supplemented by 50 51 52

Ward (2002) 213 CLR 1 at 114 [150]. Ward (2002) 213 CLR 1 at 114–115 [150]. cf De Rose (No 2) (2005) 145 FCR 290 at 333 [156]. [2.40]

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legislation in the States and Territories; see Moore, Grattan and Griggs, Australian Real Property Law (6th ed, Thomson Reuters, Sydney, 2016), [6.340]–[6.385]. Definition of native title [2.45] The Native Title Act 1993 (Cth), s 223 defines native title as: (1) The expression native title or native title rights and interests means the communal, group or individual rights and interests of Aboriginal peoples or Torres Strait Islanders in relation to land or waters, where: (a) the rights and interests are possessed under the traditional laws acknowledged, and the traditional customs observed, by the Aboriginal peoples or Torres Strait Islanders; and (b) the Aboriginal peoples or Torres Strait Islanders, by those laws and customs, have a connection with the land or waters; and (c) the rights and interests are recognised by the common law of Australia. (2) Without limiting subsection (1), rights and interests in that subsection includes hunting, gathering, or fishing, rights and interests.

Validation of acts of the Commonwealth government [2.50] Validation of acts of the Commonwealth government is provided by ss 14 and 15 of the

Native Title Act 1993 (Cth) as follows: 14. Effect of validation of law (1) If a past act is an act attributable to the Commonwealth, the act is valid, and is taken always to have been valid. (2) To avoid any doubt, if a past act validated by subsection (1) is the making, amendment or repeal of legislation, subsection (1) does not validate: (a) the grant or issue of any lease, licence, permit or authority; or (b) the creation of any interest in relation to land or waters; under any legislation concerned, unless the grant, issue or creation is itself a past act attributable to the Commonwealth. 15. Effect of validation on native title (1) If a past act is an act attributable to the Commonwealth: (a) if it is a category A past act other than one to which subsection 229(4) (which deals with public works) applies–the act extinguishes the native title concerned; and (b) if it is a category A past act to which subsection 229(4) applies: (i) in any case–the act extinguishes the native title in relation to the land or waters on which the public work concerned (on completion of its construction or establishment) was or is situated; and (ii) if paragraph 229(4)(a) applies–the extinguishment is taken to have happened on 1 January 1994; and (c) if it is a category B past act that is wholly or partly inconsistent with the continued existence, enjoyment or exercise of the native title rights and interests concerned–the act extinguishes the native title to the extent of the inconsistency; and (d) if it is a category C past act or a category D past act–the non-extinguishment principle applies to the act. Note: This subsection does not apply to the act if section 23C or 23G applies to the act. (2) The extinguishment effected by this section does not by itself confer any right to eject or remove any Aboriginal persons who reside on or who exercise access over land or waters covered by a pastoral lease the grant, re-grant or extension of which is validated by section 14. 78

[2.45]

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Procedures for protecting native title [2.55] Although native title is defined by the laws and customs of the native peoples, those

interests have to be established within the Australian legal system and in particular according to the rules and procedures of Australian courts: Harrington-Smith on behalf of the Wongatha People v Western Australia (No 8) [2004] FCA 338.

[2.55]

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CHAPTER 3 Legal and Equitable Interests in Land [3.00]

FORMALITIES FOR THE TRANSFER OF LAND ........................................................ 81 [3.00]

Legal interests ........................................................................................ 81 [3.05]

[3.15] [3.20]

EQUITABLE INTERESTS – THE DEVELOPMENT OF THE TRUST ........................... 84 [3.25]

The trust ................................................................................................. 85 [3.30]

[3.40]

Manton v Parabolic Pty Ltd ...................................................... 81

Equitable interests ................................................................................. 83

DKLR Holdings Co (No 2) v Commissioner of Stamp Duties .................................................................................... 86

OVERCOMING A LACK OF FORMALITIES ............................................................. 90 [3.40] [3.55] [3.65] [3.85] [3.95]

Cooney v Burns ....................................................................... 90 Lysaght v Edwards ................................................................ 102 Walsh v Lonsdale .................................................................. 104 Theodore v Mistford Pty Ltd ................................................... 107 Ciaglia v Ciaglia .................................................................... 112

Extracts from Moore, Australian Property Law: Cases and Materials (5th ed), Ch 9.

FORMALITIES FOR THE TRANSFER OF LAND Legal interests [3.00] From the 19th century the deed has been the primary method for the conveyance of

freehold estates in land outside the Torrens system. Australian legislation followed English legislation providing that freehold estates should lie in grant. Statutory provisions in New South Wales, Victoria, South Australia, Western Australia and Tasmania require that a deed is to be used to create or pass a legal interest in land: Conveyancing Act 1919 (NSW), ss 23B(1), 23D; Property Law Act 1958 (Vic), s 52(1); Law of Property Act 1936 (SA), s 28(1); Property Law Act 1969 (WA), s 33(1); Conveyancing and Law of Property Act 1884 (Tas), s 60(1).

Manton v Parabolic Pty Ltd [3.05] Manton v Parabolic Pty Ltd (1985) 2 NSWLR 361 New South Wales Supreme Court YOUNG J: It seems to be a feature of every legal system that there must be some particular ritual, act or instrument by which a person can notify the community that he most solemnly means what he is doing as being binding on him. In Biblical times, this solemnity was provided by the contracting parties slaughtering an animal, cutting its carcass in two, and together walking between the two halves, see Genesis Ch 15: 10-18. In Roman law there was the stipulatio. Sir Henry Maine in his Ancient Law (Everymans Library Edition at 184) says: That which the law arms with its sanctions is not a promise, but a promise accompanied with a solemn ceremonial. Not only are the formalities of equal importance with the promise itself, but they are, if anything, of greater importance; for that delicate analysis which mature [3.05]

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Manton v Parabolic Pty Ltd cont. jurisprudence applies to the conditions of mind under which a particular verbal assent is given appears, in ancient law, to be transferred to the words and gestures of accompanying performance. In early land law, the only effective method of conveying was by traditio or as it is usually put, by livery of seisin. It would seem, see Pollock and Maitland, 2nd ed at 82 and following, that originally the two parties to a conveyance attended on the land. The vendor removed his battle glove with which he had defended the land and vested the purchaser with it. It is, of course, from this ceremony that we get the words “vesting in possession” and the like. The vendor then took his knife and dug up a sod and lifted it up and handed it to the purchaser. This lifting up and handing over is the livery. The vendor then handed the purchaser the knife which was usually broken or twisted into a unique shape as a memorial of the transaction. The vendor then publicly quit the land and usually threw to the purchaser a wand or rod or festuca. No-one really knows exactly what the festuca was, but as Pollock and Maitland say (at 85) there is no doubt it had a great contractual efficacy. The parties then repaired to the Church where the knife was usually laid up on the altar. As time went on, a parchment memorial of what had happened was substituted for the knife or the festuca, though for a while, the knives were often incorporated in the wax of the seal that was placed on the deed. By 1600 the parchment which was called “the Charter” or “the Factum” or “the Deed” had entirely replaced the ancient symbols of livery. The word “factum” of course, came from the supine form of the Latin verb “to do” or “to act”, and the factum or deed was the memorial of the most solemn act that a person could do with respect to his land. In truth, whilst originally the parchment was mere evidence of the actual livery of seisin that had taken place on the site, in time it went through the stages of being conclusive evidence of that fact to the stage where the factum itself became the medium by which the conveyance was effected. Thus the substantial requirement of a deed is that it be intended by the party who does it to be the most solemn indication to the community that he really means to do what he is doing. That solemn indication is given by sealing a deed which witnesses to what has been done. Even today, these documents say: “In witness whereof I have hereunto affixed my hand and seal.” So then, a deed is the most solemn act that a person can perform with respect to a particular property or contract involved, and the form of that deed is as laid down by the law from time to time. With Old System land prior to the Conveyancing Act, the solemn act required for a conveyance had to be a feoffment with livery of seisin recorded in a deed, bargain and sale with lease and release or release pursuant to the Conveyancing and Law of Property Act 1898, or one of the other particular ways which the law allowed. The act had to include two sets of magic words, operative words (the necessity for which was removed by the Conveyancing Act 1919, s 46), and words of limitation. With Torrens System land, the solemn act required is different. It is the proper completion of the prescribed form and the registration of that dealing on the Register. With Crown Lands, yet another solemn form is prescribed, that is, the form that has been prescribed pursuant to the regulations under the Act. In each case, by completing the appropriate form and having it registered, the conveyor does the most solemn thing possible in order to divest himself of his estate, …

Notes&Questions

[3.10]

1.

82

Formalities are significant to provide evidence of the existence of a transaction and that the parties truly intended to be bound by the transaction. A formal document should ensure that all key terms are set out and particularly that the weaker party has some notice of the obligations being undertaken. Documents lessen the ability to perpetrate [3.10]

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fraud by allegations of a transaction that does not exist. Are there arguments for formalities beyond the need for evidence of the existence of the transaction? Do these arguments differ according to the subject matter involved? The common law had a very public process for the transfer of land by feoffment with livery of seisin which is described in the above case. Similarly continental legal systems have required execution of documents before a public notary. 2.

However various methods besides feoffment with livery of seisen were adopted as a means of conveying interests in land in a less public manner. These methods were the lease and release and the bargain and sale.

3.

There are exceptions to the rule requiring a deed to create or pass a legal estate in land. First, leases for a term not exceeding three years, taking effect in possession, may be created orally (see above, for example s 54(2) of the Victorian Act above). Secondly, various interests which are legal in nature may arise pursuant to possession or long use. (See [3.100]–[3.120] (Moore).)

4.

The requirement of a deed to create or pass a legal estate in land resulted in chains of title (or written records of ownership) being set up in respect of individual pieces of land. The chain of title comprised all documents affecting interests in the land, not just deeds. A further split or fragmentation in estates in land occurred between legal and equitable ownership. A document such as an express trust or a contract of sale affecting equitable title only, may form part of the chain of title. These chains of title comprising documents affecting estates in the land going back where possible to the original Crown grant, form the basis of the general law land conveyancing system. A purchaser who wishes to be satisfied that the vendor has the estate which is being purported to be sold, has to search each individual document in the chain of title to ensure that the “chain” from Crown grant to the vendor remains “unbroken”. The task was, and remains, a long and complicated one. Even where a thorough search was conducted, it was still not possible to declare with complete certainty that the vendor had a clear title. Statutory provisions to limit the searches required of a purchaser were introduced in all States except South Australia.

5.

The provisions concerning deeds were enacted before the Torrens system of land registration came into existence in Australia. A deed is not the method by which legal title is passed with respect to Torrens land: it is registration of the appropriate document which passes legal title: Real Property Act 1900 (NSW), s 41; Transfer of Land Act 1958 (Vic), s 40(1); Land Title Act 1994 (Qld), s 181; Real Property Act 1886 (SA), s 67; Transfer of Land Act 1893 (WA), s 58 Land Titles Act 1980 (Tas), s 49(1); Land Titles Act 1925 (ACT), s 57; Land Title Act (NT), s 184; Moore, Grattan and Griggs, Australian Real Property Law (6th ed, Thomson Reuters, Sydney, 2016), [4.60]. Nevertheless, a registered document under the Torrens system is deemed to be a deed and so property principles that flow from the execution of a deed are equally applicable to a registered instrument under Torrens land.

Equitable interests [3.15] An express trust may take the form of a declaration of trust whereby the owner of the land declares himself or herself a trustee of the land for another person. Alternatively, the [3.15]

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owner of the land may transfer the title to a trustee to be held on trust for another person. The trust may relate to the whole of the interest in the land or to a lesser or more limited interest. Thus A, the fee simple owner, may declare himself a trustee for B of the whole interest or alternatively A may declare that she holds the estate on trust for B as to a life estate in B. A trust may be made over a legal or equitable interest in land. Although no specific or formal words are required, the language used must demonstrate an intention to create a trust. As Wilson J stated in Bloch v Bloch (1981) 37 ALR 55, 59 “[w]hilst it is true that no particular form is necessary for the creation of an express trust, the intention of the settlor to create a trust must be explicit. In every case it is a question of fact for the court to determine whether an intention to create a trust is sufficiently evinced.” There are statutory provisions in all jurisdictions setting out the formal requirements for the creation of trusts (and thus equitable interests) in relation to land and also for the disposal of equitable interests. The basic requirement is that of writing: Conveyancing Act 1919 (NSW), ss 23C, 23D; 23E; Property Law Act 1958 (Vic), ss 53 – 55; Property Law Act 1974 (Qld), ss 11 – 12; Law of Property Act 1936 (SA), ss 29 – 31; Property Law Act 1969 (WA), ss 34 – 36; Conveyancing and Law of Property Act 1884 (Tas), s 60(2) – (5); Civil Law (Property) Act 2006 (ACT), ss 201 – 203; Law of Property Act (NT), ss 9 – 11. The statutes commonly have three key paragraphs as in the following example: (1) With respect to the creation of interest in land by parol– (a) no interest in land can be created or disposed of except by writing signed by the person creating or conveying the same, or by his agent thereunto lawfully authorized in writing, or by will, or by operation of law;

(2)

(b)

a declaration of trust respecting any land or any interest therein must be manifested and proved by some writing signed by some person who is able to declare such trust or by his will;

(c)

a disposition of an equitable interest or trust subsisting at the time of the disposition must be in writing signed by the person disposing of the same, or by his agent thereunto lawfully authorized in writing or by will

This section shall not affect the creation or operation of resulting, implied or constructive trusts. Extracts from Moore, Australian Property Law: Cases and Materials (5th ed), Ch 2.

EQUITABLE INTERESTS – THE DEVELOPMENT OF THE TRUST [3.20] The development of the equitable interest in land law began primarily as a result of the

many fetters the common law placed on the holders of freehold estates. The holder of a freehold estate was unable, for example, to dispose of an estate by will (see Moore, Grattan and Griggs, Australian Real Property Law (6th ed, Thomson Reuters, Sydney, 2016), [2.290] for further detail). In order to avoid the fetters created by the common law, and in particular to gain free alienability of the interest in land, the freeholder began to employ the use. Typically, the freeholder conveyed the land to a trusted person who held the land not for his or her own use or benefit, but for the use of the grantor during the grantor’s lifetime and then for other members of the grantor’s family after the grantor’s death. The trusted person taking the legal estate was called the “feoffee to uses” and the person entitled to the use of the land was called the “cestui que use”. 84

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The problem was that the common law courts refused to view the cestui que use as having any interest in the land. From the beginning of the 15th century, the Chancellor on behalf of the King and in the exercise of the King’s residual judicial power, heard special petitions from persons with legitimate complaints who could find no appropriate cause of action in the defined forms of writ available in the common law courts. The Chancellor and the Chancery Council (later the Court of Chancery) gradually developed a set of rules in dealing with these petitions. These became the rules of equity. It was the Court of Chancery which began to enforce the use and provide protection for the cestui que use. (See generally Moore, Grattan and Griggs, Australian Real Property Law (6th ed, Thomson Reuters, Sydney, 2016), [2.315].) In general, equity followed the common law in the types of interests in land which could be created. However, there was the capacity for equity to permit the creation of interests unattainable at common law, and equity did, and continues to, use this capacity. For example, equity recognises the restrictive covenant, an interest in land which can exist in equity only. (See Moore, Grattan and Griggs, Australian Real Property Law (6th ed, Thomson Reuters, Sydney, 2016), Ch 18, Pts II and III.) One of the aims of the freeholder in employing the use was to avoid the payment of feudal dues. The King, being at the top of the feudal pyramid, lost a great deal from the reduction in payment of dues and so instigated the passing of the Statute of Uses in 1535. The aim of the statute was to abolish the use and to vest the legal estate in the cestui que use so that in a conveyance “to A and his heirs to the use of B and his heirs”, B took the legal estate and A took nothing. Upon the death of B, the legal estate holder, feudal dues would again be payable. Over the next 100 years, the equitable interest re-emerged. Eventually a grant “to A and his heirs to the use of B and his heirs to the use of C and his heirs” was recognised by the Court of Chancery as creating a legal interest in B (the Statute of Uses having executed the use) and an equitable interest in C. C’s equitable interest was equivalent to the equitable interest created by one single use before the Statute of Uses. The terminology altered and the words “to A and his heirs to the use of B and his heirs on trust for C and his heirs” became effective to create a legal estate in B and an equitable estate in C. Eventually, A’s name was removed and a grant “unto and to the use of B and his heirs on trust for C and his heirs” was equally effective to confer legal title on B and equitable title on C. B, the feoffee to uses, became the trustee and C, the cestui que use became the cestui que trust or “the beneficiary”. The Statute of Uses has been repealed in New South Wales (Imperial Acts Application Act 1969, s 8), Victoria (Imperial Acts Application Act 1980, s 5), Queensland (Property Law Act 1974, s 7) and the Northern Territory (Law of Property Act, s 6). In these jurisdictions the words “to A in fee simple on trust for B in fee simple” are effective to create a trust and legal and equitable title in A and B respectively (see also Property Law Act 1958 (Vic), s 19A). See further Moore, Grattan and Griggs, Australian Real Property Law (6th ed, Thomson Reuters, Sydney, 2016), [10.145]. The trust [3.25] In the course of his judgment in DKLR Holdings Co (No 2) v Commissioner of Stamp

Duties [1980] 1 NSWLR 510, Hope JA discussed the origins and nature of the trust. The analysis of Hope JA is unaffected by the decision of the High Court in the case (see (1982) 149 CLR 431.) His comments have been referred to and approved a number of times, most authoritatively by Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ in Commissioner of Taxation v Linter Textiles Australia Ltd (in liq) (2005) 220 CLR 592 at 606 and 612. See also, [3.25]

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for example, Quarmby v Keating [2008] TASSC 71 at [17], Legal Services Commissioner v Dempsey [2008] 2 Qd R 272 at [38] and Chief Commissioner of Land Tax v Macary Manufacturing Pty Ltd (1999) 48 NSWLR 299 at 309-310. The judgment of Hope JA is extracted here for its discussion on the nature of the trust. The case concerned complex issues of stamp duty and references to the facts and decision have been omitted where possible.

DKLR Holdings Co (No 2) v Commissioner of Stamp Duties [3.30] DKLR Holdings Co (No 2) v Commissioner of Stamp Duties [1980] 1 NSWLR 510 New South Wales Court of Appeal HOPE JA: … The starting point of a consideration of the questions which this part of the case raises seems to me to be the principles concerning the nature of legal and equitable estates. An unconditional legal estate in fee simple is the largest estate which a person may hold in land. Subject to qualifications arising under the general law, and to the manifold restrictions now imposed by or under statutes, the person seised of land for an estate in fee simple has full and direct rights to possession and use of the land and its profits, as well as full rights of disposition. An equitable estate in land, even where its owner is absolutely entitled and the trustee is a bare trustee, is significantly different. What is, perhaps, its essential character is to be traced to the origin of equitable estates in the enforcement by Chancellors of “uses” or “trusts” (a term originally synonymous with “uses”) in the confidence that he would perform which the owner had enfeoffed another person with land. When the Chancellor began to enforce the uses so confided, he intervened to enforce the duty which he considered the conscience of the feoffee bound him to satisfy; he did not intervene to enforce an obligation otherwise recognised at common law. “… at common law the use was nothing at all-not even a chose in action.”: Holdsworth, History of English Law, 3rd ed, Vol IV, 2nd ed, p 440. Moreover, as Maitland pointed out in his Lecture on Equity, 2nd ed, p. 31: “… the remedy is given not to the trustor but to the destinatory. In the earliest instances the trustor and the cestui que trust (or use) are the same person-still it is as destinatory, not as ‘author of the trust’ that he has the remedy. This marks it off from contract … This principle runs through our law of equity to the present day – the destinatory, beneficiary, cestui que trust has the remedy.” In due course, the obligation to carry the use into effect was enforced by the Chancellors against most, although not all, persons acquiring the legal ownership of the land: Holdsworth, op cit, pp 432, 433. When the modern trust developed, after the enactment of the Statute of Uses, it was similarly enforced and, indeed, the classes of persons against whom it could not be enforced became more limited. After some hesitation, a trust interest in respect of land came to be regarded, not merely as some kind of equitable chose in action, conferring rights enforceable against the trustee, but as an interest in property. The fact that equitable estates were not enforceable against everyone acquiring a legal title to the property did not prevent them from being so regarded; a legal owner of land could lose his estate in, or become unable to enforce his rights in respect of, land in a number of ways. Although there has long been a controversy whether trust interests are true rights in rem: cf Pettit, Equity and the Law of Trusts, 3rd ed, pp 48, 49, 50, there can be no doubt that the interest of the cestui que trust is an interest in property. As Rolle J said in R v Holland (1647) Style 20, 21; 82 ER 498, 499: “… a trust is not a thing in action, but may be an inheritance or a chatell (sic) as the case falls out.” These essential features of interests arising under private trusts are thus described in Jacobs’ Law of Trusts, 3rd ed, p 109: “… the trustee must be under a personal obligation to deal with the trust property for the benefit of beneficiaries, and this obligation must be annexed to the trust property. This is the equitable obligation proper. It arises from the very nature of a trust and from the origin of the trust in the separation of the common law and equitable jurisdictions in English legal history. The obligation attaches to the trustees in personam, but it is also annexed to the property so that the equitable interest resembles a right in rem. It is not sufficient that the trustee should be under a 86

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DKLR Holdings Co (No 2) v Commissioner of Stamp Duties cont. personal obligation to hold the property for the benefit of another, unless that obligation is annexed to the property. Conversely, it is not sufficient that an obligation should be annexed to property unless the trustee is under the personal obligation.” Several consequences follow. Firstly, an absolute owner in fee simple does not hold two estates, a legal estate and an equitable estate. He holds only the legal estate, with all the rights and incidents that attach to that estate. If he were to execute a declaration that he held the land in trust for himself absolutely, the declaration would be of no effect; it would give him no separate equitable rights; he would remain the legal owner with all the rights that a legal owner has. At least where co-extensive and commensurate legal and equitable interests are concerned, “… a man cannot be a trustee for himself.”: Goodright v Wells (1781) 2 Dougl 771, 778; 99 ER 491, 495 per Lord Mansfield. “You cannot have a legal estate in trust for yourself.”: Harmood v Oglander (1803) 8 Ves Jun 106, 127; 32 ER 293, 301 per Lord Eldon. Secondly, although the equitable estate is an interest in property, its essential character still bears the stamp which its origin placed upon it. Where the trustee is the owner of the legal fee simple, the right of the beneficiary, although annexed to the land, is a right to compel the legal owner to hold and use the rights which the law gives him in accordance with the obligations which equity has imposed upon him. The trustee, in such a case, has at law all the rights of the absolute owner in fee simple, but he is not free to use those rights for his own benefit in the way he could if no trust existed. Equitable obligations require him to use them in some particular way for the benefit of other persons. In illustrating his famous aphorism that equity had come not to destroy the law, but to fulfil it, Maitland, op cit, at 17, said of the relationship between legal and equitable estates in land: “Equity did not say that the cestui que trust was the owner of the land, it said that the trustee was the owner of the land, but added that he was bound to hold the land for the benefit of the cestui que trust. There was no conflict here.” This relationship can, perhaps, be usefully illustrated by reference to the possession, and the right to possession, of land which is held by a trustee subject to a private trust. As legal owner, and subject to any disposition of the right, such as would occur upon the granting of a lease, the trustee has at law the right to possession of the land and, unless somebody else is in possession, under him or adversely to him, he also has the legal possession of the land. He may maintain trespass against anyone who infringes that possession, and ejectment against any person who, without his consent, takes possession. At law a cestui que trust has no right to possession. He cannot sue the trustee at common law in ejectment: Roe d Reade v Reade (1799) 8 TR 118, 121, 122, 123; 101 ER 1298, 1300, 1301. If the trustee holds as a bare trustee for a beneficiary absolutely entitled, that beneficiary is, in equity, entitled to be put into possession if he so wishes, but he cannot sue the trustee in ejectment. His right can be enforced only by an order made in the exercise of the equitable jurisdiction of the court. If necessary, the court will, upon an appropriate indemnity being given, compel the trustee to allow the beneficiary to use his name to bring ejectment. When placed in possession by the trustee, at law the beneficiary is merely tenant at will of the trustee, the tenancy being determinable at law at any time on demand of possession by the trustee: Garrard v Tuck (1849) 8 CB 231, 250; 137 ER 498, 506; Melling v Leak (1855) 16 CB 652, 668, 669; 139 ER 915, 921, 922. As a corollary, the trustee might at law determine the beneficiary’s tenancy and recover the land from him in an action for ejectment, and the beneficiary would have no legal defence. He would, of course, have an equitable defence which he has long been able, by statute, to plead in the action at law. This position can be analysed in a similar way in respect of all the rights given to a trustee who holds property at law in trust absolutely for a beneficiary. In some cases the right vested in the trustee may be such that he cannot be compelled to allow the beneficiary to exercise it except (unless, because of the nature of the right, it is not permissible to do so) in his, the trustee’s, name. If this analysis be correct, although the beneficiary has an interest in the trust property, the content of that interest is essentially a right to compel the trustee to hold and use his legal rights in accordance with the terms of the trust. [3.30]

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DKLR Holdings Co (No 2) v Commissioner of Stamp Duties cont. Where the trustee holds absolutely for the beneficiary, the beneficiary has a right in equity to be put, so far as practicable and generally subject to appropriate indemnities being given, into a position where directly, or indirectly, or for all practical purposes, he enjoys or exercises the rights which the law has vested in the trustee …

[3.35]

Notes

1. The trust is an obligation imposed on a person who has the legal title to property. The obligation binds such a person (the trustee) to use or deal with the property for the benefit of another person (the beneficiary). As the above historical introduction and the extract from DKLR Holdings Co (No 2) v Commissioner of Stamp Duties [1980] 1 NSWLR 510 demonstrate, the obligation of the trustee is enforceable in equity. Thus if X the owner of property conveys the property to A, on trust for B, the obligation of A to hold the property for the benefit of B is recognised and enforced in equity. As Gray and Gray, Elements of Land Law (5th ed, OUP, London, 2009), p 76 commented, “[t]he core of every trust is the idea that the formal or titular interest in some asset (eg the legal estate in fee simple) is vested, in a nominal capacity in one or more persons as trustee. The strict duty of such persons is to deflect all beneficial enjoyment of the trust asset to [those who hold the equitable interests under the trust].” 2. In the absence of an obligation of the kind described above being imposed on the holder of a legal title, how is the title held? See Re Transphere Pty Ltd (1986) 5 NSWLR 309 at 311 and Allen v Snyder [1977] 2 NSWLR 685 at 701. In Re Transphere, McLelland J stated: It is important to recognise the true nature and incidents of legal and equitable estates in property subject to a trust. They are clearly and succinctly described in the judgment of Hope JA in DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties [1980] 1 NSWLR 510, 518-520. (His Honour’s analysis is not affected by the decision of the High Court in that case – see 149 CLR 431.) I would not wish to detract from the value of Hope JA’s exposition by trying to summarise it. But what is significant for present purposes is the imprecision of the notion that absolute ownership of property can properly be divided up into a legal estate and an equitable estate. An absolute owner holds only the legal estate, with all the rights and incidents that attach to that estate. Where a legal owner holds property on trust for another, he has at law all the rights of an absolute owner but the beneficiary has the right to compel him to hold and use those rights which the law gives him in accordance with the obligations which equity has imposed on him by virtue of the existence of the trust. Although this right of the beneficiary constitutes an equitable estate in the property, it is engrafted onto, not carved out of, the legal estate. Hope JA (at 519) illustrates the point by the following quotation from Maitland – Lectures on Equity 2nd ed (1949) at 17: Equity did not say that the cestui que trust was the owner of the land, it said that the trustee was the owner of the land, but added that he was bound to hold the land for the benefit of the cestui que trust. There was no conflict here.

See also Chief Commissioner of Land Tax v Macary Manufacturing Pty Ltd (1999) 48 NSWLR 299 where the comments of Hope JA on the nature of the trust were quoted with approval. 88

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3. Historically and in the modern day context, the trust has been used to serve a number of purposes and to facilitate a variety of transactions. (See Note 6.) In whatever context it arises, however, the setting up of a trust reflects a need to vest beneficial use and enjoyment of the property in one person and to vest administration and varying degrees of control in another person. In some trusts, the trustee may have little or no effective control and no administrative tasks to perform. In such a trust, the trustee holds no more than the “bare” legal title. In other trusts, the trustee may have wide powers and detailed administrative duties to perform with respect to the trust property (see Gray and Gray, Elements of Land Law (5th ed, OUP, London, 2009), pp 77-78). 4. Regardless of the type of trust, the trustee has a fiduciary duty to manage the trust property in as profitable a manner as possible and the trustee must not profit by reason of his or her position as a trustee. (See Keech v Sandford (1726) 2 Eq Cas Ab 741; 22 ER 629; Boardman v Phipps [1967] 2 AC 46 and Attorney-General (Hong Kong) v Reid [1994] 1 AC 324 in which the nature of the duty is discussed. See also Barnes v Addy (1874) LR 9 Ch App 244; Consul Developments Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373; Royal Brunei Airlines v Tan [1995] 3 WLR 64 and Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89.) 5. The discussion above suggests that a trust arises only where it has been expressly set up. In fact, over the years equity has implied a trust relationship into a number of fact situations. Thus the major dichotomy in the types of trust which can exist is between express and non-express trusts. Non-express trusts fall into two main categories – resulting and constructive trusts. The categories of resulting and constructive trusts are dealt with in detail in Chapter 10 (Moore). Glass JA in Allen v Snyder [1977] 2 NSWLR 685, 689 clearly summarised the categories of trust. Although this categorisation can be stated simply, the courts have often struggled both to use the terms in a consistent fashion and to demonstrate clear dividing lines: Any claim to a beneficial interest in real property by a person in whom the legal title is not vested must be based upon a trust. Trusts may be express, implied or constructive. An express trust of land is not enforceable unless it is evidenced in writing and signed by the party able to declare the trust: Conveyancing Act 1919, s 23C. By way of exception, an express trust may be proved by oral evidence where otherwise the statute would be made “an instrument of fraud”: Rochefoucauld v Boustead [1897] 1 Ch 196, 206. An implied trust (also called a resulting trust) arises where the legal owner has provided none or only part of the purchase price. A resulting trust is presumed in favour of the party providing the money. His beneficial interest is proportionate to his contribution. If, however, the legal owner is a wife, and the purchase price has been provided by her husband, there is a countervailing presumption of advancement viz that she takes the beneficial interest as a gift. Both presumptions, being rebuttable, will yield to evidence as to the actual intention of the parties. Constructive trusts arise where it would be a fraud for the legal owner to assert a beneficial interest. Unlike express and implied trusts, which reflect actual intentions, they are imposed, without regard to the intentions of the parties, in order to satisfy the demands of justice and good conscience: Snell, Principles of Equity, 27th ed, s 185; Jacobs, Law of Trusts in Australia, 4th ed, p 232. Constructive and implied (resulting) trusts may be enforced without evidence in writing: Conveyancing Act 1919, s 23C(2).

6. Historically, the subject matter of the trust was land. The trust is now used to achieve a variety of objectives and the subject matter of the trust may often not involve land. Some of the modern day uses of the trust are discussed in Moore, Grattan and Griggs, [3.35]

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Australian Real Property Law (6th ed, Thomson Reuters, Sydney, 2016), [2.370]. For example, the funds held under pension and superannuation schemes and by unincorporated associations are often held in a trust. The discretionary trust has been used to minimise income tax and the unit trust has been used to enable smaller investors to participate in broadly based investment opportunities. Extracts from Moore, Australian Property Law: Cases and Materials (5th ed), Ch 9.

OVERCOMING A LACK OF FORMALITIES Cooney v Burns [3.40] Cooney v Burns (1922) 30 CLR 216; 28 ALR 181 High Court of Australia (footnotes omitted) KNOX J: This was an action for specific performance of an agreement for the sale by the defendant to the plaintiff of “the ingoing, the piano and furniture as inspected by the plaintiff and the existing lease” of an hotel. The defendant was the lessee and licensee of the hotel in question. The contract was in writing signed by the plaintiff and by one J. F. Kelly therein described as agent for the defendant. The defendant set up by way of defence that Kelly was not authorized to make the contract on behalf of the defendant, and that the provisions of secs. 228 and 229 of the Instruments Act 1915 had not been complied with. The action was tried by Mann J. with a jury; and the questions put to them and their answers are as follows: – “(1) Did John Francis Kelly have authority to make on behalf of the defendant the contract mentioned in the statement of claim? – Yes. (2) Did the plaintiff go into occupation of the hotel and remain in occupation until 14th March in performance of the contract? – No. (3) Was the list” of the hotel furniture “(Ex. 1) taken in performance of the contract? – Yes. (4) Was the plaintiff instructed by the defendant as to the conduct of the hotel business? – Yes. (5) (a) Was the lease of the hotel handed to the plaintiff’s solicitors under instructions from the defendant for the purpose of having prepared an assignment of the lease and an application for a transfer of the licence? – Yes. (b) Did the plaintiff’s solicitors prepare an assignment of the lease and the notices of application for transfer of the licence? – Yes.” On these findings Mann J. gave judgment for the plaintiff for specific performance of the contract, holding (1) that acts of part performance which would be sufficient to enable a plaintiff to succeed on a parol contract would also be sufficient to enable him to succeed on a contract signed by an agent not authorized by writing signed by the defendant, and (2) that the findings of the jury established acts of part performance sufficient to take the case out of the operation of the statute. On the first point I need say no more than that I agree with the decision of the learned Judge for the reasons given by him. The second point gives rise to more difficulty. The rules to be applied in determining whether a given act or series of acts amounts to such part performance as obviates the necessity for a memorandum in writing are reasonably clear; the difficulty lies in applying these rules to a particular state of facts. A careful consideration of a great number of authorities, and especially of the speech of Lord Selborne L.C. in Maddison v. Alderson, leads me to the conclusion that these rules may be summarized thus: – (1) The acts relied on must be unequivocally and in their own nature referable to some such agreement as that alleged (Maddison v. Alderson). I think the meaning of this statement is most clearly expressed by Wigram V.C. in Dale v. Hamilton, where he says: “It is, in general, of the essence of such an act that the Court shall, by reason of the act itself, without knowing whether there was an agreement or not, find the parties unequivocally in a position different from that which, according to their legal rights, they would be in if there were no contract”. By the words “some such agreement as that alleged” I understand some agreement for the disposition of some estate or interest in the land in question. (2) The acts proved must be such as to render it a fraud in the defendant to 90

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Cooney v Burns cont. take advantage of the contract not being in writing (Fry on Specific Performance, 6th ed., sec. 580). It is, I think, involved in propositions 1 and 2 that the circumstances in which the acts relied on were done must be proved. (3) When acts fulfilling the conditions expressed above have been proved, evidence becomes admissible to prove a parol agreement (Frame v. Dawson). “The previous question as to the sufficiency of the part performance must be settled before the construction and operation of the unwritten contract can be legitimately approached” (Maddison v. Alderson, per Lord O’Hagan). (4) In order that the plaintiff may succeed he must establish by clear evidence the agreement alleged by him, and it must appear that the acts relied on as acts of part performance were done for the purpose and in the course of performing that agreement and with no other view or design than to perform it. (5) Another rule, but one not relevant to the question which arises in this case, is that the agreement sued on must be of such a nature that the Court would have jurisdiction to enforce it specifically if it had been in writing. From the application of these rules to the varied circumstances of a great number of cases certain qualifications of a negative character may be deduced. It is settled that payment of part of the purchase-money is not of itself and apart from other circumstances – e.g., delivery of possession – a sufficient act of part performance to take a case out of the statute (Fry on Specific Performance, sec. 613). The best explanation of this doctrine is said by Lord Selborne in Maddison v. Alderson to be that the payment of money is an equivocal act and not in itself, until the connection is established by parol testimony, indicative of a contract concerning land. And it is said that acts subsequent to the contract and even in pursuance of it, if not strictly in performance of the contract as between the parties to it but preparatory to such performance, cannot be taken as part performances (Fry on Specific Performance, sec. 625). The cases illustrating this statement are difficult to reconcile either with one another or with the general rules propounded by Lord Selborne, but most, if not all, of them may be explained by the suggestion that “acts of this sort may be, and for the most part are, the mere acts of the party doing them: the other party is not necessarily cognizant of them, and consequently he is not so bound by them as to render it fraudulent in him subsequently to refuse to carry the contract into effect” (Fry on Specific Performance, sec. 625). Turning to the relevant findings of the jury in this case, they may be stated thus: “The lease of the hotel was handed to the plaintiff’s solicitors under instructions from the defendant for the purpose of having prepared an assignment of the lease and an application for a transfer of the licence and the plaintiff’s solicitors prepared an assignment of the lease and the notices of application for transfer of licence.” The lease remained in possession of plaintiff’s solicitors, and was produced by them at the trial. I do not think the answers of the jury to questions 3 and 4 assist the plaintiff. The question then is whether the handing over of the lease, in the circumstances found by the jury, and the preparation of the assignment and notices resulting in the plaintiff expending money or incurring liability are such acts as would warrant the admission of evidence to prove that the agent was authorized verbally to make the agreement alleged. In my opinion the act of handing to plaintiff’s solicitors the original lease – an act done by the direction of the defendant, the lessee – is unequivocally and in its nature referable to some agreement between the plaintiff and the defendant relating to the land demised by the lease. The finding of the jury established that the lease was handed to the plaintiff’s solicitors on the instructions of the defendant. Leaving out of consideration the finding as to the purpose with which this act was done as possibly depending on evidence of conversations, the fact of the defendant causing his title-deed to be handed to solicitors acting for another person – a stranger – seems to me to be consistent only with the existence of some agreement between the defendant and that other person relating to the leasehold premises. It is, of course, possible that in some cases a title-deed may come into the possession of some person other than the owner in circumstances which would not necessarily imply an agreement for the disposition of any interest in the land by the owner to that person. For instance, [3.40]

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Cooney v Burns cont. the circumstances established by the evidence might show that the deed had been stolen or improperly obtained, or that it was handed to the owner’s solicitor or banker for safe custody, or that it was lent by the owner to some person to serve as a precedent. So in the case of possession of land it might appear that possession was obtained wrongfully or that the person in possession was a gratuitous licensee. But the finding of the jury negatives the existence of any such circumstances in this case. The inevitable inference to be drawn from the possession by one person of the title-deeds of another, in the absence of explanatory circumstances, appears to me to be that some agreement relating to the land covered by the deeds has been made between those persons. This may be illustrated by reference to cases of equitable mortgage. It is well settled that a verbal agreement to give a mortgage is valid, notwithstanding the Statute of Frauds, if the title-deeds are in the possession of the proposed mortgagee. According to Lord Selborne (Maddison v. Alderson) the law of equitable mortgage by deposit of title-deeds depends on the same principles as the doctrine of part performance regarded as an answer to the defence of the Statute of Frauds. The decisions in cases relating to equitable mortgage establish: (1) that a valid equitable mortgage cannot be created by a mere parol agreement to give a legal mortgage if the deeds remain in the possession of the proposed mortgagor; (2) that a valid equitable mortgage can be created by a mere parol agreement to give a legal mortgage if deeds have been handed over to the proposed mortgagee where his possession of the deeds cannot be otherwise explained (Russel v. Russel; James v. Rice). The importance of the possession of the title deeds in cases of agreement to give a security over land is therefore apparent. I think it follows from the decisions that, if the agreement alleged by the plaintiff in the present case had been an agreement to assign the lease by way of mortgage, proof of the fact that the original lease had been handed over by the defendant, or by his instructions, to the plaintiff’s solicitors for the purpose of preparing a legal mortgage, would have rendered admissible evidence of a verbal agreement to assign the lease by way of mortgage, if the circumstances were such as to render it a fraud in the defendant to take advantage of the fact that the contract was not in writing – e.g., if money had been advanced or the creditor had forborne to press for payment. Does the fact that the agreement alleged is an agreement to assign the lease absolutely and not merely by way of mortgage make any difference? I think not, provided the other circumstances exist. In either case the assignor is bound by the agreement to hand over the original lease to the assignee on the completion of the contract, and the obligation to do so is no less binding than the obligation in the case of an absolute assignment to deliver possession of the premises. The fact that in either case the delivery of the lease takes place before completion does not make that act any the less a performance of a duty imposed on the assignor by the agreement. If possession of the land be given to a purchaser before completion, it is, as I understand, conceded that the giving of possession is an act of part performance sufficient to take the case out of the statute. I see no difference in principle in this respect between giving possession of the land and handing over the title-deeds. Each is an act which the vendor is bound by the contract to perform upon, and not until, completion of the contract. Applying the language of Kay J. in McManus v. Cooke, I am of opinion that this act – the handing over to the plaintiff’s solicitors of the title-deeds by the defendant – could not have been done by the defendant in the circumstances of this case without some agreement with the plaintiff, and according to Morphett v. Jones the Court is bound to inquire what that agreement was. The next question is whether on the facts found by the jury it would be a fraud in the defendant to take advantage of the contract not being in writing. The jury found (1) that the lease was handed to the plaintiff’s solicitors under instructions from the defendant for the purpose of having prepared an assignment of the lease and an application for a transfer of the licence. It was the duty of the plaintiff as purchaser to prepare these documents, and their preparation must necessarily involve the plaintiff in expense, and the jury has found that the documents were in fact prepared. I agree with Mann J. in 92

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Cooney v Burns cont. thinking that these findings show an expenditure of money by the plaintiff in the carrying out of the agreement, and that they show that the expenditure was made (or the liability incurred) with the knowledge and consent, and indeed with the assistance, of the defendant. In my opinion the fact that this expenditure was made or liability incurred with the knowledge and consent and assistance of the defendant is sufficient to render it a fraud in him to take advantage of the contract not being in writing. I do not think the fact that the expenditure or liability was small in amount affects the position. The plain fact is that the defendant by his conduct induced the plaintiff to incur a liability on the footing that the contract for sale of the property to him was a valid contract, and I see no reason to doubt that the conduct of the defendant in attempting subsequently to dispute the validity of the contract was dishonest, and therefore fraudulent. The requirements of the 1st and 2nd rules stated above having been complied with, evidence of the verbal authority given to Kelly became admissible. On the evidence the jury found that Kelly had authority to make the contract sued on, and as that contract was in writing no difficulty existed as to the proof of its terms. I think it follows necessarily from the findings of the jury that the acts relied on as acts of part performance were done for the purpose and in the course of performing the agreement alleged and with no other view or design than to perform it. It is plain that by force of the contract it became the duty of the plaintiff to prepare and tender for execution by the defendant an assignment of the lease (Poole v. Hill), and failure to do so would amount to a breach of contract on his part. But it was argued that the preparation of a conveyance is not in itself such an act of part performance as will suffice to take a case out of the statute. The answer to this argument appears to me to be that it is not on that act alone the plaintiff relies, but on that act coupled with the conduct of the defendant in handing over the lease – for the very purpose of having the assignment prepared. The preparation of the assignment of itself proves nothing more than that the plaintiff acted in the manner in which the defendant invited him to act for the purpose of performing the contract. The important act is the delivery of the original lease. It is this act which furnishes the evidentia rei referred to by Lord Selborne in Maddison v. Alderson as requisite to connect the alleged part performance with the alleged agreement. And in the same speech Lord Selborne said: – “It” (the statute) “has in view the simple case in which he is charged upon the contract only, and not that in which there are equities resulting from res gestæ subsequent to and arising out of the contract. So long as the connection of those res gestæ with the alleged contract does not depend upon mere parol testimony, but is reasonably to be inferred from the res gestæ themselves, justice seems to require some such limitation of the scope of the statute, which might otherwise interpose an obstacle even to the rectification of material errors, however clearly proved, in an executed conveyance, founded upon an unsigned agreement.” The res gestæ in this case are the delivery of the lease to the plaintiff’s solicitors and the preparation by them of the assignment. The parol evidence as to the purpose for which the lease was handed over is important mainly, if not solely, to negative any suggestion or inference that the lease might have been handed over with some other view or design than to perform the agreement. On the whole, I am of opinion that the facts found by the jury bring this case within the rules governing the application of the doctrine of part performance, and that there is no decision which makes it incumbent on me to hold that the plaintiff is not entitled to succeed. The decision in Edge v. Worthington appears to me to support the conclusion at which I have arrived. The plaintiff in that case alleged a verbal agreement to execute a legal mortgage and a subsequent delivery of the deeds to the solicitor for the purpose of enabling him to prepare a mortgage. This delivery was held a sufficient act of part performance to avoid the operation of the statute, and a declaration was made that the verbal agreement amounted to a valid agreement to execute a mortgage. It is true that the deposit of the deeds gave the creditor a lien on them, but it is clear that, apart from the verbal agreement to give a mortgage, the creditor would not have been entitled to obtain a decree for foreclosure—and that was [3.40]

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Cooney v Burns cont. the decree that was made. The fact that the deposit constituted a lien was not put forward by the Master of the Rolls as supporting the decree for foreclosure, nor could it do so. ISAACS J: Two questions of considerable importance have arisen in this appeal. The first is whether the equitable jurisdiction to order specific performance on the ground of part performance exists where sec. 229 of the Instruments Act 1915 applies, and the other is what constitutes the necessary part performance to attract that jurisdiction. The objection raised to the jurisdiction in this case is based on the argument that sec. 229 is a modern statute and must be left to its full operation, unqualified by any equitable jurisdiction on the ground of fraud. Passing by the fact that the whole Instruments Act is modern, one sufficient answer is that in reality sec. 229 is only an addendum to, or extension of, sec. 228, and creates an additional case of the same nature as one finds in the earlier section. Its opening words, “Notwithstanding anything in this Act contained”, are connective, and in a sense are also limiting. To accord with the objection the opening words should read “Notwithstanding anything in this Act contained or any doctrine of equity”. The Legislature must be taken to have been fully aware of the equitable jurisdiction then exercised as stated generally by Lord Westbury in McCormick v. Grogan, acted on by the House of Lords in French v. French (see per Lord Davey), a jurisdiction constantly applied to contracts for the sale of land, notwithstanding the principals or their agents had not signed the contract itself or a memorandum of it. The nature of the jurisdiction I have, in collaboration with my learned brother Rich, stated in McBride v. Sandland; and to that statement I refer. No reason can be assigned for attributing to the language of the section the intention of Parliament to exclude the jurisdiction where the principals had not written their authority to their agents to make the contract. The fraud is as great in the one case as in the other. I therefore reject the contention. With respect to the second question, I am equally unable to accept the invitation on the part of the respondent to give a wider scope to the jurisdiction than we already find established in the cases. The suggestion was that the modern tendency was to broaden the Court’s repression of fraud. That may be so in some classes of cases where the Court is not confronted with specific legislation. But here there has been distinct legislation, and, while it has left unimpaired the principle as it then stood, it would, in my opinion, be wholly improper, in face of the declared policy of Parliament, for any Court to enlarge the principle, because that would be really narrowing the intended operation of the enactment. Whatever circumstances, however varied or novel, fairly fall within the ambit of the equitable doctrine as we find it already established are, of course, subject to its influence; but beyond that we cannot legitimately go. The principle enunciated by Lord Westbury in the passage above referred to must be qualified by the consideration stated by Lord Selborne L.C. in Maddison v. Alderson. Indeed, as to this, Lord Cranworth L.C. in Nunn v. Fabian said: “I should yield to no Judge of a Court of equity in my desire to refrain from extending the cases in which the Court gets over the Statute of Frauds; but there being an established rule on this subject, a Judge ought not to depart from it.” This followed the view of Lord Redesdale in Lindsay v. Lynch. Lord Selborne in Maddison v. Alderson, eighty years after Lord Redesdale, also inculcates the propriety of observing limits. The concrete problem for us is whether in this case certain “acts” constitute, either severally or in conjunction, sufficient part performance of the contract so as to support a decree for specific performance. Those acts are: (1) the taking of the inventory; (2) the appellant’s handing his lease to the respondent’s solicitor; and (3) the respondent’s incurring expense relative to the preparation of the assignment and of the application for transfer of the licence. For the respondent it was argued that the performance of any obligation arising out of the contract, as, for instance, showing a good title, is “part performance” in the required sense of the term, if proved to be done with the assent of the other party and on the faith of the bargain being binding. It 94

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Cooney v Burns cont. was even argued that any act whatever, if prejudicial to the plaintiff, would equally suffice, if shown to be done with defendant’s assent on the faith of the agreement being obligatory. It is not, in my opinion, necessary to say more as to these broad contentions than that they confuse ratification with part performance and have no countenance from any of the cases, and, further, are opposed to the reasons and citations of the learned Lords in Maddison v. Alderson, as, for instance, per Lord Selborne, and are directly contrary to the statement of Bowen L.J. in Ex parte Broderick; In re Beetham. There may, of course, be cases where a party estops himself from asserting some fact, but that depends on ordinary rules of estoppel, and, if properly pleaded and proved, would be effectual. But that is quite outside the present subject, and no such question can arise here, for it appears by unchallenged evidence that the respondent expressly admitted at the trial the fact that no written instructions were given by the appellant to his agent. I do not think the problem a very difficult one, if we have regard to the landmarks of undoubted authority that we find erected along the road that has run for two centuries in this region of the law. I do not mean to say there have not been some deviations from the path. Various Judges, as, for instance, Lord Redesdale in Clinan v. Cooke, have recognized that there have been deviations, but no case brought under the notice of the Court has gone so far as we are invited to go in this case. No argument was addressed to us on the effect of conjunction, to show its significance in this case. The combination of several acts of true part performance might create the importance of the part performance relied on, which equity requires in such a case. But I am quite unable to see how the mere multiplicity of distinct acts, none of which separately answers the necessary description, can change the essential nature of any of them. And it is the essential nature of the acts referred to which we have to determine, no question being raised as to the sufficiency of their importance. We are then brought face to face with the broad question: What is meant by “part performance” of a contract for the sale and purchase of land? What are the limits of the equitable doctrine; or, in other words, what test should be applied to any given case in order to determine whether a suggested “act” is one of “part performance”? In McBride v. Sandland an attempt was made to formulate some of the elements that are required to raise the necessary equity. It was not necessary there to consider the one important point we have to deal with here, but some of the propositions there stated are essential steps. Two of them, Nos. 3 and 7, were examined, though questioned, and as to these, and particularly as to No. 7, I may at once say my opinion then expressed has been confirmed. But in that case it was not necessary, as it is here, to go on and ascertain what class of acts are understood in equity as “part performance” because possession of and improvements in the land were admitted. Here that question presents itself sharply. There is nothing occult about the term “part performance”. It means on its face partial, but not complete, performance of the contract between the vendor to sell and the purchaser to purchase the land. What is the “sale” and the “purchase” of the land? It is not the contract for the sale and purchase—though that is colloquially referred to as if it were. From the standpoint of law the sale and purchase of land does not occur until the property is transferred. “Sale” connotes transfer of ownership. The contract for sale does not transfer the ownership. Sometimes it is assumed that it does so in equity. So it does, provided the circumstances are such that a Court of equity would decree specific performance, but not otherwise (Central Trust and Safe Deposit Co. v. Snider — see also Plimmer v. Mayor of City of Wellington and per Jessel M.R. in Walsh v. Lonsdale). A suit for specific performance is essentially a suit for enforcing a stipulated obligation relating to property. The word “contract” itself primarily means a transaction which creates personal obligations; but it may, though less exactly, refer to transactions which create real rights (per Lord Buckmaster for the Privy Council in Maharaja Ranjit Singh v. Maharaj Bahadur Singh). If the personal obligations are such that according to the rules of equity operating on the conscience of the defendant it is right specifically to enforce the performance of the contract, then, and then only, does equity regard the [3.40]

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Cooney v Burns cont. purchaser as owner of the property. The question then is what is the test which equity applies to such a case as the present? It is not the same as in other cases where the law recognizes an enforceable contract but gives only a limited remedy. There the right is purely contractual and equity interposes, if at all, only with a remedy which law does not afford. In the present class of cases the right, if any, is not contractual, and at law none exists. Equity searches first for the right, and then, and then only, applies a remedy. And in searching for the right a special test is applied. It is not simply “fraud” (see per Wigram V.C. in Dale v. Hamilton, cited by Lord Selborne in Maddison v. Alderson). It is fraud of a special kind. It is fraud arising from “part performance” of the contract, or, in other words, part execution of the agreement. And the jurisdiction to compel performance of an agreement struck at by the statute does not arise unless the bargain in fact made, though devoid of an enforceability either at law or in equity, has been so acted upon by partly performing it that for the defendant to recede from it at that stage would be a fraud on the plaintiff. The essential nature of the acts constituting part performance may be gathered from cases of commanding authority. In Lester v. Foxcroft it is stated that, “in performance of the agreement, appellant entered into” the land; and that was Lord Redesdale’s view of it in Bond v. Hopkins. In Hawkins v. Holmes Lord Macclesfield speaks of “an execution of the contract by entering upon and improving the premises.” In Pembroke v. Thorpe Lord Hardwicke says: “As to the admeasurements, I do not look upon that as a performance of any part of the agreement;”” and he calls it “only a step towards the performance”. And then he adds, to show exactly what he means: “Here ought to have been a parting with the interest in some measure, otherwise the Court cannot decree a performance”. Therefore the Lord Chancellor refused a decree as to the contract of exchange. But as to the building agreement he granted a decree, because the defendant pulled down a house and took away the materials and used them, and that was part performance. In Whitbread v. Brockhurst Lord Thurlow says: “I do not recollect any case where an act merely introductory or ancillary to the agreement, though attended with expense, has been held a part performance.” To this Mr. Madocks replied: “I believe there is not any such case.” And at p. 417 the Lord Chancellor says: “I always thought the Court considered it as fraudulent in the party to make the contract, and to lead on the other party to lay out his money in the melioration of the estate, and then to withdraw from the performance of the contract.” In Cooke v. Tombs Macdonald C.B. says: “To take the case out of the statute, there must be a part execution of the substance of the agreement itself.” In Clinan v. Cooke Lord Redesdale says that entering into possession “in pursuance of an agreement” is part performance, and, unless complete performance followed, it would be a fraud on the man admitted into possession as exposing him to an action for trespass. In Kine v. Balfe Lord Manners L.C., referring to possession taken, and rent paid pursuant to the terms of the contract, asks: “Is not this then an act substantially in part performance of the contract?” In Nunn v. Fabian Lord Cranworth L.C. held (1) that the plaintiff’s alteration of his shop-front at a cost of more than £100 at the defendant’s request, was not part performance, the parol agreement being silent as to this, and (2) that payment of the new rent, the plaintiff continuing in possession, was part performance. In Caton v. Caton the same learned Lord says: “The right to relief … rests not merely on the contract, but on what has been done in pursuance of the contract.” What his Lordship means by that is shown on p. 148, where he adds: “When one of two contracting parties has been induced, or allowed by the other, to alter his position on the faith of the contract, as for instance by taking possession of land, and expending money in building or other like acts, there it would be a fraud,” &c. Finally on this point I cite a passage from Lord Selborne’s speech in Maddison v. Alderson:— “The acts of part performance, exemplified in the long series of decided cases in which parol contracts concerning land have been enforced, have been (almost, if not quite, universally) relative to the possession, use, or tenure of the land. The law of equitable mortgage by deposit of title-deeds depends upon the same principles.” It is convenient for brevity to quote a passage in note (1) to Hawkins v. Holmes, as follows: “Where one party has been permitted by the other to act upon a parol 96

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Cooney v Burns cont. agreement, it is considered as a species of fraud in the latter to insist upon the statute as a bar to a specific performance of the whole agreement”; and the cases are there cited. In Caton v. Caton Lord Cranworth says: “If I agree with A, by parol, without writing, that I will build a house on my land, and then will sell it to him at a stipulated price, and in pursuance of that agreement I build a house, this may afford me ground for compelling A to complete the purchase, but it certainly would afford no foundation for a claim by A to compel me to sell on the ground that I had partly performed the contract.” On the other hand, possession given to the purchaser on the faith of an agreement to sell may operate so as to make it a fraud on either party if the other repudiates (Wilson v. West Hartlepool Railway Co.). Other cases quoted in Maddison v. Alderson I need not further mention, but in that case itself is found an important passage in Lord Selborne’s judgment, as follows: “It is not enough that an act done should be a condition of, or good consideration for, a contract, unless it is, as between the parties, such a part execution as to change their relative positions as to the subject matter of the contract.” These authorities show that the Court in order to found its jurisdiction inquires whether with the concurrence of the plaintiff, and on the basis that the agreement would be carried on to completion by legal conveyance, the defendant has gone so far, if purchaser, in directly or indirectly exercising, or, if vendor, in permitting the purchaser directly or indirectly to exercise, rights of ownership over the property which the sale, if formally effected, would connote, that it would be a fraud on the plaintiff unless the ownership were completely transferred by formal sale upon the terms in fact agreed to. Crystallizing that statement, for present purposes, there is always in part performance the actual transfer by enjoyment, directly or indirectly, of some right of ownership which the legal title would confer. Maitland on Equity, at p. 242, brings the position to very much the same point. In the early case of Butcher v. Stapely, referred to by Lord Selborne in Maddison v. Alderson, there are some suggestive words of the then Lord Chancellor quoted by Lord Selborne. Those words are: “that in as much as possession was delivered according to the agreement, he took the bargain to be executed.” Whether the suggestion that the equitable doctrine of part performance originated in the then well known, and up to a comparatively late date common, method of conveying land by parol and livery of seisin (see Challis, 3rd ed., p. 47) is correct or not, the words in question are consistent with that suggestion, and the suggestion is not improbable. And equally consistent is the way in which the principal authorities I have referred to have confined the operation of the doctrine, so as to create the test I have mentioned. How then do the “acts” proved in this case answer the test? (1) The taking of the inventory was not a part of the agreement, either expressly or impliedly. As a convenient or as a prudent act, nothing can be said against it; but it is weaker than the shopfront alteration in Nunn v. Fabian, above referred to. Besides, it had nothing to do with any right of ownership. It is clearly outside the pale of part performance. (2) The handing over of the lease:—Reading the finding, by its own words, it is not sufficient to show that the lease was handed over as the property henceforth of the purchaser. Read by the light of the uncontroverted testimony and the judgment under appeal, it is clear that the document was handed over merely for inspection, and for the limited purpose of preparing an assignment and transfer of licence and then to be handed back to the defendant. By the terms of the contract, there was no right to an assignment except upon payment of the full price—that is, £600 beyond the preliminary deposit of £50. The final instalment of £250 was not payable for some months after the lease was handed for inspection, and there is nothing in the assignment as prepared or anywhere else to show that the respondent was prepared or was proposing to pay earlier. Indeed, in the statement of claim he avers no willingness to pay £600, but only £350, the second instalment, which was to be contemporaneous with possession and transfer of licence, and not with transfer of lease. In short, the handing over of the lease for the purpose mentioned was no more than the ordinary production for inspection of title. That was what Lord Hardwicke, in Pembroke v. Thorpe, called “a step towards the performance”, and what Lord Thurlow called, in Whitbread v. Brockhurst, [3.40]

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Cooney v Burns cont. “an act merely ancillary to the agreement,” and though attended with expense is not part performance. Had the lease been handed over to be kept by the respondent permanently as owner, I am disposed to think it would have been a sufficient act of part performance. It would have been an act which a person parting with ownership by legal forms would do, and to which the new owner would be entitled. In In re Williams and Duchess of Newcastle’s Contract North J. said, “the owner of land is entitled to the custody of the title-deeds relating to it, and can maintain an action for them, even though the conveyance to him contains no express grant of the deeds.” In In re Duthy and Jesson’s Contract Romer J. marks the distinction to which I have adverted. He says: “The purchaser is not asking to have these deeds produced for the verification of or for information as to the title, but is calling upon the vendors to fulfil the ordinary obligation they are under of handing over on completion all title-deeds in their possession or power.” The analogy of equitable mortgages referred to by Lord Selborne is in point. The judgment of Cave J. in In re Beetham; Ex parte Broderick, is a clear statement on this point, and on appeal this decision was upheld. An early case on that subject contains a very useful passage. In Birch v. Ellames Macdonald C.B. says: “The deposit of title-deeds as security for a debt, is now settled to be evidence of an agreement to make a mortgage, and that agreement is to be carried into execution by the Court” &c The third “act” relied on as sufficient part performance was the incurring of legal expenses in respect of the assignment and transfer of the licence. The authorities quoted above are quite opposed to this being so considered. But Mann J. thought Child v. Comber supported it; and in the interests of good faith took that case as a foundation, having avowedly great doubt as to its power to sustain the burden. His Honor’s doubt was more than justified. In Child v. Comber the bill was in fact dismissed on the hearing. And the decision relied on was a confirmation of the order of the Master of the Rolls, who ordered the plea “to stand for an answer with liberty to except, and the benefit of it saved to the hearing”. In Mitford on Pleadings, 5th ed., p. 355, the rule is stated as follows: “If a plea be ordered to stand for an answer, it is allowed to be a sufficient answer to so much of the bill as it covers, unless by the order liberty is given to except.” In Sellon v. Lewen Lord Talbot L.C. relied on the distinction, and, because no express liberty to except was given, the plea was taken to be a sufficient answer. Child v. Comber, therefore, cannot be regarded as even a decision in favour of the respondent. In my opinion the appeal should be allowed. As the appellant was the defendant, and resisting on grounds the law permits, and openly placed his legal defence on the record, I see no reason for depriving him of the general costs of the action; but he should pay any costs exclusively caused by the issues on which he failed. As to the costs of the appeal, I think he is entitled to them. HIGGINS J: I see no reason to doubt that an act of part performance which would take a case out of the operation of sec. 228 of the Instruments Act 1915 of Victoria (sec. 4 of the Statute of Frauds) would be effective to take the case out of the operation of sec. 228 as qualified or supplemented by sec. 229. Sec. 228 provides that no action shall be brought unless a memorandum of the contract be signed by the party to be charged therewith or by some other person by him lawfully authorized; and sec. 229, following substantially the language of sec. 228, provides the further condition that no action shall be brought unless the other person be lawfully authorized “in writing signed by the party to be … charged.” The Courts of equity have for very many years treated sec. 4 of the Statute of Frauds, notwithstanding the absolute character of its negative words, as being subject to an exception in the case of a contract having been partly performed; and there is nothing in the nature of sec. 229—nothing in the nature of the requirement that any agent shall be not only authorized but authorized in writing signed &c—to warrant us in refusing to treat sec. 229 as being subject to the same exception. The exception which is to be implied to the rigid requirements of sec. 228 must, in my opinion, be implied with equal or more reason to the still more rigid requirements of sec. 229. 98

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Cooney v Burns cont. The second question is more difficult: Has the jury found in the special verdict a sufficient act of part performance? The Courts have wavered considerably in their application of the doctrine; and in their desire to do justice against a defaulting defendant they seem often to have treated acts as being sufficient part performance which ought not to be so treated. The cases on the subject cannot be all reconciled. Lord Selborne made an heroic effort in 1883, in the case of Maddison v. Alderson, to bring order to the chaos, to give system to the unsystematic; and perhaps for practical purposes, it would be well to treat that case as being, at all events primâ facie, a complete exposition of the law. Lord Selborne said:—“The acts of part performance, exemplified in the long series of decided cases in which parol contracts concerning land have been enforced, have been (almost, if not quite, universally) relative to the possession, use, or tenure of the land. The law of equitable mortgage by deposit of title-deeds depends upon the same principles.” According to this statement, it would appear that the act alleged to be an act of part performance of a contract for land cannot be so treated unless it affect the subject matter—the land—itself. In the present case the plaintiff has relied principally on the jury’s answers to questions 5 (a) and (b). According to these answers, the lease of the hotel was “handed to plaintiff’s solicitors under instructions from defendant for the purpose of having prepared an assignment of the lease and an application for a transfer of the licence; and the plaintiff’s solicitors prepared an assignment of the lease and the notices of application for transfer of the licence.” Personally, I should doubt whether these findings involve the proposition that the handing of the lease and the preparation of the assignment and notices took place under the instructions or with the cognizance of the plaintiff. The fault in the language of the question is not the fault of the learned Judge, for he followed the language of the pleading (reply, par. 2 (d)). But I shall assume that the plaintiff was privy to these acts, and that he became liable to pay his solicitors for their work: Do these acts constitute a sufficient part performance? Now, no case has been cited to us in which the handing over of title-deeds for the preparation of a conveyance and the preparation itself have been held to be a sufficient part performance. On the contrary, in Cooke v. Tombs it was held that the joint instructing of a solicitor to draw the conveyance, and his doing so, and the approval of both parties to the conveyance are no part performance, no “part execution of the substance of the agreement itself.” In the case of Hawkins v. Holmes a solicitor was employed by the consent of both parties to make a draft conveyance, and he made a draft which the defendant altered and delivered to the solicitor to engross; yet it was held to be no part performance. The same principle was affirmed in Whitbread v. Brockhurst, where in pursuance of the agreement certain timber was valued by an appraiser at considerable expense. The Lord Chancellor said: “I do not recollect any case where an act merely introductory or ancillary to the agreement, though attended with expense, has been held a part performance.” By the word “introductory” I understand introductory to the performance of the contract. An act introductory to the making of a contract would be an act done before there is an contract, before there are any rights created in pursuance of which the plaintiff acts. This is the only meaning consistent with the expressions of the Master of the Rolls in Phillips v. Edwards that “part performance … means, the parties on both sides acting as if the agreement had been carried into execution” The words “part performance of a contract” are clear in themselves; they do not mean part performance of an expected contract. As Lord Selborne puts it in Maddison v. Alderson, “in a suit founded on … part performance, the defendant is really ‘charged’ upon the equities resulting from the acts done in execution of the contract, and not (within the meaning of the statute) upon the contract itself.” But the drawing of a conveyance, as was pointed out in Cooke v. Tombs, is no “part execution of the substance of the agreement itself.” The substance of the agreement is the transfer of the possession and use of the land with the title thereto; and there has been no performance in part of that substance. Indeed, Lord Blackburn failed to discover any case of part performance established “in which there has not been a change in the possession of the land, or, in the case where the purchaser was a tenant already in possession, a change in the nature [3.40]

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Cooney v Burns cont. of his tenure”. In Whitchurch v. Bevis it was held that neither the delivery of the deeds nor the appointing of an appraiser was sufficient part performance; and see Redding v. Wilkes; Clerk v. Wright. In the case of O’Reilly v. Thompson the principal ground of decision was that though the plaintiff had procured the release of some claim of a third party, the procuring of the release was merely a condition annexed to the existence of any contract; but it is noteworthy that the delivery of the original lease by the vendor and the tender of the sublease drafted by the plaintiff were not treated as a part performance. As I infer the position, the acts of part performance must be such as would involve a fraud on the party performing unless the agreement be fully performed (Gunter v. Halsey; Clinan v. Cooke; Buckmaster v. Harrop). The doctrine in many respects closely resembles the doctrine of estoppel by representation; but in the estoppel by representation the party relying on estoppel is not confined to acts done in furtherance of a contract as he is in the case of part performance; and the representation must be of an existing fact, not a promise (Jorden v. Money). This doctrine is applied to such acts as the taking possession of the land, or the erecting of a limekiln, or the digging of foundations for a house, or the preparing of materials (Savage v. Carroll); but the doctrine is not treated as being applicable to acts done which are either preparatory or ancillary to performance, even though they involve some expense to the plaintiff. So far as the precedents are known to me, so far as I have traversed “the wilderness of single instances,” I should have no hesitation in saying that there is no ground for applying the principle of part performance to a contract for land where the only things done are (a) the handing over of the title to the plaintiff’s solicitor to prepare the conveyance and (b) his preparation thereof. The case of Child v. Comber, on which reliance was placed for the plaintiff below, is not, as my brother Isaacs pointed out, an authority for the plaintiff. The plea of the Statute of Frauds was merely ordered “to stand for an answer with liberty to except, and the benefit of it saved to the hearing,” until the answer should admit or deny the agreement; and the bill was in fact dismissed at the hearing. The Lord Chancellor, it is true, said that “the fees paid to the counsel, the drawing of the drafts, and engrossing them, and the plaintiff providing his purchase-money, are as much an execution of it” (the agreement) “on his part, as the laying out money on the buildings was in the other case”; but there is no decision that such acts, though in execution of the contract, are sufficient to prevent the application of the statute. The only matter that causes me to hesitate in the present case is the comparison with the doctrine of equitable mortgage by deposit of title-deeds. Even Selborne L.C., when saying that the acts of part performance treated as sufficient have related to the possession, use or tenure of the land, adds that “the law of equitable mortgage by deposit of title-deeds depends upon the same principles.” In Ex parte Broderick; In re Beetham, Cave and Wills JJ. say practically the same thing; and their decision (though not this dictum) was affirmed on appeal. But, though the same principles apply, it does not follow that the acts which would be sufficient part performance in the case of equitable deposit as security for money advanced would be sufficient in the case of purchase or lease of land. Where land is purchased or leased, the subject matter is land, its possession or use; where money is lent, the subject matter is a debt to be repaid. Something in the nature of change of possession or use or tenure of the land is involved in the one contract; it is not involved in the other. Moreover, in the case of equitable mortgage by deposit, a valid lien on the title-deeds, for value received, and until repayment, is created; in the case of sale or lease, the deeds are handed over to the purchaser for the mere temporary purpose of preparing the conveyance. At all events, in the present state of the authorities it would be impossible for me to hold that the acts found here constitute a sufficient part performance of the contract of sale to take this case out of the Statute of Frauds; and our proper course is to obey the statute unless the facts of the case bring it within the exception recognized by the Courts, leaving it to the Legislature to amend the law if and so far as it thinks fit. In my opinion, the appeal has to be allowed. 100

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Cooney v Burns cont. GAVAN DUFFY J: In this case two points were argued for the appellant: first, it was said that the respondent had not established any part performance of the contract, and, secondly, that part performance could not cure non-compliance with the provisions of sec. 229 of the Instruments Act 1915. I agree with the judgment of my brother Higgins on the first point, and it is therefore unnecessary to express any opinion on the second. STARKE J: this action was tried before a jury, which found that the lease of an hotel was handed over to the plaintiff’s solicitors under instructions from the defendant for the purpose of having prepared an assignment of the lease and an application for a transfer of the licence of the hotel, and that the solicitor accordingly prepared the assignment and notices of application for a transfer. Mann J. held that these facts constituted such part performance of the contract alleged in the statement of claim and found by the jury as was sufficient to take the contract out of the Statute of Frauds (Instruments Act 1915 (Vict.), sec. 228). The question to be decided by this Court is whether he was right in so holding. Numerous cases have been cited to us, but the principle which governs the present case is stated in the following propositions contained in the speech of Selborne L.C. in the House of Lords, in the well-known case of Maddison v. Alderson:—(1) “The acts relied upon as part performance must be unequivocally, and in their own nature, referable to some such agreement as that alleged” in the case. (2) “It is not enough that an act done should be a condition of, or good consideration for, a contract, unless it is, as between the parties, such a part execution as to change their relative positions as to the subject matter of the contract”. If the relative positions of the parties are changed as to the subject matter of the contract, then the defendant “is really ‘charged’ upon the equities resulting from the acts done in execution of the contract, and not (within the meaning of the statute) upon the contract itself”. (3) “Acts relative to the possession, use, or tenure of the land” are the type of acts which establish a change in the relative positions of the parties as to the subject matter of the contract. The Lord Chancellor did not say that acts of this character were the only acts that could establish a change in the relative positions of the parties as to the subject matter of the contract, but he added that the decided cases were “almost, if not quite, universally” of the above type. The act found by the jury in this case is, I think, unequivocally and of its own nature referable to some such agreement as is alleged by the plaintiff, but it does not change the relative positions of the parties as to the subject matter of the contract, namely, the land. The delivery of the lease for the purpose of preparing an assignment did not alter the title in the land, it did not affect the possession or the right to possession of the land, and it did not affect the use of the land or touch or concern the land in any way whatever. A deposit of title-deeds by way of security affects the title to the land, and therefore alters the position of the parties as to the land itself. So, again, the laying out of money in improvements on the land changes the position of the parties in relation to the use of the land. On the contrary, any acts preparatory to the completion—not the formation—of the contract do not alter the position of the parties in relation to the land. Examples of this latter class of case may be found in Maddison v. Alderson, and, in my opinion, the present case falls within the same category. The finding that an inventory of furniture was taken in performance of the contract stands in no different position. The error in the judgment below resides partly in the view that once a claim for equitable relief of some kind is established by the plaintiff, then the Court will examine the whole circumstances existing between the parties and give complete relief, and partly in the assertion that the main act in question here may rightly be said to be one relative to the possession or to the use or tenure of the land. The first proposition is much too broadly stated; and the second is unconvincing, for it does not demonstrate the relation between the act and the possession, use or tenure of the land. Child v. Comber is, as my brothers Isaacs and Higgins have shown, no authority for the decision of Mann J. As to the other argument urged before us, that the doctrine of part performance has no application to cases involving sec. 229 of the Instruments Act 1915, I agree that Mann J. was right in rejecting it, [3.40]

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Cooney v Burns cont. and I concur in the opinions of my brothers Isaacs and Higgins on this point.

Lysaght v Edwards [3.55] Lysaght v Edwards (1876) 2 Ch D 499 Chancery Division JESSELL MR: It appears to me that the effect of a contract for sale has been settled for more than two centuries; certainly it was completely settled before the time of Lord Hardwicke, who speaks of the settled doctrine of the Court as to it. What is that doctrine? It is that the moment you have a valid contract for sale the vendor becomes in equity a trustee for the purchaser of the estate sold, and the beneficial ownership passes to the purchaser, the vendor having a right to the purchase-money, a charge or lien on the estate for the security of that purchase-money, and a right to retain possession of the estate until the purchase-money is paid, in the absence of express contract as to the time of delivering possession. In other words, the position of the vendor is something between what has been called a naked or bare trustee, or a mere trustee (that is, a person without beneficial interest), and a mortgagee who is not, in equity (any more than a vendor), the owner of the estate, but is, in certain events, entitled to what the unpaid vendor is, viz, possession of the estate and a charge upon the estate for his purchase-money. Their positions are analogous in another way. The unpaid mortgagee has a right to foreclose, that is to say, he has the right to say to the mortgagor, “Either pay me within a limited time, or you lose your estate,” and in default of payment he becomes absolute owner of it. So, although there has been a valid contract of sale, the vendor has a similar right in a Court of Equity; he has a right to say to the purchaser, “Either pay me the purchase-money, or lose the estate.” Such a decree has sometimes been called a decree for cancellation of the contract; time is given by a decree of the Court of Equity, or now by a judgment of the High Court of Justice; and if the time expires without the money being paid, the contract is cancelled by the decree or judgment of the Court, and the vendor becomes again the owner of the estate. But that, as it appears to me, is a totally different thing from the contract being cancelled because there was some equitable ground for setting aside. If a valid contract is cancelled for non-payment of the purchase-money after the death of the vendor, the property will still in equity be treated as having been converted into personalty, because the contract was valid at death; while in the other case there will not be conversion, because there never was in equity a valid contract. Now, what is the meaning of the term “valid contract”? “Valid contract” means in every case a contract sufficient in form and in substance, so that there is no ground whatever for setting it aside as between the vendor and purchaser – a contract binding on both parties. As regards real estate, however, another element of validity is required. The vendor must be in a position to make a title according to the contract, and the contract will not be a valid contract unless he has either made out his title according to the contract or the purchaser has accepted the title, for however bad the title may be the purchaser has a right to accept it, and the moment he has accepted title, the contract is fully binding upon the vendor. Consequently, if the title is accepted in the lifetime of the vendor, and there is no reason for setting aside the contract, then, although the purchase-money is unpaid, the contract is valid and binding; and being a valid contract, it has this remarkable effect, that it converts the estate, so to say, in equity; it makes the purchase-money a part of the personal estate of the vendor, and it makes the land a part of the real estate of the vendee; and therefore all those cases on the doctrine of constructive conversion are founded simply on this, that a valid contract actually changes the ownership of the estate in equity. That being so, is the vendor less a trustee because he has the rights which I have mentioned? I do not see how it is possible to say so. If anything happens to the estate between the time of sale and the time of completion of the purchase it is at the risk of the purchaser. If it is a house that is sold, and the house is burnt down, the purchaser loses the house. He must insure it himself if he wants to provide against such an accident. If it is a garden, and a river 102

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Lysaght v Edwards cont. overflows its banks without any fault of the vendor, the garden will be ruined, but the loss will be the purchaser’s. In the same way there is a correlative liability on the part of the vendor in possession. He is not entitled to treat the estate as his own. If he wilfully damages or injures it, he is liable to the purchaser; and more than that, he is liable if he does not take reasonable care of it. So far he is treated in all respects as a trustee, subject of course to his right to being paid the purchase-money and his right to enforce his security against the estate. With those exceptions, and his right to rents till the day for completion, he appears to me to have no other rights. … I now come again to the will before me. First of all, there is a charge of “such part of my real estate as consists of my messuage, farm, and lands at Arlsey aforesaid, called the Bury Farm, in exoneration of my personal estate with the payment of my debts, and of the pecuniary legacies aforesaid;” and, subject to the trust hereinafter contained for sale of the same hereditaments, he directs the debts and legacies to be received under the statutory power; and then there is a general devise of all the real estate. The first question is, Is there a specific devise of Bury Farm? It is a question of some difficulty, but I think there is not. He had sold Bury Farm, he had not got Bury Farm at the time of his death; if he had not Bury Farm at the time of his death, beyond all question he could not charge it. The object of referring to Bury Farm is to charge it. It is stated to be part of his real estate, and it was at the date of his will really part of his real estate. When he says, “subject to the trust hereinafter contained,” he means subject to the trust affecting my real estate, so far that real estate includes Bury Farm, but if Bury Farm is dropped out of the charge of debits (as it was, because the will is to take effect from the time of his death), why am I to say that that which was a mere clause to shew that the general gift of his real estate was not to be done away with by the specific charge of Bury Farm – that is, that Bury Farm was still to be subject, as all his other real estate, to the trusts of his will – why am I to hold that such a clause is to prevent it dropping out of a gift of “my real estate”? I think the will must be read and interpreted by the Wills Act, and that the gift of “my real estate” is a gift of “the real estate which I shall be entitled to at the time of my death”. Then we have that followed by a devise to Mr Hubbard of “all real estate which at my death may be vested in me as trustee”. Therefore this testator actually contemplated that something might happen between the date of his will and his death, and even without the Wills Act you might well have read it as providing that “if by any reason that which is vested in me as absolute owner of my real estate shall become vested in me as a trustee, that shall go to somebody else.” That is perfectly consistent, and consequently if this estate was vested in him (as I hold it was) as trustee at the time of his death, it appears to me that it must pass to Hubbard as sole devisee.

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Note

This case has assumed such significance that reference is commonly made to the Rule in Lysaght v Edwards (1876) 2 Ch D 499. The rule is connected with the principle that equity deems to be what ought to be. However, the interest of a purchaser under a contract of sale is asserted to arise at least when the contract becomes specifically enforceable. The standard procedure in relation to contracts for the sale of land is for a defined period (30 or 45 or 60 days) between execution of the contract and settlement (the exchange of title documents for payment). [3.60]

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Extracts from Moore, Australian Property Law: Cases and Materials (5th ed), Ch 14.

Walsh v Lonsdale [3.65] Walsh v Lonsdale (1882) LR 21 Ch D 9 English Court of Appeal [In May 1879 the defendant agreed to lease to the plaintiff a mill for a term of seven years. The agreement stipulated that the plaintiff would operate at least 540 looms, the rent to be calculated according to the number of looms in operation. The agreement also allowed the defendant to demand in advance a whole year’s rent (plus arrears), if quarterly rent was not paid in advance. The defendant paid rent (to the lessor’s mortgagee), but not in advance. In March 1882 the defendant made demand for a year’s rent in advance and the balance of rent owing for that quarter, and then distrained for rent (and took possession). The plaintiff argued that as the agreement did not create a legal interest, the legal remedy of distress could not apply. He claimed damages, and sought an injunction and specic performance of the agreement.] JESSEL MR: The question is one of some nicety. There is an agreement for a lease under which possession has been given. Now since the Judicature Act the possession is held under the agreement. There are not two estates as there were formerly, one estate at common law by reason of the payment of the rent from year to year, and an estate in equity under the agreement. There is only one Court, and the equity rules prevail in it. The tenant holds under an agreement for a lease. He holds, therefore, under the same terms in equity as if a lease had been granted, it being a case in which both parties admit that relief is capable of being given by specic performance. That being so, he cannot complain of the exercise by the landlord of the same rights as the landlord would have had if a lease had been granted. On the other hand, he is protected in the same way as if a lease had been granted; he cannot be turned out by six months’ notice as a tenant from year to year. He has a right to say, “I have a lease in equity, and you can only re-enter if I have committed such a breach of covenant as would if a lease had been granted have entitled you to re-enter according to the terms of a proper proviso for re-entry.” That being so, it appears to me that being a lessee in equity he cannot complain of the exercise of the right of distress merely because the actual parchment has not been signed and sealed. Cotton and Lindley LJJ concurred.

Notes&Questions

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1.

The above case establishes a principle so well known and applied that it is popularly referred to as “The Rule in Walsh v Lonsdale”. How exactly would you formulate this rule? On what principle of equity is it based? The rule in Walsh v Lonsdale (1882) LR 21 Ch D 9 did not apply to leases only. The principle seemed applicable to any situation where there was a specifically enforceable contract or agreement for grant of any type of interest in land. Importantly the rule applied to contracts for the sale of the fee simple in land: Lysaght v Edwards (1876) 2 Ch D 499. Provided the agreement for the grant of an interest in land constituted a binding and specifically enforceable contract equity would intervene, finding that the vendor held the property on a constructive trust for the purchaser. These matters are discussed in Chapter 9.

2.

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common law formalities but who wish to claim the protection afforded to tenants by the common law of leases, in particular the requirement for a period of notice to quit. However, the rule in Walsh v Lonsdale (1882) LR 21 Ch D 9 was never designed as a tenant’s charter and is capable of working in the landlord’s favour, as in this case. What other potential applications in the context of the law of leases can you think of for this rule? 3.

An agreement for lease, binding at equity under the rule in Walsh v Lonsdale (1882) LR 21 Ch D 9, will not come into existence unless the agreement constitutes a binding contract under normal common law principles (Insearch Ltd v Kin Hing Pty Ltd [2004] ANZ ConvR 111; [2003] NSWSC 875; Inglis v Clarence Holdings Ltd [1997] 1 NZLR 268; Euston Centre Properties Ltd v H&J Wilson Ltd (1982) 262 EG 1079 at 1081; Brownsea v National Trustees Executors & Agency Co of Australasia Ltd [1959] VR 243; [1959] ALR 650 at 244 (VR)). To constitute a binding contract, the parties must have reached final agreement on the essential terms of the lease. The essential terms have been held to be the property to be leased, the rent payable, the names of the parties, and the commencement date and maximum duration of the term (see, for example, Equus Corp Pty Ltd v Antonopoulos [2008] VSCA 179; Bishop v Taylor (1968) 118 CLR 518; 42 ALJR 277; Harvey v Pratt [1965] 2 All ER 786 (CA); [1965] 1 WLR 1025; Pemberton v Dimitrijevic [2001] NSWSC 54; Picwoods Pty Ltd v Panagopoulos (2005) NSW ConvR 56-120; [2004] NSWSC 978; Long v Piper [2002] ANZ ConvR 43; (2002) NSW ConvR 56-000; [2001] NSWCA 342). In addition, the court must be satisfied that the contract is intended to be final. If the document contemplates the execution of a future lease, before it will be held to be enforceable in equity as an agreement for a lease the court must be satisfied that the future lease will merely embody the terms already agreed upon. If the court believes that the parties intend to reopen negotiations on any aspect of the terms of the lease prior to signing a formal lease, the document will not be enforceable in equity as an agreement for a lease. The issue is one of construction for the court in each case on the facts. For example, an agreement for a lease containing the phrase “subject to contract” has been held to be unenforceable in that it indicates the parties’ intention to hold further negotiations on the content of the lease (Masters v Cameron (1954) 91 CLR 353; 28 ALJR 438). For other cases on this point, see eg Hali Retail Stores Pty Ltd v Hafaz [2007] NSWSC 412; Brunswick Developments Pty Ltd v Shock Records Pty Ltd (1996) V ConvR 54-604; Lockett v Norman-Wright [1925] Ch 56; Ratto v Trifid Pty Ltd [1987] WAR 237; (1985) 56 LGRA 22; [1985] ANZ ConvR 202; and Chipperfield v Carter (1895) 72 LT 487.

4.

In addition to a binding contract, the rule in Walsh v Lonsdale (1882) LR 21 Ch D 9 will not apply unless the terms of the agreement are embodied in a signed memorandum or note in writing or unless there is part performance of the agreement. The requirement for a memorandum or note in writing is contained in State legislation based on s 4 of the Statute of Frauds 1677 (Eng) (Conveyancing Act 1919 (NSW), s 54A; Instruments Act 1958 (Vic), s 126; Property Law Act 1974 (Qld), s 59; Law of Property Act 1936 (SA), s 26; Conveyancing and Law of Property Act 1884 (Tas), s 36(1); Civil Law (Property) Act 2006 (ACT), s 204; Law of Property Act (NT), s 62. In Western Australia, s 4 of the 1677 Act remains in effect, subject to the Law Reform (Statute of Frauds) Act 1962 (WA)). In relation to the part performance requirement, [3.70]

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the act relied upon must be unequivocally, and of its own nature, referable to some such agreement as that alleged (see, for example, Maddison v Alderson (1883) LR 8 App Cas 467 at 477; [1883] All ER Rep 742 (HL); Walton Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at 432; Lighting by Design (Aust) Pty Ltd v Cannington Nominees Pty Ltd [2008] WASCA 23; McMahon v Ambrose [1987] VR 817; Regent v Millett (1976) 133 CLR 679; 10 ALR 496). This appears to represent the current Australian position. Note, however, that dicta by Lord Reid in Steadman v Steadman [1976] AC 536 at 541; [1974] 2 All ER 977; [1974] 3 WLR 56 (HL) suggest that in England the rule may be less stringent. His Lordship stated: I am aware that it has often been said that the acts relied on must necessarily or unequivocally indicate the existence of a contract. It may well be that we should consider whether any prudent reasonable man would have done those acts if there had not been a contract but many people are neither prudent nor reasonable and they might often spend money or prejudice their position not in reliance on a contract but in the optimistic expectation that a contract would follow. So if there were a rule that acts relied on as part performance must of their own nature unequivocally show that there was a contract, it would be only in the rarest use that all other possible explanations could be excluded. In my view, unless the law is to be divorced from reason and principle the rule must be that you take the whole circumstances, leaving aside evidence about the oral contract, to see whether it is proved that the acts relied on were done in reliance on a contract: that will be proved if it is shown to be more probable than not. Authorities which seem to require more than that appear to be based on an idea, never clearly defined, to the effect that the law of part performance is a rule of evidence rather than an application of an equitable principle.

For recent applications of this point of law, see Powercell Pty Ltd v Cuzeno Pty Ltd (2004) 11 BPR 21,429; [2004] NSWCA 51; Kelrit Investments Pty Ltd v Transform Composites Holdings Pty Ltd [2004] ANZ ConvR 178; [2003] FCA 662; Baloglow v Konstanidis (2001) 11 BPR 20,721; [2001] NSWCA 451; Competitive Funerals Pty Ltd v Gurmit Singh Rai t/as Blacktown City Funerals [2005] NSWSC 1171. 5.

In the context of leases, part performance may be constituted by the handing over of keys, the payment of a security deposit, the making of mortgage payments or the entry into possession and the payment of rent (Van Schaik Organic Soils & Bark Supplies Pty Ltd v Woakwine Industries Pty Ltd (2001) 215 LSJS 278; [2001] SASC 297; Laserbem Pty Ltd v Gainsville Investments Pty Ltd [2004] VSC 62; McMahon v Ambrose [1987] VR 817; Colman v Golder [1957] VR 196). In Kaufman v Michael (1892) 18 VLR 375, the alleged agreement for a lease contained a clause requiring the tenant to make certain alterations to the premises including wallpapering. The tenant carried out the alterations, but did not enter into possession or pay rent. The tenant later sought to escape from the agreement and argued that it was unenforceable in equity. What result?

6.

It is sometimes said that an agreement for a lease is as good as a lease (see, for example, Re Maughan (1885) 14 QBD 956 at 958). Do you agree? If not, why not?

7.

For recent applications of the rule in Walsh v Lonsdale, see Azkanaad Pty Ltd v Galanos Bros Pty Ltd (No 2) [2008] NSWSC 476; upheld in Azkanaad Pty Ltd v Galanos Bros Pty Ltd [2008] NSWCA 185; Fiver Trading Pty Ltd v Spajak Pty Ltd [2005] NSWSC 532; Vella v Wah Lai Investment (Aust) Pty Ltd [2004] NSWSC 748; Swanville Investment Pty Ltd v Riana Pty Ltd [2003] WASCA 121; Industrial Properties (Barton Hill) Ltd v Associated Electrical Industries Ltd [1977] QB 580

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(CA); and Tottenham Hotspur Football & Athletic Co Ltd v Princegrove Publishers Ltd [1974] 1 WLR 113. Note that it was not applied in Chronopoulos v Caltex Oil (Australia) Pty Ltd (1982) 45 ALR 481 (Fed Ct) on the basis that the rule has no application in relation to third parties. Extracts from Moore, Australian Property Law: Cases and Materials (5th ed), Ch 8.

Theodore v Mistford Pty Ltd [3.85] Theodore v Mistford Pty Ltd (2005) 221 CLR 612; [2005] HCA 45 High Court of Australia GLEESON CJ, McHUGH, GUMMOW, CALLINAN AND HEYDON JJ. This appeal requires some consideration of the principles governing equitable mortgages by deposit of a duplicate certificate of title. The principles governing the creation of an equitable mortgage by deposit of title deeds were developed by the English courts of equity with respect to old system conveyancing. This appeal concerns their application in the Torrens system, in particular to the deposit of the duplicate certificate of title to land under the provisions of the Land Title Act 1994 (Q) (“the Act”). Section 75 of the Act states: (1) An equitable mortgage of a lot may be created by leaving a certificate of title with the mortgagee. (2) Subsection (1) does not affect the ways in which an equitable mortgage may be created. The statute law in Queensland thus stands in marked contrast to the present position in England established by the decision in United Bank of Kuwait plc v Sahib. In that case, the Court of Appeal held that the principles respecting the creation of an equitable security by deposit of title deeds were inconsistent with the requirements which had been introduced by the Law of Property (Miscellaneous Provisions) Act 1989 (UK). In Queensland, the predecessor of s 75 of the Act, s 30 of The Real Property Act 1877 (Q) had declared that: an equitable mortgage or lien upon land or any estate or interest in or security upon land under the provisions of this Act or any instrument affecting any such land may be created by deposit of the instrument of title and such deposit shall subject to the provisions hereinafter contained have the same effect on the estate interest or security sought to be charged as a deposit of title deeds would have had before the passing of this Act. Before the enactment of s 30, the Supreme Court of Queensland held in In re Wildash and Kenneth Hutchison, Ex parte Miskin that an equitable mortgage might be created by deposit of the duplicate certificate of title, although, as Lilley J put it, unless protected by caveat “its practical value as a security is very doubtful, and it is not to be commended as a mode of investment”. That warning notwithstanding, the subsequent legislation in Queensland and decisions in Victoria confirmed the adaptation of this species of equitable security to Australian conditions. It should be added that the Property Law Act 1974 (Q) (“the Property Law Act”) applies to land under the provisions of the Act. Section 5(1)(b) of the Property Law Act so provides. The Property Law Act contains various provisions whose origins may be traced to the Statute of Frauds 1677 (Eng). Two are presently significant. Section 11(1)(a) of the Property Law Act provides that subject to that statute, with respect to the creation of interests in land by parol: “no interest in land can be created or disposed of except by writing signed by the person creating or conveying the same, or by the person’s agent lawfully authorised in writing, or by will, or by operation of law”. Section 59 states:

[3.85]

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Theodore v Mistford Pty Ltd cont. No action may be brought upon any contract for the sale or other disposition of land or any interest in land unless the contract upon which such action is brought, or some memorandum or note of the contract, is in writing, and signed by the party to be charged, or by some person by the party lawfully authorised. It will be necessary to refer to s 11 and to s 59 later in these reasons. The primary judge found that on 12 July 1996 Mr Glen Theodore had advised Mr Peter Klar that he was ready to proceed with the purchase of the Air Monitoring Services business. He said that he had borrowed $30,000 from his mother and that he wanted to utilise $20,000 of that money for a deposit. Mr Klar told Mr Theodore that there would be a requirement by the respondents that the duplicate certificate of title to the Buderim land be deposited with his firm. Mr Theodore told him that, while the Buderim land was in the name of his mother, he was the beneficial owner. That was untrue. On 18 July 1996, Mr Theodore attended the offices of Allan Taylor & Associates, Mrs Theodore’s solicitors. He produced to them a handwritten authority evidently composed by him. It had been signed by Mrs Theodore and authorised her solicitors to release to Mr Glen Theodore the duplicate certificate of title to the Buderim land. On the same day, Mr Glen Theodore obtained possession of the duplicate certificate of title, deposited it with the respondents’ solicitors and obtained their letter of acknowledgment addressed to him. This stated that the certificate of title was “to be held in safe custody on your behalf as security on account of the purchase from M & V Vines of the business, Air Monitoring Services”. Up to the time of the settlement of the Sale Contract on 22 July 1996, neither the respondents nor their solicitors had any direct dealings with Mrs Theodore. Before the settlement, Mr Klar advised his clients that the holding of the certificate of title was insufficient security for payment of the balance of the purchase price without the support of an executed guarantee and mortgage. Notwithstanding that advice, the respondents, who wished urgently to settle, instructed Mr Klar to proceed. As a result, there was no insistence upon full compliance with the requirements of cl 4.3 of the Sale Contract. Those requirements had included provision on or before settlement not only of the duplicate certificate of title but also of a mortgage of the Buderim land in favour of the respondents. The primary judge commenced his consideration of the evidence given by Mrs Theodore as follows: Her evidence is in short compass. She said that she was aware in 1996 of the son’s interest in the business. She authorised the son to obtain the title deed from Mr Taylor. I find that this occurred on the 18th July 1996. This is the date of the hand written authority signed by her and is the same date that the title deed was delivered to Mr Klar by the son. [Mrs Theodore] strenuously denies any prior knowledge that her son was going to deliver the deed to Mr Klar, or any authority from her for him to deal with the deed in this way. This is the essential factual issue in the case. At the time of the trial, Mrs Theodore was aged 71 years. She had been a widow for 10 years. Her husband had been an Area Manager with the ANZ Bank and she said that her “whole life [had] been tied up with the ANZ Bank”. Her husband had told her never to give a guarantee and she was adamant in refusing to do so. Mr Glen Theodore was one of her four children. Mr Glen Theodore had been divorced in 1992 and, at the relevant time, was living at home with his mother. Mrs Theodore’s case was that she had agreed only to the delivery of the deed to the ANZ Bank at Maroochydore as security for a loan which Mr Glen Theodore proposed to obtain from that Bank. Mr Theodore had sought unsuccessfully to arrange finance from the ANZ Bank. On 18 July, he had attended the Maroochydore branch with Mrs Theodore but the Bank declined his application for an advance of $60,000. Mrs Theodore had already received advice from her accountant that a purchase of the respondents’ business at that price was not a viable proposition. 108

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Theodore v Mistford Pty Ltd cont. Mrs Theodore’s evidence was that she had decided not to assist her son at all in the matter but that she relented and lent him $30,000, of which $20,000 was for the initial payment under the Sale Contract and $10,000 for his purchase of a van. The primary judge introduced his conclusions respecting the credibility of Mrs Theodore by saying that she had impressed him as a highly intelligent, astute and alert witness. His Honour continued: She was not in the least overborne by cross-examination despite her obvious physical difficulties resulting from her distressing condition. I do not think she is a liar, however I regret to say that on the balance of probabilities, I do not accept her evidence that she did not know of her son’s plans to deal with the deed as he did on the 18th July 1996. I think it more probable than not that at the time of purchase of the business by the son, she did act with her heart and not her head; and that she has now convinced herself that she did not give him authority to deal with the deed, when in fact she did. … In my opinion, it is more probable than not that she was aware, after the failure to obtain finance, that the son was going to hand over the deed as security to enable him to complete the sale of the business. His Honour added that, although Mr Glen Theodore had not given evidence, he was satisfied that he was manipulative and probably dishonest. General Principles The respondents support the declaratory relief in their favour given by the Court of Appeal by reliance upon a basic proposition. This may be stated in the terms used by Maitland in the thirteenth of his “Lectures on Equity”. He said that the Court of Chancery had enabled people to create equitable mortgages without any writing at all and added: An equitable mortgage (enforceable by an order for foreclosure or for sale) can be made by a deposit of title deeds if they were deposited with intent that the land which they concern shall be security for the payment of a debt. In the present case, there were no direct dealings between the appellant and the respondents but, the respondents submit, this provides no fatal objection to their case. They say the findings of fact establish two sufficient planks for their case. First, Mrs Theodore had the necessary intention to deposit the duplicate certificate of title as security for her son’s indebtedness under the Sale Contract and, secondly, to effectuate that intention she conferred an actual authority on her son, in broad terms encompassing his subsequent dealing with the duplicate certificate of title to procure settlement of the Sale Contract. These submissions should be accepted and the appeal dismissed. We turn to explain why this is so. Several preliminary matters are to be noted. First, given the findings as to the intention of Mrs Theodore, this is not a case which tests the proposition in some of the leading English texts that from a relationship of debtor and creditor and the delivery of title deeds the court will presume an intention to create a security, a presumption to be rebutted only by proof that the deposit was made on other grounds. However, it may be noted that this proposition does have the formidable support of Lord Macnaghten. In delivering the reasons of the Privy Council in Bank of New South Wales v O’Connor Lord Macnaghten said: It is a well established rule of equity that a deposit of a document of title without either writing or word of mouth will create in equity a charge upon the property to which the document relates to the extent of the interest of the person who makes the deposit. In the absence of consent that charge can only be displaced by actual payment of the amount secured. Before the fusion of law and equity a Court of Equity would undoubtedly have restrained the legal owner of the property from recovering his title deeds at law so long as the charge continued, and now when law and equity are both administered by the same Court if there be any conflict the rules of equity must prevail. [3.85]

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Theodore v Mistford Pty Ltd cont. Secondly, the term “equitable mortgage” is not used in the texts and the authorities with any single denotation. The nature of the security created must turn upon the intention of the party dealing with the assets to be subjected to the security and the nature of those assets. So it is accepted that a mortgage of an equitable interest, being an equity of redemption, can only be by way of an equitable mortgage, although described as a second mortgage of the land in question. In respect of a legal interest, under the general law an agreement to give a legal mortgage is described as an equitable mortgage. Subject to compliance with any statutory formalities, it may be treated in equity as if a legal mortgage had been granted and therefore as carrying with it the remedies, including foreclosure, incident to a legal mortgage. Hence the statement that while in theory the equitable mortgagee may call for a legal mortgage, in the great majority of cases the mortgagee rests upon its equitable rights. Lord Eldon LC said of the Court of Chancery that “an equitable title to a mortgage is here as good as a legal title”. In this way, by looking at the intent rather than the form, equity is able to treat as done that which in good conscience ought to be done. However, in the present appeal, debate as to whether the factual findings were consistent with an agreement between the appellant and the respondents that she would execute a legal mortgage (ie, a memorandum of mortgage in registrable form) would have been misplaced. The trial judge found that authority had been given by Mrs Theodore for her son to furnish the duplicate certificate of title as the immediately effective security required by the respondents for their completion of the Sale Contract on 22 July 1996. Their case thus is not to be approached as one of an agreement, supported by deposit of the title deeds, to give a legal mortgage. It was a transaction of this nature which was discussed by Knox CJ in Cooney v Burns, to which reference was made in argument. Further, the respondents accept that, there being no such agreement and no personal covenant by the appellant, their remedy is limited to recoupment from the sale proceeds, with no judgment against the appellant upon a personal liability to pay moneys. The principles respecting part performance developed in cases where s 4 of the Statute of Frauds was pleaded in answer to a suit for specific performance of an oral land sale contract. These principles were treated, at least by analogy, as applying to the enforcement of agreements to create legal and equitable securities. The analogy was imperfect for at least two reasons. First, as Lord Eldon LC complained, the deposit of title deeds by itself was an equivocal act, being referable also, for example, to a pledge only of those chattels. Secondly, as Higgins J later explained in Cooney v Burns, the nature of the acts which suffice for part performance differ in the two situations. Given the nature of the respondents’ case which does not found upon an executory agreement by the appellant to provide security, the matter of part performance need not further be considered. The appellant correctly submitted that a consequence of the respondents’ fixing upon her intention to create a security immediately effective upon completion is that attention is required not to s 59 but to s 11(1)(a) of the Property Law Act. Section 59 is concerned with contracts, and s 11(1)(a) with dispositions. Here, there was no writing satisfying par (a) of s 11(1). The Issues on the Appeal The appellant did not select as a battleground for the appeal the general assertion that in the face of s 11(1)(a), the provision respecting dispositions rather than contracts, there was no scope for equity to effectuate an intention to create an equitable mortgage of the Buderim land. The ultimate question, rather, was whether in the circumstances as found at trial, the respondents having completed the Sale Contract on the faith of the provision of the duplicate certificate of title, the appellant had been entitled in equity to the return of that instrument (or, as it happened, to the full proceeds of sale) without satisfying the secured indebtedness. This approach to s 11 of the Property Law Act and other Statute of Frauds descendants is consistent with what was said by Hope J in Last v Rosenfeld. His Honour observed: “No sooner had the Statute of Frauds 110

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Theodore v Mistford Pty Ltd cont. been enacted in 1677 than the courts set about relieving persons of its effect in cases where it was thought that the legislation could not have been intended to apply. In general terms, it was said that the courts would not allow the Statute of Frauds to be made an instrument of fraud, and that it did not prevent the proof of the fraud. No doubt, as was said by Selborne LC in Maddison v Alderson in relation to one of the principles that was developed in this way, namely, the doctrine of part performance, this summary way of stating the principle, however true it may be when properly understood, is not an adequate explanation, either of the precise grounds, or of the established limits, of the relevant doctrine. The general approach indicated by this summary statement did, however, spread into a number of fields where a statute requires writing”. Counsel for the appellant pointed to features of the evidence which might have supported findings other than those adverse to the appellant which were made at trial but, in the end, did not challenge that outcome. However, counsel submitted that several aspects of the law respecting this species of equitable mortgage dictated the conclusion that no such security had been created here. Counsel for the appellant emphasised the circumstance that the deposit of the duplicate certificate of title with Klar and Klar on 18 July 1996 (a Thursday) was made in advance of the completion of the Sale Contract on the following Monday, 22 July. At the time of that deposit the purchaser, Mobile Lab, had incurred no indebtedness to the respondents for the balance of the purchase moneys. The appellant thus relied upon authorities suggesting that the deposit must be to secure an advance made at that time, or in some circumstances made antecedently, and upon general propositions that equity does not order specific performance of a contract to make or take a loan of money, whether the loan is to be on security or not. The unpaid balance of the purchase price under the Sale Contract for this purpose is treated as if it were a loan at an interest rate of 8 per cent per annum. There is no occasion to consider the implications of these submissions. The distinction between 18 and 22 July is indecisive of any issue in favour of the appellant. There was but one business day between the receipt of the duplicate certificate of title by Klar and Klar on 18 July and settlement on 22 July. The respondents correctly submit that there was a change in the nature of the dominion over the duplicate certificate of title on 22 July. Before settlement the solicitors held it in safe custody on account of the appellant; thereafter, in effectuation of the appellant’s intention found at trial, the duplicate certificate of title was held as security for the balance of the purchase moneys. The presumption described above and said to arise from the delivery of title deeds may not readily accommodate what thereafter is alleged to be a third party security where the depositor is not the principal debtor. The present appeal concerns a third party security. But the respondents do not rely solely upon any such presumption in their favour. There thus is no occasion here to decide whether, as Templeman J considered in In re Wallis and Simmonds (Builders) Ltd, such a “general rule” or “general presumption” applies to a deposit of title deeds securing debt owing by a third party. Templeman J said in Wallis and Simmonds that in logic there could be no distinction between deposits to secure a first and third party indebtedness. The appellant criticised that statement. But, putting aside the question of a presumption, evidence of the dealings between the parties may lead to the conclusion that, as in this case, a third party security was provided. In Wallis and Simmonds itself there was detailed consideration of the evidence and Templeman J relied upon the presumption he favoured in order to resolve the issue of intention in favour of the giving of security. In the present case, no such reliance is necessary for the respondents to succeed. On the other hand, the close analysis by Bryson J of the evidence in Arnick Holdings Ltd v Australian Bank Ltd led him to conclude that the delivery of the title documents to the bank was for the limited purpose of an overall credit assessment of the account of the third party customer. Finally on this point, the terms of s 75 of the Act do not foreclose the possibility of the provision of third party security by deposit of title deeds. It was accepted in the nineteenth century that a surety might take security for its obligations to the principal creditor, by deposit with the surety of title deeds by the [3.85]

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Theodore v Mistford Pty Ltd cont. party for whose benefit the guarantee was given. There is nothing in the terms of s 75 to limit the nature of the obligations secured by an equitable mortgage by deposit of a certificate of title.

[3.90]

Notes and Questions

1. An equitable mortgage is one where the interest of the mortgagee is equitable. Such an interest occurs most commonly where the mortgagor’s interest is equitable or where the mortgage transaction lacks the formalities for the transfer of a legal interest. Why is a second mortgage of land under the general law always equitable? 2. A mortgage transaction will not only fail to confer a legal title upon the mortgagee but will be unenforceable unless it is evidenced in writing so as to satisfy the Statute of Frauds. The deposit of title deeds is significant as it is universally regarded as a sufficient act of part performance to render enforceable an otherwise purely oral transaction, see the discussion of the means to overcome the lack of formalities: see [7.50]–[7.60] (Moore). An equitable mortgage is one where the interest of the mortgagee is equitable. The deposit of title deeds is significant as it is universally regarded as a sufficient act of part performance to render enforceable an otherwise purely oral transaction, see [7.50]–[7.60] (Moore).

Ciaglia v Ciaglia [3.95] Ciaglia v Ciaglia [2010] NSWSC 341 WHITE J 1 The defendant is the registered proprietor of land in Goodchap Road, Chatswood (“the Chatswood property”). The principal question in these proceedings is whether she holds a one-half share of the land on trust for the plaintiff. Background 2 The defendant is the widow of the plaintiff’s brother, Pasquale Ciaglia, who died on 15 November 2002. From about 1970 to 1991 the plaintiff and Pasquale Ciaglia were the registered proprietors as joint tenants of the Chatswood property. The property was used as a boarding house. From about 1982 the boarding house business was operated by a company called Lajido Pty Ltd (“Lajido”) of which the two brothers were the sole directors and shareholders. From the late 1980s the plaintiff was engaged in family law proceedings with his then wife. He deposes that in early 1991 he came to an oral agreement with his brother, Pasquale, that he would transfer his half-share of the Chatswood property to Pasquale and Pasquale would raise a mortgage of around $195,000 on the property and lend that amount to him. He deposed that a conversation took place between them to the effect that he said to Pasquale “I’ll transfer the property to you as security on the loan … in case anything should happen to either of us” and Pasquale said “OK … Well if anything happens to me your half will always be yours, subject to you repaying the $195,000 with interest.” 3 Although counsel for the defendant submitted that the plaintiff’s evidence should not be accepted, there is no real dispute on the pleadings about the nature of the arrangement. The defendant admits that: 5(a) The Plaintiff and Pasquale Ciaglia made an oral agreement with regard to the Chatswood Property in or about 1991 (the Loan Agreement); 112

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Ciaglia v Ciaglia cont. (b) It was a term of the Loan Agreement that Pasquale Ciaglia would raise approximately $190,000 by way of mortgage over the Chatswood Property and would use those moneys to acquire the Plaintiff’s half share in the Chatswood Property; … 6(a) It was a term of the Loan Agreement that the Plaintiff would repay the principal of the loan and interest to Pasquale Ciaglia; and (b) The interest payable would be that which the National Australia Bank charged on the monies which Pasquale Ciaglia borrowed; … 10 … it was a term of the Agreement that upon payment by the Plaintiff to Pasquale Ciaglia of the outstanding loan monies, Pasquale Ciaglia would transfer back to the Plaintiff his half share in the Chatswood Property … 4 The defendant pleads that there was an understanding between the plaintiff and his brother that upon repayment by the plaintiff of the moneys owing on the loan Pasquale Ciaglia would transfer to the plaintiff a one-half interest in the property, but pleads that this understanding was: on the basis that two other properties would also be shared equally between the Defendant and Pasquale Ciaglia (and after their deaths by their respective children) being: (a) the block of apartments owned by the Plaintiff’s mother located at Crows Nest (“the Crows Nest property”); and (b) the house built by the Plaintiff in Italy (“the Italy Property”). 5 There was no evidence that the admitted agreement between the parties was subject to a term or understanding that it was conditional upon either the Crows Nest property or the Italy property being “shared equally” between the defendant and Pasquale Ciaglia, and after their deaths, their respective children. It is not clear what that allegation was intended to convey, given that the Crows Nest property was not owned by either the plaintiff or his brother. It was not suggested to the plaintiff in cross-examination that the agreement was subject to any such condition. The defendant did not give evidence. 6 On 16 April 1991 the plaintiff executed a memorandum of transfer in registrable form of his interest in the Chatswood property to his brother. The transfer stated that it was made in consideration of the payment of $195,000. Pasquale Ciaglia became the sole registered proprietor of the property. The transfer was made pursuant to the loan agreement. The plaintiff contends that by 1993 he had repaid the whole of the loan and interest. The date by which the loan was repaid is disputed by the defendant, but there is no dispute on the pleadings that the loan was repaid prior to Pasquale Ciaglia’s death in 2002. In para 15 of his statement of claim the plaintiff pleaded: 15. After the repayment by the Plaintiff of all monies outstanding in relation to the loan agreement, Pasquale Ciaglia failed or neglected to transfer to the Plaintiff a half share interest in the property. In response to this paragraph the defendant pleaded: As to paragraph 15 of the Statement of Claim, the Defendant admits that after repayment of all monies outstanding in relation to the Loan Agreement Pasquale Ciaglia did not transfer to the Plaintiff a half share interest in the Chatswood Property but says further that: (a) at no time did the Plaintiff request that Pasquale Ciaglia transfer to the Plaintiff a half share interest in the Chatswood Property; and

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Ciaglia v Ciaglia cont. (b) in or about 1999 or 2000 Pasquale Ciaglia offered to transfer the half share interest in the Chatswood Property to the Plaintiff and the Plaintiff refused this offer for the reason that matters with his former wife in the Family Court had not been resolved and he did not wish to have any property in his name. 7 The defendant pleads that the reason she refused to transfer the half share in the Chatswood property to the plaintiff was that the plaintiff refused to acknowledge the entitlement of the defendant’s children to a share in both the Crows Nest property and the Italy property. She did not aver that the reason she refused to transfer the half share in the Chatswood property to the plaintiff was that the loan had not been repaid. There was no evidence that any proposal was put to the plaintiff that the plaintiff acknowledge an entitlement of the defendant’s children to a share in the Crows Nest property or the Italy property or of his refusing to do so, and no such matter was put to the plaintiff in cross-examination. 8 In about January 2003, not long after Pasquale Ciaglia’s death, the plaintiff spoke to the defendant and said words to the effect that he wanted her to transfer his half of the property back into his name. She said “How do I know that the Chatswood property is half yours?”. He replied “You know very well that half of it is mine and I want you to transfer my one half back to me.” 9 Some time after 18 February 2003 the defendant handed the plaintiff a document and told him that “I’ve done this addendum so that it forms part of my Will. I’ve fixed everything up for you.” The document she gave to the plaintiff was signed by her and was described as an addendum to her last will and testament. It was directed to a Mr Ralph Selwyn, the family solicitor. The defendant wrote: I being of sound mind wish to state that two properties, they being […] Ridge Street Ettalong and […] Goodchap Road, Chatswood, are shared properties and half ownership is to revert back to my brother-in-law Umberto known as [Robert] Ciaglia … There are monies owed by myself and my late husband Pasquale Ciaglia to Robert, of which we are in the process of working out … 10 By this document the defendant acknowledged that the Chatswood property was a “shared property” with the plaintiff and that half ownership of that property was to revert back to him. Her acknowledgement that she and Pasquale Ciaglia owed money to the plaintiff is inconsistent with the plaintiff’s not having repaid the loan. 11 Probate of Pasquale Ciaglia’s estate was granted to the defendant on 28 May 2003. By a transmission application dated 16 December 2003 the defendant applied to be registered as proprietor of the estate or interest of the late Pasquale Ciaglia in the land as beneficiary of his will. She had notice of the plaintiff’s claim to be entitled to a half share of the property. The property was vested in her on her obtaining the grant of probate pursuant to s 44 of the Probate and Administration Act 1898. The vesting of the property in her as executor was subject to any trust or equity affecting the same (Probate and Administration Act, s 45). 12 The admitted contract is an agreement for a loan and the grant of a common law mortgage notwithstanding that the property in question is land held under the provisions of the Real Property Act 1900. In G and C Kreglinger v New Patagonian Meat and Cold Storage Co Ltd [1914] AC 25, Lord Parker of Waddington said (at 47): My Lords, a legal mortgage has generally taken the form of a conveyance with a proviso for reconveyance on the payment of money by a specified date. But a conveyance in this form is by no means necessarily a mortgage. In order to determine whether it is or is not a mortgage, equity has always looked to the real intention of the parties, to be gathered not only from the terms of the particular instrument but from all the circumstances of the transaction, and has always admitted parol evidence in cases where the real intention was in doubt. Only if according to the real intention of the parties the property was to be held as a pledge or 114

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Ciaglia v Ciaglia cont. security for the payment of money, and as such to be restored to the mortgagor when the money was paid, was the conveyance considered to be a mortgage. 13 A mortgage of Torrens title land can be effected by registering an instrument of transfer of the legal title from the mortgagor, and at the same time, entering into a separate agreement that confirms the intention that the transfer was by way of security only: Abigail v Lapin [1934] AC 491 at 501; Currey (Registrar of Titles) v The Federal Building Society (1929) 42 CLR 421. 14 On the defendant’s admission, the transfer by the plaintiff to his brother of his half interest in the property was not intended to be an absolute conveyance and the money paid on the transfer was not paid as the price for a transfer on sale but as a loan to be repaid and on terms that the property was to be restored to the plaintiff when the loan was repaid. The real intention of the parties was that the plaintiff’s half-interest in the land was to be held by Pasquale Ciaglia as security for the repayment of the advance with interest. In the case of a common law mortgage, where the mortgagee acquires the legal title to the property, upon the whole of the mortgage debt being repaid and the mortgagor becoming entitled to a reconveyance, the mortgagee holds the property on a constructive trust for the mortgagor (Venables v Foyle (1660) 1 Ch Cas 2; 22 ER 664; Richardson v Syms (1740) 1 Barn C 90; Cholmondeley v Clinton (1820) 2 Jac & W 1; 37 ER 527; RW Turner, The Equity of Redemption (1931) Cambridge University Press at 167; Pearce v Morris (1869) LR 8 Eq 217; Tyler, Young and Croft, Fisher & Lightwood’s Law of Mortgage, 2 nd Australian edition (2005) LexisNexis Butterworths at [32.54]). 15 Notwithstanding the defendant’s admission, Mr Stack of counsel, who appeared for the defendant submitted that the evidence of repayment adduced by the plaintiff, did not show that the loan had been repaid. He submitted that I should determine whether the loan had been repaid based on that evidence and should find that it had not, notwithstanding the defendant’s admission that it had been repaid. He referred to Damberg v Damberg [2001] NSWCA 87; (2001) 52 NSWLR 492 at 520-522. 16 The plaintiff deposed that the loan repayments were made partly from lump sum repayments which he made from Italy to his mother’s account, and partly by payments from Lajido to Pasquale Ciaglia’s loan account with the National Australia Bank which he obtained for the purposes of the mortgage raised on the Chatswood property. The plaintiff said that the payments from Lajido represented his half share of net income of Lajido to which he was entitled. 17 The plaintiff paid $117,050.77 into his mother’s account between 23 April 1991 and 9 February 1993. Pasquale Ciaglia’s loan account with the National Australia Bank was credited with 28 payments of $3,327 from Lajido between May 1991 and September 1993 ($93,156) and six payments in lump sums ranging between $15,000 and $40,000 made between 26 April 1991 and 19 February 1993 totalling $144,000. The latter payments were made from Mrs Maria Ciaglia’s bank account. 18 In a number of cases the payments were prima facie made pursuant to a loan agreement between Mrs Maria Ciaglia and Pasquale. There is no evidence that any repayment by Pasquale to his mother was made or sought. 19 The result of these payments to Pasquale Ciaglia’s account with the National Australia Bank for the loan he took was that the account was in credit. That is, Pasquale Ciaglia’s loan from the National Australia Bank was repaid by August 1993. 20 Damberg v Damberg demonstrates that a court is not bound to act on the parties’ admissions. But a fundamental purpose of pleadings is to define the issues so as to confine the matters on which evidence need be led. In Damberg v Damberg Heydon JA observed (at [160]) that courts will act on admissions of or about matters of fact where there is no reason to doubt their correctness, but are reluctant to do so if there is such doubt. Where a matter of fact is admitted on the pleadings, it is not a reason to doubt the correctness of the admission that attenuated evidence is given on that matter, which, but for the admission, would be insufficient to prove the fact. Were it otherwise pleadings [3.95]

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Ciaglia v Ciaglia cont. would not only fail in their purpose, but could be the source of injustice. If a party who admits a fact is later able to say that the court should not act on the admission because the opposite party’s evidence about the fact does not amount to proof on the balance of probabilities, the efficacy of pleadings is much diminished. The opposite party would have to prepare his or her case as if no such admission were made. That is not the law. I do not doubt the correctness of the admission because of the insufficiency of the objective corroboration of the plaintiff’s evidence, considered without the admission, to prove the fact if it had been in issue. Other evidence might well have been called, for example from Mrs Maria Ciaglia, to explain the payments made through her account. As appears below, I consider that the indirect means of repayment were probably adopted due to the parties’ desire to conceal the true nature of the transaction from the plaintiff’s former wife. 21 During the hearing the defendant sought leave to withdraw the admission. I refused that application. There was no evidence that the admission was made by mistake. I had regard to the defendant’s admission in her document of 18 February 2003 (at [9] above) that she and her husband were indebted to the plaintiff, which I regard as inconsistent with the plaintiff’s not having repaid the admitted loan and interest. 22 Nothing turns on the question as to whether the loan was repaid in 1993 as deposed to by the plaintiff, or at some time before Pasquale’s death as admitted by the defendant. In the absence of other evidence as to how the loan was repaid, and having regard to the defendant’s admission, I accept that it was repaid by August 1993. 23 On the admissions of the defendant, she holds the land on a constructive trust for the plaintiff as to a one-half share subject to her defences of: a)

the Limitation Act 1969;

b)

laches;

c)

unclean hands;

d)

s 23C and s 54A of the Conveyancing Act 1919; and

e)

indefeasibility under s 42 of the Real Property Act.

24 The plaintiff did not contend that the property was beneficially owned by him and his brother as joint tenants so that he became entitled to his brother’s share on his brother’s death. The plaintiff claims to be entitled to a half-share of the land as tenant-in-common with the defendant. ... Sections 23C and 54A of the Conveyancing Act 50 Sections 23C, 23E(d) and 54A(1) and (2) provide: 23C Instruments required to be in writing (1) Subject to the provisions of this Act with respect to the creation of interests in land by parol: (a) no interest in land can be created or disposed of except by writing signed by the person creating or conveying the same, or by the person’s agent thereunto lawfully authorised in writing, or by will, or by operation of law, (b) a declaration of trust respecting any land or any interest therein must be manifested and proved by some writing signed by some person who is able to declare such trust or by the person’s will, (c) a disposition of an equitable interest or trust subsisting at the time of the disposition, must be in writing signed by the person disposing of the same or by the person’s will, or by the person’s agent thereunto lawfully authorised in writing. 116

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Ciaglia v Ciaglia cont. (2) This section does not affect the creation or operation of resulting, implied, or constructive trusts. … 23E Savings in regard to secs 23B, 23C, 23D Nothing in section 23B, 23C, or 23D shall: … (d) affect the operation of the law relating to part performance. … 54A Contracts for sale etc of land to be in writing (1) No action or proceedings may be brought upon any contract for the sale or other disposition of land or any interest in land, unless the agreement upon which such action or proceedings is brought, or some memorandum or note thereof, is in writing, and signed by the party to be charged or by some other person thereunto lawfully authorised by the party to be charged. (2) This section applies to contracts whether made before or after the commencement of the Conveyancing (Amendment) Act 1930 and does not affect the law relating to part performance, or sales by the court. 51 There is a threshold question of which of s 23C and s 54A is potentially engaged, or whether both are engaged. In Baloglow v Konstantinidis & Ors [2001] NSWCA 451; (2001) 11 BPR 20,721 Giles JA, with whom Mason P agreed, held that s 54A applies at the stage of there being an executory agreement to dispose of an interest in land, whereas s 23C arises at the stage of performance of an agreement or where there is a creation or disposal of property without a prior agreement. His Honour said (at [162]): [Section 54A] arises at the stage of agreement to create or dispose of an interest in land. It has its own requirement of writing, less stringent than the requirement in s23C in that a note or memorandum of the agreement is sufficient and the signing agent need not be authorised in writing. [Section 23C] arises at the stage of performance of an agreement or where there is no prior agreement, and in keeping with the importance attached to property rights has a more stringent requirement of writing in that the creative or dispositive instrument itself must be in writing and the signing agent must be authorised in writing. S54A excepts the operation of the law relating to part performance, material to an executory agreement, s23C excepts the operation of the law relating to trusts, material to property rights. S23C is in a Part of the Conveyancing Act dealing with property and a Division of that Part dealing with assurances, and otherwise concentrates on property rights, see s23C(1)(b) dealing with declarations of trust and s23C(1)(c) dealing with disposition of subsisting equitable interests. There is no encouragement in its language to make it apply to executory agreements under which property rights are to be created or disposed of when the agreement is performed. It was held that s 23C does not apply where the only basis for asserting that property rights were created or disposed of was because equity would decree specific performance of an executory agreement. Giles JA also said that where the question was whether there had been an assurance of property because the agreement to dispose of property had been performed, s 23C, and not s 54A, was the relevant section. His Honour said (at [190]): … When property rights are involved, s23C applies at the time of assurance. It may be that property rights arise without an assurance, because the purchaser pays the purchase price and the vendor holds the property as bare trustee for the purchaser. In that situation there will be no requirement of writing because s23C(2) will have effect. 52 On this analysis, only s 23C would be engaged in the present case. 53 On the admitted facts, the plaintiff has performed his obligations under the agreement by granting the mortgage. For the reasons below, equity prevents the transferee from denying the true [3.95]

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Ciaglia v Ciaglia cont. character of an apparently absolute conveyance as a mortgage if it would be a fraud to insist on the absolute conveyance. The deceased became the registered proprietor of the plaintiff’s half interest in the land and advanced the loan to the plaintiff. The agreement is therefore executed; it does not require the execution of an instrument or the doing of an act to put the parties in the position contemplated by the agreement as mortgagee/mortgagor and lender/borrower. 54 The plaintiff has repaid the loan. Accordingly, all that remains is for equity to enforce the parties’ property rights under the conveyance by recognising a constructive trust in the plaintiff’s favour that arose upon the loan repayment (see cases cited at paragraph [14]). The application of s 23C(1)(a) to the enforcement of the constructive trust is excluded by s 23C(2) (see Baloglow v Konstantinidis at [158] and [162]). For this reason, s 23C(1)(a) does not preclude the court from recognising that the interest created in Pasquale Ciaglia was an interest as mortgagee only, preserving to the plaintiff an equity of redemption, and thus enforcing the defendant’s obligation to reconvey. 55 The issue in Baloglow v Konstantinidis was whether s 23C applied to an agreement which was wholly executory, where the only basis for contending that interests in property were created or disposed of was through the agreement being amenable to an order for specific performance. Only s 23C was relied on because there was a memorandum signed by the agent of the party to be charged, although the agent was not authorised in writing. The ratio of the decision is that s 23C does not apply in such circumstances. The reasoning that s 23C, and not s 54A, applied where the interest created or disposed of arose out of the performance of the agreement was said to be part of an harmonious relationship between the sections. But it was not essential for the decision. That part of the reasoning in Baloglow v Konstantinidis is difficult to reconcile with earlier cases concerning s 4 of the Statute of Frauds (the equivalent of s 54A) and in any event is inconsistent with the later Court of Appeal decision in Khoury v Khouri [2006] NSWCA 184; (2006) 66 NSWLR 241. 56 So far as earlier cases are concerned, in the seminal case of Maddison v Alderson (1883) 8 App Cas 467, the plaintiff had fully performed the agreement the jury found had been made that the deceased would leave the plaintiff a life interest in certain lands if she continued to serve him as housekeeper without wages. Yet the plaintiff failed under s 4 of the Statute of Frauds because there was no memorandum of the agreement signed by the deceased and the acts of performance were not unequivocally in their own nature referable to some such agreement as was alleged. Lord Selborne said (at 478-479) that: … it may be taken as now settled that part payment of purchase-money is not enough; and judges of high authority have said the same even of payment in full: Clinan v Cooke; Hughes v Morris; Britain v Rossiter. Some of the reasons which have been given for that conclusion are not satisfactory; the best explanation of it seems to be, that the payment of money is an equivocal act, not (in itself), until the connection is established by parol testimony, indicative of a contract concerning land. I am not aware of any case in which the whole purchasemoney has been paid without delivery of possession, nor is such a case at all likely to happen. All the authorities shew that the acts relied upon as part performance must be unequivocally, and in their own nature, referable to some such agreement as that alleged: Cooth v Jackson; Frame v Dawson; Morphett v Jones. (citations omitted) 57 None of the authorities cited for the proposition that payment of the purchase price in full was not a sufficient act of part performance supported the proposition, but this reasoning is inconsistent with s 4 of the Statute of Frauds being inapplicable if payment were made in full so that the land was held on a constructive trust for the purchaser. 58 In Lincoln v Wright (1859) 4 De G & J 16; 45 ER 6 (discussed below in the context of equity’s not permitting the statute to be used as an instrument of fraud) it was agreed that an apparently absolute conveyance should be no more than security for payment of a debt. The agreement was at least partly 118

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Ciaglia v Ciaglia cont. executed. The mortgagor’s claim to enforce the oral promise for redemption was upheld by Knight-Bruce LJ on the grounds of part performance. 59 In Khoury v Khouri the primary judge found that the parties made an oral agreement that B (Bechara) would pay $30,000 to P (Peter) and pay P’s instalments under a bank loan in exchange for P’s promise to hold his half share in certain land for the benefit of, that is, on trust for B (at [26]-[28]). The primary judge found that the agreement had been performed by a complex arrangement involving other parties. Later the primary judge described the agreement as one by which B promised to declare a trust in favour of A, but Bryson JA, who gave the leading judgment, rejected that description and said that on the primary findings there was a declaration of trust with immediate effect (at [40]). 60 Bryson JA (with whom Handley JA agreed) said (at [54] and [57]): [54] Upon the present facts, it is my opinion that both ss 54A and 23C(1)(a) operate to prevent enforcement of the agreement as found unless enforcement is available under the doctrine of part performance. … [57] … [counsel contended] that as Bechara performed his obligations under the agreement and paid the consideration Peter held his share in the property on a constructive trust for Bechara. It was then contended that if Peter held his share in the property as a constructive trustee for Bechara there was no room for the operation of s 23C(1) having regard to s 23C(2). I will not examine this argument further; it could well be right but would not overcome s 54A … 61 Thus it was held that s 54A applied to an agreement to declare immediately a trust of land, and that was so notwithstanding that the agreement had been performed and a constructive trust arose if the agreement was enforceable. The Court of Appeal held that payment of money could not be relied on as part performance to take the case outside s 54A and in any event the complex arrangements involving payments to third parties were not acts unequivocally referable to some such agreement as was alleged. It did not reverse the primary judge’s finding that the agreement had been performed. 62 This analysis is only consistent with s 54A applying not only to executory but also to executed agreements. It is the ratio of Khoury v Khouri. Accordingly, notwithstanding Baloglow v Konstantinidis, I conclude that s 54A is also potentially applicable. That is not to say that s 23C(1)(a) is not also engaged. The defendant pleads that s 23C(1)(a) precludes the plaintiff’s asserting that the transfer of the land to Pasquale was by way of mortgage and that he is entitled to redeem the mortgage. Once it is recognised that the transfer to Pasquale was not absolute but by way of mortgage, there is no difficulty in concluding that s 23C(1) does not apply because the plaintiff is seeking to enforce a constructive trust. Prima facie s 23C(1)(a) means that in the absence of writing the plaintiff cannot establish that the transfer was by way of mortgage and he has an equity of redemption. For the reasons below this would be to use s 23C(1)(a) as an instrument of fraud, which the defendant is not allowed to do. 63 The authorities also establish that independently of the doctrine of part performance, s 54A cannot be used as an instrument of fraud. Hence s 54A also does not preclude the recognition and enforcement of the plaintiff’s equity of redemption. I also consider that the plaintiff can rely on the doctrine of part performance. Fraud on the Statute 64 The plaintiff did not specifically plead that the defendant was not entitled to rely upon either s 23C or s 54A of the Conveyancing Act because to do so would be to use those sections as an instrument of fraud. However, he pleaded the facts which give rise to that contention and during the hearing it was plainly identified as an issue arising on the pleadings and the evidence. [3.95]

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Ciaglia v Ciaglia cont. 65 The following cases illustrate that equity will not permit a party to rely upon s 23C of the Conveyancing Act to resist proof that an apparently absolute conveyance was intended to be by way of security only and to deny a mortgagor’s right to redeem and obtain a retransfer of the mortgaged property. To do otherwise constitutes a fraud on the statute. If the issue arises under s 54A, as I think it does, the same wider principle applies that a party cannot use the Statute as an instrument of fraud to deny an agreement for the grant of a mortgage. 66 The leading analogous case is the decision of the Court of Appeal in Chancery (Knight-Bruce and Turner LJJ) in Lincoln v Wright. There, a mortgagee made it known that he proposed to exercise his power of sale and sell the mortgaged property for £220 unless a higher offer could be obtained. The mortgaged property consisted of land and buildings and a policy of insurance on the mortgagor’s life. The plaintiff (mortgagor) agreed with Wright that Wright would buy the mortgaged property from the mortgagee on the mortgagor’s behalf for £230 and have a lien on it for that sum, but that the mortgagor would pay five percent interest and the premiums on the policy. The mortgagor and Wright agreed that the mortgagor would continue to occupy the house and land and that rents of other buildings would be applied in reducing the principal. Wright duly purchased the mortgaged property. The mortgagor remained in possession of the house and land without paying rent. Wright received rents from other buildings. The mortgagor paid the premiums on the policy as they became due. The agreement between the mortgagor and Wright was oral. It was not evidenced by any note or memorandum. Knight-Bruce LJ held that the plaintiff’s continuing in possession of the property amounted to part performance of the oral agreement although his Lordship added that “though I have mentioned part performance alone as a ground for excluding the operation of the Statute of Frauds, I am not sure that its operation is not also otherwise excluded in this case” (at 8-9). Turner LJ said (at 9): Without reference to the question of part performance, on which I do not think it necessary to give any opinion, I think that the parol evidence is admissible and is decisive upon the case. The principle of the Court is, that the Statute of Frauds was not made to cover fraud. If the real agreement in this case was that as between the Plaintiff and Wright the transaction should be a mortgage transaction, it is in the eye of this Court a fraud to insist on the conveyance as being absolute, and parol evidence must be admissible to prove the fraud. Assuming the agreement proved, the principle of the old cases as to mortgages – to which I referred in the course of the argument – seems to me to be directly applicable. Here is an absolute conveyance, when it was agreed there should be a mortgage; and the conveyance is insisted upon in fraud of the agreement. 67 The “old cases as to mortgages” to which Turner LJ referred may have included England v Codrington (1758) 1 Eden 169; 28 ER 649. In that case the proviso for redemption was fraudulently omitted by the drawer of the conveyance which, on its face, was absolute. There was no note or memorandum signed by the mortgagee or his agent evidencing the true nature of the transaction, but the mortgagee by his answer admitted that the agreement was not for the sale of the estate but the estate was redeemable in certain circumstances (which the mortgagee contended had not occurred). The court recognised and enforced the true transaction (that the conveyance was by way of security) notwithstanding the absence of writing. 68 In Edge v Worthington (1786) 1 Cox 211; 29 ER 1133, Kenyon MR admitted parol evidence to prove the “actual agreement”, being an agreement for the grant of a mortgage, and made a decree for foreclosure. Thus it is stated in W Clark (ed), Fisher and Lightwood’s Law of Mortgage, 12th ed (2006) LexisNexis Butterworths at [1.12] that: The courts will, however, give effect to an intention to create a security, if proved, and will also take care that a borrower shall not suffer from the omission by fraud, mistake, or accident, of the usual requisites of a mortgage. An instrument which purports to be an absolute conveyance may, therefore, be construed as a mortgage where, according to the true intention of the parties, it was intended to be regarded as a mortgage. This will be done 120

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Ciaglia v Ciaglia cont. where there is parol evidence of the non-execution, erasure, or omission by mistake or fraud of an intended defeasance or proviso for redemption, or if a separate defeasance or agreement for a right of redemption has been made by the mortgagee or his duly authorised agent, either in writing or orally … (emphasis added) (See to the same effect Fisher and Lightwood’s Law of Mortgage 2nd Australian Edition at [1.20].) 69 Cases of the highest authority establish that oral evidence is admissible to establish the true nature of the transaction, and that if the true nature of the transaction is one of mortgage, the equity of redemption can be enforced (Gurfinkel v Bentley Pty Ltd (1966) 116 CLR 98; Barton v Bank of NSW (1890) LR 15 App Cas 379). The reason, I take it, that the Statute of Frauds does not stand in the way is that it would be to use the Statute as an instrument of fraud to deny enforcement of the true transaction. 70 The judgment of Turner LJ in Lincoln v Wright has frequently been applied to allow a transferor who purports to part with his or her property under an absolute conveyance to establish that the true intention of the parties was that the conveyance should not be absolute, but that the transferee had orally agreed to reconvey the property in certain events. In Haigh v Kaye (1872) LR 7 Ch App 469 the plaintiff conveyed his estate to the defendant by deed which was expressed to be an absolute conveyance for consideration of the purchase price. The defendant admitted that the purchase price had not been paid and it was found that on the defendant’s admissions that he acquired the property as trustee for the plaintiff. The trust so found appears to be an express, not a resulting or constructive, trust. It was held, applying the judgment of Turner LJ in Lincoln v Wright, that the Statute of Frauds could not be relied upon to deny the trust. 71 In Re Duke of Marlborough; Davis v Whitehead [1894] 2 Ch 133, the Duchess of Marlborough transferred her leasehold estate to the Duke by deed, expressed to be an absolute assignment made for natural love and affection, in order that the Duke could use the property as security for a loan to be raised by him on mortgage. The Duke and Duchess both intended that he would reconvey the property to her, and that she was beneficially entitled to the property subject to the mortgage. Stirling J, applying the judgment of Turner LJ in Lincoln v Wright and also Haigh v Kaye, held that the Duchess was entitled to the equity of redemption in the leasehold house and that she was entitled to a reconveyance of the leasehold estate subject to the mortgage. 72 In Rochefoucauld v Boustead [1897] 1 Ch 196 the plaintiff was the owner of lands subject to a mortgage. The mortgagees exercised their power of sale and the defendant purchased the land. The plaintiff successfully contended that the defendant purchased the land as trustee for her subject to a charge in the defendant’s favour in respect of sums advanced by him to purchase the estates and to work them. The Court of Appeal held (at 206) that: Consequently, notwithstanding the [Statute of Frauds], it is competent for a person claiming land conveyed to another to prove by parol evidence that it was so conveyed upon trust for the claimant, and that the grantee, knowing the facts, is denying the trust and relying upon the form of conveyance and the statute, in order to keep the land himself. 73 The Court of Appeal cited Lincoln v Wright and Re Duke of Marlborough; Davis v Whitehead in support of that principle. 74 In Cadd v Cadd (1909) 9 CLR 171 at 187 Isaacs J said: The respondent’s evidence as to the trust is entirely oral, but that in itself presents no difficulty. The repudiation by any person of the terms upon which he has been entrusted with the legal title to property is a fraudulent use of another’s confidence and the Statute is not intended to cover fraud: In Re Duke of Marlborough; Davis v Whitehead; Rochefoucauld v Boustead. [3.95]

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Ciaglia v Ciaglia cont. 75 In Bannister v Bannister [1948] 2 All ER 133 the defendant sold her cottages to the plaintiff on terms which included an oral agreement for the grant of a life tenancy in one of the cottages. The Court of Appeal held that to permit the plaintiff to rely upon the absolute character of conveyance to defeat the oral reservation of a life tenancy would be to use the Statute of Frauds as an instrument of fraud. In Dalton v Christofis [1978] WAR 42, Smith J held that the Statute of Frauds could not be relied on to smother proof of an agreement to hold land on an express trust. 76 In Last v Rosenfeld [1972] 2 NSWLR 923, the parties were joint owners of property. The parties executed and completed a contract for the defendants to purchase the plaintiffs’ half-share of the property. There was a prior oral agreement that the defendants would resell that half-interest to the plaintiffs if the defendants did not live in the property themselves within one year. After the purchase contract was completed, the defendants did not live in the property within the year but then sought to deny the oral agreement. Hope J held that the principle that the Court would not allow the Statute of Frauds to be used as an instrument of fraud applied to s 54A of the Conveyancing Act and precluded the defendants’ reliance upon that section. In the course of a wide ranging review of authority, his Honour observed (at 927-928): No sooner had the Statute of Frauds been enacted in 1677 than the courts set about relieving persons of its effect in cases where it was thought that the legislation could not have been intended to apply. In general terms, it was said that the courts would not allow the Statute of Frauds to be made an instrument of fraud, and that it did not prevent the proof of the fraud. No doubt, as was said by Selborne L.C. in Maddison v Alderson in relation to one of the principles that was developed in this way, namely, the doctrine of part performance, this summary way of stating the principle, however true it may be when properly understood, is not an adequate explanation, either of the precise grounds, or of the established limits, of the relevant doctrine. The general approach indicated by this summary statement did, however, spread into a number of fields where a statute requires writing, some of which it will be necessary to look at for the purposes of the present case. The fields in which this general approach was adopted include, as well as the doctrine of part performance, the rule that parol evidence is admissible to show that an absolute conveyance was in truth by way of security only, the principle that oral evidence can establish that a person has taken a transfer of property as trustee or agent for another, the doctrine whereby equity gave relief upon a breach by the survivor of two persons of a contract they had made to make mutual wills, and the principle whereby equity will compel beneficiaries who have agreed to accept their interests under the will upon communicated trusts to perform those trusts. … 77 His Honour also observed that mortgage cases were within this principle, that is, the Statute of Frauds cannot be used to prevent a person who has transferred his or her property, apparently by way of absolute conveyance, from establishing that the true transaction was by way of mortgage and that he or she was entitled to redeem, that is, to take a reconveyance upon repayment of the loan. His Honour said (at 931-932): Another class of case where what I have described as the general approach is adopted is that where land has been conveyed by what on its face is an absolute conveyance, but where the transaction was intended to be defeasible. The mortgage cases are included in this class. In the seventeenth century and for some time thereafter it would seem that a mortgage was commonly effected by an absolute conveyance to the mortgagee, who also executed a separate deed of defeasance. This deed would operate according to its terms at law, and if the condition which it contained as to repayment was not duly performed, the legal right of the mortgagor to recover the property would go. In equity, of course, the mortgagor would still be entitled to redeem until he was foreclosed or otherwise lost this right, but by virtue of an equitable right and not by virtue of any legal or contractual right. … … there are a great many decisions in which a court of equity has admitted oral evidence to establish that an apparently absolute conveyance was in truth a mortgage. In most of these cases it was not material to 122

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Ciaglia v Ciaglia cont. order the execution of a deed of defeasance or to rectify the absolute conveyance; the time for the exercise of the legal right to redeem was gone and the only question was whether the mortgagor had an equitable right to redeem. The maxim “Once a mortgage always a mortgage” was developed in relation to this situation, but it seems to me that this is really merely an expression of the general principle as to fraud in its application to mortgages. … The rule that oral evidence can be adduced to show that an apparently absolute transaction is in truth a mortgage is well established and has been affirmed by the Privy Council: Barton v Bank of New South Wales. 78 His Honour then dealt with Lincoln v Wright. 79 These observations, coupled with his Honour’s applying the wider principle that the Statute of Frauds cannot be used as an instrument of fraud in the context of s 54A, indicate that the principle applies to both s 23C and s 54A. This is consistent with Lincoln v Wright. The learned authors of Meagher, Gummow & Lehane’s Equity Doctrines & Remedies, 4 th ed LexisNexis Butterworths at [12-125] treat Lincoln v Wright as a case on s 7 of the Statute of Frauds, that is as a case on the predecessor to s 23C(1) requiring all declarations or creations of trust of land to be in writing. There is nothing in the decision in Lincoln v Wright which so confines it. As observed earlier, at least Knight-Bruce LJ considered the issues under the doctrine of part performance. Moreover, if, as Khoury v Khouri indicates, both ss 23C and 54A apply, there is no reason to confine the principles discussed above to cases under s 23C. In any event, Last v Rosenfeld clearly establishes that the principles are not so confined. 80 Last v Rosenfeld was referred to with approval by the High Court in Theodore v Mistford Pty Ltd (2005) 221 CLR 612 at [31], although not on this point. 81 In Wratten v Hunter [1978] 2 NSWLR 367, Needham J also held that the principle in Rochefoucauld v Boustead applies “where land is conveyed to a person as a mortgagee by absolute conveyance, and he subsequently seeks to rely upon the absolute conveyance so as to deny the equity of redemption of the mortgagor” (at 369). 82 This line of authority developed independently of the doctrine of part performance. The doctrine of part performance is itself an illustration of the wider principle that courts will not permit the Statute of Frauds to be used as an instrument of fraud. In Williams, The Statute of Frauds Section IV (1932) Cambridge University Press, at 222-223, the learned author opined that the principle that a party will not be allowed to make the Statute an engine of fraud was restricted in its operation to two classes of case, namely: (i)

Cases where one party has partly or wholly performed his side of the contract, and the other thereupon, designing to secure the benefit of such performance without performing in return the obligations which the contract imposes on him, sets up a plea of non-compliance with the Statute; and

(ii)

Cases where such a plea is set up by one who has by fraud prevented the execution of a sufficient writing.

83 Mr Stack for the defendant submitted that if the agreement could not be enforced in accordance with the doctrine of part performance then the wider principles in relation to a party not being allowed to rely upon the Statute of Frauds as an engine of fraud would not be of assistance. However as I have indicated the doctrine of part performance is but an example of the wider principle. It is also clear from Lincoln v Wright and Last v Rosenfeld that the two principles are discrete. Accordingly the limitations and prescriptions in the doctrine of part performance have no part to play where the wider principle can be invoked. It is also clear that, contrary to Mr Stack’s submission that the wider principle should be confined to the cases of express trusts, the wider principle is not so confined. 84 Mr Stack submitted also that the wider principle is inconsistent with the terms of ss 23C and 54A. However, the wider principle is of long standing. The current provisions were enacted without [3.95]

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Ciaglia v Ciaglia cont. material modification in the light of that well-established doctrine. As Brennan J said in Bahr v Nicolay (No. 2) (1988) 164 CLR 604 at 656, there is no reason the doctrine should be doubted. The limits of the doctrine are unclear. But cases on mortgages, such as the present case, fall within it. 85 For these reasons neither s 23C(1)(a) nor s 54A precludes the plaintiff’s establishing that the true arrangement was a mortgage and not an absolute sale, notwithstanding the absence of writing. However in case I am wrong in concluding that the doctrine of “fraud on the statute” is applicable to s 54A, I will also deal with the issue of part performance. Part performance 86 An agreement to mortgage or charge land is within s 54A (Khoury v Khouri at [5] and cases there cited). There is no note or memorandum of the agreement signed by the deceased or his agent. There is a note or memorandum of the agreement signed by the person to be charged, that is, the defendant. She has verified her defence which admits all of the terms of the agreement. The decisions of the Full Court in Dudgeon v Chie (1954) 55 SR (NSW) 450 and the Court of Appeal in Fletcher v Burns (1997) 12 BPR 22,937 and the earlier decisions in Walters v Morgan (1792) 2 Cox 369; 30 ER 169; Cooth v Jackson (1801) 6 Ves Jun 12 at 39; 31 ER 913 at 927; and Blagden v Bradbear (1806) 12 Ves Jun 466 at 471; 33 ER 176 at 178 preclude reliance upon the defence, and the defendant’s affidavit verifying the defence, as constituting a sufficient note or memorandum. (See also Sugden, A Concise and Practical Treatise of the Law of Vendors and Purchasers of Estates, 14th ed (1862) H. Sweet at 149 and Williams, The Statute of Frauds Section IV at 276-277.) This result has been strongly criticised (Greig & Davis, The Law of Contract (1987) LawBook Co at 696) but the authorities are binding upon me. The plaintiff did not seek to rely upon the defence, or the affidavit verifying the defence, as a sufficient note or memorandum. 87 As to part performance of contracts for the sale of land, it is necessary and sufficient for the plaintiff to establish acts on his part that are “unequivocally and in their own nature referable to some contract of the general nature of that alleged” (Regent v Millett (1976) 133 CLR 679 at 683; Waltons Stores (Interstate) Limited v Maher (1988) 164 CLR 387 at 432; Khoury v Khouri at [86], [90]). Cases on contracts for the sale or lease of land apply by analogy to the enforcement of agreements creating securities, but the nature of the acts which suffice as acts of part performance differ, because the subject matter of the latter class of agreements is not the ownership or possession of land, but the debt to be repaid and the security to be taken (Cooney v Burns (1922) 30 CLR 216 at 241-242; Theodore v Mistford Pty Ltd (2005) 221 CLR 612 at 623 [28]). 88 The plaintiff’s acts of performance of the agreement were his signing of the transfer, his receipt of $195,000 described as the purchase price, his repayment of the principal of $195,000 and payment of interest. 89 The plaintiff also did work on the property between February and November 2003. That work involved repairing the roof, laying a new driveway, excavating foundations for retaining walls and preparing the formwork and pouring the concrete for the walls, replacement of rotten and badly weathered timbers and painting, refitting banisters, installing a new outdoor veranda light, repairing leaks on the veranda and relaying the veranda floor, replacing the power board, rewiring, removing overgrown trees, renovating a bathroom, installing new drainage, demolishing a rear fence and installing a new fence and retaining wall, other work to a roof, and purchasing and installing a new skylight, and blocking holes to make roof areas unaccessible to possums and pigeons. Some of the work was done by the plaintiff personally; some was done by tradesmen whom he engaged. The plaintiff was not engaged to do the work as a tradesman and was not paid. The plaintiff relied on this work as further acts of part performance of the agreement to mortgage his interest in the property. It is an interesting feature of the doctrine of part performance that improvements made by a purchaser to a property after taking possession with the knowledge of the vendor are regarded as acts of part 124

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Ciaglia v Ciaglia cont. performance (Regent v Millett at 682), although they are not acts done in performance of the contract, but rather in reliance on it. This demonstrates the close relationship of the doctrine to principles of estoppel (Cooney v Burns at 241). 90 The defendant denied that repayments of the loan could be acts of part performance. Counsel for the plaintiff relied upon Khoury v Khouri where Bryson JA said (at [90] and [92]) that payments of money are “unavailable” as acts of part performance and that such payments are “excluded”. Those statements must be understood in the context of the case where the contract was one of sale and purchase and the only acts of part performance relied upon were the payment of money. In Maddison v Alderson at 476 in a passage quoted by Bryson JA (at [77]), Lord Selborne LC posited a case of part performance where the vendor would be charged on the equities such that the contract could be enforced. The case supposed was as follows: Let the case be supposed of a parol contract to sell land, completely performed on both sides, as to everything except conveyance; the whole purchase-money paid; the purchaser put into possession; expenditure by him (say in costly buildings) upon the property; leases granted by him to tenants. (my emphasis) 91 This does not suggest that payments of money are excluded from consideration of whether the contract has been partly performed, as distinct from being insufficient. Similarly in a passage in cited in Khoury v Khouri at [82], Knox CJ said in Cooney v Burns (at 222-223): It is settled that payment of part of the purchase-money is not of itself and apart from other circumstances – eg, delivery of possession – a sufficient act of part performance to take a case out of the statute. (my emphasis) 92 The payment of money in effecting improvements made with the knowledge of the other contracting party may be an act of part performance. 93 In Millett v Regent [1975] 1 NSWLR 62, the Court of Appeal found that the acts of the plaintiffs in entering into and retaining possession, payment off of the owner’s mortgage instalments and making repairs and renovations to the premises all qualified for consideration as acts of part performance. In the High Court, Gibbs J, with whom Stephen, Mason, Jacobs and Murphy JJ agreed said (at 683): In the present case the giving and taking of possession by itself was sufficient part performance of the contract and it is therefore unnecessary to consider whether the other acts relied upon would also, either alone or together, amount to part performance. 94 The High Court did not disapprove of the reasoning of the Court of Appeal insofar as the Court of Appeal treated the payment off of the owner’s mortgage instalments as being relevant acts of part performance. 95 The cases on vendor and purchaser apply only by analogy to an oral contract of loan and mortgage. In Ex parte Whitbread (1812) 19 Ves Jun 209; 34 ER 496 Lord Eldon observed that in a mortgage by deposit of title deeds, the fact that an advance of money is made by the person with whom the deeds are deposited is sufficient to connect the actions so as to conclude that the acts were done in performance of an agreement to lend on security. His Lordship said (at 212): …a person, with whom [title] deeds were deposited, having advanced nothing, could not be the person who was to have an interest in the estate; and where there has been a dealing with the estate by a third person, who had made an advance, by connecting that dealing with the only advance, by that person, the deposit has been held a security for him. In my view it is open to consider the repayments of principal and payment of interest as acts of part performance of the agreement for loan and mortgage, even if the payments would not by themselves be sufficient. 96 If one had regard only to the payments made by Lajido and Mrs Ciaglia to Pasquale, without the defendant’s admission that the loan was repaid, and the plaintiff’s explanation that those payments [3.95]

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Ciaglia v Ciaglia cont. were in repayment of the loan, it could not be said that the payments of their own nature referred unequivocally to some such agreement as that alleged. The payments were not made by the plaintiff to Pasquale. However, in my view the defendant’s admission that the loan was repaid can be used to prove that act of part performance. The defence cannot be relied on as a note or memorandum of the agreement, but there is no reason it cannot be relied on to prove acts of part performance. The requirement that acts of part performance must of their own nature refer unequivocally to some such agreement as is alleged cannot exclude all evidence or admissions to explain the acts. In a typical case of a contract for sale of land, the act of the purchaser of going into possession is treated as an act of part performance. But by itself, and without colour from the surrounding circumstances, such an act cannot be unequivocally referable to an agreement for sale, as distinct from a licence to occupy the property. 97 Support for this approach can be found in the decision of the Court of Appeal in Millett v Regent, where Glass JA (at 71-72), in discussing the degree of proof required for part performance, chose to: … measure the sufficiency of the evidence by asking whether the acts of part performance admit of any other reasonable explanation, except that the defendants agreed to transfer to the plaintiffs an interest in the premises. His Honour concluded (at 72-73) that: … the acts of part performance, viewed in the context of the family dealings, were such as to admit of no reasonable explanation except that of an agreement that upon the fulfillment of certain conditions the plaintiffs should become owners of the property as a matter of right and not of favour. 98 This suggests that regard can be had to surrounding circumstances to establish, objectively, whether acts of part performance can be proven. That must be so because it would otherwise be impossible to say that any acts are unequivocally and in their own nature referable to a contract of the nature alleged. Hutley JA recognised this in stating (at 65) that: If “unequivocal” [in the requirement for part performance referred to above] is given its ordinary meaning, it is hard to see how any acts of part performance would suffice, as any set of acts can have multiple references to ingenious minds. “Unequivocal” is used in a special sense … 99 The High Court did not express disapproval of these statements. 100 In my view, in determining whether there were sufficient acts of part performance, I can have regard not only to the fact that Pasquale was paid moneys by Lajido and Mrs Maria Ciaglia, but to the evidence and admissions that those payments were repayments of the plaintiff’s loan with interest. 101 Cases such as Ex parte Whitbread and Arnick Holdings Limited v Australian Bank Ltd (Supreme Court of NSW, Bryson J, 4 December 1987, unreported) point to the essential ambiguity in saying that the deposit or delivery of title deeds is a sufficient act of part performance of an agreement to give security. Lord Eldon observed that it is possible to infer that the purpose of the deposit was to give an interest in the title deeds themselves rather than creating the security. Bryson J noted that the act of delivering title deeds “could well be referable to a wish to furnish information about their contents, or to a wish to have them kept in safe custody.” However the plaintiff’s execution of the transfer in registrable form as an act of part performance of an agreement to grant security does not invoke the ambiguities identified by Lord Eldon and Bryson J. 102 In my view the execution by the plaintiff of the transfer of his land coupled with his repayment of the moneys paid to him on the taking of the transfer with interest are acts which are unequivocally referable to an agreement for the grant of a mortgage. I think that is further established by the further acts of part performance by the plaintiff in carrying out repairs and renovations to the property with the knowledge of the defendant. 126

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Ciaglia v Ciaglia cont. 103 A complicating factor is that Lajido was apparently the tenant of the property, although the evidence about that was thin. But there was no evidence that the work carried out by the plaintiff was done by him on behalf of Lajido. It was not suggested to the plaintiff in cross-examination, nor was there any evidence, that the directors of Lajido considered or approved of the doing of the work. Lajido did not pay for it. The expenses were paid by their being drawn from an account of the plaintiff’s mother on which the plaintiff was authorised to draw. The plaintiff’s mother considered that the plaintiff was liable to repay her. In my view these acts were the acts of an owner of the property, not acts done on behalf of the tenant, and they were unequivocally referable to an agreement by which the plaintiff was entitled to an interest as beneficial owner of the property. 104 Accordingly if it were necessary for the plaintiff to establish part performance, he has done so. ...

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CHAPTER 4 Old System Title Registration [4.05]

THE EFFECT OF THE DEEDS REGISTRATION SYSTEM ON GENERAL LAW LAND PRIORITY DISPUTES ............................................................................................... 129

Extract from Moore, Australian Property Law: Cases and Materials, 5th ed, Ch 2.

THE EFFECT OF THE DEEDS REGISTRATION SYSTEM ON GENERAL LAW LAND PRIORITY DISPUTES [4.05] Before the introduction of the Torrens system of land registration, a number of

statutory provisions designed to simplify the general law land system were introduced. Probably the most important of these was the establishment of a centralised register in which abstracts or memorials of all dealings affecting an individual piece of land could be recorded. It was considered that the searching process would be simplified by such a system. Registration of deeds legislation was passed in all states. (The current legislation is contained in the following Acts: Conveyancing Act 1919 (NSW), ss 184A – 184J; Property Law Act 1958 (Vic), Pt I (the Transfer of Land (Single Register) Act 1998 (Vic) prevents the registration of any further deeds or instruments under Pt I of the Property Law Act 1958 (Vic)); Property Law Act 1974 (Qld), ss 241 – 249; Registration of Deeds Act 1935 (SA); Registration of Deeds Act 1856 (WA); Registration of Deeds Act 1935 (Tas).) The registration system does not operate to affect the validity of documents creating or passing interests in land: for instance, a deed is still required to create or dispose of a legal estate in land. However, in order to encourage the use of the registration system, priority was conferred on registered over unregistered or subsequently registered instruments. The legislation has been interpreted in a number of cases: see Moore, Grattan and Griggs, Australian Real Property Law (6th ed, Thomson Reuters, Sydney, 2016), [2.600] – [2.655].

[4.05]

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CHAPTER 5 Torrens Title Land [5.05]

CENTRAL PROVISIONS .......................................................................................... 131 [5.10] [5.20] [5.30] [5.40] [5.50] [5.60]

[5.75]

Transfer of Land Act 1958 (Vic), s 41(1) ................................. 131 Land Title Act 1994 (Qld), s 184(1) ....................................... 132 Real Property Act 1886 (SA), ss 69, 70 ................................... 132 Land Titles Act 1980 (Tas), s 40(1) and (2) ............................ 133 Transfer of Land Act 1958 (Vic), s 43 ...................................... 133 Transfer of Land Act 1958 (Vic), s 44(2) ................................. 133

MEANING AND EXTENT OF INDEFEASIBILITY: DEFERRED OR IMMEDIATE INDEFEASIBILITY .................................................................................................... 135 [5.80] [5.85]

Frazer v Walker ..................................................................... 136 Breskvar v Wall ..................................................................... 138

Extracts from Moore, Australian Property Law: Cases and Materials (5th ed), Ch 5.

CENTRAL PROVISIONS [5.05] The Torrens statutes provide for a system of title by registration. They also provide

that, subject to certain exceptions, the Register is conclusive (or in other words that title is indefeasible). The set of provisions often referred to as the “paramountcy” provisions contain the most positive statements of indefeasibility of title. Section 42(1) of the Transfer of Land Act 1958 (Vic), for example, provides:

Transfer of Land Act 1958 (Vic), s 41(1) [5.10] Transfer of Land Act 1958 (Vic), s 41(1) 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.

[5.15] (See similarly Real Property Act 1900 (NSW), s 42(1); Transfer of Land Act 1893 (WA), s 68(1) – (4); Land Titles Act 1925 (ACT), s 58(1).) As the Privy Council commented in Frazer v Walker [1967] 1 AC 569 at 580-581: It is these sections which, together with those next referred to, confer upon the registered proprietor what has come to be called “indefeasibility of title”. The expression, not used in the [5.15]

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Act itself, is a convenient description of the immunity from attack by adverse claim to the land or interest in respect of which he is registered, which a registered proprietor enjoys. This conception is central in the system of registration. It does not involve that the registered proprietor is protected against any claim whatsoever; as will be seen later, there are provisions by which the entry on which he relies may be cancelled or corrected, or he may be exposed to claims in personam. These are matters not to be overlooked when a total description of his rights is required. But as registered proprietor, and while he remains such, no adverse claim (except as specifically admitted) may be brought against him.

Although differently worded, the paramountcy provisions in Queensland, South Australia, Tasmania and the Northern Territory have a similar effect. In the Land Title Act 1994 (Qld), s 38 provides the “indefeasible title for a lot is the current particulars in the freehold land register about the lot” and s 184(1) provides:

Land Title Act 1994 (Qld), s 184(1) [5.20] Land Title Act 1994 (Qld), s 184(1) 184. Quality of registered interests (1) A registered proprietor of an interest in a lot holds the interest subject to registered interests affecting the lot but free from all other interests.

[5.25] (See similarly Land Title Act (NT), ss 39 and 188(1).) In South Australia, the relevant

parts of ss 69 and 70 of the Real Property Act 1886 provide:

Real Property Act 1886 (SA), ss 69, 70 [5.30] Real Property Act 1886 (SA), ss 69, 70 69. Title of registered proprietor indefeasible, except in cases of– The title of every registered proprietor of land shall, subject to such encumbrances, liens, estates, or interests as may be notified on the original certificate of such land, be absolute and indefeasible, subject only to the following qualifications: Fraud (a) In the case of fraud, in which case any person defrauded shall have all rights and remedies that he would have had if the land were not under the provisions of this Act: Provided that nothing included in this subsection shall affect the title of a registered proprietor who has taken bona fide for valuable consideration, or any person bona fide claiming through or under him;… 70. In other cases title of registered proprietor shall prevail In all other cases the title of the registered proprietor of land shall prevail, notwithstanding the existence in Her Majesty, Her heirs, or successors, or in any person of any estate or interest whatever whether derived by grant from the Crown or otherwise, which but for this Act might be held paramount or to have priority; and notwithstanding any want of notice, or insufficient notice of any application, or any error, omission or informality in any application or proceedings.

[5.35] In Tasmania, Land Titles Act 1980, s 40(1) and (2) provide: 132

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Land Titles Act 1980 (Tas), s 40(1) and (2) [5.40] Land Titles Act 1980 (Tas), s 40(1) and (2) 40. Estate of registered proprietor indefeasible (1)

For the purposes of this section “indefeasible”, in relation to the title of a registered proprietor of land, means subject only to such estates and interests as are recorded on the folio of the Register or registered dealing evidencing title to the land.

(2)

Subject to subsections (3) and (4), the title of a registered proprietor of land is indefeasible.

[5.45] Other sets of provisions, the “notice”, “protection” and “ejectment” provisions, (not

all contained in all jurisdictions) reinforce the indefeasibility concept. Section 43 of the Transfer of Land Act 1958 (Vic) is typical of the notice provisions:

Transfer of Land Act 1958 (Vic), s 43 [5.50] Transfer of Land Act 1958 (Vic), s 43 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.

[5.55] (See Real Property Act 1900 (NSW), s 43(1); Real Property Act 1886 (SA), ss 186, 187;

Transfer of Land Act 1893 (WA), s 134; Land Titles Act 1980 (Tas), s 41(1) and (2); Land Titles Act 1925 (ACT), ss 59, 60(2); cf Land Title Act 1994 (Qld), s 184(2)(a) which provides simply that “… the registered proprietor … is not affected by actual or constructive notice of an unregistered interest affecting the lot”. See similarly Land Title Act (NT), s 188(2)(a).) Although there are differences in wording in the protection provisions, their meanings are similar. For example, s 44(2) of the Transfer of Land Act 1958 (Vic) provides:

Transfer of Land Act 1958 (Vic), s 44(2) [5.60] Transfer of Land Act 1958 (Vic), s 44(2) 44. Certificate etc. void for fraud … (2) But nothing in this Act shall be so interpreted as to leave subject to an action of ejectment or for recovery of damages or for deprivation of the estate or interest in respect of which he is registered as proprietor any bona fide purchaser for valuable consideration of land on the ground that the proprietor through or under whom he claims was registered as proprietor through fraud or error or has derived from or through a person registered as proprietor through fraud or error; and this whether such fraud or error consists in wrong description of the boundaries or of the parcels of any land or [5.60]

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Transfer of Land Act 1958 (Vic), s 44(2) cont. otherwise howsoever.

[5.65] See Real Property Act 1900 (NSW), s 45(1) and (2); Real Property Act 1886 (SA),

s 207; Transfer of Land Act 1893 (WA), s 202; Land Titles Act 1980 (Tas), s 42; Land Titles Act 1925 (ACT), s 159. Cf Land Title Act 1994 (Qld), s 184(2)(b) and Land Title Act (NT), s 188(2)(c). These provisions state that a registered proprietor is liable to a proceeding for possession of the lot only if the proceeding is brought by the registered proprietor of an interest affecting the lot. (But see Land Title Act 1994 (Qld), s 184(3)(b) and Land Title Act (NT), s 188(3)(b) which impliedly provide a similar protection to purchasers.) The ejectment provisions, where they exist, also take different forms and reinforce the paramountcy provisions by providing that no person can maintain an action to recover the land against the registered proprietor except in particular named circumstances. (Real Property Act 1900 (NSW), s 118; Transfer of Land Act 1893 (WA), s 199; Land Titles Act 1980 (Tas), s 149; Land Titles Act 1925 (ACT), s 152.) They are sometimes combined with the protection provisions. [5.70]

Notes&Questions

1.

Whalan, The Torrens System in Australia (The Law Book Co Ltd, Sydney, 1982), p 296, argues that the term “indefeasibility” when defined as annulled, defeated or abrogated is inappropriate to describe the protection given to a Torrens title. Indefeasibility of title under the Torrens system means that the title, if considered at a given time, cannot be defeated. It does not mean that the title is incapable of defeat at that time and any time in the future. A registered proprietor with an indefeasible title may lose that title if another person becomes the registered proprietor without fraud: indefeasibility attaches to the second proprietor, the person currently registered.

2.

There has been considerable discussion as to the meaning of and overlap between these various sets of provisions. See, Moore, Grattan and Griggs, Australian Real Property Law (6th ed, Thomson Reuters, Sydney, 2016), [4.100]–[4.120]. Do the “notice” and “protection” provisions expand the meaning of indefeasibility set out in the “paramountcy” provisions? What effect do the “ejectment” provisions have?

3.

The notice provisions have the effect of ensuring that the common law doctrine of notice does not apply to Torrens land. (The common law doctrine of notice is discussed in Chapter 2.) How do the provisions achieve this end?

4.

For some time, the courts adopted an interpretation of the paramountcy (for example, s 42 of the Transfer of Land Act 1958 (Vic)) and notice (for example, s 43 of the Transfer of Land Act 1958 (Vic)) provisions which resulted in the notice provision restricting the indefeasibility principle set out in the paramountcy provision. It was said that the protection of indefeasibility was only available to a person registering who had “dealt with the registered proprietor” as required by s 43: see, for example, Clements v Ellis (1934) 51 CLR 217. Thus, for example, a purchaser taking a transfer from a fraudster who forged the name of the registered proprietor to the transfer, would not have dealt with the registered proprietor on the faith of the register. This interpretation

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pursuant to which the s 43 restricts the operation of s 42 is no longer the favoured one. See Frazer v Walker [1967] 1 AC 569 and Breskvar v Wall (1971) 126 CLR 376. 5.

Indefeasibility is under attack in some subtle ways. In Queensland, s 11A of the Land Title Act 1994 (Qld) provides that indefeasibility will be lost if the mortgagee does not take adequate steps to verify the identity of the mortgagor (Backstrom, “Forged Mortgages and Queensland’s careless mortgagee exception to indefeasibility” (2011) 26 Australian Property Law Bulletin 21). Similarly in New South Wales, a mortgagee must take steps to ensure that the person who executes the mortgage is indeed the registered proprietor of the land (s 56C of the Real Property Act 1900 (NSW)). All jurisdictions will be required to have verification of identity guidelines to meet the requirements of the national electronic conveyancing system (see http:// www.arnecc.gov.au (Australian registrars national electronic conveyancing council) and http://www.pexa.com.au (property exchange Australia).

6.

Is it possible that we will see uniform Torrens legislation in Australia: Hunter, “Uniform Torrens Title legislation: is there a will and a way?” (2010) 18(3) APLJ 201. With the introduction of nationally focussed electronic conveyancing protocols (see http://www.arnecc.gov.au for the latest model participation and model operating rules for the electronic conveyancing system), the time is appropriate for close consideration of a national Torrens code. For historical perspectives, see Croucher, “Delenda est Carthago! Sir Robert Richard Torrens and his attack on the evils of conveyancing and dependent land titles: a reflection on the sesquicentenary of the introduction of his great law reforming initiative” (2009) 11(2) Flinders Journal of Law Reform 197; Taylor, “The Torrens System: definitely not German” (2009) 30(2) Adelaide Law Review 195; Lucke, “Ulrick Hubbe and the Torrens system: Hubbe’s German background, his life in Australia and his contribution to the creation of the Torrens system” (2009) 30(2) Adelaide Law Review 213; Raff, “Torrens, Hubbe, stewardship and the globalisation of property law systems” (2009) 30(2) Adelaide Law Review 245.

MEANING AND EXTENT OF INDEFEASIBILITY: DEFERRED OR IMMEDIATE INDEFEASIBILITY [5.75] As the Privy Council in Frazer v Walker [1967] 1 AC 569 at 580-581 stated “…

indefeasibility of title … is a convenient description of the immunity from attack by adverse claim to the land or interest in respect of which he is registered, which a registered proprietor enjoys”. However, since the inception of the Torrens system, much debate has surrounded the time at which indefeasibility of title occurs. The early cases supported what is known as deferred indefeasibility. By 1971, however, the debate appeared settled in favour of immediate indefeasibility. The debate re-emerged in Victoria at the beginning of the 1990s in a slightly different form. An example is the clearest means of demonstrating the distinction between these concepts and of illustrating why and how it can become important. Assume A, the registered proprietor of Blackacre leaves her certificate of title with her solicitor, S, for safekeeping and that S forges A’s name to a transfer of the land in favour of B. Subsequently, the transfer is registered and B becomes the registered proprietor. A and B are both innocent parties. Does B, who is now the [5.75]

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registered proprietor, have an indefeasible title or can A successfully maintain an action to recover “her” land? On the theory of immediate indefeasibility, B’s title is indefeasible. (The “paramountcy” provisions support this result.) On the theory of deferred indefeasibility, B’s title is not indefeasible: indefeasibility is “deferred” to one transaction away from the problem dealing. (The “protection” provisions support this result.) Thus, if B subsequently transferred the land to C and C became the registered proprietor, C’s title would be indefeasible and not subject to any attack by A. (See Moore, Grattan and Griggs, Australian Real Property Law (6th ed, Thomson Reuters, Sydney, 2016), [4.125]–[4.160].) The early Privy Council decision of Gibbs v Messer [1891] AC 248 supports the concept of deferred indefeasibility.

Frazer v Walker [5.80] Frazer v Walker [1967] 1 AC 569 [Mr and Mrs Frazer were the registered proprietors of land. Mrs Frazer borrowed a sum of money from the Radomskis and as security for the loan, she gave the Radomskis a mortgage over the property. Mrs Frazer forged her husband’s signature to the mortgage. She failed to make the payments of interest and the Radomskis exercised their power of sale under the mortgage and sold to Walker. Walker became the registered proprietor and he then tried to obtain possession of the land. Mr Frazer counterclaimed, contending that the mortgage to the Radomskis was a nullity and seeking cancellation on the Register of the mortgage of the Radomskis and the interest of Walker and restoration of his name and Mrs Frazer’s to the Register. After reviewing the key provisions in the relevant Torrens statute the Privy Council considered Mr Frazer’s claim against the mortgagees, the Radomskis.] LORD WILBERFORCE: … The leading case as to the rights of a person whose name has been entered on the register without fraud in respect of an estate or interest is the decision of this Board in Assets Co Ltd v Mere Roihi [1905] AC 176. The Board there was concerned with three consolidated appeals from the Court of Appeal in New Zealand, which had decided in each case in favour of certain aboriginal natives as against the registered proprietors. In each appeal their Lordships decided that registration was conclusive to confer on the appellants a title unimpeachable by the respondents. The facts involved in each of the appeals were complicated and not identical one with another, a circumstance which has given rise to some difference of opinion as to the precise ratio decidendi – the main relevant difference being whether the decision established the indefeasibility of title of a registered proprietor who acquired his interest under a void instrument, or whether it is only a bona fide purchaser from such a proprietor whose title is indefeasible. In Boyd v Wellington Corpn [1924] NZLR 1174 the majority of the Court of Appeal in New Zealand held in favour of the former view, and treated the Assets Co case as a decision to that effect. The decision in Boyd v Wellington Corpn related to a very special situation, namely that of a registered proprietor who acquired his title under a void proclamation, but, with certain reservations as to the case of forgery, it has been generally accepted and followed in New Zealand as establishing, with the supporting authority of the Assets Co case, the indefeasibility of the title of registered proprietors derived from void instruments generally. Their Lordships are of opinion that this conclusion is in accordance with the interpretation to be placed on those sections of the Land Transfer Act 1952 which they have examined. They consider that Boyd’s case was rightly decided and that the ratio of the decision applies as regards titles derived from registration of void instruments generally. As regards all such instruments it established that registration is effective to vest and to divest title and to protect the registered proprietor against adverse claims. 136

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Frazer v Walker cont. The appellant relied on the earlier decision of the Board in Gibbs v Messer [1891] AC 248 as supporting a contrary view, but their Lordships do not find anything in the case which can be of assistance to them. Without restating the unusual facts, which are sufficiently well-known, it is sufficient to say that no question there arose as to the effect of such sections as corresponded (under the very similar Victorian Act) with s 62 and s 63 of the Act of 1952 now under consideration. The Board was then concerned with the position of a bona fide “purchaser” for value from a fictitious person, and the decision is founded on a distinction drawn between such a case and that of a bona fide purchaser from a real registered proprietor. The decision has in their Lordships’ opinion no application as regards adverse claims made against a registered proprietor, such as came before the courts in Assets Co Ltd v Mere Roihi, in Boyd v Wellington Corpn and in the present case. Before leaving this part of the present appeal their Lordships think it desirable, in relation to the concept of “indefeasibility of title”, as their Lordships have applied it to the facts before them, to make two further observations. First, in following and approving in this respect the two decisions in Assets Co Ltd v Mere Roihi, and Boyd v Wellington Corpn, their Lordships have accepted the general principle, that registration under the Land Transfer Act 1952, confers on a registered proprietor a title to the interest in respect of which he is registered which is (under s 62 and s 63) immune from adverse claims, other than those specifically excepted. In doing so they wish to make clear that this principle in no way denies the right of a plaintiff to bring against a registered proprietor a claim in personam, founded in law or in equity, for such relief as a court acting in personam may grant. That this is so has frequently, and rightly, been recognised in the courts of New Zealand and of Australia (see, for example, Boyd v Wellington Corpn [1924] NZLR 1174, 1223 per Adams J, and Tataurangi Tairuakena v Mua Carr [1927] NZLR 688, 702 per Skerrett CJ). Their Lordships refer to these cases by way of illustration only without intending to limit or define the various situations in which actions of a personal character against registered proprietors may be admitted. The principle must always remain paramount that those actions which fall within the prohibition of s 62 and s 63 may not be maintained. The second observation relates to the power of the registrar to correct entries under s 80 and s 81 of the Land Transfer Act 1952. It has already been pointed out (as was made clear in the Assets Co case [1905] AC 176 at 194, 195 by this Board) that this power is quite distinct from the power of the court to order cancellation of entries under s 85, and moreover while the latter is invoked here, the former is not. The powers of the registrar under s 81 are significant and extensive (see Assets Co case). They are not coincident with the cases excepted in s 62 and s 63. As well as in the case of fraud, where any grant, certificate, instrument, entry or endorsement has been wrongfully obtained or is wrongfully retained, the registrar has power of cancellation and correction. From the argument before their Lordships it appears that there is room for some difference of opinion as to what precisely may be comprehended in the word “wrongfully”. It is clear, in any event, that s 81 must be read with and subject to s 183 with the consequence that the exercise of the registrar’s powers must be limited to the period before a bona fide purchaser, or mortgagee, acquires a title under the latter section … As the appellant did not in this case seek relief under s 81, and as, if he had, his claim would have been barred by s 183 (as explained in the next paragraph), any pronouncement on the meaning to be given to the word “wrongfully” would be obiter and their Lordships must leave the interpretation to be placed on that word in this section to be decided in a case in which the question directly arises. The failure of the appeal against the second respondents entails (and it was not contended otherwise) that it must equally fail against the first respondent. Their Lordships would add, however, that the action against that respondent was an action for the recovery of land within the meaning of s 63 and that it would be directly barred by that section, quite apart from the fact that it could not be maintained against the other respondents. The appellant could not bring his case against the first [5.80]

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Frazer v Walker cont. respondent within any of the exceptions to that section. Also their Lordships would add, that, if it had been necessary for the first respondent to rely on s 183 of the Land Transfer Act 1952, he would by it have had a complete answer to the claim. The appellant argued that the second respondents were not “vendors” within the meaning of the section – the suggestion being that he is only a vendor who sells the precise estate or interest of which he is the registered proprietor, so that a mortgagee does not fall within the description. It was further contended that the second respondents were not “proprietors”, because they did not own the estate or interest (ie, the fee simple) which they purported to transfer. Their Lordships are in agreement with the Court of Appeal in holding that the section should not be so narrowly read and that it extends to the case of a mortgagee who is “proprietor” of the mortgage and who has power of sale over the fee simple. Their Lordships need not elaborate on this part of the case since they concur with the conclusions agreed on by all three members of the Court of Appeal. Their Lordships will humbly advise Her Majesty that the appeal should be dismissed. The appellant must pay the respondents’ costs.

Breskvar v Wall [5.85] Breskvar v Wall (1971) 126 CLR 376 [The appellants were the registered proprietors of land. As security for a loan, they gave Petrie the duplicate certificate of title and an instrument of transfer signed by them. Pursuant to the Stamp Act 1894 (Qld), this transfer was void because it did not contain the name of the transferee. Subsequently, Petrie fraudulently inserted the name of his grandson, Wall, as the transferee and Wall became the registered proprietor. Before the Breskvars had discovered the fraud, Wall had contracted to sell the land to Alban Pty Ltd and had executed a transfer. Before this transfer was lodged for registration, the Breskvars placed a caveat upon the register.] MENZIES J: The issue between the appellants and the respondent, Alban Pty Ltd, which is the only issue with which this Court is concerned, is one between two persons, neither of whom is the registered proprietor, as to which of them should become the registered proprietor of the land described in certificate of title vol 3730 fol 104. The land is subject to The Real Property Acts, 1861 to 1963 (Q). The claim of the appellants is, firstly, that they were the registered proprietors of the land up to 15th October 1968, and remained thereafter as registered proprietors in law, notwith-standing the registration, on 15th October 1968, of a transfer which they had, on 5th March 1968, signed in blank. This transfer was given, with the duplicate certificate of title, to afford security for a loan from one Petrie. It was, in fraud of them, registered in the name of Wall after his name had, in September 1968, been put into the transfer by Petrie to cheat the appellants out of their land. The learned trial judge found the fraud and found that Wall was a party to it. His Honour said [1972] Qd R, at 30-31: I find that in transferring the land to Wall and selling it in the way he did Petrie acted fraudulently in that he was attempting to cheat the plaintiffs out of the major part of their interest in the land. He was guilty of moral turpitude. His fraud was of the relevant kind under The Real Property Acts. (See Latec Investments Ltd v Hotel Terrigal Pty Ltd (1965) 113 CLR 265 at 273, 274.) But he was an old man born on 24th March 1888 who succumbed to temptation. In the witness box he showed himself to be partially deaf and not very mentally alert. I find that throughout he was acting as the agent of Wall and of his wife and that Wall is affected by his fraud. Alternatively to the claim that they have remained as registered proprietors after 15th October 1968, the appellants claim that they are entitled to registration in place of Wall by virtue of their equitable right to become registered proprietors again. 138

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Breskvar v Wall cont. Before going further it is necessary to refer to an unusual provision, namely s 53(5) of The Stamp Acts (Q) which is, so far as is relevant, in these terms: (5) No instrument of conveyance or transfer executed on or after the first day of November, one thousand nine hundred and eighteen, of any estate or interest in any property whatsoever shall be valid, either at law or in equity, unless the name of the purchaser or transferee is written therein in ink at the time of the execution thereof. Any such instrument so made shall be absolutely void and inoperative, and shall in no case be made available by the insertion of a name or any other particulars afterwards. Moreover, for any breach of this subsection a penalty not exceeding twenty pounds shall be incurred by each party executing the instrument. It is apparent, therefore, that there are two objections to whatever title Wall has. The first is that it was obtained illegally by the use of an invalid instrument made in breach of s 53(5) of The Stamp Acts; the second is that it was obtained by his own fraud. The appellants can, I have no doubt, displace Wall’s title. To succeed, however, at the expense of Alban Pty Ltd, they must go further than they have to go against Wall. They must show either that Wall had no title at all, or, that their claim is to be preferred to that of Alban Pty Ltd. The claim of Alban Pty Ltd is that it holds a transfer from Wall to carry out a purchase of the land, made for valuable consideration by Alban Pty Ltd from Wall, and made, so far as Alban Pty Ltd was concerned, in good faith, without notice of any rights of the appellants. Their rights came to the notice of Alban Pty Ltd only when a caveat to prevent the registration of the transfer to it by Wall had been lodged. The learned trial judge found that Alban Pty Ltd was a purchaser in good faith and for valuable consideration without notice of the appellants’ rights. In support of their claim that Wall is not the registered proprietor, the appellants call in aid certain passages from the judgment of Dixon J in Clements v Ellis. His Honour cited a passage (1934) 51 CLR 217 at 258 from the dissenting judgment of Salmond J in Boyd v Mayor, Etc, of Wellington which concluded as follows [1924] NZLR 1174 at 1205: The registered title of A cannot pass to B except by the registration against A’s title of a valid and operative instrument of transfer. It cannot pass by registration alone without a valid instrument, any more than it can pass by a valid instrument alone without registration. [His Honour stated that this appeared to him as an admirable statement of the true position. For himself, his Honour said (1934) 51 CLR 217 at 237:] The principle, in my opinion, is that a prior registered estate or interest, for the removal of which from the register there is no authority but a forged or void instrument, is not destroyed unless afterwards a person, who, according to the existing condition of he register is entitled to do so, gives a registrable instrument which is taken bona fide for value and registered. The justification for destroying an existing legal estate or interest, which has already been duly established upon the register, is, in other words, found only in the necessity of protecting those who subsequently deal in good faith and for value in a manner, which, upon its face, the register appears to authorise, and who then obtains registration. Clements v Ellis was a case decided under the Transfer of Land Act (Vict) but the provisions of the Real Property Act (Q) are, with one exception to which I will refer later, substantially the same. What Dixon J said has been followed in New South Wales and in Victoria: Caldwell v Rural Bank of New South Wales (1951) 53 SR (NSW) 415 and Davies v Ryan [1951] VLR 283. Since these decisions, however, the Privy Council has decided Frazer v Walker [1967] 1 AC 569. In their opinion in this case their Lordships made no reference to Clements v Ellis, although it had been cited, but they did apply the decision of the majority in Boyd’s Case, preferring the judgment of the majority to the dissenting judgments of Springer and Salmond JJ. Their Lordships said [1967] 1 AC 569, 584: [5.85]

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Breskvar v Wall cont. They consider that Boyd’s Case [1924] NZLR 1174 was rightly decided and that the ratio of the decision applies as regards titles derived from registration of void instruments generally. As regards all such instruments it established that registration is effective to vest and to divest title and to protect the registered proprietor against adverse claims. It is important, however, to observe what their Lordships meant by the words “all such instruments” in the passage which I have just cited. They meant void instruments whereby the name of the person had been registered without fraud in respect of an estate or interest. This appears clearly from the reference to Assets Co Ltd v Mere Roihi [1905] AC 176 on the preceding page [1967] 1 AC 176, 583, and from the statement [1967] 1 AC 176, 584 that the main relevant difference between the majority and the minority in Boyd’s Case was whether the Mere Roihi Case established “the indefeasibility of title of a registered proprietor who acquired his interest under a void instrument, or whether it is only a bona fide purchaser from such a proprietor whose title is indefeasible”. Frazer v Walker was not a case of conflict between unregistered interests. In that case mortgagees, who had registered a mortgage from registered proprietors to which one signature was a forgery, sold the land under their power of sale to a purchaser who was duly registered as proprietor. The only fraud in the case was that of one of the registered proprietors who forged the name of her husband, a co-proprietor with her. Her fraud afforded no statutory basis for impeaching the title of the mortgagees when they were registered, or, of the registered proprietor from them. Both the mortgagees and the registered proprietor acted in good faith and without knowledge of the forgery. The decision in Frazer v Walker cannot, therefore, govern this case. Indeed, one may perhaps be excused from wondering how the former registered proprietor, who suffered from his wife’s forgery, could ever have hoped to succeed against the newly registered proprietor who took a transfer from registered mortgagees. The problem of competition for registration never arose in that case. Indeed, it is a case which would have fallen fairly and squarely within the statement of Dixon J in Clements v Ellis, at 237 cited previously. Nevertheless, Frazer v Walker is important here in establishing that, if and to the extent that earlier decisions were to the effect that an indefeasible title cannot be acquired by the registration of a void instrument, they have lost their authority. It must now be recognized that, in the absence of fraud on the part of a transferee, or some other statutory ground of exception, an indefeasible title can be acquired by virtue of a void transfer. It seems to me to follow that, where there is fraud or one of the other statutory exceptions to indefeasibility, a transferee does, by registration of a void transfer, obtain a defeasible title. In this case, as I have already indicated, Wall, although he became registered proprietor, clearly enough did not obtain an indefeasible title. He obtained registration by the fraudulent use of an invalid instrument. It is the significance of his becoming registered in these circumstances that matters here. The first critical question which I pose is, therefore, whether, when Wall became registered as proprietor of the land, the appellants ceased to be the registered proprietors. With the guidance of Frazer v Walker about the effect of the registration of void instruments, I have reached the conclusion that they did, and I think so regardless of whether the transfer was invalid by virtue of s 53(5) of The Stamp Acts, or, that, by reason of fraud, the title acquired was defeasible. The registration was of an instrument executed by the appellants as registered proprietors, albeit in breach of law, and, upon its registration, they ceased to be registered proprietors. This is not a case where it is possible to apply Gibbs v Messer [1891] AC 248 where, as the Privy Council has explained, there was no real registered proprietor at all but only a fictitious person. After the registration of Wall as registered proprietor the appellants’ rights were no longer those of registered proprietors but were simply to impeach the defeasible title which Wall had obtained by that registration. 140

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Breskvar v Wall cont. [His Honour then went on to consider whether the appellants’ claim should be postponed to the claim of Alban Pty Ltd. This involved a consideration of the relative merits of competing unregistered interests. The following part of the judgment should be considered again in Chapter 6.] This brings me to what I regard as the second critical question, namely, whether the appellants’ claim in equity to registration, which is earlier in time than the claim of Alban Pty Ltd, should nevertheless be postponed to its claim. It is at this point that I think that s 53(5) of The Stamp Acts does introduce an element not to be found in earlier cases where earlier claims of an equitable character have been postponed to later claims. Such cases are Butler v Fairclough (1917) 23 CLR 78 and Abigail v Lapin [1934] AC 491; (1934) 51 CLR 58. What this section says is that no transfer signed in blank “shall be valid either in law or in equity”. If, therefore, Alban Pty Ltd has to depend in any way upon that transfer to maintain the rights which it asserts, it must fail. That transfer cannot, in the face of the statute, be regarded as a good source of equitable rights. What Alban Pty Ltd holds, however, is a transfer from the registered proprietor, albeit a registered proprietor with a defeasible title, and it is necessary to determine what rights it has solely as such transferee. Whatever may be the position in other cases, it seems to me that in this case that question is resolved by a particular enactment which is not to be found generally in state legislation establishing the Torrens system. This enactment is s 48 of the Real Property Act of 1877. It is as follows: 48. Unregistered instrument to confer claim to registration. Every instrument signed by a proprietor or by others claiming through or under him purporting to pass an estate or interest in or security upon land for the registration of which provision is made by this Act shall until registered be deemed to confer upon the person intended to take under such instrument or other person claiming through or under him a right or claim to the registration of such estate interest or security … Wall, as I have already decided, was “a proprietor” and by virtue of the section, therefore, Alban Pty Ltd has a right or claim to the registration of the estate which the transfer purports to pass. Accordingly, there are conflicting claims to be registered in place of Wall and the final problem is which is to be preferred. The authorities already cited establish that the appellants’ right or claim should, in the absence of a good ground for distinguishing them, be postponed and it becomes necessary to determine whether The Stamp Acts, s 53(5), affords any such ground for distinction. By reason of the section it is apparent that what the appellants signed was not an effective transfer. It was a document without effect in law or in equity and no regis-tration should have been based upon it. By giving it to Petrie the appellants did not put him in possession of an effective instrument of transfer. The blank transfer, however, with no effect in law or in equity, once it had been wrongly filled in and lodged with the certificate of title, became the means whereby Wall was able to become registered proprietor and to deal with Alban Pty Ltd as such. Upon the authorities cited, this, I think, is enough to require the post-ponement of the appellants’ right or claim to that of Alban Pty Ltd. They did not put Petrie or Wall in a position to have Wall lawfully registered as proprietor. Nevertheless, in executing the transfer in blank they were in breach of The Stamp Acts, s 53(5), and it was their breach of the law that enabled Wall, in disregard of the section, to become registered as proprietor. The learned trial judge decided that the claim of the appellants must be postponed to that of Alban Pty Ltd and I would, for the reasons which I have given, dismiss this appeal from his judgment. BARWICK CJ [His Honour discussed the facts and the relevant legislative provisions and continued:] [T]he conclusiveness of the certificate of title is definitive of the title of the registered proprietor. That is to say, in the jargon which has had currency, there is immediate indefeasibility of title by the registration of the proprietor named in the register. The stated exceptions to the prohibition on actions for recovery of land against a registered proprietor do not mean that that “indefeasibility” is not [5.85]

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Breskvar v Wall cont. effective. It is really no impairment of the conclusiveness of the register that the proprietor remains liable to one of the excepted actions any more than his liability for “personal equities” derogates from that conclusiveness. So long as the certificate is unamended it is conclusive and of course when amended it is conclusive of the new particulars it contains. The Torrens system of registered title of which the Act is a form is not a system of registration of title but a system of title by registration. That which the certificate of title describes is not the title which the registered proprietor formerly had, or which but for registration would have had. The title it certifies is not historical or derivative. It is the title which regis-tration itself has vested in the proprietor. Consequently, a registration which results from a void instrument is effective according to the terms of the registration. It matters not what the cause or reason for which the instrument is void. The affirmation by the Privy Council in Frazer v Walker of the decision of the Supreme Court of New Zealand in Boyd v Mayor, Etc, of Wellington now places that conclusion beyond question. Thus the effect of the Stamp Act upon the memorandum of transfer in this case is irrelevant to the question whether the certificate of title is conclusive of its particulars. [His Honour then went on to consider whether the appellants’ claim should be postponed to the claim of Alban Pty Ltd. His Honour then held that the appellant’s claim should be postponed to the claim of Alban Pty Ltd. See Chapter 6.] McTiernan, Windeyer and Gibbs JJ gave short concurring judgments, and Owen J agreed with Barwick CJ.

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CHAPTER 6 General Law and Torrens Title Mortgages [6.05]

NATURE OF SECURITY AND CREATION OF SECURITY INTERESTS .................... 143 [6.10]

Figgins Holdings Pty Ltd v SEAA Enterprises Pty Ltd ................. 144

Extracts from Moore, Australian Property Law: Cases and Materials (5th ed), Ch 8.

NATURE OF SECURITY AND CREATION OF SECURITY INTERESTS [6.05] The mortgage of land is the most common transaction whereby a credit provider

obtains a security for repayment of a debt. The security provides the credit provider with rights against property in the event of default by the borrower in repayment of the debt. Commonly the loan is provided to enable the purchase of the land over which the mortgage is granted but the value of the land can be used as security for as many loans as that value justifies. It is the nature of security that the proprietary rights are secondary to the personal obligations and operate in cases of default in performance of the primary obligations which include repayment of the loan. In cases where a loan is provided to enable the purchase of property (whether land or goods) over which security is taken, the credit provider can obtain security by retaining title until payment in full. The hire purchase transaction was developed as a peculiar form of instalment sale of goods where title remained with the seller and the buyer was unable to pass good title to a subsequent buyer as that original buyer had only an option to buy the goods. In relation to produce of the land, stock mortgages, wool liens and liens on fruit, are a peculiar Australian development as property rights by way of security were transferred with respect to a subject-matter which would come into existence in the future – the wool or fruit to be grown. The mortgage is but one form of security over land. Other common security transactions are legal and equitable charges and liens. In many jurisdictions the Torrens system recognises rent-charges as encumbrances on land (see [17.205]ff (Moore)and covenants could be included as part of a rent-charge over land (see Moore, Grattan and Griggs, Australian Real Property Law (6th ed, Thomson Reuters, Sydney, 2016), [18.30]. The rent-charge provided a means whereby land could be charged with payment of a sum of money where no debt existed. The imposition of a charge on land was often a way of providing for younger brothers and sisters where land was left to the eldest son. Security interests over personal property (including goods and intangible interests such as copyright and shares) can also take the form of a mortgage. In Palgo Holdings Pty Ltd v Gowans (2005) 221 CLR 249; [2005] HCA 28 (see [4.15] (Moore)), the High Court indicated that a division is drawn between security interests in chattels where the lender takes possession (a pledge or pawn) and those where the lender takes a proprietary interest without possession (often a mortgage). Security interests in goods have taken many forms over the centuries as legal and financial advisors have sought a form of transaction most favourable to their clients. In the 19th century a security interest was achieved by the use of a bill of sale which in its simplest form was a document evidencing a transfer of ownership of goods. The bills of sale [6.05]

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legislation provided for the registration of documents providing for non-possessory security interests in goods. Advisors also sought to avoid regulations whereby a person in possession of goods could pass a good title to those goods to third parties. Today parties are free to adopt whatever form of interest in goods best suits them and sellers of goods acting in the course of a business often choose a consumer mortgage. The Personal Property Securities Act 2009 (Cth) regulates the enforceability of interests and priority disputes wherever the substance of a transaction is the grant of a security interest; see [8.76] (Moore) for analysis of priorities in connection with security interests over goods. Licensing requirements apply to providers of credit by way of loans secured over land or goods or without security who act in the course of business in favour of private persons. Credit providers and intermediaries such as brokers must hold an Australian Credit Licence (National Consumer Credit Act 2009 (Cth), s 35). Duties of a credit provider or intermediary to be satisfied as to the financial capacity of a borrower, to disclose financial details of a proposed transaction and the required contents of a consumer credit contract are set out in ss 14 – 17 of the National Credit Code; see Moore, Grattan and Griggs, Australian Real Property Law (6th ed, Thomson Reuters, Sydney, 2016), [7.120]–[7.155]). Unjust contracts may be reopened; assistance is available to borrowers facing unexpected difficulties and notice must be given before the exercise of any enforcement action by a mortgagee (National Credit Code ss 72, 76 and 88).

Figgins Holdings Pty Ltd v SEAA Enterprises Pty Ltd [6.10] Figgins Holdings Pty Ltd v SEAA Enterprises Pty Ltd (1999) 196 CLR 245; [1999] HCA 20 GAUDRON, GUMMOW AND CALLINAN JJ. Mortgages of old system and Torrens title land 19 The Mortgage, which was registered under the Transfer of Land Act, differed as a matter both of form and substance from a mortgage security over land as understood at common law. The principles involved are well settled but, as they provide the starting point for the particular submissions mentioned above upon which this appeal turns, it is convenient briefly to restate them. 20 In Coroneo v Australian Provincial Assurance Association Ltd, Jordan CJ said: 1 A mortgage at common law is a conveyance of the legal title in property from one person to another to secure the doing of some act, ordinarily the payment of money. Formerly the conveyance was expressed to be made upon the condition that if the conveyor performed the act he should be at liberty to re-enter as of his old estate; and the conveyance was thus defeasible by condition subsequent. In modern times, a conveyance contains a covenant by the conveyee to re-convey if the act, to secure which the conveyance has been made, is duly performed. But at common law the legal title is vested in the mortgagee; and he can therefore give a good common law title to it by executing any form of assurance which conforms with the technical requirements of common law conveyancing. 2 The power of sale, where it occurs in a legal mortgage, is not a common law power. It is an equitable power which is inserted to enable the mortgagee to convey a title which is not only good at common law but good in equity to defeat the equitable rights of the mortgagor. 21 It follows that under an old system mortgage of land, the legal estate having been conveyed to the mortgagee, the mortgagee prima facie is entitled to take possession as soon as the mortgage has 1 2

(1935) 35 SR (NSW) 391 at 394. Maugham v Sharpe (1864) 17 CB(NS) 443 [144 ER 179].

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Figgins Holdings Pty Ltd v SEAA Enterprises Pty Ltd cont. been executed. 3 However, where the land is under the provisions of the Transfer of Land Act, whilst a mortgage has the effect of security it does not operate as a transfer of the land to the mortgagee. Therefore the mortgage does not confer upon the mortgagee a right of possession “as an incident of a transfer”. 4 Section 74 of the Transfer of Land Act states: (1) The registered proprietor of any land – (a) may mortgage it by instrument of mortgage in an appropriate approved form; (b) (2)

may charge it with the payment of an annuity by instrument of charge in an appropriate approved form.

Any such mortgage or charge shall when registered have effect as a security and be an interest in land, but shall not operate as a transfer of the land thereby mortgaged or charged.

22 Accordingly, the Mortgage had had effect as a security and had been an interest in the Land but had not operated as a transfer of the Land. In so providing, s 74(2) reflected the statement by Dixon, Evatt and McTiernan JJ in English Scottish and Australian Bank Ltd v Phillips that under the Torrens system a mortgage: 5 … is the creature of statute and its incidents depend upon the provisions of the statute and so much of the general law as is availed of by or under those provisions. (emphasis added) The reference to the general law in the portion of this statement which we have emphasised recognises that equitable estates and interests in some circumstances may “lie behind or beyond, the legal interests as determined by the state of the register”. 6 This limited interaction between the Torrens system and the general law may be compared with that in the regimes established under the various Crown lands legislation. The statutes considered in Wik Peoples v Queensland 7 are examples. However, the significance for the present appeal of the statement in Phillips lies elsewhere. 23 The starting point for assessment of the submissions is not what the common law (significantly supplemented by equity) provides with respect to dealings in old system title, but the identification of those statutory provisions which establish the system of “title by registration” 8 and those provisions under which general law principles are adapted to that system. An example of the latter to which reference has already been made is the application to the Torrens system of Div 5 of Pt 2 of the Property Law Act, dealing with leases and tenancies. 24 In Phillips, Dixon, Evatt and McTiernan JJ also pointed out that “the statutory charge described as a mortgage is a distinct interest” and that it “involves no ownership of the land the subject of the security”. 9 The mortgage instrument may provide for the mortgagor, the registered proprietor, to attorn as tenant of the mortgagee at a rent to be accepted in or towards satisfaction of the principal or interest secured by the mortgage. The object will be to give the mortgagee the remedies of a landlord 3

Ex parte Jackson; Re Australasian Catholic Assurance Co Ltd (1941) 41 SR (NSW) 285 at 289. However, equity treated this right of the mortgagee “as part of his security, and not as a right to beneficial enjoyment”, so that if the mortgagee did take possession of the security the mortgagee would “be called on to account with strictness for his use of it”: Waldock, The Law of Mortgages, 2nd ed (1950) at 213.

4 5

Ex parte Jackson; Re Australasian Catholic Assurance Co Ltd (1941) 41 SR (NSW) 285 at 289. (1937) 57 CLR 302 at 323. See also the observations by Dixon J and Evatt J in Partridge v McIntosh & Sons Ltd (1933) 49 CLR 453 at 466, 472–473 and by Jordan CJ in Ex parte Jackson; Re Australasian Catholic Assurance Co Ltd (1941) 41 SR (NSW) 285 at 289. Corin v Patton (1990) 169 CLR 540 at 572. See generally Barry v Heider (1914) 19 CLR 197 at 204–208, 213–216 and, as to restrictive covenants, Forestview Nominees Pty Ltd v Perpetual Trustees WA Ltd (1998) 193 CLR 154 at 159–160. (1996) 187 CLR 1. The phrase was used by Barwick CJ in Breskvar v Wall (1971) 126 CLR 376 at 385. (1937) 57 CLR 302 at 321.

6

7 8 9

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Figgins Holdings Pty Ltd v SEAA Enterprises Pty Ltd cont. as well as those of a mortgagee. In Partridge v McIntosh & Sons Ltd, 10 a decision upon the Real Property Act 1900 (NSW), Starke J observed that a demise need not be express and continued: 11 [A] mere acknowledgment, such as an attornment clause, by a person in possession of land, of tenancy in another, sufficiently establishes a legal reversion in the landlord, to which the rent reserved is incident. However, Partridge established that as the mortgagee of Torrens title land had no immediate right to possession, the mortgagee could not be considered as having let the mortgagor into possession 12. Dixon J pointed out that there was no need. 13 … to consider whether something short of an actual legal estate or interest may now afford a reversion to which a rent service may be incident, because in a mortgage under the Real Property Act not even a right to immediate possession can be ascribed to the mortgagee. The attornment clause operated only to create an estoppel inter partes which was, as Dixon J put it, 14 “entirely conventional”. The result was that the mortgagee in Partridge did not have the right (which was then still enjoyed by landlords in New South Wales) to distrain upon the goods of the spouse of the mortgagor which were on the premises. In addition, whilst the attornment clause altered the legal relationship between the parties, in equity their true position remained that of secured creditor and debtor. The rent was treated in equity as paid on account first of interest, then of principal and was the subject-matter of account between mortgagee and mortgagor. 15 Nevertheless, the arrangement established by the attornment clause may answer the description of a tenancy in legislation protective of the position of tenants. 16 25 Whilst, unlike the position with an ordinary old system mortgage of land, the Mortgage had not, as an incident of a transfer, conferred upon the Bank a right of possession, par (a) of s 78(1) of the Transfer of Land Act had empowered the Bank upon default by the mortgagor to enter into possession of the mortgaged premises “by receiving the rents and profits thereof”. At no stage before the exercise by it of its statutory power of sale did the Bank exercise its power under s 78(1)(a). 26 The effect given by the governing statute to the transfer to SEAA in exercise of the Bank’s power of sale is found in s 77(4) of the Transfer of Land Act. 17 So far as material, this states: Upon the registration of any transfer under this section all the estate and interest of the mortgagor … as registered proprietor of the land mortgaged … shall vest in the purchaser as proprietor by transfer, freed and discharged from all liability on account of such mortgage … and (except where such a mortgagor … is the purchaser) of any mortgage charge or encumbrance recorded in the Register subsequent thereto except – (a) a lease easement or restrictive covenant to which the mortgagee … has consented in writing or to which he is a party; or 10 11 12 13 14 15 16

(1933) 49 CLR 453. (1933) 49 CLR 453 at 461. (1933) 49 CLR 453 at 468. (1933) 49 CLR 453 at 470–471. (1933) 49 CLR 453 at 468. See also City Mutual Life Assurance Society Ltd v Lance Creek Meat Works Pty Ltd [1976] VR 1 at 11. Ex parte Isherwood; In re Knight (1882) 22 Ch D 384 at 392; Alliance Building Society v Pinwill [1958] Ch 788 at 791. Permanent Finance Corporation Ltd v Flavel; Ex parte Flavel [1968] Qd R 84 at 101– 102; Australian Express Pty Ltd v Pejovic (1963) 80 WN (NSW) 427 at 431–432.

17

The application of the purchase money received on the sale was directed by s 77(3) first to the costs of the sale and secondly in payment of moneys due and owing on the Mortgage.

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Figgins Holdings Pty Ltd v SEAA Enterprises Pty Ltd cont. (b) a mortgage charge easement or other right that is for any reason binding upon the mortgagee … (emphasis added) To adapt the remarks of Kitto J in Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liquidation), 18 Lamina as “mortgagor had the legal title, not an equity of redemption, and the transfer [to SEAA] had operated to deprive [Lamina] of the legal title by virtue only of special statutory provisions”. 27 The title taken by a registered proprietor consequent upon the exercise of a power of sale under s 77 reflects the general proposition stated by Barwick CJ in Breskvar v Wall: 19 The Torrens system of registered title of which the Act[ 20] is a form is not a system of registration of title but a system of title by registration. That which the certificate of title describes is not the title which the registered proprietor formerly had, or which but for registration would have had. The title it certifies is not historical or derivative. It is the title which registration itself has vested in the proprietor.

18 19 20

(1965) 113 CLR 265 at 275. (1971) 126 CLR 376 at 385–386. Barwick CJ was speaking of The Real Property Acts 1861 to 1963 (Q) but by referring to “the Torrens system” he was identifying “the various Acts of the States of the Commonwealth which provide for comparable systems of title by registration though these Acts are all not in identical terms and some do contain significant variations”: (1971) 126 CLR 376 at 386. [6.10]

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CHAPTER 7 Definition of Land – Fixtures [7.05]

FIXTURES ................................................................................................................ 149 [7.10] [7.15]

[7.20]

TENANT’S FIXTURES ............................................................................................. 151 [7.25] [7.30] [7.35]

[7.40]

Degree of annexation ......................................................................... 150 Object of annexation .......................................................................... 150 Tenant’s fixture or permanent fixture? ............................................. 151 Statutory changes ............................................................................... 152 Removal of tenant’s fixtures ............................................................... 152

SECURITY RIGHTS .................................................................................................. 153 [7.45]

Re Cancer Care Institute of Australia Pty Ltd (admin apptd) .................................................................................. 155

Extracts from Chambers, An Introduction to Property in Australian, Ch 26.

FIXTURES [7.05] Fixtures are goods which get joined to land and thereby become part of an estate. This

is a form of accession. However, there is no difficulty discerning which is the accessory and which is the principal. Goods become part of the land to which they are joined, regardless of value. For example, an office tower worth millions of dollars, constructed on land worth thousands of dollars, becomes part of that land. The difficulty in this area of law is determining when goods have become fixtures. Something which is not attached to land, but merely resting on it (such as a statue in the garden), can be a fixture. Even though it could be removed easily, without damage to it or the land, a fixture will cease to be a separate thing subject to separate property rights. This treatment of fixtures is possible because the owner of an estate has a right to possess a volume of space. The law can then determine which things within that space form part of the estate and which things continue to exist separately as goods. The decision to treat unattached objects as part of an estate was made at a time when personal property could be given away by will, but real property passed to the owner’s heir. The rules were designed to ensure that the assets of deceased persons were properly divided among their heirs and the beneficiaries of their wills. In contrast, the law of accession to goods was designed to ensure that people would not lose their property rights without consent, except as a practical necessity. There are two factors which are used to determine whether goods have become fixtures: the degree of annexation (extent of attachment to the land) and the object of annexation (apparent purpose of attachment). These factors are discussed at [7.10] and [7.15], followed by a discussion of two situations in which people are entitled to remove fixtures from land belonging to others: fixtures installed by tenants (see [7.20]ff) and fixtures that were subject to security rights before they were joined to the land (see [7.40]). [7.05]

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Degree of annexation [7.10] There is no legal uncertainty when goods are joined to land and cannot be removed

again without injury to the land or goods. For example, paint applied to a wall cannot be removed without destroying the paint and a tree planted in the yard cannot be removed without destroying the tree or digging a big hole in the yard. It is clear that these things ceased to be goods and became part of the real estate when they were joined to the land. A legal question arises when goods are joined to land in a way which permits their removal. The assumption is that goods merely resting on land continue to be goods and that any degree of attachment (by bolts, nails, cement, etc) turns them into fixtures. As Kaye J said in Belgrave Nominees Pty Ltd v Barlin-Scott Airconditioning (Aust) Pty Ltd: 1 Even slight fixing to the land is sufficient to raise the presumption that a chattel is a fixture. In those circumstances, the onus of proving otherwise rests upon the party so contending.

The greater the degree of annexation, the more likely it is that goods have become fixtures. However, unattached goods can be fixtures and attached goods need not be. Object of annexation [7.15] If it is practical to remove a possible fixture from the land, then its status is determined

by the object of annexation. The essential question is this: was it joined to the land for its better use as a chattel or for the improvement of the land? In Leigh v Taylor, 2 valuable tapestries were tacked to canvasses, which were nailed to strips of wood, which were nailed to the walls of a mansion house. The circumstances revealed an intention that the tapestries would remain goods. They could be removed easily without damage to them or the land. Although their attachment improved the enjoyment of land, that was the only practical way to enjoy tapestries. In Belgrave Nominees Pty Ltd v Barlin-Scott Airconditioning (Aust) Pty Ltd, 3 an air conditioning plant was installed on the roof of a building. It was resting on pads on the roof and connected with nuts and bolts to water pipes and electrical cables in the building. It could be removed easily without damage to the plant or building. The purpose of installing the air conditioning plant was clearly not for the better enjoyment of the plant, but for the permanent improvement of the land. Although the company that installed the plant did not own the land, it had been hired to make that improvement on the owner’s behalf. The object of annexation does not depend on what anyone was actually thinking when the thing was joined to the land. It is the apparent purpose for joining something to land, as revealed by observable circumstances. 4 What would a bystander, with knowledge of the relevant facts, assume was intended? Reliance on apparent (objective) intention, rather than actual (subjective) intention, helps create greater legal certainty. A judicial decision that something is or is not a fixture in certain circumstances can guide others dealing with similar circumstances. If the status of each thing on land depended on the actual intention of the person who put it there, it could be very difficult to determine what things formed part of an estate. 1 2 3 4

[1984] VR 947 at 953. [1902] AC 157; [1902] UKHL 1. [1984] VR 947. Reid v Smith (1905) 3 CLR 656; [1905] HCA 54; Elitestone Ltd v Morris [1997] 1 WLR 687; [1997] 2 All ER 513; [1997] UKHL 15; May v Ceedive Pty Ltd [2006] NSWCA 369.

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The physical connection of something to the land is just one of the facts which reveal the object of annexation. Therefore, two things can be joined to land in the same way and yet one will be a fixture and the other will not. Blackburn J used this example in Holland v Hodgson: 5 [I]f the intention is apparent to make the articles part of the land, they do become part of the land … Thus blocks of stone placed one on the top of another without any mortar or cement for the purpose of forming a dry stone wall would become part of the land, though the same stones, if deposited in a builder’s yard and for convenience sake stacked on the top of each other in the form of a wall, would remain chattels.

Tenant’s fixtures [7.20] At common law, tenants of leasehold or life estates are entitled to remove fixtures that

they installed for domestic, trade, or ornamental purposes and not for the permanent improvement of the land. These are called tenant’s fixtures to distinguish them from permanent fixtures which tenants are not entitled to remove. A tenant’s removal of a permanent fixture without the landlord’s consent is not trespass (since the tenant has possession of the land), but waste. It might also be a breach of a leasehold covenant.

Tenant’s fixture or permanent fixture? [7.25] It is not always easy to distinguish tenant’s fixtures from permanent fixtures. This is

because tenant’s fixtures, like all fixtures, are no longer goods, but part of the land. 6 The question is whether the tenant is permitted to remove them and turn them back into goods. As Romer LJ said in Spyer v Phillipson: 7 So long as the article can be removed without doing irreparable damage to the demised premises I do not think that either the method of annexation or the degree of annexation, or the quantum of damage that would be done to the article itself or to the demised premises by its removal, has really any bearing upon the question of the tenant’s right to remove, except in so far as they throw light upon the question of the intention with which the chattel was affixed by him to the demised premises.

In that case, the tenant leased a flat for 21 years and half way through the term installed valuable antique wood panelling and period fireplaces and chimneys. He died and his executors were entitled to remove them, even though that would cause some damage to the flat. Tenants are liable to repair the damage caused by removing fixtures, but this does not affect their right to remove them. The question whether something is a tenant’s fixture or permanent fixture (like the question whether it is a chattel or a fixture) depends a little on the degree of annexation and a lot on the object of annexation. If its removal would cause serious damage to the land or destroy the fixture, then it is permanent. Otherwise, its character depends on the object of annexation: was it attached so the tenant could better enjoy the leasehold estate or as a permanent improvement to the land? There is another way to phrase the question: was the fixture attached to the tenant’s leasehold estate or the landlord’s freehold estate? There is an assumption that tenants are not intending to make valuable gifts to others when they attach things to the land. As Barton J said of a life estate in Registrar of Titles v Spencer, 5 6

7

(1872) LR 7 CP 328 at 335. North Shore Gas Co Ltd v Commissioner of Stamp Duties (NSW) (1940) 63 CLR 52; [1940] HCA 7 at 68 (CLR); Vopak Terminals Australia Pty Ltd v Commissioner of State Revenue (2004) 12 VR 351; [2004] VSCA 10 at [24], [25]; TEC Desert Pty Ltd v Commissioner of State Revenue (2010) 241 CLR 576; [2010] HCA 49 at [25]. [1931] 2 Ch 183 at 209-210. [7.25]

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the tenant “should be able to improve the estate for his own enjoyment without being thereby compelled to make a present to the remainderman”. 8 The same assumption was used in Leigh v Taylor, 9 discussed at [7.15], to decide that tapestries attached to walls by the life tenant were goods and not fixtures. If they had been fixtures, they would have been tenant’s fixtures. Generally speaking, structural additions or repairs to buildings are normally regarded as permanent improvements to the land, while other fixtures installed by the tenant are tenant’s fixtures. However, the common law treats agricultural fixtures, such as pens and sheds, as permanent improvements to the land.

Statutory changes [7.30] In every State and Territory, short-term residential tenancies are governed by a statute

which regulates the tenant’s rights to install and remove fixtures. 10 The rules vary across Australia, but generally speaking, tenants are not permitted to install fixtures without the landlord’s consent, have a right to remove them at the end of the tenancy unless that would cause damage to the premises, and are responsible for any damages caused by their removal. In Victoria, tenants must remove their fixtures unless the parties agree otherwise. New South Wales, Queensland, and Tasmania also have statutes dealing with fixtures installed by agricultural tenants, 11 while there is a statutory provision in Victoria which applies generally to all tenant’s fixtures. 12 In both Queensland and Tasmania, these fixtures are by statute deemed to be the property of the tenant so long as they are removable by the tenant. 13 This probably means that they are chattels, 14 but they could still be the property of the tenant if they were regarded as fixtures attached to the leasehold estate and not to the freehold. Mining equipment which is attached to land, including buildings and machinery, is treated differently from fixtures. The right to remove the equipment at the end of a mining licence or lease is regulated by statute 15 and therefore the normal rules regarding fixtures do not apply. 16 Also, as discussed at [16.200] (Chambers), mining rights are sometimes treated as forms of personal property and so too are things attached to the land pursuant to those rights.

Removal of tenant’s fixtures [7.35] At common law, tenants are entitled to remove their fixtures at any time during the

lease or while they continue in possession thereafter. In McMahon’s (Transport) Pty Ltd v 8

Registrar of Titles v Spencer (1909) 9 CLR 641; [1909] HCA 69; at 651.

9 10

[1902] AC 157; [1902] UKHL 1. Residential Tenancies Act 1997 (ACT), ss 67, 68 of Sch 1; Residential Tenancies Act 2010 (NSW), ss 67, 68; Residential Tenancies Act (NT), s 55; Residential Tenancies and Rooming Accommodation Act 2008 (Qld), ss 207 – 209; Residential Tenancies Act 1995 (SA), s 70; Residential Tenancy Act 1997 (Tas), s 54; Residential Tenancies Act 1997 (Vic), s 64; Residential Tenancies Act 1987 (WA), s 47.

11

Agricultural Tenancies Act 1990 (NSW), s 10; Property Law Act 1974 (Qld), s 155; Landlord and Tenant Act 1935 (Tas), s 26.

12 13

Property Law Act 1958 (Vic), s 154A. Property Law Act 1974 (Qld), s 155; Landlord and Tenant Act 1935 (Tas), s 26; and also previously in Victoria: Landlord and Tenant Act 1958 (Vic), s 28 (repealed).

14 15

16

Vopak Terminals Australia Pty Ltd v Commissioner of State Revenue (2004) 12 VR 351; [2004] VSCA 10. Mining Act 1992 (NSW), ss 244, 245; Mineral Titles Act (NT), s 99; Mineral Resources Act 1989 (Qld), ss 121 – 123, 228 – 230, 312 – 314; Mining Act 1971 (SA), ss 86; Mineral Resources Development Act 1995 (Tas), s 105; Mineral Resources (Sustainable Development) Act 1990 (Vic), s 114; Mining Act 1978 (WA), s 114. TEC Desert Pty Ltd v Commissioner of State Revenue (2010) 241 CLR 576; [2010] HCA 49.

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Ebbage, 17 the court decided that tenants could also remove their fixtures within a reasonable time after they gave up possession. Pincus JA said: 18 There is authority in favour of the view that once the tenant gives up physical possession … the right to remove fixtures is gone … But the better view, and certainly one more in accordance with practical justice, is that the right to remove continues for a reasonable time after a lease has been terminated.

The time for removing agricultural fixtures is set by statute in New South Wales and Queensland. In New South Wales, “a fixture affixed to a farm by a tenant may be removed by the tenant before or within a reasonable time after the end of the tenancy”. 19 Agricultural tenants in Queensland are allowed to remove fixtures up to two months after the tenancy ends. 20 Tenants in Victoria “may remove them before the relevant agreement terminates or during any extended period of possession of the premises, but not afterwards”. 21 For short residential tenancies in the Australian Capital Territory, New South Wales, and Western Australia, tenants may remove fixtures only while they continue in possession. 22 Most cases and statutes about tenant’s fixtures are concerned with the tenant’s right to remove them. In Wincant Pty Ltd v South Australia, 23 the court decided that a tenant is required to remove fixtures at the end of the lease if they would interfere with the landlord’s use of the premises. The government leased seven floors of an office tower in Adelaide for 25 years and left its fixtures behind at the end of the lease. The premises could not be leased again without removing them at a cost of $58,550. The government was required to pay this cost, because the failure to remove them was a breach of its covenant to leave the “premises in good and substantial repair”. It might also be regarded as waste. If tenants do not remove their fixtures within the allotted time, they are abandoned by the tenant and belong to the landlord. In one sense, the abandonment does not affect the landlord’s property rights, since the fixtures became part of the estate when they were attached to the land (unless they were deemed by statute to be the property of the tenant). However, tenant’s fixtures are attached when the tenant has possession of the land and the landlord does not. Whether they will still be part of the land when the lease ends and possession reverts to the landlord is contingent on the tenant’s decision to leave them behind. Security rights [7.40] In most cases, people do not attach things to their land unless they own them. There is

one common exception. People buy goods under hire-purchase contracts and attach them to land before the purchase price is paid in full. This happened in Kay’s Leasing Corp Pty Ltd v CSR Provident Fund Nominees Pty Ltd. 24 A company hired manufacturing machinery from the plaintiff and attached it to its land, which was mortgaged to the defendant. The company 17

[1999] 1 Qd R 185.

18

McMahon’s (Transport) Pty Ltd v Ebbage [1999] 1 Qd R 185 at 198. Also see Kyriacou v Manakis [2006] NSWSC 804. Agricultural Tenancies Act 1990 (NSW), s 10.

19 20 21 22 23

Property Law Act 1974 (Qld), s 155. Property Law Act 1958 (Vic), s 154A. Residential Tenancies Act 1997 (ACT), s 68(4) of Sch 1; Residential Tenancies Act 2010 (NSW), s 67(1); Residential Tenancies Act 1987 (WA), s 47(2)(b). (1997) 69 SASR 126; [1997] SASC 6287.

24

[1962] VR 429. [7.40]

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defaulted on both the hire-purchase contract and the mortgage and the court had to decide whether the plaintiff or the defendant was entitled to the machinery. The hire-purchase contract entitled the plaintiff to enter the company’s land and seize the machinery if the company breached the contract. However, the machinery had become fixtures and ceased to exist as goods. They were part of the land and the defendant was entitled to possession of the land, including the fixtures, when the company defaulted on the mortgage. Since the machinery was part of the land, the plaintiff no longer owned it. However, it still had a right to enter the company’s land, remove the machinery, and take it away. As Adam J said: 25 In law, no doubt, fixtures become part of the freehold while they remain annexed thereto and the legal title to them belongs to him who owns the freehold. But the contractual right, which the owner has against the hirer, to repossess on default confers on him a species of equitable interest which entitles him, as against the hirer, to enter upon the premises and sever and remove the chattels which have become fixtures.

The plaintiff’s right to enter the company’s land and remove the machinery was an equitable property right to that land, which had priority over the defendant’s legal property right (see [29.175] (Chambers)). As AL Smith LJ said in Hobson v Gorringe, “this right was not an easement created by deed, nor was it conferred by a covenant running with the land”. 26 It was created both by the contract and by the attachment of the machinery to the land as fixtures. This property right is produced not just by hire-purchase contracts, but by any security agreement which entitles the secured creditor to enter the debtor’s land and seize goods that have become fixtures. It could also be created by a chattel lease or other contract of bailment which gives the bailor the same right, or by a contract of sale of the fixtures which gives the buyer the right to enter the land and remove them. 27 In each case, the right to remove fixtures from the land is not a property right to the fixtures as chattels, but an equitable right to the land. Without a right to enter land and remove goods, the owner of goods fixed to another person’s land will not have an equitable property right to that land. For example, the victim of conversion does not have a right to enter the wrongdoer’s land. Also, he or she would probably not have a right to recover the converted goods even if they had not become fixtures. As discussed at [7.40]ff (Chambers), the normal response to conversion is to compel the wrongdoer to pay the victim for the value of the goods. In Victoria and Western Australia, the Chattel Securities Act 1987 applies to goods that are subject to a security interest, or obtained under a lease or hire-purchase contract, which then become fixtures. They “shall be deemed not to have become fixtures” for the purpose of their removal by the creditor or owner, but he or she “is liable to make good damage done to the land in removing the fixtures”. 28 The Personal Property Securities Act 2009 (Cth) does not apply to interests in fixtures. 29 25

Kay’s Leasing Corp Pty Ltd v CSR Provident Fund Nominees Pty Ltd [1962] VR 429 at 436.

26 27 28 29

Hobson v Gorringe [1897] 1 Ch 182 at 192. Vopak Terminals Australia Pty Ltd v Commissioner of State Revenue (2004) 12 VR 351; [2004] VSCA 10 at [48]. Chattel Securities Act 1987 (Vic), s 6; Chattel Securities Act 1987 (WA), s 6. Personal Property Securities Act 2009 (Cth), s 8(1)(j).

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Re Cancer Care Institute of Australia Pty Ltd (admin apptd) [7.45] Re Cancer Care Institute of Australia Pty Ltd (admin apptd) (2013) 16 BPR 31,529; [2013] NSWSC 37 BLACK J 1 By Amended Originating Process filed on 24 January 2013, the Plaintiffs, Mr Ronald DeanWillcocks (“Administrator”) in his capacity as administrator of Cancer Care Institute of Australia Pty Limited (administrator appointed) (“CCIA”) and CCIA seek declarations as to the title to certain property (“Property”) situated in premises at Hurstville in which the Defendants have interests. The Plaintiffs also seek directions under s 447D of the Corporations Act 2001 (Cth) that the Administrator is justified in proceeding on the basis that, in effect, CCIA has title to the Property which forms part of its assets and consequential orders. The Defendants are Cortez Enterprises Pty Limited (“Cortez”), which took an active role in the proceedings, and Suncorp-Metway Limited and Strategic Nominees Australia Limited which filed submitting appearances in the proceedings. 2 By way of background, Cortez developed and owns a substantial medical centre situated at Hurstville, known as the Medica Centre. The Medica Centre is a private medical facility containing a surgical hospital, radiology and nuclear imaging service, cancer treatment centre, pathology laboratory and other facilities (“Premises”). The Premises are subject to a first ranking mortgage to the Second Defendant, Suncorp-Metway Limited and a second ranking mortgage to the Third Defendant, Strategic Nominees Australia Limited over lots in the relevant strata plan. CCIA occupies parts of Level B2 and Level 6 of the Premises although no written lease agreement was or is in place between CCIA and Cortez. 3 On 27 April 2009, CCIA contracted to purchase two Clinac iX linear accelerators and associated equipment (“Equipment”) from Varian Medical Systems Australasia Pty Limited (“Varian”) for a total of $8,985,545 (excluding GST). Linear accelerators are used for treatment of cancer patients by delivering high-energy radiation to the precise region of a patient’s tumour. The Equipment was delivered and installed on Level B2 of the Premises between late September 2010 and December 2010. Varian holds a Purchase Money Security Interest in the Equipment, which is registered in the Personal Property Security Register established under the Personal Property Securities Act 2009 (Cth). Reports as to affairs provided by CCIA’s directors to the Administrator acknowledge that CCIA currently owes Varian in excess of $9.8 million in respect of the Equipment. After the Administrator’s appointment, claims have been made by Cortez and Suncorp Metway that the Equipment is a fixture in the Premises, so that title in it has passed to Cortez and is subject to the mortgages over the Premises. 4 During the course of the hearing before me, the scope of the property in dispute between the parties was narrowed and the Court made orders, that were not opposed by Cortez, in respect of certain elements of that property. The substantive issue which remains to be determined is whether the Equipment has become a fixture in the Premises so that the lessor, Cortez, and secured lenders to Cortez now have an interest in the Equipment. An ancillary question arises, because of the manner in which CCIA has put its case and Cortez has put its defence, as to what constitutes the Equipment. The evidence 5 The Plaintiffs rely on the evidence of Mr Matthew Wellings. Mr Wellings has been a Site Solutions Manager for Varian since June 2008, and his responsibilities include organising and overseeing installation, acceptance testing and commissioning, and decommissioning and removal of linear accelerators supplied by Varian. He has relevant tertiary qualifications and has arranged the installation of approximately 61 new linear accelerators and the removal and de-installation of some 30 linear accelerators. Mr Wellings has also recently been responsible, on Varian’s behalf, for decommissioning and relocating two linear accelerators for a large public hospital to a newly built building and is also [7.45]

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Re Cancer Care Institute of Australia Pty Ltd (admin apptd) cont. commissioned to undertake a similar task for another public hospital in January and May 2013. Mr Wellings also managed the delivery and installation of the Equipment in the Premises. Mr Wellings is plainly knowledgeable and experienced in the field of installation and removal of linear accelerators and gave evidence in a direct and convincing manner. 6 Each linear accelerator is installed on a steel base frame that is used to anchor its components. Mr Wellings’ evidence is that the steel base frame is not part of, and is separate to, the linear accelerator (Wellings 16.12.2012 [18]). The steel base frame was installed several weeks prior to the installation of the linear accelerator in accordance with the usual installation practice. It is common ground that each base frame is situated in a recessed pit in the concrete slab floor of level B2 of the Premises, and is cemented or grouted into that floor flush with the floor (Wellings 16.11.2012 [10]-[12], Schipp pp 79-83). Mr Wellings’ evidence is that that grouting is not structural in character and it and the base frame could be removed if Cortez wished to do so. Mr Wellings’ evidence is also that the steel base frame is the only piece of the equipment supplied and installed by Varian that was affixed to the floor of the Premises; each linear accelerator attaches to that steel base frame with six removable steel bolts (Wellings 16.12.2012 [14]); and the purpose of bolting the linear accelerator to the base frame is to prevent its movement when in operation so it provides precise movements to ensure that an “isocentre” (or central point) of less than 0.5mm is maintained during treatment. 7 Mr Wellings also gave detailed evidence as to the process that would be adopted to decommission and relocate the equipment, which would be transported on travel frames with air or mechanical skates in the same manner as it was installed. The linear accelerators would be separated for transport into a drive stand; linac gantry; counterweight; and electronics rack (Wellings 16.12.2012 [9]). Mr Wellings’ evidence is that no modification to the Premises was required when the Equipment was delivered and installed, and that steel base frames are ordinarily, and would also in this case, be left in place when a linear accelerator is removed. Mr Wellings’ evidence is also that the door heights and widths as built in the Premises are sufficient for removal of the Equipment; no vibration would be expected to occur during the decommissioning and removal, so other facilities in the Premises could continue to operate; and that the linear accelerators could be removed to a new site to be reinstalled and commissioned, or alternatively placed in storage, following removal. 8 Mr Wellings also prepared a videorecording, which was led in evidence, identifying and explaining the operation of the linear accelerators and their component parts and explaining how they would disassembled and removed. His evidence is that it would take two days to prepare the premises for removal of both linear accelerators and 1-1 1/2 days to remove both linear accelerators from the premises; the cost of removal would be approximately $60,000; and that the removal process using air skates and disassembling the relevant components would not cause damage to the flooring, the finishes or the Premises generally (Wellings 20.12.2012). Mr Wellings also gives evidence that linear accelerators are most commonly relocated in Australia as a result of the owner moving premises, whereas, outside Australia and particularly in the United States, linear accelerators are commonly relocated as a result of their sale to other persons or entities. 9 Cortez relies on the affidavit of Mr Damian Schipp dated 7 December 2012. Mr Schipp is a project manager employed by a third party which was retained by Cortez to act as project manager for the construction of the Premises. Mr Schipp has experience as an architectural draftsman and project manager for construction, but there is no suggestion that he has any particular expertise in the installation, still less the removal or relocation, of linear accelerators. Mr Schipp was primarily responsible for project management of the construction of the Premises at the time the basement levels were handed over by the relevant contractor to Cortez and witnessed the steps involved in the installation of the linear accelerators or was involved in organising those steps. Mr Schipp has also prepared a report which details the steps taken to install the linear accelerators and the way in which they are fixed or connected to the Premises. Mr Schipp’s evidence is that the base frames were 156

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Re Cancer Care Institute of Australia Pty Ltd (admin apptd) cont. delivered and installed first, followed by other items. Mr Schipp does not give evidence as to the process which would be adopted to remove the linear accelerators and, importantly, does not take issue with Mr Wellings’ evidence as to that matter. Mr Schipp’s evidence indicates, and I accept, that Cortez as owner of the Premises had designed them to allow the ready installation of linear accelerators in their basement. The proper characterisation of the Equipment 10 An initial issue arises as to the proper characterisation of the Equipment. A schedule to the Amended Summons lists the items that the Plaintiffs seek to establish have not become fixtures and does not include the base frames to which the linear accelerators are bolted or a turntable that rests upon each base frame. Cortez contends that the base frame is part of the linear accelerators and that whether the linear accelerators are fixtures must be determined by reference to the Equipment as a whole, including the base frames. Mr Schipp’s report appears implicitly to assume that the base frame constitutes part of the linear accelerator. In my view, Mr Schipp is not qualified to express an opinion as to that matter and his report contains no reasoning to support that assumption, which is not probative of the fact. I prefer Mr Wellings’ evidence that the linear accelerators and the base frames are distinct, and I refer to several matters that support that conclusion below. 11 Cortez accepts that Mr Wellings distinguishes in his evidence between the steel base frames on the one hand and the linear accelerators on the other, but contends that distinction is artificial because the function of the base frame is not merely to anchor the machinery but also to “provide a turntable on and centre directly under the isocentre”. I accept that, as Cortez points out and consistent with Mr Wellings’ evidence, a combination of the linear accelerator, base frame and treatment couch enables the linear accelerator to maintain a precise location for the “isocentre” which is necessary to the effective operation of the linear accelerator. However, I do not consider that the distinction drawn by Mr Wellings is artificial, where the evidence is that the base frame was separately installed several weeks before the linear accelerator in accordance with the usual installation practice; second, linear accelerators are regularly dismantled or moved from place to place, in circumstances that the base frame is left in the previous premises; and, third, the linear accelerators, once removed, can be installed on separate base frames (which are standardised for Varian equipment) in a new location and other linear accelerators can be installed on the base frames remaining in the Premises. In my view, the steel base frames are in fact distinct items in substance, being steel frames on which complex medical equipment rest, rather than part of that complex medical equipment. 12 Cortez also contends that the distinction in Mr Wellings’ evidence between the base frame and the linear accelerator is contrary to authority that it is necessary to determine whether a machine as a whole is a fixture: Craven v Geal [1932] VLR 172 at 176-177; National Australia Bank Ltd v Blacker [2000] FCA 1458; (2000) 104 FCR 288 at [24]; Loiero (aka Lero) v Adel Sportswear Pty Ltd [2010] NSWSC 1133 at [12]; (2010) 15 BPR 29,689. I do not accept that submission. That principle seems to me to be applicable to the approach to be adopted to items that are in fact part of a single machine, rather than requiring the Court to treat an item that is in fact not part of a machine as part of that machine, merely because that separate item is attached to the machine. Before that principle could apply in this case, it seems to me that it would first be necessary to find that the base frames were part of the linear accelerators in fact, and I consider that the evidence to which I have referred above establishes the contrary. 13 Moreover, as Professor Butt observes in Land Law, 6th ed, 2010 [3 11], the principle that a machine should be treated as a composite whole is also qualified where a part of the machine has a separate and independent viability; see also Macrocom Pty Ltd v City West Centre Pty Ltd [2001] NSWSC 374; (2001) 10 BPR 18,631. Even if, contrary to my view, the base frame and the linear accelerator should be treated as a single item rather than two separate items, they plainly have separate and independent viability because a new linear accelerator may be installed on the existing base frame if it [7.45]

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Re Cancer Care Institute of Australia Pty Ltd (admin apptd) cont. is left in the premises, and the linear accelerator, once removed, can be installed on a new base frame in other premises. Indeed, as Mr Wellings’ evidence makes clear, this would be the ordinary approach adopted in the removal and relocation of linear accelerators. 14 Cortez also contends that the base frames should be treated as part of the linear accelerators because they were part of the purchase orders by which the linear accelerators was bought by CCIA. I do not accept that submission, and note that a range of other ancillary items, including free-standing computers and other ancillary equipment, were also part of that purchase order. It does not follow that either they, or the base frames, were part of the linear accelerators because they were purchased at the same time as them or promoted their more effective operation. 15 I therefore find that the base frame is not part of the linear accelerators, although it is plainly used in conjunction with them and promotes their effective operation. For completeness, I note that Cortez also submitted that a turntable (which is placed on the base frame, at ground level, and to which a treatment couch is then attached) was part of the base frame. However, on the basis of Mr Wellings’ evidence, it is properly characterised as a separate item that sits upon the base frame. Whether the linear accelerators are fixtures 16 I now turn to whether the linear accelerators, as distinct from the base frames, are fixtures. There was little dispute before me as to the legal principles to be applied, with both parties accepting that the primary issue was the application of those principles to the relevant facts. 17 Whether chattels have become affixed to land, so that they are to be regarded as fixtures and as part of the land, is to be determined by reference to the objective intention of the chattels’ owner, with relevant factors including the degree of affixation of the chattel to the land and the object or purpose for which it was affixed. In Land Law, 6th ed, 2010 [15 248], Professor Butt summarises the relevant principles as follows: … in determining whether an item that was once a chattel has become a fixture, the guiding principle is the intention with which the item was brought onto the land, and pointers to that intention are the degree and purpose of the annexation. … an intention to permanently improve the realty is easier to discern when an absolute owner brings the item onto the land than when a tenant does so, for a tenant is unlikely to intend to make a present of the item to the landlord. 18 In Australian Provincial Assurance Co Ltd v Coroneo (1938) 38 SR (NSW) 700 at 712, Jordan J observed that: A fixture is a thing once a chattel which has become in law land through having been fixed to the land. The question whether a chattel has become a fixture depends upon whether it has been fixed to the land, and if so for what purpose. If a chattel is actually fixed to the land to any extent, by any means other than its own weight, then prima facie it is a fixture; and the burden of proof is upon anyone who asserts that it is not; if it is not otherwise fixed but kept in position by its own weight, then prima facie it is not a fixture and the burden of proof is on anyone who asserts that it is. 19 There is some utility to referring to several of the decided cases addressing similar issues, although each case will depend on its own facts. In Commissioner of Stamps (WA) v L Whiteman Ltd [1940] HCA 30; (1940) 64 CLR 407, machinery attached to a concrete base was held to be a fixture where it had been installed to promote the use of the land to make clay bricks and the shedding in which it was housed would have to be demolished in order to remove it. That result is consistent with the owner of the machinery having affixed it to the land to better use that land. On the other hand, in Attorney-General v RT Company Pty Ltd (No 2) (1957) 97 CLR 146, the High Court held that substantial printing presses were not fixtures although they were affixed to concrete foundations by bolts to steady them while in use and could only be removed by dismantling them at a substantial cost. The Court emphasised (at 157) that the purpose of affixing the presses was to hold them steady while in 158

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Re Cancer Care Institute of Australia Pty Ltd (admin apptd) cont. operation. In Anthony v Commonwealth (1973) 47 ALJR 83, the Court held that several steel poles and associated telephone line had not become fixtures, although those poles had been concreted into holes dug in the ground, where their removal would not be a major task or adversely affect the land. In NH Dunn Pty Ltd v LM Ericsson Pty Ltd (1979) 2 BPR 9241, the Court of Appeal held that a PABX system, which had been installed in premises occupied by a company under a long term lease, was not a fixture although it was attached to the structure of the premises at floor and wall level and cabling had been laid in a channel in the floor. The Court of Appeal noted that the relevant affixation was for the purpose of steadying the equipment while in use and that the equipment could be removed without substantial damage to the building and any such damage could be repaired without substantial expense. In Macrocom Pty Ltd v City West Centre Pty Ltd above, Windeyer J held that a satellite aerial erected on the roof of a building was a fixture rather than a chattel (although he also indicated that he would have held that it was a tenant’s fixture), given the weight of the item, the fact that additional steel support to the roof was necessary prior to its installation and the way in which it was connected to the building. 20 In Lees & Leech Pty Ltd v Commissioner of Taxation (1997) 73 FCR 136 at 148, Hill J summarised the relevant principles as follows: There is little room for dispute as to the principles to be applied in determining whether a particular item is or is not a fixture. The generally accepted view is that the question will depend upon the degree of annexation and the object or purpose of that annexation: Commissioner of Stamps (Western Australia) v L Whiteman Ltd (1940) 64 CLR 407 at 411. The two matters are not exclusive of each other. The degree of annexation tells as to the object or purpose of the annexation. When the cases speak of object or purpose, they are not concerned with subjective purpose of some person, although intention will not be irrelevant: Eon Metals NL v Commissioner of State Taxation (WA) (1991) 91 ATC 4841 at 4846; N H Dunn Pty Ltd v L M Ericsson Pty Ltd (1979) (2) BPR 9241 at 9244-9245. The prima facie view, as expressed in cases such as Australian Provincial Assurance Co Ltd v Coroneo (1938) 38 SR(NSW) 700, is that an object merely standing by its own weight on the land will not ordinarily be a fixture. On the other hand, if fixed to any extent prima facie it will be. But that is but a prima facie view as Mahoney JA pointed out in N H Dunn v Ericsson (supra) at 9246. … When the cases refer to the degree and object of annexation to the land, what is meant is that the fixing of the item to the land, whether by bolts, concrete bases or whatever, is such that removal would be difficult as, for example, where the items could be ruined if sought to be removed: Whiteman (supra) at 411. That case is important in that it drew as a relevant distinction the question whether the affixation was for the better enjoyment of the land, in contrast to the case where the affixation was for the enjoyment of the item itself. That distinction is one later taken up by Mahoney JA in N H Dunn v Ericsson (supra), but subject to the qualification that much may turn upon the actual nature of the asset. 21 In Metal Manufacturers Ltd v Commissioner of Taxation [1999] FCA 1712 at [165], Emmett J identified considerations which were relevant to the assessment whether a chattel had become a fixture including whether removal would destroy the chattel; whether the cost of removal would exceed the value of the chattel; whether removal of the chattel would occasion significant damage to the property; whether the attachment was for the better enjoyment of the chattel or for the better enjoyment of the property; the nature and contemplated use of the property; the period of time for which the property was to be in position and the function to be served by the annexation of the property. His Honour also noted (at [170]) the relevance of the intention of the person who affixed the equipment to the land and the degree of annexation, which in turn is indicative of the objective intention of that person. The relevant authorities were also reviewed by Conti J in National Australia Bank Ltd v Blacker above. [7.45]

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Re Cancer Care Institute of Australia Pty Ltd (admin apptd) cont. 22 The authorities were also recently helpfully summarised by Ball J in Loiero (aka Lero) v Adel Sportswear Pty Ltd & Ors above at [11], where his Honour noted that: The question whether an item is a chattel or a fixture depends on whether it was placed on the land with the intention that it become part of the land or whether it was placed on the land with the intention that it remain separate from it: Reid v Smith (1906) 3 CLR 656. Generally, the intention of the person who placed the item on the land is to be determined objectively: May v Ceedive Pty Ltd [2006] NSWCA 369 at [65] per Santow JA (with whom Mason P and Beazley JA agreed), although, in some cases, courts have been prepared to look at the subjective intention of the person who placed the item on the land: for discussion, see National Australia Bank v Blacker [2000] FCA 1458; 104 FCR 288 at [12] per Conti J. Of particular significance in determining the party’s intention is whether the item has been affixed to the land and, if so, the degree of annexation: Australian Provincial Assurance Co Ltd v Coroneo (1938) 38 SR (NSW) 700 at 712-3 per Jordan CJ. Indeed, it is often said that if an item is affixed to the land then there is a presumption that it is a fixture (the strength of the presumption depending on the degree of annexation) and if it is not affixed then there is a presumption that it is not a fixture: Coroneo (1938) 38 SR (NSW) 700 at 712. However, the fact that the item is affixed to land is not determinative. An item may be a fixture where it simply rests on land by virtue of its own weight. A house resting on wooden piles is an obvious example: Reid v Smith (1906) 3 CLR 656, although even then there may be cases where a demountable house is not regarded as a fixture: Jiwira v PIBA [2000] NSWSC 1094. Conversely, an item that is fixed to land may not be a fixture. A typical case is where machinery is attached to land for the more effective use of the machinery rather than with the intention of improving the land: Reid v Smith (1906) 3 CLR 656 at 680-1 per O’Connor J; cf Australian Provincial Assurance Co Ltd v Coroneo (1938) 38 SR (NSW) 700 at 712 per Jordan CJ. 23 I now turn to the application of these principles in these circumstances. The Plaintiffs contend that the Equipment would not tend to improvement of the Premises. On the other hand, Cortez contends that the overall architectural design of level B2 of the Premises was directed to the installation of the Equipment and, specifically, that the Equipment is located and affixed in treatment rooms that were prepared for the performance of radiological medical procedures, for the better use of the Premises. Cortez also points out that steel plating was used in the relevant area to protect against the escape of radiation and that heavy duty conduits and other equipment was installed to facilitate the operation of the equipment. Cortez draws attention to analogies such as, for example, where a milk processing plant was annexed to the land for the better enjoyment and use of the land as a diary processing plant (National Dairies WA Ltd v Commissioner of State Revenue [2001] WASCA 112; (2001) 24 WAR 70) or machinery in a factory plant was annexed for the better use and enjoyment of the land as a furniture factory (Re Starline Furniture Pty Ltd (in liq) (1982) 6 ACLR 312). 24 I accept that the Premises were developed with a view to housing various medical facilities for the treatment of cancer and the treatment rooms were designed in a manner that is well suited for the conduct of radiological medical procedures. However, the design of that area facilitated the use of radiation equipment generally and could be used for equipment other than linear accelerators. On removal of the Equipment and termination of CCIA’s occupation of the Premises, it would be open to Cortez to lease the premises to another entity that used linear accelerators or other radiological equipment or any other form of radiological medical equipment, for example, a CT scanner of the kind contained in an adjoining treatment room, or indeed for other purposes. Moreover, it does not seem to me to follow from the design of the Premises or the treatment rooms that CCIA, as a tenant of the Premises, would have objectively intended that Equipment installed in Premises that had been designed to be suitable for its installation would become the lessor’s property. As the Plaintiffs point out, the position is analogous to that of the owner of a shopping centre which may design its facilities so that it is suitable for the installation of, for example, equipment regularly used in supermarkets or 160

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Re Cancer Care Institute of Australia Pty Ltd (admin apptd) cont. other stores likely to be found in shopping centres, without tenants of that shopping centre objectively intending that that equipment should become the owner’s property. 25 Cortez also contends that the installation of the Equipment in the Premises promotes their function as an integrated medical centre; and, conversely, in the absence of the Equipment, the Premises would have a diminished range of medical services to offer to the community. While that is plainly correct, the interests of Cortez as the owner of the Premises are to be distinguished from the interests of CCIA as the owner of the Equipment, and the proposition that the lessor’s interests (or indeed the community’s interests in the use of a particular facility) would be diminished by the removal of Equipment provides little support for a proposition that CCIA would have objectively intended to transfer ownership of the Equipment to Cortez. The position again seems to me to be analogous to the situation where a tenant may install chattels in, for example, a shop in a shopping centre, which no doubt promotes the use of the shopping centre generally, but provides little support for an inference that the objective intention of the tenant was that the equipment should become part of the land or the lessor’s property. Cortez’s submission also tends to prove too much, since much of the equipment installed by many of the tenants in an integrated medical centre will promote its function as such, but those tenants are unlikely to have objectively intended that the equipment installed in their tenancies would become the lessor’s property. 26 In my view, Mr Wellings’ evidence that he has installed some 61 new linear accelerators and arranged the removal or de-installation of 30 linear accelerators, and has also been engaged for two further relocations with two more planned in the near future (Wellings 16.11.12 at [3]) is also relevant both to the determination of the objective intention of CCIA when the equipment was installed in the Premises and to assessing the feasibility of the removal of the equipment and the likelihood that damage would result. CCIA, as a purchaser of very expensive medical equipment, is likely to have known that it was capable of being moved from place to place or removed and that is a factor that tends strongly against an objective intention that that the Equipment should become the property of Cortez as lessor of the premises. Second, the fact that linear accelerators are regularly removed and de-installed is a factor that indicates that the removal of the Equipment is not likely to cause substantial damage to the Premises. That indication is confirmed by Mr Wellings’ detailed evidence, to which I have referred above, of the steps that would in fact be taken to remove and relocate the Equipment, which was not controverted by Cortez. 27 Cortez contends that the Premises would be damaged by the removal of the steel base frames. However, as I have noted above, I do not consider that the base frames should be treated as part of the linear accelerators; it is not presently suggested that the base frames are to be removed; and in any event, the evidence is that any damage resulting from their removal could readily be repaired. Cortez also contends that the use of skates for removal of the linear accelerators would damage the surfaces along the proposed route for removal, but I accept Mr Wellings’ evidence that such damage should not result from the steps proposed to be taken to remove the Equipment. 28 So far as Emmett J identified several other relevant factors in Metal Manufacturers above are concerned, it is also plain that removal would not destroy or damage the Equipment, given the evidence that linear accelerators are regularly removed and replaced. The Equipment has substantial value, which on any view would exceed Mr Wellings’ evidence that the cost of its removal would be in the order of $60,000, and the fact that the cost of removal would not exceed its value is also evidenced by the extent to which other linear accelerators are removed and relocated. The time taken to remove the Equipment would be limited, being several days for its complete removal from the Premises. 29 The Plaintiffs point to another factor that, in my view, strongly tends against a finding that the objective intention of CCIA was that the Equipment should become a fixture in the Premises that are owned by Cortez. CCIA does not presently have a registered or written lease or agreement to lease the [7.45]

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Re Cancer Care Institute of Australia Pty Ltd (admin apptd) cont. area of the Premises in which the Equipment is located, and the parties accepted that it occupied that area as a tenant at will, although Cortez is presently unable to terminate that tenancy while CCIA is in administration by reason of s 440B of the Corporations Act. Cortez accepted that CCIA was a tenant at will for an indefinite term, although it submitted that it foreseeably had tenure as secure as Cortez, by reason that CCIA and Cortez were owned by interests associated with their common directors, Messrs Smith and McGrath. 30 The evidence before me is ultimately not sufficient to establish the detail of any corporate relationship between Cortez and CCIA. Two entities associated with Messrs Smith and McGrath, Polar Property and Investments Pty Limited (“Polar”) and Iowa Property and Investments Pty Limited (“Iowa”), each hold 50% of the issued share capital in CCIA. Cortez relies on a draft business plan of a third entity, Australian Health Investment Company Limited (“AHIC”) prepared in 2010 to seek to establish the nature of the corporate relationship between CCIA and Cortez. That draft document appears to be less a traditional business plan than a document prepared to provide third parties with information about AHIC’s then proposed business, and includes a disclaimer as to its content. The document notes that Messrs Smith and McGrath then held a 50% interest in another entity, Cortez Investments LLP, that in turn held a 74% interest in Cortez and indicates that AHIC then intended to purchase the issued capital of CCIA from Polar and Iowa. Cortez also relies on a statement in that draft document that: It is intended AHIC will put in place formal rental agreements between the entity owning the strata units [in the Premises] and [CCIA]… I do not consider that I can place significant weight on that draft document as further illuminating the nature of any corporate relationship between Cortez and CCIA, where it is a draft prepared over two years ago; it refers to structures and transactions that are proposed and may or may not later have been implemented and interests that may or may not later have changed; and where the evidence is that some of those proposed transactions, such as the proposed purchase of the shares in CCIA by AHIC from Polar and Iowa and the entry into a formal lease between AHIC and CCIA, were not in fact implemented. 31 There also seem to me to be several other difficulties with Cortez’s reliance on the corporate relationship between CCIA and Cortez as a basis for a right of occupation of the Premises. First, by contrast with the position considered by Emmett J in Metal Manufacturers above, CCIA was not Cortez’s holding company and did not control it so it had no ability to secure its occupancy of the premises by exercising corporate control. Second, the common directors of CCIA and Cortez could not properly act to secure CCIA’s occupancy of the premises, if it were in Cortez’s interests to terminate the tenancy at will although they also could also not properly prefer Cortez’s interests to those of CCIA in that situation. In my view, the fact that the directors of CCIA did not insist on a long term lease of the Premises before purchasing the Equipment and installing it in the Premises tends strongly against any objective intention of CCIA that the Equipment become a fixture. Had that been CCIA’s intention, its directors would have been bound to take steps to ensure that CCIA had a secure right of occupancy of the Premises to mitigate the risk that its ownership and use of the Equipment that it had purchased at a substantial price and any income stream derived from it would be lost to CCIA. 32 The Plaintiffs contend, and I accept, that it is inherently unlikely that CCIA would objectively intend that medical equipment that it had purchased at a cost of approximately $9 million would become the property of Cortez, where it had no security of tenure and that could have occurred at any time. The position, so far as CCIA as a tenant at will is concerned, is closely analogous to that contemplated by Lord Halsbury LC in Leigh v Taylor [1902] AC 157 at 159, in asking the rhetorical question whether it was likely that a tenant from year to year would have put up expensive tapestries with a value of £7,000 and thereby made a present of their value to the lessor. There seems to be no 162

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Re Cancer Care Institute of Australia Pty Ltd (admin apptd) cont. less reason to answer that rhetorical question in the negative where dealings are between associated entities with common directors and a present by CCIA to Cortez of equipment purchased at a price of nearly $9 million would be prejudicial to the interests of CCIA and of its creditors. 33 The Plaintiffs also contend, and I also accept, that another factor tending against an objective intention that the Equipment would become part of the premises was that it was purchased on credit, and the terms and conditions of sale provided that the vendor, Varian: … shall retain a purchase money security interest in all Products and the proceeds thereof until the Customer has made payment in full to Varian of all sums due, including late fees and collection costs. (Dean-Willcocks affidavit, Ex RD 1, Tab 9, Cl 3) The reference to a “purchase money security interest” is to an interest registered in the Personal Property Securities Register created under the Personal Properties Securities Act 2009 (Cth). The fact that CCIA and Varian both proceeded on the basis that CCIA was able to give an effective security interest over the Equipment is inconsistent with any objective intention of CCIA that they would become part of the Premises and the property of Cortez. 34 For these reasons, I find that the Equipment has not become a fixture to the Premises. Whether the Equipment is a tenant’s fixture 35 The Plaintiffs alternatively contend that, if the Court were to hold that the Equipment had become a fixture, then it would properly be characterised as a tenant’s fixture that may be removed by CCIA within a reasonable time of termination of its right to occupy the Premises. I should briefly address this contention, although it is not necessary to do so in detail where I have not found that the Equipment has become a fixture. 36 In Land Law, 6th ed, 2010 [15 248], Professor Butt refers the approach adopted by the common law in permitting tenants to remove fixtures they had brought onto the land, provided that the fixtures were installed for trade, domestic or ornamental purposes, and also points to the qualification that a tenant cannot remove items that are so firmly fixed that removal would destroy their essential character or value or would substantially damage the reality. The authorities indicate that a right to remove fixtures can arise as between lessor and lessee by, inter alia, implication, and such a right may arise where a tenant has affixed chattels to land for the purpose of trade: Reid v Smith (1906) 3 CLR 656 per O’Connor J at 677-678. 37 In Lees & Leech Pty Ltd v Commissioner of Taxation above, Hill J observed that: Prima facie, once an item is a fixture it attaches to the land and becomes part of the realty. In other words, it becomes part of the property of the owner of the land. There is a question as to whether that is the case where the item in question is a “tenants’ fixture”:cf Re Sir Edward Hulse [1905] 1 Ch 406 at 411; Spyer v Phillipa [1931] 2 Ch 183; Registrar of Titles v Charles Spencer (1909) 9 CLR 641; and Commissioner of Main Roads v North Shore Gas Co Ltd (1967) 120 CLR 118. When it is said that an item is a “tenants’ fixture”, all that is meant is that the tenant has a right to remove the item at the expiration of the term of the lease or a reasonable time thereafter: cf D’Arcy v Burelli Investments Pty Ltd (1987) 8 NSWLR 317. If the item in question were not a fixture, a fortiori it would belong to the tenant and could be removed by the tenant at any time. Thus, the whole concept of tenants’ fixtures assumes that the items in question have become fixtures but that the tenant has a right in equity in the land, co-extensive with the right of the tenant to come upon the land after the expiration of the lease and remove the fixture. 38 In Macrocom Pty Ltd v City West Centre Pty Ltd above, Windeyer J indicated (at [21]) that, although he had held a satellite dish to be a fixture as I noted above, he would have held, had the case been between landlord and tenant and the question to be determined during the term of the lease, that the tenant could remove that satellite dish where it was erected for the purposes of its trade. [7.45]

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Re Cancer Care Institute of Australia Pty Ltd (admin apptd) cont. 39 Had I held, contrary to the conclusion that I have reached above, that the Equipment had become a fixture, then I would have held that CCIA was entitled to remove the Equipment as a tenant’s fixture. To the extent that such a term was to be implied into the lease in fact, that implication could more readily be drawn given the informality of the relevant tenancy arrangement. The only submission put by Cortez to the contrary was that the removal of the Equipment would cause substantial damage to the Premises. However, that submission depended, first, upon the proposition that the base frame was part of the Equipment, which I have not accepted. I also accept Mr Wellings’ evidence that is a relatively straightforward task to remove the base frame, whether to install the base frame for a linear accelerator manufactured other than by Varian or so that no base frame remains in the Premises, if Cortez ultimately wishes to do so. Orders 40 Accordingly, I propose to make the following orders in the form sought by the Plaintiffs: 1. A declaration that: (a) The property described in Schedule A (“Property”) is not a fixture of the land located at 31 Dora Street Hurstville (“Premises”) in which the Defendants have an interest;

2.

(b)

the Defendants have no title, interest or rights in respect of the Property; and

(c)

the Second Plaintiff has title in the Property.

Order that the First Defendant immediately deliver up the Property to the Plaintiffs or, in the alternative, permit the Plaintiffs to remove the Property from the Premises without impediment.

It will be necessary for the parties to prepare an Amended Schedule A, deleting those items that were previously the subject of orders made by the Court in the course of the hearing. I will also hear the parties further as to any other modifications that may be required to the form of the proposed orders. 41 I note that the Plaintiffs also sought a direction that the Administrator is justified in proceeding in the administration of CCIA on the basis that, aside from any security interests in respect of CCIA perfected under the Personal Property Securities Act 2009 (Cth), CCIA has title to the Property and the Property forms part of its assets. I do not consider that it is necessary or appropriate to make such a direction. I do not consider that it is necessary to make that direction, because no claim to an interest in the Property other than that advanced by the Defendants was addressed in the hearing before me, and that dispute will be resolved by the declaration and order that I will make. I do not consider it is appropriate to make that direction, where there is no evidence before me that would exclude the possibility of other interests in the Property, although no party in the proceedings before me claimed any such other interest. 42 The First Defendant should pay the Plaintiffs’ costs of the proceedings.

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Chapter 8: Taxonomy of Personal Property ..................................... 167 Chapter 9: Identifying Legal Interests in Choses in Possession: Ownership and Possession .............................................. 199 Chapter 10: Engaging in Dealings in Choses in Possession: Transfer of Ownership .......................................................... 215 Chapter 11: Engaging in Dealings in Choses in Possession: Transfer of Possession by Bailment ................................... .. 299

PART2

PART 2: PERSONAL PROPERTY – INTRODUCTION TO CHOSES IN POSSESSION

CHAPTER 8 Taxonomy of Personal Property [8.05]

TYPES OF AND INTERESTS IN PERSONAL PROPERTY ........................................ 167 [8.10]

Colonial Bank v Whinney ....................................................... 169

Extract from Pearson, Commercial Law: Commentary and Materials, Ch 2.

TYPES OF AND INTERESTS IN PERSONAL PROPERTY [8.05] The nomenclature of the two main types of personal property, namely things in

possession and things in action, provides us with some guidance concerning the interests that each type of personal property gives rise to. This section introduces the categories of things in possession and things in action and these are dealt with in more detail below (see Chapter 12). A thing is in possession because it is capable of being possessed. If something is to be “possessed” then, except in a metaphorical sense, that thing must be something that has a real existence as an object. In other words, the thing must be corporeal. By contrast, things in action are intangible. Things in action are legal abstractions derived from legal relationships that the legal system is prepared to recognise and provide remedies for their breach or invasions of those particular interests. The fundamental difference between the two main types of personal property is whether the “thing” is corporeal. In 1769, Yates J said “nothing can be the object of property which has not a corporeal existence”: Millar v Taylor (1769) 98 ER 201 at 232. The Canadian commentator Welling, after citing Yates J in Millar v Taylor (1769) 98 ER 201, goes on to ascribe a restricted meaning for the word “thing” as meaning a “material object, a body; a being or entity (excluding land) consisting of matter, or occupying space”. 1 To adopt this view you would need to also adopt the view that property is a wider in meaning than “things” and the law of property is not only concerned with things which Welling does. 2 For him property is a relationship between people. 3 However, query the correctness of these assertions. Today, choses in action are considered a personal right of property even though they are not corporeal. Moreover, a chose in action has been expressed as a thing. For example, Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 915 Lord Hoffmann said: [A] chose in action is property, something capable of being turned into money… [W]hat is assignable is the debt or other personal right of property. It is recoverable by action, but what is assigned is the chose, the thing, the debt or damages to which the assignor is entitled. The existence of a remedy or remedies is an essential condition for the existence of the chose in action but that does not mean that the remedies are property in themselves, capable of assignment separately from the chose. 1

2

B Welling, Property in Things in the Common Law System (Scribblers Publishing, Gold Coast, 1996), p 10. Welling cites Art 90 of the German Civil Code to illustrate the distinction between “property” and “things”: “Only corporeal objects are things in the legal sense”. B Welling, Property in Things in the Common Law System (Scribblers Publishing, Gold Coast, 1996), p 11,

3

B Welling, Property in Things in the Common Law System (Scribblers Publishing, Gold Coast, 1996), p 8. [8.05]

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It is suggested that for the most part property law is concerned with the relationship between people in respect of things. It is also convenient to mention here the distinction between legal and equitable interests in things. The common law recognises only two titles to personal property, namely ownership and possession. Parties can share that title and co-own the subject asset but it is not possible to carve up ownership and possession into different titles; ownership and possession at law are indivisible. Equity, somewhat akin to the doctrine of estates in land, does recognise a division of title, so it is possible for person to have legal title and another person to have equitable title to the same asset, see further Roy Goode, Commercial Law (3rd ed, Penguin, London, 2004) p 31ff. As there is but one asset it is still correct to characterise these parties as co-owners of the asset. Thus, a legal title holder of a debt and an equitable title holder of the same debt, co-own the debt. See also Robert Chambers, An Introduction to Property Law in Australia (2nd ed, Thomson Lawbook Co, 2008) Chapter 13 (equitable interests), Chapter 15 (co-ownership).

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Colonial Bank-v-Whinney [8.10] Colonial Bank v Whinney (1885) 30 Ch D 261 at 285-290 (per Fry LJ dissenting)

[8.10]

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170

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Colonial Bank-v-Whinney cont.

[8.10]

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172

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Colonial Bank-v-Whinney cont.

[8.10]

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174

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Colonial Bank-v-Whinney cont.

[8.10]

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176

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[8.10]

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[8.10]

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[8.10]

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[8.10]

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184

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[8.10]

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186

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Colonial Bank-v-Whinney cont.

[8.10]

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188

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Colonial Bank-v-Whinney cont.

[8.10]

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190

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[8.10]

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192

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Colonial Bank-v-Whinney cont.

[8.10]

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194

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Colonial Bank-v-Whinney cont.

[8.10]

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Colonial Bank-v-Whinney cont.

[8.10]

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Colonial Bank-v-Whinney cont.

198

[8.10]

CHAPTER 9 Identifying Legal Interests in Choses in Possession: Ownership and Possession [9.05]

POSSESSION .......................................................................................................... 199 [9.05]

Definition ............................................................................................. 199 [9.10]

[9.20]

Degrees of possession ......................................................................... 200 [9.25] [9.30] [9.35]

[9.40]

An Essay on Possession in the Common Law ........................... 200 An Essay on Possession in the Common Law ........................... 201 The Tubantia ........................................................................ 204 Federal Commissioner of Taxation v Australia and New Zealand Banking Group Ltd ................................................... 207

OWNERSHIP: DEFINITIONS AND CONCEPTS .................................................... 209 [9.45] [9.55] [9.70]

Report on the Giving of Security by Means of Movable Property ............................................................................... 210 Imported Food Control Act 1992 (Cth), s 20(14) ..................... 211 Re Jigrose Pty Ltd .................................................................. 212

POSSESSION Extracts from Pearson, Commercial Law: Commentary and Materials, Ch 2.

Definition [9.05] The concept of “possession” has continued to evade comprehensive definition (see

United States of America & Republic of France v Dollfus Mieg et Cie SA & Bank of England [1952] AC 502 at 605). At its simplest, “possession connotes power over the article possessed”: Knapp v Knapp [1944] SASR 257 at 262 per Mayo J. Possession is not limited simply to physical possession or custody of tangible property. Legal possession also denotes a state of mind where the person in possession of tangible property (or goods) regards him or herself as having exclusive control over the goods and thus entitled to use those goods free from interference by any other person: see also Knapp v Knapp [1944] SASR 257 at 265. Possession can be categorised as actual or constructive. Actual possession is where a person has physical possession of goods accompanied by an intention to control or exercise power over the goods. Constructive possession is where a person, having the requisite intention, has taken symbolic delivery, as opposed to physical possession, of goods through, for example, obtaining the physical means of control over the goods or entering into an arrangement where the goods are held to the order of that person. 1 Pollock and Wright in their magisterial work entitled An Essay on Possession in the Common Law (Clarendon Press, Oxford, 1888 (reprinted 1990, Law Press, Sydney)) introduce the legal concept of “possession” in the following terms. 1

See S Gleeson, Personal Property Law (Sweet & Maxwell, London, 1997), pp 30-31. [9.05]

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An Essay on Possession in the Common Law [9.10] Pollock and Wright, An Essay on Possession in the Common Law (Clarendon Press, Oxford, 1888) [1] Yet, as the name of Possession is … one of the most important in our books, so it is one of the most ambiguous [Erle CJ in Bourne v Fosbrooke (1865) 15 CB (NS) 515; 34 LJCP a64, 167; Fry LJ in Lyell v Kennedy (1887) 18 QBD 795, 813]. Its legal senses (for there are several) overlap the popular sense, and even the popular sense includes the assumption of matters of fact which are not easy to verify. In common speech a man is said to possess or to be in possession of anything of which he has the apparent control, or from the use of which he has the apparent power of excluding others. [2] Law takes this popular conception and as a provisional groundwork, and builds up on it the notion of possession in a technical sense, as a definite legal relation to something capable of having an owner, which relation is distinct and separable both from real and from apparent ownership, though often concurrent with one or both of them. Possession again, whether in the popular or in the legal sense, does not necessarily concur with title.

[9.15] The difficulty of crafting a legal definition of “possession” is apparent in the statement

of Mayo J in Button v Cooper [1947] SASR 286 at 292 where his Honour said: “Possession connotes a relationship between a person and some material object. It is a relation subsisting in fact.” It is for the purposes of legal discourse that legal commentators and judges have attempted to impose order on possession by introducing legal analysis and concepts. Possession is very much case-specific or instance-specific as noted by Bridge: “Possession takes its meaning very much from the operative facts, so its application differs according to whether it applies to a signet ring or a supertanker.” 2 Although both courts and commentators have readily confessed to the difficulty of defining possession, the efforts of judges in deciding disputed possession and the efforts of commentators in organising the law of possession means that there is a substantial body of opinion from which working principles can be derived, to approach possession as a legal phenomenon and to resolve disputes as to possession. As regards the latter aspect, it is worth noting the dictum of Auld LJ in Waverley Borough Council v Fletcher [1996] QB 334 at 345 that “the English [and Australian] law of ownership and possession, unlike that of Roman law, is not a system of identifying absolute entitlement, but of priority of entitlement”. The commentator Kocourek has summarised the difficulties associated with the concept of possession in the following passage from his work Jural Relations. Degrees of possession [9.20] In [9.05] above, we introduced the framework of the law of possession broken down

according to what were called the elements of possession, namely intention and control. These elements of intention and control function as benchmarks or yardsticks by which to gauge whether a particular person has “possession” of a tangible, corporeal thing (although it must be remembered that the subject of possession can be land as much as it can be goods). To develop a more refined understanding of the concept of possession, commentators have further dissected possession into what might be termed the “degrees” of possession. The most 2

See M Bridge, Personal Property Law (3rd ed, Blackstone Press Ltd, London, 2002), p 16.

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notable attempt is that made by Pollock and Wright in their seminal work An Essay on Possession in the Common Law (Clarendon Press, Oxford, 1888 (reprinted 1990, Law Press, Sydney)).

An Essay on Possession in the Common Law [9.25] F Pollock and RS Wright, An Essay on Possession in the Common Law (Clarendon Press, Oxford, 1888) (footnotes omitted) [12] It appears, then, that even at the earliest stage we have many things to distinguish. De facto possession, or detention as it is currently named in Continental writings, may be paraphrased as effective occupation or control. Now it is evident that exclusive occupation or control, in the sense of a real unqualified power to exclude others, is nowhere to be found. All physical security is finite and qualified. A strong man is worse to meddle with than a weak man or a child, but the strong man also may be overpowered. It is harder to break [13] into a safe than a cupboard, a house than field, a prison or a fortress than a house; but locks may be picked, bolts forced, walls broken. External security means only making intrusion so troublesome, and successful intrusion so little to be hoped for, that under ordinary conditions the risk of the attempt will be out of proportion to the contingent gain of success. And the amount of material difficulty which it is necessary or worth while to set up is found by experience to vary with circumstances. A dwelling-house is not built or guarded like a prison, and we do not lock up tea and candles in a safe; we should call a banker imprudent who used only the same cautions as a private householder. We may say then that, in common understanding, that occupation at any rate is effective which is sufficient as a rule and for practical purposes to exclude strangers from interfering with the occupier’s use and enjoyment. Much less than this will often amount to possession in the absence of any effectual act in an adverse interest … To determine what acts will be sufficient in a particular case we must attend to the circumstances, and especially to the nature of the thing dealt with, and the manner in which things of the same kind are habitually used and enjoyed. We must distinguish between moveable and immoveable property, between portable objects and those which exceed the limited of portable mass or bulk. Further, we must attend to the apparent intent with which the acts in question are done. An act which is not done or believed to be done in the exercise or assertion of dominion will not cause the person doing it to be regarded as the de facto exerciser of the powers of use and enjoyment. Still further, it will often not suffice to regard the intent of the actor alone. I may intend to assert dominion over a given subject of property, and I may do an [14] act, or a series of acts, fitted to manifest that intention. But there may be some other person who appears to be in a position, of right or in fact, to object to my claim; and whether my action be taken with or without the consent or acquiescence of any such person will make a great difference to the practical result. If I act with the consent of the former holder (as a purchaser does when he received delivery of goods or is let into possession of land), whoever respected his will to exclude others may be expected in like manner to respect mine: I get, if one may so use the word, the goodwill of his occupation. But if consent be wanting, and I am confronted by resistance, or even under apprehension of it, other people cannot be expected to assume anything in my favour, and will not give me credit for the powers of an owner until my exclusive power of control is manifest in actual experience. Thus it happens that acts which if opposed would be insignificant are accepted as a sufficient and actual entering on possession when they are fortified by the concurrence of the last possessor, while hostile or ambiguous occupation must make itself good at every step. Delivery is favourably construed, taking is put to strict proof; and this not by calling in aid any presumption of right, but on the ground that the reality of de facto dominion is measured in inverse ratio to the changes of effective opposition. And, in order to ascertain whether acts of alleged occupation, control, or use and enjoyment, are effective as regards a given thing we may have to consider: (a)

of what kinds of physical control and use the thing in question is practically capable; [9.25]

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An Essay on Possession in the Common Law cont. (b)

with what intention the acts in question were done;

(c)

whether the knowledge or intention of any other person was material to their effect, and if so, what that person did know and intend (see Cook v Rider 1834; 16 Pick (Mass) 186).

Hence follows a seeming paradox. Occupation or control is a matter of fact, and cannot of itself be dependent on matter of law. But it may depend on the opinion of certain persons for [15] the time being, or the current opinion of a multitude or a neighbourhood, concerning that which is ultimately a matter of law. Though law cannot alter facts, or directly confer physical power, the reputation of legal right may make a great difference to the extent of a man’s power in fact. Ownership does not make one an occupier, nor necessarily confer any right to occupy; but occupation is easier and more effective, (in a settled country at any rate) when armed with the real or supposed authority of the owner. Physical or de facto possession readily follows the reputation of title; we shall see that possession in law is ordinarily adjudged to follow the true title, in cases where physical possession is contested or ambiguous; and in this the law does not cross, but rather develops and confirms, the practical instinct of mankind. §4 Possession in law [16] To have the actual apparent power of preventing interference with a thing is different, and has to be distinguished, from having the power of such prevention attributed to one by law, so that the intermeddler may be rightfully resisted at the time, or may afterwards be compelled by legal process to make reparation in some form. When the fact of control is coupled with a legal claim and right to exercise it in one’s own name against the world at large, we have possession In reply to: law as well as in fact. We say as against the world at large, not as against all men without exception. For a perfectly exclusive right to the control of anything can belong to the owner, or to some one invested with such right by the will of the owner or some authority ultimately derived therefrom, or, exceptionally, by an act of the law superseding the owner’s will and his normal rights. Such a right is matter of title; the person bearing it has a definite estate or interest known the law, an estate [17] freehold or copyhold or for years if it be in land, a general or special property if it be in goods. If he has not the actual control, the law will help him to it; in other words, he is entitled or has the right to possess the thing in question. When he has obtained control, he will be the actual and rightful possessor. But meanwhile some one else may have possession in fact, and may likewise have actual possession in law, that is, he may be entitled for the time being to repel and to claim redress for all and any acts of interference done otherwise than on behalf of the true owner. Possession in law is most easily understood as associated with possession in fact. This is the normal aspect of the right. It exists, broadly speaking, for the benefit of possessors in fact and in good faith, even if we hold that the ulterior object is the benefit of those who, as being or claiming through true owners, are really entitled to possess. The law would be much simpler than it is if it were held that actual control or custody invariably gives actual legal possession, whether the custodian exercises control on his own account or as the servant or otherwise on behalf of another. But no system of law, so far as we know, has gone that length. A manifest intent, not merely to exclude the world at large from interfering with the thing in question, but to do so on one’s own account and in one’s own name, is required in different degrees both by the Roman law and by the Common Law. One who holds a thing with the owner’s consent must do so on the terms consented to; when we have once conceived legal possession as a definite right or interest, there is no difficulty in conceiving it to be one of the terms on which a thing is handed over that legal possession shall remain with the owner, or in presuming it so to be in certain common cases, or even in making a fixed rule of law that possession shall follow the transfer of physical control (which we may call manual delivery in all cases, though the term is more proper to moveables) only when specified kinds of interest in the property itself are 202

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An Essay on Possession in the Common Law cont. concerned. Accordingly we find in the [18] Roman law that possession is not easily separated from ownership by voluntary manual delivery; whereas the Common Law seems averse to separating possession in law from physical custody, where the thing is in an ascertained custody, and does so only in special cases, as where a servant holds on behalf of his master, and where property taken in distress or execution is said to be “in the custody of the law”. These cases have been though anomalous in our modern system, and indeed the authorities are not wholly clear … Part II of possession generally – Chapter I – The nature of possession [26] Throughout our inquiry we have to bear in mind that the following elements are quite distinct in conception, and, though very often found in combination, are also separable and often separated in practice. They are: i.

Physical control, detention, or de facto possession. This, as an actual relation between a person and a thing, is matter of fact. Nevertheless questions which the Court must decide as matter of law arise as to the proof of the facts.

ii.

Legal possession, the state of being a possessor in the eye of the law.

This is a definite legal relation of the possessor to the thing possessed. In its most normal and obvious form, it coexists with the fact of physical control, and with other facts making the exercise of that control rightful. But it may exist either with or without detention, and either with or without a rightful origin. A tailor sends to JS’s house a coat which JS has ordered. JS puts on the coat, and then has both physical control and rightful possession in law. JS takes off the coat and gives it to a servant to take back to the tailor for some alterations. Now the servant has physical control (in this connexion generally called “custody” by our authorities) and JS still has the possession in law. While the servant is going on his errand, Z assaults him and robs him of the coat. Z is not only physically master of the coat, but, so soon as he has complete control of it, he has [27] possession in law, though a wrongful possession. To see what is left to JS we must look to the next head. iii.

Right to possess or to have legal possession. This includes the right to physical possession. It can exist apart from both physical and legal possession; it is, for example, that which remains to a rightful possessor immediately after he has been wrongfully dispossessed. It is a normal incident of ownership or property, and the name of “property” is often given to it. Unlike Possession itself, it is not necessarily exclusive. A may have the right to possess a thing as against B and every one else, while B has at the same time a right to possess it as against every one except A. So joint tenants have both single possession and a single joint right to possession, but tenants in common have a single possession with several rights to possession. When a person having right to possess a thing acquires the physical control of it, he necessarily acquires legal possession also.

Right to possess, when separated from possession, is often called “constructive possession”. The correct use of the term would seem to be coextensive with and limited to those cases where a person entitled to possession is (or was) allowed the same remedies as if he had really been in possession. But it is also sometimes specially applied to the cases where the legal possession is with one person and the custody with his servant, or some other person for the time being in a like position; and sometimes it is extended to other cases where legal possession is separated from detention. “Actual possession” as opposed to “constructive possession” is in the same way an ambiguous term. It is most commonly used to signify physical, control, with or without possession in law. “Bare possession” is sometimes used [28] with the same meaning. “Lawful possession” means a legal possession which is also rightful or at least excusable; this may be consistent with a superior right to possess in some other person. [9.25]

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An Essay on Possession in the Common Law cont. The whole terminology of the subject, however, is still very loose and unsettled in the books, and the reader cannot be too strongly warned that careful attention must in every case be paid to the context. In the procedure of the Common Law (which no longer exists in England, but must be understood in order to understand the substance of the law) an action of Trespass is the appropriate remedy for a wrong done to existing legal possession. Wrongs affecting the right to possess are remediable by other forms of action, mainly Ejectment (superseding the assizes and other possessory real actions) as to land, and Trover (largely superseding Detinue) as to personal chattels. All actual legal possessor can maintain Trespass (and control in fact is evidence of possession in law); but they may use the other remedies at their option in so far as they can show a right to possess. An owner who has parted with possession but may resume it at will can also maintain Trespass. The right to use in trespass is therefore not a sufficient test of Possession, though it is a necessary one.

Extracts from Pearson, Commercial Law: Commentary and Materials, Ch 3.

The Tubantia [9.30] The Tubantia [1924] P 78 English High Court of Justice, Probate, Divorce and Admiralty Division ACTION for damages for trespass and/or for wrongful interference with the plaintiffs’ salvage services on and attendant at the wreck of the steamship Tubantia and/or her cargo. According to the statement of claim, in January, 1916, the Dutch steamship Tubantia sank in the North Sea in over 100 ft of water after being torpedoed by a German warship. No attempt was made by any one to salve the ship or cargo until the beginning of 1922, when the plaintiffs, Major Sippe, DSO, and others, determined to fit out an expedition in order to raise the vessel or recover anything of value in her. They accordingly engaged steamers and tugs and employed divers and salvage experts. In April, 1922, the plaintiffs started sweeping operations and sent divers down and eventually located the Tubantia, but owing to her broken condition found there was no possibility of raising her. Throughout the summer of 1922 the plaintiffs continued diving operations whenever the weather conditions permitted until the month of November, when it became impracticable to continue working through the winter. The plaintiffs then buoyed the Tubantia so as to indicate her position and left her until April, 1923, when the operations were resumed. On July 9, 1923, the defendants, Vincent Grech and Count Zanardi Landi, British subjects and partners (together with one Cecil Reed, who was added as a defendant in the course of the hearing) in a company called the British Semper Paratus Salvage Company, proceeded with their steamship Semper Paratus to the place of the wreck and anchored her in close proximity to the plaintiffs’ salvage steamer, thereby interfering with the plaintiffs’ operations. Though requested to leave, the defendants remained with the Semper Paratus at or near the wreck until after the issue of the writ in the present action on July 16, 1923. On July 13, when in close proximity to the wreck, the defendants got their sounding lines entangled in the plaintiffs’ lines. On the same day the defendants tried to moor a motor launch to one of the plaintiffs’ buoys and to raise the plaintiffs’ grappling irons and anchor; and on several occasions they sent down divers on to or in close proximity to the wreck. The plaintiffs alleged that the defendants intentionally and without justification or excuse interfered with the plaintiffs’ possession of, and their salvage operations on, the Tubantia and her cargo; that the ultimate success of the operations was imperilled; and that the plaintiffs, who had spent approximately £40,000 up to the beginning of the proceedings in the action, had thereby suffered damage. 204

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The Tubantia cont. The plaintiffs claimed (a) a declaration that they were entitled to possession of the Tubantia and her cargo; (b) damages; (c) an injunction restraining the defendants from proceeding to, remaining at, or interfering with, the Tubantia and/or her cargo; (d) a reference to the registrar and merchants to assess the amount of damage. The defendants denied the plaintiffs’ possessory rights and the alleged infringement of them; and the defendant Count Landi further denied that the plaintiffs had the ability, appliances, or competency to save any of the property, or to do so without aid. He alleged that he was ready and willing to co-operate with the plaintiffs for the purpose of saving any property capable of being saved, and to bring into Court anything he might succeed in recovering from the wreck. The President (Sir Henry Duke) read the following judgment: The plaintiffs in this action – a British subject and four citizens of the French Republic – bring their action in respect of alleged wrongful acts of the defendants upon the high seas. The place in question is a point in the North Sea some fifty miles from our shores, and from twenty to twenty-seven miles from the coasts of France, Belgium and Holland, where, at a depth of nineteen or twenty fathoms, lies so much as is now in being of the hull and cargo of a Dutch steamer, the Tubantia, which was a vessel 541 feet long and of 15,000 tons register. Alleged rights over the Tubantia and her cargo are the real subject matter of the controversy. The vessel was, as the parties say, sunk at the place in question in January, 1916, by a German warship. The plaintiffs assert possessory rights over the wreck and its contents and complain of trespasses thereon and also of wrongful interference by the defendants and their servants with the lawful business of the plaintiffs. They claim a declaration to establish the possessory rights which they allege, an injunction to restrain interference by the defendants with their possession of or operations upon the Tubantia, and damages to be assessed by the registrar and merchants according to the practice of this Division. The defendants against whom the action has proceeded are Cecil Finlay Reed, Vincent Grech and C Zanardi Landi, who constituted, as appears, the partnership called in the pleadings the Semper Paratus Salvage Company and under that name added to the defendants in the cause. The steamship Semper Paratus was used by the defendants, as is alleged, in doing the acts complained of by the plaintiffs. She is of British register. The defendants deny the alleged possessory rights of the plaintiffs, and the alleged trespasses and molestations. The defendant Landi raises alternative defences which treat the plaintiffs as would-be salvers of the Tubantia who were unable to effect their salvage undertaking and assert that the defendants were ready and willing to co-operate with the plaintiffs as salvors and to bring into Court any salved property. There was evidence at the hearing of a serious belief among the parties that the wreck of the Tubantia contains treasure of large value. A salvage agreement into which the three defendants entered for the purposes of their joint undertaking specifies a sum in gold of the German prewar currency worth not less than two million pounds sterling. The particulars I have stated show the controversy between the parties to be of an unusual kind, and the plaintiffs are invoking in respect of it powers of the Court derived from the Judicature Acts which rarely come in question here. On the defendants’ part one short answer which was made to the claims of the plaintiffs was that they are without precedent. The absence of specific authority no doubt necessitates caution in the consideration of the case. What is really to be decided, however, is whether in respect of the Tubantia and her cargo any rights of the plaintiffs have been infringed by the defendants and, if so, what are the appropriate remedies. The things in question here are, as I find, derelict in the limited sense in which that term is constantly used here in cases of salvage-what Lord Stowell called “the legal sense”: The Aquila 1 C Rob 37. They are not in the possession or control of any owner or person acting on behalf of an owner. The possession of a salvor in a ship or cargo, or cargo, or wreck derelict in this sense is, however, as well known to the law as any other right of a salvor. It has often been asserted, and, indeed, vindicated in [9.30]

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The Tubantia cont. the Admiralty jurisdiction. The plaintiffs are, therefore, entitled to a decision as to whether they had in July, 1923, as they assert they had, possession by their agents of the wreck of the Tubantia and the cargo therein. The facts on which the plaintiffs rely in support of their claim that they had possession in July, 1923, are fully set forth in the statement of claim, and, in all material particulars, were proved at the hearing. Their operations began in April, 1922, and for a long time were discontinuous. Their controversy with the defendants arose in July, 1923. They then had, and from that time to the hearing they have kept, craft and divers at the place in question. What had been done, and what was going on in July, 1923, are matters in dispute, and must be stated in some detail. The plaintiffs, by employing during two seasons various vessels suitable for salvage work with competent crews, ascertained and marked out the area occupied by the Tubantia, and by means of buoys properly moored they were able to, and did, keep in position, at and above the wreck, craft from which work could be carried on upon the hull and in the holds. They established and in July, 1923, were using, various buoyed moorings by which they had direct access to the deck at various points. They cut out a hole in the ship’s side 14 ft by ten, which gave them access to No 4 hold, in which a great bulk of cargo appears to have been stowed, and by means of tackle fixed at the side of the hold their divers had a way of approach to and entry upon that hold. The various appliances to which I have referred were of the nature of fixed plant on and around the Tubantia, such that when the weather and the state of the tide permitted, divers could by its use work in and upon the wreck and among the cargo. Two pairs of divers were so at work during May, June, and July, 1923. They explored the wreck, removed obstructions, opened the approaches to and worked upon the cargo, and brought up parts of the structure and of the cargo. The possible working hours in each day, however, did not exceed two spells of one and three-quarter hours at a time, of which 45 minutes at a time were spent in the holds. The number of working days in 1923 seems not to have exceeded 25, and the working plant was liable to be carried away or destroyed by the sea. Some of it sometimes was. The appliances I have mentioned, and the frequently interrupted access to the wreck which the plaintiffs had in the summer of 1923, are the evidences of possession at the dates in question in this case on which the plaintiffs rely. On the question whether in the state of facts I have described the plaintiffs could be found to have had possession of the Tubantia when the defendants appeared on the scene, counsel on both sides cited largely from Sir Frederick Pollock’s well-known treatise on possession: Pollock and Wright, Possession in the Common Law. The questions suggested in this way I have sought to apply. They involve inquiries such as these: what are the kinds of physical control and use of which the things in question were practically capable? Could physical control be applied to the res as a whole? Was there a complete taking? Had the plaintiffs occupation sufficient for practical purposes to exclude strangers from interfering with the property? Was there the animus possidendi? I have also taken this to be a true proposition in English law: A thing taken by a person of his own motion and for himself, and subject in his hands, or under his control, to the uses of which it is capable, is in that person’s possession. “Omnia ut dominum gessisse” is, Sir Frederick Pollock says, a good working synonym for “in possessione esse”, and I cannot doubt that if the owners of the Tubantia in 1916 had put themselves, in 1923, in the position in which the plaintiffs put themselves they would be held to have been in actual possession. It would not be safe, though, to rely on this, for there is a presumption in law which aids the operative effect of the possessory acts of an owner. To illustrate my meaning, I am told that the Trinity House commonly holds possession of the wreck of a ship by mooring upon it a single buoy. I had the advantage of the assistance of the Elder Brethren at the hearing, and I have consulted them as to the practical aspects of the matters in question. They advise me that by reason of the great depth at which the wreck lies the difficulties involved in the work of the plaintiffs are formidable, but that, if I accept the plaintiffs’ evidence, they were in effective control of the wreck as a whole; that they were in a position to prevent any useful work by new-comers; and that, while the plaintiffs’ people remained in 206

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The Tubantia cont. the position they claimed to have taken up, no new-comer could, without violence, have exercised upon the wreck the kind of control the plaintiffs had, or could have made any valuable use of the wreck. They advise me that what the plaintiffs did upon the wreck was what a prudent owner would probably have done, assuming he did not know how the holds of the Tubantia were stowed and desired to inform himself fully as to the situation on the wreck before employing larger craft or more powerful appliances than the plaintiffs were employing. These opinions entirely commend themselves to my judgment, and I have come to certain conclusions which I will now state. There was animus possidendi in the plaintiffs. There was the use and occupation of which the subject matter was capable. There was power to exclude strangers from interfering if the plaintiffs did not use unlawful force. The plaintiffs did with the wreck what a purchaser would prudently have done. Unwieldy as the wreck was, they were dealing with it as a whole. The fact on the other side which is outstanding is the difficulty of possessing things which lie in very deep water and can only be entered upon by workmen in fine weather and for short periods of time. Must it be said that, because the work of the plaintiffs’ divers was that of only one pair at a time, in short spells with long interruptions, and because access to the holds of the Tubantia was often prevented altogether by stress of weather, therefore the vessel, and her cargo, were incapable of possession? To my mind this would be an unfortunate conclusion, very discouraging to salvage enterprise at a time when salvage, by means of bold and costly work, is of great public importance. I do not feel bound to come to it. I hold that the plaintiffs had in July, 1923, the possession of the Tubantia and her cargo, which they allege.

Federal Commissioner of Taxation v Australia and New Zealand Banking Group Ltd [9.35] Federal Commissioner of Taxation v Australia and New Zealand Banking Group Ltd (1979) 143 CLR 499; [1979] HCA 67 GIBBS ACJ … 4. I may now turn to the question of substance that arises in the proceedings between the plaintiffs and the Bank. That is whether any books, documents and papers in the safe deposit boxes were in the custody or under the control of the Bank within s 264 (1) [of the Income Tax Assessment Act 1936 (Cth)]. If they were not, it is clear that there was no power to require the Bank to produce them. The Bank maintains at its branch what it calls safe deposit facilities, which are made available to any person (“the depositor”) with whom the Bank chooses to enter into an agreement in a standard and familiar form. Although the notices and the pleadings refer to safe deposit “boxes”, the depositor, by the agreement, is granted the use of a safe deposit “locker”; it may be surmised that the locker contains a box. Each safe deposit locker is double locked: two keys are needed to unlock it. One of those keys is held only by the Bank. The other key is made in duplicate, and the two identical keys are given to the depositor, who retains one and places the other in a sealed envelope and delivers it to the Bank which, under the agreement, is to retain it in safekeeping and use it only to replace the key held by the depositor, upon his written request, in the event of the loss or destruction of the latter key (cl 3). The depositor is entitled under the agreement to have access to the locker during the normal hours when the safe deposit facilities are open to the public for business (cl 5) but in case of emergency the Bank is entitled to close the facilities for such periods as the Bank shall consider reasonably necessary (cl 6). The Bank is entitled to terminate the use of a locker at any time by notice in writing, and if it does so, and the depositor fails to remove his property from the locker, the Bank may remove the same (cl 8). It is clear that it is within the physical power of the Bank to open any locker without the aid or [9.35]

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Federal Commissioner of Taxation v Australia and New Zealand Banking Group Ltd cont. concurrence of the depositor. To do this it would be necessary for the Bank to use the duplicate key which it retains for safekeeping and if it did so, without the written request of the depositor and otherwise than in the circumstances mentioned in cl 8, it would commit a breach of its agreement with the depositor, unless, in using the key, it was acting under the compulsion of a legal requirement which overrode its contractual duty. However, whatever may be its contractual obligations, the Bank is physically able to abstract from the locker, and produce to the authorized officer, anything movable that the locker contains. If the documents which the Bank is required to produce are kept in a box inside the locker, and the box is secured with a padlock or in some other way, the Bank would have no power to force it open, but could produce the documents by producing the box containing them. On the other hand the depositor can only obtain access to the locker if the Bank provides a key - subject to the terms of the agreement the Bank is, of course, contractually bound to do so. (at p 519) 5. In this situation it may be a nice question whether the relationship between a depositor and the Bank is one of bailment, and whether the Bank has possession of the documents in the box in the safe deposit locker. But s 264 does not speak of “possession”; it uses the wider, and vaguer, words “custody” and “control”. The two words are sometimes used as synonyms. In Pollock and Wright: Possession in the Common Law (1888), at p 26, a distinction is drawn between “physical control, detention, or de facto possession”, which is said to be “an actual relation between a person and a thing matter of fact”, and “legal possession”, which is “a definite legal relation of the person to the thing possessed”. The learned author goes on to state that in this connection physical control is generally called “custody”. In Stephen’s Digest of Criminal Law, 5th ed (1894), p 243, in a passage cited in Moors v Burke (1919) 26 CLR, at p 270, it is said: “The word ’custody’ means such a relation towards the thing as would constitute possession if the person having custody had it on his own account.” The meaning which the words are intended to bear in s 264 depends, amongst other things, on the context in which they appear. The object of the section is to give the Commissioner power to require the production of documents which relate to the income or assessment of any person, and “assessment” in this provision has the wide meaning given to it in s 6 of the Act - “the ascertainment of the amount of taxable income and of the tax payable thereon”: see Smorgon v Australia and New Zealand Banking Group Ltd [1976] HCA 53; (1976) 134 CLR 475, at p 480. The aim is the practical one of having documents produced so that an officer of the Taxation Department can obtain from them information concerning the income or assessment of some person. The section is not concerned with the legal relationship of the person to whom the notice is given to the documents which he is required to produce: it is concerned with the ability of the person to whom the notice is addressed to produce the documents when required to do so. Therefore, in my opinion, a notice can be given under the section to any person who has physical control of the documents in question, whether he has or has not the legal possession. For example, if an employer gives his books of account to a servant to keep on his behalf, a notice under s 264 can be given to the servant, who has physical control, although the master has the legal possession. However, “control” in s 264 (1) is not limited to physical control, and in the example given the notice could be given to the master, who has legal control of the documents, as well as to the servant. Indeed I can see no reason why a notice cannot be given to a person who wrongfully has physical control of the documents, or to a person who has parted with possession but retains a right to legal possession: the question is, has the person to whom the notice is given such custody or control as renders him able to produce the documents? (at p 520) 6. Stephen J accepted that the section is concerned with the existence of the ability to produce the documents, but he held that the Bank lacks the ability to produce such documents as may be in a safe deposit box. He held that the Bank lacks physical custody of the contents of a box, because by its agreement with the depositor and by the circumstances surrounding the disposition of keys to the box it has disclaimed all power over the contents, and has thereby relinquished that degree of positive physical custody which may otherwise attach to articles situated in its premises. He further held that 208

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Federal Commissioner of Taxation v Australia and New Zealand Banking Group Ltd cont. the agreement with the depositor and the arrangement as to the keys has effectively prevented the Bank from ever having had such control as will enable it to produce the documents to the Commissioner. With the greatest respect, I cannot share this view. In my respectful opinion the Bank has the custody, or physical control, of the documents in the lockers. The documents are in its power in fact; it holds the keys that enable it to open the locker, take out the box and produce the documents - if necessary, in the box in which they are contained. It appears to me that the physical retention of the two keys by the Bank gives it control of the documents contained in the locker to which the keys give access, and that any agreement or arrangement made by the Bank with the depositor does not affect the question whether the Bank has the documents in its control and is able to produce them. The Bank has actual custody or physical control of the contents of the locker, even if it has bound itself by contract to refrain from exercising the power which it has in fact. It can open the locker and produce its contents even if it has agreed not to do so. (at p 521) 7. Section 264 (1) does not itself cast any duty on the person to whom the notice is given, but s 224 of the Act provides that any person who refuses or neglects to produce any book or paper required of him by the Commissioner or any officer authorized by him shall, unless just cause or excuse for the refusal or neglect is shown by him, be guilty of an offence. There is thus a statutory duty to comply with a notice under s 264 (1), and any contractual duty owed by the Bank to the depositor is subject to, and overridden by, this statutory duty: cf. Parry-Jones v. Law Society (1969) 1 Ch 1, at p 9, Brayley v. Wilton (1976) 2 NSWLR 495, at pp 496-497, and the discussion by Stephen J in Smorgon v Australia and New Zealand Banking Group Ltd (1976) 134 CLR, at pp 486-490. Further, in my opinion, the existence of the contractual duty provides no just cause or excuse for refusing or neglecting to produce the documents. It is likely that documents which relate to the income or assessment of a taxpayer will often be entrusted by him to another, for example, to a Bank, a solicitor or an accountant. The Parliament cannot have intended that a person whose taxation affairs were under consideration could protect his documents from disclosure simply by binding the person to whom they were entrusted to refrain from producing them. It is true that the taxpayer himself might be required to produce the documents, but in some cases it might not be possible to give notice to the taxpayer, and in any case the most effective way to obtain production might be to require the person who had the documents in his actual custody or under his physical control to produce them. The terms of a contract made between the taxpayer and the custodian of his documents would appear quite irrelevant for the purposes of s 264 (1), and there is nothing in the provisions of the sub-section that would support the view that the existence of a contractual duty, or an arrangement short of a contract, to refrain from producing the documents should be regarded either as having the effect that the documents were not in the custody or under the control of the person who in fact had them in his custody or under his control, or as providing just cause or excuse for failing to produce them. (at p 522) 8. It follows from what I have said that a requirement addressed to one person is no less valid because a valid requirement might also have been addressed to another. More than one person may have the control of a document within the meaning of the section. In the present case the Bank has the physical control, whereas the Smorgons (or at least some of them) have the legal control: both may be required to produce the documents.

Extracts from Pearson, Commercial Law: Commentary and Materials, Ch 2.

OWNERSHIP: DEFINITIONS AND CONCEPTS [9.40] In this section, we examine the institution of ownership. Ownership is the second (of

two) interests a person can have in personal property, the first being possession (see [9.05] and [9.40]

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[9.15] above). A helpful summary of the meaning of “ownership” of property generally was given by the South African Law Commission in its Report on the Giving of Security by Means of Movable Property (Project 46, Pretoria, February 1991), para [2.2.1].

Report on the Giving of Security by Means of Movable Property [9.45] Report on the Giving of Security by Means of Movable Property (Project 46, Pretoria, February 1991), para [2.2.1] (footnote omitted) Ownership indicates the relationship between a person and a corporeal or incorporeal legal object. Ownership is the most comprehensive real right since it provides the most extensive and absolute dominion over an object. Ownership confers on the owner the competence to enjoy, use, possess, dispose of and alienate the object, as well as the capacity to ward off any encroachment on the object. Ownership may be limited by other rights, but is an independent real right that is not dependent on any other right.

[9.50] This extract provides a hint of the content of what ownership is, and this can be broken

down as follows in this non-exhaustive list: 1.

the power to use (ius utendi);

2.

the use of the fruits of what is owned (ius fruendi);

3.

consumption of the thing owned (ius abutendi);

4.

the power to possess (ius possidendi);

5.

the power to dispose of the thing owned (ius disponendi); and

6.

the power to reclaim the thing from a person who wrongfully takes it from the owner (the right of pursuit) or to resist any wrongful invasion of the thing (ius negandi). 3 Ownership is an abstract relationship between a person and a “thing”. Ownership posits a relationship between a person and an object of some kind, called a thing. It should not be assumed that all legal systems use the term “thing” with the same meaning. For example, under South African law, the term “thing” is confined to corporeal property and does not apply to incorporeal or intangible property. 4 Under Australian law, the concept of a thing is much broader and embraces not only choses in possession but also choses in action (the two main categories of personal property) as well as chattels real and real property. If personal property is owned (that is, it has not been abandoned), then to assert this is to make a claim that a legal person stands in some kind of relationship with the object owned. It is in an attempt to render the abstract concept of ownership more comprehensible that commentators devote attention to the content of ownership of property, much as the list set out above attempts to do. In this context, it is helpful to identify the core concept that informs the legal notion of ownership and that is dominion. The term “owner” prima facie connotes entire dominion over the object owned: Union Trustee Co of Australia Ltd v Federal Commissioner of Land Tax (1915) 20 CLR 526 at 530 per Griffith CJ. Thus, ownership is concerned with claims of dominion concerning the thing that is owned. 3 4

Adapted from CG van der Merwe, “The Law of Things” in CG van der Merwe & MJ de Waal, The Law of Things and Servitudes (Butterworths, Durban, 1993), para [105]. CG van der Merwe, The Law of Things, paras [5] and [104] (the logical extension of this is that the law of “property” is a narrower concept than the law of “things”, a point there made). See also Figures 2.2 and 2.3 at [2.45] (Pearson).

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Ownership is, as stated above, the relationship between a legal person and a legal object, and the content of the relationship is the owner’s claim to dominion over the object owned. The claim of ownership imports a distinction between the legal person and the legal object, so that it is necessary to identify the thing owned as well as its owner. In Myerson v Collard (1918) 25 CLR 154 at 164, Isaacs and Rich JJ said that when the law or lawyers speak of a physical object belonging to a person, without any qualifying expressions or adjectives, the primary natural meaning of that phrase is that the object belongs to the person as his or her own absolute property, and that the person’s interest in the physical object in question is not confined to a mere contractual right (such as an option) which may or may not be exercised by the holder of that supposed right: see also Melluish v BMI (No 3) Ltd [1995] 4 All ER 453 at 464 (HL). So ownership needs to be understood in two important senses. First, the owner’s collection or bundle of rights in relation to the thing owned. Second, the object itself that is owned. The first is always incorporeal (or immaterial) while the second may be either corporeal or incorporeal, depending, in the case of personal property, upon whether it is a chose in possession or a chose in action. The concept of ownership is a common law notion rather than a statutory concept. On occasions, Parliament intervenes and enacts a definition of ownership to accomplish other legislative goals. Consider the following definition of “owner” in the Imported Food Control Act 1992 (Cth), s 20(14).

Imported Food Control Act 1992 (Cth), s 20(14) [9.55] (14) In this section: “owner”, in relation to food that is permitted to be treated or required to be destroyed or re-exported, means a person having a beneficial interest in the good other than a person who has such an interest only because he or she has been given a mortgage or charge, or has a lien over the goods.

[9.60] In this provision “beneficial interest” is used to explain the content of ownership of

certain food. Two of the hallmarks of ownership are, in common with possession, exclusivity and control. These form part of the individual rights that make up the content of ownership (see above). One of the ways in which the operation of exclusivity and control can be demonstrated is by identifying the consequences of property. This has been a feature of both the civil law and the common law. In the case of the civil law, the South African writer Johannes Van der Linden in the work entitled Regtsgeleerd, Practicaal, en Koopmans handboek (1806) described the consequences (or incidents) of ownership in these terms: 1st. The right of enjoying the fruits which result from such thing. 2nd. The right of making such proper use of such thing as the owner pleases. 3rd. The right of altering its shape or form at will. 4th. The right of entirely destroying it at will. 5th. The right of preventing others from making use of it. 6th. The right of alienating it or of transferring to others any other sort of thing e.g. the use of it … All this must be understood, however, subject to his qualification viz that neither the provisions of the law are transgressed nor the rights of third persons injuriously affected. 5 5

The claim is made here that South Africa is a civil legal system. It is probably more accurate to classify it as a mixed system, that is, an amalgam of civil and common law. For such an analysis, see D Carey Miller, “South Africa: A Mixed System Subject to Transcending Forces”, in E Orucu, E Attwooll and S Coyle (eds), Studies in [9.60]

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As for the common law, in Knapp v Knapp [1944] SASR 257 at 261, Mayo J gave this account of the incidents of ownership: The general right of ownership embraces subsidiary rights, such as exclusive enjoyment, to destroy, to alienate or to alter, and, of course, the right to maintain, and to resume and recover possession from other persons.

[9.65]

Questions

1. In The Common Law (Little, Brown and Company, Boston, 1881, p 246) the famous American jurist Oliver Wendell Holmes Jr said: But what are the rights of ownership? They are substantially the same as those incident to possession. Within the limits prescribed by policy, the owner is allowed to exercise his natural powers over the subject-matter uninterfered with, and is more or less protected in excluding other people from such interference. The owner is allowed to exclude all, and is accountable to no one.

Do you agree or disagree? Justify your answer. 2. In Commercial Law in the Next Millennium 49th Hamlyn Lecture (Sweet & Maxwell, London, 1997), p 59 Professor R M Goode said: All legal systems have a concept of property. The concept varies from one legal system to another, and even within a single legal system it is peculiarly difficult to define or even to describe. Nevertheless the distinction between property and obligation, between what I own and what I am owed, is a fundamental principle of our jurisprudence and is of central importance in commercial law. (emphasis in original).

Do you agree that ownership should be differentiated from obligation in terms of the distinction between what a person owns and what is owed to that person? See also the case Re Bank of Credit and Commerce International SA (No 8) [1998] AC 214.

Re Jigrose Pty Ltd [9.70] Re Jigrose Pty Ltd [1994] 1 Qd R 382 [385] Kiefel J: As a general proposition, if I throw something away I truly abandon it. I intend no longer to retain possession. I do not propose to seek it out and I have no further interest in ownership. If however I lose something, I have not those intentions. I could not be said to have abandoned it. The “different intentions, which the law implied in the owners” was explained by Blackstone (Commentaries 17th ed I, 295) in the context of treasure trove lost or hidden. In the Commentaries II, 9 the author explains that title remains with an original acquirer of the property until there is shown an intention to abandon it. It then becomes of public right and is liable to be appropriated by the next occupier. The Roman law dealt with the question of acquisition of such property by the mode of acquisition “occupation”, which permitted the acquisition of ownership in a thing which was without an owner. It was achieved by taking possession with an intention to appropriate: Salkowski, Roman Private Law (1886), 390. Things which could be acquired by occupation included wild animals, thing which had never been owned, and things “the possession of which the owner has given up, intending to renounce ownership in them” (res derelictae) (p 393); and see Buckland, Roman Law from Augustus to Justinian (1990 reprint p 208). Legal Systems: Mixed and Mixing (Kluwer Law International, London, 1996), pp 165-191. Cited by J R L Milton, “Ownership”, in R Zimmerman and D Visser (eds), Southern Cross: Civil Law and Common Law in South Africa (Clarendon Press, Oxford, 1996), p 694 (note 238). 212

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Re Jigrose Pty Ltd cont. Pollock and Wright, Possession in the Common Law (1888), 124 however raised a doubt as to whether it was possible for a possessor to divest himself by willful abandonment, referring to the view of the common law suggested in Hayne’s case (1614) 12 Co Rep 113; 77 ER 1389 and the Doctor and Student (Bk ii c.51). Hayne’s case was an exceptional one, concerning the property in winding sheets. It contains the statement that “a man cannot relinquish the property he hath to his goods unless they be vested in another”, the Court holding that property in the sheets remained with the owner. There is no discussion as to whether they might [386] be considered as a type of gift, nor as to how the owner might claim the property. In the Doctor and Student it is stated (notably by the student) that there is no such law in the realm for “goods forsaken” and that the right to property in abandoned goods remained with the owner. Holdsworth, A History of English Law, Vol VII (495, 496) was of the view that there was consequently “some authority” for a difference in the approach of the English common law from that of the Roman law. There are, as Holdsworth noted, few things which are capable of acquisition following abandonment, given the rights which accrue to landowners concerning property at least attached to the land and given the rights of the Crown to bona vacantia. Indeed, in Queensland the Public Trustee Act 1978 Pt VII “Unclaimed Property” Div 2 permits the Public Trustee to become administrator of unclaimed property and to exercise rights over it. Interestingly, by s 103(2) of that Act property is deemed to be unclaimed where “in the opinion of the Public Trustee”: (a) it is not known after due enquiry who the owner of the property is, or where he is, or whether he is alive or dead, or it appears to have been abandoned. which seems to recognise that abandoned property may not have an owner. Cases involving property which can be said to be truly abandoned will then be relatively rare. The “finder” cases to which I have been referred (see eg Moffatt v Kazana [1969] 2 QB 152 and Parker v British Airways Board [1982] QB 1004) are not of great assistance since they deal with goods apparently lost. In those circumstances it may be said that possession was held without consent of the owner. It certainly could not be said that the owner necessarily intended to abandon the goods. But what if the owner has really proclaimed to the world at large that he or she has no interest in the chattels, desired neither possession or ownership and will not attempt to reclaim them? Wrangham J in Moffatt v Kazana (at 156) appears to accept that such abandonment can divest title. It seems to me that if I do not wish to retain the possession or property in goods (perhaps most clearly shown by throwing them away), there is no reason in principle why the common law would require me to remain owner. The common law is usually concerned to exclude others from interfering with a person’s interest in property, that interest in turn being one to exclude others: see Holmes, The Common Law (1881), 220. If a person no longer holds that interest it is difficult to see what the common law’s concern could be. For my part I do not consider that there is a difficulty at law with the notion of abandonment divesting ownership.

[9.70]

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CHAPTER 10 Engaging in Dealings in Choses in Possession: Transfer of Ownership [10.05]

DELIVERY: AN UNDERLYING PRINCIPLE .............................................................. 215 [10.20]

[10.25]

BY LOSING AND FINDING .................................................................................... 217 [10.30] [10.40]

[10.50]

Nolan v Nolan ...................................................................... 221 Public Trustee v Bussell .......................................................... 248

BY SALE ................................................................................................................... 256 [10.65] [10.68] [10.70]

[10.75]

Armory v Delamirie ............................................................... 218 Parker v British Airways Board ................................................ 219

BY GIFT ................................................................................................................... 221 [10.50] [10.55]

[10.65]

Gamer’s Motor Centre (Newcastle) Pty Ltd v Natwest Wholesale Australia Pty Ltd .................................................... 216

Helby v Matthews ................................................................. 256 Robinson v Graves ................................................................ 258 McEntire v Crossley Bros ........................................................ 274

WHEN DOES PROPERTY PASS? ............................................................................. 288 [10.80]

[10.90]

Sale of Goods Act 1923 (NSW), ss 21–23, 25A, 5(4), 60(2), 10(3) ......................................................................... 288

Specific goods ..................................................................................... 290

[10.105] UNASCERTAINED AND FUTURE GOODS ............................................................ 291 [10.115]

Unconditional appropriation with assent ......................................... 291 [10.120] [10.130]

Carlos Federspiel & Co SA v Charles Twigg & Co Ltd ................ 291 Re Goldcorp Exchange Ltd (In Receivership) ............................ 294

Extracts from Pearson, Commercial Law: Commentary and Materials, Ch 2.

DELIVERY: AN UNDERLYING PRINCIPLE [10.05] Central to the concept of delivery is the change of possession of tangible personal

property from one person to another: Re Cole, a Bankrupt [1964] 1 Ch 175 at 187 per Harman LJ. In order to constitute delivery there must be some overt act placing the transferee in possession of property and giving the transferee control of that property: Vorster v Vorster’s Trustees (1910) EDL 132 at 137 per Kotze JA. Where delivery occurs there is, of course, a change of possession. Delivery must result in control of the goods passing from the transferor to the transferee. If the transferor retains the same control over the goods after the putative transfer of possession, then there is, in law, no delivery: Young v Cockman (1943) 149 ALR 1006 at 1010. Delivery requires two legal subjects (the transferor and the transferee) as well as a moveable material object (the “goods”). Delivery can be divided into two types, actual delivery and constructive delivery. Each is examined below. [10.05]

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1. Actual delivery [10.10] Actual delivery is sometimes described as manual delivery: Re Everett; Executor Trustee and Agency Co of South Australia Ltd v Everett [1917] SALR 52 at 58. Normally, actual delivery requires the deliverer to hand over the goods physically to the deliveree: Olsson v Dyson (1969) 120 CLR 365 at 385.

2. Constructive delivery [10.15] Constructive delivery takes place by an alteration in control over goods without any

change in their physical possession: Gamer’s case (1987) 163 CLR 236 at 247 per Mason CJ (citing Minister for Supply & Development v Servicemen’s Co-operative Joinery Manufacturers Ltd (1951) 82 CLR 621 at 641 per Williams J), at 255 per Brennan J and at 263 per Dawson J. Gamer’s Motor Centre (Newcastle) Pty Ltd v Natwest Wholesale Australia Pty Ltd (1987) 163 CLR 236 provides a good example of how constructive delivery of goods can take place in the marketplace.

Gamer’s Motor Centre (Newcastle) Pty Ltd v Natwest Wholesale Australia Pty Ltd [10.20] Gamer’s Motor Centre (Newcastle) Pty Ltd v Natwest Wholesale Australia Pty Ltd (1987) 163 CLR 236 (High Court of Australia, Mason CJ, Brennan, Dawson, Toohey and Gaudron JJ) MASON CJ: This appeal raises the important question whether the reference in s 28(2) of the Sale of Goods Act 1923 (NSW) (the “Act”) to “delivery” of the goods by the person who has bought or agreed to buy them under any sale, pledge or other disposition to a person receiving the same in good faith and without notice of any lien or other right of the original seller in respect of the goods, is confined to actual delivery and excludes forms of constructive delivery. 12. The word “delivery” is defined in s 5(1) of the Act to mean, unless the context or subject-matter otherwise requires, “voluntary transfer of possession from one person to another”. This is the legal meaning of “delivery” and it differs from the popular meaning of the word which, as Professor Atiyah points out (The Sale of Goods (6th ed, Pitman Publishing, London, at p 71) is the dispatch of goods. The word “possession” is not defined by the Act, though s 6(3) of the Factors (Mercantile Agents) Act provides that, for the purposes of that Act: … an agent shall be deemed to be possessed of goods or documents of title to goods whether the same are in his actual custody or control or are held by any other person subject to his control or for him or on his behalf. 13. Gamer submits that the word “possession” should be given its common or ordinary meaning. This, according to the argument, is actual physical custody. The argument, if accepted, entails the consequence that delivery must be actual. Whether the popular understanding of “possession” confines it to actual custody is open to doubt. But this question may be put to one side as “possession” is an established legal concept, particularly in its application to goods and chattels … 15. Here, as I have said, the word “delivery” is defined in terms of its legal meaning. There is therefore a strong foundation for the conclusion that the statutory definition of “delivery” referred to “possession”, not in its popular sense or as meaning actual custody, but in its legal or technical sense. Indeed, the seller’s obligation under s 30 of the Act cannot always be sensibly discharged by actual delivery. A commodity or chattel incapable of actual physical delivery, except perhaps at great inconvenience and cost, such as a yacht (see Bank of New South Wales v Palmer [1970] 2 NSWR 532), must be capable of constructive or symbolic delivery falling short of actual delivery. And there is no 216

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Gamer’s Motor Centre (Newcastle) Pty Ltd v Natwest Wholesale Australia Pty Ltd cont. suggestion in s 30 that “deliver” is used otherwise than in its defined sense. Section 32(3) of the Act expressly recognises constructive delivery by attornment. 16. It is significant that Sir Mackenzie Chalmers, in his Commentary on the original Sale of Goods Bill of 1888 treated the reference in the statutory definition to “possession” as a reflection of the antecedent common law. He drew attention to those features of the Bill which were departures from the common law and did not suggest that the statutory definition of “delivery” constituted such a departure … 26. And it must be accepted, in accordance with what was said in Pacific Motor Auctions that “possession” has the same meaning in s 28(1) and (2). But this does not mean that the meaning which the word has in the context in which it appears at the commencement of the two sub-sections is the meaning which it bears when it appears in the statutory definition of “delivery”. The point is that the object of s 28, the protection of innocent third parties dealing with a seller or buyer in possession of goods or the documents of title thereto and therefore appearing to be the owner of the goods, as well as the legislative history of the provisions, requires that “possession” be construed in a particular way. These considerations have no application at all to the statutory definition of “delivery” which is designed to identify or describe the act which passes title to goods as between seller and buyer. 27. Indeed, to treat “delivery” as embracing constructive delivery is to enhance the protection given by s 28(2) to the innocent purchaser. There is no valid reason why his title should depend upon actual, as distinct from constructive, delivery. The mischief aimed at is a sale by a buyer in possession of goods or documents of title who is not the owner of them, the object being to protect the sub-buyer who is deceived by the appearance of ownership arising from possession. There is no point in confining the protection to the sub-buyer who takes under an actual delivery. Once this is appreciated, the history of s 28(1) and (2), which can be traced through the Factors Acts, beginning with the English Act of 1823, ceases to have any importance. That history shows that the protection afforded to the innocent buyer was gradually extended, but it throws no light on the question now under consideration … 31. … I see no difficulty in regarding the handing over of the delivery receipt as serving the dual purpose already mentioned, namely an acknowledgment that the Dealer holds the vehicle to which it relates for Natwest pursuant to the agreement for sale contemporaneously made and as an acknowledgment that it holds, or will hold, as bailee pursuant to the Agreement. The receipt, though it evidences the terms of sale, is not itself the sale or the agreement for sale. The delivery of the receipt is something apart from the sale so that the constructive delivery which it evidences is something more than a mere change in the right to possession arising from the sale from the Dealer to Natwest. 32. I would dismiss the appeal. [Brennan and Dawson JJ delivered separate judgments dismissing the appeal by Gamer. Toohey and Gaudron JJ dissented on the basis, essentially, that delivery in s 28(2) of the Sale of Goods Act 1923 (NSW) meant actual, not constructive, delivery.]

BY LOSING AND FINDING [10.25] In Gray v Official Trustee in Bankruptcy (1991) 29 FCR 166 at 172, Heerey J

observed that “generations of law students have wrestled with the famous cases which concern disputes between a finder of a chattel and the owner of land on which the chattels was found … or between the finder and his employer”. The finding cases can be approached through five primary rules: [10.25]

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1.

The finder of goods on land, although not having absolute ownership or property in them, has a possessory interest which justifies their retention by the finder of the goods against all but the true owner.

2.

The occupier of land on which goods are found (where the goods are attached to or are under the land) has, in law, possession of those goods.

3.

The possessory title of the finder under 1 above yields to the claim to possession asserted by the occupier in the case of goods found on land if the occupier can prove a manifest intention to control entry to the land by persons or to claim lost property before the finding.

4.

The possessory rights of the finder and the occupier are subordinate to the interest the true owner has in the lost goods.

5.

The overriding policies which inform finding disputes are (a) to maintain peace and order, and (b) to reunite the owner with his or her lost goods. The case extracted next is one of the fundamental cases in the law of finding (as well as the tort of conversion), and it also illustrates the concept of a possessory title to goods in the hands of a possessor.

Armory v Delamirie [10.30] Armory v Delamirie (1722) 1 Stra 505; 93 ER 664 The plaintiff being a chimney sweeper’s boy found a jewel and carried it to the defendant’s shop (who was a goldsmith) to know what it was, and delivered it into the hands of the apprentice, who under pretence of weighing it, took out the stones, and calling to the master to let him know it came to three halfpence, the master offered the boy the money, who refused to take it, and insisted to have the thing again; whereupon the apprentice delivered him back the socket without the stones. And now in trover against the master these points were ruled: 1.

That the finder of the jewel, though he does not by such finding acquire an absolute property or ownership, yet he has such a property as will enable him to keep it against all but the rightful owner, and consequently may maintain trover.

2.

That the action well lay against the master, who gives a credit to his apprentice, and is answerable for his neglect.

3.

As to the value of the jewel several of the trade were examined to prove what a jewel of the finest water that would fit the socket would be worth; and the Chief Justice directed the jury, that unless the defendant did produce the jewel, and show it not to be of the finest water, they should presume the strongest against him, and make the value of the best jewels the measure of their damages: which they accordingly did.

[10.35] The case extracted next, Parker v British Airways Board [1982] 1 QB 1004, is the

leading modern decision on the law of finding (see also, Tamworth Industries Ltd v Attorney-General [1991] 3 NZLR 616).

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Parker v British Airways Board [10.40] Parker v British Airways Board [1982] 1 QB 1004 Facts: On November 15, 1978, while the plaintiff, Alan George Parker, was waiting as a passenger in the executive lounge at terminal one of London Heathrow Airport he found a gentleman’s gold bracelet lying on the floor. The bracelet had been lost by its rightful owner. The plaintiff delivered the bracelet to an employee of the defendants, British Airways Board, together with particulars of the plaintiff’s name and address and orally requested that in the event of the bracelet not being claimed by the rightful owner it should be returned to the plaintiff. The bracelet was never claimed. But despite the plaintiff’s requests for its return to him, the defendants sold it on June 17, 1979. The plaintiff issued proceedings in the county court alleging that he suffered loss and damages, namely £850, being the value of the bracelet and sought the return of the bracelet or its value and damages for the defendants’ wrongful interference therewith; and alternatively, damages for conversion and interest. DONALDSON LJ: [His Lordship dealt the facts of the case and then gave this summary of the law] [1017] Rights and obligations of the finder 1.

The finder of a chattel acquires no rights over it unless (a) it has been abandoned or lost and (b) he takes it into his care and control.

2.

The finder of a chattel acquires very limited rights over it if he takes it into his care and control with dishonest intent or in the course of trespassing.

3.

Subject to the foregoing and to point 4 below, a finder of a chattel, whilst not acquiring any absolute property or ownership in the chattel, acquires a right to keep it against all but the true owner or those in a position to claim through the true owner or one who can assert a prior right to keep the chattel which was subsisting at the time when the finder took the chattel into his care and control.

4.

Unless otherwise agreed, any servant or agent who finds a chattel in the course of his employment or agency and not wholly incidentally or collaterally thereto and who takes it into his care and control does so on behalf of his employer or principal who acquires a finder’s rights to the exclusion of those of the actual finder.

5.

A person having a finder’s rights has an obligation to take such measures as in all the circumstances are reasonable to acquaint the true owner of the finding and present whereabouts of the chattel and to care for it meanwhile.

Rights and liabilities of an occupier 1.

An occupier of land has rights superior to those of a finder over chattels in or attached to that land and an occupier of a building has [1018] similar rights in respect of chattels attached to that building, whether in either case the occupier is aware of the presence of the chattel.

2.

An occupier of a building has rights superior to those of a finder over chattels upon or in, but not attached to, that building if, but only if, before the chattel is found, he has manifested an intention to exercise control over the building and the things which may be upon it or in it.

3.

An occupier who manifests an intention to exercise control over a building and the things which may be upon or in it so as to acquire rights superior to those of a finder is under an obligation to take such measures as in all the circumstances are reasonable to ensure that lost chattels are found and, upon their being found, whether by him or by a third party, to acquaint the true owner of the finding and to care for the chattels meanwhile. The manifestation of intention may be express or implied from the circumstances including, in particular, the circumstances that the occupier manifestly accepts or is obliged by law to accept liability for chattels lost upon his “premises” eg an innkeeper or carrier’s liability. [10.40]

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Parker v British Airways Board cont. 4.

An “occupier” of a chattel, eg a ship, motor car, caravan or aircraft, is to be treated as if he were the occupier of a building for the purposes of the foregoing rules.

Application to the instant case The plaintiff was not a trespasser in the executive lounge and, in taking the bracelet into his care and control he was acting with obvious honesty. Prima facie, therefore, he had a full finder’s rights and obligations. He in fact discharged those obligations by handing the bracelet to an official of the defendants’ although he could equally have done so by handing the bracelet to the police or in other ways such as informing the police of the find and himself caring for the bracelet. The plaintiff’s prima facie entitlement to a finder’s rights was not displaced in favour of an employer or principal. There is no evidence that he was in the executive lounge in the course of any employment or agency and, if he was, the finding of the bracelet was quite clearly collateral thereto. The position would have been otherwise in the case of most or perhaps all the defendants’ employees. The defendants, for their part, cannot assert any title to the bracelet based upon the rights of an occupier over chattels attached to a building. The bracelet was lying loose on the floor. Their claim must, on my view of the law, be based upon a manifest intention to exercise control over the lounge and all things which might be in it. The evidence is that they claimed the right to decide who should and who should not be permitted to enter and use the lounge, but their control was in general exercised upon the basis of classes or categories of user and the availability of the lounge in the light of the need to clean and maintain it. I do not doubt that they also claimed the right to exclude individual undesirables, such as drunks, and specific types of chattels such as guns and bombs. But this control has no real relevance to a manifest intention to assert custody and control over lost articles. There was no evidence that they searched for such articles regular or at all. [1019] Evidence was given of staff instructions which govern the action to be taken by employees of the defendants if they found lost chattels were handed to them. But these instructions were not published to users of the lounge and in any event I think that they were intended to do no more than instruct the staff on how they were to act in the course of their employment. It was suggested in argument that in some circumstances the intention of the occupier to assert control over articles lost on his premises speaks for itself. I think that this is right. If a bank manager saw fit to show me round a vault containing safe deposits and I found a gold bracelet on the floor, I should have no doubt that the bank had a better title than I, and the reason is the manifest intention to exercise a very high degree of control. At the other extreme is the park to which the public has unrestricted access during daylight hours. During those hours there is no manifest intention to exercise any such control. In between these extremes are the forecourts of petrol filling stations, unfenced front gardens of private houses, the public parts of shops and supermarkets as part of an almost infinite variety of land, premises and circumstances. This lounge is in the middle band and in my judgment, on the evidence available, there was no sufficient manifestation of any intention to exercise control over lost property before it was found such as would give the defendants a right superior to that of the plaintiff or indeed any right over the bracelet. As the true owner has never come forward, it is a case of “finders keepers”. I would therefore dismiss the appeal. [Eveleigh LJ and Sir David Cairns gave judgments dismissing the appeal (at 1019-1021).]

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[10.45]

Questions

1. Construct a hierarchy of rules which prioritises the entitlements of the dramatis personae in finding disputes, namely the finder, the occupier and the (usually absent) true owner. Can you draw any conclusions from the hierarchy you construct about the importance of property and claims to it? 2. The “true owner” of the bracelet Parker found was not, of course, a party to the proceedings. If that person had intervened in the proceedings, what would the outcome have been? Justify your answer. 3. S Gleeson, Personal Property Law (Sweet & Maxwell, London, 1997), p 55 says “the outcome in Parker would have been different if Mr Parker had been the bearer of a business-class ticket and was illegitimately in the first-class lounge” (emphasis in original). Do you agree? Why or why not? 4. What lesson(s) does Parker signal to an occupier of land concerning the ability to claim lost property? How would someone in the position of the British Airways Board better secure any entitlement to lost property knowing of the decision in that case and the reasoning of the court? 5. How secure or fragile is the finder’s title to lost and found property? 6. Is legislative intervention necessary to better regulate the entitlements and interests of the parties to finding disputes? If you agree it is, what are the important principles you would act on if you had a brief to reform the law governing finding disputes?

BY GIFT Nolan v Nolan [10.50] Nolan v Nolan [2003] VSC 121 HER HONOUR, DODDS-STREETON J: A. The Proceeding 1 In this proceeding the plaintiff seeks a declaration that she is the full beneficial owner, and entitled to possession, of three paintings by the late Sir Sidney Nolan entitled “Hare in Trap” 1946, “Royal Hotel” 1948 and “Italian Crucifix” 1955. The plaintiff also seeks orders for delivery up of the paintings and damages pursuant to s 82 of the Trade Practices Act 1974 (Cth). B. The Parties 2 The plaintiff, Ms Mosca Gai Jinx Margaret Ellery Nolan (usually known as “Jinx Nolan”) is the daughter of the late Cynthia Nolan (“Cynthia”) and the celebrated Australian artist, the late Sir Sidney Nolan (“Sidney Nolan”). 3 The first defendant, Mary, Lady Nolan, is the widow of Sidney Nolan, having been married to him from 28 January 1978 until his death on 28 November 1992. 4 The second defendant, Sotheby’s Australia Pty Ltd (“Sotheby’s”) is the auction house which was commissioned by Lady Nolan to auction on her behalf in Melbourne on 16 September 2001, a number of paintings by Sidney Nolan, including the three paintings the subject of this proceeding.

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Nolan v Nolan cont. C. Background to Claim 5 The plaintiff claims title to, and delivery up of “Hare in Trap” 1946, “Royal Hotel” 1948 and “Italian Crucifix” 1955 by Sidney Nolan, in her capacity as a beneficiary of both the Australian and English wills of her mother, Cynthia, who died on 24 November 1976. 6 The plaintiff claims that the three paintings constituted assets of the estate of Cynthia, in that each painting was given to Cynthia by Sidney Nolan at a date prior to Cynthia’s death in 1976. It is common ground that the paintings, executed by Sidney Nolan were originally his absolute property. 7 It is also undisputed that Sidney Nolan gave a number of his paintings to his wife Cynthia during their marriage, which, upon her death, constituted assets of Cynthia’s English and Australian estates. Some of those paintings were distributed to Ms Jinx Nolan by the trustees of Cynthia’s English and Australian wills in 1985 and 1986 respectively. Sidney Nolan was aware of, and did not dispute, the trustees’ claim that those paintings constituted assets of Cynthia’s estate. 8 It is undisputed that the three paintings the subject of this proceeding were in the possession of Sidney Nolan from (at the latest) a date in 1976 until his death on 28 November 1992. Upon the death of Sidney Nolan, his widow, Lady Nolan, took possession of the paintings. Subject to the outcome of the present proceeding, Lady Nolan acquired title to the three paintings pursuant to the will of Sidney Nolan executed on 6 February 1978, under which she was sole beneficiary. The trustees of Cynthia’s estates and the plaintiff, Ms Jinx Nolan, have not, at any stage, been in possession of any of the three paintings. 9 The plaintiff contends, in essence, that she believed from a date prior to her mother’s death in 1976 that “Hare in Trap” 1946 had been the property of her mother, Cynthia, and hence constituted an asset of her mother’s estate, but she did not, until approximately September 2001, have proof of Cynthia’s entitlement. 10 The plaintiff claims that until recently, she believed that “Italian Crucifix” 1955 was identical to a painting entitled “Crucifixion” 1955 or “Crucifixion, South Italy” 1955, which had constituted an asset of Cynthia’s Australian estate, but had been sold by the trustees in 1983. 11 The plaintiff claims that she did not apprehend until approximately September 2001 that there were grounds to believe that the painting the subject of the present proceeding, entitled “Italian Crucifix” and sometimes entitled “Italian Crucifix, Puglia”, was also the property of Cynthia during her lifetime. Her confusion is said to have arisen because Sidney Nolan painted a number of paintings entitled, or sometimes entitled, “Italian Crucifix” or a closely related variant of that title. The painting in dispute which remained in the possession of Sidney Nolan, is of different dimensions to the painting of similar title, which was sold by the trustees of Cynthia’s Australian estate in 1983. The plaintiff contends that she only recently became aware that Cynthia had owned two paintings with a similar theme and title, only one of which was sold by the trustees of Cynthia’s Australian estate, while the other remained in the possession of Sidney Nolan after Cynthia’s death. 12 The plaintiff claims that she was not aware until shortly before the Sotheby’s sale in September 2001 that there was evidence to establish that “Royal Hotel” 1948 was the property of Cynthia. 13 The recently discovered information which the plaintiff claims alerted her to Cynthia’s entitlement, or to proof of Cynthia’s title, and on which she relies to establish her claim in this proceeding, was identified or assembled by Mr Geoffrey Smith, a senior curator at the National Gallery of Victoria, in the course of his preparation for the National Gallery’s projected exhibition of Sidney Nolan’s Australian Outback works, scheduled for 2003. Mr Smith had conducted research into the life and art of Sidney Nolan for some years. His research into the provenance of Nolan paintings, including those the subject of this proceeding, continued during 2002. 222

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Nolan v Nolan cont. D. Brief Outline of Facts 14 Sidney Nolan was already an established artist when he married his second wife, Cynthia Hansen (née Reed), in 1948. Soon after the marriage, Sidney Nolan adopted Cynthia’s daughter, Jinx, who was then seven years of age. 15 In 1950 the Nolans travelled extensively in Europe and in 1953 they settled in England, in a residence situated at 79 Deodar Road, Putney. 16 Cynthia was closely involved in assisting Sidney Nolan with his work and in promoting his reputation. She was also the author of several books on themes based on her travels with Sidney Nolan. 17 It is undisputed that both Sidney Nolan and Cynthia Nolan owned Nolan paintings and made them available to various exhibitions. 18 During the course of the Nolans’ marriage, a number of exhibitions of Sidney Nolan’s works took place. 19 It is principally on documentation associated with certain of those exhibitions that the plaintiff bases her claim that Sidney Nolan made a gift of each of the three paintings to Cynthia. The plaintiff claims that: (a) “Italian Crucifix” 1955 was first acknowledged as belonging to Cynthia in the catalogue for the Whitechapel Art Gallery Exhibition held in June and July 1957; (b) “Hare in Trap” 1946 was first acknowledged as being in the collection of Cynthia in the catalogue for the New Metropole Gallery, Folkestone Exhibition held between 21 February and 18 April 1970; (c) “Royal Hotel” 1948 was first acknowledged as belonging to Cynthia in the catalogue for the Moderna Museet Exhibition held in Stockholm between 17 January and 7 March 1976. 20 The plaintiff relies upon the catalogues, including the above, and other documents containing alleged acknowledgments of Cynthia’s ownership of the three paintings, in order to establish a valid gift. The catalogues and documents are discussed in detail below. 21 The plaintiff contends that Sidney Nolan participated in the preparation of the exhibition catalogues and in associated documents or correspondence. As such, it is asserted that acknowledgments contained therein constituted admissions, or proof of a valid gift of each of the three paintings by Sidney Nolan to Cynthia. 22 In 1958, Ms Jinx Nolan left England to attend boarding school in the United States. The United States has remained her permanent residence from that time up to the present. She nevertheless continued to visit her parents in England regularly and maintained her family bonds with both Cynthia and Sidney Nolan. 23 In 1974, Cynthia Nolan despatched 26 paintings to Australia pursuant to an alleged loan agreement dated 21 November 1974 between herself and the Power Gallery of Contemporary Art, University of Sydney, under the care of her friend or associate, the curator, Elwyn (Jack) Lynn. Those paintings included “Hare in Trap” 1946 and “Italian Crucifix” 1955. The paintings deposited with the Power Gallery were subsequently made available for the David Jones Art Gallery Exhibition held in Sydney in 1975. In 1976, Cynthia and Elwyn Lynn (on her behalf) offered some of the 26 paintings for sale to the National Gallery. The paintings offered for sale included “Hare in Trap” 1946. The National Gallery did not take the opportunity to purchase any of the paintings. 24 The plaintiff acknowledges that Sidney Nolan did not know, at the time, that the paintings had been despatched to Australia, of Cynthia’s arrangements with the Power Gallery or of the offer to sell some of the paintings to the National Gallery. [10.50]

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Nolan v Nolan cont. 25 The plaintiff also conceded that Sidney Nolan did not know of, or consent to, the David Jones Art Gallery Exhibition in 1975 and was upset when he subsequently learnt of it. 26 It is undisputed that Cynthia maintained a separate “business” address, care of Mrs J. Griffin, 7 Sharples Street, Regents Park Road, London and required that her arrangements with the Power Gallery and the proposed sale of paintings be kept confidential. 27 There is also evidence that the alleged loan of paintings by Cynthia to the Power Gallery was in fact a private arrangement between Cynthia and Elwyn Lynn. That issue is discussed in detail below. 28 In 1976, Cynthia wrote at least two letters to Jinx Nolan in Boston. By a letter dated May 1976, Cynthia stated that she was considering sending “a few really good large … paintings” to Jinx Nolan in America and “‘Hare in Trap’ came to mind.” By a letter dated September 1976, Cynthia referred to her plan to send certain paintings to Jinx Nolan in Boston. The letter asserted that the paintings belonged to Cynthia, but urged that Sidney Nolan must not be informed, as he had apparently “given” paintings to Cynthia in the past, but had subsequently retracted or reclaimed such gifts and dealt with the paintings as his own. 29 On 24 November 1976, Cynthia committed suicide in London. Jinx Nolan was notified of her death and travelled to London immediately. Cynthia left two wills. By an English will executed on 13 February 1976 and an Australian will executed on 22 April 1976, each in very similar terms, she devised her estate to trustees on trust, broadly, for Jinx Nolan for life, with the remainder to the issue of Jinx Nolan or to certain heritage bodies. However, a “power of encroachment” permitted the trustees of the wills, in their absolute discretion, to pay the whole or any part of the capital of the estate to or for the benefit of Jinx Nolan. 30 Sidney Nolan was surprised and distressed to receive no benefit under either of Cynthia’s wills. Shortly after Cynthia’s death he began to reside at the home of the first defendant, Mary, Lady Nolan, then known as Mary Perceval, née Boyd. 31 On 6 February 1978 he married Mary Nolan. 32 Despite some strain and distress over the terms of Cynthia’s wills, Sidney Nolan maintained a relationship with Jinx Nolan until his death. They corresponded and Jinx Nolan visited, and stayed with, Sidney Nolan and Mary Nolan in their Whitehall flat. The topics of Cynthia’s wills and the benefits they conferred on Jinx Nolan were a source of tension, which occasionally resulted in emotional scenes. In 1978, after a disagreement with Sidney Nolan while staying as a guest in the Whitehall flat, Jinx Nolan left a note to Sidney Nolan which stated: Sid Won’t stay this time Am going to be rushing a bit. I’ll be at Shepherds until late pm probably so might not be able to make the concert. Sorry if there are feelings re possessions. I didn’t mean there to be, everything is yours as far as I’m concerned including anything at the warehouse or lawyers. I’ll probably be off tomorrow but will phone before I leave. Love to Mary. Love Jinx. ps I made a couple of long distance phone calls (inland) think this should cover it. 33 It is not disputed that following Cynthia’s death, the three paintings remained in Sidney Nolan’s possession until his death in 1992. “Hare in Trap” 1946 was displayed in the Nolans’ Whitehall flat for at least part of that time. Jinx Nolan, visited and stayed with Sidney Nolan and his third wife, Mary (now Lady Nolan) at their Whitehall residence on many occasions. She was aware that “Hare in Trap” 1946 was in Sidney Nolan’s possession. She believed, during Sidney Nolan’s lifetime, on the basis of the letter from Cynthia dated May 1976 that Cynthia had owned “Hare in Trap” but had no further 224

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Nolan v Nolan cont. proof of title. Further, she believed that “Italian Crucifix” 1955 had been owned by Cynthia, but had been sold by the Australian trustees of Cynthia’s will during the 1980s. 34 Jinx Nolan gave evidence that she was anxious to preserve her relationship with Sidney Nolan and generally avoided discussion of Cynthia’s wills or challenging him. She therefore, during Sidney Nolan’s lifetime, did not raise specific questions about paintings or the possibility that there was property remaining in Sidney Nolan’s possession which should have been included in her mother’s estate. 35 In 1985, Jinx Nolan received a number of paintings as a distribution in specie from Cynthia’s English estate. In 1986 she received a distribution of property, which apparently included some paintings, from Cynthia’s Australian estate. 36 Following Sidney Nolan’s death on 28 November 1992, Jinx Nolan, in 1994 and 1995, sought and obtained legal advice in relation to certain items which she believed to be assets of Cynthia’s estate, but which had remained in Sidney Nolan’s possession after Cynthia’s death. 37 Jinx Nolan obtained further legal advice and representation. She asserted a claim to certain furniture and other items from the Estate of Sidney Nolan. The claim was rejected. In the course of rejecting the claim, Diana Rawstron, a solicitor acting for the executors of the Estate of Sidney Nolan, by letter dated 10 February 1995 wrote to Jinx Nolan’s solicitor in the following terms: I put this on the record because I wish to make the point that the executors’ position is not to say that everything in Sir Sidney’s possession at the date of his death automatically belongs to the estate. If anything belonged to Cynthia, then it has been or will be returned to Ms Nolan. However, the position of the Chinese chairs, screen and carpet is that they belonged to Sir Sidney and therefore fell into his estate. Finally, if Ms Nolan is able to produce compelling evidence to the contrary, for reasons you are aware of, it would be necessary to put the matter before the Inland Revenue. 38 Although rejecting Jinx Nolan’s claim to furniture, the executors of the Estate of Sidney Nolan, with the approval of Lady Nolan, acknowledged that a painting by Sidney Nolan depicting a railway steam train, inscribed “Cynthia with love Sidney 1969” belonged to Jinx Nolan after it was discovered at a London art dealers in February, 1993. The painting was returned to Jinx Nolan. 39 In 1997, the executors of Sidney Nolan’s estate or Lady Nolan, instructed the London art dealer, Agnews, to sell a number of Nolan paintings, including the three paintings in dispute. The paintings were offered for sale by Agnews between 11 June and 25 July 1997 but were not sold. Ms Jinx Nolan became aware of the attempted sale. She sought further legal advice in relation to her claim to “Hare in Trap” 1946 and was advised that the evidence constituted by the letters of Cynthia to Jinx Nolan of May and September 1976 were insufficient to establish title. 40 In 2001, Mr Geoffrey Smith, in the course of research and preparation for a planned Nolan “Outback” Exhibition scheduled for 2003, made contact with both Lady Nolan and Ms Jinx Nolan. He visited Lady Nolan. Mr Smith entered into regular communication with Ms Jinx Nolan and in July 2001 visited her at her residence in Boston. Ms Nolan made her own records available to Mr Smith and apprised him of other possible sources of documents. In the course of his subsequent researches, Mr Smith located certain documents and catalogues which led him to believe that “Italian Crucifix” 1955 (which the plaintiff believed was the title of a painting which had belonged to Cynthia but had been sold by the Australian trustees) was in fact a different painting of similar title, which had also been given by Sidney Nolan to Cynthia. He formed the belief, on the basis of certain documents, that Cynthia had also owned “Hare in Trap” 1946 and “Royal Hotel” 1948. [10.50]

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Nolan v Nolan cont. 41 In the course of his investigations and research, Mr Smith advised Ms Jinx Nolan of his findings and of his opinion that there was evidence of Cynthia’s ownership of “Hare in Trap” 1946, “Royal Hotel” 1948 and “Italian Crucifix” 1955 (which, unlike a painting of similar name, had not been sold by Cynthia’s Australian trustees). 42 In September 2001, Lady Nolan instructed Sotheby’s, the second defendant, to auction the three paintings in dispute. The plaintiff applied for an interlocutory injunction restraining the sale. The application for an interlocutory injunction was dismissed by Nathan J on 14 September 2001. The Sotheby’s auction took place on 16 September 2001. The three paintings were sold at auction. The purchasers of “Hare in Trap” 1946 and “Royal Hotel” 1948 have executed undertakings to abide the determination of the court in this proceeding. The sale of the third painting, “Italian Crucifix” 1955 was not completed and that painting has been returned to Sotheby’s by the purchaser. E. The Situation of the Paintings 43 There is evidence that “Hare in Trap” 1946 was situated in England in the Nolans’ Putney residence at the date of Cynthia’s death on 24 November 1976. There is evidence that “Hare in Trap” 1946 and “Italian Crucifix” 1955 were both despatched to Australia at an unspecified date in 1974 and remained there, stored at the Power Gallery, Sydney, (save for when they were exhibited at the David Jones Art Gallery in Sydney between 7 July and 26 July 1975) until at least June 1976. At a later date in 1976 (which I find to be prior to Cynthia’s death on 24 November 1976) they were returned to England. 44 It is not disputed that “Hare in Trap” 1946 was also exhibited at the New Metropole Gallery, Folkstone, Kent, in April 1970. It is not disputed that “Italian Crucifix” 1955 was exhibited at the Redfern Gallery, London in 1955 and at the Art Gallery of New South Wales’ Sidney Nolan Retrospective Exhibition from 13 September 1967 to 4 February 1998. There is evidence to suggest that it may also have been exhibited at the Wakefield Gallery, London, in about 1956 and at the Whitechapel Art Gallery, London, from 12 June – 31 July 1957. 45 It is not disputed that “Royal Hotel” 1948 was transported to England at an unspecified date (probably in the 1950s) and was exhibited at the Moderna Museet in Stockholm in 1976. 46 Other than for the above, there is no evidence of where each of the three paintings was situated during the marriage of Sidney Nolan and Cynthia from the 1950s until Cynthia’s death in 1976. There is evidence that Sidney Nolan maintained a studio in London where paintings were kept. There is evidence that Nolan paintings were sometimes situated at the Nolan’s residence, and were sometimes loaned to exhibitions or stored. However, there is no evidence, other than as noted above, of where each of the three paintings was situated at any given time. There is no evidence of what level of control, custody or access Sidney Nolan conferred on Cynthia in relation to the three paintings prior to the alleged gifts, whether they were situated at the Nolans’ residence, in the studio, in storage, or elsewhere. 47 Such evidence, or the lack of it, may be relevant to the question whether the plaintiff has established that delivery, as distinct from donative intention or acknowledgment of ownership, was satisfied in relation to each of the three paintings. … H. Gifts of Chattels 121 There are three recognised methods for making a valid gift of a chose in possession, such as a painting, inter vivos. 122 They are: (a)

deed

(b)

declaration of trust

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Nolan v Nolan cont. (c)

delivery.

123 In the present case, the plaintiff does not assert that a gift was effected by deed or declaration of trust. No deed has been identified or pleaded. Although various constructive trusts are pleaded, they are relevant only in reply to defences of limitations legislation and delay. They depend, for their effect, on the prior establishment of a valid gift to Cynthia by Sidney Nolan. 124 In establishing a valid gift of a chose in possession inter vivos, which is fundamental to her claim in this proceeding, the plaintiff encounters several significant hurdles represented by well-recognised principles and maxims applicable in this context. 125 First, it is well established that equity will not assist a volunteer. From that flows the equally venerable principle that equity will not complete an imperfect gift. 126 Secondly, possession is prima facie evidence of property. As Isaacs and Rich JJ observed in Russell v Wilson: 1 Possession in the relevant sense, is not merely evidence of absolute title; it confers a title of its own, which is sometimes called a “possessory title”. This possessory title is as good as the absolute title as against, it is usually said, every person except the absolute owner. 127 Limitations of action legislation reflects the policy that lengthy possession must ultimately operate to preclude a remedy in relation to a title, “however clear and indisputable”, when a title holder comes “too late”. The legislation recognises the public’s interest in having “a certain fixed period, after which the possessor may know that the title and right cannot be called in question” in order to avoid an opening to “interminable litigation, exposing parties to be harassed by stale demands, after the witnesses of the facts are dead, and the evidence of the title lost”. 2 128 In the present case, Sir Sidney Nolan and the first defendant, Lady Nolan, as his beneficiary, have successively been in continuous peaceable possession of the disputed paintings for an unbroken period of approximately 27 years. The “witnesses of the facts” of the alleged gift transactions are dead. 129 Thirdly, the plaintiff bears the onus of establishing the necessary elements of a gift of chattels effected by delivery. The presumption of advancement, or absolute gift, applies in favour of, inter alia, a wife who takes legal title to property for which a husband provided the purchase price. 3 In such circumstances, it is a rebuttable presumption that the husband intended to advance the wife by way of gift, rather than intending her to hold legal title as a resulting trustee, for himself. The plaintiff sought to rely on authority in which the presumption of advancement was approved. The present case, however, involves an alleged common law gift of chattels, to which presumptions of advancement or resulting trust are equally inapplicable. 130 The plaintiff also contended that the fact that Sidney Nolan made many undisputed gifts of his paintings to Cynthia demonstrated a propensity on his part to make such gifts, which should assist the plaintiff in the present case. In my opinion, the fact that Sidney Nolan made many gifts to Cynthia which he did not dispute during her life or after her death, is more consistent with the conclusion that he did not make gifts to his wife of those paintings he retained after her death. There is evidence that Sidney Nolan was upset by the terms of his wife’s wills, under which he took no benefit. Nevertheless, he made no attempt to challenge Cynthia’s estates’ entitlement to a considerable number of paintings. Such conduct suggests that Sidney Nolan “honoured” gifts and recognised them as binding. 131 The essential elements of a valid gift of a chattel inter vivos, in the absence of a deed of gift or a declaration of trust, are: 1 2 3

(1923) 33 CLR 538. Per Sir Thomas Plummer MR in Marquis Chomondeley v Lord Clinton (1820) 2 Jac. E.W.I, 139-40; 37 ER 527. Calverley v Green (1984) 155 CLR 242. [10.50]

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Nolan v Nolan cont. (a) an intention to make a gift, usually expressed by words of present gift; (b) intention on the part of the donee to accept the gift; and (c) delivery. Intention to make a gift 132 Donative intention is characteristically accompanied by words of gift which evince the intention and delineate the object and extent of the intended benefaction. 4 133 The plaintiff in the present case, although reliant on a valid gift, is unable to produce any witnesses to the alleged gift transactions. Instead, reliance is placed on documents, the admissibility of which is largely disputed. Those documents, to the extent to which they contain admissible statements, must be approached not only with the degree of caution generally applicable to claims against a deceased estate, but with added caution based on circumstances peculiar to the present case, discussed in detail below. Are words of gift essential? 134 The documents on which the plaintiff relies contain statements which, even if admissible, do not amount to words of present gift by Sidney Nolan. 135 Many of the decided cases have involved undisputed “words of present gift”. It was submitted by the plaintiff that words of gift are not required provided that donative intention is established. The issue has not received detailed consideration in any of the authorities of which I am aware. 136This method of effecting a gift of chattels is commonly characterised as “delivery”. 5 137 In many of the cases, however, reference is made to a “parol gift” or a “gift by word of mouth” 6 The question arises whether words of gift are an essential constituent of this method. It is clearly established that donative intention and delivery are required. In most decided cases, words of gift have been undisputed or appear to have been assumed. Argument has centred on whether the requirement of delivery was satisfied. In re Cole, (a bankrupt) Ex parte The Trustees v Cole 7 the Court of Appeal appeared to assume that “words of gift” must be spoken. Words of gift had indisputably been spoken in that case, so the effect of the absence of words of gift was not addressed. Recently, in Horsley v Phillips Fine Art Auctioneers Pty Ltd, 8 Santow J expressly stated that oral words of gift with delivery were required. 9 The plaintiff’s submission, however, draws support from the observation of Mason CJ and McHugh J in their joint judgment in Corin v Patton 10 that “Just as a manifestation of intention plus sufficient acts of delivery are enough to complete a gift of chattels at common law, so should the doing of all necessary acts by the donor be sufficient to complete a gift in equity”. 11 Corin v Patton did not concern a gift of chattels, but a voluntary transfer of an interest in Torrens land. The observation is therefore obiter. 138 If donative intention and delivery only are essential for a valid gift of chattels, that intention must nevertheless be made manifest and expressed with certainty. Words of present gift show “an intention to give over property to another, and not to retain it in the donor’s hands for any purpose, 4 5 6 7

Per Stuart V.C., Howard v Fingall (1853) 22 LTOS 12. Crossley Vaines on Personal Property, London 1973 at 301, Fisher S. “Commercial & Personal Property Law”, Butterworths, 1997 at 451. In re Stoneham; Stoneham v Stoneham [1919] 1 Ch 149 at 153. [1964] Ch 175.

8

(1995) 7 BPR 14,360.

9

Ibid, at 9.

10

(1989-1990) 169 CLR 540.

11

Ibid, at 588.

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Nolan v Nolan cont. fiduciary or otherwise”. 12 Words of gift are usually necessary to achieve that certainty in relation to matters such as defining the extent of the benefit the donor intends to confer. 139 Nevertheless, in my opinion, the better view, as expressed in the dictum in Corin v Patton, is that donative intention need not be manifested by words of gift. Although donative intention would normally be manifested, and its extent defined, by words, unusual circumstances may be imagined where other means fulfil those functions. 140 If a valid gift may be effected without words of gift in unusual cases, the putative donee who seeks to rely on alternative means of establishing donative intention, would bear the onus of proving the existence of a present, unequivocal donative intention, attended by the requisite certainty as to object, extent, and whether the gift would take immediate effect. 141 The question is relevant to the present case, because, in contrast to most decided cases, the plaintiff adduces no evidence of words of present gift. Rather, statements in the documents on which the plaintiff relies constitute, at their highest, ex post facto admissions or acknowledgments by Sidney Nolan, the alleged donor, that a particular painting belongs to Cynthia, is “Cynthia’s” or is part of “Cynthia’s collection”. 142 In my opinion, evidence that Sidney Nolan believed that he had made a gift to Cynthia of an absolute interest, which had already taken effect and which he did not desire to retract, would be capable of manifesting donative intention. A comparable case is that of Re Ridgeway, 13 in which the alleged donor apparently believed that he had made a gift of port to his children and thereafter acknowledged the port’s reputation as “Tom’s port” or “Alice’s port”. It was apparently accepted in Re Ridgeway that the putative donor intended to make a gift and believed that he had done so. That belief was found to be mistaken as a matter of law, because the essential requirement of delivery was not fulfilled. The port remained within the father’s possession in the cellar. The gift, although intended, was held to be incomplete and equity will not perfect an imperfect gift. 143 Further, although a putative donor’s acquiescence in an ascription of ownership to the donee may, in my opinion, constitute evidence that donative intention existed at a particular time, it may be more equivocal than words of present gift. Where the donor or donee is available to give direct evidence of the matter, any ambiguity or doubt may be resolved. That is not possible in the present case. 144 A further problem which arises in the present case in relation to the plaintiff’s reliance on the alleged donor’s apparent acknowledgment of the alleged donee’s ownership is that, although delivery can precede, accompany or follow the gift, delivery must occur while the donative intention subsists. At any stage until delivery occurs, the donor can validly retract the gift. 145 The authorities establish that a promise to make a gift, or an expression of gift by words of future intention, however clear and unqualified, is not sufficient to establish a perfect gift. It follows that the donor’s expression of belief or conclusion that he or she has made a gift which has taken effect, so that property has passed to the intended donee, is equally insufficient. At best, it satisfies only the first requirement of a valid gift of chattels. It manifests donative intention. The second necessary element of delivery must also be satisfied in order to give complete effect to the donative intention. That is a question of law which the putative donor rarely addresses and would usually be unqualified to determine, when expressing a conclusion that property in the chattel had passed to the donee. Thus in Re Ridgeway, 14 the intending donor believed the gift of port complete, denominating it “Tom’s port”. 12 13 14

Richards v Delbridge (1874) LR 18 Eq. 11 at 15 per Jessel, M.R. (1885) 15 QB 447. Ibid. [10.50]

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Nolan v Nolan cont. In The National Trustees Executors & Agency Company Limited v O’Hea 15 the intending donor undoubtedly intended to make the gift of a coach and horses to his coachman, and believed it valid. In neither case was the intending donor’s conclusion correct. Delivery had not been effected and the intended gift failed. I. Circumstances Relevant to Weight Claims against deceased estates 146 In the present case, both the alleged donor and the alleged donee are dead, the donee for nearly 30 years. In seeking to discharge the onus of establishing the necessary elements of a perfect gift, the plaintiff must rely on documents, rather than on oral testimony which may be tested by cross-examination. Where the alleged donor is dead, the authorities require the claimant donee’s account of events to be approached with caution. Where both the alleged donor and donee are dead, and reliance is placed on documents, caution is particularly necessary. 147 In Re Garnett, Gandy v McCauly 16 Brett MR observed: The law is that when an attempt is made to charge a dead person in a matter, in which if he was alive he might have answered the charge, the evidence ought to be looked at with great care; the evidence ought to be thoroughly sifted and the mind of any judge who hears it ought to be, first of all, in a state of suspicion. He nevertheless noted that: … if, in the end the truthfulness of the witnesses is made perfectly clear and apparent, initial suspicion would yield to belief. 148 In Thomas v The Times Book Co, 17 Plowman J applied the approach of Brett MR in a case where the poet, Dylan Thomas, had died shortly after allegedly making a gift of the manuscript of his poem “Under Milk Wood” to a BBC executive. Plowman J stated: … [N]ot only in this case is the onus of proof on the defendants, but I am enjoined by authority to approach their story with suspicion, having regard to the fact that the other actor in this story, the late Dylan Thomas, is dead and cannot therefore give his own version of what took place. 18 149 Plunkett v Bull 19 involved an action for debt against a deceased estate. Isaacs J noted that the plaintiff bore the burden of establishing “the original creation” of the deceased’s indebtedness and stated: … undoubtedly it is established in cases of this sort the Court scrutinizes very carefully a claim against the estate of a deceased person. It is not that the Court looks on the plaintiff’s claim with suspicion and as prima facie fraudulent, but it scrutinizes the evidence very carefully to see whether it is true or untrue. 20 150 Recent decisions of this Court have reiterated the need for caution, if not suspicion, in determining claims made against the estate of a deceased person. In Stick-on Signs Pty Ltd v Sign Gear Ltd, 21 Osborn J observed the caveat of Isaacs J in Plunkett v Bull. 22 15

(1904) 29 BLR 814.

16

(1885) 31 Ch D 1 at 8, 9.

17

[1960] 2 All ER 241.

18

Ibid, at 244.

19

(1915) 19 CLR 544.

20

Ibid, at 548.

21

[2002] VSC 320.

22

(1915) 19 CLR 544 at 548-9.

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Nolan v Nolan cont. 151 Similarly, Hansen J in Richardson v Armistead 23 stated that … in such circumstances the self-interest of a claimant to give evidence favourable to his or her case is obvious … in such a case much caution is exercised before the evidence of the claimant is accepted. 24 152 In Plunkett v Bull and Thomas v The Times Book Co, in contrast to the present case, one party to the alleged transaction was still alive and gave evidence which, although scrutinised with due caution, was believed and accepted by the trial judge. 153 In addition to the caution generally appropriate to claims against the estate of a deceased person, the defendants in the present case point to several additional circumstances which may independently dictate a cautious approach. 154 In particular, the defendants submit that many of the documents on which the plaintiff relies have been selectively produced from a source which was assembled and deposited surreptitiously, so that there can be no confidence that all relevant documents have been brought forward. 155 In Plunkett v Bull 25 Isaacs J cited with approval some observations of the Privy Council in Lachmi Parshad v Mararajah Narendro Kishore Singh Bahadur 26 in relation to the sufficiency of proof of claims against deceased estates. Lord Morris there stated: In an action brought to recover money against an executor, or as in this case, the heir, of a deceased person, it has always been considered necessary to establish as reasonably clear a case as the facts will admit of, to guard against the danger of false claims being brought against a person who is dead and thus “is not able to come forward and give an account for himself”. 27 156 Isaacs J, in Plunkett v Bull, referred to the failure of the claimant in Lachmi Parshad “to bring forward evidence which he ought to have brought forward and which was available” 28 which had contributed to the Privy Council’s holding that a reasonably clear case was not established. Isaacs J observed that in Plunkett “it has not been suggested, and on the facts before us I do not see how it could be suggested, that any further evidence could be given or any further light thrown upon the case from the plaintiff’s side”. 29 157 Many of the documents upon which the plaintiff relies in the present case are produced from an archive known as “The Cynthia Nolan Papers” which was given to the National Library of Australia by Cynthia in successive consignments during 1975 and 1976. Cynthia apparently deposited the papers in circumstances of some secrecy. She placed a 45 year restriction on public access to the Cynthia Nolan Papers. 158 The defendants further submit that Cynthia’s despatch of paintings to the Power Gallery of Contemporary Art, University of Sydney, in 1974, her arrangements with the curator, Elwyn (Jack) Lynn, and the exhibition at the David Jones Art Gallery in 1975, were concealed from Sidney Nolan and occurred without his consent, so that associated documents created by Cynthia or as a result of information she supplied should not be admitted, or alternatively, should be viewed with suspicion. 159 The defendants also submit that Cynthia’s conduct, as evidenced by her letters to Jinx Nolan dated May 1976 and September 1976, represents an additional ground for declining to admit documents on which the plaintiff seeks to rely. 23 24 25 26 27 28 29

[2000] VSC 551. Ibid, at para 36. Supra. LR 19 IA, 9. Ibid, at 9 – 10. Supra at 549. Ibid. [10.50]

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Nolan v Nolan cont. 160 The defendants further submit that information included in exhibition catalogues is of variable reliability, depending for its accuracy on the information supplied to the compiler. 161I consider each of those matters in detail below. The Cynthia Nolan Papers 162 Many of the documents on which the plaintiff seeks to rely in this proceeding are produced from a collection known as “the Cynthia Nolan Papers” held by the National Library of Australia. The Cynthia Nolan Papers consist of a considerable volume of papers related to Sidney Nolan, Cynthia and their circle, donated by Cynthia in successive consignments to the Australian National Library between 1975 and 1976. The last consignments were apparently received by the National Library shortly after Cynthia’s death in November 1976. 163 The defendants rely on several documents which, in their submission, establish that Cynthia donated and delivered the papers after having taken elaborate precautions to conceal her actions from Sidney Nolan. The defendants also contend that the documents on which the plaintiff relies have been produced erratically and selectively. They contend that, in the circumstances, the court can have no confidence that the plaintiff has brought forward all available evidence. It is submitted that that circumstance constitutes a ground for rejecting documentary evidence on which a claim against a deceased person’s estate is based. 164 The defendants tender series of papers passing between the officers of the National Library of Australia, Ivan Page (Chief Liaison Librarian, Europe, at the Australian High Commission) and Cynthia, which indicates that Cynthia, in 1975, offered to donate a collection of Nolan papers to the National Library of Australia. 165 The correspondence indicates that the National Library’s representatives were instructed to communicate with Cynthia care of Mrs J. Griffin, 7 Sharples Street, Regents Park Road, London. Ms Jinx Nolan gave evidence that Cynthia used that address as a business address. 166 The donated papers were to be documented by “confidential file”, which was to be “kept under lock and key”. 167 Cynthia requested that the papers should not be looked at or opened by library personnel. The correspondence was conducted care of Cynthia’s business address. National Library representatives agreed to her stipulation of a 45 year period of restricted access, assuring her that the confidential nature of the collection would be strictly respected. 168 A letter of Mr Page to Ms Pauline Fanning (a library officer) dated 14 January 1976 stated that “I shall be grateful if you will send another letter of thanks to Mrs Nolan when you receive these papers. Mrs Nolan would prefer that we did not call this gift simply ‘the Nolan papers’. She said that it includes her own literary manuscripts. Further, if it were not for her, her husband would not be as famous as he is today, nor would the National Library ever have acquired the papers. She proposed therefore that the gift be named after herself. I did not catch all her names. … Perhaps in your letter to her you could refer to them as the Cynthia Nolan Papers. Mrs Nolan does enjoy a certain reputation for eccentricity. Her husband knows she is transferring papers to the library, but she does not want him to see documents leaving the house. She therefore asked me to call at a time when he was out. After putting the cartons into the car I was sitting in the kitchen taking tea with her. A footstep was heard on the stairs. Mrs Nolan flew out to intercept her husband, explained loudly that she was having a cup of tea with someone she had picked up in the park, and persuaded him to continue on his way upstairs. Back in the kitchen she thrust my overcoat into my hands, whispered ‘I’m always picking up people in the park’ and turned me out of the house. I felt as if I was playing a scene from a farce by Feydeau.” 169 A letter of Cynthia to Dr Chandler, Director-General of the National Library (undated) states, “Your poor journeyman almost ran into Mr N. last time – not that it would matter for he knows I’m sending things to archives, but experience has taught me better not to involve him …” 232

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Nolan v Nolan cont. 170 After the death of Cynthia, Mr Page wrote to an officer of the National Library by letter dated 5 January 1977, in which he advised against the Library’s acknowledgment of some recently arrived consignments. It further stated, “Mrs Nolan always assured me that her husband knew the papers were going to the National Library but she took elaborate precautions to ensure that he knew not the day nor the hour of it. I suggest we do nothing at this stage to bring them to the forefront of his mind.” 171 From 11 to 13 October 2002, Mr Smith was given access to the Cynthia Nolan Papers. Mr Smith examined the Cynthia Nolan Papers in the company of Ms Jinx Nolan and her instructing solicitor, Mr Gary Singer, during a three day period. Mr Powell of the National Library gave evidence that that was the only occasion on which, to his knowledge, the Cynthia Nolan Papers have been examined. 172 Mr Smith’s evidence was that the Cynthia Nolan Papers constitute “a huge archive”. The collection consists of 19 different series of documents (classified by reference to topic) contained in approximately 90 boxes. Mr Smith did not look at all 90 boxes. He could not remember all of the series of documents he had looked at. He thought that he had looked at some and “scanned” others. He was sure that he had looked at some series, sure that he had not looked at some series and unsure whether he had looked at others. Mr Smith was unable to state exactly how many of the 90 boxes he had looked at, other than to say that it was “a lot”. He did not keep a note of what he had looked at and had no record of his examination, except where he had taken copy documents. 173 Mr Singer, by affidavit sworn 9 December 2002, deposed in relation to his search of the Cynthia Nolan Papers from 11 to 13 October 2002 that “there were literally tens of thousands of documents in the collection”, and “time did not permit us to examine every paper in the collection”. 174 The correspondence passing between National Library representatives and Cynthia should be approached with some caution because, as in the case of the documents relied on by the plaintiff, the authors are not available to give evidence. Nevertheless, I consider that the correspondence supports the contention that the Cynthia Nolan Papers is a collection which was not assembled or donated by Cynthia openly with the full knowledge, consent, and participation of Sidney Nolan. 175 Cynthia’s conduct, as described in the correspondence, appears inconsistent with Sidney Nolan’s knowledge and approval of her actions. It was not limited to “not bothering” the artist, but extended to deceit. In my opinion, it is probable that Sidney Nolan did not know of, or consent to, the assembly or the donation of the Cynthia Nolan Papers, despite the written assertions of Cynthia Nolan to the contrary. There can be no confidence that the Cynthia Nolan Papers constitutes a comprehensive source which contains a complete record of all relevant matters, that all relevant papers were available to Cynthia or that she did not filter, censor or remove material selectively for purposes of her own. 176 In relation to the search of the Cynthia Nolan Papers conducted by Messrs Smith and Singer and Ms Nolan, whilst I do not consider that any of those persons would be likely deliberately to suppress or withhold relevant documents, given the size of the collection, the relatively short space of time allotted for their search, the admitted impossibility of examining all papers, the failure to keep any written record of the search process and the lack of access afforded to any other party, it is not possible to conclude that a thorough and comprehensive search was conducted. 177 In the circumstances, neither the Cynthia Nolan Papers as a collection, nor the search of it in October 2002, can safely be considered comprehensive. I cannot conclude that the plaintiff has brought forward all relevant documents. While I do not consider that documents produced from the

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Nolan v Nolan cont. Cynthia Nolan Papers should therefore be rejected, the circumstances add to the necessity for a cautious approach to the documents in this context. 30 The difficulty of establishing “a reasonably clear case” is also increased. The Power Gallery Arrangements and the David Jones Art Gallery Exhibition 178 It is not disputed that Cynthia, on a date in 1974, arranged for the despatch of 26 Nolan paintings to the Power Gallery of Contemporary Art, University of Sydney. Documents relevant to Cynthia’s arrangements for the deposit of paintings at the Power Gallery are tendered by consent. 179 By letter dated 3 September 1974 Elwyn Lynn of the Power Gallery wrote to Cynthia, at her business address, care of Mrs J. Griffin, 7 Sharples Hall, Regents Park Road, London. The letter refers to the expected unloading of two crates [of paintings], their expected collection and the University’s exemption from duty and customs charges. 180 It further states, “At present only I, Lily [Mr Lynn’s wife], my secretary and my assistant and legal and customers agents are aware of the consignment … I shall supply you with a list and a statement that they are on loan from you. This will also be entered in our files and I think it wise to give a copy to the Vice Chancellor for his confidential files. I think it wise to have the documents stored in several confidential files.” 181 By letter of Elwyn Lynn to Lily and Victoria Lynn dated 14 November 1974 Mr Lynn states, “Sid met me and all is well … of course, he had guessed intuited or suspected about the paintings, but now he knows and Cynthia knows he knows. I walked on a bomb field for a while but all is well and it just had to come out and the sooner the better. We are all at peace …” 182 A letter of Elwyn Lynn (then visiting England) to Anne Bryant of the Power Gallery dated 18 November 1974 refers to his despatch of some additional Nolan works, including a sketch, recently drawn by Sidney Nolan expressly for the Power Gallery. The letter indicates that Sidney Nolan intended to give certain prints to the Power Gallery. 183 The letter adds, “Sid Nolan doubts if any ptgs [paintings] are in Australia from Cynthia! She’s got a lot in her room! Wants to give some to Manchester and Edinburgh, but where is our original. The whole business is quite messy and a great worry to me to keep the peace – takes the enjoyment away.” 184 A letter of Elwyn Lynn to Cynthia dated 1 June 1975 refers to a proposal to offer one third (or six) of the 26 paintings for sale to David Jones. It also referred to a proposed gift of a painting by Cynthia to Lily Lynn. 185 A letter of Lily Lynn to Cynthia dated 9 September 1975 acknowledges Cynthia’s gift of a painting to Lily Lynn. The letter refers to Cynthia’s problems, and states, “I fear by some ‘Irish luck’ the paintings will somehow return to London and McAlpine. It is all difficult and a wrong decision could cause a lot of anger and tears … As Jack and I talked about you, Sid rang from London. A private deal would be better. But who should do it? The few collectors we know are all private dealers themselves and sharks as money is tight.” The Mollison Letters 186 Two letters to James Mollison, then director of the National Gallery, Canberra, are tendered by consent. The plaintiff submits that they constitute evidence that the Cynthia Nolan collection of paintings (including “Hare in Trap” 1946 and “Italian Crucifix” 1955) remained in Australia until at least June 1976. 187 The letter of Cynthia Nolan to James Mollison, dated 28 May 1976 states that “I would very much like you to see the paintings that I own. I hope that you might find something that your gallery 30

Plunkett v Bull; The Perpetual Executors and Trustees Association of Australia Limited v Wright (1917) 23 CLR 185, Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785.

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Nolan v Nolan cont. would like to purchase”. The letter requests Mr Mollision, if interested, to get in touch with Jack Lynn, who would show him the paintings. The letter requests Mr Mollison to contact Cynthia not at the Putney residence she shared with Sidney Nolan, but at her business address “care of Mrs J. Griffin” in Regents Park, London. It also requests that the matter “remains at the moment between ourselves”. 188 The letter of Elwyn (Jack) Lynn to James Mollision dated 10 June 1976 refers to the possible purchase by the National Gallery of works by Sidney Nolan “at present stored by me at The University of Sydney” and available to be shown “at any time”. Mr Lynn states “I am compelled to request that the matter be kept confidential”. Listed as one of the available paintings is “Hare in Trap” 1946. Although a painting entitled “Crucifixion, South Italy” 1955, dimensions “50.8 x 60.9 cm” is also listed, its measurements do not accord with those of the similarly titled painting the subject of this proceeding. 189 The letter of Elwyn Lynn to Cynthia Nolan dated 21 June 1976 states, “Meanwhile I have written to James Mollison … listing the works, sizes, dates, media and so on that are available: eleven with a choice of six (6). I told him that he and/or his committee could see them by arrangement, but I’ve not said where they are. I’ve told him that I am not an agent, but that I could suggest prices and sale would depend upon your agreement …” 190 The letter of Elwyn Lynn to Cynthia Nolan dated 6 August 1976 states, “No response from Canberra. As I shall be away three months, viewing the works in the Power Storage would be difficult but Kelly could arrange it. … However, he is not competent to negotiate. Rudy could contact Kelly and Kelly could contact Canberra for viewing without Rudy’s being aware of where the pictures are. But, I really think it better for the pictures to be at Rudy’s for the three months I am away. In that way he can make further approaches to Canberra and not involve anyone as to the whereabouts of the works. Maybe I won’t give him the lot, but we have told Canberra the titles and number, of course.” 191 A letter of Elwyn Lynn (from England) to Lily and Victoria Lynn dated 6 November 1976 relevantly states, “Sid Nolan phoned me at 5.30 a.m. this morning. He and Jinx are living at the Dorchester; he won’t go back to the house and Jinx collects the mail. The place is stripped and as probate interferes he can do nothing about the place in London … the inquest is over and Lord Clarke made some kindly remarks about Cynthia in the press, Cynthia left a couple of unbitter and generous notes, declaring she was doing the best thing. … Jinx had to tell him [Sidney Nolan] about the crate of ptgs arriving in London but nothing else as yet, because it may be in her will. Sid said that she tried to make her wills very clear, but he’s afraid that it is a bit of a mess.” 192 I conclude from the above letters that on the balance of probabilities “Hare in Trap” 1946 was in Australia as at June 1976 and as late as August 1976. The letters cast no further light on the whereabouts of “Italian Crucifix” 1955, or any other paintings originally stored at the Power Gallery, save for those nominated for sale. I am unable to determine from the letters whether “Italian Crucifix” 1955 was in Australia as at June 1976. 193 I conclude that the attempted sale by Cynthia of paintings including “Hare in Trap” 1946 was conducted without the knowledge of Sidney Nolan. The use of a separate business address and the repeated stipulations of confidentiality support that conclusion. 194 In giving evidence at trial on the Power Gallery deposit of paintings by Cynthia Nolan, Mr Tim Kelly, an officer at the Power Gallery at the time, stated that he believed that the “loan” of the works was “a private arrangement between Cynthia Nolan and Jack Lynn, and the Power Gallery was just holding the paintings”. Mr Kelly was aware, at the time, of the offer to sell paintings in June 1976 to the National Gallery on behalf of Cynthia. He stated that he knew that the matter was confidential because he knew that the paintings were not part of the Power Gallery collection. Mr Kelly supervised the despatch of the paintings to the David Jones Art Gallery in 1975. At the end of that exhibition, when they were returned to the Power Gallery, he put them back in storage where they remained until they left the Power Gallery collection, but he could not recall a specific date. [10.50]

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Nolan v Nolan cont. 195 Although it is not possible to discern the full meaning of the correspondence and documents relating to Cynthia’s deposit of paintings at the Power Gallery, it appears (and is conceded by the plaintiff) that Sidney Nolan did not know of, or consent to the arrangements made by Cynthia in relation to the 26 paintings during 1974 to 1976. Lily Lynn, the wife of Elwyn Lynn, and an executor of Cynthia’s Australian will may have given evidence on those matters. There is evidence that Mrs Lynn visited Melbourne in October 2002. The plaintiff’s failure to call her is unexplained. I infer, pursuant to Jones v Dunkel, 31 that Mrs Lynn could have given no evidence which would assist the plaintiff’s case. On the balance of probabilities, I find that the purported loan by Cynthia to the Power Gallery was not a regular loan to the Power Gallery, University of Sydney. Further, I find that Sidney Nolan did not authorise or endorse any related assertions of ownership or other conduct by Cynthia. I further find that Cynthia took deliberate steps to conceal her activities from Sidney Nolan. The defendants submit that such conduct requires or justifies the rejection of associated documents. The plaintiff submits that Cynthia’s conduct is consistent with an owner of property seeking to protect it from the demands of a spouse and to avoid marital disharmony. I consider that the documents relating to the relevant activities must be viewed with great caution, rather than rejected outright. Cynthia’s deliberate concealment of her dealings or claims in relation to those paintings from Sidney Nolan is also, in my opinion, an additional justification for caution in assessing claims by Cynthia in documents relating to other paintings. Status of Exhibition Catalogues 196 The plaintiff submitted that exhibition catalogues, particularly when prepared by reputable galleries, are likely to be accurate records of title in determining the ownership of disputed paintings. In that context, the plaintiff relied on the decision of the United States Court of Appeals for the Second Circuit, in Kunstsammlungen Zu Weimer v Grand Duchess of Saxony-Weimer, 32 in which the court referred to the attribution in a catalogue in the course of determining a dispute over the ownership of paintings. 197 In that case, it was necessary to determine which of a number of competing claimants was entitled to recover certain paintings stolen in Germany after the Second World War. Both at first instance and on appeal, it was held that early in the twentieth century, title to the paintings in question had passed from the ruling house of Thuringia to the State of Thuringia, pursuant to certain agreements. The Court of Appeal referred, in the course of its judgment, to the absence in an early twentieth century museum catalogue of any acknowledgment that the paintings were owned by the Grand Duke. It is clear that the curial determination of title did not depend on the catalogue, but on the construction of relevant agreements. The court’s reference to the catalogue appeared to fortify a conclusion it had reached on the basis of the construction of those agreements. 198 There is no indication in the judgment of the status of the museum catalogue, of the circumstances of its preparation or its probable accuracy. The catalogue was nevertheless accorded some weight in relation to the determination of ownership, but in a merely supplementary or confirmatory role. 199 For the defendants, it was submitted that exhibition catalogues do not have the status of a register of titles and that those preparing such catalogues are totally dependent, in relation to attribution of ownership, on the accuracy of the information supplied to them.

31 32

(1959) 101 CLR 298. 678 F. 2d 1150.

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Nolan v Nolan cont. 200 Following the defendants’ objections to the admissibility of his evidence, I permitted Mr Daniel Thomas to give “expert” evidence in relation to the status of catalogues, as a “convenient helper of the court”. 33 201 Mr Thomas held the position of Senior Curator of Australian Art at the National Gallery of Australia and was the Director of the Art Gallery of South Australia. He has an MA in modern history from Oxford University and decades of professional experience as a curator. 202 Mr Thomas’ evidence was to the effect that: (a) It is common practice for art galleries, public galleries, reputable commercial galleries and auction houses to take great care in relation to all matters that assist in identifying a work of art, including ownership provenance. (aa) Mr Thomas considered that the Whitechapel Art Gallery, London, the Arts Centre, New Metropole, Folkestone, Kent, the Power Gallery of Contemporary Art, University of Sydney, the David Jones Art Gallery, Sydney, and the Moderna Museet, Stockholm, were reputable galleries at the dates relevant to the present proceeding. (b) Provenance investigation of art works in Australian museums and galleries was routine by 1958 and is now standard art museum practice. (b) Galleries vary in their standards, and within an institution, the standards depend on the particular person who is preparing the catalogue. (c) Although Mr Thomas considered himself to have high standards, a catalogue that he had prepared for the Nolan Retrospective Exhibition in 1967 for the Art Gallery of New South Wales which he intended to contain a complete reproduction history, did not do so. He conceded that sometimes, errors are made in catalogues, and they are not complete or accurate. (d) Sometimes catalogues deliberately withhold the identity of the owner of paintings. It is not uncommon for the catalogue to provide that unless otherwise stated, a work comes from a private collection. (e) Catalogues are variable in the degree and extent of information they provide. (f) Catalogues are prepared in a variety of ways for a range of reasons – for example, they may contain a reproduction history of relevant works, but not an exhibition history. (g) “The compiler of the catalogue is only as good as the source of the information to the compiler”. (h) A “credit line” is the means of “crediting” ownership in some published documents (including catalogues). (i) The credit line which ultimately appears in the catalogue might not accord with the credit line the lender has requested. (j) The lender of a painting may differ from the owner. If a painting is loaned by someone other than the owner, Mr Thomas would expect that the owner might be consulted as to credit lines. (k) It was possible that a painting might be attributed in a catalogue to the collection of someone who was in long-term possession, as distinct from the absolute owner, but if the compiler were aware of an absolute or “true owner”, he or she would try to include both the owner and the custodian in the acknowledgment. 33

Per Cussen J in R v Parker [1912] VLR 152 at 160. [10.50]

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Nolan v Nolan cont. (l) Private owners may not wish to be identified for fear of burglary, so that anonymous loans or attributions to “private collection” are fairly common. Mr Thomas said that “sometimes credit lines are sort of fantasy like ‘Lent by the Melbourne/Sydney collection’ or ‘lent by some [place/name] collection’ which has no real relevance, at all. It might be the owner’s birthplace or it might be the birthplace of their favourite aunt or grandmother. Quite strange things get into credit lines which are always the owner’s preference.” (m) Sometimes mistake are made in credit lines. 203 In the light of Mr Thomas’ evidence, I conclude that although persons compiling or preparing exhibition catalogues at reputable galleries would generally endeavour to attribute ownership or other entitlements accurately, and would probably take some steps to investigate a problem or uncertainty of which they became aware, they lack the incentive, means and skills to investigate title claims forensically and routinely to identify or resolve problems in relation to title. In some cases, credit lines are not only inaccurate, but deliberately uninformative or fictional, when that is requested by the person identified as the owner. 204 I consider that the compilers of such catalogues are dependent on the accuracy of the information provided by the purported owner, who is frequently obliging a gallery by agreeing to lend a painting. I consider it likely that in the absence of cause for suspicion, compilers would make an attribution of ownership according to the instructions of a lender who asserted ownership, or in reliance on that person’s appointed or apparent agent. 205 In the context of the present case, I consider it likely that in the case of the Nolans, where (as the plaintiff asserts) Cynthia, as Sidney Nolan’s spouse, also acted as an assistant closely involved in Sidney Nolan’s work, galleries would act upon Cynthia’s information and instructions as to attribution in catalogues, unless aware that Sidney Nolan disputed them. When Cynthia dealt with galleries in relation to such matters, it is unlikely that gallery officers would seek Sidney Nolan’s independent verification of her representations. I consider that the documentary evidence of Cynthia’s dealings with Moderna Museet, on which the plaintiff relies, (discussed in detail below) is consistent with that conclusion. 206 I therefore conclude that although an attribution of ownership in a reputable catalogue provides some evidence of ownership, exhibition catalogues are in no sense equivalent to a register of title and must be approached with considerable caution, independently of the caution which is generally required in assessing claims against a deceased estate. Letters of Cynthia to Jinx Nolan 1976 207 Certain additional correspondence of Cynthia is tendered by consent. 208 The letter of Cynthia Nolan to Jinx Nolan dated May 1976 stated that Cynthia had been “for some time considering the advisability of getting a few really good large (3 x 2 ft, probably not so large!) paintings to you in America. for eg: Bird in landscape that perhaps you remember in the hall at 79 Deodar. Hare in trap came to mind … Anyway good to have the possibility of some cash some time and paintings sold in USA …” 209 On the basis of the letter, Ms Jinx Nolan formed the belief that “Hare in Trap” 1946 belonged to Cynthia. The letter does not contain, in terms, an assertion of ownership of “Hare in Trap” 1946 by Cynthia. It is equally consistent with ownership by either Sidney or Cynthia, or by them jointly, or with a promise by Sidney Nolan to make a gift in future. It is not clear whether Sidney Nolan knew of, and consented to, the tentative proposal. “Hare in Trap” 1946 was not forwarded to Ms Jinx Nolan. In my opinion, the letter throws no light on the ownership of “Hare in Trap” 1946. 210 The letter of Cynthia to Jinx Nolan dated September 1976 states, “Have arranged to air 5 pics. to Bloomer marked for Ms Jinx Nolan … They are your possessions so should not have trouble getting 238

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Nolan v Nolan cont. in … S. does not and should not know anything about them. He would simply borrow them for an exhibition and they’d not be seen again. Remember they were given to me so would only be charged on if around when/if I went up above – others will be – and many were taken back and sold by S. and I did work for him extensively for many years without any secretary etc. salary (never thought of it) and kept him going often (all this for your conscience, not mine).” 211 The letter of September 1976 does not identify the paintings which Cynthia had arranged to send to Ms Jinx Nolan. The letter casts no light on the ownership of any of the paintings the subject of the present proceeding. Ms Nolan gave evidence that she received the five paintings, which included four paintings by Sidney Nolan different from those the subject of this proceeding. 212 The letter does, however, constitute an assertion of ownership by Cynthia to the unidentified paintings. Further, Cynthia asserts that Sidney Nolan had “given” her paintings in the past but “many were taken back and sold by S[idney]”. The letter discloses that Cynthia required her actions to be concealed from Sidney Nolan [“S does not and should not know anything about them”] in order to prevent such a retraction. [“He would simply borrow them for an exhibition and they’d not be seen again.”] 213 The plaintiff submits that this letter is not inconsistent with Cynthia’s ownership of the paintings. It is contended that although a party to a marriage may own property and have a clear legal entitlement to deal with it, such dealing may give rise to disharmony in the relationship. In such circumstances, it is said that secret dealings may be consistent with Cynthia’s “attempting to protect her ownership of the works from her husband”. 214 The defendants, on the contrary, submit that the letter constitutes an implicit acknowledgment by Cynthia of Sidney Nolan’s right to “take back” paintings. 215 In my opinion, the letter is consistent with a number of different possibilities. It is consistent with Sidney Nolan having, on occasion, expressed words of gift in relation to certain paintings, or otherwise manifested a donative intention to Cynthia, but retaining control of, and continuing to assert rights over, the paintings, disposing of them as absolute owner contrary to Cynthia’s wishes. 216 There are several other possibilities. Sidney Nolan may have promised to make a gift in future, or gifted a limited interest with a reserve of rights to himself, such as to exclude an intention to transfer absolute ownership to Cynthia. Sidney Nolan may have expressed equivocal words, which Cynthia interpreted as words of gift but which Sidney Nolan interpreted differently. Additionally, or alternatively, he may have spoken words of gift but made no delivery of possession to Cynthia. Clear and absolute words of gift are ineffective to constitute a complete gift if delivery is wanting. The donor may retract the purported gift at any time prior to delivery. A further possibility is that Sidney Nolan reclaimed valid gifts which he had made to Cynthia. 217 It is unnecessary for me to make a finding on whether Sidney Nolan, on occasion, promised to make gifts but failed to fulfil his promise; or expressed words of gift but failed to complete the gift by delivering possession to Cynthia; or made valid gifts and Cynthia subsequently acquiesced in their retraction. It is sufficient, in the present context, to observe that Cynthia’s readiness to deal with paintings behind Sidney Nolan’s back, her consciousness of the insecure status of some “gifts” which, in her view, Sidney Nolan failed to recognise or honour and her willingness to address that problem by a measure of secretive self-help, constitute added reasons for strict scrutiny and a cautious approach. … Conclusion on Donative Intention - “Italian Crucifix” 1955 402 From the above it follows that, in my opinion, the documents relied on by the plaintiff do not contain, in terms, an unequivocal statement made, or alternatively approved, by Sidney Nolan to the effect that he was making or had made an gift of “Italian Crucifix” 1955 to Cynthia or acknowledged [10.50]

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Nolan v Nolan cont. it to be her property. For reasons discussed above, I do not consider ascription to a collection in an exhibition catalogue as tantamount to an acknowledgment of absolute ownership. Further, the principal formal assertions of Cynthia’s ownership or ascriptions to her collection are either certainly made by Cynthia herself or possibly made by Cynthia, rather than Sidney Nolan, or made on the basis of information which was, or may have been, supplied by Cynthia or persons other than Sidney Nolan. … Conclusion on Donative Intention - “Hare in Trap” 1946 426 In my opinion, the documents relied on by the plaintiff do not contain an unequivocal statement made, or alternatively approved, by Sidney Nolan to the effect that he was making or had made gift of “Hare in Trap” 1946 to Cynthia or acknowledged it to be her property. … Conclusion on Donative Intention - “Royal Hotel” 1948 455 Having exercised the required scrutiny and caution in assessing the documents and statements, I am unable to conclude that they evidence words of gift or an unequivocal acknowledgment of Cynthia’s ownership of “Royal Hotel” 1948 by Sidney Nolan. … Delivery 457 As I have found that the plaintiff has not established words of gift or the requisite donative intention in relation to any of the three paintings, it is unnecessary to consider the further requirement of delivery. However, for the sake of completeness I do so. 458 Delivery in the present context does not function merely as evidence of donative intention. It is the legal act essential to complete the gift. It transfers both possession and (by perfecting the gift) ownership of the chattel to the donee. Accordingly, a valid delivery marks the termination of the donor’s dominion. A continuation of control or power in the donor is inconsistent with a valid delivery and hence inconsistent with a perfect gift. 459 This was well-expressed in Young v Cockman 34 a decision of the Maryland Court of Appeals, in which Delaplaine J, delivering the judgment of the court, observed: To make an effectual delivery the donor must not only part with possession of the property, but must relinquish all present and future dominion and control over it beyond any power on his part to reclaim it. It is obvious that a transfer is not a transfer of possession unless the transferor intends that it shall take effect immediately. If he retains the same control over the propery that he had before the transfer was made, there remains a locus poenitentiae, in which he may revoke what he has done, and consequently there is no delivery. 35 460 It is well-established that delivery may be actual (by way of manual or physical transfer of the goods), 36 or constructive. 37 Constructive delivery may take various forms. Where the nature or bulk of the goods renders manual delivery impossible or impractical, acts falling short of manual delivery have been held sufficient to signal a change in possession. 38 34 35 36 37 38

149 ALR 1006. Ibid, at 1010. Re Everett; Executor Trustees and Agency Company of South Australia v Everett [1917] SASR 52 at 58; Olsson v Dyson (1969) 120 CLR 365 at 385. Re stoneham; Stoneham v Stoneham [1919] 1 Ch 149 at 156. Winter v Winter (1861) 4 LT 639; Rawlinson v Mort (1905) 93 LT 555.

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Nolan v Nolan cont. 461 A further form of constructive delivery occurs when the donee is already in possession or, according to some authorities, when the donee already has custody, of the chattels. 39 Delivery can also occur after the manifestation of intention, or (in the usual case) contemporaneously with it. 40 462 As the gift can be retracted at any time prior to delivery, where delivery takes place subsequently, it would be necessary to establish that the previously expressed donative intention was still on foot when delivery occurred. 463 Alternatively, it would be necessary to establish that the chattels were already in the possession (or at least the custody – see discussion below) of the purported donee at the time when the words of gift were expressed or donative intention was otherwise made manifest. 464 Where possession of the chattels by the intended donee precedes the words of gift, the gift may be perfected without the necessity for the donor to retake possession of the chattels in question in order to effect a valid delivery. In Re Stoneham; Stoneham v Stoneham, 41 the chattels in question were already situated in a house occupied by the donee when the donor spoke the words of gift. Laurence J, having reviewed Cochrane v Moore, 42 held that where the chattel the subject matter of a parol gift is already in the possession of the donee at the time when the gift is made, a further delivery or a change of possession is unnecessary. Rather, “in order to constitute a perfect gift by word of mouth of chattels capable of delivery the donee must have had the chattels delivered into his possession by the donor or by someone on his behalf. In principle, I can see no distinction between a delivery antecedent to the gift and a delivery concurrent with or subsequent to the gift. Nor can I see any reason in principle why the rule should not apply to a case where chattels have been delivered to the donee before the gift as bailee or in any other capacity, so long as they are actually in his possession at the time of the gift to the knowledge of the donor”. 43 465 Laurence J reaffirmed the requirement of a delivery and, in the case of antecedent possession by the intended donee, appeared to assume that a delivery to the donee whether “as bailee or in any other capacity” had already occurred. Delivery in Common Establishments 466 The question of how delivery of household goods or chattels is to be validly effected between spouses or other cohabitants in a common establishment poses special difficulties. The determination of whether an establishment is “common” is a question of fact. 44 There is no reason why the concept should be restricted to particular categories of social or familial relationships. 467 The National Trustees Executors and Agency Company Limited v O’Hea 45 is an early Victorian decision dealing with a purported gift from employer to employee within a shared establishment. The deceased, when close to death, stated clear words of gift of his coach and horses to his servant, the coachman. There was no doubt that the deceased intended to make a gift. However, no change in possession occurred. The coach and horses continued to be maintained at the deceased’s premises. 468 A’Beckett J found that the requirement of delivery was not satisfied. Although delivery could be antecedent, in the present case, although the servant had actual possession, it was not possession as a 39 40 41

Horsley v Phillips Fine Art Auctioneers Pty Ltd (1999) 7 BPR [97557[ at 14,367. Re Stoneham, supra, at 153-154. [1919] 1 Ch 149.

42

(1890) 25 QBD 57.

43 44 45

In Re Stoneham; Stoneham v Stoneham, supra, at 153-154. Horsley v Phillips Fine Art Auctioneers Pty Ltd (1996) 7 BPR [97557] at 14,370. [1905] 29 VLR 815. [10.50]

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Nolan v Nolan cont. bailee, but legally, was the possession of the donor, his master. 46 Further, nothing was done which would indicate a change in possession. “It could not be said that the [donor] had at any time made delivery to his coachman of any of the chattels which were in his custody at the time when they were given to him, or that the custody differed from the ordinary custody by a servant of his master’s goods. When things are in such custody I hold that there can be no effectual gift of them by the master merely telling the servant that he may keep them as his own.” 469 In requiring delivery, A’Beckett stated, “It would be dangerous to relax a rule which requires some visible act as an essential, when the only other essential is that certain words should be spoken.” 47 470 The question of delivery between spouses in a common establishment was considered in Re Cole – (a Bankrupt) Ex p. The Trustees v Cole. 48 In that case, a husband purchased a house as a family home, equipped it with valuable furniture and introduced his wife to the house, escorting her through the house indicating items and stating, “Look, it’s all yours”. The spouses continued to reside together in the house. 471 On the husband’s subsequent bankruptcy, the trustee in bankruptcy claimed entitlement to the house contents. The wife contested that claim, on the ground that she was the beneficiary of a valid gift. 472 Cross J, at first instance, held that there was a valid gift, observing, “I do not see what more Mr Cole could have done to put Mrs Cole into possession of the gift which he thought he was making”. 473 On appeal, the Court of Appeal held that there was no valid gift. Harman LJ observed: It is, I think, trite law that a gift of chattels is not complete unless accompanied by something which constitutes an act of delivery or a change of possession. The English law of the transfer of property, dominated as it always has been by the doctrine of consideration, has always been wary of the recognition of gifts … in the absence of consideration, delivery is still necessary, except in the cases of a gift by will or by deed, which latter itself imports both consideration and delivery. 49 474 Reviewing applicable authorities, Harman LJ, although recognising that delivery could be constructive and could accompany, precede or antecede the gift, held that delivery was necessary in every case of a parol gift inter vivos. 475 Relying on Bashall v Bashall, Harman LJ emphasised that the requirement of delivery was as essential in a case of husband and wife as in a case of two strangers. He considered that in such a case, although small items, such as jewellery could readily be delivered, in the case of voluminous or unwieldy items, the requirement of delivery, (which must be more than words or the mere introduction of a wife to a matrimonial home in which the chattels were situated), could be difficult. He considered that the wife’s usage of, or access to the chattels, would not suffice. 476 Harman LJ held that there was no change in possession in Re Cole. He observed that “it is true that it may be doubtful who is in possession of the furniture and that you must look to the title.” 50 477 Pearson LJ, observed, “it has been established that oral words of gift or even written words of gift not embodied in a deed or will, are not sufficient to make an effective gift unless there has been or 46

Ibid, at 825.

47

Ibid, at 825.

48

[1964] Ch 175.

49

Ibid, at 185.

50

Ibid, at 190.

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Nolan v Nolan cont. is delivery of possession to the donee. The basic idea is that there must be giving and taking, and if the donor retains possession, has not yet given and the donee has not yet taken”. 478 Pearson LJ also took the view that in the case of a husband and wife living together or other persons having a common establishment, the possession, as it would otherwise be doubtful, is attached by law to the title. 51 479 Pearson LJ concurred with Harman LJ and Pennycuick J in holding that applicable authority required delivery in the case of husband and wife within a common establishment, endorsing the statement in Bashall v Bashall 52 that in the case of delivery between spouses, “if the facts proved were equally consistent with the idea that he intended to deliver the thing to the wife so as to be her property, and with the idea that he intended to keep it as his own property then the wife failed to make out her case”. 53 480 As such, Pearson LJ observed that delivery must be an act which in itself shows an intention of the donor to transfer the chattel to the donee. “If the act is in itself equivocal – consistent equally with an intention of the husband to transfer the chattels to his wife or with an intention on his part to retain possession but give to her the use and enjoyment of the chattels as the wife – the act does not constitute delivery”. 54 481 His Lordship noted that in the case before him, there was no pre-existing possession in the donee prior to any words of gift and the acts relied on, being equivocal in the relevant sense, did not satisfy the requirement of delivery. 55 482 If Lord Pearson’s approach be correct, although delivery is not merely evidence of intention to make a gift, but rather an integral component of the gift transaction, it is nevertheless necessary that the act of delivery unequivocally evidence the donor’s intention to transfer, and not retain, possession of the chattel in question. 483 Interestingly, Pennycuick J expressed himself as constrained by authority rather than persuaded as a matter of principle to hold that an act of delivery was required when one spouse spoke words of gift to the other spouse, who was already sharing the physical enjoyment of the relevant chattel. 56 His Honour’s approach appears to foreshadow that of Santow J in Horsley v Phillips Fine Arts Auctioneers Pty Ltd, discussed below. 484 The peculiar problems posed by spouses or other cohabitants in a common establishment have received recent consideration in two Australian cases, which evince differing and perhaps irreconcilable approaches. 485 In Horsley v Phillips Fine Art Auctioneers Pty Ltd, 57 Santow J questioned the authority of Re Cole. His Honour held that where chattels are situated in a residence of which the intended donee is occupier or titleholder, and there is no shared control of the chattels, the chattels may be regarded as being in the pre-existing possession, or at least the custody, of the donee, and subsequent words of gift may suffice to perfect the gift, without any requirement for the donor first to retake possession or to execute a deed. His Honour’s observations also evinced an expansive approach to delivery, suggesting that prior custody by a donee in a common establishment may suffice. 51 52 53

Ibid, at 192. (1894) 11 TLR 152 at 153. Re Cole, supra, at 192.

54 55 56 57

Ibid. Ibid. Ibid, at 193. BC 950 5362 SC NSW, Santow J, 31 July 1995, 5 September, 1995. [10.50]

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Nolan v Nolan cont. 486 In Horsley v Phillips Fine Art Auctions Pty Ltd 58 a credit corporation which seized certain valuable household chattels as assignee of a bill of sale resisted a cross-claim for conversion on the grounds that the cross-claimant had, inter alia, divested himself of that interest by joining with his brother in an effective gift of their half interests in the chattels to their mother, prior to the granting of the bill of sale from which the credit corporation purportedly derived title. 487 The brothers (who held joint title to the chattels in question) occupied a very large mansion property with their parents. The cross-claimant occupied a separate cottage and his brother, although residing within the main house with the parents, occupied a separate suite. Santow J held that the arrangement did not constitute a “common establishment”. 488 The relevant furniture was kept in those parts of the main house which were under the control of the parents, so that if the brothers used the rooms they did not do so “as co-possessors with their parents, but by leave of their parents; though no doubt their access was in practice untrammelled”. 59 Santow J accepted the cross-claimant’s evidence that the brothers “did unequivocally state to their mother that they were gifting the furniture to her and had the celebratory drink”. 60 489 His Honour considered that the cross-claimant probably walked around the various items of furniture, but was unable to determine whether he was accompanied by his mother or brother, or, if his mother accompanied him, whether he placed his hand on the items, although he did not hand anything to his mother. 490 Santow J concluded that a valid gift of the chattels had been effected. In that context, he relied upon the principle that further delivery is unnecessary if the intended donee “already had possession or at the least custody of the chattels at the time of the words of gift”. 61 491 His Honour discussed the distinction between legal possession (animus possidendi and a degree of physical control sufficient to exclude strangers from interfering) and mere custody (de facto possession or mere physical control). He referred to Flinn v White 62 in which words of gift by a father to his daughter in relation to a piano, which remained throughout situated in the family home of which the father was occupier, were held to be ineffective, for want of pre-existing possession or custody in the donee, or a further act of delivery. 492 Santow J questioned whether, although the daughter had “no more than a licence, revocable by the father at will” to use the piano, she did not in fact have custody. In his view, “status as a licensee, as such, need not be fatal; a licensee can have the degree of physical control required for custody”. 63 His Honour found, however, that the decision could, in any event, be justified by reference to onus. The daughter had not dispelled the implication of her having only limited access, a right to use the piano at the father’s pleasure, which was shared with at least one other family member. More directly relevant were Hislop v Hislop 64 and Re Cole which involved a purported gift between husband and wife residing together in the matrimonial home. Santow J considered the results in Hislop v Hislop and Re Cole were explicable because joint de facto control of the furniture, (based on being permitted to use and enjoy it) did not suffice to establish pre-existing possession. 493 In Horsley v Phillips Fine Art Auctioneers Pty Ltd, Santow J held that the intended donee, the mother, had (jointly with her husband) physical control and therefore custody of the chattels. On one 58 59 60 61 62 63 64

Ibid. Ibid, at 192. Ibid. Horsley v Phillips Fine Art Auctioneers Pty Ltd, supra, at 10. [1950] SASR 195. Horsley v Phillips Fine Art Auctioneers Pty Ltd, supra, at 12. [1950] WN Eng 125.

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Nolan v Nolan cont. view, she also had exclusive possession of the house and therefore of the rooms in which they were situated. The fact that the mother had such custody or possession jointly with her husband was, in his view, irrelevant. 494 On Santow J’s findings, there was no joint custody or possession between the putative donors and donee. Although not deciding the question, Santow J was inclined to think that shared control between a putative donor and donee should not be fatal. He observed: This is especially where there is no suggestion of shared control between putative donor and donee. I do not need to decide whether the feature, absent here, should be fatal to an effectual gift, though I am inclined to think it should not be fatal. 65 495 In Horsley v Phillips Fine Arts Auctioneers Pty Ltd, Santow J questioned the authority of Re Cole and Hislop v Hislop because the cases failed to deal with custody as a separate basis from possession. His Honour considered that, “They appear to have proceeded on an implicit, and I suggest, questionable assumption. That is, that where goods are in the shared use of the putative donor and donee, but where the putative donor has the superior right to those goods through ownership of the home in which kept [sic] that necessarily precludes a finding of custody on the part of the claimant donee”. 66 496 Santow J’s observation may suggest that the purported donors in Re Cole and Hislop v Hislop had de facto mixed possession, but a superior right to the goods, not because they had legal ownership of the goods, but because they had legal title to the house in which they were situated. However, the reference to “possession following title” in those cases related to the title to the chattels, not title to the residence in which they were situated. 497 Horsley v Phillips Fine Art Auctioneers Pty Ltd did not concern a common establishment or a situation of shared control and Santow J’s observations were therefore obiter dicta. 498 In Tudberry v Sutton, 67 a case decided after Horsley v Phillips Fine Art Auctioneers Pty Ltd, Judge McGill SC strongly reaffirmed the primacy of the requirement for an identifiable act of delivery. He considered that recognised exceptions based on prior possession or custody should not be extended. In Tudberry v Sutton, the deceased’s sister and her family resided in his house, visiting from interstate, while he was gravely ill in hospital. The sister gave evidence that her brother expressed an intention to make an immediate gift of a memento to her children (his niece and nephew). The sister selected and named two paintings in her brother’s house, informed him, and he appeared to nod assent. The sister then removed the paintings from the brother’s residence. The brother subsequently died. 499 Judge McGill SC held that there was no valid gift. He adverted to the necessity for the donor to give, rather than the donee to take, possession. 68 He questioned the status of Thomas v Times Book Co Ltd, which he identified as the only decision in which the taking of possession by the donee had been upheld. He considered that if it correctly decided that an effective delivery had occurred, such delivery was effective not because the donee took possession with consent, but because, on proper analysis, the custodian of the place where Thomas had mislaid the manuscript gave it to the donee in the

65 66 67 68

Horsley v Phillips Fine Art Auctioneers Pty Ltd, supra, at 15. Ibid, at 12. (1998) 20 Qld Lawyer Reps 13. Ibid, at 15. [10.50]

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Nolan v Nolan cont. capacity as the bailee of the donor. Nevertheless, Judge McGill S.C. concluded that, taken at face value, the decision in Thomas v Times Book Co Ltd is “simply wrong and is an example of a hard case making bad law”. 69 500 Judge McGill SC considered that Santow J’s unqualified extension of prior possession to prior custody in any capacity at all in Horsley v Phillips Fine Art Auctioneers Pty Ltd failed to accord with the tenor of applicable authority and with the underlying governing principle that delivery is the formal step which effects the gift. 501 He considered that the only case where mere custody, as distinct from possession, is legitimately within the exception would be where the donee is in the degree of physical control that would otherwise require the donor first “to retake” the chattels. 70 That would have been the case in both Re Stoneham and Horsley v Phillips Fine Art Auctioneers Pty Ltd, as the donees were in exclusive occupation of the residences in which the chattels were situated. It would not be the case where the donor and donee occupied a common establishment and where there was only “such custody as is afforded by actual use from time to time”. 71 In such cases, mere words of gift unaccompanied by any further act of delivery would not suffice. Some manual or constructive act of delivery would be necessary “unless the donee already has ‘such a degree of possession that there would have to be re-delivery before there could be delivery’.” 72 On that basis, Re Cole was correctly decided. 502 In reiterating a preference for continued observance of the strict requirement of delivery, and confining the exception of pre-existing possession to strict limits, Judge McGill SC noted “I suspect that part of the reason for the survival of the rule in its strict form has been a desire to prevent a deathbed gift inter vivos or donatio mortis causa from evading statutes which require wills to be made in a particular form, coupled with a general suspicion as to the genuineness of claims of oral gifts from persons who were either unable to dispute them (because they were dead) or happy to connive at them (because they were bankrupt)”. There is, however, in my opinion, no justification for relaxing these rules. 73 503 Judge McGill SC held that the temporary residence of the deceased’s sister as a guest in his house did not confer custody of the premises or the chattels therein, although the owner was temporarily absent. The exception did not apply, because re-delivery to the donor was not necessary in order to complete the gift. 74 504 In my opinion, there is force in Judge McGill S.C.’s insistence on maintaining delivery as a pre-eminent independent requirement. In the absence of an unambiguous act, the enforcement of voluntary transfers against donors and their successors in title could produce unjust outcomes. That approach does, on occasion, result in the failure of some purported gifts which were genuinely intended. However, greater harm may result from undue relaxation of the delivery requirement, particularly in the context of common establishments. A proliferation of claims between cohabitants, trustees in bankruptcy and executors, together with increased uncertainty in the determination of such claims, may result. In my opinion, the principles expressed in The National Trustees Executors and Agency Company Limited and Re Cole should be maintained. 69

70

Ibid. It is possible to view Thomas v Times Book Co Ltd as an example of constructive delivery by the donor, whose provision of information on the whereabouts of the mislaid manuscript conferred access on the donee to the extent possible in the circumstances. Ibid, at 18.

71

Ibid, at 19.

72

Ibid.

73

Ibid, at 17.

74

Ibid, at 19.

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Nolan v Nolan cont. 505 In the present case if, contrary to my findings, the relevant documents expressed Sidney Nolan’s clear donative intention or acknowledgment of Cynthia’s owernship, the plaintiff must also establish a delivery of the paintings. 506 There is no direct evidence of any act of delivery, whether manual or constructive, by Sidney Nolan to Cynthia. 507 In the present case, it is undisputed that Sidney Nolan and Cynthia occupied a common matrimonial home during the course of their marriage. 508 The question arises whether there is any basis on which the plaintiff can discharge the onus of establishing delivery. 509 As set out in paragraphs 43 to 46 above, there is no evidence that the paintings in dispute were situated in the Nolans’ matrimonial home during the course of their marriage. 75 Other than for the period from 1974 to mid 1976 (in relation to “Hare in Trap” 1946 and “Italian Crucifix” 1955) and the periods of the relevant exhibitions, there is no evidence as to where the paintings were situated. 510 Further, other than for the period from 1974 to mid 1976 there is no evidence of Cynthia’s level of access to, or power, rights of user and control over, any of the paintings in dispute. 511 Given such lacunae, the liberal approach of Santow J in Horsley v Phillips Fine Art Auctioneers Pty Ltd to pre-existing custody in a common establishment, even if extended, cannot assist the plaintiff to establish delivery in the present case. 512 There is no evidence that Cynthia was, at any stage, in possession of “Royal Hotel” 1948. There is evidence that Cynthia caused 26 paintings including “Hare in Trap” 1946 and “Italian Crucifix” 1955 to be despatched to Australia in 1974 and that she exercised control and dominion over “Hare in Trap” 1946 and (probably) “Italian Crucifix” 1955 until at least June 1976. 513 Cynthia at that time took possession of the paintings in question and assumed the rights of an owner in relation to them. There is no evidence that Sidney Nolan delivered possession to Cynthia. On the contrary, he did not know of, or consent to, her actions. If, contrary to the views expressed in Tudberry v Sutton, a valid delivery may be established by the donee’s taking possession with the knowledge and consent of the donor, that did not occur in the present case. Unauthorised appropriation by the purported donee could not constitute a valid delivery on any view. In the circumstances, the plaintiff has failed to establish the essential element of delivery. Conclusion 514 In this proceeding, the cases for the plaintiff and the defendants have been clearly presented and well-argued. For the reasons set out above, in my opinion, the plaintiff has failed to establish the requisite elements of donative intention and delivery in relation to the three paintings. I conclude that a valid gift of the paintings to Cynthia, on which the plaintiff’s claim to relief in this proceeding depends, is not made out. Notes [10.53] The unsuccessful plaintiff appealed against the judgment of Dodds-Streeton J. The Victorian Court of Appeal (Nolan v Nolan [2004] VSCA 109) dismissed the appeal on the basis that the plaintiff’s claim to the paintings had been statute barred. However, Chernov and Eames JJA, Ormiston concurring in this regard ([2]), stated that Dodds-Streeton J had erred in failing to assess the evidence as a whole in respect of whether Sydney Nolan had made a gift of the painting to Cynthia Nolan. Their Honours said at [137]-[138)]: 75

Mr Danziger-Miles’ evidence was to the effect that “Italian Crucifix” 1955 was in the house at some stage, but no date was given. [10.53]

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Nolan v Nolan cont. At the conclusion of her examination of each of the documents pertaining to “Italian Crucifix”, her Honour said: “From the above it follows that … the documents relied on by the plaintiff do not [establish a gift by Sidney Nolan of Italian Crucifix or an acknowledgment by him that it was Cynthia Nolan’s property]”. In our view, however, her Honour’s reasons make it apparent that she came to this conclusion on the basis of her “above” assessment of each document and not on the basis of the totality of the evidence. Contrary to the approach that should be adopted in analysing evidence of this nature as explained by the authorities to which we have referred earlier, her Honour assessed each document in isolation “as though running through items on a check list”. (footnote omitted) Although the above examples of her Honour’s approach relate to “Italian Crucifix”, her Honour’s analysis of the documents pertaining to “Hare in Trap” and “Royal Hotel” suffer from the same vice. Her Honour’s failure to consider the whole of the evidence relating to the respective paintings for the purpose of determining whether, on the balance of probabilities, Sidney Nolan acknowledged their ownership by Cynthia Nolan and whether, in all the circumstances, the inference could be drawn that he had made an absolute gift of them to Cynthia Nolan, amounted to a fundamental error which vitiated her conclusion that the appellant had not established her case. It is at least arguable that, if the evidence were looked at as a whole it is open to conclude that Sidney Nolan had made the acknowledgment contended for by the appellant and further, that he had made an absolute gift of the three paintings to Cynthia Nolan. In the circumstances, but for the conclusion we have reached concerning the statute of limitations, her Honour’s decision would have to be set aside and a new trial ordered. Given that conclusion, it becomes unnecessary to consider the appellant’s other grounds on which she challenges her Honour’s decision.

Public Trustee v Bussell [10.55] Public Trustee v Bussell (1993) 30 NSWLR 111 COHEN J. The Public Trustee is the administrator of the intestate estate of Alfred Ronald Staples who died on 10 January 1989. In this amended summons the plaintiff seeks declarations that each of the shares set out in schedules to the summons forms part of the estate of the deceased and that the plaintiff as administrator is entitled to be registered as holder of the shares. Those shares are in a number of companies and they are registered in the name of the deceased. Some were issued after his death and rights arising out of other shares were sold. This does not affect the general principles which arise in the proceedings and which relate to the main part of the shares. The defendant in his amended cross-claim seeks a number of declarations and orders. First, he seeks to have it declared that the shares set out in the schedule, and all accretions thereto, are the absolute property of the cross- claimant and an order is sought that the plaintiff execute appropriate transfers of those shares. A further declaration is sought that the cross- claimant is entitled to damages arising out of a breach of an agreement by the deceased that he would make a will leaving to the cross-claimant all of his estate. Alternatively it is claimed that the cross-claimant is entitled to prove as a creditor of the estate for an amount equal to the value of the shares, or as a further alternative, for an amount equal to the whole of the value of the estate. Effectively, the defendant claims that there was an agreement under which the deceased promised to leave to the defendant the whole of his estate, but he failed to make any will to give effect to that promise; independently of that claim the defendant relies upon a donatio mortis causa of the shares by virtue of the share certificates having been handed to him by the deceased. The defendant, who was born in July 1924, first met the deceased in 1939. They became friends and remained so for the whole of the deceased’s life. In 1947, as the result of a car accident, the 248

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Public Trustee v Bussell cont. deceased suffered an injury which left him semi-paralysed in the left arm. After that the defendant used to make his car available for the deceased’s transport. They used to go out together to activities such as films, rugby league football and on a regular basis to the Marrickville Bowling Club. Although the deceased played bowls on occasions until about 1975, he and the defendant went to the club each day on a social basis. The evidence makes it clear that the defendant was the deceased’s closest friend and it would seem that the deceased had no relatives. In about 1987 or 1988, the deceased was admitted to hospital and on discharge he was apparently weaker and had difficulty in moving around. The defendant then commenced to do the deceased’s shopping for him. About four months before his death his condition was diagnosed as being a form of lung cancer. Dr Sloane, who was treating him, has given evidence that they had a number of discussions about the deceased’s financial position and about his health. About two weeks before his death the doctor told him that he was suffering form a terminal illness and that he would probably die in the near future. Dr Sloane expressed concern about the care of the deceased, as he lived alone and could not look after himself. The deceased said that he had things organised, and that the defendant would look after him and he would look after the defendant. The doctor said that he discussed with the defendant on several occasions the fact that he did not have long to live. The defendant has given evidence of occasions from 1970 until late 1978 when the deceased made various statements about his assets or his intentions. Because these relate to the claim of an agreement to execute a will I should set out what those various statements were. One, in 1970, was: “You can have the shares when I die. You look after me and no one else does.” In 1980 he said to the deceased, in relation to some shares which he intended to buy: “You’ll be getting them when I die.” In about 1982 the deceased said: “I’ll look after you because you look after me.” In 1988, at the deceased’s home, he said to the defendant: “When I die I’m going to leave everything to you because of how you look after me.” Finally, in about December 1988, shortly before his death, he said to the defendant: “I’m going to leave everything to you. I don’t have any family.” On Saturday, 7 January, the defendant, with two other friends, Mr Clark and Mr Hamshere, went to visit the deceased at his home. He appeared to be very weak, he was dressed in his pyjamas and was sitting on the edge of his bed. The defendant in cross-examination said that they arrived at the house at about 4 pm. In the course of the conversation the deceased went to a cupboard in his bedroom, took out an envelope and handed it to the defendant. He said to him: “You may as well take these shares now and I’ll have them transferred over.” The envelope contained share scrip for most of the shares which are the subject of these proceedings. It also contained some handwritten notes which are in evidence. They set out details of the dates of purchase and allotment of shares and particulars of dividends paid over a period of years. The defendant said that shortly before he left the house that day, between 6 pm and 7 pm, the deceased said to him that he had arranged for his solicitor to come on the following Monday so that he could make a new will. He asked the defendant whether he would also be there. A time, which is thought to have been about 2 pm, was nominated. The defendant went to the deceased’s house on Monday, 9 January and noticed that he did not look well. The deceased said that the solicitor could not come to the house that day but would be coming on the following morning. He asked the defendant if he would return the next day at noon. When the defendant went to the deceased’s house on the following day he found that he had died. The evidence of the conversation concerning the handing over of the share scrip and certificates was corroborated in the affidavits of Mr Clark and Mr Hamshere. They were long-standing friends of the deceased through the Marrickville Bowling Club and during 1988 they used to visit the deceased at his home on Saturdays on a regular basis. Mr Clark said that during the visit on 7 January he saw the deceased hand an envelope to the defendant and there was some discussion. The deceased said: “I’m giving you the certificates now Mick, as the solicitors are [10.55]

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Public Trustee v Bussell cont. coming down on Monday to make my will.” Mr Hamshere gave similar evidence, to the effect that the share certificates were referred to and it was said that someone was coming down to the house so that the deceased could make his will. In cross-examination the defendant did not recall that the deceased had said that the defendant might as will take the share certificates and he would have them transferred on Monday when the solicitor arrived, nor that the deceased spoke of the solicitor coming to make the will immediately after the handing over of the share certificates. He agreed with the suggestion that the reference to the solicitor coming on Monday was part of the conversation during which the envelop was handed over. In re-examination however he said that the request to return on the Monday, because the solicitor would be calling, would have been shortly before the defendant left the deceased’s house between 6 pm and 7 pm. He was not asked at what time the shares were handed over although the affidavit suggests strongly that this had occurred soon after the visitors arrived at the house. In claims such as this, where a party to the proceedings is alleging acts or conversations by a deceased which cannot be answered, the Court must look with great care at the evidence before accepting it. Mr Clark and Mr Hamshere were not cross-examined and I am quite satisfied that the deceased handed over to the defendant the envelope containing all of the share certificates which he had in his possession and which represented nearly all of the shares which he then owned. I have seen and heard the defendant and I am satisfied that he has given an honest and accurate account of the conversations which he had with the deceased and the events of 7 January 1989. The issues which arise in these proceedings are whether those and earlier conversations and events amount to an agreement by the deceased that he would leave to the defendant the whole of his estate or, alternatively, whether the handing over of the share certificates amounted to a donatio mortis causa. The defendant relies on the various parts of conversations which I have set out above as indicating an intention of the deceased to leave all of his assets to the defendant in return for the defendant continuing to look after him. It was submitted that the deceased had regarded the arrangement as a reciprocal bargain and that this was confirmed by his conversation with the doctor, when he said that the defendant would be looking after him at his home, by his intention to make a will on the day of his death and by what he had said on various occasions as to his intentions to leave everything to the defendant. I am unable to find in the conversations evidence of an agreement whereby, in return for services to be rendered to the deceased by the defendant, the deceased promised that he would leave to the defendant the whole of his estate. The conversations of 1970, 1980 and 1982 indicate an intention on the part of the deceased to leave his shares, or in one case, shares which he was anticipating purchasing, to the defendant, by a means not specified but which might reasonably be assumed to be under a will. The indication was no more than one of intention and in my opinion does not embrace any contractual term. Similarly, the 1982 conversation was no more than an indication of intention to provide for the defendant in some unspecified way because of what the defendant was doing for the deceased in caring for him. The same might be said of the two conversations in 1988. In none of these can there be spelt out a promise to leave either shares or part or the whole of the deceased’s estate in return for a promise by the defendant to look after the deceased in some unspecified manner. In my opinion there is no evidence of any consideration passing by way of a promise by the defendant, whether express or implied, that he would continue to look after the deceased by way of care in the house as the basis for receiving the deceased’s estate. The evidence, which I accept, undoubtedly indicates that the deceased intended to provide in a will for the defendant in gratitude for the friendship and help which the defendant had given to him over many years. In particular the defendant had acted as a close friend might well do in going on holidays and outings with the deceased and in driving him to sporting events and social activities at the club. There was no need before 1988 for the deceased to be looked after in his home and there was no 250

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Public Trustee v Bussell cont. suggestion that the consideration flowing from the defendant was a promise to remain a friend and to carry out those same acts of friendship. When the conversations in 1988 took place the defendant had extended his friendly acts by helping with the shopping and checking on the deceased’s welfare by calling regularly at his home. Even then, there was no promise given by the defendant to continue to do this, although the two may well have assumed that this would happen. I cannot spell out of these conversations any contract which would have been binding upon the deceased. He was continuing to say what he intended to do, but he was not asking for anything to be done by the defendant in return for that. Reliance was placed upon what he had said to the doctor, namely, that the defendant would look after him in the house and he would look after the defendant in some unspecified way. A contract cannot be created out of a conversation of this nature with a third party. It does provide some evidence of the intentions of the deceased but without evidence of the creation of a contract, there is nothing of a contractual nature which that conversation could seek to support. In my opinion the claim for damages for breach of contract must fail. There are three essential matters required to constitute a donatio mortis causa. They are: (1) the gift must be made in contemplation of the donor’s death, although not necessarily in expectation of death; (2) there must be delivery of the subject matter of the gift to the donee or a transfer of the means or part of the means of getting at the property, or, as has been said, the essential indicia of title; and (3) the gift must be conditional upon it taking effect on the death of the donor, being revocable until that event occurs: Harneiss v Public Trustee (1940) 40 SR(NSW) 414 at 416-417; 57 (WNNSW) 157 at 157-158; Dufficy v Mollica [1968] 3 NSWR 751 at 758; Sen v Headley [1991] Ch 425 at 431. It was accepted by the plaintiff that the first condition has been satisfied because of the evidence that the deceased was aware that because of his condition he had only a limited time to live. The plaintiff however disputes that either of the second or third conditions has been satisfied. It was submitted that there must be delivery of the subject matter of the donation or something amounting to that. Where physical delivery is impossible, as in the case of a chose in action, then there must be delivery of the essential indicia of title, as opposed to evidence of title. It was submitted that a share certificate is not a title but mere evidence of what is shown in the share register as the shareholding. It would be necessary to have an executed transfer, which, both under the articles of association of the various companies and under the Companies (New South Wales) Code or Corporations Law is essential for the purpose of putting the shares into the name of another person. As to the third requirement, it was submitted that it could not be implied that there was a conditional gift, but that the handing over of the shares was merely part of the indication that the deceased intended making a will in which, it could be implied, he would leave the shares to the defendant. Courts have accepted that the principle of the donatio mortis causa is an anomaly in English law, since it is neither consistent with the law relating to the making of a gift nor with that relating to the passing of property by way of testamentary disposition. Nevertheless, it has been accepted in respect of chattels, choses in action and, at least in England, unregistered real property. In Duffield v Elwes (1827) 1 Bli NS 497; 4 ER 959, the deceased had certain moneys owing to him which were secured both by a mortgage and a bond. On his death bed he sought to give to his daughter the benefits of the debt due to him, in the event of his dying, and he caused to be handed to her the deeds which established the mortgage and the bond, which were required in order to recover the debt due. It was held that this was a valid gift mortis causa and that the donor’s personal representative became trustees for the donee to make the gift effectual. The deeds were not sufficient in themselves to allow a repayment of the moneys and it was necessary that appropriate demands be made by the personal representatives of the donor. The judgment of Lord Eldon is lengthy and has been referred to on a number of occasions since. I shall come back to that shortly. It was significant in that it was held not to be necessary that the so-called indicia of title must be sufficient without more to obtain the chattels or [10.55]

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Public Trustee v Bussell cont. payment of a debt. The giving of the documents was a sufficient donatio and it created a trust which was binding on the personal representative after the death of the donor. In the case of Re Beaumont; Beaumont v Ewbank [1902] 1 Ch 889, Buckley J referred to that part of the decision of Lord Eldon in Duffield v Elwes where it was said that the test was not the same as that which arises on the question of whether there has been a complete gift inter vivos. Buckley J said (at 893) that the question is not whether there is a complete title, but whether the donee can call upon the legal personal representative of the G donor to make good his title. He pointed to a number of cases in which there had been delivery of an essential document which was not itself sufficient to pass title but there had been found to be a valid donatio mortis causa. These cases dealt with gifts of a promissory note payable to the deceased’s order but not endorsed, a bill of exchange in favour of the deceased or his order and a cheque payable to the donor’s order and not endorsed. He pointed out that in none of these cases had the donee got the complete title but had obtained the indicia of title. In Re Wasserberg; Union of London and Smiths Bank, Ltd v Wasserberg [1915] 1 Ch 195, a person in anticipation of his death gave to his wife the key to a bank deposit box with the intention that she should have the contents of it. It was necessary to have not only the key but the written authority of the donor, in order that the box might be opened. It was held that although this was an incomplete gift of the contents of the box it was a valid donatio mortis causa. It had been argued that in the case of chattels there must be a complete delivery, even though in the case of mortgage debts or deposits or the like it is sufficient to have indicia of title. Sargant J said (at 203-204): …When it is once admitted that any property is a possible subject- matter for a donatio mortis causa – and in fact chattels of all kinds are much more obviously and readily within this category than choses in action – I can see no more reason for declining to give effect to an incomplete or inchoate gift in the case of the one class of property than in the case of the other?. There is no reason in the nature of things why chattels as well as choses in action should not be in such a position that there should be some physical thing the possession of which should be required in order to get at the property and the transfer of which should accordingly amount to a transfer of the means or part of the means of getting at the property. A number of cases have held that there is a sufficient gift mortis causa where a bank passbook is handed over even though it is necessary to have a signed withdrawal form in order to obtain the moneys standing to the credit of the account; for example, see Public Trustee v Young (1940) 40 SR(NSW) 233; 57 WN (NSW) 93. In Birch v Treasury Solicitor [1951] Ch 298, it was held that delivery of passbooks relating to bank accounts was sufficient, even though they may not set out all of the terms and conditions of the deposit of moneys. It is not clear whether in that case it was necessary that there be a signed withdrawal form in order that moneys in the account may be obtained. Reliance was placed by Mr Walton, for the plaintiff, on a passage in the judgment of the Court delivered by Evershed MR (at 308) where he said: …As a matter of principle the indicia of title, as distinct from mere evidence of title, the document or thing the possession or production of which entitles the possessor to the money or property purported to be given, should satisfy Lord Hardwicke’s condition. The condition to which his Lordship was referring was that if it is not possible to deliver the actual subject of the gift then there must be a transfer of something amounting to that. In Sen v Headley, the principles were extended to the delivery of the deeds of title of unregistered land. Nourse LJ, who delivered the judgment of the court, referred at some length to the judgment of Lord Eldon in Duffield v Elwes, and to the fact that a gift of a debt secured by a mortgage, by the delivery of the deeds of title, resulted in a trust which was binding upon the legal personal representative of the donor. This principle was extended to the title deeds, as being the essential indicia of title to unregistered land. Leave to appeal from the judgment of the Court of Appeal was granted by the Appeal Committee of the House of Lords. The dispute between the parties was settled 252

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Public Trustee v Bussell cont. at the door of the House: see reference in (1993) 109 LQR 19 at 21. The case has been the subject of academic comment: JWA Thornely, “Laying Lord Eldon’s Ghost: Donatio Mortis Causa of Land” [1991] CLJ 404 and PV Baker, “Land as a Donatio Mortis Causa” (1993) 109 LQR 19, support the judgment. The finding of a constructive trust was criticised by P Sparkes, “Death Bed Gifts of Land” (1992) 43 NILQ 35. It has been held in New South Wales that there cannot be a donatio mortis causa of real estate, at least where it is registered under the Real Property Act 1900: Watts v The Public Trustee (1949) 50 SR (NSW) 130; 67 WN (NSW) 29; Bayliss v Public Trustee (1988) 12 NSWLR 540. These cases however did not deal with the principles which were discussed in Sen v Headley, namely whether a trust arose on the handing over of the title deeds. If that case is correct, then the constructive trust may also affect land registered under Torrens title. It seems to me that on principle there is no distinction between the delivery of a bank passbook, where it is necessary to have a signed withdrawal slip in order to obtain the money in the account, and the delivery of a share certificate where it is necessary to have a signed transfer in order to have the shares put in the name of the donee. In each case there has not been an immediate gift but a necessary means of obtaining the property has been delivered on a conditional basis. There have been earlier English decisions where it has been held that the principles of donatio mortis causa do not apply to share scrip. These seem to have had their origin in Ward v Turner (1752) 2 Ves Sen 431; 28 ER 275, where it was held that the delivery of receipts for annuities was insufficient, apparently on the basis that the receipts did not amount to anything significant. They were referred to in the judgment of Lord Hardwicke as nothing but waste paper. In Moore v Moore (1874) 18 LR Eq 474, it was held that share certificates for railway stock were not distinguishable from receipts for annuities, as dealt with in Ward v Turner and accordingly the same principles should apply. That decision in due course was followed in Re Weston; Bartholomew v Menzies [1902] 1 Ch 680. In New South Wales however it has been held that a delivery of share certificates can be a valid donatio mortis causa. In Dufficy v Mollica, Holmes JA delivered a dissenting judgment. The issue upon which he dissented, however, was whether the handing over of a key to the deceased’s deposit box was intended as a gift conditional upon his death or whether it was to be held only for safe-keeping. As Holmes JA, contrary to the views of the other members of the Court of Appeal, was of the opinion that the key was delivered as a gift, he had to consider whether share certificates which were in the deposit box could be part of a valid donatio mortis causa. He concluded (at 759) that share certificates could be regarded as the subject of a valid gift if the instrument handed over is the essential evidence of title, possession or production of which entitled the possessor to the property purported to be given. He was of the view that the handing over of the share certificates came with the principles referred to in Birch v Treasury Solicitor. If shares in building societies and deposit books for savings bank accounts are good subjects of a donatio mortis causa there is no reason for saying that share certificates cannot also be so regarded. Although it was not necessary for the other members of the Court of Appeal to express a view on this aspect, Wallace A-CJ stated his opinion that, consistent with the decisions in Duffield v Elwes and Birch v Treasury Solicitor, certificates and securities of public companies can be the subject of a donatio mortis causa. I regard myself as being bound by the views of two members of the Court of Appeal, notwithstanding that one was expressed in a dissenting judgment and the other was obiter. I would in any case agree with the principles which they have stated. Section 180(1) of the Companies (New South Wales) Code, which was the appropriate Act in January 1989, and s 1087(2) of the Corporations Law provide that a share certificate is prima facie evidence of the title of the member to the share. It was submitted by Mr Walton that subs (3) of each of those sections, which states that failure to comply with the section does not affect the rights of a holder of shares, indicates that the rights of ownership are not related to the certificate which cannot constitute [10.55]

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Public Trustee v Bussell cont. a deed of title or an essential indicia of title, as distinct from mere evidence. Reliance was placed upon what was said in Birch v Treasury Solicitor. The compliance to which subs (3) applies is the requirement that the certificate is to be under the common seal of the company and is to state certain specified matters. The memorandum and articles of association of each of the companies in which the deceased held shares are in evidence. They all contain a requirement that a transfer of shares shall be effected by the lodging of a transfer executed by both the transferor and transferee. They also have a requirement in each case that there also be lodged the share certificate and such other evidence as the directors may require to prove the title of the transferor or his right to transfer the shares. Certificates of shares are required to issue and several of the sets of articles refer to them as certificates of title of the shares. All of the articles require certificates to be issued under the company’s common seal or a share certificate seal. In those circumstances I do not regard the certificates as merely being evidence of title in the way in which that phrase was used in Birch v Treasury Solicitor. They in fact constitute the indication of title which is issued by the company and which is an essential document for the purpose of the shares being transferred. Apart from the share register, which is not within the control of any of the shareholders, there is no other form of indication of entitlement to the shares. In my opinion they constitute indicia of title and not merely evidence of the shareholding. The handing over of the share certificates in this case therefore was a sufficient compliance with the second condition because it was a delivery of part of the means of getting at the property. In respect of the third condition, it is not sufficient that there be merely an expression of testamentary intention; nor is it enough that there be delivery of chattels or means of transferring property only for the purpose of safe- keeping. The act must amount to a gift, conditional upon the death of the donor and revocable by the donor in the event of his or her recovery. In the present circumstances it is a question of fact as to whether the deceased handed over the share certificates to the defendant as a gift or only so that he should hold them until a will was executed two days later. Reliance was placed upon the supporting evidence of Mr Clark and Mr Hamshere. They spoke of the delivery of the share certificates and thereference to the solicitors coming to make a will as happening at practically the same time. The implication sought to be drawn by the plaintiff was that in each case this amounted to a continuing testamentary intention and not to a gift. In the defendant’s cross-examination this was explored somewhat further. To some extent his evidence was at variance with that of the two witnesses. Having heard him, I feel satisfied that he was being truthful in the giving of his evidence and that the handing over of the share certificates occurred at an earlier time during the afternoon of 7 January than the reference to the solicitor calling on the following Monday. The first occurred shortly after the visitors had arrived and the reference to the solicitor was at about the time of their departure. Although the defendant agreed that the reference to the solicitor coming on Monday was part of the conversation during which the envelope was handed over, it was not made clear whether this meant within a few sentences spoken at almost the same time or the conversation which occurred during the afternoon of 7 January. Having heard the way in which the answer was given I am not satisfied that the defendant was accepting the position that the reference to the intended visit of the solicitor was made almost at the same time as the handing over of the share certificates and the statement that the defendant might as well take the shares when they were given to him. The words “I’ll have them transferred over” are somewhat equivocal. The deceased may have been indicating that the gift would only be complete when the transfers were handed over or he may have been saying that he was making a conditional gift of the shares by delivering the certificates but would later make an unconditional gift by delivering transfers. If the latter were to occur then this would constitute a gift inter vivos. 254

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Public Trustee v Bussell cont. In the conversations in and before 1988 the deceased had indicated a general testamentary intention in respect of the shares or at least some of them. On 7 January 1989, the deceased in my view was intending to give the shares to the defendant in anticipation of and conditional upon his death. The likelihood of this being a gift rather than a handing over of the shares for safe-keeping is reinforced by the fact that the deceased had held the shares for many years. The certificates were contained in an envelope and that in turn was stored in a cupboard. There is nothing to suggest that the deceased thought that they would have been safer in the defendant’s possession for the next two days rather than remaining in the cupboard for that time. The only logical explanation for the deceased going to the cupboard, getting the share certificates and handing them to the defendant is that he intended the defendant to have them and to retain them upon his death. The fact that a solicitor was to call on the following Monday was in any case not necessarily connected to the gift of shares. The deceased had other assets, and although it may be assumed that the defendant would be a beneficiary, there was no reason why the deceased could not have intended making provision for other friends, and not have dealt with the shares at all in his will. In all of these circumstances I am satisfied that the third condition referred to above has been fulfilled. Since the death of the deceased one of the companies in which he held shares has been the subject of a takeover and the shares were sold by the Public Trustee. In another instance some renounceable rights were sold and in a third case rights to new shares were taken up and the shares were paid for by the plaintiff. It was not contested that any rights which flowed from shares which were the subject of the gift would pass to the defendant and that any liability arising out of the taking up of new shares would be debited to him. The result is that I am satisfied that there has been a valid donatio mortis causa in respect of the shares held by the deceased and delivered to the defendant and accordingly that the defendant is entitled to retain those shares and any accretions which have resulted from bonus issues, and is further entitled to have transfers executed by the plaintiff as administrator of the estate of the deceased. The defendant fails in his claim that there was a contract between him and the deceased whereby the deceased was to leave the whole of his estate to the defendant in his will. I declare that the shares which are identified in the schedule to the cross- claim and all accretions to those shares, whether in the form of dividends or bonus issues, are the absolute property of the defendant. I order that the plaintiff execute and deliver to the defendant transfers of the said shares and of any shares purchased since the death of the deceased as the result of the taking up of rights. I order that the plaintiff pay to the defendant the nett proceeds of sale of 277 renounceable rights to shares in Lend Lease Corporation Ltd and 4,423 fully paid ordinary shares in Woolworths Ltd less the amount paid by the plaintiff for the acquisition costs of further shares in Lend Lease Corporation Ltd, together with the interest earned on the balance of those amounts. I order that the plaintiff pay to the defendant all dividends received in respect of the shares of the deceased together with interest earned on those dividends. I order that the summons and the balance of the cross-claim be dismissed. I order that the plaintiff as administrator of the estate of Alfred Ronald Staples deceased pay the defendant’s costs. The exhibits may be returned.

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BY SALE Extracts from Pearson, Commercial Law: Commentary and Materials, Ch 6.

Helby v Matthews [10.65] Helby v Matthews [1895] AC 471 [Mr Helby owned a piano which he hired to Mr Brewster, the hirer. Under the terms of the agreement the hirer agreed to pay a monthly rent or hire, to preserve the goods from injury, to keep the goods at the hirer’s premises. Clause 4 said that if the hirer breaks the conditions of the hire the owner may terminate the hiring and take repossession of the piano. Clause 5 said: 5. That if the hiring should be terminated by the hirer (under clause A below), and the said instrument be returned to the owner, the hirer shall remain liable to the owner for arrears of hire up to the date of such return, and shall not on any ground whatever be entitled to any allowance, credit, return, or set-off for payments previously made. The owner agrees: A. That the hirer may terminate the hiring by delivering up to the owner the said instrument. B. If the hirer shall punctually pay the full sum of £18.18s. by 10s.6d. at date of signing, and by 36 monthly instalments of 10s.6d. in advance as aforesaid, the said instrument shall become the sole and absolute property of the hirer. C. Unless and until the full sum of £18.18s be paid, the said instrument shall be and continue to be the sole property of the owner. Before he had paid all the instalments, Mr Brewster pledged the piano with Matthews who were pawnbrokers as security for an advance. Mr Helby brought an action of trover against Matthews. Matthews argued they were protected by the Factors Act 1889, s 9 (equivalent SGA s 28(2)). The County Court found that s 9 did not apply; this was upheld by the Divisional Court; the Court of Appeal found that s 9 did apply.] LORD HERSCHELL LC: [475] My Lords, it is said that the substance of the transaction evidenced by the agreement must be looked at, and not its mere words. I quite agree. What, then, was the real nature of the transaction? The answer to this question is not, I think, involved in any difficulty. Brewster was to obtain possession of the piano, and to be entitled to its use so long as he paid the plaintiff the stipulated sum of 10s. 6d. a month, and he was bound to make these monthly payments so long as he retained possession of the piano. If he continued to make them at the appointed times for the period of three years, the piano was to become his property, but he might at any time return it, and, upon doing so, would no longer be liable to make any further payment beyond the monthly sum then due. My Lords, I cannot, with all respect, concur in the view of the Court of Appeal, that upon the true construction of the agreement Brewster had “agreed to buy” the piano. An agreement to buy imports a legal obligation to buy. If there was no such legal obligation, there cannot, in my opinion, properly be said to have been an agreement to buy. Where is any such legal obligation to be found? Brewster might buy or not just as he pleased. He did not agree to make thirty-six or any [476] number of monthly payments. All that he undertook was to make the monthly payment of 10s. 6d. so long as he kept the piano. He had an option no doubt to buy it by continuing the stipulated payments for a sufficient length of time. If he had exercised that option he would have become the purchaser. I cannot see under these circumstances how he can be said either to have bought or agreed to buy the piano. The terms of the contract did not upon its execution bind him to buy, but left him free to do so or not as he pleased, and nothing happened after the contract was made to impose that obligation. I cannot think that an agreement to buy, “if he does not change his mind,” is any agreement to buy at all in the eye of the law. If it rests with me to do or not to do a certain thing at a future time, 256

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Helby v Matthews cont. according to the then state of my mind, I cannot be said to have contracted to do it. It appears to me that the contract in question was in reality a contract of hiring, and not in name or pretence only. I think it very likely that both parties thought it would probably end in a purchase, but this is far from shewing that it was an agreement to buy. [477] In such a case how could it be said that he had agreed to buy when he had not only come under no obligation to buy, but had not even made up his mind to do so? The agreement is, in its terms, just as applicable to such a case as to one where the hirer had resolved to continue the payments for the three years, and it must be construed upon a consideration of the obligations which its terms create, and not upon a mere speculation as to what was contemplated, or what would probably be done under it. It was said in the Court of Appeal that there was an agreement by the appellant to sell, and that an agreement to sell connotes an agreement to buy. This is undoubtedly true if the words “agreement to sell” be used in their strict legal sense; but when a person has, for valuable consideration, bound himself to sell to another on certain terms, if the other chooses to avail himself of the binding offer, he may, in popular language, be said to have agreed to sell, though an agreement to sell in this sense, which is in truth merely an offer which cannot be withdrawn, certainly does not connote an agreement to buy, and it is only in this sense that there can be said to have been an agreement to sell in the present case. Reliance was placed on the decision in Lee v Butler [1893] 2 QB 318 and it was said that the present case was not, in principle, distinguishable from it. There seems to me to be the broadest distinction between the two cases. There was there an agreement to buy. The purchase-money was to be paid in two instalments, but as soon as the agreement was entered into there was an absolute obligation to pay both of them, which might have been enforced by action. The person who obtained the goods could not insist upon returning them and so absolve himself from any obligation to make further payment. Unless there were a breach of contract by the party who engaged to make the payments the transaction necessarily resulted in a sale. That there was in that case an agreement to buy appears to me, as it did to the Court of Appeal, to be beyond question. It was further urged for the respondents that when Brewster pledged the piano with them it became impossible for him to return it to the appellant, and he became, therefore, from that time bound to make the stipulated payments and to become the purchaser. I cannot accede to this argument. In my opinion, it is impossible to hold that Brewster, having only a right under the contract to buy, provided he complied with the prescribed conditions, could convert himself into a purchaser as against the owner by violating the conditions of the contract. I think the judgment appealed from must be reversed. [480] [Lord Watson, Lord MacNaghten and Lord Shand delivered judgments to a similar effect, Lord Morris concurred.]

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Robinson v Graves [10.68] Robinson v Graves [1935] 1 KB 579

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Robinson v Graves cont.

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McEntire v Crossley [10.70] McEntire v Crossley Bros [1895] AC 457

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Extracts from Pearson, Commercial Law: Commentary and Materials, Ch 7.

WHEN DOES PROPERTY PASS? [10.75] It is important to remember that if the contract cannot be classified as a contract for

the sale of goods then the following rules with respect to the passing of property do not apply. This may be important in the context of particular types of contracts. In the case of construction contracts for instance, if the contract is classified as a work and materials contract, the sale of goods rules will not apply and the property in the goods and materials will not pass until the materials become “fixed” or earlier if an effective contrary intention is expressed in the contract. 76 Many of the following English cases are the leading cases on the point. It is important to note the relevant sections of your jurisdiction when an English SGA section is referred to.

Sale of Goods Act 1923 (NSW), ss 21–23, 25A, 5(4), 60(2), 10(3) [10.80] 21. Goods must be ascertained Subject to section 25A, where there is a contract for the sale of unascertained goods, no property in the goods is transferred to the buyer unless and until the goods are ascertained. 22. Property passes when intended to pass (1)

Where there is a contract for the sale of specific or ascertained goods, the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred.

(2)

For the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract, the conduct of the parties, and the circumstances of the case.

23. Rules for ascertaining intention Unless a different intention appears, the following are rules for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer. Rule 1. Where there is an unconditional contract for the sale of specific goods in a deliverable state, the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment or the time of delivery, or both, be postponed. Rule 2. Where there is a contract for the sale of specific goods, and the seller is bound to do something to the goods for the purpose of putting them in a deliverable state, the property does not pass until such thing be done and the buyer has notice thereof. Rule 3. Where there is a contract for the sale of specific goods in a deliverable state, but the seller is bound to weigh measure test or do some other act or thing with reference to the goods for the purpose of ascertaining the price, the property does not pass until such act or thing be done and the buyer has notice thereof. Rule 4. Where goods are delivered to the buyer on approval or on “sale or return” or other similar terms, the property therein passes to the buyer: (a) when the buyer signifies approval or acceptance to the seller, or does any other Act adopting the transaction; 76

See P Barber, “Title to Goods, Material and Plant under Construction Contracts” in N Palmer and E McKendrick, Interests in Goods (London, Lloyd’s of London Press, 1993), p 101. The doctrines of accession, commingling and specification may then come into play: see [3.25] (Pearson) and S Fisher, Commercial and Personal Property Law (Butterworths, Sydney, 1997), Chapter 4.

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Sale of Goods Act 1923 (NSW), ss 21–23, 25A, 5(4), 60(2), 10(3) cont. (b) if the buyer does not signify approval or acceptance to the seller, but retains the goods without giving notice of rejection, then if a time has been fixed for the return of the goods, on the expiration of such time, and if no time has been fixed, on the expiration of a reasonable time. What is a reasonable time is a question of fact. Rule 5. (1) Where there is a contract for the sale of unascertained or future goods by description, and goods of that description and in a deliverable state are unconditionally appropriated to the contract either by the seller with the assent of the buyer or by the buyer with the assent of the seller, the property in the goods thereupon passes to the buyer. Such assent may be express or implied, and may be given either before or after the appropriation is made. (2) Where in pursuance of the contract the seller delivers the goods to the buyer or to a carrier or other bailee (whether named by the buyer or not) for the purpose of transmission to the buyer and does not reserve the right of disposal, the seller is deemed to have unconditionally appropriated the goods to the contract. 25A. Contracts of sale for goods forming part of bulk quantity (cf Sale of Goods Act 1979 of the United Kingdom, sections 20A and 20B) (1) This section applies to a contract of sale for a specified quantity of unascertained goods of which some or all form part of a single bulk quantity of goods of the same kind (“the bulk”) if: (a) the bulk is identified, either in the contract or by subsequent agreement between the parties, and (b) the buyer has paid for some or all of the goods that form part of the bulk. (2) Unless the parties agree otherwise: (a) property in an undivided share in the bulk is transferred to the buyer, and (b) the buyer becomes an owner in common of the bulk, as soon as both of the conditions referred to in subsection (1) have been met. (3) The buyer’s undivided share in the bulk at any time is such share as, at that time, is equivalent to the quantity of goods paid for and due to the buyer out of the bulk divided by the quantity of goods in the bulk. (4) If at any time the aggregate of all buyers’ undivided shares in the bulk exceeds the whole of the bulk, those shares are to be reduced proportionately so that their aggregate is equal to the bulk. (5) If a buyer has paid for some only of the goods due to the buyer out of the bulk, any delivery to the buyer out of the bulk is to be attributed to the goods for which payment has been made. (6) Part payment for any goods is taken to be payment for a corresponding part of the goods. (7) A person who becomes an owner in common of the bulk is taken to consent to: (a) any delivery of goods out of the bulk to any other owner in common of the bulk, being goods that are due to that other owner under a contract to which this section applies, and (b) any dealing with, or removal, delivery or disposal of, goods in the bulk by any other owner in common of the bulk, but only to the extent of that other owner’s undivided share in the bulk. [10.80]

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Sale of Goods Act 1923 (NSW), ss 21–23, 25A, 5(4), 60(2), 10(3) cont. (8) No cause of action lies against any person by reason of that person’s having acted in accordance with subsection (7)(a) or (b) in reliance on the consent that exists by virtue of that subsection. (9) Nothing in this section: (a) imposes an obligation on a buyer of goods out of the bulk to compensate any other buyer of goods out of the bulk for any shortfall in the quantity of goods received by that other buyer, or (b) affects any contract or other arrangement between buyers of goods out of the bulk for adjustments between themselves, or (c) affects the rights of any buyer under a contract to which this section applies. (10) This section does not apply to a contract of sale entered into before the commencement of the Sale of Goods and Warehousemen’s Liens Amendment (Bulk Goods) Act 2006. 5. Definitions (4) Goods are in a “deliverable state” within the meaning of this Act when they are in such a state that the buyer would under the contract be bound to take delivery of them. 60. Auction sales (2) a sale by auction is complete when the auctioneer announces its completion by the fall of the hammer or in other customary manner: until such announcement is made any bidder may retract his bid. 10. Existing or future goods (3) Where by a contract of sale the seller purports to effect a present sale of future goods, the contract operates as an agreement to sell the goods.

Questions [10.85] 1.

What is the fundamental rule as to the time at which property in the goods will pass?

2.

What is the relationship of the rules in SGA s 23 to the intention of the parties?

3.

If the seller and the buyer have not expressed any intention as to the time when property is to pass, how do we work out if and when property has passed?

4.

What are the rules in SGA s 23 subject to?

5.

If goods are not specific goods, what must happen to the goods before property may pass? Why?

6.

What are the prerequisites for passing property in unascertained goods forming part of a single bulk?

Specific goods [10.90] Read Sale of Goods Act 1923 (NSW), ss 22, 23 rr 1-3, extracted above in [10.80]. Question [10.95] 1. 290

What are the elements of the rule in SGA s 23 r 1? See also SGA s 60(2). [10.85]

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[10.100] It is critical to the application of SGA s 23 r 1 to show that the goods are specific

goods, that there is an unconditional contract, that the goods are in a deliverable state and that there is no contrary intention to the application of the rule.

UNASCERTAINED AND FUTURE GOODS [10.105] It is clear that property cannot pass in a thing unless it is clear what that thing is,

hence the importance of the distinction between specific goods and unascertained or future goods. The SGA provides for property in unascertained goods to be transferred in one of three ways. Under rule 5 the property in unascertained goods may be transferred when the goods are unconditionally appropriated to the contract with assent. The concept of unconditional appropriation is distinct from the concept of ascertainment. Goods may be ascertained yet not unconditionally appropriated. Goods cannot be unconditionally appropriated unless they are ascertained. The second method by which property in unascertained goods may pass is by the intention of the parties as expressed in the general rule in s 22, as s 23 rule 5 is also subject to a contrary intention. However no property may pass unless the goods are ascertained. For property to pass via an intention contrary to that as expressed in s 23 r 5, the inquiry is as to whether the goods have been ascertained prior to an unconditional appropriation. Two forms of ascertainment have been recognised in this context: ascertainment “by exhaustion” and ascertainment “by segregation and constructive delivery”. Of course ascertainment of the goods is not sufficient to pass the property unless the intention that property is to pass is also found. There may be congruence between an unconditional appropriation and the intention of the parties that property should pass. The parties may intend that property should remain with the seller after the unconditional appropriation – as with reservation of title. It may be that property may pass by the intention of the parties and the ascertainment of the goods that falls short of an unconditional appropriation. The second method is of less importance since SGA s 25A sets out how property may pass in a specified quantity of unascertained goods forming part of a bulk. Questions [10.110] 1.

What are the elements of SGA s 23 r 5 extracted at [10.80] above?

2.

Unascertained goods are always sold by description. Are future goods always sold by description?

3.

What do “goods of that description” and “in a deliverable state” mean?

Unconditional appropriation with assent [10.115] Note SGA s 23 r 5(2) whereby delivery to a buyer or carrier or other bailee in order to send the goods to the buyer is an unconditional appropriation so long as the seller has not reserved a right of disposal.

Carlos Federspiel & Co SA v Charles Twigg & Co Ltd [10.120] Carlos Federspiel & Co SA v Charles Twigg & Co Ltd [1957] 1 Lloyd’s Rep 240 (Queen’s Bench Division, Commercial Court, Eng) [The plaintiffs, merchants in Costa Rica, entered into a contract to purchase cycles and tricycles from the defendants, English manufacturers. The contract was a FOB contract, although it contained [10.120]

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Carlos Federspiel & Co SA v Charles Twigg & Co Ltd cont. some CIF features. A FOB contract imposes a duty on the seller to put the goods on board the ship and to procure a bill of lading in terms usual in the trade (Martin v Hogan (1917) 24 CLR 234 at 257, 259; 18 SR (NSW) 153; 35 WN (NSW) 78 per Isaacs and Rich JJ; Pyrene Co Ltd v Scindia Navigation Co Ltd [1954] 2 QB 402 at 424; [1954] 2 All ER 158 at 167; [1954] 2 Wlr 1005; [1954] 1 Lloyd’s Rep 321 at 332 per Devlin J). The FOB seller must bear the expense of putting the goods on board the ship (J Raymond Wilson & Co Ltd v Norman Scratchard Ltd (1944) 77 Ll L Rep 373 at 374 per Lord Caldecote CJ, KB). Correlatively, the buyer must, under the classic form of FOB contract, nominate the ship on board which the goods must be loaded: see Pyrene Co Ltd v Scindia Navigation Co Ltd [1954] 1 Lloyd’s Rep 321 at 332 per Devlin J; J & J Cunningham Ltd v Robert A Munro & Co Ltd (1922) 28 Com Cas 42 at 45 per Lord Hewart LCJ. The buyer must also bear all expenses associated with the provisions of the vessel upon which the goods will be transported, including port charges, stowage charges, freight duties, consular fees and arrival charges: see Cargill UK Ltd v Continental UK Ltd [1989] 2 Lloyd’s Rep 290. The CIF seller must: (1) make out an invoice of the goods sold; (2) ship at the port of shipment goods of the description contained in the contract; (3) procure on shipment a contract of affreightment by sea under which the goods will be delivered at the destination contemplated by the contract; (4) arrange for marine insurance upon the terms current in the trade which will be available for the benefit of the buyer; and (5) with all reasonable dispatch, send forward and tender to the buyer shipping documents comprising the invoice, bill of lading and policy of assurance. Leading CIF cases include Plaimar Ltd v Waters Trading Co Ltd (1945) 72 CLR 304 at 311; [1945] ALR 469 per Rich, Dixon and McTiernan JJ; Ross T Smyth & Co Ltd v TD Bailey, Son & Co [1940] 3 All ER 60 at 68; (1940) 164 LT 102 per Lord Wright; Comptoir d’Achat et de Vente du Boerenbond Belge SA v Luis de Ridder Lda (The Julia) [1949] AC 293 at 309; [1949] 1 All ER 269 per Lord Porter. [See [7.205] (Pearson).] The plaintiffs paid for the goods. Soon after the defendant company went into receivership. The receiver refused to deliver the goods. The plaintiffs brought an action and argued that the property in the goods had passed to them as the goods were appropriated to the contract by the sellers with the assent of the buyers.] PEARSON J: [244] This is a case in which the contract is for the sale of unascertained goods by description, for the sale of future goods probably still to be manufactured. Afterwards certain goods were manufactured, and the sellers at one time apparently expected to use them in fulfilment of the contract. The question is whether there was an appropriation of those goods to the contract by the sellers with the assent of the buyers within the meaning of Rule 5 of s 18. I think it is convenient just, in effect, to lay a foundation for the understanding of the exact meaning and effect of s 18 by reading a short passage from an old case, Mirabita v Imperial Ottoman Bank (1878) 3 Ex D 164. The relevant passage is from the judgment of Lord Justice Cotton, at p 172, where he says: Under a contract for sale of chattels not specific the property does not pass to the purchaser unless there is afterwards an appropriation of the specific chattels to pass under the contract, that is, unless both parties agree as to the specific chattels in which the property is to pass, and nothing remains to be done in order to pass it. In the case of such a contract the delivery by the vendor to a common carrier, or (unless the effect of the shipment is restricted by the terms of the bill of lading) shipment on board a ship of, or chartered for, the purchaser, is an appropriation sufficient to pass the property. There was an old case called Wait v Baker (1848) 2 Ex 1, in which there was a discussion by Baron Parke which is of considerable interest. I think it is convenient to read only a short passage from it. He said, at p 7: it is perfectly clear that the original contract between the parties was not for a specific chattel. That contract would be satisfied by the delivery of any 500 quarters of corn, provided the corn answered the character of that which was agreed to be delivered. By the original contract, therefore, no property passed; and that matter admits of no [245] doubt whatever. 292

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Carlos Federspiel & Co SA v Charles Twigg & Co Ltd cont. In order, therefore, to deprive the original owner of the property, it must be shown in this form of action – the action being for the recovery of the property – that, at some subsequent time, the property passed. It may be admitted, that if goods are ordered by a person, although they are to be selected by the vendor, and to be delivered to a common carrier to be sent to the person by whom they have been ordered, the moment the goods, which have been selected in pursuance of the contract, are delivered to the carrier, the carrier becomes the agent of the vendee, and such a delivery amounts to a delivery to the vendee; and if there is a binding contract between the vendor and vendee, either by note in writing, or by part payment, or subsequently by part acceptance, then there is no doubt that the property passes by such delivery to the carrier. It is necessary, of course, that the goods should agree with the contract. Later, on p 9, having referred to Roman law, he says on this subject: The law of England is different: here, property does not pass until there is a bargain with respect to a specific article, and everything is done which, according to the intention of the parties to the bargain, was necessary to transfer the property in it. [248] … if and so far as this contract was in its true nature a FOB contract, the natural time at which the property would pass would be on shipment. Undoubtedly this contract also contained some CIF features, and there is an express reference to what is called “approximate CIF charges’” in the pro forma invoice. If and in so far as it was a CIF contract, the effect of the authorities is that the property would pass not earlier than shipment, perhaps later than shipment … [249] … Therefore, under the contract, it was to be expected that the ownership of the goods would pass to the buyers on shipment of the goods, or possibly at some later time, when the bill of lading and insurance policy and final definitive invoice would be handed over to the buyers. The goods were not in fact shipped, and indeed they were not even dispatched from the sellers’ works to the port of shipment. They were, however, packed, and the packages were marked “CF & Co, San Jose, Costa Rica, Port Limon”. There were some answers to interrogatories which admitted certain facts, showing that the preparatory steps towards shipment had been taken by the sellers. Goods to the quantity and proper description required had been manufactured. They were packed, and they were marked with these shipping marks. The steps can be regarded, not as intended appropriation, but as being preparation for the shipment. It was contended that in August or September, 1953, there was an appropriation of the goods to the contract by the sellers with the assent of the buyers … [255] … I think one can distinguish these principles. First, Rule 5 of s 18 of the Act is one of the Rules for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer unless a different intention appears. Therefore the element of common intention has always to be borne in mind. A mere setting apart or selection of the seller of the goods which he expects to use in performance of the contract is not enough. If that is all, he can change his mind and use those goods in performance of some other contract and use some other goods in performance of this contract. To constitute an appropriation of the goods to the contract, the parties must have had, or be reasonably supposed to have had, an intention to attach the contract irrevocably to those goods, so that those goods and no others are the subject of the sale and become the property of the buyer. Secondly, it is by agreement of the parties that the appropriation, involving a change of ownership, is made, although in some cases the buyer’s assent to an appropriation by the seller is conferred in advance by the contract itself or otherwise. Thirdly, an appropriation by the seller, with the assent of the buyer, may be said always to involve an actual or constructive delivery. If the seller retains possession, he does so as bailee for the buyer. There is a passage in Chalmers’ Sale of Goods Act, 12th ed, at p 75, where it is said: In the second place, if the decisions be carefully examined, it will be found that in every case where the property has been held to pass, there has been an actual or constructive delivery of the goods to the buyer. [10.120]

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Carlos Federspiel & Co SA v Charles Twigg & Co Ltd cont. I think that is right, subject only to this possible qualification, that there may be after such constructive delivery an actual delivery still to be made by the seller under the contract. Of course, that is quite possible, because delivery is the transfer of possession, whereas appropriation transfers ownership. So there may be first an appropriation, constructive delivery, whereby the seller becomes bailee for the buyer, and then a subsequent actual delivery involving actual possession, and when I say that I have in mind in particular the two cases cited, namely, Aldridge v Johnson, supra, and Langton v Higgins, supra. Fourthly, one has to remember s 20 of the Sale of Goods Act, whereby the ownership and the risk are normally associated. Therefore as it appears that there is reason for thinking, on the construction of the relevant documents, that the goods were, at all material times, still at the seller’s risk, that is prima facie an indication that the property had not passed to the buyer. Fifthly, usually but not necessarily, the appropriating act is the last act to be performed by the seller. For instance, if delivery is to be taken by the buyer at the seller’s premises and the seller has completed his part of the contract and has appropriated the goods when he has made [256] the goods ready and has identified them and placed them in position to be taken by the buyer and has so informed the buyer, and if the buyer agrees to come and take them, that is the assent to the appropriation. But if there is a further act, an important and decisive act to be done by the seller, then there is prima facie evidence that probably the property does not pass until the final act is done. Applying those principles to the present case I would say this. Firstly, the intention was that the ownership should pass on shipment (or possibly at some later date) because the emphasis is throughout on shipment as the decisive act to be done by the seller in performance of the contract. Secondly, it is impossible to find in this correspondence an agreement to a change of ownership before the time of shipment. The letters, especially those of Aug 27 and Sept 14, which are particularly relied on by the plaintiff, do not contain any provision or implication of any earlier change of ownership. Thirdly, there is no actual or constructive delivery; no suggestion of the seller becoming a bailee for the buyer. Fourthly, there is no suggestion of the goods being at the buyer’s risk at any time before shipment; no suggestion that the buyer should insist on the seller arranging insurance for them. Fifthly, the last two acts to be performed by the seller, namely, sending the goods to Liverpool and having the goods shipped on board, were not performed. Therefore, my decision that the prima facie inference which one would have drawn from the contract is that the property was not to pass at any time before shipment, is in my view not displaced by the subsequent correspondence between the parties. It follows, therefore, that there was no appropriation of these goods and therefore the action fails.

Re Goldcorp Exchange Ltd (In Receivership) [10.130] Re Goldcorp Exchange Ltd (In Receivership) [1994] 3 WLR 199; [1994] 2 All ER 806 (Privy Council) [A New Zealand company dealt in gold coins and ingots for the consumer market. It sold bullion to investors on terms that they were purchasing “non-allocated metal” which would be stored and insured free of charge by the company. The investor received a certificate of ownership and had the right on giving seven days notice to take physical delivery of the metal purchased. The company told investors that bullion was not set aside as a customer’s metal, but was stored in safe-keeping as part of the company’s overall stock of bullion and was insured by the company and that the stock of bullion held by the company from which customers could call for delivery if they so wished would always be sufficient to meet the company’s obligations under all outstanding contracts of sale. The company did 294

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Re Goldcorp Exchange Ltd (In Receivership) cont. not appropriate specific and segregated parcels of bullion to the individual purchase contracts of non-allocated investors. One of its predecessor companies had stored the bullion sold to investors separately from the general trading stock and in precise amounts to cover all the bullion sold. The company became insolvent. It did not have sufficient bullion to cover its debts or the purchase contracts. The non-allocated claimants claimed that they were entitled to trace a proprietary interest to the remaining stock of bullion. The New Zealand Court of Appeal held that the non-allocated claimants had no proprietary rights to the bullion but held that the entire amount of the purchase moneys could be traced into the general assets of the company. The receivers and the bank appealed to the Privy Council.] LORD MUSTILL: [206] Sales [to non-allocated claimants] were promoted in various ways, particularly through glossy, illustrated brochures. So far as presently material the brochures offered two methods of purchasing bullion: “The first is what we call physical delivery and the second is non-allocated metal”. After explaining how purchases of granules, ingots and coins could be made for physical delivery a typical brochure described the procedure for purchasing non-allocated metal, which (it was said) was “preferred by the majority of investors and … recognised as the most convenient and safe way of purchasing metal”. [The wording of the brochures and the certificate were set out.] In addition to the documentation there were of course preliminary discussions between the customer and the company. Whilst these varied in detail from one occasion to another, the following general description by McKay J was accepted as correct for the purposes of argument ([1993] 1 NZLR 257 at 296-297): The wording makes it clear that the investor is not merely depositing money or acquiring a contractual right to be supplied at some later date after giving seven days’ notice. The wording describes an actual purchase of gold or silver which will then be stored free of charge and insured by Exchange [ie the company]. Delivery is available on seven days’ notice and on payment of a small fee for ingotting. This suggests that although there will be physical bullion held in storage for the investor and insured for him, it will be part of a larger bulk and will require ingotting before he can take delivery of his specific [207] entitlement. In the meantime, he will have an interest, along with other investors, in the bulk which is being held and stored by Exchange for him and for other investors. That certainly was the perception of investors. As the Judge said: “No one could read the claimants” affidavits, still less hear the evidence given by them on cross-examination, without being convinced of the depth and genuineness of their belief that by accepting the invitation to purchase on a non-allocated basis they were not simply buying “gilt edged investments”, but gold itself….. II. The issues As already seen, by the time the judgment in the Court of Appeal had been delivered the proprietary claims of the customers had been widened to comprise not only bullion but also the general assets of the company, to an extent representing the sums originally paid by way of purchase price. The following issues now arise for consideration. (i)

Did the property in any bullion pass to the customers immediately upon the making of the purchases (a) simply by virtue of contract of purchase itself, or (b) by virtue of the written and oral statements made in the brochures and by the company’s employees? (Although these were referred to in argument as representations their [208] Lordships believe them to be more in the nature of contractual undertakings, and therefore call them “the collateral promises”).

(ii)

Did the property in any bullion subsequently acquired by the company pass to the customer upon acquisition?

(iii)

When the customers paid over the purchase moneys under the contract of sale did they retain a beneficial interest in them by virtue of an express or constructive trust? [10.130]

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Re Goldcorp Exchange Ltd (In Receivership) cont. (iv)

Should the court now grant a restitutionary remedy of a proprietary character in respect of the purchase moneys?

If the answer to any of these questions is in the affirmative it will be necessary to consider the extent to which the customer’s rights in the relevant subject matter can be applied to the bullion or other assets now in the possession of the company. III. Title to bullion: The sale contracts Their Lordships begin with the question whether the customer obtained any form of proprietary interest, legal or equitable, simply by virtue of the contract of sale, independently of the collateral promises. … It is, however, convenient to pause for a moment to consider why the answer must inevitably be negative, because the reasons for this answer are the same as those which stand in the way of the customers at every point of the case. It is common ground that the contracts in question were for the sale of unascertained goods. For present purposes, two species of unascertained goods may be distinguished. First, there are “generic goods”. These are sold on terms which preserve the seller’s freedom to decide for himself how and from what source he will obtain goods answering the contractual description. Secondly, there are “goods sold ex-bulk”. By this expression their Lordships denote goods which are by express stipulation to be supplied from a fixed and a pre-determined source, from within which the seller may make his own choice (unless the contract requires it to be made in some other way) but outside which he may not go. For example, “I sell you 60 of the 100 sheep now on my farm”. Approaching these situations a priori common sense dictates that the buyer cannot acquire title until it is known to what goods the title relates. Whether the property then passes will depend upon the intention of the parties and in particular on whether there has been a consensual appropriation of particular goods to the contract. On the latter question the law is not straightforward, and if it had been decisive of the present appeal it would have been necessary to examine cases such as Carlos Federspiel & Co SA v Charles Twigg & Co Ltd [1957] 1 Lloyd’s Rep 240 and other cases cited in argument. In fact, however, the case turns not on appropriation but on ascertainment, and on the latter the law has never been in doubt. It makes no difference what the parties intended if what they intend is impossible: as is the case with an immediate transfer of title to goods whose identity is not yet known. As Lord Blackburn wrote in his Treatise on the Effect of the Contract of Sale (1st ed, 1845), pp 122-123, a principal inspiration of the Sale of Goods Act 1893: The first of [the rules] that the parties must be agreed as to the specific goods on which the contract is to attach before there can be [209] a bargain and sale, is one that is founded on the very nature of things. Till the parties are agreed on the specific individual goods, the contract can be no more than a contract to supply goods answering a particular description, and since the vendor would fulfil his part of the contract by furnishing any parcel of goods answering that description, and the purchaser could not object to them if they did answer the description, it is clear there can be no intention to transfer the property in any particular lot of goods more than another, till it is ascertained which are the very goods sold. This rule has existed at all times; it is to be found in the earliest English law books … It makes no difference, although the goods are so far ascertained that the parties have agreed that they shall be taken from some specified larger stock. In such a case the reason still applies: the parties did not intend to transfer the property in one portion of the stock more than in another, and the law which only gives effect to their intention, does not transfer the property in any individual portion. Their Lordships have laboured this point, about which there has been no dispute, simply to show that any attempt by the non-allocated claimants to assert that a legal title passed by virtue of the sale would have been defeated, not by some arid legal technicality but by what Lord Blackburn called “the very nature of things”. The same conclusion applies, and for the same reason, to any argument that a 296

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Re Goldcorp Exchange Ltd (In Receivership) cont. title in equity was created by the sale, taken in isolation from the collateral promises. It is unnecessary to examine in detail the decision of the Court of Appeal in Re Wait [1927] 1 Ch 606; [1926] All ER Rep 433 for the facts were crucially different. There, the contract was for a sale ex-bulk. The 500 tons in question formed part of a larger quantity shipped on board a named vessel; the seller could supply from no other source; and once the entire quantity had been landed and warehoused the buyer could point to the bulk and say that his goods were definitely there, although he could not tell which part they were. It was this feature which prompted the dissenting opinion of Sargant LJ that the sub-purchasers had a sufficient partial equitable interest in the whole to found a claim for measuring-out and delivery of 500 tons. No such feature exists here. Nevertheless, the reasoning contained in the judgment of Atkin LJ ([1927] 1 Ch 606 at 625-641; [1926] All ER Rep 433 at 441-448), which their Lordships venture to find irresistible, points unequivocally to the conclusion that under a simple contract for the sale of unascertained goods no equitable title can pass merely by virtue of the sale. This is not, of course, the end of the matter. As Atkin LJ himself acknowledged ([1927] 1 Ch 606 at 636; [1926] All ER Rep 433 at 446): [The rules in the statute] have, of course, no relevance when one is considering rights, legal or equitable, which may come into existence dehors the contract for sale. A seller or a purchaser may, of course, create any equity he pleases by way of charge, equitable assignment or any other dealing with or disposition of goods, the subject-matter of sale; and he may, of course, create such an equity as one of the terms expressed in the contract of sale. [213] IV. Title to after-acquired bullion Having for these reasons rejected the submission that the non-allocated claimants acquired an immediate title by reason of the contract of sale and the collateral promises their Lordships turn to the question whether the claimants later achieved a proprietary interest when the company purchased bullion and put it into its own stock. Broadly speaking, there are two forms which such an argument might take. [214] According to the first, the contracts of sale were agreements for the sale of goods afterwards to be acquired. It might be contended that quite independently of any representation made by the company to the non-allocated claimants, as soon as the company acquired bullion answering the contractual description the purchaser achieved an equitable title, even though the passing of legal title was postponed until the goods were ascertained and appropriated at the time of physical delivery to the purchaser. In the event this argument was not separately pursued, and their Lordships mention it only by way of introduction. They will do so briefly, since it was bound to fail. The line of old cases, founded on Holroyd v Marshall (1862) 10 HL Cas 191; [1861 -73] All ER Rep 414 and discussed in Benjamin’s Sale of Goods (3rd edn, 1987), pp 80, 218-219, paras 106, 357 which might be said to support it, was concerned with situations where the goods upon acquisition could be unequivocally identified with the individual contract relied upon. As Lord Hanworth MR demonstrated in Re Wait, the reasoning of these cases cannot be transferred to a situation like the present where there was no means of knowing to which, if any, of the non-allocated sales a particular purchase by the company was related. Since this objection on its own is fatal, there is no need to discuss the other obstacles which stand in its way … [217] V. Conclusion on property in bullion For these reasons their Lordships reject, in company with all the judges in New Zealand, the grounds upon which it is said that the customers acquired a proprietary interest in bullion. … The question is not, however, novel since it has been discussed in two English authorities very close to the point. The first is the judgment of Oliver J in Re London Wine Co (Shippers) Ltd [1986] PCC 121. The facts of that case were not [218] precisely the same as the present, and the arguments on the present appeal [10.130]

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Re Goldcorp Exchange Ltd (In Receivership) cont. have been more far-reaching than were there deployed. Nevertheless their Lordships are greatly fortified in their opinion by the close analysis of the authorities and the principles by Oliver J, and in other circumstances their Lordships would have been content to do little more than summarise it and express their entire agreement. So also with the judgment delivered by Scott LJ in Mac-Jordan Construction Ltd v Brookmount Erostin Ltd (In Receivership) [1992] BCLC 350 which is mentioned by Gault J ([1993] 1 NZLR 257 at 284), but not discussed since it was not then reported in full. This was a stronger case than the present, because the separate fund which the contract required the insolvent company to maintain would have been impressed with a trust in favour of the other party, if in fact it had been maintained and also because the floating charge which, as the Court of Appeal held, took priority over the contractual claim, expressly referred to the contract under which the claim arose. Once again, their Lordships are fortified in their conclusion by the fact that the reasoning of Scott LJ conforms entirely with the opinion at which they have independently arrived … [223] VIII. Non-allocated claimants: Conclusions Their Lordships fully acknowledge the indignation of the claimants, caught up in the insolvency of the group of which the company formed part, on finding that the assurances of a secure protection on the strength of which they abstained from calling for delivery were unfulfilled; and they understand why the court should strive to alleviate the ensuing hardship. Nevertheless there must be some basis of principle for depriving the bank of its security and in company with McKay J they must find that none has been shown. [224] X. The Walker & Hall claims These claims are on a different footing. It appears that until about 1983 the bullion purchased by customers of the predecessor of Walker & Hall was stored and recorded separately. Thereafter, the bullion representing purchases by customers was stored en masse, but it was still kept separate from the vendor’s own stock. Furthermore, the quantity of each kind of bullion kept in this pooled mass was precisely equal to the amount of Walker & Hall’s exposure to the relevant categories of bullion and of its open contracts with customers. The documentation was also different from that received by the customers who later became the non-allocated claimants. The documents handed to the customer need not be quoted at length, but their general effect was that the vendor did not claim title in the bullion described in the document and that the title to that bullion, and the risk in respect of it, was with the customer. The document also stated that the vendor held the bullion as custodian for the customer in safe storage. These arrangements ceased when the shares of Walker & Hall were purchased by the company, and the contractual rights of the customers were transferred. The features just mentioned persuaded Thorp J at first instance to hold, in contrast to his conclusion in relation to the non-allocated claimants and Mr Liggett, that there had been a sufficient ascertainment and appropriation of goods to the individual contracts to transfer title to each customer; and that thereafter the customers as a whole had a shared interest in the pooled bullion, which the vendors held on their behalf. The Dublin City Distillery case [1914] AC 823 was cited in support of this conclusion. It followed that when the company [225] absorbed the hitherto separated bullion into its own trading stock upon the acquisition of Walker & Hall’s business, and thereafter drew upon the mixed stock, it wrongfully dealt with goods which were not its own. [There followed a discussion of tracing.]

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CHAPTER 11 Engaging in Dealings in Choses in Possession: Transfer of Possession by Bailment [11.05]

Classification schemes of bailment .................................................... 299 [11.10] [11.15] [11.20] [11.25] [11.30] [11.35]

[11.40]

Coggs v Bernard ................................................................... 299 Chapman Bros v Verco Bros & Co Ltd ...................................... 300 The Pioneer Container ........................................................... 302 Pangallo Estate Pty Ltd v Killara 10 Pty Ltd ............................. 310 Hobbs v Petersham Transport Co Pty Ltd ................................ 313 Pitt Son & Badgery Ltd v Proulefco SA ..................................... 320

Interaction between bailment and sale ............................................ 322 [11.40]

Matthew Short & Associates Pty Ltd v Riviera Marine (International) Pty Ltd ........................................................... 322

Extracts from Pearson, Commercial Law: Commentary and Materials, Ch 4.

Classification schemes of bailment [11.05] Bailment is typically divided into a series of categories, the best known classification

being that laid down by Chief Justice Holt in Coggs v Bernard (1703) 2 Ld Raym 909; 92 ER 107 at 109.

Coggs v Bernard [11.10] Coggs v Bernard (1703) 2 Ld Raym 909; 92 ER 107 HOLT CJ: [912] The case is shortly this. This defendant undertakes to remove goods from one cellar to another, and there lay them down safely, and he managed them so negligently, that for want of care in him some of the goods were spoiled. Upon not guilty pleaded, there has been a verdict for the plaintiff, and that upon full evidence, the cause being tried before me at Guildhall. There has been a motion in arrest of judgment, that the declaration is insufficient, because the defendant is neither laid to be a common porter, nor that he is to have any reward for his labour. So that the defendant is not chargeable by his trade, and a private person cannot be charged in an action without a reward. I have had a great consideration of this case, and because some of the books make the action lie upon the reward, and some upon the promise, at first I made a great question, whether this declaration was good. But upon consideration, as this declaration is, I think the action will well lie. In order to show the grounds, upon which a man shall be charged with goods put into his custody, I must show the several sorts of bailments. And there are six sorts of bailments. The first sort of bailment is, a bare naked bailment of goods, delivered by one man to another to keep for the use of the [913] bailor; and this I call a depositum, and it is that sort of bailment which is mentioned in Southcote’s case. The second sort is, when goods or chattels that are useful, are lent to a friend gratis, to be used by him; and this is called commodatum, because the thing is to be restored in specie. The third sort is, when goods are left with the bailee to be used by him for hire; this is called locatio et conductio, and the lender is called locator, and the borrower conductor. The fourth sort is, when goods or chattels are delivered to another as a pawn, to be a security to him for money borrowed of him by the bailor; and this is called in Latin vadium, and in English a pawn or a pledge. The fifth sort is when goods or chattels are delivered to be carried, or something is to be done about them for a reward to be paid by the [11.10]

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Coggs v Bernard cont. person who delivers them to the bailee, who is to do the thing about them. The sixth sort is when there is a delivery of goods or chattels to somebody, who is to carry them, or do something about them gratis, without any reward for such his work or carriage, which is this present case.

Chapman Bros v Verco Bros & Co Ltd [11.15] Chapman Bros v Verco Bros & Co Ltd (1933) 49 CLR 306 (High Court of Australia) Facts: Verco Bros & Co Ltd (the respondent) was a wheat merchant and miller carrying on business in South Australia. Chapman Bros were farmers. During December 1931 and January 1932, the appellants (Chapman Bros) delivered to the respondent 2,559 bags of wheat. The bags of wheat delivered by the appellants to the respondent had no mark, symbol or other indication identifying those bags as the property of the appellant. On delivery, the respondent gave the appellant a storage warrant which acknowledged receipt of the total number of bags delivered, their total weight and provided extensive “conditions of storage”. The respondent received from other farmers many bags of wheat. All of the bags of wheat received from the various farmers were intermingled into various stacks, so that no individual farmer could say whether any particular bags were delivered by that farmer to the respondent. The respondent went into voluntary liquidation, and sought a declaration that upon delivery by the appellants of the wheat and bags, the property in the wheat passed to the respondent so that the appellants retained no right to, or property, the wheat or any part of it. The appellants counter-claimed seeking declarations and an injunction restraining the respondent (and the liquidator of the respondent) from using, selling, pledging, charging or disposing of the wheat. RICH J: [313] The question in this case is whether, in a South Australian “wheat storage” contract, the property in wheat passed upon delivery by the farmer to the merchant or miller. The contract is elaborately drawn upon a printed form. The effect of its material provisions is that the person supplying the wheat ceases upon delivery to be entitled to receive back the wheat he has delivered. He may require the persons to whom it is delivered up to the end of the wheat season (30th November) to purchase and pay for the wheat or any part of it. He may require them before that date to deliver to him a quantity of wheat corresponding to the wheat supplied, so far as it is yet unpurchased. On 30th November the persons receiving the wheat become the purchasers of the quantity remaining. The purchase price in every case is the current market price on the day or days of purchase. The form contains additional provisions concerning wheat of an inferior quality, the determination of equivalents of faq wheat, advances against price, “storage charges” if equivalent wheat is demanded, and some other subsidiary matters. The supplier of wheat is called the storer and the receiver the purchaser. The important provision in the contract is in these words: “The purchaser shall not be required to return the identical wheat.” It is, therefore, evident that, at some stage, the property, in the wheat must pass to the purchasers, except possibly, if by chance they did return the identical wheat pursuant to a demand for an equivalent quantity. It is argued, however, that the property in the wheat did not pass until the end, that is to say, when “a purchase” was declared or corresponding wheat returned. In support of this view the nomenclature of the contract is relied upon – “storage”, “storage charges”, “storer”. I attach little weight to these expressions. They seem to be current [314] in South Australia as a description of a special contract for the disposal of wheat by producers to merchants and millers on terms which enable the producer to fix a price at dates subsequent to delivery, or, if he wishes to obtain an equivalent in wheat, presumably for the purpose of carrying over stocks of wheat to another season, to require delivery to him of a proper quantity on paying storage charges appropriate to that quantity. The important thing to my mind is that the contract contemplates immediate delivery of the commodity, the loss of its identity and the payment for the commodity in money or in kind. The commodity is one in which identity is commercially unimportant, and when 300

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Chapman Bros v Verco Bros & Co Ltd cont. large quantities of wheat are concentrated, difficulty and expensive to preserve. One ought not to shut one’s eyes to the fact that the reason why the contract stipulates against preserving the identity of wheat is to enable the receiver of the wheat forthwith to deal with it, regardless of its identity, in such a way that it becomes indistinguishable. Why then should a transaction involving the immediate delivery of the thing, contemplating the immediate destruction of its identity and, in exchange for the wheat, reserving to the supplier only a personal obligation of the recipient to render money or kind, be considered a bailment only? The arrangement is inconsistent with the very idea of bailment according to English law, which involves the redelivery of a specific thing in its original or some altered form to the bailor or to some other person in accordance with the terms of the bailment. Our attention was called to some decisions of State Courts in the United States of America in which the identity of subject matter was held to be unessential to a bailment when the subject matter was wheat. This is a departure from the common law. Apparently the Canadian decisions do not sanction it (Lawlor v Nicol (1898) 12 Man LR 224). I am unable to understand how there can be a bailment of a thing which does not remain identifiable. Indeed it was not suggested that after identity was destroyed bailment persisted. Mr Cleland met the difficulty by suggesting that, although the wheat might be confused with other wheat immediately upon delivery, the result was a bailment of the whole mass, each separate supplier of wheat being transformed into a joint bailor with all his fellows. This supposes that the [315] suppliers are acting in combination, which they are not, and that under the contract “the purchasers” are bound to retain in their possession all wheat received. There is no trace of such an obligation in the contract, and little knowledge of the course of business is needed to be certain that the entire object of the contract would be frustrated if neither gristing nor exportation of wheat received under such contracts were possible. Indeed the very description of the respondent is “merchant and miller”. In my opinion there was no bailment, and the property passed immediately, and accordingly the appeal should be dismissed. STARKE J: Chapman Bros, who are farmers, delivered, on terms set forth in a document described as a storage warrant, some 2,559 bags of wheat to Verco Bros & Co Ltd, which carries on the business of a merchant and miller. It is admitted that upon delivery the bags were stacked on land belonging to Verco Bros & Co Ltd, together with other wheat delivered to it by other farms on sale or in exchange for like storage warrants, that all such wheat was stacked together, that the wheat delivered by Chapman Bros to Verco Bros & Co Ltd had no mark or symbol or other means of identification thereon, and that the bags were of the same type as used by all other farmers in South Australia. The question is whether the wheat delivered by Chapman Bros to Verco Bros & Co Ltd was transferred to it for value, or was deposited in bailment so that the bailor might require its restoration. The answer depends upon the intention of the parties, gathered from the terms of the storage warrant. This warrant is set out in the judgment under appeal and in the transcript prepared for this Court, and I need not repeat its terms; suffice it to say that Verco Bros & Co Ltd agreed, at any time Chapman Bros so desired, to purchase and pay for the whole or any part of the wheat covered by the warrant at the current market price on the day of purchase, but so that on 30th November 1932 it should purchase and pay for the balance of the wheat then covered by the warrant. The third clause stipulated that Verco Bros & Co Ltd would at any time upon request return to Chapman Bros a quantity of fair average quality wheat equal to that then remaining [316] unpurchased on storage with it, but a proviso is added that it should not be required to return the identical wheat. In case the wheat were purchased, Verco Bros & Co Ltd bore storage and insurance charges, but, in case of the return of any wheat, Chapman Bros agreed to pay buyer’s commission, advances and accrued interest and dockages, together with storage charges. The principles of law applicable have been authoritatively stated in South Australian Insurance Co v Randell (1869) LR 3 PC 101. If the identical subject matter is to be restored, either as it stood or in [11.15]

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Chapman Bros v Verco Bros & Co Ltd cont. altered form, the case is one of bailment. If, on the other hand, the identical subject matter, either as it stood or in altered form, is not to be returned, but a different thing of equal quantity and quality may be given as an equivalent, then a bailment is not created: it is a transfer of property, and the title to the thing originally delivered vests in the transferee. I have looked at the passages cited in Benjamin on Sale, 6th ed (1920) pp 380-382, especially that, at p 381, attributed to Mr Justice Holmes of the Supreme Court of the United States (though I have been unable to obtain the American Law Review), and also at the cases referred to in Benjamin. But my impression is that both the Canadian and the American cases accord with the view of the Judicial Committee (see Benedict v Ker (1878) 29 UCCP 110; Powder Co v Burkhardt (1877) 97 US 110. However this may be, the principle of the decision in South Australian Insurance Co v Randell is decisive so far as this Court is concerned. Some differences in detail exist between the facts proved in that case and those proved in the case now before us. But the critical fact is the same in both, namely, that the respondent was under no obligation to return the identical wheat as it stood or in altered form, but only some other wheat equivalent in quantity and quality. [Dixon J and McTiernan J delivered separate judgments dismissing the appeal on the ground that on delivery of the wheat by the appellants to the respondent, the property in the wheat passed to the respondent and the appellant received only a bare contractual obligation for the redelivery of an equivalent quantity, quality and value of wheat (to the extent that the wheat delivered had not been purchased by the respondent by a nominated date). Evatt J dissented on the ground that his Honour considered that the parties did not intend for the property in the wheat delivered by the appellant to the respondents to pass to the respondents until the respondents either elected to purchase the wheat delivered or to redeliver an equivalent quantity and value of that wheat.]

The Pioneer Container [11.20] KH Enterprise (Cargo Owners) v Pioneer Container (Owners); The Pioneer Container [1994] 2 AC 324 (Privy Council) Facts: The first two groups of plaintiffs each engaged carriers to ship goods by sea under bills of lading which gave the carriers authority to sub-contract the whole or part of the carriage of the goods “on any terms”. The carriers sub-bailed the goods to the defendant shipowners for carriage on board their vessel for part of the voyage, from Taiwan to Hong Kong, under feeder bills of lading containing an exclusive jurisdiction clause which provided that any claim or other dispute thereunder was to be determined in Taiwan. A third group of plaintiffs engaged the shipowners directly for the carriage of goods from Taiwan to Hong Kong on board the vessel. Following a collision in fog, the vessel sank with all her cargo off the coast of Taiwan. The plaintiffs issued a writ in rem in Hong Kong against a sister ship of the vessel for damages for failure to take care of, or deliver, the goods. The shipowners issued a notice of motion in the High Court in Hong Kong seeking a stay of the proceedings in reliance on the exclusive jurisdiction clause. The judge made a preliminary ruling that the clause was valid and was binding on the plaintiffs notwithstanding that the first two groups of plaintiffs had not been parties to the contracts between the carriers and the shipowners contained in the feeder bills of lading; but he subsequently exercised his discretion to dismiss the motion for a stay on the ground that the plaintiffs’ claims in Taiwan had become time-barred and, since they would have been required to provide advance costs and security in that jurisdiction, they had not acted unreasonably in allowing the time bar to expire. On the shipowners’ appeal, the Court of Appeal of Hong Kong held that the exclusive jurisdiction clause was binding on the plaintiffs; that the plaintiffs had acted unreasonably in failing to commence proceedings in Taiwan and the judge had erred in the exercise of his discretion; and, on a fresh exercise of discretion, stayed the proceedings in Hong Kong. 302

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The Pioneer Container cont. [332] Lord Goff of Chieveley [333] The plaintiffs fall into three groups, which have become known as “the Kien Hung plaintiffs”, “the Hankin plaintiffs” and “the Scandutch plaintiffs”. (1)

The Kien Hung plaintiffs shipped goods on board the vessel at Taiwanese ports for carriage to Hong Kong under bills of lading issued in Taiwan and signed on behalf of the shipowners. There was therefore a direct contractual relationship between the Kien Hung plaintiffs and the shipowners, and there is no doubt that the exclusive jurisdiction clause contained in the bills of lading is binding upon these plaintiffs. There are 213 claims under the bills of lading in this category. In virtually all cases, the shippers were in Taiwan, and the receivers in Hong Kong.

(2)

The Hanjin plaintiffs shipped goods on board another vessel in the United States under bills of lading issued by Hanjin Container Lines (“Hanjin”), a Korean company, in respect of the carriage of the goods from the United States to Hong Kong. Each bill of lading contained the following provision: 6. The carrier shall be entitled to sub-contract on any terms the whole or any part of the handling, storage or carriage of the goods and any and all duties whatsoever undertaken by the carrier in relation to the goods.

Hanjin in turn sub-contracted to the shipowners the carriage of the goods over the last stage of the voyage, from Taiwan to Hong Kong. The goods were transshipped onto the vessel in Taiwan, and in respect of all the goods of the Hanjin plaintiffs the shipowners issued a single feeder bill of lading (feeder 103) in the same form as those issued to the Kien Hung plaintiffs (and so incorporating clause 26) acknowledging receipt of [334] 41 container for shipment from Keelung in Taiwan to Hong Kong. There are 15 claims in this category, of which one has Taiwanese connection and 14 have a Hong Kong connection. (3)

The goods of the Scandutch plaintiffs were shipped on board the vessel in Taiwanese ports. Each plaintiff was issued with a bill of lading issued on behalf of Scandutch A/S (“Scandutch”) covering the carriage of the goods from a Taiwanese port to an ultimate destination in Europe or the Middle East. Each bill of lading contained the following provision: 4(1) The carrier shall be entitled to sub-contract on any terms the whole or any part of the carriage, loading, unloading, storing, warehousing, handling and any and all duties whatsoever undertaken by the carrier in relation to the goods.

For the carriage of the goods from Taiwan to Hong Kong, which was sub-contracts by Scandutch to the shipowners, the latter issued a single feeder bill of lading (feeder 104), again in the same form (including clause 26), acknowledging receipt of 140 containers for shipment from Taiwan to Hong Kong, with a view to the containers being transshipped in Hong Kong. There are 214 claims in this category, or which have a Hong Kong connection. The difficulty which has arisen with respect to the Hanjin plaintiffs and the Scandutch plaintiffs is that, on ordinary principles of law, there was no contractual relationship between them and the shipowners; and accordingly these two classes of plaintiff have claimed that the exclusive jurisdiction clause, clause 26, is not binding upon them. However that contention was rejected, both by Sears J and by the Court of Appeal of Hong Kong, on the ground that there was a bailment to the shipowners on terms (including clause 26) which these plaintiffs had expressly or impliedly authorised; and that, on the principles stated by Lord Denning MR in Morris v CW Martin & Sons Ltd [1966] 1 QB 716, these plaintiffs were bound by clause 26. Whether the courts below were correct in so holding is the principal issue which falls for consideration on this appeal; but the further question arises whether, if the plaintiffs were bound by the exclusive jurisdiction clause, the Court of Appeal were justified in interfering with the exercise by the judge of his discretion to refuse a stay of proceedings and, if so, whether the court of Appeal were entitled, exercising their discretion afresh, to order a stay. [11.20]

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The Pioneer Container cont. The central problem Their Lordships turn immediately to the central problem in the case, which is whether the shipowners can rely, as against the Scandutch and Hanjin plaintiffs, on the exclusive jurisdiction clause (clause 26) in the feeder bills of lading to which these plaintiffs were not parties. They think it right to observe, at the outset, that in commercial terms it would be most inconvenient if these two groups of plaintiffs were not so bound. Here is a ship, upon which goods are loaded in a large number of containers; indeed, one container may contain goods belonging to a number of cargo owners. One incident may affect goods owned by several cargo owners, or even (as here) all the cargo owners with goods on board. Common sense and practical convenience combine to demand that all of [335] these claims should be dealt with in one jurisdiction, in accordance with one system of law. If this cannot be achieved, there may be chaos. Much expense may be wasted on litigation in a number of different jurisdictions, as indeed happened in the present case, where there was litigation in eight other counties as well as Hong Kong and Taiwan. There is however no international regime designed to produce uniformity of jurisdiction and governing in the case of a multiplicity of claims of this kind. It is scarcely surprising therefore that shipowners seek to achieve uniformity of treatment in respect of all such claims, by clauses designed to impose an exclusive jurisdiction and an agreed governing law, as in the present clause 26 in the shipowners’ standard form of bill of lading. Within reason, such an attempt must be regarded with a considerable degree of sympathy and understanding. However, so far as English law and the law of Hong Long are concerned, a technical problem faces shipowners who carry goods, for example under the feeder bills of lading in the present case, where there is no contractual relationship between the shipowners and certain cargo owners. This is because English law still maintains, though subject to increasing criticism, a strict principle of privity of contract, under which as a matter of general principle only a person who is party to a contract may sue upon it. The force of this principle is supported and enhanced by the doctrine of consideration, under which as a general rule only a promise supported by consideration will be enforceable at common law. How long these principles will continue to be maintained in all their strictness is now open to question. But, in the middle of this century, judges of great authority and distinction were in no doubt that they should be so maintained. Their Lordships refer in particular to the speech of Viscount Simonds in Midlands Silicones Ltd v Scruttons Ltd [1962] AC 446, 467-468. The present case is concerned with the question whether the law of bailment can here be invoked by the shipowners to circumvent this difficulty. Bailment and sub-bailment Their Lordships are here concerned with a case where there has been a sub-bailment – a bailment by the owner of goods to a bailee, followed by a sub-bailment by the bailee to a sub-bailee – and the question has arisen whether, in an action by the owners against the sub-bailee for loss of the goods, the sub-bailee can rely as against the owner upon one of the terms upon which the goods have been sub-bailed to him by the bailee. In the case of the Hanjin plaintiffs, the goods were received for shipment by Hanjin Container Lines from the shippers, for through carriage from the North American port to Hong Kong, and then sub-bailed to the shipowners for the last leg of the voyage, viz from Taiwan to Hong Kong. In the case of the Scandutch plaintiffs, the goods were received for shipment by Scandutch for through carriage from Taiwan to the Middle East or Europe, and sub-bailed by the shipowners for the first leg of the voyage, again from Taiwan to Hong Kong. The question is whether the shipowners can in these circumstances rely upon the exclusive jurisdiction clause in the feeder bills of lading as against both groups of plaintiffs, notwithstanding that the plaintiffs in neither group were parties to the [336] contract with the shipowners contained in or evidenced by such a bill of lading, having regard to the fact that the plaintiffs are seeking to hold the shipowners liable for failing to care for the goods so entrusted to them or failing to deliver them to the plaintiffs – in other words, for committing a breach of duty which is characteristic of a bailee. 304

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The Pioneer Container cont. The question whether a sub-bailee can in circumstances such as these rely upon such a term, and if so upon what principle he is entitled to do so, is one which has been considered in cases in the past, but so far neither by the House of Lords nor by the Privy Council. It has been much discussed by academic writers. Their Lordships are grateful to counsel for the citation to them of academic writings, especially Palmer, Bailment, 2nd ed (1991) and Bell, Modern Law of Personal Property in England and Ireland (1989), to which they have repeatedly referred while considering the problems which have arisen for decision in the present case. In approaching the central problem in the present case, their Lordships wish to observe that they are here concerned with two related questions. The first question relates to the identification of the relationship between the owners and the sub-bailee. Once that question is answered, it is possible to address the second question, which is whether, given that relationship, it is open to the sub-bailee to invoke as against the owners the terms upon which he received the goods from the bailee. The relationship between the owners and the sub-bailee Fortunately, authoritative guidance on the answer to the first question is to be found in the decision of the Privy Council in Gilchrist Watt and Sanderson Pty Ltd v York Products Pty Ltd [1970] 1 WLR 1262, an appeal from the Court of Appeal of New South Wales. There, two cases of clocks were shipped from Hamburg to Sydney. On arrival of the ship at Sydney the goods were unloaded, sorted and stacked on the wharf by the defendants, who were ship’s agents and stevedores. The plaintiffs were the holders of the relevant bills of lading. When their agents sought delivery of the two cases from the defendants, one was missing and was never found. The plaintiffs sought to hold the defendants responsible as bailees of the goods. The Privy Council proceeded on the basis that there was a bailment to the shipowners, and a sub-bailment by the shipowners to the defendants; and that the defendants as sub-bailees received possession of the goods for the purpose of looking after them and delivering them to the holders of the bills of lading, who were the plaintiffs. Accordingly, the defendants “took upon themselves an obligation to the plaintiffs to exercise due care for the safety of the goods, although there was no contractual relation or attornment between the defendants and the plaintiffs”: see p 1267 per Lord Pearson, delivering the judgment of the Judicial Committee. In support of that conclusion, the Privy Council relied in particular on Morris v CW Martin & Sons Ltd [1966] 1 QB 716, and on the statements of principle by Lord Denning MR. Diplock LJ and Salmon LJ in that case, at pp 729, 731 and 738 respectively. There a mink stole, sent by the plaintiff to a furrier for cleaning, was sub-bailed by the furrier to the defendants, who were cleaning specialists, under a contract between [337] them and the furrier. The stole was stolen by a servant of the defendants, and the plaintiff claimed damages from them. Both Diplock and Salmon LJJ held that the defendants, by voluntarily receiving into their possession goods which were the property of another, became responsible to the plaintiff as bailees of the goods. Lord Denning MR invoked an authoritative statement of the law in Pollock and Wright, Possession in the Common Law (1888), at p 169, where it is stated: If the bailee of a thing sub-bails it by authority, there may be a difference according as it is intended that the bailee’s bailment is to determine and the third person is to hold as the immediate bailee of the owner, in which case the third person really becomes a first bailee directly from the owner and the case passed back into a simple case of bailment, or that the first bailee is to retain (so to speak) a reversionary interest and there is no direct privity of contract between the third person and the owner, in which case it would seem that both the owner and the first bailee have concurrently the rights of a bailor against the third person according to the nature of the sub-bailment. In addition, Lord Pearson invoked two 19th century cases concerned with the liability of railway companies where the plaintiff buys a ticket from one railway company, and claims liability from [11.20]

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The Pioneer Container cont. another which has undertaken responsibility for part of the services to be rendered to the plaintiff under the contract evidenced by the ticket: see Foulkes v Metropolitan District Railway Co (1880) 5 CPD 157 and Hooper v London and North Western Railways Co (1880) 50 LJQB 103. He also relied on the duty imposed by law on the finder of goods who takes them into his possession. He concluded [1970] 1 WLR 1262, 1270: Both on principle and on old as well as recent authority it is clear that, although there was no contract or attornment between the plaintiffs and the defendants, the defendants by voluntarily taking possession of the plaintiffs goods in the circumstances assumed an obligation to take due care of them and are liable to the plaintiffs for their failure to do so (as found by the trial judge). The obligation is at any rate the same as that of a bailee, whether or not it can with strict accuracy be described as being the obligation of a bailee. In a case such as this the obligation is created by the delivery and assumption of possession under a sub-bailment. In this passage, Lord Pearson was cautious about describing the obligation of the defendants as bailees vis-a-vis the plaintiffs. Even so, both Diplock and Salmon LJJ described the relationship between the owner of the goods and the sub-bailee in Morris v CW Martin & Sons Ltd [1966] 1 QB 716 as that of bailor and bailee, and their Lordships are generally in agreement with this approach. However, Diplock LJ restricted his statement of the law to those circumstances where the sub-bailee is aware that the goods are the property of a person other than the bailee: see [1966] 1 QB 716, 731. This is a point to which the Lordships understand the shipowners to have [338] had sufficient notice that persons other than Hanjin or Scandutch were the owners of the goods. It was doubtless for this reason that no argument on the point was addressed to their Lordships. Their Lordships pause to observe that the statement of the law by Pollock and Wright is restricted to those circumstances in which the bailee has sub-bailed the goods with the authority of the owner. As will appear, such is the position in the present case. Their Lordships are not therefore concerned with the position where the bailee sub-bails the goods to another without the authority of the owner, and so they do not think it appropriate to consider the situation, about which they heard no argument. The terms of the collateral bailment between the owner and the sub-bailee On the authority of the Gilchrist Watt case [1970] 1 WLR 1262, their Lordships have no difficulty in concluding that, in the present case, the shipowners became on receipt of the relevant goods the bailees of the goods of both the Hanjin plaintiffs and the Scandutch plaintiffs. Furthermore, they are of the opinion that the shipowners became the bailees of the goods for reward. In Pollock and Wright, Possession in the Common Law, it is stated that both the owner of the goods and the bailee have concurrently the rights of a bailor against the sub-bailee according to the nature of the sub-bailment. Their Lordships, like Lord Denning MR in Morris v CW Martin & Sons Ltd [1966] 1 QB 716, 729, consider that, if the sub-bailment is for reward, the obligation owed by the sub-bailee to the owner must likewise be that of a bailee for reward, notwithstanding that the reward is payable not by the owner but by the bailee. It would, they consider, be inconsistent in these circumstances to impose on the sub-bailee two different standards of care in respect of goods so entrusted to him. But the question then arises whether, as against the owners (here the two groups of plaintiffs), the sub-bailees (here the shipowners) can invoke any of the terms on which the goods were sub-bailed to them, and in particular the exclusive jurisdiction clause (clause 26). In Morris v CW Martin & Sons Ltd, Lord Denning MR expressed his opinion on this point in clear terms, though on the facts of the case his opinion was obiter. He said, at p 729: The answer to the problem lies, I think, in this: the owner is bound by the conditions if he has expressly or impliedly consented to the bailee making a sub-bailment containing these conditions, but not otherwise. 306

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The Pioneer Container cont. His expression of opinion on this point has proved to be attractive to a number of judges. In Morris v CW Martin & Sons Ltd itself, Salmon LJ, at p 741, expressed himself to be strongly attracted by it: see also Compania Portorafti Commerciale SA v Ultramar Panama Inc (No 2) [1990] 2 Lloyd’s Rep 395, 405 per Bingham LJ, delivering the judgment of the court. Furthermore, on this point Lord Denning MR’s statement of the law was applied by Steyn J in Singer Co (UK) Ltd v Tees and Harlepool Port Authority [1988] 2 Lloyd’s Rep 164. It was not, however, followed by Donaldson J in [339] Johnson Matthey & Co Ltd v Constantine Terminals Ltd [1976] 2 Lloyd’s Rep 215, a decision to which their Lordships will revert at a later stage. In order to decide whether, like Steyn J, to accept the principle so stated by Lord Denning MR, it is necessary to consider the relevance of the concept of “consent” in this context. It must be assumed that, on the facts of the case, no direct contractual relationship has been created between the owner and the sub-bailee, the only contract created by the sub-bailment being that between the bailee and the sub-bailee. Even so, if the effect of the sub-bailment is that the sub-bailee voluntarily receives into his custody the goods of the owner and so assumes towards the owner the responsibility of a bailee, then to the extent that terms of the sub-bailment are consented to by the owner, it can properly be said that the owner has authorised the bailee so to regulate the duties of the sub-bailee in respect of the goods entrusted to him, not only towards the bailee but also towards the owner. (Their Lordship said in parenthesis that for this purpose it is not, in their opinion, necessary to have recourse to the doctrine of estoppel: cf Hispanica de Petroleos SA v Vendcedora Oceanica Navegacion SA (No 2) (Note) [1987] 2 Lloyd’s Rep 321, 336, 340, per Nicholls and Dillon LJJ. Even where there is express or implied consent to the relevant terms by the owner of the goods, there can be no estoppel without some holding out on his part. Estoppel may, however, be relevant if recourse is to be had to the doctrine of ostensible authority). Such a conclusion, finding its origin in the law of bailment rather than the law of contract, does not depend for its efficacy either on the doctrine of privity of contract or on the doctrine of consideration. That this may be so appears from the decision of the House of Lords in Elder, Dempster & Co Ltd v Paterson, Zochanis & Co Ltd [1924] AC 522. In that case, shippers of cargo on a chartered ship brought an action against the shipowners for damage caused to the cargo by bad stowage, for which the shipowners were responsible. It is crucial to observe that the cargo was shipped under charterers’ bills of lading, so that the contract of carriage contained in or evidenced by the bills of lading was between the shippers and the charterers. The shipowners nevertheless sought to rely, as against the shippers, upon an exception in the bill of lading which protected the charterers from liability for damage due to bad stowage. It was held that the shipowners were entitled to do so, the preferred reason upon which the House so held (see Midland Solicones Ltd v Scruttons Ltd [1962] AC 446, 470, per Viscount Simonds, following the opinion of Fullagar J in Wilson v Darling Island Stevedoring and Lighterage Co Ltd [1956] 1 Lloyd’s Rep 346, 364; 95 CLR 43, 78) being found in the speech of Lord Sumner [1924] AC 522, 564: in the circumstances of this case the obligations to be inferred from the reception of the cargo for carriage to the United Kingdom amount to a bailment upon terms, which include the exceptions and limitations of liability stipulated in the known and contemplated form of bill of lading. Of course, there was in that case a bailment by the shippers direct to the shipowners, so that it was not necessary to have recourse to the concept of sub-bailment. Even so, notwithstanding the absence of any contract [340] between the shippers and the shipowners, the shipowners’ obligations as bailees were effectively subject to the terms upon which the shipowners implicitly received the goods not their possession. Their Lordships do not imagine that a different conclusion would have been reached in the Elder, Dempster case if the shippers had delivered the goods, not directly to the ship, but into the possession of agents of the charterers who had, in their turn, loaded the goods on board; because in [11.20]

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The Pioneer Container cont. such circumstances, by parity of reasoning, the shippers may be held to have impliedly consented that the sub-bailment to the shipowners should be on terms which included the exemption from liability for bad storage. [341] In truth, [there is] a doctrinal dispute of a fundamental nature, which is epitomised in the question: is it a prerequisite of a bailment that the bailor should have consented to the bailee’s possession of the goods? An affirmative answer to this question (which is the answer given by Bell, Modern Law of Personal Property in England and Ireland, at pp 88-89) leads to the conclusion that, if the owner seeks to hold a sub-bailee responsible to him as bailee, he has to accept all the terms of the sub-bailment, warts and all; for either he will have consented to the sub-bailment on those terms or, if not, he will (by holding the sub-bailee liable to him as bailee) be held to have ratified all the terms of the sub-bailment. A negative answer to the question is however supported by other writers, notably by Palmer, Bailment, at pp 31 et seq, where Professor Palmer cites a number of examples of [342] bailment without the consent of the owner, and by Professor Tay in her article “The Essence of Bailment: Contract, Agreement or Possession?” (1966) 5 Sydney Law Review 239. On this approach, a person who voluntarily takes another person’s goods into his custody holds them as bailee of that person (the owner); and he can only invoke, for example, terms of a sub-bailment under which he received the goods from a intermediate bailee as qualifying or otherwise affecting his responsibility to the owner if the owner consented to them. It is the latter approach which, as their Lordships have explained, has been adopted by English law and, with English law, the law of Hong Kong. Their Lordships wish to add that this conclusion, which flows from the decisions in Morris v CW Martin & Sons Ltd [1966] 1 QB 716 and the Gilchrist Watt case [1970] 1 WLR 1262, produces a result which in their opinion is both principled and just. They include to the opinion that a sub-bailee can only be said for these purposes to have voluntarily taken into his possession the goods of another if he has sufficient notice that a person other than the bailee is interested in the goods so that it can properly be said that (in addition to his duties to the bailee) he has, by taking the goods into his custody, assumed towards that other person the responsibility for the goods which is characteristic of a bailee. This they believe to be the underlying principle. Moreover, their Lordships do not consider this principle to impose obligations on the sub-bailee which are onerous or unfair, once it is recognised that he can invoke against the owner terms of the sub-bailment which the owner has actually (expressly or impliedly) or even ostensibly authorised. In the last resort the sub-bailee may, if necessary and appropriate, be able to invoke against the bailee the principle of warranty of authority. The facts of the case Their Lordships turn to the application of these principles to the facts of the present case. They start with the fact that, under clauses 6 and 4(1) of the Hanjin and Scandutch bills of lading respectively, it was provided that: “The carrier shall be entitled to sub-contract on any terms the whole or any part of the … carriage of the goods …” It is necessary to consider whether the consent of these two groups of plaintiffs contained in this provision is effective to entitle the shipowners to invoke the exclusive jurisdiction clause contained in clause 26 of their form of bill of lading. However, before addressing this question directly, their Lordships have first to consider [three] threshold points raised on behalf of the plaintiffs [the first is not reproduced]. [344] 2. Superimposition of terms The [second] point taken on behalf of the plaintiffs was that the shipowners’ form of bill of lading, like many others, contained a “Himalaya” clause which, following the decision of the Privy Council in New Zealand Shipping Co Ltd v AM Satterhwaite & Co Ltd [1975] AC 154, may be effective to provide protection for sub-contractors of carriers by enabling them to take advantage of exceptions in the bill of lading on the basis that the carrier has contracts for the exceptions not only on his own behalf but also as agent of the sub-contractors. The submission of the plaintiffs in the present case was that the “Himalaya” clause gives sufficient effect to the commercial expectations of the parties, and that to 308

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The Pioneer Container cont. allow a sub-bailee to take advantage of the terms of his own contract with bailee was not only unnecessary but created a potential inconsistency between the two regimes. In their Lordships’ opinion, however, this argument is not well founded. They are satisfied that, on the legal principles previously stated, a sub-bailee may indeed be able to take advantage, as against the owners of goods, of the terms on which the goods have been sub-bailed to him. This may, of course, occur in circumstances where no “Himalaya” clause is applicable; but the mere fact that such a clause is applicable cannot, in their Lordships’ opinion be effective to oust the sub-bailee’s right to rely on the terms of the sub-bailment as against the owner of the goods. If it should transpire that there are in consequence two alternative regimes which the sub-bailee may invoke, it does not necessarily follow that they will be inconsistent; or does it follow, if they are inconsistent, that the sub-bailee should not be entitled to choose to rely upon one or other of them as against the owner of the goods: see Mr AP Bell’s “Sub-bailment on Terms”, Ch 6, pp 178-80, of Palmer and McKendrick, Interests in Goods (1993). Their Lordships are therefore satisfied that the mere fact that a “Himalaya” clause is applicable does not of itself defeat the shipowners’ argument on this point. 3. Quasi-bailment The third point invoked by the plaintiffs affected only the Scandutch plaintiffs. It was based on the proposition that in their case the shipowners were not sub-bailees at all. The submission was that there was no evidence that Scandutch ever obtained actual possession of the goods; if that was the case, it was said, the shipowners were not sub-bailees but quasi-bailees, [345] and there was no authority that the doctrine of sub-bailment on terms extended to quasi-bailments. Their Lordships feel bound to say that they view this point with some concern. There is no trace of it in the judgments in the courts below. Not only that, but Sears J expressly found that the shipowners were sub-bailees of the goods of the Scandutch plaintiffs, a conclusion which was inconsistent with the proposition that Scandutch never had possession of the goods; and this conclusion of fact appears to have been challenged neither in the plaintiffs’ respondents’ notice, nor in their argument, before the Court of Appeal. If the point had been taken and pursued, the first question to be explored would have been whether it was right that the goods were never into the possession of Scandutch or their agents. As it was, the form of bill of lading issued by Scandutch in respect of these goods represented that Scandutch had received the goods for transportation from the place of receipt; and no evidence was adduced to contradict this statement. In these circumstances, their Lordships do not think it right of the plaintiffs to be allowed to realise the point for the first time before the Board. They wish to add however that, on the limited argument on this point which took place before them, it is difficult to see why the shipowners should not, when they received the goods of the Scandutch plaintiffs in to their possession, have become responsible as bailees to the owners of the goods even if the goods were never in the possession of Scandutch – see Palmer, Bailment, 2nd ed, pp 34 and 1292 – and, if so, its not easy to see why they should not be able to invoke against the owners any terms upon which the intermediary (Scandutch), with the owners consent, entrusted the goods to them. This point can, however, await decision, after consideration in greater depth, on another occasion. Having disposed of these three threshold points, their Lordships turn to the basic question which arises on this aspect of the case which is whether in the case of a sub-bailment, the owners of the goods who seek to hold the sub-bailee liable to them as a bailee will be bound by an exclusive jurisdiction clause which forms part of the contract governing the sub-bailment. Their Lordships start, of course, with the position that, under clauses 6 and 4(1) of the Hanjin and Scandutch bills of lading respectively, there was vested in both Hanjin and Scandutch a very wide authority to sub-contract the whole or any part of the carriage of the goods “on any terms”. Since the sub-contracting of any part of the carriage to another will ordinarily involve a bailment (or sub-bailment) to that carrier, it must follow that both the Hanjin and Scandutch plaintiffs had expressly consented to the sub-bailment of [11.20]

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The Pioneer Container cont. their goods to another carrier on any terms. It further follows that no question arises in the present case of implied consent, the only question relating to the scope of the express consent so given. Appeal dismissed.

Pangallo Estate Pty Ltd v Killara 10 Pty Ltd [11.25] Pangallo Estate Pty Ltd v Killara 10 Pty Ltd [2007] NSWSC 1528 Facts: The plaintiff delivered grapes to a winemaker (Ms Cecchini) for her to turn into wine and then deliver the wine back to the plaintiff. Ms Cecchini then defaulted under her lease and the defendant lessor claimed it now had property in the wine. The issue before the court was whether the grapes had been bailed to Ms Cecchini or whether they had been sold to her. It was held that the relationship between the plaintiff and Ms Cecchini was one of bailment. BRERETON J: 11. Mr Allen cites Sackville & Neave’s Property Law (7th Ed), paragraph 4.5 for the proposition that if goods owned by A are changed by B’s manufacturing process into an entirely different object, so that the original goods can no longer be identified (for example, as wheat is converted into bread), the new object is owned by B. 12. As will become apparent from the authorities discussed below, that proposition states the position rather too widely. Whether a farmer loses title to wheat upon a baker turning it into bread depends, fundamentally, on the legal relationship between the farmer and the baker, which may be a contract for sale of goods, or may be a contract for services. Some of the complexities are adverted to by Bryson J in Associated Alloys Pty Ltd v Metropolitan Engineering & Fabrications Pty Ltd (1996) 20 ACSR 205 (at 209): The question whether goods which have been used in some manufacturing process still exist in the goods produced by that process, or have gone out of existence on being incorporated in the derived product is, in my opinion, a question of fact and degree not susceptible of much exposition. When wheat is ground into flour it is reasonably open to debate whether the wheat continues to exist; when flour is baked into bread there could be little doubt that the flour does not. Many examples might be encountered or imagined, and each must be addressed separately. Where goods of a homogenous character are mixed co-ownership might be a correct conclusion; but that is a problem of a different kind. There is some discussion in the judgment of Bridge LJ in Borden (UK) Ltd v Scottish Timber Products Ltd [1981] 1 Ch 25 at 41; [1979] 3 All ER 961, addressing “a mixture of heterogeneous goods in a manufacturing process wherein the original goods lose their character and what emerges is a wholly new product …”. Goff LJ in Clough Mill Ltd v Martin [1985] 1 WLR 111 at 119; [1984] 3 All ER 982 said: “Now it is no doubt true that, where A’s material is lawfully used by B to create new goods, whether or not B incorporates other material of his own, the property in the new goods will generally vest in B, at least where the goods are not reducible to the original materials: see Blackstone’s Commentaries, 17th Ed (1830), vol 2, at 404-5.” 13. It is well established that a bailment may involve an obligation to return the goods in an altered form. Halsbury’s Laws of England, 2nd edition, cites the definition of bailment in Bacon’s Abridgment, in which it was said (emphasis added): A bailment, properly so called, is a delivery of personal chattels in trust, on a contract, express or implied, that the trust shall be duly executed, and the chattels redelivered in either their original or an altered form, as soon as the time or use for, or condition on which they were bailed, shall have elapsed or been performed. 310

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Pangallo Estate Pty Ltd v Killara 10 Pty Ltd cont. 14. This statement was cited by Cohen J in Re S Davis & Company Ltd [1945] Ch 402 (at 405). The same concept is apparent in the judgments of Rich and Starke JJ in Chapman Bros v Verco Bros & Co Ltd [1933] HCA 23; (1933) 49 CLR 306. Rich J said (at 314) (emphasis added): The arrangement is inconsistent with the very idea of bailment according to English law, which involves the redelivery of a specific thing in its original or some altered form to the bailor or to some other person in accordance with the terms of the bailment. 15. Starke J said (at 316) (emphasis added): If the identical subject-matter is to be restored, either as it stood or in altered form, the case is one of bailment. If, on the other hand, the identical subject-matter, either as it stood or in altered form, is not to be returned, but a different thing of equal quantity and quality may be given as an equivalent, then a bailment is not created; it is a transfer of property, and the title to the thing originally delivered vests in the transferee. 16. In Palmer’s seminal work on Bailment, the author wrote (2nd Ed, at 135) (emphasis added): The essence of bailment is that the bailed property should be returned to the bailor or applied in accordance with his instructions when the bailment terminates. The goods need not be in their precise original form when this event occurs in order for the transaction to qualify as a bailment; if this rule were imposed, it would remove many bailments (such as those for repair or alteration) from the sphere of that relation altogether. What is necessary is that the goods themselves, whether in altered or original form, should be returnable and not merely some other goods of equivalent character or value [citing Chapman Brothers v Verco Brothers]. There must be a clear physical heredity between what has been delivered to the bailee and what must be returned. 17. The author continued (at 145): Whether or not a transaction of this kind is to be construed as a bailment locatio operis faciendi or as a sale and resale clearly depends upon the intention of the parties; the relative value of the materials supplied and the method of computing the cost of the work are clearly material factors. 18. In Deta Nominees Pty Ltd v Viscount Plastic Products Pty Ltd [1979] VR 167, Fullagar J referred to many of the authorities in this field and held that where there is a contract to manufacture goods and deliver them in the form of a chattel that will be a contract for sale of goods and not a contract for services. However, what his Honour said – in particular at 183 – admits of a distinction between a case where work is to be performed by the workman on the other party’s material to make an article for the other party, and one where work is to be performed by the workman on his own materials for delivery to the other party. 19. Moreover, in Caltex Oil (Australia) Pty Ltd v The Dredge “Willemstad” [1976] HCA 65; (1976) 136 CLR 529 (not referred to in Deta Nominees, unsurprisingly as it was decided only days earlier), Stephen J said (at 561): It was no doubt in the light of these circumstances that counsel for Caltex was able to announce, in the course of the trial, that the parties agreed that the practice was to allocate oil at the refinery, the oil in the pipelines at the time of their fracture having been allocated to Caltex; thus while risk remained with AOR until delivery to the Caltex terminal ownership was in Caltex. In the course of that announcement reference was made to property having passed to Caltex; however, from the agreement, the terms of which will be decisive as to title (Williston on Contracts 3rd Ed, vol 9, par 1030) it would appear that in fact property never left Caltex; the transaction was one of bailment, rather than of a sale and a subsequent buying back, that type of bailment commonly described as the hire of work and labour, locatio operis faciendi (Halsbury’s Laws of England 4th Ed, vol 2, par 1562). The situation as to title which the agreement created is different both from that of the wheat considered in South Australian Insurance Co v Randell (1869) LR 3 PC 101 and in Chapman v [11.25]

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Pangallo Estate Pty Ltd v Killara 10 Pty Ltd cont. Verco and from that of the fruit in Farnsworth v Federal Commissioner of Taxation [1949] HCA 27; (1949) 78 CLR 504. It approaches most closely to the position referred to in Corpus Juris Secundum vol 8, pp 345-6, where a reading of the cases there cited shows that in the case of fungible goods their commingling and manufacture into other products which are to be returned to the original owner may, if the parties so intend, be consistent with a bailment, property never leaving the bailor (see generally the annotation to Kansas Flour Mills Co v Board of Commissioners of Harper County (1927) 54 Am LR 1164 and Commissioner of Internal Revenue v San Carlos Milling Co Ltd (1933) 63 F (2d) 153). 20. This passage makes clear that in the case of fungible goods, their commingling, or their manufacture into other products to be returned to the original owner, does not result in property passing from the original owner, if the parties’ intent is consistent with a bailment. Accordingly, the intent of the parties in ultimately determinative. 21. Lamkin v RH Binder Pty Ltd (1984) ASC 55-354 was concerned with a contract for the manufacture of wine by a contractor from wines supplied by the grower. The grower complained that the wines were not of good saleable quality. The trial judge found for the winemaker, on the basis that the case was one of “caveat emptor”. The Full Court of the Supreme Court of South Australia allowed the grower’s appeal, on the basis that there was imported into the contract a duty to exercise reasonable care and skill. The judgments do not analyse whether the contract was one for sale of goods or one for services, but in the distinct approaches of the trial Judge and the Full Court it is implicit that the trial judge treated the contract as one for the sale and resale of goods (in which the concept of caveat emptor might be applicable), whereas the Full Court treated the contract as one for services (in which a duty to exercise reasonable care and skill was imported). It follows that the Full Court’s decision is authority, if not expressly so, for the view that the contract in that case – which is akin to that in the present case – was one for services, as distinct from a sale and resale. This is analogous to the distinction identified by Blackburn J in Lee v Griffin [1861] EngR 589; (1861) 121 ER 716 and cited in Deta Nominees by Fullagar J (at 182): If the contract be such that, when carried out, it would result in the sale of a chattel, the party cannot sue for work and labour; but, if the result of the contract is that the party has done work and labour which ends in nothing that become the subject of a sale, the party cannot sue for goods sold and delivered. 22. In my view, it is quite clear that the parties never entertained any intention that the growers sell their grapes to Ms Cecchini and then repurchase them. One of the most telling factors in that regard is that there was no suggestion that Ms Cecchini would pay for the grapes upon receipt, or at any other time: she was simply paid a fee per tonne for contract winemaking services. Similarly, the circumstance that the wines, once made, were sold under the name and label of the growers is telling. 23. The invoices support the view that Ms Cecchini was contracted to provide winemaking services, and did not buy and sell the grapes and wine. Even if it not be permissible to have regard to the initial invoice on the basis that it was post-contractual, nonetheless where there has been a course of dealings between the parties over several years, the invoices in respect of previous transactions are some evidence of the terms on which the parties intended to contract, according to the same pattern, in subsequent transactions. 24. As well as the conversations between the parties, their historical dealings over previous years, and the terms of the invoices, it is worth noting that, in Killara 10’s case, the following evidence was given by Mr Brooks (in paragraph 3 of his affidavit sworn 3 October 2007): Cecchini utilized the winery to carry out wine making. As part of Cecchini’s wine making business, she carried out wine making processes for clients. Typically, these clients would deliver to her grapes which would then be crushed, processed and fermented into wine. The wines would then be stored in tanks and/or barrels until the wines were ready for bottling. During this time of storage the wines be monitored with lab analysis and additives provided 312

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Pangallo Estate Pty Ltd v Killara 10 Pty Ltd cont. as was warranted. When the wines were ready for bottling, typically the wines would be filtered and then transported to a third party location for bottling and packaging. On some occasions the finished bottled wine produce was returned to the winery premises for storage. 25. Of course that is far from conclusive of the nature of the contract, but Mr Brooks’ description of Ms Cecchini’s business seems much more akin to a contract for services under which she made wines for the growers, than contracts for the purchase of grapes and resale of wines by Ms Cecchini. 26. Accordingly, I conclude that the contracts between the growers and Ms Cecchini were contracts for services, and not contracts for the sale of grapes and repurchase of wine. It follows that there was no passage of property at any stage to Ms Cecchini. 27. Except in one case in which some of Mr Barbalace’s wine was, with his consent, mixed with that of another grower, Pendarves – and which, so far as the evidence shows, was intended to be owned by each of them – the juice generated from the grapes delivered by each of Mr Pangallo and the Barbalaces was kept separate, and while additives were introduced to it in the winemaking process, the underlying intention of winemaker and grower alike was that the introduction of those additives in the course of the winemaking process did not affect the status of the wine as the descendant, as a matter of heredity, of the grapes originally delivered by the relevant grower. 28. Killara 10’s argument was, essentially, that the 2007 wines delivered to Ms Cecchini by the Barbalaces and Mr Pangallo belonged to Killara 10, because in respect of those wines the Barbalaces and Mr Pangallo still owed money to Ms Cecchini under the winemaking contract. This argument is misconceived on several grounds. First, assuming that there were moneys due and owing to Ms Cecchini, those moneys were fees for services rendered, not the purchase price for the goods; Ms Cecchini did not have property in the goods. Therefore, she could not in turn – whether under clause 16.08 of the lease or otherwise – transfer title to her landlord. Secondly, even if Ms Cecchini had some lien on the wines, clause 16.08 was not engaged, since a lien on wines is not within the concept of stock-in-trade. Thirdly, no money was in any event due and owing to Ms Cecchini, because she had forgiven any outstanding debt in the light of the impossibility of her completing the contracted services once her occupancy of the premises was terminated. Fourthly, it was not necessary that she forgive the debt: the contract for winemaking services was an entire contract, and once it became impossible for her to complete it she had no entitlement to receive any further instalments of her fee. Indeed, she might well have been liable to give restitution of those instalments she had already been paid on account of her total fee.

Hobbs v Petersham Transport Co Pty Ltd [11.30] Hobbs v Petersham Transport Co Pty Ltd (1971) 124 CLR 220 (footnotes omitted) BARWICK CJ: A.S.E.A. Electric (Australia) Pty. Ltd. (the plaintiff) needing in 1957 to move certain electrical equipment from a wharf in Sydney to Ashford, a town in the north-west of New South Wales more than 500 miles distant from Sydney, engaged Petersham Transport Co. Pty. Ltd. (the defendant) to carry this equipment to that town. The contract of carriage was formed by an exchange of letters, which contained no special terms. The defendant thereafter by a formal agreement contracted with a partnership, Hobbs Bros. (the third party) to carry the equipment from the wharf to Ashford. Neither the defendant nor the third party was a common carrier. The third party uplifted the goods from the wharf in Sydney placing them on a 1956 model International articulated vehicle which was described as “near new” and in top condition. It had been regularly serviced over the preceding months of its use, being mostly driven by the driver who drove it on this occasion. This man was a competent driver and as well an experienced motor mechanic. The [11.30]

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Hobbs v Petersham Transport Co Pty Ltd cont. equipment, though heavy, did not constitute an undue load for the vehicle. When a few miles north of the town of Inverell and some 420 miles on its journey towards Ashford and whilst travelling at about twenty-five miles per hour on a level piece of road approaching a slight incline upwards on a gradual bend, an axle of the bogie of the trailer of the vehicle broke “behind what they call the backing plate of the brake drum”. The vehicle overturned, the driver losing control of it. As a consequence the electrical goods were severely damaged. They were not delivered to Ashford as promised to the plaintiff by the Petersham Transport Co. Pty. Ltd. and had to be replaced. After a lapse of some five years, namely in 1962, the plaintiff commenced an action in the Supreme Court of New South Wales against the defendant for breach of the contract of carriage alleging that the defendant had promised to use due care, skill and diligence in carrying certain goods: and a breach of that promise. In a second count the plaintiff sued the defendant as a carrier who had received the goods for not safely carrying the goods and for having damaged and spoiled them by its negligence. The defendant issued a third-party notice in January 1966 and declared against the third party claiming damages for breach of a promise to use due care, skill and diligence in the carrying of the said goods from Sydney to Ashford. The defendant in a second count also sued the third party for negligence in the carriage of the goods. Unless the defendant is liable to the plaintiff the defendant will have no basis for a verdict against the third party. As I am of opinion for reasons I shall give that the plaintiff should not succeed against the defendant, I have no need to consider any special relationship which might have existed between the defendant and the third party nor the possibility of any relationship between the plaintiff and the third party. I shall consider only the case made by the plaintiff against the defendant on its pleadings and, as well as I can gather it from the transcript of evidence, in its conduct of the case. That case depended entirely upon the promises alleged in the first count as there was no evidence to support the second count founded on the defendant’s receipt of the goods. It is necessary to refer to certain evidence which was given at the hearing of the action and of the claim against the third party. The driver of the vehicle inspected the broken axle and the portion of the vehicle from which it had broken away immediately after he had recovered himself from the immediate effects of the accident. He was asked these questions and gave the respective answers: Q. Was there any damage to the axle or the hub in the area of that break? A. No, it was a clean break. Q. Before you reached the position where the accident happened did you notice anything unusual about the way in which the vehicle behaved? A. Not a thing. Q. Did you find on examination of your vehicle that the fracture was, as you call it, against the backing plate of those wheels? A. Yes. Q. And that the remainder of the axle still attached to the off side wheels was jammed underneath the trailer. A. Yes. Q. You have had experience as a mechanic on axles? A. Not necessarily, do you mean as far as breakages. Q. Have you seen a fractured axle before this day? A. Yes, quite a few. Q: You found this clean break? A. Yes. Q. Fresh? A. Yes. Q. No apparent indication that there was a previous fracture in the axle anywhere near the outside of it? A. None whatsoever. Q. Is this the sort of condition which can occur in an axle after wear? A. No, it was like an act of God – if it happened, it hit. Q. I suppose in the course of your mechanical career you had had occasion to see an axle which was developing a hair crack? A. Yes. Q. If you see an axle with such a crack in it, then of course it is a warning sign to do something about it? A. You don’t drive it. 314

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Hobbs v Petersham Transport Co Pty Ltd cont. Q. But of course, when you looked at the axle that was still on the wheels it was fractured right through? A. Yes. Q. And of course you could not know for sure how it looked before that fracture had taken place? A. No. The mechanic checks the axles. Q. What was that again? A. The mechanic did the checking of the axles if necessary – any service. Q. I would like to clarify one final thing: While you were working for Hobbs Bros. did you drive this prime mover fairly constantly? A. Every trip it made. Q. Did you have it on the road for the full working week? A. One week return trip. Q. And then may be when it came back you had a day off and then you would be on the road again; is that the sort of routine you had? A. It went in for service and I rested, and I loaded and took off. A detective senior constable of police who came upon the scene of the accident almost immediately after it had happened gave evidence as to the appearance of the broken axle. This officer had had experience as a motor mechanic over some two years and had worked on heavy vehicles. In addition, during his eight years of service in the police force he had very frequently investigated motor car accidents. On probably four occasions he had investigated accidents involving broken axles. He said he made the inspection of the bogie axle of the vehicle. He was asked and answered these questions: Q. Did you notice anything in particular about the front axle of the bogey? A. I saw that the front axle of that rear section of the trailer had been broken and it appeared to be a clean break. Q. In what area was that; where was the break? A. The break was at that point where the hub or wheel of the rim fitted onto the shaft of the axle, immediately behind the brake lines on the backing plate. Q. In this area was there any sign of damage or impact at all? A. No. A witness who was the senior shipping and contracts clerk of the plaintiff in 1957 went to the scene of the accident with the senior engineer employed by the plaintiff. He was asked these questions: Q. Mr. Badman, did you examine the broken axle on this vehicle? A. I saw it. I did not strictly examine it from an engineering point of view. Q. No, but you saw it, did you? A. I saw it. Q. Was Mr. Fairley with you? A. He was. Q. What is his particular line? A. He is the senior engineer – or was at the time – with the company. Q. Was Mr. Fairley with you? A. He was. – or was at the time – with the company. Q. Is he here today? A. He was, but probably counsel could answer that one better, to my knowledge. Q. Have you seen him here today? A. I have seen him, yes. Q. And I suppose you saw him looking at the damage to the stator, did you? A. At the scene of the accident. Q. At the scene of the accident? A. Yes. Q. And no doubt you saw him looking at the state of the axle of the trailer? A. Yes. Q. You saw him examining it, did you? A. Yes. Q. You were there within three, four or five days of this accident? A. Yes. The accident was on the Wednesday; we arrived on the Sunday The driver of the vehicle also gave the following evidence with respect to the servicing of the vehicle: Q. You mentioned that the vehicle which was comprised of the prime mover and the trailer, the vehicle in this accident, was serviced to your knowledge regularly? A. On each return trip. Q. That was serviced by a motor mechanic in the employ of Hobbs Bros., Mr. Looker? A. That is correct. [11.30]

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Hobbs v Petersham Transport Co Pty Ltd cont. Q. He was in charge of the garage there? A. That is right. Q. When you say serviced it, did you see him service it? A. Yes. Q. Did you mostly assist him if he wanted any assistance? A. I would just do the greasing and oil changing – the the mechanical checking. Q. You say from your observation both as a driver of these vehicles and a driver with mechanical experience that the trailer was in apparent good mechanical condition before it undertook this trip? A. A1 condition. Q. When you were driving along before the accident, as I understand your evidence, the first indication you got that you are in trouble is that suddenly the vehicle is over on its side? A. That is correct. It happened so quick. Q. Where was this depot? A. Victoria Road, Rozelle. Q. At that depot was there a workshop? A. The workshop is in Leichhardt. Q. What workshop is that? Was it Hobbs Bros. workshop? A. It was Hobbs Bros. yard. All the trucks got serviced there. Q. When you came to work you turned up at the Rozelle depot to drive the truck? A. No, I picked it up at Leichhardt at the garage. Q. After you finished unloading it you would then bring the empty vehicle to the Rozelle depot? A. I handed documents in and took it up for service. Q. To where? A. To the garage at Leichhardt. Q. There was a Mr. Looker at Leichhardt? A. Yes, he was in charge of the garage. Q. He had the workshop there, did he? A. That is right. Q. As far as you know all the servicing of all the vehicles in the Hobbs Bros. fleet was done by Mr. Looker at the Leichhardt depot? A. Yes. Q. You do not know of any servicing being done at any other garage or service station apart from that? A. No, unless there were repairs to be done on the road or something like that. The witness said he used to drive this particular vehicle every week and that no one else had driven it except a mechanic moving it in the garage. Q. You, of course, have no particular recollection of any maintenance being done to this vehicle on the day that you drove it to the wharf? A. It could have happened in the morning. Q. But you cannot remember? A. I can’t remember. Q. Your yourself did not stay with the mechanic while he did all the maintenance to this vehicle that might have been necessary? A. Not all the time. Q. I take it you would not yourself say at any particular time exactly what maintenance to the vehicle was necessary because that was his job to look after, wasn’t it? A. He would take a report off me first. Q. He may ask you what sort of trip you had and if anything special had happened you would mention it? A. Yes, he would ask if anything needed attention. Q. He seemed to be relying on you to tell him if anything could be done or anything needed to be done? A. Unless he found something himself when he examined it. Q. When it was a question of examining the vehicle to see whether something needed to be done which you had not mentioned then you left that to Mr. Looker? A. That is correct. Q. And the place at – the one workshop at Leichhardt had to do the servicing both of the inter-state vehicles and the local vehicles? A. That’s right. Q. Was Mr. Looker the only mechanic there? A. No, he had an assistant, an apprentice. Q. One apprentice? A. I cannot remember off hand, but I think he had an assistant as well. Q. Did you sometimes see that assistant doing mechanical work on vehicles? A. No, he never checked anything. He was only doing minor work in the garage. Mr. Looker did all the service checking. Q. And you believe that Mr. Hobbs in fact ensured that Mr. Looker in fact did it? A. Sometimes I was there doing the service with him. The action and third party claim were heard by a judge without a jury. The learned trial judge found a verdict for the plaintiff in the principal action and for the defendant in the claim against the third 316

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Hobbs v Petersham Transport Co Pty Ltd cont. party. The verdict in each case was general. But as the judge gave reasons for his findings, the lack of evidence to support one of the counts need not be fatal to the verdict. He concluded that the vehicle was being driven at a proper speed and in a proper manner, that the driver had no warning of the impending fracture of the axle at a time when he could have avoided its consequences, and that he did exercise all the care that could have been expected of him. However he held that, on the authorities, there were circumstances in the case from which “One can say that there has been a prima facie case of negligence established by the plaintiff that is to say by reason of the non-delivery of the goods”. He found that the failure to deliver was caused “as a result of the actual fracturing so causing the accident and further that this can be caused by a fracture of an axle warning of which might be discovered and remedied by careful and proper inspection”. He held that there was a duty on the defendant company to institute and carry out such an inspection as might have revealed the development of the fracture which finally caused the mishap. He thought it would be reasonable for an owner of heavy vehicles periodically to check for any indications of fractures which might be about to occur, to institute a proper and regular system of maintenance to discover any signs of cracking of an axle and to take corrective action if they did occur. The trial judge commented on the absence of any evidence from Mr. Looker or any explanation of his failure to do so and the failure of the surviving member of the partnership of Hobbs Bros. to give any evidence of any system of maintenance or inspection carried out at the depot. He placed some weight on the absence of these witnesses notwithstanding the considerable lapse of time between the accident and the date of the trial. He concluded: In the absence of any direct evidence as to a system of maintenance or as to the particular maintenance carried out on this vehicle I have come to the conclusion that as a fact I would not accept that the accident occurred without any negligence on behalf of the partnership. Therefore for want of such satisfaction he came to the conclusion that the plaintiff must succeed. On appeal, the Supreme Court, Court of Appeal Division, by majority supported the findings of the trial judge. The defendant, a private carrier, was sued in the first count not as a bailee on whom lay the onus of establishing his exercise of due care for the goods bailed to it: but for breach of its promise to carry the goods safely, that to is say, with due care. Indeed, that probably was the only basis on which the plaintiff had any rights against the defendant: the defendant had not itself received the goods. To procure the services of another to carry the goods was not itself a breach of that promise. But the failure of the sub-contractor to use due care in the carriage of the goods would result in a breach by the defendant of its promise to the plaintiff. The onus of establishing the breach of contract, as in the first count of the declaration was undoubtedly upon the plaintiff. Non-delivery of the goods furnished prima facie evidence of a breach of the promise. But in such an action it does no more. Yet the plaintiff seems to have claimed that such evidence placed an onus on the defendant; and the learned trial judge, accepting that view, has not been satisfied by the defendant, presumably, that it was not in breach of its promise to the plaintiff and not negligent in the carriage of the goods. In my opinion, the defendant faced with the evidence of nondelivery of the goods was in much the same position as a defendant in an action for negligence in the driving of a motor vehicle in which the circumstances of an accident provide a basis for an inference of such negligence. There, as I think, if the defendant provides an explanation of the accident which destroys the ground for that inference, the position is that the plaintiff is without evidence of negligence on the part of the defendant. See Nominal Defendant v. Haslbauer and cases there cited; Piening v. Wanless. So here it seems to me that once the non-delivery of the goods is explained as it was explained, there is no room for an inference from the fact of non-delivery of the goods that the defendant had failed to take due care of the goods. In my opinion, once such an explanation is given and accepted, the defendant is not required to go [11.30]

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Hobbs v Petersham Transport Co Pty Ltd cont. further and establish that he could not have prevented the road accident which happened by any exercise of due care in the maintenance of the vehicle. To require the defendant to do so would, in my opinion, be pressing the evidentiary consequence of the non-delivery too far. To so require proof by the defendant would shift the onus to the defendant to disprove an absence of breach. That, in my opinion, is an unwarranted step. The onus of proving breach of the promise is always with the plaintiff. The matter would be otherwise in an action founded on a bailment of the goods. Where a defendant in an action such as the present has been shown by positive evidence to be negligent a consequential onus may rest on him to disprove a causal connexion between that negligence and the loss. In this connexion reference should be made to Brook’s Wharf and Bull Wharf Ltd. v. Goodman Bros. There Lord Wright referring to remarks of members of the House of Lords, not found in the Law Reports but quoted by Kennedy L.J. in Joseph Travers & Sons Ltd. v. Cooper, said this: The first passage is quoted from the judgment of Lord Loreburn in the following words: “Here is a bailee, who, in violation of his contract, omits an important precaution, found by the learned judge upon ample evidence to be necessary for the safety of the thing bailed to him, and which might have prevented the loss. And his breach of contract has the additional effect of making it impossible to ascertain with precision, and difficult to discover at all, what was the true cause of the loss. I cannot think it is good law that in such circumstances he should be permitted to saddle upon the parties who have not broken their contract the duty of explaining how things went wrong. It is for him to explain the loss himself, and, if he cannot satisfy the Court that it occurred from some cause independent of his own wrongdoing, he must make that loss good!” Then Kennedy L.J. says: “And so Lord Halsbury: ‘It appears to me that here there was a bailment made to a particular person, a bailment for hire and reward, and the bailee was bound to show that he took reasonable and proper care for the due security and proper delivery of that bailment; the proof of that rested upon him’”. In the present case, the stealing of the goods being admitted, the plaintiffs have given evidence that they have taken all reasonable precautions to protect the goods against the risk of theft, and they say that they have satisfied the burden of proof which rests upon them and that they are outside the rulings I have just quoted. They further rely on a statement of the rule given (in a dissenting judgment, it is true) by Lord Dunedin in Ballard v. North British Railway Co. Lord Dunedin there said: “I think this is a case where the circumstances warrant the view that the fact of the accident is relevant to infer negligence. But what is the next step? I think that, if the defenders can show a way in which the accident may have occurred without negligence, the cogency of the fact of the accident by itself disappears, and the pursuer is left as he began, namely, that he has to show negligence. I need scarcely add that the suggestion of how the accident may have occurred must be a reasonable suggestion”. Lord Wright thought that Lord Dunedin’s statement stated the same rule as that stated by Lords Loreburn and Halsbury. Joseph Travers & Sons v. Cooper was a case in which a carrier’s servant had been negligent in leaving a barge unattended. It sank, for what reason was not certain. It was held by the majority of the Court of Appeal that in those circumstances it was for the carrier to prove that his negligence had not caused the loss. See per Phillimore L.J. Buckley L.J. pointed out that the unreported case in the House of Lords from which the quotations were made was a case in which the bailee had been negligent and, in that event, proof that the loss had not been caused thereby rested upon him. In using the statements made by Lord Wright and those quoted by him in relation to an action for breach of a promise to carry with due care where there has been no bailment of the goods it must be remembered that this Court has differed from the trend of decision in England by which it is considered that the giving of prima facie evidence may operate to shift the onus of proof. See Mummery v. Irvings Pty. Ltd. and Anchor Products Ltd. v. Hedges as well as the other cases in this Court to which I have already referred. As a result of those cases, the accepted explanation of the non-delivery, in my opinion, removes the basis of the inference which could otherwise be drawn from its 318

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Hobbs v Petersham Transport Co Pty Ltd cont. occurrence. It would of course be different if that explanation itself exposed a want of care on the part of the defendant. cf. Nominal Defendant v. Haslbauer. Here the defendant established the precise cause of the failure to deliver and that that cause of non-delivery, namely, the unexpected fracture of the axle of the bogie of the trailer, was not itself due to any act of the defendant or of his sub-contractor. It thus, in my opinion, destroyed the basis of any inference of the lack of due care drawn only from the fact of non-delivery. Further it was established that the vehicle was suitable for its task, it was not overloaded, it was not improperly driven, either in point of speed or otherwise: it was in first class condition. The fracture of the axle was new and not the result of wear. It was a total failure of that axle, immediate and without warning. In my opinion, upon the evidence of the condition of the truck and the manner of the accident being given, and accepted by the trial judge, it remained for the plaintiff to establish a want of reasonable care on the part of the defendant for the safety of the goods in the course of their carriage that being the basis of the plaintiff’s claim. The onus did not pass to the defendant because the non-delivery of the goods afforded prima facie evidence of a breach of a promise to use due care for the goods. However, even assuming that the consequence of non-delivery was that the defendant (presumably because regarded as a bailee) became liable to prove that it could not have avoided the fracture of the axle by reasonable inspection and maintenance of the vehicle it did, in my opinion, satisfy that onus. There was no evidence that any warning sign of an impending fracture of the axle of the kind which did occur could have been seen upon an examination of the vehicle in the course of its reasonable maintenance or for that matter at all. There was no evidence that such a fracture was preceded by a hair line crack. The evidence to which I have referred pointed the other way. All that was said in evidence was that if a hair line crack were seen, the vehicle would not be driven. In my opinion, the trial judge wrongly assumed without evidence that such warning signs would exist and would be discoverable by a reasonable system of maintenance and inspection supposing (which I cannot think could be supposed) that in such a system the axles would be cleaned of all grease so as to expose the metal of which they were formed. On these matters I respectfully agree with the reasons for judgment given by Sugerman P. in the Supreme Court. The defendant did prove that the vehicle was regularly inspected and serviced. The driver, expert and experienced in the field, said that the vehicle was in A1 condition. In my opinion, even on the assumption that because of the non-delivery of the goods the defendant carried the onus of establishing that reasonable care had been taken of the goods, the trial judge was in error in not being satisfied in the circumstances that the defendant had taken reasonable care for the safety of the goods. The appeal should be allowed, the verdicts of the trial judge set aside, a verdict entered for the defendant in the plaintiff’s action and for the third party in the defendant’s claim and a direction given that judgments be entered accordingly. MCTIERNAN J: I agree with Menzies J. and concur in his reasons. The appeal should, in my opinion, be allowed. MENZIES J: I have had the advantage of reading the judgment of the Chief Justice in which the facts relevant to these appeals are fully set out. The critical decision to be made here, as it seems to me, is whether the evidence established affirmatively that the fracture of the axle of the bogie of the trailer which caused the vehicle to overturn happened without any negligent act or omission of the defendant or any servant of the defendant. It is common ground that the defendant was a bailee for reward of the equipment being carried. It was not under an absolute duty to deliver. It was a qualified duty and, to use the language of Starke, Dixon and McTiernan JJ. in John F. Goulding Pty. Ltd. v. Victorian Railways Commissioners, “it would not [11.30]

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Hobbs v Petersham Transport Co Pty Ltd cont. be broken if the defendants were disabled from delivery through destruction or loss of the goods which reasonable care and skill on their part could not avoid”. To escape liability for nondelivery the onus of proving that the non-delivery, however caused, was without fault on its part, rested upon it. A modern statement of the position is to be found in the judgment of Lord Denning M.R. in Morris v. C. W. Martin & Sons Ltd., as follows: Once a man has taken charge of goods as a bailee for reward, it is his duty to take reasonable care to keep them safe: and he cannot escape that duty by delegating it to his servant. If the goods are lost or damaged, whilst they are in his possession, he is liable unless he can show—and the burden is on him to show—that the loss or damage occurred without any neglect or default or misconduct of himself or of any of the servants to whom he delegated his duty. These well-established rules, which I think should be accepted without qualification or gloss, do not constitute a carrier, such as the defendant, an insurer; he escapes liability if he can show that non-delivery of goods entrusted to him for carriage was not due to his fault, notwithstanding that he does not show how the loss actually occurred. In this, his obligation is less onerous than that imposed by law upon a common carrier who is, of course, responsible for the safety of the goods entrusted to him, except for loss arising solely from act of God or the Queen’s enemies or inherent vice in the goods carried or from the fault of the consignor. If the defendant had been a common carrier he could not have hoped to escape from liability in the circumstances of this case.

Pitt Son & Badgery Ltd v Proulefco SA [11.35] Pitt Son & Badgery Ltd v Proulefco SA (1984) 153 CLR 644 GIBBS CJ 1. The present case depends on a question of fact which falls within a narrow compass and it is possible to give judgment immediately. (at p 645) 2. The respondent was the plaintiff in an action brought in the Supreme Court of New South Wales against the appellant for damages for breach of duty as a bailee. The action failed at first instance but succeeded on appeal. The appellant, a wool broking company, was at all material times the lessee and occupier of a wool store at Hannell Street, Newcastle. At some time before 29 November 1979, the appellant had received eighty-six bales of greasy wool, which it intended to sell by auction and which it stored in the wool store at Hannell Street. The auction was held in the Newcastle Wool Exchange on 29 November 1979 and the respondent purchased the wool. Under cl. 4 of the conditions of the contract for sale, the respondent was not entitled to take delivery of the wool from the store until it had been paid for in full. It was provided by cl. 10 of those conditions that the wool should be removed within twenty-eight days from the Wednesday of the auction sale series. The eighty-six bales remained with other wool in the wool store until it was destroyed by fire in the early morning of 6 December 1979. The respondent had paid for the wool on 5 December 1979. (at p 646) 3. It was accepted by the appellant in the Supreme Court and before us that the appellant was a bailee, with duties analogous to those of a bailee for reward, and that the relevant duty was to take such care of the goods as was reasonable in the circumstances. It was further accepted that the appellant bore the onus of disproving negligence. It was candidly conceded by Mr. Staff for the appellant that there was no evidence that the respondent knew where the wool was stored, or under what conditions it was stored. The conditions under which it was in fact kept in the wool store were described by the learned trial judge in his judgment as follows: 320

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Pitt Son & Badgery Ltd v Proulefco SA cont. The store in question was designated as store No 2 and was part of a complex of six stores built in pairs. Each pair was separated by an alleyway. The complex was erected in the early 1940s and was of a construction which apparently was fairly common when it became necessary by reason of the exigencies of the war to provide additional wool storage facilities in Australia. The stores stood on piers approximately 3 feet high. The outer wall was constructed of weatherboard and at the relevant time the stores were, of course, nearly forty years old. The floors were of wood. All the woodwork was in a dry condition. Each store was over 200 feet long and approximately 120 feet wide, approximately 20 feet high with the apex of the roof stretching a further 7 feet or thereabouts … There is no suggestion but that the locks on the doors to the store were of a secure and well constructed type. It would appear from what transpired that there was at least one hole permitting limited access to the interior of the store. The complex was enclosed by means of a paling fence and at the relevant time there were a number of palings missing. This was no unusual occurrence because on the evidence some of the population of Newcastle had, over the years, garnered their firewood from this particular paling fence which was then renewed, from time to time, by the landlord … The complex was in an industrial area unguarded by any security service. The premises were unlit at night and were unattended by any watchman or other means of safeguarding against unauthorized entry. It is relevant to note that wool to the value of $1,000,000 was, from time to time, stored in the complex … The only protection against fire enjoyed by the store No. 2 was the presence of twelve fire extinguishers manually operated. However, four of the stores in the complex were protected by some five hundred sprinklers automatically operated, located on the inside of the stores in question and some one hundred underneath each of the buildings. Each sprinkler had the capacity to encompass 100 square feet, and to discharge 40 gallons of water per minute. The sprinklers, upon being activated by a rise in temperature, were wired to an alarm at the local fire station approximately 2 miles away. (at p 647) 4. The fire which occurred on 6 December 1979 was lit by a young man described as a drifter who, for no apparent reason, stuffed paper into a hole in the wall of the shed and set fire to the paper. The walls of the shed caught fire and the wool was destroyed. (at p 647) 5. In the Court of Appeal, it was held that the appellant was in breach of its duty in two respects; first, because the fence was insufficiently secure to keep out intruders and, secondly, because of the absence of a sprinkler system. Their Honours considered that the two aspects of the failure should not be dissociated and that it was not necessary to consider whether, if the building had been adequately protected by fencing, that would have been sufficient to discharge the duty of care, although no sprinklers were provided. In my opinion, however, it is unnecessary to consider whether the appellant was in breach of its duty in failing to provide a sprinkler system. The failure to provide fencing, reasonably adequate to keep out intruders, in my opinion amounted to a breach of the appellant’s duty to take reasonable care for the wool. (at p 647) 6. It can hardly be denied that the appellant’s duty required it to take reasonable care to keep out intruders who might misappropriate or damage the wool. Because of the size and weight of the bales the risk of theft was slight, but, when regard is had to the value of the wool, it is impossible to say that no precautions needed to be taken. It may also have been true that the risk of damage by intruders was slight, but it was foreseeable that, under modern conditions, there might be intruders who might, in one way or another, cause damage to the wool. It was the duty of the appellant to take reasonable care to prevent damage of that kind. In deciding what was reasonable, regard must, of course, be had to the difficulty and expense of the possible precautions. The provision of a secure fence is so obvious a precaution and so comparatively inexpensive to provide, that failure to provide it was negligent. (at p 648) 7. In the course of his argument, Mr. Staff, for the appellant, made two submissions to which it is necessary to advert. In the first place, he relied on the two recent cases of Lamb v Camden Council [1981] EWCA Civ 7; (1981) QB 625, and P Perl (Exporters) Ltd v Camden London Borough Council [1983] [11.35]

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Pitt Son & Badgery Ltd v Proulefco SA cont. EWCA Civ 9; (1984) QB 342, and submitted that the appellant was not liable for the acts of an independent third party such as the intruder in the present case. Those cases were very different from the present. Lamb was a case of nuisance which caused the subsidence of a house. While it was empty, squatters invaded it and the damage they caused was held to be too remote. The acts of the independent third parties there were not connected with the original tortious act. In Perl, intruders entered the defendant’s premises which were inadequately guarded and thence broke into the plaintiff’s premises. It was held that the defendant was not liable for the acts of the third party. The question there discussed was in what circumstances one person is liable in negligence for the wrongdoing of another. Here, however, the negligence of the appellant lay in its failure to take reasonable care to keep the wool secure by providing an adequate fence. The damage was the direct consequence of the failure to provide an adequate fence which would have kept out a casual intruder. The tortious act of the intruder was of the very kind which the appellant was obliged to take reasonable care to prevent. The evidence does not show that the fire was caused by a person determined to effect a difficult entry. It was caused by a person who simply walked through a hole in the fence, put some paper in a hole in the wall of the store and set it alight. (at p 648) 8. Secondly, Mr. Staff pointed to the evidence which showed that arson was a rare occurrence in wool stores - indeed, it may have been quite unknown - and submitted that it was not unreasonable to fail to guard against it. However, the duty of the appellant was not simply to guard against arson. It was to take reasonable care to keep the wool safe, and therefore to prevent damage from any sort of intruders, whether thieves, vandals or the unexpected arsonist. (at p 648) 9. For these reasons, I am unable to accept the submission that the appellant is not liable for the damage to the wool. The appellant has failed to show that it took reasonable precautions to keep the wool safe, and the damage that resulted from its breach of duty was not too remote. I would dismiss the appeal. (at p 648) WILSON J. I agree. (at p 649) BRENNAN J. I agree. (at p 649) DEANE J. I also agree. (at p 649) DAWSON J. I agree. (at p 649) ORDER Appeal dismissed with costs.

Extract from Pearson, Commercial Law: Commentary and Materials, Ch 7.

Interaction between bailment and sale

Matthew Short & Associates Pty Ltd v Riviera Marine (International) Pty Ltd [11.40] Matthew Short & Associates Pty Ltd v Riviera Marine (International) Pty Ltd [2001] NSWCA 281 [Riviera built boats at the Gold Coast. It contracted to manufacture a motor cruiser for Boland, a Californian ship broker, to specifications supplied by his client. The cruiser, 34/18, was built and was to be exported through Port Botany. Riviera contracted with Short to arrange for the shipment of the boat by freighter. Riviera took the boat from Queensland to the parking area at Port Botany on its semi trailer. Because of industrial conditions, Riviera could not take its semi trailer direct to the freighter. Short arranged for Botany Cranes to lift the boat from Riviera’s semi trailer onto Campbell’s low loader. 322

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Matthew Short & Associates Pty Ltd v Riviera Marine (International) Pty Ltd cont. Campbell was to take the boat onto the wharf alongside the freighter. Instead, Campbell’s driver drove under an archway and the superstructure of the boat struck a large metallic sign and was damaged. Boland’s clients did not want a boat that had been repaired. Riviera supplied a different cruiser to Boland at a different date. Riviera successfully claimed damages from Short and Campbell. Both appealed. At first instance it was found that Campbell (through the driver) was liable in negligence, and that Short and Campbell were liable as bailee and sub-bailee. The Court of Appeal found that Short was never in possession of the cruiser: [43] “The presence of Mr Short [at Port Botany] and the fact that he may have supervised the process of unloading and loading [from Riviera’s semi trailer to Campbell’s low loader] do not establish that he had possession – the only period when he was in control, if he ever was in control, was while the cruiser was being strapped to the cradle.”. Further, assuming that Riviera was the owner when the cruiser was damaged, the Court of Appeal found that Campbell not Short was the bailee of Riviera, the bailor. At first instance it was found that property had not passed from Riviera to Boland. If property had passed, Riviera would have no standing.] HEYDON JA: [52] There is no doubt that at the time of the contract made in late June 1997, the motor cruiser 34/18 was “future goods”: it was a motor cruiser to be manufactured by the seller, Riviera, after the making of the contract of sale. The motor cruiser 34/18 could also be characterised as “unascertained goods”, since one category of that class is “goods not yet in existence, which have to be manufactured … by the seller”: Benjamin’s Sale of Goods (5th ed, 1997) para 1-116; see also para 5-059. It follows that property could not pass until the goods were ascertained (s 21), and that the contract was strictly speaking not a sale, but an agreement to sell (s 6(3) and (4)). [53] The following matters were common ground: (a)

property did not pass at the time of the contract because the goods were at that time unascertained (s 21);

(b)

property did not pass before payment on 8 August 1997;

(c)

property would not have passed after the time when 34/18 would have crossed the rail of the “Direct Currawong” [freighter] had it not been damaged en route to that vessel on 14 August 1997;

(d)

the loading of 34/18 into a Riviera truck at Labrador was not an effective delivery under s 35(1), and hence not a delivery of “the goods to the buyer” under s 23 r 5(2), because so far as the driver of that truck, Mr Andrews, was a carrier, he was the employee of Riviera, and delivery to him was not delivery to Mr Boland;

(e)

further, delivery to Mr Andrews was not delivery “to a carrier or other bailee” under s 25 r 5(2), because the relevant carrier must be a bailee, and Mr Andrews was not a bailee, he was a conduit through whom Riviera retained possession.

Intention that property would pass on payment? [54] There are cases where the time when property passes is postponed from the time fixed by s 23 r 1 (the time when the contract is made) to the time when payment is made: eg Re An Arbitration Between Shipton, Anderson & Co and Harrison Bros & Co [1915] 3 KB 676 at 680; Re Anchor Line (Henderson Brothers) Ltd [1937] Ch 1 at 7 and 11. Where, as here, the contract was not for specific goods in a deliverable state, but for future goods, the time fixed by s 23 r 5 can be displaced, and the time of earlier payments selected, if the intention of the parties is to do so. [55] Campbell relied on the following dictum of Diplock LJ in Ward (RV) Ltd v Bignall [1967] 1 QB 534 at 545: “in modern times very little is needed to give rise to the inference that the property in specific goods is to pass only on delivery or payment.” That does not assist its argument. It states that delivery or payment are necessary conditions for the passing of property. The present question is whether [11.40]

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Matthew Short & Associates Pty Ltd v Riviera Marine (International) Pty Ltd cont. payment is a sufficient condition for the passing of property at the time of payment, or sufficiently strong evidence of intention that property is to pass at that time. [Payment was made on August 8 before the cruiser was loaded onto Riviera’s truck on August 10 ie prior to the dispatch of the goods. Normally COD means payment on delivery. Campbell submitted that the goods were paid for COD and that this was not a true FOB contract.] [64] The contract was “FOB” in the sense that the seller delivered the goods to the freighter at its own expense, the risk of loss was transferred to the buyer upon loading and the seller was discharged of obligation at that point; the freighter owner and the buyer at that point became responsible for the carriage of the goods. The contract was not a “CIF” contract, since the entitlement of Riviera to payment did not depend on sending the invoice, the bill of lading and an insurance policy over the goods while they were on the freighter to the buyer: Riviera’s entitlement to payment arose earlier a few days before shipment of the freighter. [66] If Campbell’s submissions were sound, Mr Boland would be owner from at least the time when the journey from Labrador started. Prima facie the risk would pass to him at that time: s 25. Yet Mr Boland was not in the habit of insuring motor cruisers he bought until the time when they were on board the freighters shipping them from Australia. [And did not on this occasion.] [67] In Allison v Bristol Marine Insurance Co Ltd (1875) 1 App Cas 209 at 229 Blackburn J said: “Merchants, according to my experience, attach very great weight to a stipulation as to who is to insure, as shewing who is to bear the risk of loss ….” In Carlos Federspiel & Co SA v Charles Twigg & Co Ltd [1957] 1 Lloyd’s Rep 240 at 255 Pearson J said that if: “there is reason for thinking … that the goods were, at all material times, still at the seller’’s risk, that is prima facie an indication that the property had not passed to the buyer.” At 256 he said of the case before him: “there is no suggestion of the goods being at the buyer’s risk at any time before shipment; no suggestion that the buyer should insist on the seller arranging insurance for them.” The same is true here. [68] In short, leaving aside s 23 r 5, whatever conclusion might flow from the fact, taken by itself, that Mr Boland paid for 34/18 four days before the accident, the contemporary practices of the parties (including Mr Boland’s practice about insurance, known to both of them) and the documents they employed to carry out the transaction point to the conclusion that property would not have passed until 34/18 had been loaded on the freighter because that is when the Manufacturer’s Statement of Origin suggested that it did. The parties may expressly indicate their intention as to the passing of property, and they did so by contracting on the basis that the Manufacturer’s Statement of Origin would be employed in this transaction in conjunction with the other procedures: they contracted on that basis because they knew, from their experience of many identical prior dealings, that the past documents and practices would be employed again for the sale of 34/18. Section 23 r 5 [69] Campbell’s argument in reliance on s 23 r 5 was that the contract was a contract for the sale of unascertained or future goods by description – a motor cruiser meeting particular specifications. That motor cruiser was unconditionally appropriated to the contract by the seller with the assent of the buyer when it was delivered to a carrier or other bailee, namely Short or Campbell, without reservation of a right of disposal and for the purpose of transmission to the buyer Mr Boland. Property thereupon passed to Mr Boland. [70] This argument would not be contradicted by the reasoning which rejected the proposition that property passed on payment. [71] However, the s 23 r 5 argument fails on other grounds. [72] Rule 5(2) applies where the seller delivers the goods “to a carrier or other bailee”. The owner of the “Direct Currawong” was a carrier; but Campbell’s argument depended on the owner of the 324

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Matthew Short & Associates Pty Ltd v Riviera Marine (International) Pty Ltd cont. “Direct Currawong” [the freighter] not being the relevant carrier or other bailee, but on the relevant delivery to a carrier or other bailee taking place when 34/18 arrived at the parking area or when 34/18 was delivered to Campbell. There are various possibilities as to when 34/18 was delivered to the carrier for the purpose of transmission to Mr Boland. To some extent they depend on when possession of 34/18 moved from Riviera to others. (a)

It is possible that Short became a carrier or other bailee once 34/18 was unloaded from the Riviera truck.

(b)

It is possible that a series of bailments took place from the moment 34/18 was unloaded from the Riviera truck until the loading of 34/18 onto the freighter. The bailees under that series of bailments would have been, first, Botany Cranes (as 34/18 was unloaded from the Riviera truck); then Short (while 34/18 was being containerised, unless Riviera regained possession through Mr Andrews and Mr Barry-Cotter); then Botany Cranes again (while 34/18 was loaded onto Campbell’s truck); and then Campbell (once 34/18 had been loaded onto Campbell’s truck).

(c)

It is possible that Riviera retained possession until the loading of 34/18 into the Campbell truck.

(d)

It is possible that Riviera retained possession until 34/18 crossed the side of the freighter.

[73] Proposition (a) must be rejected. It is inconsistent with the conclusion reached in [43] above to the effect that Short never obtained possession. If it never obtained possession, it never became a “carrier or other bailee”. [74] If proposition (d) were sound, by itself it would prevent s 23 r 5 operating until the motor cruiser were loaded onto the freighter; but it is probably not sound: see [45]. [75] It is not, however, necessary to decide which of these possibilities is correct. That is because there are three reasons why the only person who was a “carrier” within the meaning of s 23 r 5 was the freighter owner. [76] First, delivery to the relevant “carrier or other bailee” must have “the purpose of transmission to the buyer”. If there were a series of bailments – bailment to Botany Cranes, bailment back to Short (or delivery back to Riviera), bailment to Botany Cranes again, and bailment to Campbell – the successive transfers of possession point against there having been delivery of “the goods … to a carrier or other bailee … for the purpose of transmission to the buyer”. Botany Cranes was not a carrier, Short was not a carrier, Riviera was not a bailee, and Campbell was only to be a carrier for a short distance and a short time. The successive acts were acts preparatory to transmission of the goods to the buyer, rather than being part of the transmission. – Had industrial conditions [been different] presumably Riviera would have delivered 34/18 to the side of the freighter, and there would be no doubt that the freighter owner was the “carrier or other bailee” referred to in r 5(2). [77] Secondly, it is highly significant that the practice of Short was to inform Mr Boland of the freighter on which a particular motor cruiser was to be taken from Australia to the United States of America. But it was not Short’s practice to inform Mr Boland of the identity of the modes of transport from Queensland, – Mr Boland knew that the motor cruisers had to be transported to either Brisbane or Sydney. Mr Boland was told that there would be costs of transport to Sydney and costs of the crane at the wharf, but that Riviera would be paying those costs. That accorded with the practice after the time when a particular contract of sale with Riviera was made … [78] From Mr Boland’s point of view, the carriage of the motor cruiser to the United States of America only commenced when the freighter was loaded. From Mr Boland’s point of view, the freighter owner was the person responsible for bringing the motor cruiser to it and the person whom it was to pay. [79] Parke B described the basis of the common law rule now embodied in s 23 r 5 as follows in Wait v Baker (1848) 2 Ex Ch 1 at 7; 154 ER 380 at 383: “if goods are ordered by a person, though they are to [11.40]

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Matthew Short & Associates Pty Ltd v Riviera Marine (International) Pty Ltd cont. be selected by the vendor, and are to be delivered to a common carrier to be sent to the person by whom they have been ordered, the moment the goods, which have been selected in pursuance of the contract, are delivered to the carrier, the carrier becomes the agent of the vendee, and such a delivery amounts to a delivery to the vendee ….” The same principle would apply where the goods were not selected by the vendor but, as here, manufactured by the vendor. Benjamin’s Sale of Goods (5th ed, 1997) para 5-097 says: “The carrier is prima facie constituted the buyer’s agent for the purpose of taking delivery; but if the terms of the contract or appropriation show that the carrier is the agent of the seller, the property will not normally pass until the goods are actually delivered to the buyer or his agent.” [80] If Riviera retained possession until Campbell obtained it, or even until 34/18 was to be moved over the rail of the “Direct Currawong”, it would not be a “carrier”: Galbraith and Grant Ltd v Block [1922] 2 QB 155 at 156. If Riviera lost possession, either when 34/18 was lifted off its truck or when 34/18 was lifted onto Campbell’s truck, the persons who had possession thereafter until 34/18 was placed on the freighter were certainly not the agents of the buyer Mr Boland. The owner of the freighter was its agent in the sense of an actor carrying out a function for Mr Boland. The owner of the freighter transported the motor cruiser, it was to be paid by Mr Boland for doing so, and the risk of its damaging the motor cruiser was a matter which Mr Boland was to insure against and did insure against. On the other hand, while Short, Botany Cranes and Campbell were not strictly agents of Riviera they were persons who were agents in the sense of actors carrying out a purpose desired by Riviera. That purpose was to deliver the motor cruiser to the freighter owner. [81] The presence of Riviera’s officers, during the process of unloading and loading, point to Riviera having a supervisory role over the activities of Short and the sub-contractors. That supervisory role is suggestive of conduct by the seller anterior to the moment when transmission of goods to the buyer by a carrier or other bailee who is independent of the seller begins. The short period in which Campbell was to move 34/18 from car park to wharf was not a period of supervision by Riviera’s officers, but it immediately followed it. It would be artificial to treat Campbell, rather than the freighter owner, as the carrier or other bailee who was to have possession of 34/18 for the purpose of transmission of it to Mr Boland. The role of Campbell was much more closely connected with the other activities arranged by Short at Riviera’s request than it was with the activities of the freighter owner. [82] Thirdly, in Carlos Federspiel & Co SA v Charles Twigg & Co Ltd [1957] 1 Lloyd’s Rep 240 at 255-256 Pearson J said: “usually but not necessarily, the appropriating act is the last act to be performed by the seller.” The following appears in Williston on the Law Governing Sales of Goods at Common Law and Under the Uniform Sales Act (rev ed, 1948) vol 2 para 278: “where several things are to be done by the seller to the goods, it is to be presumed that the parties intend the appropriation to be deferred until the last of these acts has been done. … Where, as in the case of shipment by carrier, the last of the acts which the seller is to perform puts the goods out of his control, there is an added reason for selecting that time. Though the buyer may assent to an appropriation of the goods while still wholly in the seller’s control, even though the seller is bound by his contract to deliver the goods to a carrier, yet in the absence of a clear expression of that intention it is a more natural inference whereby the terms of the bargain the goods are promptly to be put in the hands of a carrier (or other bailee for the buyer,) that the property does not pass until that has been done, and that then it will pass.” Among the acts which the seller and buyer contemplated as being done by the seller was arranging the transport of 34/18 to, and the loading of 34/18 on board, the “Direct Currawong”. The cost of doing this was borne by the seller. It follows that the last act to be performed by the seller was procuring the delivery of 34/18 on board the freighter, and not anything anterior to it. Campbell’s role in taking 34/18 alongside the freighter so that it could be placed on board the freighter was contemplated as being part of the seamless series of steps by which 34/18 moved from Labrador to the freighter: there are no 326

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Matthew Short & Associates Pty Ltd v Riviera Marine (International) Pty Ltd cont. natural divisions of that series into events which it was the seller’s responsibility to procure and events which it was the buyer’s responsibility to procure. It was the seller’s responsibility to procure all of them. [83] Hence the freighter owner was the relevant “carrier” for the purposes of s 23 r 5. Section 23 r 5 operates to create a presumption that the property in the goods passed when 34/18 passed over the side of the freighter into the possession of the freighter owner. There is no evidence of any different intention to rebut that presumption: indeed the presumption arrives at a conclusion similar to that to which the evidence as a whole points. [84] Hence property did not pass to Mr Boland until after the accident. Campbell’s contention that Riviera’s case against it fails because Riviera lacked standing to sue fails. [Meagher JA and Ipp AJA agreed.]

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Chapter 13: Exploring Equitable Choses in Action ........................ .. 345

PART3

Chapter 12: The Concept of a Chose in Action .............................. .. 331

CHAPTER 12 The Concept of a Chose in Action [12.05]

IDENTIFYING CHOSES IN ACTION .................................................................. 331

[12.05]

THINGS IN ACTION: INTANGIBLE PERSONAL PROPERTY ................................. 331 [12.05]

The history of choses in action .......................................................... 331 [12.10]

[12.20] [12.25] [12.30] [12.40]

The History of the Treatment of Choses in Action by the Common Law ....................................................................... 332

Characteristics of choses in action .................................................... 332 Equitable choses in action .................................................................. 333 Legal choses in action ......................................................................... 333

ASSIGNABILITY ................................................................................................... 334 [12.40] [12.45]

Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd ................... 334 Equuscorp Pty Ltd v Haxton ................................................... 337

Extracts from Pearson, Commercial Law: Commentary and Materials, Ch 2.

IDENTIFYING CHOSES IN ACTION THINGS IN ACTION: INTANGIBLE PERSONAL PROPERTY The history of choses in action [12.05] Historically, things in action (also termed “intangible property” or “intangible

personal property” or “choses in action” with the word “chose” coming from the law French word chose meaning “thing”) have been the poor cousins of things in possession (goods). It was not possible to transfer a chose in action at common law. In due course equity recognised the assignment of a chose in action and the legal assignment of choses in action was given effect to by the enactment of s 25(6) of the Judicature Act 1873 (UK) which has equivalents in all Australian States, eg, Conveyancing Act 1919 (NSW), s 12. More generally the “poor cousin” title resulted from the fact that trade was seen in terms of dealing with products (that is, product-based trade). 1 Even with the advent of the Industrial Revolution, the accent in commercial matters was on product-based trade. For a chose in action to come within that concept of trade it first had to be recognised as a form of property and this took some time. Today, choses in action are considered property and various types such as contractual rights and particularly debts are traded and transferred on a massive scale. Moreover, with the recognition as a commercial asset of forms of intangible property such as intellectual property, the emphasis in both domestic and international trade has shifted away from solely 1

Modern commercial usage has extended the term “product” to encompass a wide range of financial instruments and services, such as shares, bonds, debentures, derivatives and the provision of brokerage and investment advisory services: see, for example, the definition of “financial product” in Corporations Act 2001 (Cth), ss 763A(1) and 764A. [12.05]

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product-based trade to include what might be termed generically as knowledge-based trade. 2 Integral to knowledge-based trade is the legal conception of choses in action. An example of this is where an Australian trade mark owner grants a licence for the use of that trade mark to a person situated outside Australia. Although trade in choses in action is relatively modern, this does not mean that choses in action are of modern origin. The following excerpt by the eminent legal historian, Holdsworth, summarises the development of the legal concept of a “chose in action”.

“The History of the Treatment of Choses in Action by the Common Law” [12.10] W Holdsworth, “The History of the Treatment of Choses in Action by the Common Law” (1920) 33 Harvard Law Review 997 at 997-998 In its primary sense the term “chose in action” includes all rights which are enforceable by action – rights to debts of all kinds, and rights of action on a contract or a right to damages for its breach; rights arising by reason of the commission of tort or other wrong; and rights to recover the ownership or possession of property real or personal. It was extended to cover the documents, such as bonds, which evidenced or proved the existence of such rights of action. This led to the inclusion in this class of things of such instruments as bills, notes, cheques, shares in companies, stock in the public funds, bills of lading, and policies of insurance. But many of these documents were in effect documents of title to what was in substance an incorporeal right of property. Hence it was not difficult to include in this category things which were even more obviously property of an incorporeal type, such as patent rights and copyrights. Further accessions to this long list were made by the peculiar division of English law into common law and equity. Uses, trusts, and other equitable interests in property, though regarded by equity as conferring proprietary rights analogous to the rights recognized by law in hereditaments or in chattels, were regarded by the common law as being choses in action.

[12.15] A point of interest from this summary by Holdsworth lies in the use of the term

“chose in action”, which encompasses both dematerialised choses in action and material choses in action, such as negotiable instruments and certificated shares, bonds and other securities. Where the chose in action (or intangible thing) is evidenced in material form (whether due to mercantile custom or statute), the material form functions as a gateway to the enforcement of the underlying intangible right. According to Holdsworth, this extension laid the basis for the absorption into the category of choses in action of those intangible statutory rights such as patents and copyright. Characteristics of choses in action [12.20] A chose in action refers to the residual category of personal property that falls outside

the category of “choses in possession”. The next stage of our enquiry is to isolate the characteristics or attributes of choses in action. These characteristics can be summarised as follows: 1.

Enforceability. A chose in action must be capable of being enforced by the rightholder (or creditor) against the dutyholder (or debtor): Goldsbrough Mort & Co Ltd v Tolson (1909) 10 CLR 470 at 479.

2

See, for example, S Fisher and D Fisher, Export Best Practice: Commercial and Legal Aspects (The Federation Press, Sydney, 1998), Chapter 7.

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2.

Incorporeal and intangible. A chose in action is intangible and incorporeal. It is something which is not reducible to physical possession, and cannot be acquired by anyone under the procedures for the transfer of interests in goods. A chose in action is an immaterial legal object: Tolson’s case at 479.

3.

“Bare Right”. A chose in action confers only a bare right without any occupation or enjoyment: Allgemeine Versicherungs-Gesellschaft Helvetia v Administrator of German Property [1931] 1 KB 672 at 703 per Slesser LJ (citing 2 Blackstone’s Commentaries 396). The ingredients of occupation or enjoyment are the hallmarks of tangible personal property (goods).

Equitable choses in action [12.25] There is a further distinction concerning the types of choses in action, namely the distinction at general law between legal choses in action and equitable choses in action: Loxton v Moir (1914) 18 CLR 360 at 368 at per Griffith CJ. This distinction derives from the period prior to the Judicature Act 1873 (UK) and its adoption by the various Australian jurisdictions, in which legal choses in action were enforceable only at common law and equitable choses in action were enforceable only in equity. A second point of differentiation concerns assignability. As noted above, it was not, in general, possible to assign common law choses in action under common law, while equitable choses in action were freely assignable in equity. (A purported legal assignment of a common law chose in action that failed at common law could, however, be given effect to in equity.) The assignment of choses in action is discussed in Chapter 3 (Pearson). Equitable choses in action include:

1.

A share or interest in a partnership: Federal Commissioner of Taxation v Everett (1980) 143 CLR 440 at 447 per Barwick CJ, Stephen, Mason and Wilson JJ; Re Bainbridge; Ex parte Fletcher (1878) 8 Ch D 218; Wilson v Commissioner of Probate Duties (Vic) (1978) 80 ATR 799 at 804 per Murphy J.

2.

The interest of a beneficiary under a trust: Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 at 30; Wilson v Commissioner of Probate Duties (Vic) (1978) 80 ATR 799 at 804 per Murphy J.

3.

The interest of a legatee: Perpetual Trustee Co Ltd v Commissioner of Stamp Duties (1961) 61 SR (NSW) 333; Deeks v Strutt (1794) 5 TR 690; 101 ER 384 at 385; Brathwait v Skinner (1839) 5 M & W 313; 151 ER 133 at 137; Wilson v Commissioner of Probate Duties (Vic) (1978) 80 ATR 799 at 804 per Murphy J.

4.

A reversionary interest under a will: Re Tritton; Ex parte Singleton (1889) 61 LT 301; Wilson v Commissioner of Probate Duties (Vic) (1978) 80 ATR 799 at 804 per Murphy J. What unifies each of these specific instances of equitable choses in action is that historically they were only recognised and enforced in equity. Legal choses in action [12.30] Legal choses in action include:

1.

A debt. At general law, the essence of a “debt” is that a debtor is obliged to pay money to the creditor: King v Brown (1912) 14 CLR 17 at 25 per Griffith CJ and at 36 per Isaacs J; Olsson v Dyson (1969) 120 CLR 365 at 375 per Kitto J and at 385 per Windeyer J. [12.30]

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2.

Negotiable instruments (including bills of exchange, promissory notes and cheques): Colonial Bank v Whinney (1886) 11 App Cas 426.

3.

A policy of insurance: Re Moore; Ex parte Ibbetson (1878) 80 Ch D 519.

4.

Shares in the issued capital of a company: Archibald Howie Pty Ltd v Commissioner of Stamp Duties (NSW) (1948) 77 CLR 143 at 156-157; Torkington v Magee [1902] 2 KB 427 at 430 per Channell J (for the court).

5.

The benefit a creditor enjoys under a guarantee given by a guarantor: Loxton v Moir (1914) 18 CLR 360; PT Ltd v Maradona Pty Ltd (1992) 25 NSWLR 643 at 660. 3

ASSIGNABILITY Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd [12.40] Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd (2006) 229 CLR 386; 229 ALR 58 (footnotes omitted) GUMMOW, HAYNE and CRENNAN JJ ... Some aspects of the development of the law of maintenance and champerty 68 The law of maintenance and champerty has been traced to the Statute of Westminster the First (3 Edw I c 25) of 1275. Some trace it back to Greek law and Roman law. Be this as it may, Coke identified maintenance as an offence at common law and champerty was a particular species of maintenance. Although traditionally identified as a common law offence, several early statutes are understood as affirming or declaring that common law. 69 By the 19th century, the law of maintenance was understood by Lord Abinger CB as: “confined to cases where a man improperly, and for the purpose of stirring up litigation and strife, encourages others either to bring actions, or to make defences which they have no right to make … [By contrast], if a man were to see a poor person in the street oppressed and abused, and without the means of obtaining redress, and furnished him with money or employed an attorney to obtain redress for his wrongs, it would require a very strong argument to convince me that that man could be said to be stirring up litigation and strife, and to be guilty of the crime of maintenance.” (emphasis added) Yet in Bradlaugh v Newdegate, Lord Coleridge CJ held that an action for maintenance at common law existed, but made no reference, in an extensive review of the authorities, to any requirement that the claim maintained be an unjust claim. Rather, the exceptions recognised to the general prohibition on maintaining the claim of another were seen as turning on whether the maintainer acted from charitable motives or because the person maintained was near kin, a servant, or in some like relationship to the maintainer. 70 Champerty included every kind of maintenance for reward, whether by sharing of the “thing in plea” or otherwise. This understanding of champerty was originally seen as precluding the assignment of choses in action. The reason given in Coke’s report of Lampet’s Case was: “the great wisdom and policy of the sages and founders of our law, who have provided, that no possibility, right, title, nor thing in action, shall be granted or assigned to strangers, for that 3

For a list of legal and equitable choses in action, see G Carter, Choses in Action and Their Assignment (Blackstone Press Pty Ltd, Sydney, 1997), pp 8-9.

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Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd cont. would be the occasion of multiplying of contentions and suits, of great oppression of the people, and chiefly of terre-tenants, and the subversion of the due and equal execution of justice.” 71 As Winfield pointed out, Coke’s theory was “perilously close to an anachronism”. In Norman v Federal Commissioner of Taxation, Windeyer J said of Lampet’s Case that “[i]t was a somewhat unsophisticated view of legal rights that led the common lawyers to classify choses in action and debts with mere possibilities, and to condemn all assignments of them as leading to maintenance”. 72 Maintenance and champerty, though well known in early English law, “were known almost exclusively as modes of corruption and oppression in the hands of the King’s officers and other great men”. And as Buller J noted, in Master v Miller, “Courts of Equity from the earliest times thought the doctrine [of maintenance as applied to preclude assignment of choses in action] too absurd for them to adopt; and therefore they always acted in direct contradiction to it”. But the law of maintenance and champerty was not wholly expelled from this realm of discourse, either by the course of decisions in equity permitting and giving effect to the assignment of choses in action, or by the provisions of s 25 of the Supreme Court of Judicature Act permitting such assignments. 73 Assignment of a chose in action “made with the improper purpose of stirring up litigation” would raise questions of maintenance and champerty. But the mere assignment of the proceeds of litigation would not. If the assignment stipulated that the assignee should participate in the litigation, the assignment was lawful only “if he have some legal interest (independent of that acquired by the assignment itself) in the property in dispute; but that where his interest is generated only by the assignment itself, such a stipulation would be improper”. 74 The distinction between the assignment of an item of property and the assignment of a bare right to litigate was regarded as fundamental to the application of the law of maintenance and champerty. But drawing that distinction was not always easy. And it was a distinction whose policy roots were not readily discernible, the undesirability of maintenance and champerty being treated as self-evident. Typical of the way in which the courts expressed this condemnation was the reference by Knight Bruce LJ to the “traffic of merchandizing in quarrels, of huckstering in litigious discord”. That the practices were criminal, and also gave rise to civil liability, was treated as sufficient reason to condemn them. 75 Yet practices no different in substance, from some of those condemned so roundly, became commonplace in the law of insolvency. Bankruptcy legislation was held to permit a trustee in bankruptcy who had commenced an action to sell and assign the subject-matter of the action to a purchaser for value. And, of course, the development of the doctrine of subrogation as applied to contracts of insurance qualified the apparent generality of rules against maintenance and champerty. 76 No doubt it was against this background that, at the end of the 19th century, the courts of India and the Privy Council came to consider the application of the law of maintenance and champerty in a society where one Indian judge (Phear J) is recorded as having said that: “[s]peculation in law proceedings has assumed the dimensions and respectability of an ordinary trade; a large class in the community fattens and grows rich on the spoils of needy suitors; and litigation is maintained without reference to the wishes or interests of the nominal parties.” In Ram Coomar Coondoo v Chunder Canto Mookerjee, the Privy Council held that the English statues, which founded the then state of the English law, did not apply in India and held that: “a fair agreement to supply funds to carry on a suit in consideration of having a share of the property, if recovered, ought not to be regarded as being, ‘per se’, opposed to public policy. Indeed, cases may be easily supposed in which it would be in furtherance of right and justice, [12.40]

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Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd cont. and necessary to resist oppression, that a suitor who had a just title to property, and no means except the property itself, should be assisted in this manner.” Yet the Privy Council went on to say that: “[A]greements of this kind ought to be carefully watched, and when found to be extortionate and unconscionable, so as to be inequitable against the party; or to be made, not with the bonâ fide object of assisting a claim believed to be just, and of obtaining a reasonable recompense therefor, but for improper objects, as for the purpose of gambling in litigation, or of injuring or oppressing others by abetting and encouraging unrighteous suits, so as to be contrary to public policy, – effect ought not to be given to them.” The basis for such careful watching was not further explained. 77 What this brief and incomplete survey of the state of the English law, as it stood by the early years of the 20th century, may be understood as revealing is that the law of maintenance and champerty depended more upon assertion of consequences said to follow from the existence of the common law criminal offences of maintenance and champerty, than it did upon any close analysis or clear exposition of the policy to which the rules were intended to give effect. Thus, in Alabaster v Harness, Lord Esher MR said: “The doctrine of maintenance, which appears in the Year Books, and was discussed briefly by Lord Loughborough in Wallis v Duke of Portland, and more elaborately by Lord Coleridge, CJ, in Bradlaugh v Newdegate, [84] does not appear to me to be founded so much on general principles of right and wrong or of natural justice as on considerations of public policy. I do not know that, apart from any specific law on the subject, there would necessarily be anything wrong in assisting another man in his litigation. But it seems to have been thought that litigation might be increased in a way that would be mischievous to the public interest if it could be encouraged and assisted by persons who would not be responsible for the consequences of it, when unsuccessful. Lord Loughborough, in Wallis v Duke of Portland, says that the rule is, ‘that parties shall not by their countenance aid the prosecution of suits of any kind, which every person must bring upon his own bottom, and at his own expense.’” (emphasis added) 78 By the early 20th century, the law of maintenance and champerty depended upon the application of qualifications and exceptions hinged, for the most part, about what was an item of property as distinct from a bare right to litigate and what sufficed as a common interest between maintainer and the maintained. In British Cash and Parcel Conveyors Limited v Lamson Store Service Company Limited, Fletcher Moulton LJ said: “The truth of the matter is that the common law doctrine of maintenance took its origin several centuries ago and was formulated by text-writers and defined by legal decisions in such a way as to indicate plainly the views entertained on the subject by the Courts of those days. But these decisions were based on the notions then existing as to public policy and the proper mode of conducting legal proceedings. Those notions have long since passed away, and it is indisputable that the old common law of maintenance is to a large extent obsolete. … The present legal doctrine of maintenance is due to an attempt on the part of the Courts to carve out of the old law such remnant as is in consonance with our modern notions of public policy. … Speaking for myself, I doubt whether any of the attempts at giving definitions of what constitutes maintenance in the present day are either successful or useful. They suffer from the vice of being based upon definitions of ancient date which were framed to express the law at a time when it was radically different from what it is at the present day, and these old definitions are sought to be made serviceable by strings of exceptions which are neither based on any logical principle nor in their nature afford any warrant that they are exhaustive. … That there is still such a thing as maintenance in the eye of the law and that it constitutes a civil wrong and perhaps a crime is undoubted, and the general character of the mischief against which it is directed is familiar to us all. It is directed against wanton and officious 336

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Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd cont. intermeddling with the disputes of others in which the defendant has no interest whatever, and where the assistance he renders to the one or the other party is without justification or excuse. But in my opinion it is far easier to say what is not maintenance than to say what is maintenance.” As was said in a radically different context (of construction of the British North America Act 1867 (Imp)): “Customs are apt to develop into traditions which are stronger than law and remain unchallenged long after the reason for them has disappeared.” 79 By ss 13 and 14 of the Criminal Law Act 1967 (UK) criminal and tortious liability for maintenance and champerty were abolished but, like s 6 of the Abolition Act, any rule of law as to the cases in which a contract involving maintenance or champerty is to be treated as contrary to public policy or otherwise illegal was preserved. In 1981, in Trendtex Trading Corporation v Credit Suisse, the House of Lords held that an agreement permitting a bank, which had guaranteed the costs of a party to litigation in which the bank itself was also interested, to sell the party’s claims in the litigation “‘savours of champerty,’ since it involves trafficking in litigation – a type of transaction which, under English law, is contrary to public policy”. Accordingly, the assignment of the cause of action was held to be void. Yet effect was given to so much of the agreement as conferred exclusive jurisdiction on a Swiss Court over disputes regarding “its conclusion, interpretation or fulfilment”, by staying the action in England with a view to the Swiss Court deciding what effect the invalidity of the assignment, according to English law, had upon the agreement as a whole. 80 In the House of Lords, there was no examination of the content of the rule of public policy that was said to be engaged, beyond the reference made by Lord Wilberforce to trafficking in litigation. In the courts below, in Trendtex, the accepted premise for argument appears to have been that there remained a public policy against at least some forms of maintenance and champerty. The limits of the application of that public policy were identified in the Court of Appeal as to be found in the existence and sufficiency of notions of common interest between the maintainer and the maintained. 81 It is important to notice that the House of Lord’s conclusion in Trendtex (that the provision permitting sale of the cause of action was contrary to public policy – as “savour[ing] of champerty” and involving “trafficking in litigation”) was not held to afford a defence to the claim that was made and was not itself a reason to stay the further prosecution of the action. The order for stay that was made was founded upon the exclusive jurisdiction clause, not upon any consideration of public policy concerning maintenance or champerty. 82 Indeed, as the respondents pointed out in the argument of the present appeals, before the enactment of the Abolition Act or its United Kingdom progenitor, the Criminal Law Act 1967, maintenance or champerty had not been held to constitute a defence to an action on the claim that was maintained, or a ground for staying such an action. Of course it may be said that, at least for the most part, the cases reported about maintenance and champerty were principally directed to whether the maintenance agreement was to be enforced or to whether the named plaintiff had sufficient title to bring the action that was said to be maintained. But that does not detract from the validity of the observation that there was no case where maintenance or champerty was held to be a defence to, or reason enough to stay, the action that was maintained.

Equuscorp Pty Ltd v Haxton [12.45] Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498; 286 ALR 12 (footnotes omitted) FRENCH CJ, CRENNAN and KIEFEL JJ [12.45]

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Equuscorp Pty Ltd v Haxton cont. 1 Equuscorp Pty Ltd (Equuscorp), the appellant in these appeals, seeks the assistance of this Court to recover money advanced under loan agreements which were made in furtherance of an illegal purpose. They were an important part of a number of failed tax driven investment schemes in which members of the public were invited to invest in a blueberry farming enterprise (the schemes). The attraction for investors was that non-farmers could invest in farming businesses and claim amounts expended on farming enterprises as tax deductions in relation to their non-farming incomes. The invitations to invest in the schemes were made in contravention of the requirements of the law regulating the issue of prescribed interests. 2 Equuscorp was not a party to the loan agreements. They were made by Rural Finance Pty Ltd (Rural), which was a member of a group of companies controlled by the promoters of the schemes. Equuscorp, as an arms length financier of the group, took an assignment of the loan agreements from the receivers and managers of Rural after the enterprise collapsed. It sued the investors under the loan agreements. The agreements were found to be unenforceable for illegality, having been made in furtherance of an illegal purpose. Equuscorp claimed in the alternative for restitution of the advances made under the agreements as money had and received. 3 The Court of Appeal of the Supreme Court of Victoria held that the right to claim for restitution had not been available to Rural and, therefore, was not available to Equuscorp and that, in any event, the assignment of the loan agreements did not extend to the right to claim such relief. Equuscorp has appealed to this Court against the decisions of the Court of Appeal in five cases affecting three investors in the schemes. Its argument in support of the appeals involved the following propositions: (i)

That Rural had a right to claim against the respondents for money had and received on account of the receipt by them of advances under the loan agreements notwithstanding the unenforceability of those agreements.

(ii)

That if Rural had a right to claim for money had and received, that right could be assigned – this proposition was in answer to notices of contention filed by the respondents asserting that the restitutionary claims were not assignable.

(iii)

That, if a cause of action for money had and received as against each of the respondents was assignable, it had been assigned to Equuscorp. For the reasons that follow the first and third of those propositions fail. The illegality that rendered the loan agreements unenforceable also deprived Rural of the right to claim for money had and received by way of advances under those agreements. The restitutionary rights, had they existed, would have been assignable but on the proper construction of the deed of assignment (the Deed) were not assigned to Equuscorp. The appeals should be dismissed with costs. ... Whether Rural’s claims for restitution were assignable 46 The primary judge found that Rural’s rights to claim for restitutionary relief were assigned by the Deed. His Honour did so on the unexamined premise that the rights were assignable. In the Court of Appeal, Dodds-Streeton JA, after a careful review of the authorities, correctly concluded that they offered no clear guidance on the question. Her Honour held that the better view was that the rights were assignable. In so holding, she recognised that the nature of the restitutionary right, informed by equitable considerations and subject to defences such as change of position, could pose difficulties for an assignee. These, however, were problems which would affect the availability and nature of the remedy, rather than constituting an absolute barrier to assignment. 47 Gummow and Bell JJ point out in their joint reasons that it might be said that Rural’s claims against the respondents for money had and received only accrued when the respondents pleaded the unenforceability of the loan agreements in their defences. As their Honours observe, however, the provision of value by Equuscorp under the asset sale agreement would have overcome the difficulty 338

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Equuscorp Pty Ltd v Haxton cont. that the claims were mere expectancies at the time the Deed was executed. The questions which remain are whether such claims are assignable and whether they were the subject of assignment. 48 The respondents submitted that a claim for money had and received is not a “chose in action” but a “bare right of action” and therefore not assignable. The concept of the chose in action has a tangled historical background, linked closely to questions of assignability which, in turn, reflected logical concerns about the personal nature of contractual and delictual rights and policy concerns about maintenance. O R Marshall, writing in 1950, observed that historically the question whether something was a chose in action was independent of the question whether it was assignable. Then confusion arose: “A thing in action is not assignable; that which is not assignable is a thing in action. This is a vicious circle. There is no test for determining a chose in action or assignability apart from their interrelation.” (Footnote omitted.) Marshall argued that the assignability of choses in action depended upon a positive common law prohibition which has gradually been relaxed. That the relaxation did not extend to tortious actions was, he suggested, a survival of the objection that the subject matter of a grant must be certain. 49 In Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd, Gummow, Hayne and Crennan JJ observed that: “The distinction between the assignment of an item of property and the assignment of a bare right to litigate was regarded as fundamental to the application of the law of maintenance and champerty. But drawing that distinction was not always easy. And it was a distinction whose policy roots were not readily discernible, the undesirability of maintenance and champerty being treated as self-evident.” (Footnotes omitted.) 50 In Ellis v Torrington, Scrutton LJ referred to the common position of Courts of Law and Equity in opposition to the assignment of “a bare right of action, a bare power to bring an action”. Such an assignment was seen “as offending against the law of maintenance or champerty or both”. That opposition was qualified however: “[E]arly in the development of the law the Courts of equity and perhaps the Courts of common law also took the view that where the right of action was not a bare right, but was incident or subsidiary to a right in property, an assignment of the right of action was permissible, and did not savour of champerty or maintenance.” The attenuated role of maintenance and champerty in relation to assignability was acknowledged by Lord Mustill in Giles v Thompson who spoke of them as maintaining a living presence in only two respects, first as the source of the rule against contingency fees and, secondly, as the ground for denying recognition to the assignment of a “bare right of action”. Of the latter, Lord Mustill said it was, in his opinion, “best treated as having achieved an independent life of its own”. 51 The criteria for assignability of causes of action were widened by the decision of the House of Lords in Trendtex Trading Corporation v Credit Suisse. The non-assignability of a bare right to litigate was still treated as a fundamental principle. Nevertheless, Lord Roskill said: “But it is today true to say that in English law an assignee who can show that he has a genuine commercial interest in the enforcement of the claim of another and to that extent takes an assignment of that claim to himself is entitled to enforce that assignment unless by the terms of that assignment he falls foul of our law of champerty, which, as has often been said, is a branch of our law of maintenance.” The application of criteria of assignability to restitutionary claims has remained uncertain. However, as is pointed out in Smith, The Law of Assignment: [12.45]

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Equuscorp Pty Ltd v Haxton cont. “[a]s with tortious causes of action, restitutionary claims can arise independently of any prior relationship between the parties. That said, a restitutionary claim can be so intertwined with a contract, that a legitimate interest may be easy to establish.” (Footnote omitted.) The author points out that the question has received very little consideration either in the case law or in text books. 52 Australian authority on the assignability of restitutionary rights is sparse. In Mutual Pools & Staff Pty Ltd v The Commonwealth, Mason CJ observed, without elaboration, that a claim for restitution of taxes mistakenly paid was not based on a contractual right and was not assignable. On the other hand, Brennan J referred to a debt owed by the Commonwealth under an agreement or in restitution as “a common law chose in action vested in the plaintiff and assignable by it”. 53 A restitutionary claim for money had and received under an unenforceable loan agreement is inescapably linked to the performance of that agreement. If assigned along with contractual rights, albeit their existence is contestable, it is not assigned as a bare cause of action. Neither policy nor logic stands against its assignability in such a case. The assignment of the purported contractual rights for value indicates a legitimate commercial interest on the part of the assignee in acquiring the restitutionary rights should the contract be found to be unenforceable. Equuscorp fell into the category of a party with a genuine commercial interest in the restitutionary rights. Notwithstanding the difficulties that may attend the claims having regard to particular circumstances and defences which might affect their vindication, the better view is that adopted by the Court of Appeal, namely, that the restitutionary claims were assignable. The question that next arises is whether they were assigned. Assignment under s 199 of the Property Law Act 1974 (Qld) 54 In its statements of claim in each of the proceedings against the respondents, Equuscorp pleaded that Rural, by its receivers and managers, “absolutely assigned its interests in the Loan Agreement to the Plaintiff” and that by reason of the assignment Equuscorp had become “absolutely entitled to all of Rural’s right title and interest in the sum owing under the Loan Agreement”. Both the primary judge and the Court of Appeal dealt with the question of assignment as a matter of the construction of the Deed. Equuscorp, in its submissions to this Court, pointed to s 199(1) of the Property Law Act 1974 (Qld) and the “unmistakable” interrelationship between that provision and cl 2 of the Deed. It is that interrelationship and the adoption, in cl 2(b), of the language of s 199(1) that defeats the construction for which Equuscorp contends based upon an argument about the commercial purpose of the Deed. 55 Section 199(1) provides: “Any absolute assignment by writing under the hand of the assignor (not purporting to be by way of charge only) of any debt or other legal thing in action, of which express notice in writing has been given to the debtor … is effectual in law (subject to equities having priority over the right of the assignee) to pass and transfer from the date of such notice – (a) the legal right to such debt or thing in action; and (b) all legal and other remedies for the same; and (c) the power to give a good discharge for the same without the concurrence of the assignor.” Section 199(1), like analogous provisions in other States of Australia, was modelled upon s 25(6) of the Judicature Act 1873 (UK) which was re-enacted as s 136 of the Law of Property Act 1925 (UK). The ancestry of s 199(1) informs its construction. 56 At one time, as discussed in the previous section of these reasons, the assignment of a chose in action was effectively prohibited as “the occasion of multiplying of contentions and suits”. The 340

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Equuscorp Pty Ltd v Haxton cont. prohibition had vanished by the time the Judicature Act 1873 came to be enacted. However, as Windeyer J explained in Norman v Federal Commissioner of Taxation, there remained a procedural residue which the statute was designed to overcome, namely “an assignee of a legal debt could not in his own name bring an action against the debtor to recover the debt. The original creditor must be the plaintiff on the record. He remained in law the owner of the chose in action”. 57 Section 25(6) operated as a “machinery” provision which rendered debts and other legal causes of action directly assignable. A cause of action assigned under the sub-section could therefore be brought by an assignee in its own name. The substantive law relating to assignments was not altered. A chose in action not assignable at common law prior to the enactment of s 25(6) was not rendered assignable by its enactment. Equitable assignments were not affected. 58 In order that s 199(1) apply to effect an assignment at law of a “debt or other legal thing in action” it is necessary that: • the assignment be or purport to be absolute; • the assignment must not purport to be by way of charge only; • the assignment must be in writing under the hand of the assignor; • express notice in writing must be given to the debtor. The satisfaction of those conditions was not in issue in these appeals. 59 As appears from its text, s 199(1) provides two mechanisms for the assignment of rights at law: • pursuant to s 199(1)(a) as the legal right to a debt or thing in action; or • pursuant to s 199(1)(b) as a legal or other remedy for the legal right to a debt or other thing in action assigned pursuant to s 199(1)(a). The availability of the second mechanism to support the assignment of a cause of action for money had and received depends upon the construction of s 199(1)(b). That was the mechanism invoked by Equuscorp in its submissions. Whether the Deed assigned restitutionary claims 60 The primary judge held that Rural’s rights to claim for money had and received were assigned to Equuscorp by operation of cl 2(b) of the Deed. His Honour did not refer to s 199 of the Property Law Act. He accepted the submission by Equuscorp that the assignment was expressed in broad terms with the evident intention of giving Equuscorp the right to recover, by whatever remedy was available, the loan debts. He accepted that there would be little purpose in the receivers and managers of Rural selling off the contractual rights and reserving to Rural the common law rights so closely associated with the contractual rights. 61 The Court of Appeal held that the language of the Deed, construed according to its ordinary meaning and in its total context, including the asset sales agreement, indicated that the assignment was limited to the loan contracts, debts, guarantees and securities. No basis for the implication of a term extending the assignment to alternative restitutionary rights or remedies was identified. The Court held that the reference in cl 2(b) of the Deed to “all legal and other remedies” was, “in context, merely an element of a composite phrase which expressly related back to the loan contracts and associated securities”. 62 Equuscorp submitted that by virtue of s 199(1)(b) the Deed was effectual in law to transfer to Equuscorp “all legal and other remedies for” the debts and interests under the loans. That term, it submitted, encompassed the causes of action for money had and received in respect of irrecoverable debts or unenforceable loans. Equuscorp submitted that the Court of Appeal’s construction of cl 2(b) of the Deed defied commercial sense and well known principles for construing contracts and interpreting legislation which seek to avoid commercial inconvenience. The submissions should be rejected. [12.45]

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Equuscorp Pty Ltd v Haxton cont. 63 The scope of the term “legal and other remedies” in s 25(6) of the Judicature Act 1873, from which s 199(1) is descended, was described by Lord Esher MR in Read v Brown: “the words mean what they say; they transfer the legal right to the debt as well as the legal remedies for its recovery.” At the heart of that observation, supported by the words “for the same”, was the proposition that the relevant legal and other remedies were those which could be invoked to enforce the debt or chose in action assigned. Consistently with that proposition the assignment of a judgment debt has been held to attract the right to invoke garnishee procedures. The assignment of a debt owing by a company enables the assignee to petition for the winding up of the company for, by s 25(6): “new rights [were] given to the assignees of debts, and all legal and other remedies for the assertion of those rights.” ... GUMMOW AND BELL JJ: ... The Assignment ... 79 Finally, the Assignment was not open to the objection that it dealt with no more than “bare” rights of action and so attracted the statements of principle in Poulton v The Commonwealth. It has long been held that an exception exists where the assignee has an interest in the suit, and a genuine and substantial commercial interest is now regarded as sufficient . In the present litigation this was satisfied by the charge which Equuscorp held over the assets of Rural to secure the indebtedness of Rural; the recovery on the restitutionary claim would, as counsel put it, “fill the gap created by the debts imploding under illegality”. ... Was Rural Finance Pty Ltd’s action for money had and received capable of assignment? 150 The respondents submitted that an action for money had and received was not an assignable chose in action, but only a bare right of action which was not assignable. They relied on three authorities. 151 The first authority was Poulton v The Commonwealth. It contains dicta by Williams, Webb and Kitto JJ to the following effect: “[I]f it were true that the Commonwealth were guilty of conversion of the Donlons’ wool, it would be the Donlons alone who could elect to waive the tort and take the proceeds of sale. This would be so, both because there was not in fact any purported assignment to the plaintiff of the right of action for the tort, and because, according to well-established principle, the right was incapable of assignment either at law or in equity.” The plaintiff’s theory of that case was that if he waived the right to sue the Commonwealth for conversion he could recover the value of the amount which the Commonwealth had received as money had and received. On one reading, the dicta in Poulton’s case say that not only was the right of action for the tort unassignable, but so was the right to recover on account for money had and received. At trial, Fullagar J said that the purported assignment was ineffective because “even actual causes of action in tort are not assignable at law or in equity”, and also because “the document did not purport to assign any such cause of action”. 152 The second authority relied on was Mutual Pools & Staff Pty Ltd v The Commonwealth. Mason CJ referred to an assumption in Werrin v The Commonwealth that a claim for recovery of taxes mistakenly paid was not assignable. His Honour cited Poulton’s case in a footnote. Brennan J, on the other hand, considered that whether the claim of the plaintiff in the Mutual Pools case to a refund of sales tax paid pursuant to invalid legislation was regarded as owing as a debt or as recoverable in an action for money had and received, it was property. 342

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Equuscorp Pty Ltd v Haxton cont. 153 The third authority was Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd. It contains a statement to the effect that there was a serious question whether the Court of Appeal of the Supreme Court of New South Wales in that case was correct to say that certain causes of action for money had and received were historically claims in debt and readily assignable. That statement was supported by reference to the Mutual Pools case and to Poulton’s case. 154 The dicta in Poulton’s case in the Full Court are to be assessed in the light of their Honours’ reference to Dawson v Great Northern and City Railway. Collins MR, Stirling LJ and Mathew LJ said that an assignment of a chose in action which was obnoxious to the law relating to champerty and maintenance was bad at law and in equity. “An assignment of a mere right of litigation is bad … ; but an assignment of property is valid, even although that property may be incapable of being recovered without litigation.” Here the Deed of Assignment assigned property in addition to the actions in money had and received. That property included Rural Finance Pty Ltd’s unenforceable “debts”, its unenforceable “interests under the loan contracts” and the indebtedness. Even if they are put to one side by reason of their unenforceability, as perhaps they should be, the property purportedly assigned also included Rural Finance Pty Ltd’s “interests under the guarantees and its interests under the securities”. No “interests under the guarantees” were identified in argument. However, if Rural Finance Pty Ltd had had “interests under … securities” amounting to charges over property, they would have been interests in property. It was not submitted that they were affected by the breach of s 170(1) of the Code. Clause 4 in one of the Loan Agreements provided: ″(i)

The Borrower hereby charges his net proceeds from the Farm and charges any and all of his interest in the Farm with repayment of the Principal Sum and interest …

(ii)

The Borrower shall on request execute a mortgage charge or assignment over his interest in the Farm and the income therefrom and such other documents as the Lender may reasonably require in order to secure the Loan.” There were different but not dissimilar clauses in four other Loan Agreements. In oral argument in chief the appellant submitted: “There are two forms of security there. There is the charge in 4(i) and the possibility of a mortgage charge or assignment in clause 4(ii). There was no such request or execution under 4(ii). However, of course, there is the charge in 4(i) … There was never any enforcement of that security.” The appellant submitted in its written submissions in reply that even if a cause of action in conversion is incapable of assignment, the assignment of the causes of action for money had and received was an incident of the assignment by the Deed of Assignment of the security interests, that is, those referred to in cl 4(i). 155 However, it was orally submitted for the respondents, in relation to that submission by the appellant, that it was unclear what the property was to which the assignment of the causes of action for money had and received was attached. “It might be said to be the securities, but in fact as the appellant points out no securities were actually entered into. The only securities that were held were the contractual charge.” In fact the appellant had not submitted that no securities had been entered into, only that no cl 4(ii) securities had been entered into. The respondents did not explain why “the contractual charge”, that is, the cl 4(i) charge, was not a form of property sufficient to sustain the appellant’s argument. However, in view of the fact that the appellant’s argument was rather under-analysed on both sides, it is undesirable that the outcome should turn on that point in isolation. 156 There is a different point which favours the appellant.Poulton’s case predates Trendtex Trading Corporation v Credit Suisse, where Lord Roskill (Lords Edmund-Davies, Fraser of Tullybelton and Keith of Kinkel concurring) said: [12.45]

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Equuscorp Pty Ltd v Haxton cont. “[A]n assignee who can show that he has a genuine commercial interest in the enforcement of the claim of another and to that extent takes an assignment of that claim to himself is entitled to enforce that assignment unless by the terms of that assignment he falls foul of our law of champerty, which, as has often been said, is a branch of our law of maintenance.” In Poulton’s no argument was presented that there was any “genuine commercial interest” associated with the supposed assignment. There is a “genuine commercial interest” here, because the appellant was on 10 January 1991 granted a charge over the assets of Rural Finance Pty Ltd (which included rights to sue for money had and received) to secure the indebtedness of Rural Finance Pty Ltd to the appellant. The assignment of 30 October 1997 was a means by which the appellant recovered part of the assets which that charge gave it as security for Rural Finance Pty Ltd’s indebtedness to it. Hence what was said in Poulton’s case is distinguishable. 157 It is to be noted that in the footnote in Mason CJ’s judgment in the Mutual Pools case in which he cited Poulton’s case , he also cited the Trendtex case, prefacing the citation with “cf”. This suggests that his Honour may have seen the dicta in Poulton’s case as not applying where a “genuine commercial interest” can be located in association with an assignment. 158 Finally, the statement in the Campbells Cash and Carry case was part of an obiter dictum in a dissenting judgment that raised a question about a matter asserted by the Court of Appeal on a point not argued in that Court. The question was based on what was said in Poulton’s and the Mutual Pools case . The statement was not dealing with a case in which there was any “genuine commercial interest” in a Trendtex sense. 159 The respondents also submitted that a claim for money had and received is a personal one, infused with equitable notions of conscience, requiring a detailed analysis and balancing of the particular merits of the case, and so personal in nature as to be incapable of assignment. They cited authority relating to the non-assignability of the benefit of a contract involving personal skill and confidence . This case has nothing to do with the assignment of the benefit of a contract involving personal skill and confidence. And the circumstance that, like other legal rights, a claim for money had and received might rest on a detailed analysis of matters of fact that call for judgment does not prevent the right, once established, from being assignable.

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CHAPTER 13 Exploring Equitable Choses in Action [13.05]

THE ORIGIN AND NATURE OF EQUITABLE INTERESTS ...................................... 345 [13.05] [13.10]

Introduction ......................................................................................... 345 Nature of Equitable Estates and Interests ......................................... 346

[13.30]

INTERESTS UNDER TRUSTS .............................................................................. 350

[13.30]

BASIC PRINCIPLES ................................................................................................. 350 [13.30] [13.45]

[13.55]

Definition and characteristics ............................................................. 350 Classification of trusts ......................................................................... 352

TRUSTS AND OTHER LEGAL RELATIONSHIPS ..................................................... 353 [13.60] [13.70]

Trust and debt ..................................................................................... 353 Trust and bailment .............................................................................. 354 [13.75]

[13.85]

Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (in liq) .................................................................................. 354

Trust and agency ................................................................................. 359 [13.90]

Walker v Corboy .................................................................... 360

[13.100] Trust and contract ............................................................................... 362 [13.115]

Trident General Insurance Co Ltd v McNiece Bros Pty Ltd ....................................................................................... 364

[13.130] CERTAINTY OF INTENTION .................................................................................. 367 [13.135]

Byrnes v Kendle ..................................................................... 368

[13.145] Property given for a specific purpose ................................................ 372 [13.155]

Re Kayford Ltd (in liq) ............................................................ 372

[13.170] INTERESTS IN UNADMINISTERED DECEASED ESTATES [13.170] [13.175] [13.180]

Re Leigh’s Will Trusts ............................................................. 374 In re Maye ............................................................................ 382 Official Receiver in Bankruptcy v Schultz ................................. 392

Extracts from Parkinson, The Principles of Equity, Ch 3.

THE ORIGIN AND NATURE OF EQUITABLE INTERESTS Introduction [13.05] From the earliest days of the development of the Court of Chancery, equitable

doctrines and remedies have had a major impact upon the law of property. The law of trusts developed out of the willingness of the Court of Chancery to recognise the “use” as a form of property holding. Equitable doctrines had other applications to the law of property as well. Once it was recognised that there could be proprietary rights in equity, and that this was a form of ownership of property which co-existed with common law title, rules needed to be developed concerning the circumstances in which equitable proprietary rights would be deemed to arise, the relationship between common law and equitable rights in property, and [13.05]

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the methods of assigning equitable property. The nature of property in equity, and its relationship to property rights at common law, is the subject of this chapter. Nature of equitable estates and interests [13.10] Historically, equity has operated in relation to persons, rather than property. When

the Chancellor made orders which had the effect of modifying common law property rights, he did so by making orders against persons with respect to their ownership of property, rather than making orders in respect of the property itself. In Muschinski v Dodds (1985) 160 CLR 583, Deane J explained (at 613) this personal effect of equitable obligations in relation to the trust: The use or trust of equity, like equity itself, was essentially remedial in its origins. In its basic form it was imposed, as a personal obligation attaching to property, to enforce the equitable principle that a legal owner should not be permitted to use his common law rights as owner to abuse or subvert the intention which underlay his acquisition and possession of those rights.

Equity thus recognised the validity of the common law title, but imposed obligations upon the legal owner with respect to that property. The “in personam” nature of equitable rights 1 has given rise to a debate about whether equitable rights should be regarded as proprietary at all. Maitland was of the view that they are purely personal. 2 In relation to trusts, he observed that: Equity did not say that the cestui que trust was the owner of the land, it said that the trustee was the owner of the land, but added that he was bound to hold the land for the benefit of the cestui que trust. 3

Certainly, equitable rights are personal in nature. The beneficiaries’ rights are against the trustee, and theoretically are not rights in rem, that is, in the property itself. However, it would be incorrect to place too much emphasis in the modern law on the “in personam” nature of equitable rights in relation to property. Equitable title to property is not as secure a title as title which arises from statute or the common law. Equitable rights in relation to property are nonetheless proprietary in nature. While the maxim that equity acts in personam is less significant than it once was, it still has some current importance. In particular, it is a significant concept for the purpose of deciding jurisdiction in relation to foreign subject matter. Since equity fastens upon the conscience of the person, it is sufficient that the defendant is within the jurisdiction, even though the property, which is the subject matter of the dispute, is not. 4 Thus Mareva orders, which 1 2 3 4

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For different meanings of the notion that equity acts in personam in relation to property, see I C F Spry, Principles of Equitable Remedies (5th ed, Law Book Co, Sydney, 1990), pp 36ff. J Brunyate (ed), Maitland’s Equity (2nd revd ed, Cambridge University Press, Cambridge, 1936), Lectures IX-XI. J Brunyate (ed), Maitland’s Equity (2nd revd ed, Cambridge University Press, Cambridge, 1936), p 17. In Penn v Lord Baltimore (1750) 1 Ves Sen 444; 27 ER 1132, specific performance of an English agreement concerning the boundaries between Pennsylvania and Maryland was enforced in the English Court of Chancery despite the location of the land concerned. Lord Hardwicke LC said (at 447): “The conscience of the party was bound by this agreement; and being within the jurisdiction of this court … which acts in personam, the court may properly decree it as an agreement.” See also Richard West & Partners (Inverness) Ltd v Dick [1969] 1 All ER 943. For a full discussion of the application of the “in personam” maxim regarding foreign land, see generally Nygh P, Conflicts of Laws in Australia (6th ed, Butterworths, Sydney, 1995), pp 116-118. [13.10]

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prohibit an owner from dealing with property pending trial, 5 may have an extra-territorial operation. 6 Similarly, a court of equity may exercise jurisdiction over a trust which was established under the law of another country and the assets of which include property outside the jurisdiction, as long as the trustees themselves are subject to the jurisdiction of the court. 7 [13.15] Certain equitable rights may give to their holder a proprietary interest in the property

concerned. The personal nature of equitable rights does not mean that for all purposes rights against trustees or executors in relation to property need to be classified as merely personal. They may be so classified for some purposes but not for others. Where a beneficiary has a present entitlement to specific property (or to part or all of the income from a trust fund which may consist of a constantly changing portfolio of assets), the beneficial right may be classified for tax purposes as an interest in the property itself. In Baker v Archer-Shee [1927] AC 844, the House of Lords had to decide whether a British resident, who was entitled to the income of a residuary estate during her lifetime, was in receipt of income “arising from foreign securities stocks and shares”. The residuary estate consisted of personal property situated outside the United Kingdom, and the trustee was a company based in New York. By a three to two majority, the House of Lords rejected the taxpayer’s argument that her income derived from her personal rights against the trustee, rather than from the shares themselves, assuming for the purposes of this holding that New York law was the same as English law in relation to the nature of rights under a trust. Subsequently, the taxpayer was successful in challenging a later assessment, since evidence was given then that New York law did, in fact, differ from English law on this point (Archer-Shee v Garland [1931] AC 212). The decision in Baker v Archer-Shee was subjected to some criticism as being contrary to fundamental equitable principles. 8 However the decision recognised, for the purposes of English (and Australian) law, the reality that interests under a fixed trust are proprietary in nature and should be treated as interests in the property itself for some purposes. Similarly, in Costa & Duppe Properties Pty Ltd v Duppe [1986] VR 90, 9 it was held that a beneficiary of a unit trust had a sufficient interest in the trust property, which was Torrens title land vested in the trustees, to support the entry of a caveat upon the register. To reach this conclusion, Brooking J explicitly found that the beneficiaries of the unit trust had a proprietary interest in all the trust property. Whether or not an equitable interest is regarded as an interest in property may depend upon whether or not the equitable rights may be said sufficiently to attach to specific property. In Commissioner of Stamp Duties (Qld) v Livingston [1965] AC 694, the Privy Council held, on an appeal from the High Court of Australia, that the right of a residuary legatee under an unadministered estate was not a beneficial interest in the real and personal property situated in Queensland which formed part of the assets of that residuary estate. While a majority of the 5 6 7 8

9

See, Chapter 20 (Parkinson): “Mareva Injunctions”. National Australia Bank Ltd v Dessau [1988] VR 521, Brooking J at 527; Babanaft International Co SA v Bassatne [1990] 1 Ch 13. See further, para [2008] (Parkinson). Ewing v Orr Ewing (1883) 9 App Cas 34; Chellaram v Chellaram [1985] Ch 409. However, as demonstrates, jurisdiction may be declined if the court of another country is a more appropriate forum. Hanbury H, “A Menace to Equitable Principles” (1928) 44 Law Quarterly Review 468; Livingston v Commissioner of Stamp Duties (Qld) (1960) 107 CLR 411, Fullagar J at 436, 441-442. The question of whether equitable rights should be regarded as proprietary or merely personal was a factor in the division between the majority and the minority of the High Court in the latter case. Applied in Connell v Bond Corp Pty Ltd (1992) 8 WAR 352 and Merifield Cooksey Holdings Pty Ltd v Commissioner of State Taxation (WA) (1993) 93 ATC 4,153. [13.15]

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High Court had reached the same result in holding that no tax was owed to the Queensland authorities, the Privy Council differed from the High Court in the reasoning which led to this conclusion. In the High Court, a majority held that the location of the assets which formed part of the residuary estate should be treated as being in the place where the rights against the executors could be enforced, which in that case was New South Wales. The Privy Council held that the residuary legatee had no interest in property in either State, since her rights, as long as the estate was unadministered, were purely personal. The right of a legatee is to compel the due administration of the estate. The Privy Council considered that the right could not be treated as giving rise to an interest in specific property, since, until administration is complete, no one is in a position to say what items of property would need to be realised for the purposes of administration, or what the residue might be. 10 [13.20] Equitable rights may be classified as property for some purposes but not for others.

This proposition is fundamental to an understanding of equitable interests. The right to compel the proper administration of an estate provides an example of such a right. While it was held by the Privy Council in Livingston’s case 11 that this right did not give a specific interest in property, it was nonetheless a chose in action which was transmissible in the will of the residuary legatee. As Official Receiver in Bankruptcy v Schultz (1990) 170 CLR 306 demonstrates, this right may be treated as property for the purposes of bankruptcy law, so that the fruits of that right will vest in the Official Receiver even though they become certain only after the discharge from bankruptcy. In this case, a woman received a devise of a house (with its contents) in a will while she was still in bankruptcy. A successful family provision claim was made by the husband of the testator and the court ordered that the relevant clause of the will should be treated as if the husband’s name were there instead of that of Schultz, the bankrupt. An appeal to the Full Court of the Supreme Court of Queensland resulted in a variation of this order to give the husband a life interest and Schultz a remainder interest in the property. The order of the Full Court was made after Schultz was discharged from bankruptcy. Although the High Court held that the Full Court’s order giving Schultz a remainder interest took effect only from the date of judgment, nonetheless it vested in the Official Receiver in Bankruptcy. It was merely the fruit of the chose in action to compel the proper administration of the estate, which had first arisen while Schultz was still in bankruptcy. 12 [13.25] The existence of a trust or other fiduciary obligation with respect to property does not

necessarily give to the beneficiary an equitable interest in the property. As was noted above, 10

11 12

The decision of the High Court in Horton v Jones (1935) 53 CLR 475 must be regarded as inconsistent with Livingston’s case to the extent that it decided that a contract for the disposition of rights in an unadministered estate, which included real property, had to be in writing as respecting an interest in land. The case concerned the enforceability of an alleged oral contract to leave a will in favour of the plaintiff. Three judges held the contract unenforceable by reason of uncertainty, while three judges held that the contract was unenforceable because it did not comply with the Statute of Frauds 1677 (29 Car 11 c 3), even if it were sufficiently certain. Commissioner of Stamp Duties (Qld) v Livingston [1965] AC 694. See also Re Leigh’s Will Trusts [1970] Ch 277, in which Buckley J held that rights to shares and a debt in an unadministered estate could be left by will specifically, and did not form part of the residuary estate. The testator bequeathed all her shares and “any other interest” which she held in a certain company. At the time of her death, she was entitled to the whole of her late husband’s estate, which was then unadministered. She was also the sole administrator of the estate. Her husband’s estate included 51 shares in the relevant company and also a debt owed by it. It was held that the shares and debt passed in accordance with the specific bequest since the testator, as sole beneficiary (and administrator) could ensure that the shares were preserved intact.

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those entitled under an unadministered estate do not have vested equitable interests in specific property before administration is complete because their equitable rights are limited to compelling the proper administration of the estate. 13 So too, the beneficiaries of a discretionary trust do not have equitable interests in the subject matter of the trust. Since the trustees of a discretionary trust have no duty to make a particular distribution, or indeed any distribution to a specific individual, the rights of the beneficiaries are limited to compelling the trustees to consider whether or not to make a distribution in their favour, and to ensuring the proper administration of the trust. 14 This is true even if the discretionary trust only has one beneficiary (Re Weir’s Settlement Trusts [1971] Ch 145). Similarly, charitable trusts, and valid non-charitable purpose trusts, 15 are legal arrangements whereby the property is held by trustees, with no specific beneficiaries having proprietary rights in the subject matter of the trust. The trust is for purposes, not persons. This does not mean that such trusts are practically unenforceable. In the case of charities, the Attorney-General of the jurisdiction in which the trust is situated has enforcement powers in relation to the trust on behalf of the Crown, apart from additional statutory controls on the administration of charities. In the case of non-charitable purpose trusts, those who indirectly benefit from it may be regarded as having standing to enforce the trust (Re Denley’s Trust Deed [1969] 1 Ch 373). These examples illustrate the proposition, advanced by Viscount Radcliffe in Commissioner of Stamp Duties (Qld) v Livingston [1965] AC 694 (at 712), that equity does not always need to recognise a duality of estates with respect to property: A … criticism has occasionally been expressed to the effect that it is incredible … to deny to a residuary legatee all beneficial interest in the assets of an unadministered estate. Where, it is asked, is the beneficial interest in those assets during the period of administration? It is not, ex hypothesi, in the executor: where else can it be but in the residuary legatee? This dilemma is founded on a fallacy, for it assumes mistakenly that for all purposes and at every moment of time the law requires the separate existence of two different kinds of estate or interest in property, the legal and the equitable. There is no need to make this assumption. When the whole right of property is in a person, as it is in an executor, there is no need to distinguish between the legal and equitable interest in that property, any more than there is for the property of a full beneficial owner. What matters is that the court will control the executor in the use of his rights over assets that come to him in that capacity; but it will do it by the enforcement of remedies which do not involve the admission or recognition of equitable rights of property in 13

Commissioner of Stamp Duties (Qld) v Livingston [1965] AC 694. Although the “beneficiary” of a discretionary trust has no equitable proprietary right until the discretion has been exercised in their favour, in Scott v National Trust for Places of Historic Interest or Natural Beauty [1998] 2 All ER 705 at 718 Robert Walker J suggested that where a trustee of a discretionary trust has, over an extended period of time, paid an amount to a particular “beneficiary” of a discretionary trust, the expectation so created in the “beneficiary” may cast upon the trustee an obligation to give that “beneficiary” the opportunity to persuade the trustee to continue the payment. Young J in Maciejewski v Telstra Super Pty Ltd (1998) 44 NSWLR 601 at 605 cited, with approval, this concept.

14

In Gartside v IRC [1968] AC 653, the House of Lords held that a beneficiary under a discretionary trust who had died did not have an interest in the property for the relevant taxation legislation to apply. See also Re Weir’s Settlement Trusts [1971] Ch 145; Sainsbury v IRC [1970] Ch 712. There are a variety of exceptions to the rule stated by Sir William Grant MR in Morice v Bishop of Durham (1804) 9 Ves 399 (at 404); 32 ER 656, that for a trust to be valid there must be beneficiaries in whose favour the court may decree performance. These exceptions have been regarded as anomalous: Re Endacott [1960] Ch 232. However, they have gained increasing acceptance in recent years. See Re Denley’s Trust Deed [1969] 1 Ch 373; Carreras Rothmans Ltd v Freeman Matthews Treasure Ltd [1985] 1 All ER 155.

15

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those assets. Equity in fact calls into existence and protects equitable rights and interests in property only where their recognition has been found to be required in order to give effect to its doctrines.

Thus it is possible for property to be held subject to a trust or other fiduciary obligations (such as those owed by executors) without creating proprietary rights in beneficiaries. Such obligations may only give rise to personal rights in those to whom the obligations are owed, 16 to compel the fiduciaries to carry out their responsibilities according to law. The classification of an equitable right as proprietary is therefore dependent upon the remedies available in equity to give effect to those rights, in a given category of case. Extracts from Dal Pont, Equity and Trusts: Commentary and Materials, Ch 16.

INTERESTS UNDER TRUSTS BASIC PRINCIPLES Definition and characteristics [13.30] The trust is the relationship that exists between a person who holds legal title to

property (the trustee) for the benefit of other persons (the beneficiaries or cestui que trust). By reflecting a relationship, a trust is not “some kind of entity, separate from the trustee and the beneficiaries”: B v X [2011] 2 NZLR 405 at [87] per Fogarty J. The beneficiaries are generally understood to hold an equitable interest in the property. “Once a trust is established, as from the date of its establishing the beneficiary has, in equity, a proprietary interest in the trust property, which proprietary interest will be enforceable in equity against any subsequent holder of the property … other than a purchaser for value of the legal interest without notice”: Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 at 705 per Lord Browne-Wilkinson. The trust is a creature of the courts of equity. Common law courts determined property interests and obligations according to the legal title to property, and did not fetter a legal owner’s enjoyment of her or his own property. Hence, the courts of common law could not give effect to an arrangement pursuant to which the legal owner of property held that property for the benefit of others. Courts of equity assumed this role by recognising duality of ownership (legal and equitable) and conferring on the equitable owner(s) (the beneficiary/ies) certain rights against the legal owner of the property. The trustee is subject to a fiduciary obligation to manage the trust property for the exclusive benefit of the beneficiaries, which the latter have standing to enforce in a court. The separation between the management powers of the trustee and the equitable interests of the beneficiary does not preclude a person being both a trustee and a beneficiary of the same trust property. However, the same person cannot be both the sole trustee and the sole beneficiary, for in this case the legal and equitable title merge, meaning that the arrangement in question no longer 16

See also Gill v Gill (1921) 21 SR (NSW) 400 (equitable personal obligation with respect to property). The English decision of Ottaway v Norman [1972] Ch 698, in which a testator devised a house to his housekeeper, coupled with an obligation accepted orally to leave it in her will to his son and daughter-in-law, may be explained best as a personal equitable obligation giving the testator’s son and daughter-in-law no vested equitable interest prior to the housekeeper’s death. However, Brightman J held a secret trust was created.

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satisfies the definition of the trust. So “[a] man cannot be trustee for himself alone”: Re Heberley (decd) [1971] NZLR 325 at 333 per Turner J. [13.40]

Notes&Questions

1.

What characteristics of the trustee–beneficiary relationship justify the trustee being subject to fiduciary obligations of the utmost strictness? On fiduciary duties generally see [4.05]–[4.15] (Dal Pont). On trustee–beneficiary fiduciary duties see [22.75]–[22.100] (Dal Pont).

2.

The essence of a trust is captured in the International Convention on the Law Applicable to Trusts and on their Recognition, Art 2, which reads: “A trust has the following characteristics – (a) the assets constitute a separate fund and are not part of the trustee’s own estate; (b) title to the trust assets stands in the name of the trustee or in the name of another person on behalf of the trustee; (c) the trustee has the power and the duty, in respect of which he is accountable, to manage, employ or dispose of the assets in accordance with the terms of the trust and the special duties imposed upon him by law”. Is this a definition of a trust, or merely a description? Consider the following attempt at a definition: [The trust] refers to the duty or the aggregate accumulation of obligations that rest upon a person described as a trustee. The responsibilities are in relation to property held by him, or under his control. That property he will be compelled by a court in its equitable jurisdiction to administer in a manner lawfully prescribed by the trust instrument, or where there be no specific provision written or oral, or to the extent that such provision is invalid or lacking, in accordance with equitable principles. As a consequence the administration will be in such a manner that the consequential benefits and advantages accrue, not to the trustee, but to the persons called cestui que trust or beneficiaries, if there be any, if not, for some purpose which the law will recognise and enforce … (Re Scott (decd) [1948] SASR 193 at 196 per Mayo J)

3.

Is there any absolute requirement that trusts necessarily exhibit an exact symmetry between the legal and equitable estates? Consider in this context the nature of the beneficial (equitable) interest in charitable trusts (see Ch 29 (Dal Pont)), discretionary trusts (see [20.90]–[20.110] (Dal Pont)) , superannuation trusts (see [28.10]–[28.155] (Dal Pont)) and on one interpretation of the Quistclose trust (which is arguably not intended to create a beneficial interest in the beneficiaries of the primary trust: see [27.105]–[27.130] (Dal Pont)). Can this explain attempts to view the trust almost purely as a device to give effect to obligations more so than a vehicle to confer an equitable proprietary estate on beneficiaries? See Parkinson, “Reconceptualising the Express Trust” [2002] CLJ 657. Cf Barnett, “The Nature of a Beneficiary’s Interest in the Assets of an Express Trust” (2004) 10 APLJ 169.

4.

In Commissioner for ACT Revenue v Perpetual Trustee Co (Canberra) Ltd (1994) 118 ACTR 1 at 5 Higgins J stated: “Merger [of legal and beneficial interests] will not occur where the trustee is merely one of a number of beneficiaries, or where the trustee holds the beneficial interest in a different capacity from the capacity in which the legal interest is held”. Is there a merger where the trustee (A) who is the sole beneficiary of the trust holds her or his beneficial interest in trust for a third party (B)? In this case, are there two trusts (between A and A, and between A and B), or simply one trust (between A and B)? See Grainge v Wilberforce (1889) 5 TLR 436. [13.40]

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5.

In Hardoon v Belilios [1901] AC 118 at 123 Lord Lindley said: “All that is necessary to establish the relation of trustee and [beneficiary] is to prove that the legal title was in the plaintiff and the equitable title in the defendant”. Yet in Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 at 707 Lord BrowneWilkinson opined that “[e]ven in cases where the whole beneficial interest is vested in B and the bare legal interest is in A, A is not necessarily a trustee”. His Lordship gave the example of where title to land is acquired by estoppel against the legal owner. Does the fact that an interest in property arising from a proprietary estoppel rests on an order of the court, in turn premised on a finding of unconscionable conduct (see [10.130]–[10.140] (Dal Pont)), undermine the legitimacy of his Lordship’s example? Is not the interest of a person alleging an interest in property under an estoppel only a mere equity (see [2.05], [2.20], [2.25] (Dal Pont))?

Classification of trusts [13.45] Trusts are most commonly classified according to the way in which they arise. Trusts

that arise pursuant to intention, whether express or inferred, are termed “express trusts”: see [13.125]–[13.130]. The relevant intention is that of the “settlor”, the legal term for the creator of the trust. Express trusts may be classified according to the nature of the interest held by the beneficiaries. Under a “fixed” trust a beneficiary holds a fixed entitlement to the capital and/or income of the trust (a proprietary interest). Under a “discretionary” trust a beneficiary has a mere expectancy or hope that the trustees will exercise their discretion and make a distribution of the trust capital and/or income in her or his favour (generally understood as a non-proprietary interest): see [20.90]–[20.110] (Dal Pont). Express trusts may also be classified into express “private” trusts, where the trust is intended to benefit one or more individuals, and charitable trusts (sometimes termed “public trusts”), which are for purposes recognised as charitable in law (see Ch 29 (Dal Pont)). (Non-express) trusts may arise in the absence of express or inferred intention of the settlor via what are termed “resulting trusts” and “constructive trusts”. In the case of resulting trusts, the court presumes that in certain forms of disposition the disponer does not intend to divest herself or himself of beneficial ownership: see Ch 26 (Dal Pont). Broadly speaking, constructive trusts are imposed by the court in respect of property or money it is inconsistent with the principles of equity for a person to retain: see Ch 38 (Dal Pont).

Notes&Questions

[13.50]

1.

A trustee may hold property on a “bare trust”. The following statement by Gummow J in Herdegen v Federal Commissioner of Taxation (1988) 84 ALR 271 at 281 explains the nature of a bare trust: Today the usually accepted meaning of “bare” trust is a trust under which the trustee or trustees hold property without any interest therein, other than that existing by reason of the office and legal title as trustee, and without any duty or further duty to perform, except to convey it upon demand to the beneficiary or beneficiaries or as directed by them, for example, on sale to a third party. The beneficiary may of course hold the equitable interest upon a sub-trust for others or himself and others. The term is usually used in relation to trusts created by express declaration. But it has been said that the assignor under an agreement for value for assignment of so-called “future” property becomes, on acquisition of the title to the property, trustee of that property for the assignee (Palette Shoes Pty Ltd (in liq) v Krohn (1937) 58 CLR 1 at 27) and this trust

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would answer the description of a bare trust. Also, the term “bare trust” may be used fairly to describe the position occupied by a person holding the title to property under a resulting trust flowing from the provision by the beneficiary of the purchase money for the property.

Where the trustee who is the sole beneficiary of the trust (A) holds her or his beneficial interest in trust for a third party (B), can it be said that A holds as bare trustee for B? 2.

In Christie v Ovington (1875) 1 Ch D 279 at 281 Hall VC defined a bare trustee as one “to whose office no duties were originally attached, or who, although such duties were originally attached to his office, would, on the request of his [beneficiaries] be compellable in equity to convey the estate to them, or by their direction”. If a person who holds property has no active duties in respect of that property, is it correct to call that person a trustee? Can a trustee of a resulting or constructive trust be characterised as a bare trustee? Why or why not?

TRUSTS AND OTHER LEGAL RELATIONSHIPS [13.55] Distinguishing the trust relationship from other legal relationships is important

because different legal consequences flow from them. It also serves to highlight the distinctive nature of the trust. Trust and debt [13.60] The relationship of debt arises where a sum of money is due from one person (the

debtor) to another (the creditor), and does not ordinarily give rise to fiduciary duties (see [4.230]–[4.240] (Dal Pont)), let alone the onerous duties that are part and parcel of trusteeship (see Ch 20). In determining whether a debtor–creditor relationship gives rise to a trust, the court inquires as to whether there is evidence of an intention to create a trust. As explained by Channel J in Henry v Hammond [1913] 2 KB 515 at 521: If the terms upon which the person received the money are that he is bound to keep it separate … and to hand that money so kept as a separate fund to the person entitled to it, then he is a trustee of that money and must hand it over to the person who is his cestui que trust. If, on the other hand, he is not bound to keep the money separate, but is entitled to mix it with his own money and deal with it as he pleases, and when called upon to hand over an equivalent sum of money, then … he is not a trustee … but a mere debtor.

The distinction between trust and debt is of critical importance in bankruptcy or liquidation of a trustee, as trust property is not divisible amongst an insolvent trustee’s creditors. After all, property held by a person on trust is not her or his property beneficially, and so should not be able to meet her or his own debts and liabilities. Consider the following scenario: A loans money to B for a specified purpose, but before that purpose can be effected B becomes insolvent. The question is whether the money loaned to B forms part of B’s assets so as to be available for distribution amongst B’s general creditors. If instead of, or in addition to, being a loan, the advance to B from A can constitute a trust, then those moneys are beneficially owned by A and so are not available for distribution to B’s general creditors. Leading cases in this context include Re Kayford Ltd (in liq) [1975] 1 WLR 279 (extracted at [13.155]) and Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 (extracted at [27.110] (Dal Pont)). [13.60]

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Trust and bailment [13.70] “When one person delivers to another any moveable thing in order that it may be

used, gratuitously or otherwise, by the person to whom delivery is made, the act of delivery is the ‘bailment’, the person making the delivery is the ‘bailor’ and the person to whom it is made is the ‘bailee’”: Booth, MacDonald and Co (Ltd) v Official Assignee of Hallmond (1913) 33 NZLR 110 at 118 per Cooper J. Like the trust, bailment involves the holding of property by a person for another, and consequent duties of care to that end. On the other hand, “a mere contract of bailment … does not create a trust”: Davis v Heuber (1923) 31 CLR 583 at 595 per Higgins J. The principal distinction in this respect is that a trustee holds title to the property under her or his care, whereas a bailee does not. Although “[e]very bailment probably involves in some sense trust or confidence reposed by the bailor in the bailee”, this does not mean that it is necessarily a trust of property courts of equity have jurisdiction to enforce: Davis v Heuber (1923) 31 CLR 583 at 595 per Higgins J. However, there is some confluence between fiduciary law and bailment, as appears from the following statement by Mason J in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 105: [A] bailee may stand in a fiduciary relationship with his bailor. A buyer who has possession of goods the subject of a contract of sale on terms that property does not pass until payment of the purchase price is a bailee of the goods until the property passes … Where the buyer is an exclusive distributor and his purchase is for the purpose of supplying the local market with the manufacturer’s product, it being the duty of the distributor to promote and protect the market, it may well be a breach of the fiduciary duty of the distributor as bailee to copy the manufacturer’s product – the distributor thereby putting the product to a use lying outside the scope of the bailment.

Thus a buyer who has possession of goods the subject of a contract of sale on terms that property does not pass until payment of the purchase price can be viewed as a bailee of the goods until the property passes. A clause to this effect (a “retention of title” clause) allows the vendor (bailor) to retake possession of the goods if the purchaser (bailee) fails to fulfil the terms of the contract (bailment). It is where the purchaser becomes insolvent that the vendor generally purports to exercise this right to retake possession, and thereby secure priority over the purchaser’s other creditors (although the general law principles relating to the efficacy of retention of title clauses must now be read subject to the statutory regime created by the Personal Property Securities Act 2009 (Cth): see [13.80] note 4). If instead the purchaser had held the goods on trust for the vendor, the vendor could likewise secure priority over the purchaser’s other creditors in the same scenario, on the ground that the vendor has retained equitable ownership of the goods. There have been attempts to combine a retention of title clause with trusteeship, as in the Associated Alloys case, extracted below.

Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (in liq) [13.75] Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (in liq) (2000) 202 CLR 588 (High Court of Australia) [The appellant seller sold steel to the respondent buyer, issuing invoices to the respondent containing the following clause: “In the event that the purchaser uses the goods/product in some manufacturing or construction process of its own or some third party, then the purchaser shall hold such part of the proceeds of such manufacturing or construction process as relates to the goods/product in trust for the vendor. Such part shall be deemed to equal in dollar terms the amount 354

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Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (in liq) cont. owing by the purchaser to the vendor at the time of the receipt of such proceeds”. The respondent used the steel in question in the fabrication of steel products to supply to a third party. When the respondent went into liquidation, the issue was whether a valid trust of “the proceeds of such manufacturing or construction process as relates to the goods/product” was created for the benefit of the appellant.] GAUDRON, McHUGH, GUMMOW AND HAYNE JJ … [603] … It is necessary to determine the equitable rights, liabilities and remedies which arise from the purported operation of the Proceeds Subclause. A pendent question also arises as to the manner in which the buyer’s contractual rights and obligations are affected by equitable considerations. The disposal of this question necessitates, to use Lord Wilberforce’s expression, the “flexible interplay of law and equity” (Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 at 582) … It is of some importance that parties to sophisticated commercial transactions have structured, and will continue to structure, their affairs on the basis that a certain and predictable course can be charted through this terrain … The contracts, in respect of each of the invoices, spoke for the future and provided the attachment of a trust for “the proceeds” received from time to time. There being value, and equity regarding as done that which ought to be done, a completely constituted trust would arise in respect of those “proceeds” … as they were received by the buyer. [604] In their joint judgment in Kauter v Hilton (1953) 90 CLR 86 at 97 Dixon CJ, Williams and Fullagar JJ identified “the established rule that in order to constitute a trust the intention to do so must be clear and that it must also be clear what property is subject to the trust and reasonably certain who are the beneficiaries”. However, their Honours went on to emphasise that a plaintiff who seeks to prove too wide a trust need not fail altogether. This, as will later appear when dealing with the “credit period”, is a matter of some importance. In Kauter v Hilton it was found that the deceased had intended to create a present trust upon the deposit of moneys in various bank savings accounts. The trust was fully constituted although the deceased had reserved to himself the right to withdraw any interest which accrued on the accounts in his lifetime. It would have been a breach of trust for the deceased to have disposed of the moneys from time to time in the accounts, apart from the interest, without the consent of a beneficiary. In the present case, it is no objection to the effective creation of a trust that the property to be subjected to it is identified to be a proportion of the proceeds received by the buyer; a proportion referable to moneys from time to time due and owing but unpaid by the buyer to the seller. In respect of those proceeds from time to time bound by the trust, there is nothing in the terms of the trust to negative the ordinary consequence that the trustee (the buyer) is bound to apply that sum by accounting to or at the direction of a beneficiary (the seller). It is convenient to identify the condition which limits the beneficiary’s entitlement to call upon the trust property later in this judgment … [B]ecause equity treats as done that which ought to be done, even if the proceeds were paid into a general bank account of the buyer there could be a tracing remedy where the recipient was obliged to hold a particular portion of the proceeds on trust. In the situation just considered, where the trust is performed and discharged by appropriation of the proceeds by the seller, the relevant trust relationship between the buyer and the seller is brought to an end. A question may then arise whether, despite the seller having been funded in this way, it might retain a good claim for that amount by an action in debt against the buyer. The answer to that will be found not in trust law but in the terms, express or implied, of the contract [605] between the buyer and the seller. In the formulation of those terms, particularly any implied terms, there is, to adapt the words of Lord Wilberforce, “surely no difficulty in recognising the co-existence in one transaction of legal and equitable rights and remedies” (Barclays Bank Ltd v Quistclose Investments Ltd at 581) and the giving of effect to “practical arrangements” by “the flexible interplay of law and equity” (at 582). Intentions of the parties [13.75]

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Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (in liq) cont. In Commissioner of Stamp Duties (Qld) v Jolliffe (1920) 28 CLR 178 Isaacs J considered that a party who had used the term “trustee” for the title of a savings bank account could not be heard to deny the trust and to assert an absolute entitlement to the moneys in the account and the interest derived therefrom. The majority (Knox CJ and Gavan Duffy J) held that the respondent was not excluded from averring that he had not intended to create a trust and that, rather, he had used the term “trustee” for the sole purpose of procuring interest he believed, by reason of certain legislation, would not have been payable by the bank if the account had been in his own name and not as a trustee. In Kauter v Hilton (1953) 90 CLR 86 at 100 the court treated Jolliffe as deciding, for the purposes of the legislation there in question, that “[a]ll the relevant circumstances must be examined in order to determine whether the depositor really intended to create a trust”. This is not one of those cases where the language employed by the parties for the transaction is inexplicit so that the court is left to infer the relevant intention from other language used by them, from the nature of the transaction and from the circumstances attending the relationship between the parties (Walker v Corboy (1990) 19 NSWLR 382 [extracted at [13.90]]). An express obligation upon the buyer to keep the “proceeds” separate would have pointed to the existence of a trust if none had been explicit. This would have been because, as McPherson ACJ has put it, such an obligation “is a hallmark duty of a trustee” (Puma Australia Pty Ltd v Sportsman’s Australia Limited (No 2) [1994] 2 Qd R 159 at 162). But where the existence of a trust is explicit, the absence of an express obligation to keep trust moneys separate does not deny the trust. Rather, there being a trust, it follows that equity imposes various obligations and duties on the trustee. One of these is the obligation to get in the trust property and keep it distinct from the property of the trustee and from property held on other trusts. [606] No question presently arises of the variation or abrogation of such obligations by statute or by express provision in a settlement. In the present case there is nothing to suggest, at this subjective level, that the parties in their written instrument did not mean what they said, or did not say what they meant. There is no suggestion of a sham. It must follow that the terms of the invoices embodied the intentions of the parties … [608] … The submissions for the buyer proceed on the footing that the arrangement established by the instruments in question here could not be a trust because such a trust would fail to satisfy the three certainties restated in the passage from Kauter v Hilton set out above. The parties must, it was suggested, have intended (and created) no more [609] than the security for the moneys owing by the buyer to the seller. As indicated above, that conclusion does not follow and there was an agreement effective in equity to bind, from time to time, the relevant “proceeds” … [610] … Corporations Law The proceeds subclause is an agreement to constitute a trust of future-acquired property. It is therefore not a “charge” within the meaning of s 9 of the [Corporations] Law [now Corporations Act 2001 (Cth)] and the detailed provisions of the Law governing charges thus do not apply to it. The proceeds subclause is not a “registrable charge” within s 262 and the seller had no [611] obligation to lodge a notice under s 263 within the prescribed period (s 266(1)(c)). In turn, the proceeds subclause is not void as against the administrators or liquidator of the buyer (see s 266(1)). The circumstance that the then Pt 3.5 of the Law was not attracted to the proceeds subclause is of commercial significance. For third parties, such as financial institutions seeking to assess the credit-worthiness of the buyer, the non-registration of the proceeds subclause on a public register may create practical difficulties. These difficulties are capable of remedy by legislation. However, as one may expect, there would be two sides to any argument to which such a proposal might give rise. The lack of any statutory obligation to register the proceeds subclause (for example, under s 263(1) of the Law) creates commercial incentives for entities, in the position of both the buyer and the seller, to incorporate clauses such as the proceeds subclause into their purchase agreements. 356

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Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (in liq) cont. These clauses reduce the risk of non-payment by the buyer. To the extent that this financial, or credit, risk is reduced, the commercial viability of the transaction for both parties may be increased. For example, the availability of this means of reducing credit risk for the seller may result in the seller accepting a lower cost price per unit of steel. Competitive pressures may thus operate upon the parties to incorporate clauses such as the proceeds subclause in their transactions. In the Law, the legislature has chosen to select as the criterion of operation of the registration provisions that which it defines as a “charge”. The contractual and trust arrangement with which this appeal is concerned did not involve the creation of such a charge or an agreement to create one. To treat the proceeds subclause as an agreement which falls foul of the Law is to rewrite the statute. It is not for the courts to destroy or impair property rights, such as those arising under trusts, by supplementing the list of those rights which the legislature has selected for such treatment. [612] … Evidence of receipt of “the proceeds” It was for the seller to make out its case. In the end, this appeal turns on a critical gap in the evidence. Bryson J [the trial judge] observed that if the seller had any remedies they arose under the Proceeds Subclause. His Honour considered the evidence and said (Associated Alloys Pty Ltd v Metropolitan Engineering & Fabrications Pty Ltd (1996) 20 ACSR 205 at 210–211): [The buyer] has done nothing to identify any part of the proceeds as relating to the steel in [the invoices], and has done nothing to set aside and hold any part of the proceeds in trust for [the seller] … [T]here is no basis on the evidence on which any particular one of the [steel products], whether they have been delivered to [the third party] or are still in [the buyer’s] hands, can be identified as having been produced from the goods in any one of the [invoices]. Nor is there any basis for carrying out any process of apportionment; if such a process were appropriate, the evidence would not enable it to be done. In the first of these passages, Bryson J refers to “proceeds” in the hands of the buyer. This reference erroneously assumes that the payments received by the buyer from the third party, as at the time of judgment, were “proceeds” within the meaning of the proceeds subclause. However, in the context of the further findings quoted above, it is not possible to identify, as conceded in this court by counsel for the seller, whether any payments made by the third party to the buyer [613] were related, within the meaning of the proceeds subclause, to the steel supplied by the seller under any particular invoice. Thus whilst the proceeds subclause operates in each case as an agreement to constitute a trust of futureacquired property, the seller has not demonstrated receipt of the future–acquired property by the buyer. In turn, therefore, it cannot be concluded that any trust in favour of the seller was constituted under the proceeds subclause. This lacuna in the evidence is fatal to the claim for the equitable relief made by the seller. It is not disputed that the steel supplied by the seller under the invoices has been used in the buyer’s manufacturing process to produce the steel products. Further, as at the time of judgment of Bryson J, the buyer had received part, but not complete, payment from the third party for the steel products. However, the question remains whether the buyer has received those payments: (a) as trustee for the seller, in the event that the payments received were “proceeds”; or (b) for its own benefit, in the event that the payments received were not “proceeds”. Neither the declarations sought, nor the remedy of equitable tracing against the buyer, nor any liability of the buyer to account as trustee will arise if the payments received were not “proceeds” within the meaning of the proceeds subclause. The burden of proving that a trust was constituted by the proceeds subclause, in respect of each of the invoices, lay on the seller. This appeal may be contrasted with the position that would have resulted if the buyer had, hypothetically, received all payments from the third party with respect to the steel products. If this had occurred (which has not been contended by any of the parties) the inference may have to have been drawn that the buyer had received the “proceeds” from the third party, in respect of each of the invoices. [13.75]

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Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (in liq) cont. The proceedings were constituted by summons and heard promptly. However, the procedure adopted meant that the issues did not appear as would have been the case had there been pleadings. If such rigour had been applied it may have been readily identifiable to the parties, perhaps prior to trial, that the seller had failed to prove an essential fact in issue, namely the receipt of “proceeds” by the buyer. Without proof of this threshold fact, no trust relationship can arise under the proceeds subclause between the seller and buyer. The seller submitted that an order to account should nevertheless be made against the buyer; in substance, as a way of identifying whether the buyer had received “proceeds” within the meaning of the proceeds subclause in relation to the invoices. Counsel for the buyer correctly identified the weakness in this submission. Before a party can be ordered to account, liability to account must be established. The seller’s failure to prove that the buyer is a fiduciary, owing trust obligations to the seller, denies its claim to this remedy. Conclusion [614] Whilst we differ from the Court of Appeal, which held that the proceeds subclause was a “charge” within s 9 of the [Corporations] Law which was registrable under Pt 3.5, the appeal nevertheless cannot succeed for the reasons just given. In particular, the case for the equitable remedies sought by the seller was not made out. The ultimate conclusion that the relief sought by the seller had to be refused should not be disturbed and the appeal to this court should be dismissed with costs.

[13.80]

Notes&Questions

1.

What does the decision in Associated Alloys indicate about the relationship between contract, bailment and trust? Was there any issue of bailment in the case? If not, what was the retention of title clause designed to achieve? What was the relevance of the corporations legislation in this context? Why ultimately did their Honours decide against the appellant seller’s claim? Cf Polymer Systems (1999) Ltd v Montgomerie [2002] 3 NZLR 383.

2.

Does the difference between trust and bailment impact upon the rights of third parties? As equitable rights cannot be enforced against a bona fide purchaser for value without notice, such a purchase from a trustee where the sale is in breach of trust is binding on the beneficiaries. As a bailee does not have title to the goods in question, what impact does this have, at general law, on the title of a person who bona fide purchases the goods from the bailee?

3.

In Associated Alloys (at 611), their Honours noted that the legislature in s 262 of the Corporations Law (now s 262 of the Corporations Act 2001 (Cth)) chose to select as the criterion of operation of the registration provisions that which it defined as a “charge”, and that the contractual and trust arrangement in the case did not involve the creation of a charge or an agreement to create one. For this reason, their Honours held that “[i]t is not for the courts to destroy or impair property rights, such as those arising under trusts, by supplementing the list of those rights which the legislature has selected for such treatment”. Should trust interests be subject to a registration regime? What would be the benefit of such a regime? Who would benefit from it?

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Note that even though the Personal Property Securities Act 2009 (Cth) treats a retention of title clause as a “security interest” (s 12(2)(d)) – and thereby essentially deems a retention of title clause as akin to a secured loan, whereby the supplier holds no more than a security interest in the good supplied and the purchaser becomes its owner – it expressly excludes from its coverage an interest provided for by “a transfer of the beneficial interest in a monetary obligation where, after the transfer, the transferee holds the monetary obligation on trust for the transferor” (s 8(1)(f)(x)) and “a trust over some or all of an amount provided by way of financial accommodation, if the person to whom the financial accommodation is provided is required to use the amount in accordance with a condition under which the financial accommodation is provided” (s 8(1)(h)). Therefore, the Act does not upset the reasoning in Associated Alloys. Why should trusts fall outside the securities regime? The Act does, however, shift the law regarding retention of title clauses: the supplier cannot simply rely on the clause as a basis for retaining a property interest because the Act declares the supplier’s interest as only a security interest (which can lose priority to other interests unless that interest is properly registered under the Act) rather than an ownership interest. The purchaser is, under the Act, treated as the owner of the goods supplied under the clause. See Collier, von Nessen and Collier, “The PPSA: Continuing the Reconceptualisation of Retention of Title (Romalpa) Security” (2011) 34 UNSWLJ 567; Duggan, “Romalpa Agreements Post-PPSA” (2011) 33 Syd L Rev 645.

Trust and agency [13.85] The traditional notion of an agency relationship is that between one person (agent)

and another (principal) that gives the agent authority to affect the principal’s legal relations with third parties: see Dal Pont, Law of Agency (3rd ed, LexisNexis Butterworths, 2014), Ch 1. Within such a relationship, agents can, within their scope of authority, enter into binding contracts on behalf of their principal. The relationship between agent and principal, like that between trustee and beneficiary, is a fiduciary one: see [4.165]–[4.190] (Dal Pont). However, an agent need not hold legal title to the principal’s property, whereas it is the essence of trusteeship that a trustee hold legal title to trust property. Moreover, “[a] trustee contracts as principal for the benefit of a cestui que trust. An agent contracts for a principal or principals of which he may himself be one”: Construction Engineering (Aust) Pty Ltd v Hexyl Pty Ltd (1984) 155 CLR 541 at 546 (FC). In determining whether an agency gives rise to a trust, the following observations of Priestley JA in Walker v Corboy (1990) 19 NSWLR 382 at 385 should be borne in mind: [T]he circumstances of the relation between the principal and agent must first be looked at, the fact finding itself being uncoloured by preconceptions as to whether they should or should not be interpreted as giving rise to a trust or to equitable obligations, and then upon consideration of the circumstances found, a decision made whether (i) there was an express trust or equitable obligation in the circumstances or (ii) whether the court should say that the expectations of the parties would most appropriately be served by saying that the circumstances brought a non-express trust (to use a completely neutral expression) or equitable obligation into existence, or (iii) finding no trust or equitable obligation. It is not, in my opinion, a question of seeing whether a general rule has been displaced, but of seeing whether the particular circumstances did or did not give rise to the trust or obligation.

Walker v Corboy, in particular the judgment of Meagher JA, illustrates the interplay and overlap between the concepts of agency and trust. [13.85]

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Walker v Corboy [13.90] Walker v Corboy (1990) 19 NSWLR 382 (New South Wales Court of Appeal) [The issue was whether moneys received from purchasers by a farm produce agent (Lojon Pty Ltd) created a trust for the benefit of the growers (respondents). The issue arose on the winding up of the agent. The appellant was a receiver of Lojon Pty Ltd.] MEAGHER JA … [395] … The question whether an agent for sale holds the proceeds of sale on trust for his principal, so that the relationship between them is that of trustee and cestui que trust, on the one hand, or he simply owes to his principal whatever sum of money is then due on account between them, so that the relationship between them is simply that of creditor and debtor, on the other hand, is one which is not easy to answer in many factual contexts. Basically, as Scott says, the answer must depend on the intention of the parties: Scott on Trusts, 4th ed (1987) at 133. This must be so because, except in the case of constructive trusts where a trust is thrust on the parties irrespective of their intentions and as a matter of policy, an intention to create a trust is an essential element of a trust. If the parties expressly spell out that their arrangements do or do not involve a trust, a trust comes into existence or does not come into existence accordingly. However, this consideration is of little assistance where, as in the present case, the parties to the transaction are silent as to their intentions. When, as here, the parties have no expressed intention, it then becomes necessary to see, in all the circumstances of the case, what intention the law [396] should impute to them … In the case of a single transaction the position is clear enough. In the absence of any other factors, the law will take the view that he who beneficially owns the tree also beneficially owns the fruit: the agent will be a trustee of the proceeds of sale. As Dixon J said in Palette Shoes Pty Ltd (in liq) v Krohn (1937) 58 CLR 1 at 30: In equity the relation of agent would carry with it a duty to account, and, as a rule, a duty, if moneys are received in the course of the agency, to hold them specifically for the principal. At law the relation would be that of debtor and creditor. Even when the agent received under the authority of the principal the price of the latter’s property, his obligation to pay it over was at law a personal liability only. The importance which has been given to the question whether property in the manufactured shoes vested in the respondents before it passed to the customers who bought them seems to me to be mistaken. As I have said, even if the goods sold were their property at law, the respondents would gain no property in the proceeds. The company would at law still be no more than their debtor. In equity, for a different reason, it seems immaterial … The reason why in equity the proceeds of property may be followed by the owner and treated as a fund held upon a constructive trust in his favour is that his beneficial ownership of the thing gives him prima facie an equitable interest in its proceeds. … In the present case, Cole J’s [the trial judge] reason for finding that a trust existed was simply that the grocers once owned the produce. In other words, he applied to the present case the prima facie rule enunciated by Dixon J in Palette Shoes Pty Ltd v Krohn as if it were of universal application. For his Honour, as [senior counsel for the respondents] conceded, that was the beginning and the end of the case. To my mind this is too simple an analysis. If the prima facie rule were universal and inflexible there would never be cases where an agent has been held not to be a trustee of the proceeds of sale, and yet such cases abound. Clearly, what intention the law would regard as appropriate in the case of a simple single sale might not be [397] the intention which should be imputed in a case involving complex and multiple transactions, and in the present case I am of the view that no intention to create a trust should be imputed. It is necessary to look at the nature of the transaction, the particular provisions of the agreement of the parties, and the whole of the circumstances attending the relationships between the parties. If one examines the whole of the relevant circumstances in the present case I am of the view that the law would not impute to the parties any intention to create a trust. The first, and to my mind the most powerful, indicium that no trust can be imputed is the absence of any statutory requirement that agents should keep the proceeds of sale of produce separate from 360

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Walker v Corboy cont. their own general funds. As [senior counsel for the appellants] pointed out, all that the legislature has deemed necessary for the protection of growers is to compel the agent to pay the grower within a specified time regardless of whether he has been paid by the purchaser ([Farm Produce Act 1983 (NSW), now repealed,] s 22(3)) and to provide for an indemnity system to meet the obligations to growers of defaulting agents (ss 46, 48 and 49). In the present case that indemnity system proves to be ludicrously insufficient, but that is irrelevant: doubtless it was intended to be adequate for its purpose. Neither the Act nor the [Farm Produce Regulation 1983 (NSW), now repealed] require the keeping of separate accounts for the proceeds of sale nor do they prohibit the agent from mixing the proceeds of agency sales with his own moneys, although the regulations make careful provision for what books and accounts are to be kept by agents (reg 26). [His Honour then cited Henry v Hammond [1913] 2 KB 515 at 521, quoted at [13.60], and continued:] When dealing with this argument, Cole J attempted to rebut it by reliance on what Hope JA said in Stephens Travel Service International Pty Ltd v Qantas Airways Ltd (1988) 13 NSWLR 331 at 349: Prima facie trust moneys should be paid into a separate account, but if it is agreed between trustee and beneficiary that they may be paid into a general account, the trustee would be required to retain sufficient moneys in that account to cover his trust obligations. Payments out of the account for non-trust purposes would be debited first against the [398] non-trust part of the account. I see no reason why effect should not be given to such an agreement, or why it should result in a destruction of the trust. However, in my opinion, his Honour’s reliance on this dictum was misconceived. The present case presents a far different picture from that in the Stephens Travel case. The Stephens Travel case dealt with a situation where there was initially an express trust but the parties to the trust had conducted themselves inconsistently with normal trust requirements, the issue being whether subsequent conduct had revoked the initial trust; in the present case the issue is whether an initial trust ever existed. Whilst non-separation of funds which are admittedly trust funds may not negative the original trust, it does not follow that an initial non-separation of funds may not be fatal to the existence of a trust. If, in the present case, the parties, without mentioning in terms whether or not a trust should exist, had expressly stipulated that the agent was at liberty to mix the proceeds of sale with his own general moneys, would that not be fatal to an assertion that a trust existed? And if that were the case in the event of an express stipulation, why should it not be the case where there is an implied stipulation to the same effect constituted by an agreement that the proceeds of sale should be dealt with as required by the statute, which, by not negativing the right to mix the funds, impliedly permits it? A second circumstance which tends in the same direction is that not only does the statute seem to countenance the mixing by an agent of the proceeds of sale with his general funds, but that an industry-wide practice has emerged over the years, apparently with the sanction of the authorities, of doing just that. Indeed the present Act, which is not the first Act dealing with the regulation of produce agents, was passed at a time when the legislature knew of the industry practice of mixing the sales of produce with general funds. A third circumstance is that the legislature must have been aware that if it were deemed appropriate that an agent’s proceeds of sale should be treated as trust funds, it would have been easy enough to enact adequate trust account provisions, such as has already been done in this case of legislation regulating solicitors, securities dealers, debt collection, motor dealers, public accountants and real estate agents. Its decision not to take this course can only have been deliberate. True it is that the absence of an obligation to pay money into an account styled a “trust account” is not necessarily fatal to the existence of a trust: see Megarry V-C in Re Kayford Ltd (in liq) [1975] 1 WLR 279 [extracted at [13.155]], but the absence of such an obligation must be a factor tending against a trust, and a fortiori so when that absence seems to be the result of a deliberate choice. [13.90]

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Walker v Corboy cont. A fourth circumstance going in the same direction is the general reluctance of the courts to extend the law of trusts into ordinary commercial transactions. In New Zealand and Australian Land Co v Watson (1881) 7 QBD 374 at 382, Bramwell LJ said that he would be very reluctant to see the “intricacies and doctrines connected with trusts” introduced into commercial transactions, and in Neste Oy v Lloyds Bank plc [1983] 2 Lloyd’s Rep 658, Bingham J, a common lawyer, enthusiastically agreed: see also Brunyate on Limitation of Actions in Equity (1932) (at 83–87). In the present context, in argument counsel for the appellants illustrated some of the practical complications which would arise from a holding that an agent held [399] the proceeds of sale of produce in trust, and counsel for the respondents admitted that there would be such complication. A fifth circumstance is that the statute seems to contemplate that a borrower’s only remedy against an agent (other than recourse to the indemnity provisions of the Act and to the criminal sanctions imposed by the Act) is to demand payment from the agent of whatever sum is due on the taking of an account between them. In reply, Cole J cited Hope JA’s observation in the Stephens Travel case that the mere existence in the agent of a duty to account cannot of itself be decisive in negating a trust, since one of the duties of every trustee is to account to his beneficiaries when called upon to do so. That is true enough, but it does not negative the proposition that where one finds that the agent’s only duty is to account no trust can exist. In summary, the cumulative effect of the circumstances which I have listed to my mind suggests strongly that no trust existed in the present case and that the appeal therefore succeeds.

[13.95]

Notes&Questions

1.

Priestley and Clarke JJA reached the same conclusion as Meagher JA. Why did the growers argue that there was a trust in Walker v Corboy? What justified the conclusion that no trust relationship arose? How many truly separate grounds for this decision appear in the judgment of Meagher JA? As the court found that the relationship between grower and agent was one of debtor and creditor, where did this leave the growers in the winding up of the agent?

2.

Is an agent who holds title to the property of her or his principal necessarily a trustee? If not, what distinguishes such a person from a trustee?

3.

An agent who gains at the expense of her or his principal may hold that gain of constructive trust for the principal: see Attorney-General for Hong Kong v Reid [1994] 1 NZLR 1 (extracted at [38.55] (Dal Pont)). Alternatively, where a principal forwards moneys to an agent to hold for the principal, the agent can be said to hold those moneys on an express trust, such as where a client (principal) forwards moneys to her or his solicitor (agent) to be held on the client’s behalf. The latter is recognised by statute: Legal Profession Act 2006 (ACT), s 222; Legal Profession Act 2004 (NSW), s 254; Legal Profession Act 2006 (NT), s 246; Legal Profession Act 2007 (Qld), s 248; Legal Practitioners Act 1981 (SA), s 31; Legal Profession Act 2007 (Tas), s 242; Legal Profession Act 2004 (Vic), s 3.3.13; Legal Profession Act 2008 (WA), s 215.

Trust and contract [13.100] A contract is simply an agreement between parties that is enforceable at law. Its

existence depends on mutual agreement between the contracting parties, whereas the existence of a trust is premised chiefly on the intention of the settlor. The terms of a contract may 362

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contain an undertaking to act in the interests of another and may, to that end, provide evidence of the existence and scope of a fiduciary relationship (see [4.20]–[4.35] (Dal Pont)). Whether such a fiduciary relationship is in the nature of a trust depends on whether the prerequisites of a trust have been fulfilled. In this context, the observations of Mason and Deane JJ in Gosper v Sawyer (1985) 160 CLR 548 at 568–569 deserve mention: The origins and nature of contract and trust are, of course, quite different. There is however no dichotomy between the two. The contractual relationship provides one of the most common bases for the establishment or implication and for the definition of a trust. Conversely, the trust, particularly the resulting and constructive trust, represents one of the most important means of protecting parties in a contractual relationship and of vindicating contractual rights.

Moreover, “many express trusts, particularly those created or manifested in writing, contain conditions, precedent or subsequent, to which the same principles of public policy apply whether perceived through the lens of contract or trust”: Nelson v Nelson (1995) 184 CLR 538 at 556 per Deane and Gummow JJ. [13.105]

Notes&Questions

1.

Are there circumstances in which mutual intention of the settlor and trustee (that is, agreement) is necessary for the creation of a trust, as in the formation of a contract? See Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 (extracted at [27.110] (Dal Pont)). Can it be said that a trust document constitutes a contract between the trustee and the beneficiaries, or a contract between the settlor and the trustee? Why or why not? The following observation, made in the context of public unit trusts, should be borne in mind in this respect: “merely because a right was in a contract or looks like a contractual right, one does not necessarily apply legal contractual rules … [R]ights under a trust … are a separate category of rights which are enforced according to equitable principles”: Rural and Agricultural Management Ltd v West Merchant Bank Ltd (1995) 18 ACSR 793 at 799 per Young J. Can trustees’ duties or beneficiaries’ rights under a trust be varied or ousted by contract? If so, is there a limit to which of those rights and duties can be modified or negated without undermining the fundamental nature of a trust? Consider trustee exemption clauses (see [24.145]–[24.160] (Dal Pont)) in this context. See generally Langbein, “The Contractarian Basis of the Law of Trusts” (1995) 105 Yale LJ 625.

2.

Consideration is a necessary requirement of all contracts but is not required in the case of a trust. Why? Why are trusts commonly settled by deed?

3.

A contract can be varied or terminated by agreement between the parties. How are trusts varied? See [25.05]–[25.85] (Dal Pont). How can the termination of a trust be effected? See [25.110]–[25.170] (Dal Pont).

Circumventing privity of contract via the trust [13.110] Under the doctrine of privity of contract, only the parties to the contract can sue or

be sued, whereas a beneficiary may enforce a trust despite not being a party to the trust’s creation. This has led to attempts by third parties to a contract to argue that they can enforce the contract on the basis that a contracting party contracted as trustee for them. “[T]he common law rules are qualified by the equitable principle that a party to a contract can constitute himself a trustee for a third party of a right under a contract so that the third party [13.110]

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can enforce the promise, making the promisee-trustee a defendant in an action against the promisor”: Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 at 115 per Mason CJ and Wilson J. However, “the intention to constitute the trust must be affirmatively proved: the invention cannot necessarily be inferred from the mere general words of the policy”: Vandepitte v Preferred Accident Insurance Corporation of New York [1933] AC 70 at 79–80 (PC). An attempt to invoke the trust as a means of circumventing the doctrine of privity was made in the Trident case, which was rejected by Mason CJ and Wilson J, but accepted by Deane J.

Trident General Insurance Co Ltd v McNiece Bros Pty Ltd [13.115] Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 (High Court of Australia) [Blue Circle Southern Cement Ltd took out a policy of insurance with the appellant. The “assured” was expressed to include the company, all subsidiary, associated and related companies, all contractors, sub-contractors and suppliers. A workman employed by a sub-contractor of the respondent, itself a principal contractor of Blue Circle Southern Cement Ltd, was injured while driving a crane at the construction site. The respondent then sought an indemnity from the appellant under the above policy of insurance.] MASON CJ AND WILSON J … [120] … Then there is the trust of the contractual promise on which the appellant places particular reliance as a palliative of the difficulties generated by the common law principles. Despite the insistence in Vandepitte v Preferred Accident Insurance Corporation of New York [1933] AC 70 at 79–80 and Re Schebsman [1944] Ch 83 at 104, on the need for a clear expression of intention to create a trust and the warning that such an intention cannot necessarily be inferred from general words, there are a number of authorities which justify the difficulty expressed by Fullagar J in understanding the reluctance of the courts sometimes to infer trusts (Wilson v Darling Island Stevedoring & Lighterage Co Ltd (1956) 95 CLR 43 at 67). In Robertson v Wait (1853) 8 Ex 299; 155 ER 1360; Lloyd’s v Harper (1880) 16 Ch D 290; Les Affréteurs Réunis Société Anonyme v Leopold Walford (London) Ltd [1919] AC 801 and Williams v Baltic Insurance Association of London Ltd [1924] 2 KB 282 the courts readily inferred the existence of a trust from the circumstance that the contract was made for the benefit of a third party. The contrast between Vandepitte and Williams is striking. Both cases concerned motor vehicle insurance policies expressed to cover persons driving the vehicle apart from the insured. Fullagar J’s comment followed a reference to the two decisions … As we have seen, critics of the common law rules have pointed to the uncertainty surrounding the [121] circumstances in which the courts will recognise a trust in contracts for the benefit of third parties as a reason for rejecting the trust concept as a sufficient answer to the difficulties caused by those rules: Corbin, “Contracts for the Benefit of Third Persons” (1930) 46 Law Quarterly Review 12, esp at p 17. This apparent uncertainty should be resolved by stating that the courts will recognize the existence of a trust when it appears from the language of the parties, construed in its context, including the matrix of circumstances, that the parties so intended. We are speaking of express trusts, the existence of which depends on intention. In divining intention from the language which the parties have employed the courts may look to the nature of the transaction and the circumstances, including commercial necessity, in order to infer or impute intention. See Eslea Holdings Ltd v Butts (1986) 6 NSWLR 175 at 189. But, even if adherence to this approach produces greater consistency of outcome, there are still the cases where the third party has no remedy because there is no sufficient intention to create a trust. And there are other consequences which flow from recognizing the existence of a trust. It may circumscribe the freedom of action of the parties to the contract, especially the promisee, to a greater extent than the existence of a right to sue on the part of the third party. How can the promisee 364

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Trident General Insurance Co Ltd v McNiece Bros Pty Ltd cont. terminate the trust once it is created? Lest it be overlooked, we should mention that the creation of a third party trust rests on ascertaining the intention of the promisee, rather than on the intention of the contracting parties. And in the ultimate analysis it seems incongruous that we should be compelled to import the mechanism of a trust to ensure that a third party can enforce the contract if the intention of the contracting parties is that he should benefit from performance of the contract. A fortiori is that so if the intention common to the parties is that the third party should be able to sue the promisor. DEANE J … [147] … In equity, “intention alone will not constitute a trust obligation [and] … mere conduct without such intention is ineffectual to impose it, or, as Lewin, 12th ed, at p 88, says, to ‘impute’ it” (per Isaacs J, Commissioner of Stamp Duties (Qld) v Jolliffe (1920) 28 CLR 178 at 189 and see, now, Lewin, 16th ed, at p 35). The requisite intention to create a trust of a contractual promise to benefit a third party can, however, be formed and carried into effect (either by the contract itself or some other act) by a promisee who would be bemused by the information that the chose in action constituted by the benefit of a contractual promise is property and uncomprehending of the distinction between law and equity … In the context of such a contractual promise, the requisite intention should be inferred if it clearly appears that it was the intention of the promisee that the third party should himself be entitled to insist upon performance of the promise and receipt of the benefit and if trust is, in the circumstances, the appropriate legal mechanism for giving effect to that intention. A fortiori, equity’s requirement of an intention to create a trust will be at least prima facie satisfied if the terms of the contract expressly or impliedly manifest that intention as the joint intention of both promisor and promisee. The trust can attach to the benefit of the whole contract or of the whole or part of some particular contractual obligations. In the case of a policy of liability insurance under which the insurer agrees to indemnify both a party to the contract and others, there is no reason in principle or in common sense why the party to the contract should not hold the benefit of the insurer’s promise to indemnify him on his own behalf and the benefit of the promise to indemnify others respectively upon trust for those others. Where the benefit of a contractual promise is held by the promisee as trustee for another, an action for enforcement of the promise or damages for its breach can be brought by the trustee. In such an action, the trustee can [148] recover, on behalf of the beneficiary, the damages sustained by the beneficiary by reason of breach. If the trustee of the promise declines to institute such proceedings, the beneficiary can bring proceedings against the promisor in his own name, joining the trustee as defendant. An intention to create a trust of the benefit of a contractual promise can be evidenced and/or carried into effect by the contract itself or by action of the promisee aliunde. When the trust is created by the actual contract between promisor and promisee, the beneficiary can nonetheless properly be described as a stranger to the creation of the contract. Indeed, he may be quite unaware of its existence. It would, however, be misleading to say that the promisor, in such a case, is a stranger to the creation of the trust in that the overall effect of the contract itself, to which he is a party, may be that the relevant promise is made by him to the promisee in the latter’s capacity as trustee for the designated beneficiary or class of beneficiaries and that the intention to create a trust which the contract manifests and carries into effect is a joint intention of both promisor and promisee who might both be regarded as settlors. It is unnecessary to consider here what, if any, right or obligations in relation to the trust might be enjoyed by or imposed upon the promisor in such a case. What is relevant for present purposes is that, in such a case, there will ordinarily be neither need nor occasion to seek to identify some independent intention (ie apart from that manifested in the contract) or action of the promisee. That is not, of course, to say that either the third party or the parties to the contract are restricted to the terms of the contract (to which the third party is a stranger) or precluded from relying on other circumstances to establish or negative the existence of a trust in the third party’s [13.115]

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Trident General Insurance Co Ltd v McNiece Bros Pty Ltd cont. favour in any dispute between the third party and one or more of the parties to the contract (eg Royal Exchange Assurance v Hope [1928] Ch 179 at 185, 195). The question whether a particular contract itself creates a trust of the benefit of one or more of the promises which it contains is primarily a question of the construction of the terms of the contract. Those terms must, however, be construed in context and a trust of a contractual promise will obviously be more readily discerned in the terms of some classes of contracts than it will in others. It is difficult to envisage a class of contract in which the creation of such a trust would be more readily discernible than the type of contract which is involved in the present case, namely, a policy of liability insurance [149] indemnifying both a party to the contract and others who are designated either by specific identification or by their membership of an identified group. In the case of such a policy, the terms of the contract itself will, in the context of the nature of insurance, ordinarily manifest an intention to the effect that each non-party assured is to be fully entitled to the benefit of the promisor’s promise to indemnify him, that is to say, that the promisee should hold the chose in action constituted by the right to enforce that promise upon trust for the relevant non-party assured … The intention so manifested will commonly be a joint intention of promisor and promisee. It would suffice, however, that it be the intention of the promisee alone. … [I]n the context of the nature of liability insurance, [the relevant terms of the policy of insurance] manifest an unmistakable intention that each assured should be entitled to the benefit of the insurer’s promise to indemnify it against the specified loss and should be itself entitled to insist upon enforcement of that promise. That intention is properly to be construed in legal terms as an intention that the chose in action constituted by the benefit of Trident’s promise to indemnify each contractor and sub-contractor on the identified sites in respect of specified loss should be held by the promisee (Blue Circle) upon trust for the relevant contractor or sub-contractor. Prima facie, the contract operated to give effect to that intention which it manifested. That being so, the prima facie effect of the policy itself in the events which occurred (ie McNiece becoming a designated contractor or sub-contractor) was to create a trust for McNiece of the benefit of Trident’s promise to indemnify it against relevant loss. There is nothing in the material before the court which could have the effect of negativing or modifying the creation or effect of that trust. Indeed, in the context of the circumstances disclosed by that material, it is difficult to conceive any real possibility of the existence of circumstances which could have had that effect.

[13.120]

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A majority of the court in Trident held that the respondent was entitled to the indemnity contained in the policy between the appellant and Blue Circle Southern Cement Ltd, although upon different bases. Mason CJ and Wilson J found that, as it was the contracting parties’ intention that a third party should benefit from performance of the contract, it was inappropriate and unjust to apply the doctrine of privity to contracts of this kind. Toohey J held likewise. Gaudron J reached the same result without displacing the traditional privity rules, ruling that the respondent’s right to sue arose independently and separately from the contract under the concept of unjust enrichment. Under this approach, the appellant, as promisor, who had accepted an agreed consideration for a promise to benefit a third party, the respondent, was unjustly enriched to the extent that the promise was unfulfilled. Only Deane J based his decision upon the concept of trust of a contractual promise. The dissenters, Brennan and Dawson JJ, expressed the view that future development of the principles of trust [13.120]

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and estoppel may serve to avoid the injustices caused by the doctrine of privity. Therefore, it is arguable that a majority of the court either was, or would in an appropriate case have been, willing to adopt recognised equitable concepts as a means of mitigating the rigours of the privity doctrine. 2.

What accounts for the difference between the view of Deane J, and that of Mason CJ and Wilson J? Is the difference at a fundamental level, or simply one of degree? Was Deane J too willing to find the existence of a trust of a contractual promise? Did the appellant intend to create a trust for the benefit of the respondent? Should the court be reluctant to find a trust of a contractual promise? Why or why not? Can Deane J’s comments be confined to the insurance context? Cf Bahr v Nicolay (No 2) (1988) 164 CLR 604 per Mason CJ and Dawson J (extracted at [17.45] (Dal Pont)). See Stewart, “Why Place Trust in a Promise? Privity of Contract and Enforcement of Contracts by Third Party Beneficiaries” (1999) 73 ALJ 354.

3.

In some jurisdictions legislation entitles third parties who are benefited by a contract to enforce the contract in certain circumstances: Law of Property Act 2000 (NT), s 56; Property Law Act 1974 (Qld), s 55; Property Law Act 1969 (WA), s 11; Contracts (Privity) Act 1982 (NZ), s 4; Contracts (Rights of Third Parties) Act 1999 (UK); Contracts (Rights of Third Parties) Act 2001 (Sing). Extracts from Dal Pont, Equity and Trusts: Commentary and Materials, Ch 17.

[13.125] The means whereby an express trust may be created appear in the following words

of Richardson J in Foreman v Hazard [1984] 1 NZLR 586 at 594: Property may be impressed with an express trust in one of two ways: either by a declaration of trust which involves a change in equitable ownership but not in legal title, or by a transfer of property to be held in trust by the transferee which involves a change in legal title and usually too in equitable ownership. No particular form of words is required but in whatever way the intention is expressed the three certainties must be satisfied: certainty of intention to create a trust – that a trust is definitely intended; certainty of the subject-matter of the trust – that specified property is to be bound by the trust; and certainty of objects, that is of the persons intended to have the benefit of the trust. In addition, the object of the trust must be lawful and any formalities required by the law for constituting the trust must have been complied with.

In the case of a declaration of trust, the creator of the trust (the settlor) becomes its trustee, whereas in the case of a trust by transfer of property, the person(s) to whom the property is transferred on trust become the trustee(s).

CERTAINTY OF INTENTION [13.130] In that “equity looks to intent rather than form”, no particular words are necessary

to create a trust. The words used, however, must be construed in context to ascertain the true intention of the settlor. “The relevant intention is to be inferred from the language employed by the parties in question and to that end the court may look also to the nature of the transaction and the relevant circumstances attending the relationship between them”: Re Australian Elizabethan Theatre Trust (1991) 30 FCR 491 at 503 per Gummow J. That the creation of an express trust is based on the express or inferred intention of the settlor reflects the individual freedom to alienate property. The following important points must be noted. • Just as the absence of the words “on trust” (or their equivalent) do not prevent a trust from arising, “the use of the words ‘in trust for’ in a deed do not necessarily create a trust, since [13.130]

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the circumstances may displace the inference that a trust was intended”: Walsh Bay Developments Pty Ltd v Federal Commissioner of Taxation (1995) 31 ATR 15 at 22 per Beaumont and Sackville JJ. The test is one of construction of the relevant instrument as a whole to determine the settlor’s intention: see Dean v Cole (extracted at [17.15] (Dal Pont)); Stephens Travel Service International Pty Ltd v Qantas Airways Ltd (1988) 13 NSWLR 331. • For a trust to be intended, the words so construed must bear an imperative or mandatory, not a permissive, meaning. A disposition expressing the “hope”, “confidence”, “wish” or “belief” (known as “precatory words”) is unlikely, in the absence of contrary intention derived from the trust instrument, to bear an imperative meaning. Hayes v National Heart Foundation (extracted at [17.25] (Dal Pont)) illustrates the courts’ approach in this context. • Where the language used is one of trust, extrinsic evidence of the settlor’s (alleged) subjective intention not to create a trust in the circumstances is inadmissible. The focus on intention objectively identified appears in the reasons of the High Court in Byrnes v Kendle (extracted at [13.135]). • A court can infer the existence of a trust where this reflects the relationship the parties are likely to have intended: see Bahr v Nicolay (No 2) (extracted at [17.45] (Dal Pont)). In that property held by a person (A) on trust stands outside the property available for distribution to A’s creditors should A become insolvent (see [27.15] (Dal Pont)), there is a motivation for a person who is ostensibly a creditor (B) to argue that the moneys or property advanced to A were in fact intended to be held by A on trust for B: see Re Kayford Ltd (in liq) [1975] 1 WLR 279 (extracted at [13.155]); Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 (extracted at [27.110] (Dal Pont)). Also, in order to circumvent the doctrine of privity of contract between the parties to a contract (A and B), a third party to the contract (C) may argue that B intended to contract as trustee for C, thus entitling C to sue A: see Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 (extracted at [13.115]).

Byrnes v Kendle [13.135] Byrnes v Kendle (2011) 243 CLR 253 (High Court of Australia) [In 1997 a husband (the respondent) and wife (the appellant) executed “acknowledgment of trust”, declaring that the respondent held an undivided half interest in a house, to which the respondent had legal title, as tenant-in-common upon trust for the appellant. The terms of this acknowledgement paralleled those that had been adopted in a 1989 acknowledgement relating to the property at which the parties were then living. The respondent, following the breakdown of the relationship, later maintained that he did not intend to create a trust despite signing the acknowledgement of trust. An issue before the High Court, which had been determined differently by the two lower courts – at first instance, by reference to extrinsic evidence contradicting the legal effect of the acknowledgment of trust – was whether the respondent should be treated as having created a trust in the circumstances. This necessarily required the court to address whether the relevant intention to create a trust should be ascertained purely objectively, or had a subjective aspect.] HEYDON AND CRENNAN JJ … [286] … The rules for the construction of contracts apply also to trusts. Although the two institutions are distinct, that is not surprising. For one thing, as Mason and Deane JJ [in Gosper v Sawyer (1985) 160 CLR 548 at 568–569] said: “The contractual relationship provides one of the most common bases for the establishment or implication and for the definition of 368

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Byrnes v Kendle cont. a trust”. By “establishment” their Honours referred to deciding whether a trust existed. By “definition” they referred to ascertaining its terms. The two inquiries are closely related: for the terms of a document or oral dealing determine whether it creates a trust. For another thing, the same considerations which limit recourse to surrounding circumstances and oral testimony in relation to contracts applies in relation to trusts … The authorities establish that in relation to trusts, as in relation to contracts, the search for “intention” is only a search for the intention as revealed in the words the parties used, amplified by facts known to both parties. Thus in 1881 Sir George Jessel MR [in Smith v Lucas (1881) 18 Ch D 531 at 542] said: The settlement is one which I cannot help thinking was never intended by the framer of it to have the effect I am going to attribute to it; but, of course, as I very often say, one must consider the meaning of the words used, not what one may guess to be the intention of the parties. … [288] … In 1990, Priestley JA said in Walker v Corboy (1990) 19 NSWLR 382 at 385–386 that, in deciding whether an agent for the sale of farm produce was a trustee of the proceeds or whether he and the principal stood only in the relationship of debtor and creditor, it was necessary to evaluate the “circumstances” and “background”. He cited a decision of Sir George Jessel MR in which, in deciding against the existence of a trust or equitable duties, he took into account the nature of one party’s business which was necessarily known to the others (Kirkham v Peel (1880) 43 LT 171 at 172). And Meagher JA said that in deciding whether there was a trust, it was necessary to look not only at “the particular provisions of the agreement of the parties”, but also “the whole of the circumstances attending the relationships between the parties” ((1990) 19 NSWLR 382 at 397). In 1991, Gummow J said that the relevant intention to create a trust “is to be inferred from the language employed by the parties in question and to that end the court may look also to the nature of the transaction and the relevant circumstances attending the relationship between them” (Re Australian Elizabethan Theatre Trust (1991) 30 FCR 491 at 503) … [289] … In 2000 Gaudron, McHugh, Gummow and Hayne JJ said that even if “the language employed by the parties … is inexplicit”, the court can infer an intention to create a trust “from other language used by them, from the nature of the transaction and from the circumstances attending the relationship between the parties” (Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (in liq) (2000) 202 CLR 588 at [34] (footnote omitted)). Neither in England nor in Australia has the application of the principles for establishing and defining a trust been analysed with the sophistication devoted in England to their application in contract. However, in both English and Australian law the surrounding circumstances are material to the questions whether the words used created a trust and what its terms are. Accordingly, Conaglen was correct to say (“Sham Trusts” (2008) 67 CLJ 176 at 181): The court’s focus when construing the terms of [a] bilateral arrangement [creating a trust] is on the objective meaning that those terms would convey to a reasonable person, just as it is when construing contractual arrangements. The question is what the settlor or settlors did, not what they intended to do. [290] That truth tends to be obscured by constant repetition of the need to search for an “intention to create a trust”. That search can be seen as concerning the first of the three “certainties” – what Dixon CJ, Williams and Fullagar JJ called in Kauter v Hilton (1953) 90 CLR 86 at 97: “the established rule that in order to constitute a trust the intention to do so must be clear and that it must also be clear what property is subject to the trust and reasonably certain who are the beneficiaries”. But the “intention” referred to is an intention to be extracted from the words used, not a subjective intention which may have existed but which cannot be extracted from those words. This is as true of unilateral declarations of alleged trust as it is of bilateral covenants to create an alleged trust. It is as true of alleged trusts which are not [13.135]

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Byrnes v Kendle cont. wholly in writing as it is of alleged trusts which are wholly in writing. In relation to alleged trusts which are not wholly in writing, the need to draw inferences from circumstances in construing the terms of conversations may in practice widen the extent of the inquiry, but it does not alter its nature. As with contracts, subjective intention is only relevant in relation to trusts when the transaction is open to some challenge or some application for modification – an equitable challenge for mistake or misrepresentation or undue influence (Commissioner of Stamp Duties (Qld) v Jolliffe (1920) 28 CLR 178 at 191 per Isaacs J) or unconscionable dealing or other fraud in equity, a challenge based on the non est factum or duress defences, an application for modification by reason of some estoppel, an allegation of illegality (Nelson v Nelson (1995) 184 CLR 538), an allegation of “sham” (Conaglen, “Sham Trusts” (2008) 67 CLJ 176), a claim that some condition has not been satisfied (Commissioner of Stamp Duties (Qd) v Jolliffe at 191 per Isaacs J), or a claim for rectification. But subjective intention is irrelevant both to the question of whether a trust exists and to the question of what its terms are. Jolliffe’s case The majority in Jolliffe’s case relied on a passage in the eleventh edition of Lewin on Trusts (Lewin, A Practical Treatise on the Law of Trusts (11th ed, 1904), p 85) stating that the court will not impute a trust where the settlor did not mean to create one. In the light of the authorities discussed above, that statement is wrong. The majority denied that “by using any form of words a trust can be created contrary to the real intention of the person alleged to have created it” (Commissioner of Stamp Duties (Qld) v Jolliffe at 181). Denials to that effect are incorrect as statements of the law [291] generally. They can only be correct in particular statutory contexts which might justify them. In 2000 Lewin on Trusts (17th ed, 2000, p 81, n 6) stated that Isaacs J’s “powerful dissent” would be preferred in England, and in 2008 that work again described Isaacs J’s dissent as “powerful” (18th ed, 2008, p 95, n 12). His dissent is indeed powerful, and as a statement of trusts law generally it is to be preferred in Australia as well as England to the majority’s statement in Jolliffe’s case and the cases which have followed it. The 1997 Acknowledgment of Trust Did the 1997 Acknowledgment of Trust create a trust? The opening language twice described it as a trust. Clause 1, a key operative provision, used the language of trust. These indications, not countered by any other aspect of the document, are more than sufficient to support the conclusion that it was a trust. But there are surrounding circumstances known to the parties pointing to that conclusion as well. By Recital D the parties acknowledged that their respective entitlements to interests in the Original Property which was the subject of the 1989 Acknowledgment of Trust were transferred into interests in the New Property at Rachel Street, which had been purchased with the proceeds of sale of the Old Property. The 1989 Acknowledgment of Trust had the same references to trust as the 1997 Acknowledgment of Trust, and cll 1–3 of the two Acknowledgments of Trust were close to identical. Nothing in either the 1997 Acknowledgment of Trust or the 1989 Acknowledgment of Trust to which it refers and which it replaces points against the existence of a trust. The oral evidence of the respondent was inadmissible on this question, and in any event was extremely obscure. Thus the 1997 Acknowledgment of Trust created a trust.

[13.140]

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The other judges agreed on this point. French CJ (at 262) also cited from Isaacs J, who dissented in the result in Commissioner of Stamp Duties (Qld) v Jolliffe (1920) 28 CLR 178, who had observed (at 187) that “[a]n open declaration of trust is … an expression of intention that is final and beyond recall”, and (at 191) could not “believe that, for instance, a solemn deed of trust or a will can be open to the reception of parol evidence, [13.140]

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not of mistake as to its nature, or as to any condition of execution, or as to undue influence or other well understood causes of ineffectiveness, but merely of personal secret intention not to do what the document purports to effect”. French CJ remarked (at 262) that “[w]hat Isaacs J said in Jolliffe was entirely consistent with the principle that a trust cannot be created unless the person creating it intends to do so”. Gummow and Hayne JJ in Byrnes (at 273) identified the fundamental rule of interpretation of the 1997 Deed as being found in the answer to the question, “What is the meaning of what the parties have said?”, not to the question, “What did the parties mean to say?” Their Honours then cited (at 274) from Lord Millett in Twinsectra Ltd v Yardley [2002] 2 AC 164 at [71], who said: A settlor must, of course, possess the necessary intention to create a trust, but his subjective intentions are irrelevant. If he enters into arrangements which have the effect of creating a trust, it is not necessary that he should appreciate that they do so; it is sufficient that he intends to enter into them.

Gummow and Hayne JJ concluded (at 277]) that Jolliffe “should not be regarded as retaining any authority it otherwise may have had for the proposition that where the creation of an express trust is in issue, regard may be had to all the relevant circumstances not merely to show the intention manifested by the words and actions comprising those circumstances, but to show what the relevant actor meant to convey as a matter of ‘real intention’”. 2.

What are the advantages and drawbacks of the High Court’s approach to identifying intention in Byrnes v Kendle? Does the decision mean that on every occasion in which a settlor uses the language of trust, he or she is deemed to have created a trust, whether or not that was her or his “real” intention? If so, does such a blanket rule go too far the other way when addressing the mischief with which the court was concerned in Byrnes v Kendle? Are the following remarks compelling? It could be suggested that ignoring the “intent” in favour of the “form” effectively reduces equitable principles to the level of inflexible dogma, more reminiscent of pre-Judicature Acts common law than equity in the twenty first century. (Robinson, “Back to the Future: Retrogression and the High Court’s Decision in Byrnes v Kendle” (2011) 15 UWSLR 139 at 157) As a matter of principle, simply because an express declaration of trust has been made, it is wrong to exclude any evidence of a contrary objective intention by the settlor. It may be that the manifestation of trust expressed in the declaration is sufficient to outweigh the contrary evidence but that is a question to be decided after admitting the evidence and evaluating it for its relevance and credibility as to what the settlor’s manifest intention was. (Palmer [2012] NZ L Rev 141 at 145).

3.

Earlier in their reasons, Heydon and Crennan JJ made the following observation regarding circumstances in which evidence of “real” intention is admissible in the contractual environment (at 285-286; footnotes omitted): … the actual state of mind of either party is only relevant in limited circumstances, for example, where one party relies on the common law defences of non est factum or duress; where misrepresentation is alleged; where one party is under a mistake and the other knows it; where the contract is liable to be set aside by reason of equitable doctrines of undue influence, unconscionable dealing or other fraud in equity; where the equitable remedy of rectification is available; where a question of estoppel arises; or where there is a question whether the “contract” is a sham. [13.140]

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As their Honours viewed the rules for the construction of contracts as applicable also to trusts, it stood to reason that scope for inquiry into the settlor’s “real” intention was confined to occasions that give rise to arguments over the vitiating factors listed above. Why do these factors justify inquiry into “real” intention whereas otherwise evidence of that “real” intention is inadmissible? As “[a] trust will be held to be a sham where there is an intention to have an express trust in appearance only” (Official Assignee v Wilson [2008] 3 NZLR 45 at [26] per Robertson and O’Regan JJ), does this not invite the inquiry that the court sought to obviate in Byrnes? Or are the circumstances surrounding a “sham trust” distinct from those in cases such as Byrnes? See Conaglen, “Sham Trusts” [2008] CLJ 176. 4.

The High Court in Byrnes v Kendle emphasised the objective inquiry into a settlor’s intention. How does the extract (at [17.45] (Dal Pont)) from the reasons of Mason CJ and Dawson J in Bahr v Nicolay (No 2) focus on a similar inquiry? When courts infer an intention to create a trust, are they relying solely on inquiry into the objective intention of the settlor (or parties), or does the inquiry have a subjective element? Extracts from Dal Pont, Equity and Trusts: Commentary and Materials, Ch 27.

Property given for a specific purpose [13.145] The principle that property held on trust lies outside that available to satisfy the claims of creditors of the trustee has led creditors to contend that moneys advanced to a person who becomes insolvent were in fact moneys advanced on trust. Creditors who succeed in so contending secure priority over other creditors on the distribution of the insolvent’s property on bankruptcy or liquidation.

Trust or debt? [13.150] It is the intention of the parties that separates the relationship of debt from that of

trust: see [13.60]. That intention may be derived from the parties’ statements, acts, circumstances and any special relationship between them in respect of the money in question. Accordingly, it is an important consideration whether the party is required to keep the money separate or is allowed to mix the money with her or his own. The Australian Home Finance case (extracted below) illustrates the type of situation that has been held to give rise to a trust relationship. Re Kayford (extracted at [13.155]) heralds scope for a debtor to unilaterally create a trust in favour of certain creditors.

Re Kayford Ltd (in liq) [13.155] Re Kayford Ltd (in liq) [1975] 1 WLR 279 (Chancery Division) [A mail order company (Kayford Ltd) encountering financial difficulties established a separate “customers trust deposit account”. For this it used an existing, but dormant, company account, into which it paid the deposits received from its customers for goods to be delivered. When the company subsequently went into liquidation, the issue was whether this arrangement created a trust in favour of the customers whose moneys constituted the “customers trust deposit account”.] MEGARRY J … [282] … There is no doubt about the so-called “three certainties” of a trust. The subject-matter to be held on trust is clear, and so are the beneficial interests therein, as well as the beneficiaries. As for the requisite certainty of words, it is well settled that a trust can be created without using the words “trust” or “confidence” or the like: the question is whether in substance a sufficient intention to create a trust has been manifested. 372

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Re Kayford Ltd (in liq) cont. In Re Nanwa Gold Mines Ltd [1955] 1 WLR 1080 the money was sent on the faith of a promise to keep it in a separate account, but there is nothing in that case or in any other authority that I know of to suggest that this is essential. I feel no doubt that here a trust was created. From the outset the advice (which was accepted) was to establish a trust account at the bank. The whole purpose of what was done was to ensure that the moneys remained in the beneficial ownership of those who sent them, and a trust is the obvious means of achieving this. No doubt the general rule is that if you send money to a company for goods which are not delivered, you are merely a creditor of the company unless a trust has been created. The sender may create a trust by using appropriate words when he sends the money (though I wonder how many do this, even if they are equity lawyers), or the company may do it by taking suitable steps on or before receiving the money. If either is done, the obligations in respect of the money are transformed from contract to property, from debt to trust. Payment into a separate bank account is a useful (though by no means conclusive) indication of an intention to create a trust, but of course there is nothing to prevent the company from binding itself by a trust even if there are no effective banking arrangements. Accordingly, of the alternative declarations sought by the summons, the second, to the effect that the money is held in trust for those who paid it, is in my judgment the declaration that should be made. I understand that questions may be raised as to resorting to the interest on the moneys as a means of discharging the costs of the summons; on that I will, of course, hear argument. I should, however, add one thing. Different considerations may perhaps arise in relation to trade creditors; but here I am concerned only with members of the public, some of whom can ill afford to exchange their money for a claim to a dividend in the liquidation, and all of whom are likely to be anxious to avoid this. In cases concerning the public, it seems to me that where money in advance is being paid to a company in return for the future supply of goods or services, it is an entirely proper and honourable thing for a company to do what this company did, upon skilled advice, namely, to start to pay the money into a trust account as soon as there begin to be doubts as to the company’s ability to fulfil its obligations to deliver the goods or provide the services. I wish that, sitting in this court, I had heard of this occurring more frequently; and I can only hope that I shall hear more of it in the future.

[13.160]

Notes&Questions

1.

What is the test whether a person is a debtor or a trustee? Does it suffice that there is an intention that the money be kept separate, or must, in addition, the money actually be placed in a separate account?

2.

In Re Kayford, who was the settlor of the trust? Was it Kayford, or was it the customers who provided the moneys? Does it matter?

3.

Pursuant to statute, liquidators (and trustees-in-bankruptcy) can upset a transaction entered into within a specified period prior to the date of winding up (bankruptcy) if its effect is to give a creditor of the company (bankrupt) a preference, priority or advantage over other creditors: Bankruptcy Act 1966 (Cth), s 122; Corporations Act 2001 (Cth), ss 588FA, 588FE. These rules are designed to prevent a person in financial difficulties satisfying one set of “preferred creditors” while ignoring others. Is the decision in Re Kayford consistent with this statutory scheme?

[13.160]

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INTERESTS IN UNADMINISTERED DECEASED ESTATES In Re Leigh’s Will Trusts [13.170] In re Leigh’s Will Trusts [1970] Ch 277

374

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In Re Leigh’s Will Trusts cont.

[13.170]

375

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In Re Leigh’s Will Trusts cont.

376

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CHAPTER 13

In Re Leigh’s Will Trusts cont.

[13.170]

377

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In Re Leigh’s Will Trusts cont.

378

[13.170]

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CHAPTER 13

In Re Leigh’s Will Trusts cont.

[13.170]

379

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In Re Leigh’s Will Trusts cont.

380

[13.170]

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CHAPTER 13

In Re Leigh’s Will Trusts cont.

[13.170]

381

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In re Maye [13.175] In re Maye [2008] 1 WLR 315

382

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In re Maye cont.

[13.175]

383

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In re Maye cont.

384

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In re Maye cont.

[13.175]

385

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In re Maye cont.

386

[13.175]

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In re Maye cont.

[13.175]

387

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In re Maye cont.

388

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In re Maye cont.

[13.175]

389

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In re Maye cont.

390

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In re Maye cont.

[13.175]

391

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Extracts from Dal Pont, Equity and Trusts: Commentary and Materials, Ch 1.

Official Receiver in Bankruptcy v Schultz [13.180] Official Receiver in Bankruptcy v Schultz (1990) 170 CLR 306 (High Court of Australia) [In her will, a testatrix (Mrs Pereira) left her house and its contents (cl 3(g), and also her personal belongings and effects: cl 3(a)) to her executors in trust for the respondent. At the time of the testatrix’s death, the respondent was an undischarged bankrupt. The testatrix’s husband made a successful testator’s family provision application pursuant to which he was awarded the testatrix’s house and its contents. This order was varied on appeal, to the effect that the testatrix’s husband was given a life interest in the house and its contents with the remainder to the respondent. The administration of the estate was incomplete at all times. The issue was whether the Official Receiver could claim the respondent’s interests in remainder as part of the respondent’s estate. This required the court to consider the nature of the beneficiary’s interest in the unadministered estate.] FULL COURT … [312] … Not only does the legal ownership in the property not vest in the named beneficiary at the time of death of the testator, nor does the equitable ownership. That emerges from the Privy Council’s decision in Commissioner of Stamp Duties (Qld) v Livingston [1965] AC 694. The reason for this is that, prior to administration of the deceased estate, there is no specific property capable of constituting the subject property of any trust in favour of the beneficiary. It could not be said at that stage what part or parts of the testator’s property would need to be realised for the purposes of administration: see at pp 708, 717. So it was held that the beneficiary does not have a proprietary interest in each of the assets which are the subject of the devise or bequest such that he or she can say “this is mine” or “this belongs to me”. Although Livingston was concerned with a residuary estate, the observations it contains apply with equal force in the case of a specific bequest or devise. The parties here are agreed on that point. [313] … The right which any beneficiary has in an unadministered estate springs from the duty of the executor to administer the estate, to preserve the assets and to deal with them in the proper manner. Each beneficiary has an interest in seeing that the whole of the assets are treated in accordance with the executor’s duties. In that sense, the beneficiaries as a class may be said to have an interest in the entire estate. But it does not follow that each piece of property [314] which goes to make up the estate is held on a particular trust for the beneficiary named as its intended recipient upon completion of administration: Horton v Jones (1935) 53 CLR 475 at 486. Whether or not the estate is held on a trust for the beneficiaries as a class in the usual sense in which the word “trust” is used, so as to confer a specific proprietary interest, as distinct from a general, non-specific interest, upon all beneficiaries, is not something which arises for consideration in this case. Nevertheless, Mrs Schultz acquired upon the death of Mrs Pereira a right to have the deceased estate administered in accordance with the duties of the executors. Though not the legal or equitable owner of the assets which were the subject of the devise and bequest in her favour, she had, by virtue of the chose in action created by that devise and bequest, an expectation that the assets would pass to her upon completion of the administration, subject to their being realised to meet any outstanding liabilities and to defray the costs of administration, and an interest in respect of those assets. That interest was derived from and dependent upon the chose in action. The interest is of such a kind that, when a beneficiary transmits a chose in action (or part thereof), or that chose in action passes by operation of law, such as under the Bankruptcy Act [1966 (Cth)], that transmission naturally encompasses not only the chose in action but also the expected fruits of that chose in action. Mrs Schultz’s right to due administration arose from cl 3(a) and (g) of the will. That right vested in the Official Receiver as soon as it vested in Mrs Schultz, since it was clearly “property” as defined in s 5(1) of the Bankruptcy Act. It follows, from what has been said above, that the interest derived from that right also passed to the Official Receiver at that time. Moreover, at all times Mrs Schultz possessed 392

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Official Receiver in Bankruptcy v Schultz cont. but one right by virtue of cl 3(a), whatever the effect of the subsequent court orders in relation to cl 3(g).

[15.10]

Notes&Questions

1.

In Commissioner of Stamp Duties (Qld) v Livingston [1965] AC 694, referred to by the court in Schultz, the issue was whether succession duty was payable on a deceased estate in respect of the deceased’s interest in another, unadministered, deceased estate. That interest was under a devise of the first testator’s real estate and a bequest of the residue of his personal estate. It was sought to levy duty against the second deceased estate on that part of the real and personal property situated in Queensland. The administrator of that estate contended that the deceased’s interest in the unadministered estate was simply a chose in action, situated where she had been domiciled, in New South Wales, and hence was not liable to duty. In holding that an executor holds the whole property of the deceased “for the purpose of carrying out the functions and duties of administration, not for his own benefit”, Viscount Radcliffe, speaking for the Judicial Committee, stated (at 707): “What equity did not do was to recognise or create for residuary legatees a beneficial interest in the assets in the executor’s hands during the course of administration”. In McCaughey v Commissioner of Stamp Duties (1946) 46 SR (NSW) 192 at 204 Jordan CJ remarked that “[t]he idea that beneficiaries in an unadministered or partially administered estate have no beneficial interest in the items which go to make up the estate is repugnant to elementary and fundamental principles of equity”. Is Jordan CJ right? What rights vest in a beneficiary of an unadministered estate? Do these meet the elements of an equitable interest mentioned at [1.05] (Dal Pont)? Yet Jordan CJ was willing to accept that, for tax and death duty purposes, where the estate is not fully administered “these equitable interests must be treated as non-existent, and regarded as having nothing but a chose in action in the nature of a right in personam against the personal representative”: at 205. Why should special rules apply for taxing purposes?

2.

Is the interest of a beneficiary of an unadministered estate equivalent in nature to that of a beneficiary of a discretionary trust (as to which see [20.90]–[20.110] (Dal Pont))? How, if at all, do these “interests” differ? Should a beneficiary of an unadministered estate have any entitlement to lodge a caveat over property of the estate? See Meynert v Leafdale Pty Ltd [2005] WASC 102; Tobin v Ezekiel [2009] NSWSC 1313. If not, what ability does that beneficiary have to ensure the estate is administered in accordance with the will and in line with the duties imposed by law on executors?

[15.10]

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Chapter 15: Equitable Assignments Generally ................................. 399 Chapter 16: Equitable Assignments of Legal Interests .................. .. 449 Chapter 17: Assignment of Equitable Interests ............................. .. 471 Chapter 18: “Assignment” of Future Property .............................. .. 475

PART4

Chapter 14: Legal Assignments of Choses in Action ...................... .. 397

CHAPTER 14 Legal Assignments of Choses in Action [14.05]

STATUTORY ASSIGNMENTS .................................................................................. 449 Extracts from Dal Pont, Equity and Trusts: Commentary and Materials, Ch 3.

STATUTORY ASSIGNMENTS [14.05] All jurisdictions have legislation establishing procedural requirements for a valid

assignment of debts or other legal choses in action. When its requirements are fulfilled, the statutory assignment effects “a divesting of legal title correlative to the transfer of the right, so that if notice has been duly given, the debt or chose in action no longer belongs to the assignor and he cannot take proceedings to recover it”: Carob Industries Pty Ltd (in liq) v Simto Pty Ltd (2000) 23 WAR 515; [2000] WASCA 362 at 522 per Malcolm CJ. The Victorian provision, s 134 of the Property Law Act 1958 (Vic), reads as follows: Any absolute assignment by writing under the hand of the assignor (not purporting to be by way of charge only) of any debt or other legal thing in action, of which express notice in writing has been given to the debtor, trustee, or other person from whom the assignor would have been deemed to have been effectual in law (subject to equities having priority over the right of the assignee) to pass and transfer from the date of such notice – (a) the legal right to such debt or thing in action; (b) all legal and other remedies for the same; and (c) the power to give a good discharge for the same without the concurrence of the assignor; Provided that if the debtor, trustee or other person liable in respect of such debt or thing in action has notice: (a) that the assignment is disputed by the assignor or any person claiming under him; or (b) of any other opposing or conflicting claims to such debts or thing in action; he may, if he thinks fit, either call upon the persons making claim thereto to interplead concerning the same, or may pay the debt or other thing in action into court under the provision of the Trustee Act 1958.

The legislation requires the assignment to be “absolute” (that is, not in part only, or subject to condition), in writing, signed by the assignor and with express notice to the debtor. This final element of notice was considered by Giles J in Showa Shoji Australia Pty Ltd v Oceanic Life Ltd (1994) 34 NSWLR 548 at 565–566, where his Honour said: [I]n Consolidated Trust Co Ltd v Naylor (1936) 55 CLR 423 [the] issue was whether the particular document constituting the assignment had to be identified in the written notice, and in relation to the first of these cases it was said (at 438) that the reason for the decision was that there was an express and accurate reference to the deed of arrangement [in] that a writing written for another purpose amounted to a sufficient notice because it conveyed the information that an assignment had taken place to a debtor who had actually seen the document constituting the assignment. Their Honours went on to say (at 438–439), in holding that an express statement that the assignment itself was in writing was unnecessary, that the notice required was a notice which indicated an express intention, “a direct and definite statement of a thing, as distinguished from supplying materials from which the existence of [14.05]

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such a thing may be inferred” (at 439), that one of the objects was that the debtor should know with certainty in whom the legal right was vested, and that the notice was necessary to acquaint him with the fact that the debt was payable to the assignee. It must not be forgotten that [the equivalent NSW provision] refers to express notice in writing. Undoubtedly no special form of notice is necessary, and the notice need only convey the obligor the fact that the obligation had been transferred to an assignee. But the notice must do so expressly, by “a direct and definite statement” of that fact rather than by “supplying materials from which the existence of [that fact] was to be inferred”; and because the notice must be in writing the room for incorporation of surrounding events, even direct oral notice, is limited. The mere fact that by a writing the assignee asserted or purported to exercise the right assigned to it, raising the implication of an assignment underlying its doing so, is not enough, nor in my view is that fact associated with the obligor being orally put on notice of the assignment; there would not be express notice in writing. [Emphasis in original.]

[14.10]

Notes&Questions

1.

The statutes dealing with the statutory assignment of debts and other legal choses in action in the other jurisdictions are: Civil Law (Property) Act 2006 (ACT), s 205; Conveyancing Act 1919 (NSW), s 12; Law of Property Act 2000 (NT), s 182; Property Law Act 1974 (Qld), s 199; Law of Property Act 1936 (SA), s 15; Conveyancing and Law of Property Act 1884 (Tas), s 86; Property Law Act 1969 (WA), s 20.

2.

Note also that any statutory assignment cannot upset a prior equity that would have been entitled to priority had the statute not been enacted. In view of the law on equitable priorities (see Ch 2), why is the legislation so phrased?

3.

Does the legislation require the assignee to provide consideration for the assignment? Why or why not?

4.

The legislation requires that express notice of the assignment be given to the debtor. Must the assignor give this notice? Is notice to the assignee required? See Grey v Australian Motorists and General Insurance Co Pty Ltd [1976] 1 NSWLR 669. Statute in New Zealand has removed the requirement that a statutory assignment is premised on giving notice to the debtor: Property Law Act 2007 (NZ), s 50. Yet even in New Zealand, does the giving of notice serve a purpose? If so, what? See Fenton, “Notice to the Debtor in Statutory Assignment – New Zealand Developments” [2010] Conv 391.

398

[14.10]

CHAPTER 15 Equitable Assignments Generally [15.05]

INTRODUCTION .................................................................................................... 399

[15.15] [15.20]

LEGAL PROPERTY CAPABLE OF ASSIGNMENT .................................................... Legal assignments of legal property .................................................................... [15.25] Real property ....................................................................................... [15.30] Personal property (choses in possession) ......................................... [15.35] Personal property (choses in action) ................................................. Equitable assignments of legal property ............................................................. [15.50] Where there is valuable consideration .............................................. [15.55] Gifts ......................................................................................................

[15.45]

401 402 402 403 403 405 406 407

[15.95] [15.115]

EQUITABLE PROPERTY CAPABLE OF ASSIGNMENT ............................................ 414 The need for writing under s 23C ........................................................................ 416 [15.120] Direct assignments of equitable interests ......................................... 417 [15.125] Agreements to assign equitable interests ......................................... 418 [15.150] Declarations of subtrust ...................................................................... 422 [15.165] Directions to trustees to transfer equitable or legal interests ......... 424 [15.220] Disclaimers of equitable interests ...................................................... 431 [15.225] Releases of equitable interests ........................................................... 432 [15.240] Nomination of beneficiaries ............................................................... 432 [15.255] Divestiture of equitable interests under resulting trusts .................. 434 [15.310] The need for writing and notice under s 12 in relation to equitable choses in action ..................................................................................................... 436 [15.325] LEGAL PROPERTY CAPABLE OF ASSIGNMENT IN EQUITY ONLY ...................... 437 [15.330] [15.340] [15.365] [15.380]

FUTURE PROPERTY CAPABLE OF ASSIGNMENT .................................................. 438 Distinguishing between present rights and future property ............................. 439 Basis for the equitable enforcement of assignments of future property .......... 441 Determining the nature of the assignee’s right before acquisition .................. 443

[15.400] [15.405] [15.410] [15.420]

PROPERTY INCAPABLE OF ASSIGNMENT ............................................................ 445 Public pay ............................................................................................................... 445 Bare rights to litigate ............................................................................................. 446 Personal contracts .................................................................................................. 447 Extracts from Parkinson, The Principles of Equity, Ch 13.

INTRODUCTION [15.05] There are many situations in which it is important to ascertain whether an owner has

effectively assigned property, or an interest in property. Under the law of succession, it may be necessary to determine whether a deceased person assigned an item of property during her or his lifetime, or whether that property remains part of the deceased’s estate. The law relating to [15.05]

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bankruptcy or insolvency may require a determination as to whether a bankrupt person or an insolvent company effectively assigned property before the date of the bankruptcy or insolvency, or whether that property is still available for the benefit of creditors. In determining whether stamp duty is payable, it may be necessary to determine whether or not title to property has effectively passed. Or, it may be relevant for income tax or capital gains tax purposes to decide whether or not a taxpayer has effectively assigned property. Before a determination can be made as to whether property or an interest in property has been effectively assigned, it is necessary to characterise the type of property in a number of ways. At the outset, it must be ascertained whether the relevant property is capable of being assigned at all. Although most property can be assigned legally, some property cannot. Examples of the latter include public pay, bare rights to litigate and rights under contracts for personal services. This chapter will consider first, property which is capable of assignment, and, secondly, property which is incapable of assignment. 1 Then, assuming the property is capable of assignment, the next step is to ascertain whether the property is recognised at common law (referred to as “legal property”) or is recognised only in equity (referred to as “equitable property”). 2 If the property is legal property, the common law or statute will lay down requirements for its assignment. 3 If those requirements are complied with, the property will be assigned legally and the legal title to the property will pass from the assignor to the assignee. It is, however, possible for an ineffective assignment of legal property nevertheless to be effective in equity. This means that, even though legal property may not have been properly assigned according to the common law or statutory rules, that assignment may still be recognised and enforced in equity. 4 The effect of such an assignment is that, although the original owner retains the legal title to the property, in equity, that legal title is seen as being held on trust for the transferee. Conversely, if the property is equitable property, there obviously will be no common law formalities laid down for its assignment, since this type of property is not recognised by the common law. Rather, the requirements for a valid assignment of equitable property will be those imposed by courts of equity and, in certain circumstances, by statute. These requirements generally will be less onerous than those imposed by the common law for the assignment of legal property, equity being concerned more with the intent of a transaction than its form. If the assignment of equitable property complies with these equitable requirements, the 1

3 4

Assignments of property legally capable of assignment are discussed at [15.15]-[15.320]. Property incapable of assignment is discussed at [15.400]-[15.420]. As assignability is an essential characteristic of property, the question arises whether a right or interest that by its nature is not assignable can be characterised as property: R v Toohey; Ex Parte Meneling Station Pty Ltd (1982) 158 CLR 327 at 342; Hepples v Federal Commissioner of Taxation (1990) 22 FCR 1 at 25-26; Best v Best (1993) FLC 92-118; B v B (2000) FLC 93-002. In the last-mentioned case Moss J in the Family Court classified the non-assignable interest of a partner in a partnership as a personal right only. The Full Court of the Family Court declined to comment on this issue: [2000] FamCA 734. See also Don King Productions Inc v Warren [1999] 3 WLR 276 and McGowan v Commissioner of Stamp Duties (Qld) [2001] QCA 236. Examples of equitable property include the interest of a beneficiary under a fixed trust, the interest of partners in a partnership, the equity of redemption of a mortgagor of old system title land, a purchaser of land’s lien over property pending completion of the purchase, and a vendor of land’s lien for the unpaid purchase price. The legal assignment of legal property is discussed at [15.20]-[15.40]. The equitable assignment of legal property is discussed at [15.45]-[15.90].

400

[15.05]

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assignment will be effective in equity. 5 The effect of this type of assignment is that, although the legal title to the property remains unchanged, equitable ownership in that property is transferred from the assignor to the assignee and the legal owner’s ability to deal with the property is constrained by the existence of the equitable interest in the property. There is also property that, although legally incapable of assignment, is assignable in equity. Parts of legal choses in action are examples of this type of property. 6 A third form of property is known as future property. The common law does not recognise property which does not presently exist but which may only come into existence at some time in the future, or may only be acquired at some future date. However, equity recognises and enforces contracts dealing with such property. For this reason, future property is only capable of being assigned in equity. 7 [15.10] The assignment of property may take place consensually (for example, by contract or

by will) or by operation of law (for example, according to the law of intestate succession, and, exceptionally, on frustration of a contract). It may also occur either for valuable consideration or by way of gift. Property may be assigned absolutely (where the owner parts with the full extent of her or his interest in the property), in part only (which occurs where the owner carves, out of her or his general ownership of the property, some lesser interest in the property) or by way of charge only (as security for a debt or obligation). The term “transfer” is customarily used to describe the disposition of land and chattels, while the term “assignment” is used in relation to the disposition of choses in action. This chapter is primarily concerned with consensual transfers of personal property and, in particular, choses in action.

LEGAL PROPERTY CAPABLE OF ASSIGNMENT [15.15] The common law distinguishes between real property (land, realty) and personal

property (chattels, personalty). Historically, leases were referred to as chattels real, a term that both reflects the fact that leases were regarded by the common law as personal contracts (or chattels) only, rather than as interests in land, and simultaneously acknowledges their connection with land. Personal property consists of either choses in possession (tangibles, corporeal property) or choses in action (intangibles, incorporeal property). Choses in possession are physical chattels such as books, motor vehicles and boats. On the other hand, a chose in action has been defined as: … a known legal expression used to describe all personal rights of property which can only be claimed or enforced by action, and not by taking physical possession (Torkington v Magee [1902] 2 KB 427, Channell J at 430).

Examples of choses in action include the right to receive performance of a contract, debts, shares in a company, copyrights and patents. This chapter deals only with unilateral assignments of the benefits of contracts. Burdens of contractual obligations cannot be assigned without the consent of the other contracting party. 5 6 7

Equitable assignments of equitable property are discussed at [15.95]-[15.320]. Equitable assignments of parts of legal choses in action are discussed at [15.325]. Assignments of future property are discussed at [15.330]-[15.395]. [15.15]

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As a general rule, where a third party assumes the contractual obligation of a contracting party, the appropriate mechanism is a novation of the contract. 8

Legal assignments of legal property [15.20] Although this chapter is concerned primarily with equitable assignments of choses in

action, the legal formalities for the assignment of all types of legal property are briefly discussed for the sake of completeness. For a detailed analysis of the legal rules relating to the assignment of legal property, real and personal, reference should be made to the standard works in those particular areas. Real property [15.25] All Australian States have statutory rules governing the transfer of real property

(land). 9 Historically, because of the importance of land as a symbol of wealth and power, strict legal rules were developed for its transfer. Not only does the law require transfers of land to be in writing, 10 it goes further and requires that writing to take a particular form. As a general rule, where land is held under old system (or, common law) title, a conveyance 11 of that land, or an interest in that land, requires the delivery of a deed of conveyance from the assignor to the assignee. 12 In fact, formal words of assurance in the conveyance were also once required legally to convey a legal estate or interest in old system title land. Today, however, any words indicating an intention to convey land are sufficient for this purpose. 13 The legal interest in the land passes to the assignee upon delivery to the assignee of the deed of conveyance. A voluntary 14 conveyance of old system title land, in deed form, while not conferring upon the donee the protection of the doctrine of the bona fide purchaser for value (for the purposes of determining priorities between competing interests in the land), nevertheless conveys the legal interest in the land to the donee.

8

Novation is discussed at [15.35], n 20. See also Don King Productions Inc v Warren [1998] 2 All ER 608 at 631, affirmed on appeal: [1999] 3 WLR 276; Konstas v Southern Cross Pumps and Irrigation Pty Ltd (unreported, Fed Ct, Tamberlin J, 3 July 1996); Riseda Nominees Pty Ltd v St Vincent’s Hospital (Melbourne) Ltd (unreported, SC Vic, Balmford J, 25 July 1996). An exception to this rule is found in the law of landlord and tenant which allows certain lease obligations to be assigned to third parties under the doctrine of privity of estate or by statute (for example, Conveyancing Act 1919 (NSW), ss 117 and 188). The principles relating to the assignment of leases are discussed by the New South Wales Court of Appeal in Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313. Leave to appeal to the High Court has been granted in this case.

9 10

See [15.35], n 21. Conveyancing Act 1919 (NSW), s 23C; Property Law Act 1974 (Qld), ss 5, 9; Law of Property Act 1936 (SA), s 29; Conveyancing and Law of Property Act 1884 (Tas), s 60(2); Property Law Act 1958 (Vic), s 53; Property Law Act 1969 (WA), s 34. There is no equivalent legislation in the Territories. The term “conveyance” is used to describe the transfer of old system title land. Conveyancing Act 1919 (NSW), s 23B(1); Property Law Act 1936 (SA), s 28(1); Conveyancing and Law of Property Act 1884 (Tas), s 60(1); Property Law Act 1958 (Vic), s 52(1); Property Law Act 1969 (WA), s 33(1). In Queensland, the deed requirement has been replaced by the rule that there must be merely a written document signed by the person making an “assurance of land”: Property Law Act 1974, s 10(1). See, for example, Conveyancing Act 1919 (NSW), s 46.

11 12

13 14

“Voluntary” is used to mean without valuable consideration. The requirement of valuable consideration is discussed at [15.50].

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On the other hand, where the title to land is Torrens title, a legal transfer of the land, or an interest in the land, requires registration of an approved form of transfer. 15 With this type of land, the transferee acquires a legal interest in the land only upon registration of the transfer in the appropriate register established under the relevant Torrens statute. The nature of the title of a registered volunteer of Torrens title land depends upon the construction of the relevant Torrens statute. 16 Personal property (choses in possession) [15.30] The legal rules for the transfer of personal property are not as stringent as those for

the transfer of land. In considering these rules, a distinction must be drawn between choses in possession (chattels) and choses in action. Choses in possession may be alienated at law by any of the following methods: • orally and by way of gift (without consideration), provided the gift is accompanied by delivery of possession of the chattel. Delivery in this context means actual or constructive delivery of the chattels; or • by deed, without delivery of the chattels themselves, either for consideration or by way of gift; or • by sale. 17 Personal property (choses in action) [15.35] Unlike a chose in possession which is capable of physical possession, a chose in action

is an abstract form of property. In order to understand the nature of a chose in action, it is important to draw a distinction between an incorporeal right to property and the corporeal property itself. For example, a bankbook, in one sense, is a chose in possession because it is corporeal and capable of being possessed. However, the bankbook also represents a debt that the bank owes to its customer, and it is this debt which is the incorporeal chose in action. Similarly, a share certificate is a chose in possession because it is capable of being possessed by

15

16

17

Real Property Act 1925 (ACT), ss 52, 57 and 58; Real Property Act 1900 (NSW), ss 40(1), 41 and 42; Land Title Act 1994 (Qld), ss 37, 60 and 62; Real Property Act 1886 (SA), ss 80, 67 and 69; Land Titles Act 1980 (Tas), ss 39 and 40; Transfer of Land Act 1958 (Vic), ss 41, 40(1) and 42; Transfer of Land Act 1893 (WA), ss 63, 58 and 68. For example, in New South Wales, it has been held that upon registration of a transfer, even a donee acquires an immediately indefeasible title: Bogdanovic v Koteff (1988) 12 NSWLR 472. In Victoria, it would seem that registration confers upon a volunteer no better title than that possessed by her or his predecessor: King v Smail [1958] VR 273; Rasmussen v Rasmussen [1995] 1 VR 613. Finkelstein J in the Federal Court in Valoutin Pty Ltd v Furst (1998) 154 ALR 119 at 136 noted in passing that in his view King v Smail correctly states the law. In Queensland, the controversy has been settled by s 165 of the Land Title Act 1994, which provides that the benefits of indefeasibility of title apply to all registered dealings, regardless of whether or not valuable consideration has been given. For an overview of this issue see Radan P, “Volunteers and Indefeasibility” (1999) 7 Australian Property Law Journal 197. The requirements for the sale of chattels are contained in the Sale of Goods statutes in each of the Australian States and Territories: Sale of Goods Act 1954 (ACT), s 21; Sale of Goods Act 1923 (NSW), s 21; Sale of Goods Act 1972 (NT), s 21; Sale of Goods Act 1896 (Qld), s 19; Sale of Goods Act 1895 (SA), s 16; Sale of Goods Act 1896 (Tas), s 21; Sale of Goods Act 1958 (Vic), s 21; Sale of Goods Act 1895 (WA), s 16. [15.35]

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a shareholder. But a share certificate also represents a shareholder’s interest in a company’s assets. That interest, being incorporeal, is a chose in action. 18 Unlike the position in relation to the transfer of choses in possession, originally the common law did not recognise the assignment of choses in action, treating them as mere possibilities (or future property). 19 This meant that if a creditor (C) wished to assign to a third person (A) a debt payable to C by a debtor (D), C would have to appoint A (by a power of attorney) as her or his agent to receive payment of the debt from D. If D defaulted in the payment of the debt to C, A could not sue D directly, there being no privity of contract between A and D: any action against D would have to be brought in the name of C. The common law, however, did permit a novation of the contract between C and D. 20 It was not until the passage of s 25(6) of the Judicature Act 1873 (UK) that it became possible for choses in action to be assigned at law. This allowed A to sue D at law for the recovery of the debt. Today, all Australian States and Territories have statutory provisions permitting the assignment of choses in action. 21 Typical of these provisions is s 12 of the Conveyancing Act 1919 (NSW), 22 which allows an assignee of a legal chose in action to sue an assignor’s debtor for breach of the chose in the assignee’s own name. Section 12 provides that: Any absolute assignment by writing under the hand of the assignor (not purporting to be by way of charge only) of any debt or other legal chose in action, of which express notice in writing has been given to the debtor, trustee or other person from whom the assignor would have been entitled to receive or claim such debt or chose in action, shall be, and be deemed to have been effectual in law (subject to all equities which would have been entitled to priority over the right of the assignee if this Act had not been passed) to pass and transfer the legal right to such debt or chose in action from the date of such notice, and all legal and other remedies for the same, and the power to give a good discharge for the same without the concurrence of the assignor …

If the formalities in s 12 are observed (namely, the absolute assignment is in writing, is signed by the assignor personally and notice of the assignment is given to the debtor or trustee), no consideration is required for a valid assignment of the chose in action. [15.40] There are, however, a number of qualifications relating to the assignment of choses in

action under s 12. First, the assignee gets no better title to the chose in action than was possessed by the assignor. There is no scope for the doctrine of the bona fide purchaser of the legal estate for value and without notice in this context. Secondly, s 12 does not permit the 18

22

Other examples of choses in actions include the right of a patentee of a patent: Stack v Brisbane City Council (No 2) (1996) 67 FCR 510 and the right of a contracting party to require another contracting party to renew the contract: Riseda Nominees Pty Ltd v St Vincent’s Hospital (Melbourne) Ltd (unreported, SC Vic, Balmford J, 25 July 1996). Norman v Federal Commissioner of Taxation (1963) 109 CLR 9, Windeyer J (dissenting) at 26. Novation occurs when the contract between C and D is discharged and replaced by a new contract between A and D; it does not transfer D’s liability to C with one owed to A but replaces D’s liability from C to A. Windeyer J in Olsson v Dyson (1969) 120 CLR 365 at 388 noted that novation requires the three parties involved all to be parties to the transaction, whereas an assignment generally is effective without the assent or co-operation of the debtor. Conveyancing Act 1919 (NSW), s 12; Property Law Act 1974 (Qld), ss 199, 200; Law of Property Act 1936 (SA), s 15; Conveyancing and Law of Property Act 1884 (Tas), s 86; Property Law Act 1958 (Vic), s 134; Property Law Act 1969 (WA), s 20. The Law of Property (Miscellaneous Provisions) Ordinance 1958 (ACT), s 3 applies the New South Wales provision to the Territory, while, in the Northern Territory, the Property Act 1860 (SA), s 19 is still in force. Hereafter referred to as “s 12”.

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[15.40]

19 20

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legal assignment of part only of a chose in action. A part of a chose in action, however, may be assigned in equity. 23 Thirdly, the assignment must be absolute, in the sense that it must involve an outright transfer to the assignee of the title to the chose in action, and not be conditional or by way of security only. 24 Where a legal chose in action is legally assigned, the assignee is entitled to sue to enforce the interest assigned in its own name and need not join the assignor as a party to the action. After service of the required notice, 25 the debtor or third party can safely perform the relevant obligation in favour of the assignee as the assignee is the person who can discharge the debt or chose in action (Carob Industries Pty Ltd (in liquidation) v Simto Pty Ltd (2000) 23 WAR 515; [2000] WASCA 362).

Equitable assignments of legal property [15.45] Although an owner of legal property (C) may intend to assign the legal title to that

property to an assignee (A), C may unintentionally fail to comply with the legal formalities required for an effective assignment of that particular type of property (such as the need for the assignment to be in writing, or for it to be in deed form). 26 This means that, despite C’s intention to assign the property, C will remain its legal owner. However, as equity is concerned more with the substance of a transaction than its form, and with giving effect to the intention of the parties, C’s informal assignment of legal property nevertheless may be enforceable in equity. In that event, although C might still hold the legal title to the property, C will be regarded in equity as holding that legal title for A. In effect, an equitable interest in the property, which did not exist prior to the informal assignment, is created out of C’s legal ownership of the property. 27 The equitable enforcement of an informal assignment of legal property in this manner creates what is referred to in this chapter as an equitable assignment of the legal property. When equity gives effect to an informal assignment of legal property, the assignor is regarded in equity as holding that property on trust for the assignee. The trust relationship between the assignor and the assignee arises because the informal assignment of the legal 23

Equitable assignments of parts of legal choses in action are discussed at [15.325].

24

Treitel G, The Law of Contract (10th ed, Sweet & Maxwell, 1999), p 624 notes that an assignment by A of rent due under a lease “to my daughter until she marries” is not an absolute assignment because A should be a party to any action brought by his daughter against the tenant for the rent. If the daughter could sue alone, she might be able to prove that she was unmarried and so entitled to the rent. However, this would not prevent A, in a subsequent action against the tenant, from proving that the court in the first action had made a mistake in finding that the daughter was unmarried, so that the tenant would have to pay over again. The tenant needs to know to whom it can safely pay the rent. In Westpac Banking Corporation v Market Services International Pty Ltd (unreported, SC Vic, Batt J, 1 October 1996), p 13 it was held that the required notice does not have to contain an express statement that the assignment is in writing or provide particulars of the assignment. Compare Showa Shoji Australia Pty Ltd v Oceanic Life Ltd (1994) 34 NSWLR 548 at 564-567. A notice that fails to specify matters (such as the date of the assignment) but acquaints the debtor or third party with the fact that someone else is, or claims to be the assignee, will satisfy s 12 (although a notice that positively misstates those matters may not be valid): Westgold Resources NL v St George Bank (1998) 29 ACSR 396; (1998) 17 ACLC 327, affirmed Phillips Fox (a firm) v Westgold A legal assignment that does not satisfy the formal legal assignment requirements is hereafter referred to an “informal assignment of legal property”. It is incorrect, however, to regard an owner of property as owning two distinct shares in the property, one legal and the other equitable: Commissioner of Stamp Duties (Qld) v Livingston [1965] AC 694. The nature of equitable interests in property is discussed in Chapter 3 (Parkinson): “Equity and Property”.

25

26 27

[15.45]

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property is only enforced in equity. For this reason, the nature of the trust relationship that exists between the parties may be characterised as a type of constructive trust. 28 Hope JA in the New South Wales Court of Appeal in DKLR Holding Co (No 2) Limited v Commissioner of Stamp Duties (NSW) [1980] 1 NSWLR 510 at 519 described the nature of the relationship between the legal and beneficial owner of land as follows: Where the trustee is the owner of the legal fee simple, the right of the beneficiary, although annexed to the land, is a right to compel the legal owner to hold and use the rights which the law gives him in accordance with the obligations which equity has imposed upon him. The trustee in such a case has at law all the rights of the absolute owner in fee simple, but he is not free to use those rights for this own benefit in the way he could if no trust existed; equitable obligations require him to use them in some particular way for the benefit of other persons.

The question whether an informal assignment of legal property is enforceable in equity must be examined in two situations. In the first, valuable consideration is given for the informal assignment of legal property. In the second, the informal assignment of legal property is by way of gift. Where there is valuable consideration [15.50] Equity places considerable importance on the payment of consideration. Where

valuable consideration is given for an assignment of or an agreement to assign legal property, equity will give effect to the transaction despite the assignor’s failure to comply with the requisite legal formalities. In a situation where there is a purported immediate assignment of legal property for value that does not satisfy the requisite legal formalities, and consideration has been paid, equity regards the transaction as a promise (or contract) to assign the property. That contract is then enforceable in equity on the basis that equity treats as done that which ought to be done 29 (subject to any statutory requirements for writing). The position is the same where, instead of the parties purporting (but failing) to make an immediate assignment of the property, they agree to assign the property for valuable consideration. This agreement will be effective in equity from the moment the consideration 30 is paid or executed 31 on the basis, once again, that equity treats as done that which ought to be done. This means that the transaction may be enforced in equity should the assignor subsequently refuse to take any of the steps that he or she may be required to take in order to complete the 28

By contrast, where an owner of legal property declares a trust of that property for certain beneficiaries, it is the owner’s intention from the outset to create a trust relationship. In this situation, the trust that arises from the declaration of trust may properly be described as an express trust.

29

Holroyd v Marshall (1862) 10 HLC 191; Tailby v Official Receiver (1888) 13 App Cas 523. The equitable maxims are discussed in Chapter 1 (Parkinson): “The Historical Role of the Equitable Jurisdiction”. See also Hopkins N, “Acquiring Property Rights from Uncompleted Sales of Land” (1998) 61 Modern Law Review 486. The consideration required for this purpose is the consideration required to support a simple contract. Although common law courts will not assess whether the consideration for a promise is adequate (as long as there is consideration), gross inadequacy of consideration may be relevant to the availability of the remedy of specific performance: see Chapter 17 (Parkinson): “Specific Performance”; Carter J and Harland D, Contract Law in Australia (2nd ed, Butterworths, Sydney, 1991), [323], [326].

30

31

Agreements for the sale of land or chattels are bilateral agreements, in that they involve an exchange of mutual or reciprocal promises: each party bargains for the other’s promise(s) as the consideration of her or his own promises. Where performance of any of those promises is not due at the time the agreement is made, the consideration provided is said to be executory in nature; where the promise is performed, the consideration is said to be executed: see Carter J and Harland D, Contract Law in Australia (2nd ed, Butterworths, Sydney, 1991), [313].

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legal assignment of the property (such as the execution of the transfer of the land or the production of a certificate of title or share certificate). This equitable intervention affects the title to the property of both parties. Although the assignor remains the legal owner of the property until the legal formalities for the assignment are satisfied, the legal owner is regarded in equity as a type of constructive trustee 32 of the property for the assignee whose ability to deal with the property is circumscribed by equitable obligations. Conversely, the assignee is regarded as the equitable owner 33 of the property. The validity of the purported assignment for value is not dependent upon the factors relevant to the availability of specific performance of an executory contract. The reason equity gives effect to the assignment is because equity regards the legal owner who has received consideration for the property (or the promise to transfer the property) as obliged to complete the formal legal assignment of the property in the manner intended. In this context, the maxim that equity treats as done that which ought to be done has a sphere of operation that is independent of the rules governing the availability of specific performance for executory contracts. 34 Gifts [15.55] Where a gift fails to satisfy the legal formalities necessary for the effective assignment

of the particular type of legal property (such as the need for writing, a deed or registration), the position is more complicated. As a general principle, equity will not lend its processes to assist volunteers by compelling assignors to complete imperfect gifts. 35 This suggests that a legally ineffective gift will be equally ineffective in equity. However, there is a countervailing equitable principle that equity gives effect to intention rather than to form. The Privy Council in T Choithram International SA v Pagarani [2001] 2 All ER 492 at 501 recently reconciled the tension between these equitable principles by noting that “although equity will not aid a volunteer, it will not strive officiously to defeat a gift”. The effect of an application of the principle that equity gives effect to intention rather than to form in this context may be described as follows. If a donor manifests an intention to assign 32

33

34

35

Lysaght v Edwards (1876) 2 Ch D 499, Jessel MR at 507; Shaw v Foster (1872) LR 5 HL 321, Lord Cairns at 338; Rayner v Preston (1881) 18 Ch D 1; Chang v Registrar of Titles (1976) 137 CLR 177. However, the vendor’s trusteeship is a modified or “qualified” trusteeship only: Rayner v Preston (1881) 18 Ch D 1, Cotton LJ at 6. See also Re Hamilton-Snowball’s Conveyance [1959] Ch 308; Re Lyne-Stephens and Scott-Miller’s Contract [1920] 1 Ch 472. Meagher JA in Chief Commissioner of Stamp Duties v ISPT Pty Ltd (1998) 45 NSWLR 639 at 654-655 challenged the accuracy of describing the assignee as the “owner” of the entire beneficial interest as soon as agreement is reached because “nothing would remain in the vendor’s hands even if no purchase money had been paid”. The issue of principle is the same as arises in relation to the equitable assignment of future property; see further at [15.365]; Tailby v Official Receiver (1888) 13 App Cas 523. See also Meagher R P, Gummow W M C and Lehane J R F, Equity: Doctrines and Remedies (3rd ed, Butterworths, Sydney, 1992), [609], [610], [652] and [653]; Keeler J, “Some Reflections on Holroyd v Marshall” (1969) 3 Adelaide Law Review 360. The equitable maxims are discussed in Chapter 1 (Parkinson): “The Historical Role of the Equitable Jurisdiction”. There are three exceptions to the maxim that equity will not perfect an imperfect gift. The first is the doctrine of equitable estoppel (discussed in Chapter 7 (Parkinson): “Estoppel”, the second is the principle of donationes mortis causa (under which gifts of property that are made conditional upon the donor’s death are regarded as completed on the donor’s death unless the donor’s estate is insufficient to satisfy the donor’s creditors), the third is the rule in Strong v Bird (1874) LR 18 Eq 315 (under which imperfect gifts of legal property are regarded in equity as having been completed on the death of the donor, provided that the donee is named as an executor of the donor’s estate). The rule in Strong v Bird was held to apply to imperfect gifts of real property in Benjamin v Leicher (1998) 45 NSWLR 389. [15.55]

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legal property by taking all the steps towards an effective legal assignment that only the donor is capable of taking, then equity will consider it inequitable to allow the donor subsequently to refuse to perfect the gift. After many years of doubt, 36 it is now clear that in Australia it is this latter equitable principle of giving effect to intention that prevails over equity’s disinclination to assist volunteers. This means that, in certain circumstances, a legally ineffective gift may be effective in equity to vest the equitable title to that property in the assignee (donee) and to render the assignor (donor) a type of trustee of the property for the assignee. [15.60] The effectiveness in equity of voluntary assignments of legal property was stated by

Turner LJ in Milroy v Lord (1862) 4 De GF & J 264 at 274-275; 45 ER 1185 to depend upon the following requirements: [I]n order to render a voluntary settlement valid and effectual, the settlor must have done everything which, according to the nature of the property comprised in the settlement, was necessary to be done in order to transfer the property and render the settlement binding upon him (emphasis added).

Turner LJ went on to note that, if a settlement is intended to be effected by a particular mode or form of assignment (such as a direct assignment, declaration of trust or direction to a trustee), the court will not give effect to it by treating it as some other form (so that, for example, an imperfect assignment will not be upheld as a valid declaration of trust). 37 This qualification is relevant to the equitable assignments of equitable property and will be considered further in that context. 38 The test in Milroy’s case raises a number of questions about effective equitable gifts of legal property. The legal formalities for assignments of such property include such matters as the giving of notice of the assignment, signature of the assignment documents by the assignor, and, in some cases, the need for registration of some instrument. 39 Assume, for example, that C wishes to give to A shares which C holds in X Pty Ltd. C accordingly signs a transfer of the shares (in the form prescribed by X Pty Ltd’s constitution) in favour of A and delivers the share transfer form and the share certificates to A. However, before A can register the shares in her name, C changes his mind and demands the return of the share transfer form and the share certificates. At law, the transfer of the shares to A will be complete only when A, having signed the share transfer form, as transferee, registers it with X Pty Ltd. So, on these facts, C remains the legal owner of the shares. The question that arises in this context is whether equity will enforce C’s imperfect gift of the shares at the suit of A, and so regard A as having an equitable interest in the shares. 40 In order to answer this question, it is necessary to consider whether an application of the test in Milroy’s case 41 requires C to have taken all the steps necessary for an effective legal 36 37

38

See [15.60]-[15.75]. In T Choithram International SA v Pagarani [2001] 2 All ER 492 at 501 the Privy Council noted that the court will not give a “benevolent construction” so as to treat ineffective words of outright gift as taking effect as if the donor had declared himself a trustee for the donee. See [15.115]-[15.320].

39

See [15.20]-[15.40].

40

41

It is important to note that, because the gift is of shares in a private company, the remedy of specific performance potentially is available to A. If the gift was of shares in a public company, it is unlikely that the gift would be enforced in equity, regardless of the steps which C might have taken. That the assignor must have done all that is necessary to make the assignment legally effective.

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assignment of the shares (up to and including registration) before equity will enforce the gift to A, or whether C is only required to have taken certain steps (such as the delivery of the share transfer form and share certificates). Members of the High Court in Anning v Anning (1907) 4 CLR 1049 provided differing approaches to these questions. Isaacs J was of the view that, if property is assignable at law, equity will not enforce a gift of such property unless all relevant legal assignment requirements have been completed (the “Isaacs view”). This view leaves no room for the recognition in equity of incomplete gifts. Applying the Isaacs view to the above example, A will be unable to enforce the gift of the shares before registration of the shares in A’s name and, by that stage, equitable intervention will be unnecessary. The other justices took a less extreme view, holding that an assignor might be bound by a gift in equity at some stage short of full compliance with the legal formalities. According to Griffith CJ, a gift will be effective in equity when the donor has done all those things which the donor, and only the donor, can do (the “Griffith view”). Applying the Griffith view, C’s gift of the shares to A will be effective in equity as soon as C has signed the share transfer form and delivered it, with the share certificates, to A. This follows because C has done everything that C, and only C, can do. The final step in the share transfer, namely registration of the shares in A’s name in the share register kept by X Pty Ltd, is a step that either A or C may take. On the other hand, Higgins J held that a gift will be effective in equity when the donor has taken all the steps necessary to pass the legal title to the donee which are within the donor’s power, and even though some of those steps are capable of being taken also by the donee (the “Higgins view”). Under the Higgins view, C’s gift to A will only be regarded as effective in equity when C has not only signed and delivered to A the share transfer form and the share certificates, but has also delivered the share transfer form, signed by A, with the share certificates, to X Pty Ltd for registration. Although A could also have delivered the fully executed share transfers to X Pty Ltd for registration, this step was also within C’s power. The Higgins view has not received support in later cases. [15.65] For many years doubt existed in Australia as to which of the three views enunciated in

Anning’s case reflected the proper approach to incomplete gifts of legal property. Dixon J in Brunker v Perpetual Trustee Co Ltd (1937) 57 CLR 555 at 599-600 (Rich J agreed with Dixon J) appeared to adopt the Isaacs view, holding that a voluntary transfer of Torrens title land, which was not in registrable form and, as such, was incapable of registration, was ineffective in equity. 42 His Honour did, however, identify the Torrens transferee’s so-called “statutory right to registration” under Torrens legislation which puts a transferee in a position to obtain a legal estate by registration of a transfer (at 599-600). Such a statutory right, although constituting neither a legal nor an equitable interest in the land, is said to arise upon delivery to the transferee of a duly executed transfer in registrable form (at 604). 43 In later cases, Dixon J’s statutory right to registration appears to have been confused with an equitable interest in the land, complicating the law in this area even further. 44 McTiernan J also concluded that delivery of a Torrens title transfer was insufficient to effect an equitable assignment of Torrens title land, but did not refer to a transferee’s statutory right to be 42 43 44

It should, however, be noted that Dixon J’s judgment was cited by Windeyer J in Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 at 28-29 as authority for the Griffith view. Dixon J suggested that, in order to constitute a registrable dealing, the transfer must be accompanied by the certificate of title to the land. See, for example, Noonan v Martin (1987) 10 NSWLR 402 at 410-413. [15.65]

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registered. Latham CJ, dissenting, found that the assignment was effective in equity and expressed a preference for the Griffith view (at 586). In Norman v Federal Commissioner of Taxation (1963) 109 CLR 9, 45 a case involving the voluntary assignment of a chose in action, Windeyer J supported the Griffith view, citing Brunker’s case as authority for this proposition (at 28-29). Interestingly, Sir Owen Dixon, who sat as the Chief Justice in Norman’s case, said that there was nothing in Windeyer J’s judgment with which he was disposed to disagree (at 16). The assignment of Torrens title land was not mentioned, but neither was it excluded. In Taylor v Deputy Federal Commissioner of Taxation (1969) 123 CLR 206 at 213, Barwick CJ, Taylor and Menzies JJ cited Brunker’s case as authority for the Griffith view. Kitto J in Olsson v Dyson (1969) 120 CLR 365 at 375 (Menzies and Owen JJ agreed with Kitto J) appeared to retreat from the Griffith view in relation to the voluntary assignment of a chose in action and to lend support to the Isaacs view. Barwick CJ also supported the Isaacs view (at 368). Windeyer J dissented, applying the principle he had stated in Norman’s case. [15.70] The controversy regarding voluntary assignments of legal property has now been

resolved by the High Court in Corin v Patton (1990) 169 CLR 540 46 in favour of the Griffith view. In that case, a husband and wife owned Torrens title land, subject to a registered mortgage, as joint tenants. The wife, while terminally ill, unilaterally attempted to sever the joint tenancy by signing a transfer of her share in the land in favour of her brother, C, to be held by C on trust for her. At the time of her death, the transfer to C had not been registered and she had taken no steps to ensure that the mortgagee would produce the certificate of title at the Land Titles Office in order to enable the transfer to be registered in C’s name. The High Court held that the joint tenancy would only be severed if, before her death, the wife had passed a legal or equitable interest in the land to C. As C could only obtain a legal interest in the land upon registration of the transfer in his favour, the real issue was whether the wife’s voluntary assignment of her interest in the land was effective to pass an equitable interest in the land to C. As she had not done all that was necessary on her part to complete the transfer of her interest to C (namely, not only signing the transfer but also obtaining production of the certificate of title by the mortgagee to enable the transfer to be registered in C’s name), the assignment was not effective in equity on any of the views expressed in Anning v Anning (1907) 4 CLR 1049. Even though it was strictly unnecessary for the High Court to decide which of those views was correct, it considered this issue in detail. Mason CJ and McHugh J referred to the uncertainty arising out of the first limb of the test in Milroy v Lord (1862) 4 De GF & J 264; 45 ER 1185 47 and posed the following question: Did [the first limb] require that the donor must have done himself all that was necessary to be done in order to transfer the property or did he only have to do all that was necessary to be done by him in order to achieve that result? (Corin v Patton (1990) 169 CLR 540 at 550 (original emphasis)).

45 46 47

The facts of this case are discussed at [15.345]. For an application of the principles in this case, see Costin v Costin (1994) NSW Conv R 55-715; (1997) NSW Conv R 55-811. Discussed at [15.60].

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Their Honours dismissed Dixon J’s formulation in Brunker v Perpetual Trustee Co Ltd (1937) 57 CLR 555 at 599-600 (Rich J agreed with Dixon J) of a statutory right of registration and endorsed the Griffith view (Corin v Patton (1990) 169 CLR 540 at 556). As they explained (at 559): [I]f an intending donor of property has done everything which it is necessary for him to have done to effect a transfer of legal title, then equity will recognize the gift. So long as the donee has been equipped to achieve the transfer of legal ownership, the gift is complete in equity. ′Necessary’ used in this sense means necessary to effect a transfer. From the viewpoint of the intending donor, the question is whether what he has done is sufficient to enable the legal transfer to be effected without further action on his part.

They further held that the Griffith view “implicitly recognizes that the donee acquires an equitable estate or interest in the subject matter of the gift once the transaction is complete so far as the donor is concerned” (at 559). Deane J came to a similar conclusion. His Honour (at 582) described the test for determining whether an imperfect gift of Torrens title land is effective in equity as a twofold one: It is whether the donor has done all that is necessary to place the vesting of the legal title within the control of the donee and beyond the recall or intervention of the donor. Once that stage is reached and the gift is complete and effective in equity, the equitable interest in the land vests in the donee and, that being so, the donor is bound in conscience to hold the property as trustee for the donee pending the vesting of the legal title.

Brennan J appeared to adopt the Isaacs view that, where completion of a legal assignment requires some action by a third party (such as registration), a voluntary assignment passes no title in equity until that action is taken. Until registration, the donee acquires only a personal right against the donor (rather than an equitable interest in the property) to have the assignment registered, a right which the donor may not defeat. As his Honour explained (at 569-570): 48 The foundation of this view is not that the donee acquires an equity to compel the donor to take any step to facilitate registration nor that the donee acquires any equitable interest in the land … Upon this analysis, a right to registration, the effective exercise of which is essential to the vesting of title to the gifted land, is a statutory right dependent (at least) on delivery of a registrable transfer. That statutory right … gives rise to no equitable estate or proprietary interest … [T]o press equity into service to create an equitable estate or interest where there is no equitable estate or interest arising from contract or from any conduct on the part of the donor is to take equity beyond its proper realm of acting in personam …

Where, however, no action is needed to complete an assignment at law other than that which can be taken by the donor or the donee, Brennan J appeared, like the majority, to adopt the Griffith view (Corin v Patton (1990) 169 CLR 540 at 564). Toohey J, on the other hand, took the view that the issue to be determined was whether the unregistered transfer could defeat the surviving joint tenant’s right to be registered as sole proprietor of the land. In other words, the conflict was not between the donor and the donee, but between the donee and the surviving joint tenant. In addition, he regarded the case as distinguishable from the other incomplete gift cases in that the donor was not attempting to 48

This approach accepts the “statutory right to registration” recognised by Dixon J in Brunker v Perpetual Trustee Co Ltd (1937) 57 CLR 555 at 599-600. Rich J agreed with Dixon J. [15.70]

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confer a beneficial interest in the property on the donee, only her legal interest. Viewed in this way, Toohey J found it unnecessary to express a preference for either the Griffith view or the Isaacs view. However he did feel that it is a somewhat “unreal demand”, even when land is not subject to a mortgage, to require a joint tenant, seeking to sever a joint tenancy, to deliver to the donee the certificate of title, there being only one certificate of title to the land (at 590). His Honour noted that, at the time of the donor’s death, the donee did not have an “unqualified right” to have the transfer registered, and that “possession of the certificate of title aside” the donor could have recalled the transfer and taken steps, such as the lodgment of a caveat or an injunction, to prevent its registration (at 592). The “real point”, according to his Honour (at 592-593) was that: [T]he transfer to [the donee] had not been registered at the time of [the donor’s] death. There was no transaction that equity would enforce; there was a transaction that had not been consummated … On [the donor’s] death the Registrar General was empowered, on application, to register [the husband] as proprietor of an estate in fee simple in the land.

This conclusion appears to beg the question as to the stage at which a voluntary assignment of Torrens title land becomes enforceable, or is regarded as “consummated”, in equity, if ever. [15.75] The result of Corin v Patton (1990) 169 CLR 540 49 is that the Griffith view is now

the accepted test in Australia for the recognition in equity of voluntary assignments of legal property. This test applies not only to Torrens title land but to all other forms of legal property. Although strictly obiter, the statements of the majority in Corin’s case on this issue are deliberate and appear to settle the position once and for all. In adopting this position, the High Court has manifested a preference for the principle that equity gives effect to the intention of the parties over the principle that equity will not assist a volunteer (or perfect an imperfect gift). An imperfect gift is enforceable in equity, even in the face of a statutory requirement for registration, because equity treats as a sufficient manifestation of intention the taking of certain steps by a donor. The decision, however, does not address the basic policy issue of why an ineffective gift of legal property should be enforced in equity at all. [15.80] The Corin v Patton (1990) 169 CLR 540 tests have been applied in a number of cases

in relation to the transfer of real property. 50 For example, in Costin v Costin (1994) NSW Conv R 55-715 Santow J in the Supreme Court of New South Wales found that a donor (father) had satisfied the relevant tests and severed a joint tenancy of land with his son, Robert, by signing a transfer of the donor’s interest in the land to another son, Nicholas, even though that transfer had not been registered. Unlike the donor in Corin v Patton, the donor had not only signed the transfer but had authorised the solicitors holding the certificate of title to the 49

50

412

Following this decision the New South Wales government referred the issue of unilateral severance of joint tenancies to the New South Wales Law Reform Commission (NSWLRC). As a consequence of the recommendations made by the NSWLRC in Report 73, Unilateral Severance of a Joint Tenancy (1994), s 30 was inserted in the Conveyancing Act 1919 (NSW) and s 97 in the Real Property Act 1900 (NSW) to allow a joint tenant of land in New South Wales to unilaterally sever the joint tenancy by executing (and in the case of Torrens title land, registering) a special type of transfer. Unilateral severance of joint tenancies is also permitted under Land Titles Act 1980 (Tas), s 63 and Land Title Act 1994 (Qld), s 59. Motor Auction Pty Ltd v John Joyce Wholesale Cars Pty Ltd (1997) 138 FLR 118 (Santow J held that a donor’s failure to authorise a mortgagee to produce a certificate of title to enable a transfer of the donor’s interest in a joint tenancy to be transferred rendered the gift incomplete and revocable); Garcia v Lam (unreported, NSWCA, Sheller, Powell and Cole JJA, 2 July 1996) (the New South Wales Court of Appeal dismissed an appeal from McLaughlin M on the basis that the donor had not done all that was necessary to effect the transfer of the land). [15.75]

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land to produce the title to the Land Titles Office 51 to enable the transfer to be registered. On appeal, 52 the New South Wales Court of Appeal held that the donor’s authority to the solicitors was revocable until acted upon. The solicitors, who acted for both joint tenants, regarded themselves as bound by a note attached to the certificate of title restricting them from releasing the title without the joint authority of both joint tenants. As the authority was not acted upon before the donor died, it was revoked on his death. Although the decision of the Court of Appeal was unanimous, the judges differed in their application of the relevant principles to the facts. Sheller JA (at 56,370) found that neither limb of Deane J’s twofold test had been satisfied holding that: In the first place, release of the certificate of title required the joint authority of the deceased and [Robert]. In the second place, until such time as it was acted upon, the deceased could revoke the authority ….

By contrast, Brownie AJA (with whom Powell JA agreed), who described the approach of Mason CJ, Deane and McHugh JJ in Corin v Patton as “the majority approach” (at 56,372), found that although the first limb of the test had been satisfied the second had not and (at 57,372): Thus the intended gift by [the donor] to [Nicholas] was complete in the sense that the donor had done all that was required to be done by him alone to transfer the legal title: if his solicitors had acted as he had directed, the legal title would have passed, but the donor had not done all that was necessary to render the gift binding upon himself, or to arm or equip the donee with the means of securing registration of the transfer, or of putting the transfer beyond the donor’s recall or intervention. [15.85] Although Corin v Patton (1990) 169 CLR 540 53 dealt with informal assignments of

real property, the principles in that case apply equally to informal assignments of other forms of property. In each case it is necessary to consider the steps required to formally assign the particular property and whether the donor has done everything to comply with the tests in Corin’s case. For example, an unconditional and absolute gift of a legal chose in action that does not comply with all the requirements of s 12 of the Conveyancing Act 1919 (NSW), and its equivalents in the other States and the Territories, 54 will be enforceable in equity as long as the assignment is in writing and signed by the donor, these being the only steps that the donor, and only the donor, can take. Notice to the debtor of the assignment is a step that may be taken by either the donor or the donee, provided that the notice is given before action is taken on the assignment. 55 51 52 53 54

55

Now known as Land and Property Information New South Wales. (1997) NSW Conv R 55-811. Discussed at, [15.70]-[15.80]. See [15.35]. Section 12 is discussed in relation to equitable property at [15.310]-[15.320], and in relation to parts of legal choses in action, see [15.325]. Mansfield J in Lonsdale Sand and Metal Pty Ltd v Commissioner of Taxation (1998) 81 FCR 419 at 433 recognised that a purported assignment of a debt that did not comply with s 15 of the Law of Property Act 1936 (SA) (not being in writing and no notice in writing having been given to the debtor) might nevertheless be effective in equity. He also felt obliged to consider “whether there is any other reason why otherwise it would be unconscionable if the assignment were not recognised”. Walker v Bradford Old Bank (1884) 12 QBD 511; Bateman v Hunt [1904] 2 KB 530; Re Westerton [1919] 2 Ch 104; Holt v Heatherfield Trust Ltd [1942] 2 KB 1. Lack of notice of an assignment affects priorities but, as between the assignor and the assignee, does not prevent a valid equitable assignment of the chose in action: Mountain Road (No 9) v Michael Edgley Corporation Pty Ltd [1999] 1 NZLR 335 at 341, 343. However, a debtor or third party who receives a notice of an equitable assignment from the assignee is placed in a [15.85]

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[15.90] Where a legal chose in action is assigned in equity 56 the assignor must be a party to

any action to enforce the interest assigned, either by being required by the assignee to sue in the assignor’s own name or by being joined as a defendant. The rule requiring the assignor to be a party to any action against the debtor or third party is said to be a rule of practice and not a rule of substantive law. 57 For this reason, it may be dispensed with in special cases. 58

EQUITABLE PROPERTY CAPABLE OF ASSIGNMENT [15.95] Equitable property is property that is recognised in equity but not by the common

law. Examples of equitable property include the interest of a beneficiary under a fixed trust, the interest of partners in a partnership, 59 the right of a purchaser of land upon entry into a valid contract for the sale of land, 60 the equity of redemption of a mortgagor of land held under old system title, the lien of a purchaser of land over property pending completion of the purchase and the lien of a vendor of land for the unpaid purchase price.

56

57

58

59

difficult situation in relation to performance of the chose in action. For example, in relation to the payment of a debt, the debtor can no longer safely pay the assignor but, having received no authorisation from the assignor to pay the assignee, may not be able to obtain a good discharge from the assignee. In such cases, the debtor should interplead. The issue still remains whether, once an equitable assignment is perfected by notice to the debtor or third party, the assignee can enforce the cause of action directly and in its own name. Roskill LJ and Sir John Pennycuick indicated in Warner Bros v Rollgreen [1976] QB 430 that in such circumstances the equitable assignee may not proceed directly against the third party, even after giving notice. An equitable assignee of a debt is a creditor for the purposes of the Bankruptcy Act 1966 (Cth): Wilson v Official Trustee in Bankruptcy (2000) 97 FCR 196. Further, the right of an equitable assignee is not defeated by the subsequent issue of a notice under Income Tax Assessment Act 1936 (Cth), s 218 (requiring the payment of money due or accruing to a taxpayer to the Income Tax Commissioner). Meagher R P, Gummow W M C and Lehane J R F, Equity: Doctrines and Remedies (3rd ed, Butterworths, Sydney, 1992), para [6 103] disagree with the description of this requirement as a “rule of practice”, referring to it as a “principle”. These special cases involve practical considerations, protection of the debtor and the avoidance of multiplicity of suit: William Brandt’s Sons & Co v Dunlop Rubber Co Ltd [1905] AC 454; Walter & Sullivan Ltd v J Murphy & Sons Ltd [1955] 2 QB 584; National Mutual Life Nominees Ltd v National Capital Development Commission (1975) 37 FLR 404 at 412; Long Leys Co Pty Ltd v Silkdale Pty Ltd (1991) 5 BPR 11.512; Equus Financial Services Limited v Glengallen Investments Pty Ltd (Appeal No 262 of 1993, 19 May 1994); Thomas v National Australia Bank Limited [2000] 2 Qd R 448. However, an action commenced by an equitable assignee of a legal right, without joining the assignor, is not a nullity and the non-observance of the rule can be cured by the appropriate joinder at any stage. In Weddell v J A Pearce & Major [1988] Ch 26 and Jennings v Credit Corp Australia Pty Ltd as assignee from Citicorp Person to Person Financial Services Pty Ltd (2002) 48 NSWLR 709 an equitable assignment was held to prevent limitation of an action but did not allow the assignee to recover damages or be entitled to a perpetual injunction. Once an equitable assignment becomes legal, albeit after the expiration of the limitation period, the legal assignee can continue with the proceedings. The need for special circumstances was noted in Performing Right Society v London Theatre of Varieties [1924] AC 1 at 29; Warner Bros v Rollgreen [1976] QB 430; Showa Shoji Australia Pty Ltd v Oceanic Life Ltd (1994) 34 NSWLR 548 at 561; Stack v Brisbane City Council (No 2) (1996) 67 FCR 510 at 513-514 (equitable assignee who sues in the name of the assignor may be required to give the assignor an indemnity for costs, if demanded); Three Rivers District Council v Bank of England [1996] QB 292 (Staughton LJ holding (at 303) that in the case of an equitable assignment the assignor retains a cause of action at law that the assignor can enforce, albeit for the benefit of the assignee). Federal Commissioner of Taxation v Everett (1980) 143 CLR 440.

60

The nature of the purchaser’s equitable interest in the land is discussed in Kern Corporation Ltd v Walter Reid Trading Pty Ltd (1987) 163 CLR 164; Stern v McArthur (1988) 165 CLR 489; KLDE Pty Ltd v Commissioner of Stamp Duties (Qld) (1984) 155 CLR 288; Road Australia Pty Ltd v Commissioner of Stamp Duties [2001] 1 Qd R 327.

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Property of this nature, being recognised in equity only, can obviously only be assigned according to the rules of equity. The issues in relation to the assignment of equitable property differ from those that arise in relation to the assignment of legal property (where the issue is whether, and why, equity should intervene at all). By contrast, equity must provide ways in which equitable property can be assigned, there obviously being no legal rules governing such assignments. Ordinarily, the effect of an assignment of equitable property is to confer upon the assignee all the equitable remedies applicable to the property and to enable the assignee to give a good discharge of any obligations attaching to the property (Redman v The Permanent Trustee Co of New South Wales Ltd (1916) 22 CLR 84, Isaacs J at 95). [15.100] There are various methods by which equitable property can be assigned. First, the

equitable interest may be assigned directly by the assignor, during her or his lifetime, to the assignee. 61 Secondly, the equitable interest holder may agree to assign the equitable interest to the assignee. 62 Thirdly, the holder of equitable property may declare herself or himself a trustee of that property for the assignee (the declaration of trust). 63 As the property held by the trustee is equitable property, the declaration of trust necessarily involves the creation of a subtrust. The effect of such a declaration is to vest an equitable interest in the trust property in the beneficiary of the subtrust. Fourthly, the holder of the equitable interest may direct the holder of the legal interest, the trustee, henceforth to hold the equitable interest on trust for another person or to pass the legal interest to another person (direction to the trustee). 64 Fifthly, the donee of an equitable interest may disclaim that interest. 65 Sixthly, the holder of the equitable interest may release the trustee from her or his obligations as trustee and allow the trustee to treat the property as her or his own. 66 Seventhly, the holder of the equitable interest may nominate another person to take the equitable interest on the holder’s death. 67 Eighthly, the beneficiary under a resulting trust may divest herself or himself of that interest. 68 If an assignment of equitable property has taken a particular form (such as a direct assignment, an agreement to assign, a declaration of trust or a direction to a trustee), the requirements for that particular form of assignment must be satisfied. If the assignment fails to satisfy those requirements, proving compliance with the requirements for some other form will not save it. This is simply an application of the second limb of the test in Milroy v Lord (1862) 4 De GF & J 264 at 274-275; 45 ER 1185. 69 [15.105] As a general rule, in the absence of some statutory provision to the contrary, no

formality (such as writing or notice) is required for the assignment of equitable property. All that is required for such an assignment is “a clear expression of an intention to make an 61 62 63

64 65 66 67 68 69

See [15.120]. See [17.125]-[15.145]. See [15.150]-[15.160]. The intention of the assignor to make an immediate disposition of the equitable property is what distinguishes a direct assignment of an equitable interest from an agreement to assign and a declaration of trust. See [15.165]-[15.215]. See [15.220]. See [15.225]-[15.235]. See [15.240]-[15.250]. See [15.255]-[15.305]. Discussed at [15.60]. [15.105]

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immediate disposition”; 70 the language of the assignment is “immaterial if the meaning is plain”, 71 provided that it is the language of disposition and not of declaration of trust. In addition, an intention to assign an equitable interest must be distinguished from a mere revocable mandate which may be modified or recalled before being acted upon and is revocable on the death of the mandator. 72 [15.110] Although historically no formalities were required in equity for assignments of

equitable property, the need for certain formalities in such assignments, such as writing, has been statutorily imposed. In contrast to equitable assignments of legal property, 73 equity does not place the same importance on valuable consideration in the context of equitable assignments of equitable property, because the maxim that equity will not assist a volunteer is inapplicable to its “own” property. For this reason, a voluntary assignment of equitable property will be effective if the donor expresses a clear intention to make an immediate disposition of the equitable property, provided the gift is absolute and not by way of charge only. 74 There are two relevant statutory provisions dealing with the need for writing (and notice) in assignments of equitable property. The first is s 23C of the Conveyancing Act 1919 (NSW), 75 and its equivalents in the other Australian States, 76 which applies to equitable interests in all types of property, real and personal. The second is s 12 of the Conveyancing Act 1919 (NSW), 77 and its equivalents in the other Australian States and Territories, 78 which applies to equitable choses in action (such as an interest in a partnership) as well as legal choses in action.

The need for writing under s 23C [15.115] Writing has been required for the effective assignment of equitable property since

ss 1-3 and 7-9 of the Statute of Frauds (29 Car II, c 3) were introduced in 1677. Today all Australian States have statutory provisions requiring equitable assignments to be in writing. 79 These provisions are all substantially similar to s 23C which provides: (1) Subject to the provisions of this Act with respect to the creation of interests in land by parol — 70 71 72 73 74

75 76

Norman v Federal Commissioner of Taxation (1963) 109 CLR 9, Windeyer J (dissenting) at 30; but affd Shepherd v Federal Commissioner of Taxation (1965) 113 CLR 385, Barwick CJ at 391; Kitto J at 397. William Brandt’s Sons & Co v Dunlop Rubber Co Ltd [1905] AC 454, Lord Macnaghten at 462. Comptroller of Stamps (Vic) v Howard-Smith (1936) 54 CLR 614 (discussed at [15.180]); Coulls v Bagot’s Executor & Trustee Co (1967) 119 CLR 460; Parker & Parker v Ledsham [1988] WAR 32. See [15.45]-[15.90]. Kekewich v Manning (1851) 1 De GM & G 176; Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 at 30. It follows that a charge of equitable property requires valuable consideration: Re Earl of Lucan (1890) 45 Ch D 615. Hereafter called “s 23C”. Property Law Act 1974 (Qld), ss 5, 9; Property Law Act 1936 (SA), s 29; Conveyancing and Law of Property Act 1884 (Tas), s 60(2); Property Law Act 1958 (Vic), s 53; Property Law Act 1969 (WA), s 34. There is no equivalent legislation in the Territories.

77 78

Hereafter called “s 12”. Property Law Act 1974 (Qld), ss 199, 200; Law of Property Act 1936 (SA), s 15; Conveyancing and Law of Property Act 1884 (Tas), s 86; Property Law Act 1958 (Vic), s 134; Property Law Act 1969 (WA), s 20. The Law of Property (Miscellaneous Provisions) Ordinance 1958 (ACT), s 3 applies the New South Wales provision to the Territory, while, in the Northern Territory, the Property Act 1860 (SA), s 19 is still in force.

79

Property Law Act 1974 (Qld), ss 5, 9; Property Law Act 1936 (SA), s 29; Conveyancing and Law of Property Act 1884 (Tas), s 60(2); Property Law Act 1958 (Vic), s 53; Property Law Act 1969 (WA), s 34.

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(a) no interest in land can be created or disposed of except by writing signed by the person creating or conveying the same, or by his agent thereunto lawfully authorised in writing, or by will, or by operation of law; (b) a declaration of trust respecting any land or any interest therein must be manifested and proved by some writing signed by some person who is able to declare such trust or by his will; (c) a disposition of an equitable interest or trust subsisting at the time of the disposition, must be in writing signed by the person disposing of the same or by his will, or by his agent thereunto lawfully authorised in writing. (2) This section does not affect the creation or operation of resulting, implied or constructive trusts.

Although doubt existed as to whether para (c) applies to dispositions of all property, real or personal, or to land only, 80 it has now been held that s 23C (like its equivalents in the other States) does apply to dispositions of equitable interests in both real and personal property. 81 In many cases concerning s 23C, or its equivalents, courts have been required to determine for stamp duty purposes whether a particular oral transaction effected a change in the ownership of equitable property. The consequence of a determination to this effect was that any subsequent written document dealing with that property could not itself be said to have brought about any change in the ownership of the property. The function of such a written document was merely to provide evidence of the oral transaction, not to effect a “disposition” of the equitable property. The distinction between an effective oral disposition of equitable property and a subsequent written confirmation of that disposition is important in relation to the assessment of stamp duty in those jurisdictions in which stamp duty is payable only on written instruments and not on oral transactions. 82 However, as the stamp duty legislation in the majority of Australian States and Territories now requires the payment of stamp duty on the assignment of defined types of property, regardless of whether those assignments are oral or in writing, 83 the relevance of that distinction has diminished. As s 23C(1)(a) and (c) both require writing when equitable property is “disposed of”, it will be necessary to consider whether each of the various methods of equitable assignment constitutes a “disposition” of property. Direct assignments of equitable interests [15.120] In considering the effectiveness of direct assignments of equitable interests, a

distinction must be drawn between direct assignments of real and personal equitable property. Assignments of equitable interests in real property are regulated by s 23C(1)(a), whereas assignments of equitable interests in personal property are regulated by s 23C(1)(c). 80 81

82

83

Appearing as it does in Pt II, Div 3 of the Conveyancing Act 1919 (NSW), entitled “Assurances of Land”. A majority of the High Court in Adamson v Hayes (1973) 130 CLR 276 and the House of Lords in Grey v Inland Revenue Commissioners [1960] AC 1, Oughtred v Inland Revenue Commissioners [1960] AC 206 and Vandervell v Inland Revenue Commissioners [1967] 2 AC 291 have held that equivalent sections in Western Australia and England respectively do extend to dispositions of personalty. This approach was adopted in New South Wales by Giles J in PT Ltd v Maradona Pty Ltd (No 2) (1992) 27 NSWLR 241 at 251. For example, Stamp Act 1921 (WA); Stamp Duties Act 1923 (SA); Stamp Act 1978 (NT). However, even these statutes contain anti-avoidance provisions that require the payment of stamp duty on oral transactions in certain specified circumstances. Duties Act 1997 (NSW); Duties Act 1999 (ACT); Duties Act 2000 (Vic); Duties Act 2001 (Tas); Duties Act 2001 (Qld). [15.120]

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Section 23C(1)(a) expressly requires writing 84 for the “disposition” of any equitable interest in land. For this reason, all direct assignments of equitable interests in land must be in writing. The effect of non-compliance with s 23C(1)(a) is to render void any oral direct assignment of an equitable interest in real property. The effect of s 23C(1)(c) is to require all assignments of equitable interests in property, including personal property, to be in writing and signed by the assignor or an agent of the assignor, because all such assignments constitute “dispositions” of “subsisting” equitable interests in that property, as required by para (c). 85 The effect of non-compliance with s 23C(1)(c) is to render any oral direct assignment of an equitable interest in personal property void. Agreements to assign equitable interests [15.125] In considering the application of writing requirements to agreements to assign

equitable interests, a distinction must be drawn between agreements to assign real property and agreements to assign personal property. There is no doubt that, in order to be enforceable, agreements for valuable consideration to assign equitable interests in real property require writing, since all contracts for the disposition of interests in land must be in writing (or proved by some memorandum or note thereof) and signed. 86 The position is not so straightforward under s 23C(1)(c) in relation to agreements for valuable consideration to assign equitable interests in personal property. As between assignors and assignees the issue arising out of an oral assignment is likely to relate to the enforceability of the oral assignment under the doctrine of part performance 87 or the principles of equitable estoppel. 88 However, where it is necessary to determine for stamp duty, income tax or succession purposes whether an oral agreement to assign an equitable interest has been effective to pass an equitable interest in personal property to an assignee, compliance with s 23C(1)(c) will be relevant. [15.130] There are two ways of analysing the effect of an agreement to assign an equitable

interest in personal property. 84 85

86

It should be noted that legal assignments of land are not simply required to be in writing but, in addition, must be in deed form: see [15.25]. Assignments of equitable choses in action, in any event, may need to comply with the writing (and notice) requirements imposed by s 12 (and its equivalents), although compliance with that section probably is not mandatory. The requirements of s 12 in this context are discussed at, [15.310]-[15.320]. No particular form of words is required for an equitable assignment. The language is immaterial if the meaning is plain: William Brandt’s Sons & Co v Dunlop Rubber Co Ltd [1905] AC 454 at 462.

88

Conveyancing Act 1919 (NSW) s 54A; Statute of Frauds Act 1972 (Qld), s 5; Law of Property Act 1936 (SA), s 26; Mercantile Law Act 1935 (Tas), s 6; Instruments Act 1958 (Vic), s 126. The Imperial legislation still applies in Western Australia. An oral agreement is enforceable under the doctrine of part performance discussed in Chapter 17 (Parkinson): “Specific Performance”. Note that Law of Property (Miscellaneous Provisions) Act 1989 (UK), s 2(1) requires all contracts for the sale or other dispositions of interests in land (defined to include any estate, interest or charge in or over land) to be in writing and to incorporate all the terms which the parties have expressly agreed in one document or, where contracts are exchanged, in each document. See Chapter 17 (Parkinson): “Specific Performance”. Law of Property (Miscellaneous Provisions) Act 1989 (UK), s 2(1) effectively abolishes the doctrine of part performance in the United Kingdom. For a discussion of the effect of this section on a mortgage by deposit of title deeds see United Bank of Kuwait Plc v Sahib [1997] Ch 107. See Chapter 7 (Parkinson): “Estoppel”.

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On the one hand, the agreement may be seen as making the assignor a constructive trustee of that equitable interest for the assignee. According to this analysis, the agreement to assign need not be in writing because the assignor retains her or his existing equitable interest and “creates” a new equitable interest in the assignee which the assignor is regarded as holding on trust for the assignee. According to this analysis, there is no “disposition” of a “subsisting” equitable interest that must comply with s 23C(1)(a). Furthermore, s 23C(2) provides that subs (1) does not affect the creation or operation of constructive trusts. 89 On the other hand, the agreement may be seen as an outright disposition of the assignor’s existing equitable interest in the property to the assignee. According to this analysis the agreement to assign involves a “disposition” of a “subsisting” equitable interest that must comply with the writing requirement imposed by s 23C(1)(c). [15.135] The effect of agreements to assign equitable interests in personal property was

considered by the House of Lords in Oughtred v Inland Revenue Commissioners [1960] AC 206. In that case trustees held a parcel of 200,000 shares in a private company (“the first parcel”) in trust for the appellant for life. The equitable remainder in the first parcel was vested in her son, Peter. The appellant also owned another parcel of 72,700 shares (“the second parcel”) absolutely. On 18 June 1956, in order to reduce the estate duty that would be payable on her death, the appellant orally agreed to transfer the second parcel to Peter, and he, in return, orally agreed to make her the absolute beneficial owner of the first parcel. On 26 June 1956, the parties executed three documents to record their agreement: (a)

a deed of release between the appellant, Peter and the trustees (“the release”) under which the appellant and Peter released their equitable interests in the first parcel to the trustees. The trustees acknowledged in the release that they held the first parcel in trust for the appellant absolutely and intended to transfer the first parcel to her;

(b)

a transfer by the appellant to Peter’s nominees of the second parcel; and

(c)

a transfer by the trustees to the appellant of the legal interest in the first parcel (“the trustees’ transfer”). The trustees’ transfer, which was expressed to be the consideration for the release, was assessed for stamp duty on an ad valorem basis 90 as a conveyance on sale (as defined in the relevant stamp duty legislation) of Peter’s equitable reversionary interest, even though ostensibly the trustees’ transfer dealt with the legal interest in the first parcel. The liability of the trustees’ transfer for ad valorem stamp duty depended upon whether or not Peter’s equitable interest in the first parcel had passed to the appellant before execution of that transfer (under Peter’s oral agreement). If Peter’s oral agreement in relation to the first parcel was specifically enforceable, he would hold his equitable interest in the first parcel on constructive trust for his mother, thereby enabling his mother to claim an equitable interest in the first parcel. Although agreements for the sale of personal property are usually only specifically enforceable if the remedy of damages is inadequate, as Peter’s oral agreement 89

90

Ipp and Murray JJ in the Western Australian Court of Appeal in Sorna Pty Ltd v Flint (1999) 21 WAR 563 held that the exemption in the Western Australian equivalent to s 23C(2) (namely, Property Law Act 1969 (WA), s 34(2)) does not overcome the effect of Mining Act 1978 (WA), s 119 which requires any legal or equitable interest in or affecting a mining tenement to be created or assigned by an instrument in writing. The amount of stamp duty payable varies with the value of the property being assigned (“ad valorem”). If the property has no value (for example, where a bare legal interest is assigned to a person who already owns the equitable interest), only nominal duty is payable. [15.135]

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related to shares in a private company that were not available for purchase on the open market, equitable relief would have been available to the appellant. According to this analysis, as the appellant was already the absolute beneficial owner of the first parcel, the trustees’ transfer formally transferred to the appellant only the trustees’ bare legal interest in the first parcel, and, as such, should only be liable for nominal stamp duty. Despite the cogency of this argument, a majority of the House of Lords 91 upheld the stamp duty assessment, finding in effect that the appellant was not the owner in equity of the first parcel before the trustees’ transfer to her of that interest. Although the reasons of the House of Lords principally relate to the interpretation of the relevant stamp duty legislation (which made it strictly unnecessary for the House of Lords to determine the exact effect of Peter’s oral agreement), the general effect of that oral agreement was also discussed. In considering the effectiveness in equity of Peter’s oral agreement in relation to the first parcel, the question arose as to whether or not that oral agreement amounted to a “disposition” of his “subsisting” equitable interest to his mother (under the English section equivalent to s 23C(1)(c)), or whether, alternatively, his oral agreement “created” a constructive trust of that interest for her. By finding for the Inland Revenue Commissioners, the majority appeared to favour the view that Peter’s oral agreement constituted a disposition of his subsisting equitable interest to his mother, which, being oral, was ineffective. By taking this position, the majority of the House of Lords appeared to adopt a transaction-based approach to the stamp duty legislation, requiring ad valorem stamp duty to be paid on the trustees’ transfer regardless of the effect of Peter’s oral agreement on his equitable reversionary interest. 92 Although Lord Jenkins appeared to assume that a constructive trust of Peter’s equitable interest arose on the making of the agreement, he did not analyse the nature or effect of that trust. 93 [15.140] It is generally accepted that the dissenting judgments of Lord Radcliffe and

Lord Cohen in Oughtred’s case (that Peter’s specifically enforceable oral agreement created in the appellant an equitable interest in his reversion in the first parcel under a constructive trust), provide a better analysis of the position. 94 This approach characterises an agreement to assign 91 92

93

Lord Denning, Lord Jenkins and Lord Keith. Lord Radcliffe and Lord Cohen dissented. Nominal stamp duty on a written instrument is payable only where the transfer of a legal estate is “truly valueless”. The transfer of a legal estate to the person who already holds the equitable interest is not valueless since it perfects and strengthens that interest. It has been suggested that the fact that stamp duty is payable on a conveyance of land even though the purchaser, after exchange of contracts, already has an equitable interest in the land, may have influenced the court’s approach to the application of the English section equivalent to s 23C(1)(c): Martin J E (ed), Hanbury and Martin’s Modern Equity (14th ed, Sweet & Maxwell, London, 1993), p 91. Lord Keith agreed with Lord Jenkins.

94

See, for example, Meagher R P, Gummow W M C and Lehane J R F, Equity: Doctrines and Remedies (3rd ed, Butterworths, Sydney, 1992), at [739]; Martin J E (ed), Hanbury and Martin’s Modern Equity (14th ed, Sweet & Maxwell, London, 1993), p 91; D H N Food Distributors v London Borough of Tower Hamlets [1976] 3 All ER 462. This reasoning was applied in McKinnon Wallace Holdings Pty Ltd v Commissioner of State Revenue [1999] 1 VR 397 where a registered proprietor of land held the land as bare trustee for the taxpayer. The taxpayer in turn held the beneficial interest on trust for the beneficiaries under an investment trust. The taxpayer entered into a contract (constituted by a written offer and acceptance by conduct) to sell the beneficial interest in the land. The contract was completed without any written transfer and the parent company of the trustee transferred all the shares in the registered proprietor to the parent company of the purchaser. The effect of this arrangement was to effect a change in the beneficial ownership of the land without any change in the legal owner. The Commissioner of State Revenue assessed the transaction for ad valorem conveyance duty.

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equitable property for consideration, not as an outright “disposition” of a “subsisting” equitable interest to the assignee but, by virtue of the specifically enforceable agreement, as the creation of a subtrust of that interest for the assignee by operation of law. 95 The English Court of Appeal in Neville v Wilson [1997] Ch 144 at 157, 158 96 described the approach of Lord Radcliffe as “unquestionably correct” and held that “no convincing reason was suggested in argument and none has occurred to us since” why the exemption in relation to the creation of implied or constructive trusts in the relevant section equivalent to s 23C(2) should not apply. [15.145] One difficulty with the constructive trust approach, however, is that it does not

explain the mechanism by which the assignor disposes of her or his equitable interest to the assignee and suggests that the assignor remains a subtrustee of the equitable interest for the assignee throughout the life of the subtrust. Lords Radcliffe and Cohen attempted to explain the position as follows. According to Lord Radcliffe (Oughtred v Inland Revenue Commissioners [1960] AC 206 at 227): 97 On June 18, 1956, the son owned an equitable reversionary interest in the settled shares; by his oral agreement of that date he created in his mother an equitable interest in his reversion, since the subject matter of the agreement was property of which specific performance would normally be decreed by the court. He thus became a trustee for her of that interest sub modo: … subsection (1) of that section [the section equivalent to s 23C] did not operate to prevent that trusteeship arising by operation of law. On 26 June Mrs Oughtred transferred to her son the shares which were the consideration for her acquisition of his equitable interest: upon this transfer he became in a full sense and without more the trustee of his interest for her. She was the effective owner of all outstanding equitable interests … There was, in fact, no equity to the shares that could be asserted against her, and it was open to her, if she so wished, to let the matter rest without calling for a written assignment from her son.

Lord Cohen described the situation as follows (at 230): It might well be that there has been no document transferring the equitable interest. The appellant may have been content to rely on getting in the legal interest by the transfer and on the fact that it would be impossible for Peter to put forward successfully a claim to an equitable interest in the settled shares once the consideration shares had been transferred to him or his nominees by the appellant.

One consequence of this analysis is that because the equitable interest retained by the assignor is a “somewhat nebulous ‘bare’ equitable estate” that cannot be asserted against the assignee, it can be simply “disregarded”. 98 An alternative explanation of the assignor’s position is provided by Chitty J in Grainge v Wilberforce (1889) 5 TLR 436 at 437 99 that, at least where the assignor does not assume any active duties towards the assignee and the head trustee expressly acknowledges that he or she The taxpayer successfully appealed to the Victorian Court of Appeal which was prepared to assume that a constructive trust of the land had come into existence upon completion of the contract of sale and that there accordingly had not been any immediate disposition of the taxpayer’s interest in the land. 95

96 97 98 99

Because not all agreements to assign personal property are specifically enforceable, damages generally being an adequate remedy for the breach of such agreements, this analysis will apply only to personal property of a special or unique character, such as shares in a private company. Nourse LJ (with whom Rose and Aldous LJJ agreed). Lord Cohen took a similar approach at 231. Meagher R P, Gummow W M C and Lehane J R F, Equity: Doctrines and Remedies (3rd ed, Butterworths, Sydney, 1992), at [736]. Discussed at [15.160]. [15.145]

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owes duties to the sub-beneficiary, a constructive trust of personal property is seen as passing the assignor’s entire equitable interest to the assignee. The nature of a subtrust was considered in some detail by the New South Wales Court of Appeal in Chief Commissioner of Stamp Duties v ISPT Pty Ltd (1998) 45 NSWLR 639. 100 The simplified facts of this complex stamp duty case (at 654) 101 are as follows: • ISPT was the trustee of a unit trust, all the units in which were held by Coles Myer Property Investments (CMPI); • ISPT made a written offer to purchase land from CMPI, the legal owner of land, for a nominated figure; • CMPI orally accepted the offer; • ISPT paid the full purchase price to CMPI; • Upon the payment of the purchase price, CMPI (as vendor) held the land on trust for ISPT (which in turn held that beneficial interest on subtrust for its unitholder, CMPI). The question arose whether that transaction resulted in a transfer (or conveyance) of any beneficial interest in the land from CMPI to ISPT within the meaning of the relevant stamp duties legislation. By a majority, the New South Wales Court of Appeal, affirming the decision of the trial judge 102 held that there was no change in beneficial ownership as CPMI retained its beneficial interest in the land. 103 Meagher JA noted the argument of the Commissioner of Stamp Duties that “when a trustee acquires land for his trust, there is a moment, a nanosecond, when the beneficial interest in the land belongs to the trustee and not his beneficiary.” His Honour commented: “Not surprisingly, no authority was quoted in favour of so farouche a proposition” (Chief Commissioner of Stamp Duties v ISPT Pty Ltd (1998) 45 NSWLR 639 at 655). Fitzgerald JA (less colourfully) described the nature of ISPT’s equitable interest in the land upon payment of the purchase price as follows (at 660): The beneficial estate or interest in the [land] which passed to ISPT was the concatenation of rights, enforceable in equity against [CMPI] both as vendor and sole unit holder, which ISPT obtained in respect of the property under the contract of sale and purchase and the trust deed with respect to the [ISPT trust]. Nothing else passed to ISPT, or to or from [CMPI] …

Declarations of subtrust [15.150] Where an owner of an equitable interest in property declares that henceforth he or

she will hold that equitable interest on trust for an assignee (which effectively creates a subtrust of that equitable interest), the question arises whether that declaration must be in writing so as to comply with s 23C. In considering this question, a distinction must be drawn between declarations affecting real and personal property. There is no doubt that where the subject matter of a declaration of subtrust is an equitable interest in land, the declaration must be in writing, regardless of whether such a declaration is seen as “creating” an interest in land in the sub-beneficiary or as “disposing” of an assignor’s 100 101 102

Fitzgerald and Meagher JJA, and in particular the dissenting judgment of Mason P at 650-652. The facts are as stated by Meagher JA. ISPT Pty Ltd v Chief Commissioner of Stamp Duties (1997) 98 ATC 4.054; 38 ATR 128 (Studdert J).

103

See Stone M and Lesnie V, “Some thoughts on beneficial interests and beneficial ownership in revenue law” (1996) 19 University of NSW Law Journal 181.

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“subsisting” interest in land. This follows because s 23C(1)(a) requires both the “creation” and the “disposition” of interests in land to be in writing. In addition, declarations of trust in respect of land, or interests in land, are expressly required by s 23C(1)(b) to be in writing. It should be noted that s 23C(1)(b) only requires a declaration of trust respecting land to be “manifested and proved by some writing”; it does not require the declaration itself to be in writing. This requirement is similar to the writing requirement for the enforceability of contracts for the sale of land contained in s 54A of the Conveyancing Act 1919 (NSW) (and its equivalents in the other States). 104 The effect of non-compliance with s 23C(1)(b) is that an oral declaration of trust is not void but unenforceable only: a memorandum proving that declaration will render the declaration enforceable. By contrast, an oral declaration that is required to be in writing under para (a) will be void. If some written document evidencing that declaration is subsequently executed, it will be that written document that effects the assignment of the property, not the prior oral declaration. [15.155] The question whether declarations of trust of equitable interests in personal

property are required by s 23C(1)(c) to be in writing depends on the way in which such declarations are seen to operate. Section 23C(1)(c) requires “dispositions” of “subsisting” equitable interests to be in writing. For this reason, declarations of trust of equitable interests in personal property need only comply with s 23C(1)(c) if they are seen as effecting a “disposition” of a “subsisting” equitable interest in that property. One indication that s 23C(1)(c) is intended to apply to declarations of trust of personal property is that the term “disposition” is defined in some jurisdictions as including a declaration of trust. 105 This would seem to suggest that, in those jurisdictions at least, all declarations of trust of equitable interests in personal property must be in writing. However, there are some persuasive arguments as to why s 23C(1)(c) should not be seen as applicable to declarations of subtrust of personal property. 106 First, it is arguable that statutory definitions of “disposition”, which include within their meaning “a declaration of trust”, have no application to s 23C if those definitions refer to a series of transactions and end with the words “and every other assurance of property by any instrument”. 107 These concluding words suggest that the term “disposition” in the statutory definition is simply intended to provide an example of a written instrument, not a type of transaction. Secondly, where the assignor imposes active duties on herself or himself as subtrustee, the assignor clearly retains an equitable interest in the property. This means that the assignor subjects herself or himself to new obligations in favour of the assignee, rather than “disposing” of an existing equitable interest. 108 Thirdly, declarations of trust of legal interests in personal property need not be in writing to be enforceable in equity. All that is required for a valid declaration of trust of such property is an intention by the assignor to hold the property on trust for the intended

104 105 106 107 108

Statute of Frauds Act 1972 (Qld), s 5; Law of Property Act 1936 (SA), s 26; Mercantile Law Act 1935 (Tas), s 6; Instruments Act 1958 (Vic), s 126. The Imperial legislation still applies in Western Australia. Conveyancing Act 1919 (NSW), s 7; Property Law Act 1974 (Qld), s 5. See, for example, Meagher R P, Gummow W M C and Lehane J R F, Equity: Doctrines and Remedies (3rd ed, Butterworths, Sydney, 1992), at [743]. Emphasis added. This analysis accordingly does not apply where the assignor (subtrustee) does not assume any active duties towards the assignee. [15.155]

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beneficiary. It would be anomalous if oral declarations of trust of legal interests in personal property were effective in equity but oral declarations of trust of equitable interests in such property were ineffective. [15.160] The precise effect of a declaration of trust has not been conclusively settled. On the

one hand a declaration of trust of personal property might be regarded as passing to the assignee the whole equitable interest of the assignor, leaving the assignor without any interest in the property. For this reason, the declaration of trust, being a “disposition” of a “subsisting” equitable interest, must be in writing (Grey v Inland Revenue Commissioners [1958] Ch 690, Upjohn J at 715). Chitty J succinctly explained the relevant principle in Grainge v Wilberforce (1889) 5 TLR 436 at 437: [W]here A was trustee for B, who was trustee for C, A held in trust for C, and must convey as C directed.

This analysis sees B as falling out of the picture completely and A holding the relevant equitable interest directly on trust for C. This approach is particularly attractive where B does not assume any active duties towards C and where B’s continued interest in the equitable interest appears unnecessary. If the head trustee expressly acknowledges that he or she owes duties to the subbeneficiary, why should proceedings against the head trustee brought by the sub-beneficiary require the concurrence of the assignor (the subtrustee)? On the other hand, a declaration of trust of an equitable interest in personal property may leave the assignor as a beneficiary under the head trust but with an obligation to hold the equitable interest for the benefit of the assignee (Comptroller of Stamps (Vic) v Howard-Smith (1936) 54 CLR 614, Dixon J at 621-622). Under this type of arrangement, the declaration of trust need not be in writing because its effect is to “create” an equitable interest rather than to “dispose” of a “subsisting” equitable interest. Although the former approach provides a more practical explanation of the rights of the head trustee, assignor (subtrustee) and assignee (sub-beneficiary), the latter approach allows the court to give effect to the assignor’s intention to create a trust rather than to assign an equitable interest to the assignee. Directions to trustees to transfer equitable or legal interests [15.165] An assignment by the holder of an absolute equitable interest in property 109 by

direction to trustees (who hold the equitable interest on trust for the assignor) can take one of two forms. In the first place, the assignor may direct her or his trustees henceforth to hold the legal interest on trust for some other person (the assignee). Alternatively, the assignor may direct her or his trustee to deal with the legal interest in the property for the benefit of the assignee, leaving the trustee with no interest in the property. The formal transfer of the

109

A beneficiary who is sui juris and fully entitled to the trust property may call an end to the trust: Saunders v Vautier (1841) Cr & Ph 240; [1835-42] All ER Rep 58.

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trustee’s legal interest to the assignee must comply with the rules for the legal assignment of that interest, 110 and, until that occurs, the direction is only in the nature of a revocable mandate. 111 The question as to whether a direction to trustees effects a “disposition” of the assignor’s “subsisting” equitable interest, within the meaning of s 23C(1)(a) or (c), is considered separately in each of these situations. [15.170] A beneficiary of a trust (the assignor), who is absolutely entitled to the trust

property, may direct her or his trustees henceforth to hold the trust property for the assignee. As with agreements to assign 112 and declarations of trust, 113 the precise effect of this type of direction is unclear. Does the direction to the trustees pass the assignor’s equitable interest in the property to the assignee? (If so, the direction must comply with the writing requirement in s 23C(1)(a) in respect of real property, or s 23C(1)(c) in respect of personal property.) Or does the direction simply make the assignor a subtrustee of the equitable interest for the assignee and therefore effectively “create” an equitable interest in the assignee? (If so, where the direction relates to an equitable interest in land, it must comply with s 23C(1)(a), whereas if it relates to an equitable interest in personal property, it may be given orally.) [15.175] The former analysis was adopted in England by Lord Radcliffe in the House of

Lords in Grey v Inland Revenue Commissioners [1960] AC 1, 114 another case involving a stamp duty avoidance scheme. In that case, a settlor transferred shares to trustees, as nominees, on trust for him. Only nominal stamp duty was payable on that transfer. 115 The settlor then orally directed his trustees to hold the shares on trust for his grandchildren (the assignees). The trustees subsequently executed a declaration of trust (which was signed by the settlor to testify that he had given the relevant direction) acknowledging the new trust. The trustees’ written declaration was assessed for stamp duty as a voluntary disposition of the settlor’s existing equitable interest in the shares. The question accordingly arose as to whether it was the settlor’s oral direction to the trustees or the trustees’ subsequent written declaration of trust that had passed the settlor’s equitable interest in the shares to the assignees. Only in the latter situation would ad valorem stamp duty have been payable, stamp duty being payable at that time on instruments, not on transactions. In challenging the assessment, the trustees argued that the settlor’s oral direction operated by way of declaration of trust rather than by way of “disposition” of the settlor’s equitable interest to the assignee. As it was the settlor’s oral direction that had effectively passed his equitable interest to the assignees, the trustees’ written declaration was confirmatory only and not a disposition of an equitable interest of any value. As such it was liable for only nominal stamp duty. 110 111 112 113 114 115

For an example of a transfer of shares from the registered holder at the direction of the purchaser of those shares see Lion Nathan Brewing Investment Pty Ltd v Commissioner for ACT Revenue (1997) 79 FCLR 177. If the direction is not acted on before the assignor’s death, it will be revoked on her or his death: Parker and Parker v Ledsham [1988] WAR 32. See [15.125]. See [15.150]. See also Upjohn J, the trial judge, at [1958] Ch 375, and Lord Evershed MR in the Court of Appeal at [1958] Ch 609. See [15.135], n 92. [15.175]

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In finding for the Inland Revenue Commissioners, a majority of the English Court of Appeal and all the members of the House of Lords held that the effect of an oral direction to trustees by a beneficiary absolutely entitled to property (the settlor), that the property, in future, should be held on trust for assignees, is to pass the settlor’s equitable interest to the assignees. This passing of the equitable interest therefore is a “disposition” of equitable property within the meaning of the English equivalent to s 23C(1)(c) and, as such, must be in writing (unlike a declaration of trust of an equitable interest in property). On the facts of the case, the settlor’s oral direction could not effect a disposition of his equitable interest, which meant that it was the trustee’s written declaration of trust which, in fact, had effectively disposed of that interest. As the declaration involved the disposition of an equitable interest of value, it was assessable for ad valorem stamp duty. As Lord Radcliffe explained (Grey v Inland Revenue Commissioners [1960] AC 1 at 15-16): Whether we describe what happened in technical or in more general terms the full equitable interest in the 18,000 shares concerned, which at that time was his, was … diverted by his direction from his ownership into the beneficial ownership of the various equitable owners … Something had to happen to that equitable interest in order to displace it in favour of the new interests created by the direction: and it would be at any rate logical to treat the direction as being an assignment of the subsisting interest to the new beneficiary or beneficiaries or, in other cases, a release or surrender of it to the trustee. [15.180] In Comptroller of Stamps (Vic) v Howard-Smith (1936) 54 CLR 614 a residuary beneficiary in his deceased wife’s estate (“the assignor”), by letter, directed the trustee company which was the executor of that estate (and which also held a power of attorney from the assignor) to pay out of the assignor’s interest in the estate certain specified amounts to certain specified persons and institutions (“the assignees”). The trustee company duly acted upon the assignor’s direction. The Comptroller of Stamps assessed the assignor’s letter for ad valorem stamp duty. The High Court, affirming the decision of the Full Court of the Supreme Court of Victoria, held that, as the letter did not dispose of any interest in property, it was not dutiable. Dixon J recognised that, as residuary beneficiary, the assignor was not entitled to any specific item of property in his wife’s estate but had only an equitable interest in the “entire mass” of that estate (at 622). However, more importantly for present purposes, Dixon J recognised that the assignor could have voluntarily disposed of his equitable interest in the property comprising the estate in one of three ways (at 621-622, McTiernan J agreed with Dixon J):

(a)

by a declaration of trust (in which case the assignor would retain the title to the equitable interest but constitute himself a subtrustee of that interest for the benefit of the assignees); or

(b)

by an expression of an immediate intention to assign some lesser interest in the property to the assignees (in which case no communication of that intention to the trustees or to the assignees would have been necessary to effect an assignment of the interest, except for the purpose of preserving priority); or

(c) by directing his trustees henceforth to hold the property on trust for the assignees. His Honour (at 622-623) described this third method in the following terms: A beneficiary who is sui juris and entitled to an equitable interest corresponding to the full legal interest in property vested in his trustee may require the transfer to him of the legal estate or interest. He may then transfer the legal interest upon trust for others. Without going through 426

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these steps he may simply direct the existing trustee to hold the trust property upon trust for the new beneficiaries. He cannot without the trustee’s consent impose upon him new active duties. But he may substitute a new object, at any rate in the case of any passive trust … But it must be a direction, and not a mere authority revocable until acted upon. Such an authority is not in itself an assignment. It may, it is true, result in a transfer of an equitable interest. For the trustee acting upon it may make an effectual appropriation of the trust property to the new beneficiary, or may acknowledge to him that he holds the trust property thenceforward on his behalf. If the authority contemplates or allows such a method of imparting an equitable interest to the donee, the action of the trustee may be effectual to bring about the result. But, in such a case, it is not the donor’s expression of intention which per se constitutes the assignment. It is the dealing with the trust property under his authorization. The distinction is, of course, of great importance in considering whether a document is itself an assignment, and, as such, liable to stamp duty.

On the facts of the case, the High Court decided that, although the assignor’s letter came “very near to expressing an immediate intention to make over an interest” (at 623) in the assignor’s equitable property to the assignees, and “very near to conveying to the trustees a direction thenceforward to hold the residue upon new trusts” (at 623-624), 116 on a close construction of that letter, it was satisfied that the assignor had not expressed an intention to pass any interest to the assignees; rather, he had only intended the assignees to take their interests on a distribution of the estate, not before. 117 The construction of the assignor’s letter as an authority rather than a direction to the trustees meant that: 118 If, before probate actually issued, or before the trustee company acted under the letter, the intending donor desired to modify or recall any part of his instruction, I think he might have done so quite consistently with all that the letter expresses (Comptroller of Stamps (Vic) v Howard-Smith (1936) 54 CLR 614 at 624).

However, had the assignor’s letter been construed as a direction to his trustees, it appears from the passage in Dixon J’s judgment set out above that the direction would have been construed as a direct assignment of the assignor’s equitable interest to the assignees falling within s 23C(1)(c). [15.185] If a direction to trustees by an absolutely entitled assignor is regarded as effecting a

“disposition” to the assignee of the assignor’s “subsisting” equitable interest in the trust property (rather than the creation of a subtrust for the assignee) then all such directions to trustees, whether in respect of real or personal property, must be in writing (under either s 23C(1)(a) in relation to real property, or under s 23C(1)(c) in relation to personal property). 119 If, however, such directions to trustees operate by way of declaration of trust, then although directions to trustees affecting equitable interests in real property must be in writing (under 116 117

118 119

Starke J at 620 held that the letter constituted a mere authority. By contrast, in NT Power Generation Pty Ltd v Trevor (2000) 18 ACLC 885 at 891 a document entitled “Acknowledgment Release & Assignment”, which provided that no assignment was to take place unless and until the assignee demanded it in writing and sent a demand to the debtor (the assignors’ former employer), was held not to evidence an intention by the assignors to make “then and there” a “complete disposition and transfer” of their interest in a debt to the assignee. An authority, unless acted on during the lifetime of the authorising party, is automatically revoked as a matter of law by the death of the authorising party: Parker & Parker v Ledsham [1988] WAR 32 at 37. Meagher R P, Gummow W M C and Lehane J R F, Equity: Doctrines and Remedies (3rd ed, Butterworths, Sydney, 1992), para [717]. See also the reference to Grey v Inland Revenue Commissioners [1960] AC 1 by Gibbs J in Adamson v Hayes (1973) 130 CLR 276 at 304. [15.185]

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either s 23C(1)(a) or s 23C(1)(b)), directions to trustees affecting equitable interests in personal property may be made orally (because s 23C(1)(c) does not apply to the “creation” of equitable interests). [15.190] The holder of an absolute equitable interest in property (the assignor) may

alternatively direct the holder of the legal interest in that property (the trustee) henceforth to pass that legal interest to an assignee. The question that arises in this context is whether the assignor’s equitable interest passes to the trustee by virtue of the assignor’s direction, or whether the transfer of the legal estate to the assignee by the trustee carries with it the assignor’s absolute equitable interest. The answer to this question will depend upon whether or not the assignor’s direction to the trustee constitutes a “disposition” of the assignor’s equitable interest back to the trustee. [15.195] This problem is well illustrated by the facts in Vandervell v Inland Revenue

Commissioners [1967] 2 AC 291. 120 In that case, the National Provincial Bank (“the Bank”) held a parcel of shares (“the shares”) on bare trust 121 for Vandervell. In order to enable Vandervell to make a gift of money to the Royal College of Surgeons (“the College”) to establish a chair of pharmacology and to avoid surtax, 122 the following scheme was implemented. Vandervell orally directed the Bank to transfer the shares to the College so as to pass to the College both the legal and equitable interests in the shares. The Bank handed the share certificates and signed (but blank) transfers to Vandervell’s solicitor who passed them on to the College. The College completed and registered the transfers and so became the legal owner of the shares. The College simultaneously granted to Vandervell’s trustee company (VTL) an option to repurchase the shares for £5,000. Dividends on the shares, totalling £250,000, were declared and paid to the College on the basis that it was the legally registered owner of the shares. Two years later, VTL exercised its option and repurchased the shares. Although there was no doubt that the College was the legal owner of the shares, Vandervell had not signed any written instrument divesting himself of his equitable interest in them. For this reason, Vandervell was assessed for surtax on the dividends on the basis that he still owned the equitable interest in the shares. The Inland Revenue Commissioners argued that Vandervell had not completely parted with his equitable interest in the shares, and that the Bank could only transfer the bare legal interest in the shares to the College because the equitable interest, being vested in Vandervell, could only be disposed of by him in writing. Vandervell argued that the transfer by the Bank of its legal title to the shares, at his oral direction, had carried with it his beneficial interest in the shares without the need for a separate and additional written disposition of his beneficial interest. On this basis, the income from the shares was not taxable in Vandervell’s hands. For present purposes, these arguments raised the question whether Vandervell’s oral direction to the Bank amounted to a “disposition” of his “subsisting” equitable interest in the shares within the meaning of the English equivalent to s 23C(1)(c). 120 121 122

This case is hereafter referred to as Vandervell (No 1). Vandervell was fully entitled to, and could have called for, the legal estate at any time. Under the relevant English income tax legislation, an individual whose total income for any year exceeded a stated amount was charged additional income tax called “surtax”. Surtax has ceased to exist as a separate tax in England and income tax today is charged at different rates according to an individual’s total income.

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The House of Lords, in unanimously upholding a majority decision of the English Court of Appeal, held that, while Vandervell’s oral direction to the Bank had not, in itself, passed his equitable interest in the shares to the College, that equitable interest passed to the College when the Bank transferred its legal interest in the shares. Vandervell accordingly was not liable for surtax on the income from the shares. 123 [15.200] Although the result of this decision might be satisfactory from a practical point of

view, the judgments contain little explanation as to how Vandervell disposed of his equitable interest in the shares. Lord Upjohn explained his decision on the following basis: 124 [T]he object of the section [namely, the equivalent to s 23C(1)(c)], as was the object of the old Statute of Frauds, is to prevent hidden oral transactions in equitable interests in fraud of those truly entitled, and making it difficult, if not impossible, for the trustees to ascertain who are in truth his beneficiaries. But when the beneficial owner owns the whole beneficial estate and is in a position to give directions to his bare trustee with regard to the legal as well as the equitable estate there can be no possible ground for invoking the section where the beneficial owner wants to deal with the legal estate as well as the equitable estate … [I]f the intention of the beneficial owner in directing the trustee to transfer the legal estate to X is that X should be the beneficial owner I can see no reason for any further document or further words in the document assigning the legal estate also expressly transferring the beneficial interest; the greater includes the less …

This suggests that, because property is not seen as consisting of two separate interests, one legal and the other equitable, when the Bank transferred its legal interest to the College, it simultaneously transferred Vandervell’s equitable interest. According to this analysis, Vandervell’s oral direction to the Bank did not amount to a “disposition” of his “subsisting” equitable interest in the shares: that disposition occurred as a result of the transfer by the Bank of its legal interest to the College. Lord Wilberforce, on the other hand, took a different approach. He suggested that the reason Vandervell’s oral direction did not have to be in writing was because once Vandervell, by his agent (his solicitor), obtained from the Bank the share certificates and blank but executed transfers, he was in a position to become the full legal owner of the shares. This meant that, when he handed over those documents to the College with the intention of making a gift of the shares to the College, he put the College in a position to become their absolute legal owner, and, on registration of the transfers, it did become their legal owner (at 330). According to this view, when the Bank handed the blank share transfers and share certificates to Vandervell’s solicitor Vandervell become the “absolute master of the shares and only needed to insert his name as transferee in the transfer and to register it to become the full legal owner, He was also the owner in equity” (at 330). At that point, presumably Vandervell’s equitable interest merged in the legal interest, and the whole legal and equitable interest then passed from Vandervell to the College. Lord Wilberforce went on to point out that, had Vandervell died before the College registered the shares (being legal property) in its name, the gift would 123

Despite this finding, Vandervell was found by a bare majority (Lords Upjohn, Pearce and Wilberforce, Lords Reid and Donovan dissenting) to be liable to surtax on the basis that VTL held the benefit of the option to repurchase the shares on a resulting trust for Vandervell. By not stipulating clearly that the option was to be held by VTL on trust for the beneficiaries of that trust, Vandervell had failed to divest himself of the beneficial interest in the shares. Vandervell subsequently divested himself of any interest under the option: see [15.255].

124

[1967] 2 AC 291 at 311 (with whom Lord Pearce agreed at 309). See also Lord Donovan at 317-318. Lord Reid did not deal with this issue. [15.200]

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have been complete in equity (because Vandervell had done everything in his power to transfer the legal interest to the College, as discussed in [15.55] to [15.80]). [15.205] Although there is little doubt that the transfer of legal title by an absolute owner of

property carries with it the equitable interest in that property (in the absence of any evidence to the contrary, or unless the presumption of resulting trust applies), this result does not necessarily follow where there are separate legal and equitable interests, as there were in Vandervell (No 1). 125 Lord Donovan, while acknowledging that the legal and equitable estates in the shares were in separate ownership, held that once Vandervell instructed the Bank to transfer the shares to the College and “made it abundantly clear that he wanted to pass, by means of that transfer, his own beneficial, or equitable, interest, plus the bank’s legal interest, he achieved the same result as if there has been no separation of the interests” (Vandervell (No 1) at 317). [15.210] The approach of Lords Upjohn, Pearce and Donovan does not explain how

Vandervell’s equitable interest ended up in the hands of the College or what would have happened if Vandervell had died after orally directing the Bank to transfer the legal interest to the College but before the Bank had actually carried out his direction. 126 One possible explanation of their approach might be to characterise the assignor’s oral direction to the trustees to deal with the legal estate as a release of the assignor’s equitable interest in the property which, it has been said, operates by way of “extinction” rather than by way of “disposition”, and so need not be in writing (Crichton v Crichton (1930) 43 CLR 536). 127 However, a release of an equitable interest by the holder of an absolute equitable interest generally leaves a trustee free to deal with property as her or his own and, in the present context, the assignor does not intend the trustee to hold the property as her or his own but intends to assign it to the assignee. In addition, if an assignment of equitable property takes a particular form, the requirements of that particular form of assignment must be satisfied. If the assignment fails to satisfy those requirements proving compliance with the requirements for some other form will not save it. 128 Lord Wilberforce’s approach (which requires the trustee to put the assignor in a position to become the full legal owner of the property) offers a more precise analysis of the position. [15.215] Despite the technical problems with the decision in Vandervell (No 1), it has been

suggested that the majority approach is likely to prevail, the practical effect of that approach overriding its limitations: it allows an equitable interest in personal property to be transferred by a beneficiary’s oral direction and a trustee’s subsequent written instrument, instead of by 125

For a discussion of the nature of the interests of an owner of property see DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW) (1982) 149 CLR 431 Gibbs CJ at 442; Aickin J at 463; Brennan J at 474. In that case a registered proprietor of land executed a transfer of the land in favour of an assignee for nominal consideration, intending to pass only the bare legal title in the land. The assignee executed a declaration of trust in favour of the registered proprietor. The intention of this arrangement was to effect a transfer of only the bare legal title to the land while leaving the equitable title with the registered proprietor. A majority of the High Court held that the transfer of the legal title carried with it the equitable title.

126

In those circumstances, if Vandervell’s direction is seen as a revocable mandate, it would presumably be revoked upon his death: Parker and Parker v Ledsham [1988] WAR 32. Discussed at [15.230].

127 128

The second limb of the test in Milroy v Lord (1862) 4 De GF & J 264 at 274-275; 45 ER 1185 is discussed in [15.60].

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two separate written instruments, one by the beneficiary and the other by the trustee. 129 The effect of this approach is that, if an absolute owner of an equitable interest in personal property orally directs the legal owner to transfer the property to a third person (the assignee), with the intention that the assignee shall become the equitable as well as the legal owner, and the trustee does so, then it is the trustee’s transfer which passes both the legal and the equitable interests in the property to the assignee and not the assignor’s oral direction. Disclaimers of equitable interests [15.220] The donee of an equitable interest may disclaim (or repudiate) that interest because,

for example, unacceptable or onerous conditions are attached to the gift. 130 The question which must be considered in this context is whether such a disclaimer constitutes a “disposition” of an equitable interest within the meaning of s 23C(1)(c). In Re Paradise Motor Co Ltd [1968] 1 WLR 1125, a stepfather made a gift of shares in a company to his stepson (the donee). Because the share transfer was defective, the donee only acquired an equitable interest in the shares. When the donee became aware of the gift, he orally disclaimed it. However, when the company was wound up, the donee changed his mind and claimed his share of the surplus funds in the company. The question accordingly arose as to whether the disclaimer, being oral, was void under the English equivalent to s 23C(1)(c), leaving the donee with his equitable interest in the shares. The English Court of Appeal held that, because “a disclaimer operates by way of avoidance, and not by way of disposition”, the oral disclaimer was effective (at 1143). The characterisation of a disclaimer as a transaction operating by “avoidance” rather than by way of “disposition” provides no explanation as to the way in which the donee’s equitable interest in the gifted property passes from the donee back to the donor. 131 One possible, but rather artificial, explanation is to regard the equitable interest as passing to the donee only if the donee fails to disclaim the gift within a reasonable time of becoming aware of it. As the term “disposition” is statutorily defined in New South Wales to include “disclaimer”, if that definition is relevant in construing s 23C(1)(c), 132 it is arguable that the Paradise Motor case will not be applied in New South Wales. In that event, a disclaimer of a gift of equitable property will constitute a “disposition” of a “subsisting” equitable interest requiring writing under either s 23C(1)(a) (in relation to real property) or s 23C(1)(c) (in relation to personal property). 129

Meagher R P, Gummow W M C and Lehane J R F, Equity: Doctrines and Remedies (3rd ed, Butterworths, Sydney, 1992), [723], [726].

130

An interesting example of a disclaimer of a gift is provided by the Canadian case of Re Moss (1977) 77 DLR (3d) 314 (BC). In that case, a beneficiary, the Penticton Congregation of Jehovah’s Witnesses, disclaimed a gift left to it by a congregant, who, five months before his death, had been excommunicated from the Congregation for chewing tobacco on the lawn of its premises.

131

In Probert v Commissioner of State Taxation (1998) 72 SASR 48 a testator left the net residue of his estate to his sister (the appellant) and his niece in equal shares. The Commissioner assessed a disclaimer executed by the appellant before the grant of probate with ad valorem duty. In allowing an appeal against that assessment, Olsson J in the South Australian Supreme Court noted (at 54) that a formal disclaimer of a benefit conferred by a will “does not act positively as an assignment or disposition of property. The whole concept of such an act in relation to residue, at least if it occurs before personal representatives become functus officio, is that it acts negatively by preventing the relevant property vesting at all”. See [15.155].

132

[15.220]

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Releases of equitable interests [15.225] The holder of an absolute equitable interest in property (the assignor) may release

the legal owner (the trustee) from her or his obligations to deal with the trust property for the benefit of the assignor. Such a release leaves the trustee free to deal with the property as her or his own. 133 One way of analysing the effect of a release is to regard the assignor as having ceased to hold an equitable interest in the property and, accordingly, as having passed that equitable interest to the trustee. Viewed in this manner, the release operates as a “disposition” of a “subsisting” equitable interest within the meaning of s 23C(1)(a) (in relation to land) or s 23C(1)(c) (in relation to personal property), and accordingly must be in writing. This view is strengthened by the statutory definition of “disposition” as including a “release”. 134 On the other hand, it is also possible to analyse the release as involving the extinction of the assignor’s equitable interest, rather than as a disposition of that interest. According to this analysis, once the trustee acquires the full beneficial ownership of the property the assignor’s equitable interest can no longer be identified as a separate interest in that property. Viewed in this way, an effective release only requires the assignor to form an intention to surrender up the equitable interest and to communicate that intention to the assignee: it need not be in writing because no equitable interest is “disposed” of. [15.230] Support for the latter view may be found in the High Court decision of Crichton v

Crichton (1930) 43 CLR 536 at 563, 135 although that case was decided under a statutory provision that required “grants and assignments” (rather than “dispositions”) to be in writing. This view is also consistent with the decision of the House of Lords in Vandervell v Inland Revenue Commissioners [1967] 2 AC 291 136 to the effect that a direction by the holder of an absolute equitable interest to her or his trustees to deal with the legal estate for the benefit of a third party does not involve a disposition of an equitable interest in property. 137 [15.235] As a matter of principle, it is difficult not to characterise a release of an equitable

interest in property, either real or personal, which enlarges the interest of the assignee, as a “disposition” of a “subsisting” equitable interest under either s 23C(1)(a) (in respect of land) or s 23C(1)(c) (in respect of personal property). On this basis, the release of all equitable interests should be in writing. Nomination of beneficiaries [15.240] Under this type of transaction, an assignor nominates a beneficiary to take, on the

assignor’s death, a benefit in property that would otherwise pass to the assignor’s estate. If the nomination is seen as a “disposition” of an equitable interest in that property, then it must comply with s 23C(1)(a) (if it affects real property) or s 23C(1)(c) (if it affects personal property). [15.245] In Re Danish Bacon Co Ltd Staff Pension Fund [1971] 1 WLR 248, a member of a pension fund (“the fund”) was entitled under the rules of the fund to nominate, in the 133

On release, see further at [2903]-[2905] (Parkinson).

134 135 136 137

If, for the reasons given at [15.155], that definition is relevant in construing s 23C(1)(c). Dixon J at 563 did acknowledge that the position might be different under modern legislation. Discussed at [15.195]. Although that case dealt with a direction to dispose of a legal and not an equitable interest.

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approved form, a beneficiary to whom the member’s contributions to the fund would be payable upon the member’s death, provided the member died while in employment or after retirement, while in receipt of a pension. The member, in the approved form, nominated Dorothy. However, at a later date, the member made a written request to the secretary of the fund (which was not in the approved form) to alter that appointment in favour of Ethel. This alteration was made. Upon the member’s death, his contributions to the fund became payable. Megarry J held that the nomination was not a testamentary disposition and expressed doubt as to whether the nomination had to be in writing under the English equivalent to s 23C(1)(c). The basis of his decision was that the member’s interest in the fund was not a “subsisting” equitable interest in “property”. The beneficiary’s rights under the scheme did not operate immediately upon the nomination — they only arose if the member died while in employment or left his employment voluntarily. The only interest that the member could dispose of was a contractual right to ensure that the fund fulfilled its obligations under the scheme; he did not own any equitable interest in the property itself. 138 [15.250] Megarry J’s reasoning was approved by the Privy Council in Baird v Baird [1990] 2 AC 549. 139 In that case, an employee, Baird, who had contributed to his employer’s pension plan during the term of his employment, was entitled to certain benefits if he died while in employment before the stipulated retirement age, and to nominate a beneficiary to whom those benefits would be payable on his death. If the nominated beneficiary predeceased Baird, the benefits would be paid to his surviving spouse, if any, or to his estate. In 1965, Baird nominated his brother as his beneficiary in the form approved by his employer. In 1972, when Baird died without revoking or varying this nomination, his brother claimed the death benefits. However, Baird’s widow also claimed the benefits on the basis that Baird’s nomination of his brother was an invalid testamentary disposition that had not complied with the relevant statutory will-making formalities. In dealing with this issue the Privy Council considered whether Baird’s nomination had had the effect of disposing of any “property”. In concluding that it had not, the Privy Council characterised Baird’s right in the death benefits as a right to compel payment of these benefits (a right that was not acquired by the beneficiary). As their Lordships stated (at 557): He retains no proprietary interests in his contributions but receives instead such rights, including the right to appoint interests in the fund to take effect on the occurrence of specified contingencies, as the trusts of the fund confer upon him.

Under the terms of the pension scheme, a trust of the benefits arose upon the employer’s approval of the nomination and the beneficiary acquired rights under that trust during Baird’s lifetime (at 558). However, until this issue is determined by the High Court, the question of whether a nomination must comply with the writing requirement in s 23C(1)(c) cannot be regarded as settled.

138 139

Compare McFadden v Public Trustee for Victoria [1981] 1 NSWLR 15, which held that a nomination under such a scheme involves a contract to create a trust in respect of particular property at a given point in time. See also Atherton R, “Nominations and Testamentary Dispositions” (1991) 65 Australian Law Journal 49. [15.250]

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Divestiture of equitable interests under resulting trusts [15.255] Where a beneficiary under a resulting trust divests herself or himself of that interest, 140 the question arises as to whether the divestiture must comply with the writing requirement imposed by s 23C(1). This issue was considered by the English Court of Appeal in the second case involving Vandervell and the Royal College of Surgeons (“the College”): Re Vandervell’s Trusts (No 2); White v Vandervell Trustees Ltd [1974] Ch 269. 141 Vandervell Trustees Ltd (VTL), a nominee company (or bare trustee) for Vandervell, had an option to repurchase the shares which Vandervell had previously given to the College. In 1961, on Vandervell’s instructions, VTL exercised the option and repurchased the shares for £5,000 out of a trust fund which Vandervell had established for his children (“the children’s trust”). Both Vandervell and VTL intended the shares to be held by VTL as part of the children’s trust. Between 1961 and 1965 (“the disputed period”), dividends on the shares were paid to VTL and applied for the purposes of the children’s trust. Despite Vandervell’s intention regarding the option, in Vandervell (No 1) 142 a majority of the House of Lords held that the equitable interest in the option was held by VTL on a resulting trust for Vandervell. In 1965, to avoid any confusion about the ownership of the shares, Vandervell executed a deed transferring to VTL all of the rights, if any, which he might hold in the option or the shares. The Inland Revenue Commissioners assessed Vandervell for surtax 143 on dividends that were declared on the shares during the disputed period. After Vandervell died in 1967, and before this claim was litigated, the executors of his estate sought a declaration that they were entitled to all dividends received by VTL during the disputed period, the aim of the litigation being to obtain a ruling as to Vandervell’s tax liability. 144 Megarry J made this declaration on the basis that Vandervell could not have orally divested himself of his equitable interest under the resulting trust 145 of the option. This decision was reversed on appeal to the English Court of Appeal 146 which held that the dividends belonged to the children’s trust and that no surtax was payable by Vandervell’s estate. The case was then settled before it reached the House of Lords. [15.300] As with the decision in Vandervell (No 1), 147 although the result of Vandervell

(No 2) might be correct from a practical and commercial point of view, the Court of Appeal’s explanation as to why Vandervell’s disposition of his equitable interest under the resulting trust did not have to be in writing is far from satisfactory. 140

141 142 143 144

This question is similar to a trustee’s release by an absolutely entitled beneficiary from the trustee’s obligations to deal with the trust property for the benefit of the beneficiary. The release of equitable interests is discussed at [15.225]-[15.235]. This case is hereafter referred to as Vandervell (No 2). Vandervell v Inland Revenue Commissioners [1967] 2 AC 291, discussed at [15.195]. See [15.195], n 122.

146 147

The executors applied to join the Inland Revenue Commissioners to this action but VTL objected and the objection was upheld: Vandervell Trustees Ltd v White [1971] AC 912. In Vandervell v Inland Revenue Commissioners [1967] 2 AC 291 (Vandervell (No 1)) at 329, Lord Wilberforce explained that the option was vested in VTL “as a trustee on trusts, not defined at the time, possibly to be defined later. But the equitable, or beneficial interest, cannot remain in the air: the consequence in law must be that it remains in the settlor.” Megarry J at first instance in Vandervell (No 2), held that, although VTL held the option upon trust, no effective trust of the option had been declared so that VTL held the option on an automatic resulting trust in favour of Vandervell: Re Vandervell’s Trusts (No 2); White v Vandervell Trustees Ltd (1974) Ch 269 at 296. Lord Denning MR, Lawton and Stephenson LLJ. Vandervell v Inland Revenue Commissioners [1967] 2 AC 291. The facts of this case are discussed at [15.195].

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[15.255]

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Lord Denning MR seemed to place considerable weight on the fact that Vandervell’s equitable interest in the option had arisen under a resulting trust, describing such an interest in the following terms: 148 A resulting trust for the settlor is born and dies without any writing at all. It comes into existence whenever there is a gap in the beneficial ownership. It ceases to exist whenever that gap is filled by someone becoming beneficially entitled. In his opinion, as a declaration of trust of personal property does not have to be in writing, Vandervell’s oral declaration that the shares, to which he was absolutely beneficially entitled, were to be held in trust for his children was effective to vest his equitable interest under the resulting trust in the children’s trustees. His Lordship also considered as relevant the fact that the resulting trust had been a trust of the option, whereas the trust for the children was a trust of the shares (at 319). These arguments are difficult to justify in principle. First, the exemption from writing found in s 23C(2) only applies to the “creation or operation” of resulting, implied or constructive trusts, and not to the termination of those trusts or the disposition of interests under them. Secondly, it would seem that a trustee who holds an option to purchase shares on behalf of a beneficiary, also holds the shares acquired upon the exercise of the option on behalf of that beneficiary, unless the beneficiary has disposed of her or his rights under the trust or released the trustee from the trustee’s obligations under the trust. Lawton LJ based his decision on the principle that, where a trustee uses another person’s money to buy property, the trustee will hold that property on trust for that person (at 325). This argument, while explaining how the children’s trust could have acquired an equitable interest in the shares, does not explain how Vandervell’s equitable interest under the resulting trust of the option was extinguished without writing. Both Lord Denning MR and Lawton LJ also relied on the doctrine of estoppel in arriving at their conclusion. They held that Vandervell should be estopped from denying that the shares belonged to the children’s trust because he had acquiesced in or encouraged VTL to use money from the children’s trust to exercise the option. The difficulty with this argument is that an estoppel does not normally arise unless a person knows that he or she has rights which are contrary to the position subsequently asserted. On the facts of the case, since Vandervell did not know that he had any rights in relation to the option and the shares at the time the option was exercised, it is difficult to see how an estoppel could be set up against him. [15.305] The decision in Vandervell (No 2) is only explicable on the basis that a decision that the property still belonged to Vandervell, which for all practical purposes would have been a decision for the Inland Revenue Commissioners, would have been totally unfair in the circumstances surrounding this case and would have “defeated the intention of a dead man” (at 325; Lord Denning MR at 320). The problems with the reasoning of the English Court of Appeal suggests that its conclusion that the disposition of an interest under a resulting trust need not be in writing is not consistent with s 23C(1)(c). 149 148

Re Vandervell’s Trusts (No 2); White v Vandervell Trustees Ltd [1974] Ch 269 at 320.

149

Meagher R P, Gummow W M C and Lehane J R F, Equity: Doctrines and Remedies (3rd ed, Butterworths, Sydney, 1992), para [748]. In Martin J E (ed), Hanbury and Martin’s Modern Equity (14th ed, Sweet and Maxwell, London, 1993), p 89, n 66, it is suggested that one possible explanation might be that Vandervell might not have had a “subsisting” separate equitable interest in the shares. Another suggested explanation is that the exercise of the option gave rise to a specifically enforceable contract which “created” a constructive trust in favour of Vandervell, which did not need to be in writing. [15.305]

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It would seem that, contrary to the decision in that case, any divestiture by the beneficiary of a resulting trust of her or his equitable interest under that trust constitutes a “disposition” of a “subsisting” equitable interest which must comply with s 23C(1). If the subsisting equitable interest under the resulting trust concerns land, writing is required by s 23C(1)(a) in any event; if the resulting trust is over personal property, writing is required by s 23C(1)(c).

The need for writing and notice under s 12 in relation to equitable choses in action [15.310] Section 12 of the Conveyancing Act 1919 (NSW), and its equivalents in the other Australian States and Territories, 150 requires absolute assignments of debts and legal choses in action to be in writing, the assignment to be signed personally by the assignor and written notice of the assignment to be given to the debtor or trustee. At first glance s 12 appears to apply only to legal choses in action and so to be inapplicable in the context of assignments of equitable choses in action. 151 However, the reference to a “trustee” in the section helped to lead the High Court in Federal Commissioner of Taxation v Everett (1980) 143 CLR 440 at 447 to construe the term “legal” chose in action in the section to mean a “lawfully assignable” chose in action and, accordingly, to apply to “equitable” choses in action, such as a partner’s interest in the assets of the partnership. 152 This interpretation raises a number of difficulties for the assignment of equitable choses in action. In the first place, it requires a distinction to be drawn between assignments of equitable interests generally (which need not comply with s 12 but are covered by s 23C) and assignments of equitable choses in action (which must comply with s 12). Secondly, it allows equitable choses in action to be assigned in equity only if the requirements imposed by s 12 are satisfied. The effect of this interpretation is that the formalities for the assignment of equitable choses in action are more onerous than those for the assignment in equity of legal choses in action, because while a legal assignment that does not comply with the formalities in s 12 may be enforced in equity, if s 12 applies to equitable assignments, an equitable assignment that does not comply with the s 12 formalities will not be enforced. 153 [15.315] In order to avoid these difficulties, s 12 should be seen as merely providing a method

for the assignment of equitable choses in action, although not necessarily a mandatory method. 154 This interpretation has two benefits. It avoids the rejection of the well-established rule that notice is not an essential requirement of an effective equitable assignment. It also 150

Section 12 is set out at [15.35]. The equivalent sections in the other States are Property Law Act 1974 (Qld), ss 199, 200; Law of Property Act 1936 (SA), s 15; Conveyancing and Law of Property Act 1884 (Tas), s 86; Property Law Act 1958 (Vic), s 134; Property Law Act 1969 (WA), s 20. The Law of Property (Miscellaneous Provisions) Ordinance 1958 (ACT), s 3 applies the New South Wales provision to the Territory, while, in the Northern Territory, the Property Act 1860 (SA), s 19 is still in force.

151 152

Assignments of legal choses in action are discussed at [15.35]-[15.40]. Another example of an equitable chose in action is the interest of a beneficiary in an unadministered deceased estate against the executors or administrators of that estate.

153 154

Equitable assignments of legal choses in action are discussed at [15.45]-[15.90]. This is the approach adopted in Grey v Australian Motorists & General Insurance Co Pty Ltd [1976] 1 NSWR 427 at 448. It can also be justified by the language used by members of the High Court in Federal Commissioner of Taxation v Everett (1980) 143 CLR 440 at 447, that the interest of a partner “may be” assigned under s 12. See also Meagher R P, Gummow W M C and Lehane J R F, Equity: Doctrines and Remedies (3rd ed, Butterworths, Sydney, 1992), [608], [685]. Young J in Global Custodians Ltd v Mesh [1999] NSWCA 313 at p 7 held that s 12 does not apply to the assignment of equitable choses in action or equitable rights falling short of a chose in action.

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avoids the need for a distinction to be drawn between equitable interests and equitable choses in action. On the other hand, however, such a suggestion appears to render the need for compliance with s 12 rather superfluous in most situations: if s 12 is not mandatory, it adds nothing to the requirements already imposed by s 23C(1)(c) on assignments of equitable interests in personal property. 155 Another suggestion is that the decision in Everett’s case can be explained on the basis that partnership interests are sui generis and distinguishable from other forms of equitable choses in action, and so special formalities are needed in relation to their assignment. The distinct nature of partnership interests may be seen to arise out of the fact that partners have both an equitable interest (in the surplus of partnership assets over liabilities on dissolution of the partnership) and a legal interest (arising under the partnership agreement) in the partnership. 156 Seen in this light, compliance with s 12 may be necessary to assign the legal content of the interest. 157 However, none of these suggestions is entirely convincing and legislative amendment to s 12 is required to clarify that s 12 does not apply to the assignment of equitable interests. [15.320] Assuming s 12 is not mandatory in assignments of equitable choses in action, then

although notice to the debtor 158 of an assignment of an equitable chose in action is not an essential requirement for a valid equitable assignment, nevertheless, it is in the assignee’s interests to ensure that such notice is given to the debtor for the purposes of preserving the assignee’s priority over competing assignees and to prevent the debtor from obtaining a valid discharge from liability from the assignor.

LEGAL PROPERTY CAPABLE OF ASSIGNMENT IN EQUITY ONLY [15.325] Although most legal property is capable of being assigned at law or in equity, there is

some legal property which, although incapable of assignment at law, is assignable in equity. Until the passage of the Judicature Act 1873 (UK) and corresponding statutory provisions in Australia, 159 common law courts regarded legal choses in action as mere possibilities 160 or bare rights of action 161 and, as such, were incapable of being assigned legally. Equity, however, never shared the common law’s attitude to the assignment of legal choses in action and permitted legal choses in action to be assigned, even in the absence of valuable consideration, if the assignor manifested a “clear expression of an intention to make an 155

One feature that may distinguish s 12 from s 23C(1)(c) is that the former applies only to “absolute assignments”, whereas the latter applies to “dispositions”. This distinction requires an examination of whether the relevant method of assigning equitable choses in action effects an “absolute assignment” of that interest or not.

156

Young J in Global Custodians Ltd v Mesh [1999] NSWCA 313 at p 8 noted that unless a partnership agreement makes special provision to the contrary, the assignment of a partner’s interest in a partnership merely assigns the share of capital or income otherwise payable by the partnership to the assignor. See Heydon J D, Gummow W M C and Austin R P, Cases and Materials on Equity and Trusts (6th ed, Butterworths, Sydney, 2002), at [7.27]. In the context of assignments of equitable choses in action, the debtor will be the trustee of the relevant equitable interest. One construction of s 12 which renders it inapplicable to assignments of equitable choses in action is to read the term “trustee” as a reference to a “trustee in bankruptcy”. Section 12 of the Conveyancing Act 1919 (NSW) and its equivalents in the other Australian States and Territories is set out and discussed at [15.35]. Future property is discussed at [15.330]-[15.395]. Bare rights to litigate are discussed at [15.410]-[15.415].

157 158

159 160 161

[15.325]

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immediate disposition” 162 of the chose in action. Once legal choses in action became legally assignable by statute, the enforcement of assignments of such property in equity became relevant only in those circumstances where the legal assignment failed to comply with the statutory formalities. 163 It is important to realise that the statutory provisions which allow assignments of legal choses in action do not allow assignments of only parts of legal choses in action. As parts of legal choses in action were also incapable of being assigned at law, independently of the statute, it follows that parts of legal choses in action can only be assigned in equity. For an effective assignment in equity of part of a legal chose in action, all that is required is a clear expression of intention by the assignor to make an immediate disposition. In rejecting the need for valuable consideration in this context, Windeyer J (dissenting) in Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 at 34 164 explained: The whole of a debt being now voluntarily assignable under the statute, it would be a strange anomaly if a part could not be the subject of voluntary equitable assignment. To say, “you can give away the whole, but you cannot give away a part, for a part you must get a price” would seem to contradict common sense.

Equity enforces voluntary assignments of parts of legal choses in action, not by compelling the assignor to do something, but by refusing to allow the assignor to act in a way inconsistent with the assignor’s actions. The assignor’s conscience is bound, not by consideration received, but because, as between the assignor and the assignee, the gift is complete (Norman v Federal Commissioner of Taxation (1963) 109 CLR 9, Windeyer J (dissenting) at 33).

FUTURE PROPERTY CAPABLE OF ASSIGNMENT [15.330] The discussion so far has centred on existing property, or rights in existing property,

and the way in which such property can be disposed of at law or in equity. Consideration must now be given to that form of property known as future property (which is also referred to as a “mere expectancy” or an “expectancy”). The term “future property” refers to property that does not presently exist but that may exist at some future time. The concept of ownership of future “property” is a fiction: it is not really proprietary at all because it obviously is impossible to own property that does not exist. However “future property” has been given a proprietary status in equity. One example of future property is the interest of a beneficiary under the will of a living person. 165 During the testator’s life, the beneficiary cannot be said to own any interest, legal or equitable, in the testator’s property. All that the beneficiary presently has is the hope or expectation of acquiring some interest in that property should the testator predecease the beneficiary without revoking or altering her or his will. Like a contingent remainder that may never vest, the expectation of an heir may simply evaporate or disappear. Other examples of future property include the copyright in a book not yet written, or next year’s grape harvest or wool clip. In each of these examples, it is always possible that the intended property may not materialise: the expected best-seller may not be completed, and drought or disease may ruin any anticipated grape harvest or wool clip. 162 163 164 165

Norman v Federal Commissioner of Taxation (1963) 109 CLR 9, Windeyer J (dissenting) at 30. See [15.45]-[15.90]. This passage was approved by Kitto J in Shepherd v Federal Commissioner of Taxation (1965) 113 CLR 385 at 397. This type of future property is referred to as a “spes successionis” or a “spes”.

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Future property is not recognised by the common law and so cannot be assigned at law. However, agreements to assign such property are enforced in equity in certain circumstances. [15.335] Agreements to assign future property are only assignable in equity if the agreement

is made for valuable consideration. Voluntary assignments of future property are not enforceable in equity. In this context, equity is faithful to the maxim that it will not assist volunteers: the conscience of the assignor is bound by the consideration paid by the assignee. 166 An agreement to assign future property for value is treated in equity as an agreement to assign the property when it is acquired (Norman v Federal Commissioner of Taxation (1963) 109 CLR 9, Windeyer J (dissenting) at 24-26). A clear explanation of the effect of an assignment of future property is provided in the following statement of Deane J, in the Full Federal Court, in Federal Commissioner of Taxation v Everett (1978) 38 ALR 625 at 643-644: [A] purported assignment of a mere expectancy (in the sense of the chance of becoming entitled under the will or intestacy of a person who is still living) or of property to be acquired in the future, is inoperative as an assignment, and has no effect unless made for valuable consideration. If there be consideration, it will operate as an agreement to assign the property when acquired, or to hold it in trust (the latter if the whole of the consideration has been satisfied) and this agreement will be binding on the parties as from its date and binding on the property in equity (although not at common law), if and when it is acquired by the assignor … In the interval … the interest of the assignee is not contractual merely, but he has, as between himself and the assignor, a prospective interest in the property to be acquired which has some of the incidents of a proprietary right.

Although the principle regarding agreements to assign future property appears quite straightforward, difficulties in its application have arisen. One such difficulty lies in determining whether particular property is present or future property. A second is whether all agreements for valuable consideration to assign future property are enforceable in equity or whether only those agreements that attract the remedy of specific performance (damages being an inadequate remedy for their breach) will be enforced. A third concerns the determination of the nature of the assignee’s right. Each of these issues is separately considered.

Distinguishing between present rights and future property [15.340] Most interests in property are easily identifiable as either existing property rights or

as rights that will only arise at some time in the future. There are, however, some interests in property that are not so easily identifiable. For example, is the right to receive rent under a lease, or interest under a mortgage, a present right or one that will only arise in the future? It is clear from these examples that, in certain circumstances, it may be difficult to distinguish between a present right that may produce some benefit in the future 167 and the future benefit itself. In the words of the High Court, a distinction must be drawn between “present property … carrying with it a right to income generated in the future” and “mere future income dissociated from the proprietary interest with which it is ordinarily associated”. 168 The High Court has dealt with this issue in the cases considered below. 166 167 168

Equity’s approach to agreements for value to assign equitable property is considered at [15.125]-[15.145]. The Latin phrase for a present right of this nature is “debitum in praesenti solvendum in futuro”. Federal Commissioner of Taxation v Everett (1980) 143 CLR 440, Barwick CJ at 450 (with whom Stephen, Mason and Wilson JJ agreed). In Westgold Resources NL v St George Bank (1998) 29 ACSR 396; (1998) 17 ACLC 327 (affirmed Phillips Fox (a firm) v Westgold Resources NL [2000] WASCA 85) the assignment of benefits under a future put option was described as the assignment of future property, at best. [15.340]

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[15.345] In Norman v Federal Commissioner of Taxation (1963) 109 CLR 9, a taxpayer

entered into a deed in 1956 under which he undertook, during the 1958 tax year, to “transfer and assign” to his wife by way of gift “all his right title and interest” to interest on a loan which he had made which was repayable at will and without notice by the borrower (“the loan”) and to dividends that might be declared on certain shares to which he was entitled as a residuary beneficiary under two estates (“the shares”). The purpose of this scheme was to reduce the taxpayer’s liability for income tax. After execution of the deed, the shares were transferred to the taxpayer and were registered in his name. During the 1958 tax year, £450 was paid to the taxpayer as interest on the loan and dividends totalling £460 were paid to him on the shares. The Commissioner of Taxation claimed that the rights to the interest and the dividends were future property and, as such, were not assignable without consideration. This meant that the interest and dividends, when received, formed part of the taxpayer’s assessable income. The taxpayer argued that neither the interest nor the dividends were taxable in his hands because he had effectively assigned them to his wife. The High Court upheld the assessment, holding that the taxpayer’s rights to both the interest (by a majority) 169 and the dividends (unanimously) were mere expectancies: it was possible that the borrower might repay the loan and that no dividends might be declared on the shares during the 1958 tax year leaving the taxpayer with no present right to assign either the interest or the dividends. [15.350] A similar issue arose in Shepherd v Federal Commissioner of Taxation (1965) 113

CLR 385. In that case, a taxpayer granted a licence (“the licence agreement”) of indefinite duration for the manufacture of castors, in respect of which he held the patent, in return for the payment of royalties on the gross sale price of the castors. In 1957, the taxpayer (“the licensor”) entered into a deed in terms of which he purported to assign, by way of gift, all his “right, title and interest in and to an amount equal to ninety per centum of the income” which might accrue during the following three years from royalties payable under the licence agreement. 170 Under the terms of the licence agreement, the taxpayer was at the mercy of the licensee as to the amount of royalties payable — if the latter sold no items, the taxpayer would receive no income. The taxpayer was assessed for tax for the tax year ending 1958 on the royalties he received under the licence agreement. The taxpayer argued that the royalties did not form part of his income, having been effectively assigned. 171 A majority of the High Court, 172 after a careful construction of the deed of assignment, held that the deed was effective to assign the taxpayer’s present right to receive the royalties. 173 Kitto J drew a distinction between the taxpayer’s contractual right to receive royalties (which he referred to as “the tree”) and the payments that might accrue to the taxpayer under the licence agreement (referred to as “the fruit” of the tree) (at 396). According 169

170 171

Dixon CJ, Menzies and Owen JJ, McTiernan and Windeyer JJ dissenting. Although the assignment of the interest on the loan appeared in form to be an assignment of present property, the fact that there was no necessary continuation of the taxpayer’s right to the interest for the period of the assignment (namely, the 1958 tax year) led the majority to conclude that the right to the interest was future property only. The “present” property component was the licence agreement (a presently existing chose in action); the “future” property consisted of the royalties.

172 173

The assignment had to be equitable because it related to part only (90%) of a chose in action which cannot be assigned legally under s 134 of the Property Law Act 1958 (Vic) and its equivalents in the other States and Territories: see [15.325]. Barwick CJ and Kitto J, Owen J dissenting. Barwick CJ at 392; Kitto J at 396.

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to his Honour (at 396), at the date of the assignment, although the licensee was free to decide how many castors, if any, he would manufacture and try to sell: [t]here existed … a contractual relationship between the [taxpayer] and the [licensee] which by its terms must continue throughout the ensuing three years, whether [the licensee] should wish it to continue or not. [The taxpayer], therefore, had a vested right in respect of those three years … [T]he existence of the [taxpayer’s] contractual right would be unaffected, though the quantum of its product might be. The tree, though not the fruit, existed at the date of the assignment as a proprietary right of the [taxpayer] of which he was competent to dispose; and he assigned ninety per centum of the tree.

The result of the case would have been different if the taxpayer had attempted to assign a proportion of any payments that the licensee might have made voluntarily (over and above the royalties) during the existence of the licence agreement or payments that he might have received after the licence agreement came to an end. The hope that such payments might be made, being a mere expectancy, would not be assignable without valuable consideration. Barwick CJ and Kitto J distinguished the decision in Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 174 (in relation to the right to interest on the loan) on the basis that the loan in that case had been repayable at the will of the borrower, so that the taxpayer might have had no right to any interest at all during the 1958 tax year. The taxpayer in Norman’s case could have voluntarily assigned his right to any interest that might have accrued on the loan had no set period been mentioned in the assignment. [15.355] Similar problems as to the nature of assigned property have arisen in other cases. For

example, in Williams v Commissioner of Inland Revenue [1965] NZLR 395, a taxpayer who, as the holder of a life estate under a trust conducting a grazing business for his benefit, was entitled to receive the net income from that business “as and when the same shall be received”, attempted by deed to assign by way of gift “the first … £500 of the net income which shall accrue to the assignor personally while he lives”. In upholding the Commissioner’s argument that the assignment was ineffective, the New Zealand Court of Appeal construed the assignment as relating to a mere expectancy on the basis that the trust might or might not have earned any income. On the other hand, in McLeay v Inland Revenue Commissioner (1963) 9 AITR 265, a voluntary assignment in 1959 by a taxpayer, of all interest payable to him from 1 May 1959 until 1 May 1964 under a registered mortgage which was statutorily repayable at any time after July 1965, was held by McCarthy J to be an effective assignment of a present chose in action, even though the interest was payable in the future. 175 [15.360] These cases illustrate the difficulty in distinguishing between present and future

property. A determination as to whether property exists at the date of an assignment or is future property will depend ultimately on a close examination of the relevant instrument of assignment to ascertain the precise subject matter of the assignment.

Basis for the equitable enforcement of assignments of future property [15.365] Lord Westbury LC in Holroyd v Marshall (1862) 10 HLC 191 at 211; [1861-1973] All ER Rep 414 stated that equity will enforce an agreement for valuable consideration to assign future property when the assignor acquires possession of the property, but only if the contract “is one of that class of which a Court of Equity would decree specific performance”. 174 175

Discussed at [15.345]. See also Federal Commissioner of Taxation v Australia Guarantee Corp Ltd (1984) 54 ALR 209. [15.365]

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The effect of this qualification, if it were accepted, would be to render unenforceable in equity all those agreements to assign future property for which damages are an adequate remedy: only contracts that attract the remedy of specific performance, such as contracts for the sale of land or contracts involving personal property for which there is no ready market, would be enforceable. 176 This qualification, however, was rejected by the House of Lords in Tailby v Official Receiver (1888) 13 App Cas 523, 177 a case involving the assignment, inter alia, of future book debts. As Lord Macnaghten explained (at 547): It is difficult to suppose that Lord Westbury intended to lay down as a rule to guide or perplex the Court, that considerations applicable to cases of specific performance, properly so-called, where the contract is executory, are to be applied to every case of equitable assignment dealing with future property.

His Lordship went on to state that, as a general rule, the difficulty in cases involving assignments of future property: … is to ascertain the true scope and effect of the agreement. When that is ascertained you have only to apply the principle that equity considers that done which ought to be done if that principle is applicable under the circumstances of the case. The doctrines relating to specific performance do not, I think, afford a test or a measure of the rights created. (at 547-548 (emphasis added))

It would seem therefore that the basis upon which agreements for value to assign future property are enforceable in equity is that such agreements have always been regarded in equity as binding the conscience of the assignor (equity regarding as done that which ought to be done), 178 irrespective of whether or not those agreements are specifically enforceable. 179 This means that agreements for value to assign future goods operate in equity as agreements to transfer ownership on the coming into existence of those goods. The availability of the remedy of specific performance in this context is relevant only to the question as to whether the future property is sufficiently identifiable to be the subject matter of such a decree. [15.370] It is unclear whether the principle in Holroyd v Marshall (1862) 10 HLC 191;

[1861-1973] All ER Rep 414 180 applies to agreements to assign unascertained future chattels. This issue arises because of the existence of a statutory provision in Sale of Goods legislation that no property in unascertained goods can pass until the goods are ascertained. 181

176 177

It is interesting to note that Holroyd’s case involved the sale of machinery and implements in a mill and not special personal property. Lord Herschell at 531; Lord Watson at 535; Lord Macnaghten at 547.

178

The equitable maxims are discussed in Chapter 1 (Parkinson): “The Historical Role of the Equitable Jurisdiction”.

179

The availability of the remedy of specific performance will depend on whether damages for a breach of the relevant agreement are an adequate remedy. Namely, that agreements for value to assign future property are enforceable in equity when the assignor acquires possession of that property: see [15.365]. Sale of Goods Act 1954 (ACT), s 21; Sale of Goods Act 1923 (NSW), s 21; Sale of Goods Act 1972 (NT), s 21; Sale of Goods Act 1896 (Qld), s 19; Sale of Goods Act 1895 (SA), s 16; Sale of Goods Act 1896 (Tas), s 21; Sale of Goods Act 1958 (Vic), s 21; Sale of Goods Act 1895 (WA), s 16.

180 181

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[15.375] In England, the accepted view is that expressed in Re Wait [1927] 1 Ch 606 182 that

the relevant legislative provision 183 applies in determining the title to unascertained future goods to the exclusion of any equitable principles and that the parties to an agreement to assign unascertained future goods cannot contract out of this provision. Put another way, this means that the determination of the time at which the property in unascertained future goods passes to the assignee, both at law and in equity, is made under the Act and not under the principle in Holroyd’s case. The position in Australia is less certain. The Sale of Goods statutes in the Australian States and Territories are not identical to the English statute. 184 For example, s 56 of the Sale of Goods Act 1923 (NSW) expressly provides that the Act does not “affect any remedy in equity of the buyer or the seller in respect of any breach of a contract of sale”. 185 This section has been held to permit the court to make an order for specific performance of agreements to sell chattels where the making of such an order is appropriate (namely, where damages for breach of the agreement are inadequate because of the special nature of the goods). 186 Although there does not appear to be any convincing argument as to why the principle in Holroyd’s case should not apply to agreements for the sale of unascertained future chattels, the High Court in Akron Tyre Co Pty Ltd v Kittson (1951) 82 CLR 477 approved the principle in Re Wait [1927] 1 Ch 606 (but without finding that the Sale of Goods legislation codifies equitable principles as well as rules of law).

Determining the nature of the assignee’s right before acquisition [15.380] Once future property comes into existence, or is acquired by the assignor, the right

of an assignee under an agreement for value to assign that property is clear. Lord Westbury in Holroyd v Marshall (1862) 10 HLC 191 at 211; 11 ER 999 explained that the agreement transfers an equitable interest in the future property to the assignee immediately it comes into existence or is acquired by the assignor. Lord Macnaghten made a similar observation in Tailby v Official Receiver (1888) 13 App Cas 523 at 543. The position was clearly described in the following passage by Dixon J in Palette Shoes Pty Ltd v Krohn (1937) 58 CLR 1 at 27: 187 Because value has been given on the one side, the conscience of the other party is bound when the subject comes into existence, that is, when, as is generally the case, the legal property vests 182

183 184

A case dealing with an agreement to sell wheat from a particular wheat shipment. The court arrived at this conclusion on the basis of s 18 of the Sale of Goods Act 1893 (UK). This principle has been affirmed by the Privy Council in Re Goldcorp Exchange Ltd [1995] 1 AC 74. See also King v Greig [1931] VLR 413. Sale of Goods Act 1979 (UK), s 16. See [15.370], n 181.

185

In all other jurisdictions, the principal legislation provides that specific performance may be ordered of agreements to deliver specific or ascertained goods without giving the defendant the option of retaining the goods on payment of damages if the court thinks fit. No such provision exists in relation to unascertained goods: Sale of Goods Act 1954 (ACT), s 55; Sale of Goods Act 1972 (NT), s 56; Sale of Goods Act 1896 (Qld), s 53; Sale of Goods Act 1895 (SA), s 51; Sale of Goods Act 1896 (Tas), s 56; Sale of Goods Act 1958 (Vic), s 58; Sale of Goods Act 1895 (WA), s 51.

186

See, for example, Dougan v Ley (1946) 71 CLR 141, which involved the sale of a licensed taxicab in circumstances where the number of such licenses was restricted and there was a statutory restriction on their transfer. This principle was applied in Re De Groot (unreported, Qld SC, Muir J, 23 December 1999) (effect of an assignment of a plaintiff’s entitlement to money paid in settlement of a personal injury action was that as soon as the plaintiff’s right to receive settlement moneys accrued, the plaintiff held those moneys on trust for the assignees) and Bacaral Pty Ltd v Bodnar [2000] VSC 523 (specific charge of future property is a present security that will fix on that property as soon as it is acquired).

187

[15.380]

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in him. Because his conscience is bound in respect of a subject of property, equity fastens upon the property itself and makes him a trustee of the legal rights of ownership for the assignee. [15.385] However, what is the nature of the assignee’s rights after the agreement is entered

into but before the future property comes into existence or is acquired by the assignor? At that stage, does the assignee merely have a contractual right against the assignor or actually acquire some proprietary interest in the future property? This issue will be important if the assignor becomes bankrupt. In that situation, the question is whether the bankruptcy releases the assignor from her or his obligation to transfer the property to the assignee when it is acquired. Under s 153(1) of the Bankruptcy Act 1966 (Cth), a discharge from bankruptcy operates to release a bankrupt from “all debts (including secured debts) provable in the bankruptcy, whether or not, in the case of a secured debt, the secured creditor has surrendered his security for the benefit of creditors generally”. Under s 82 of that Act, all debts and liabilities of the bankrupt, present or future, are provable in the bankruptcy. The effect of these provisions is that if an assignee’s rights in the future property are contractual only, and the assignee has not proved in the assignor’s bankruptcy, the discharge of the assignor from bankruptcy will release the assignor from her or his liability to the assignee, even if the property is acquired after the date of the discharge. However, if the assignee has a proprietary right in the future property, the assignee may assert that right when the assignor subsequently acquires the property, regardless of the assignor’s discharge from bankruptcy. [15.390] In Collyer v Isaacs (1881) 19 Ch D 342, 188 the English Court of Appeal held that an

agreement for value to assign future property conferred on the assignee contractual rights only which were provable in the assignor’s bankruptcy, and that the assignor’s discharge from bankruptcy discharged the assignor not only “from the principal liability to pay the debt, but also from the ancillary liability to give security for it on his after-acquired chattels”. Two exceptions to this general proposition were however recognised. The first related to marriage settlements containing a covenant to settle after-acquired property; the second dealt with definite contracts to settle specific property not in existence at the time of the contract. Although these exceptions, especially the latter, appear to contradict the general principle laid down in Collyer’s case, the second exception provided the English Court of Appeal in Re Lind [1915] 2 Ch 345 with the means of avoiding the general principle. In that case, it was held that such agreements create an immediate equitable charge on the property when it comes into existence and, accordingly, that before then, the assignee has more than a mere contractual right to enforce the agreement (Swinfen Eady LJ at 357, 358 and 360; Bankes LJ at 373-374). As Phillimore LJ attempted to explain (at 365-366, 368): [I]t is I think well and long settled that the right of the assignee is a higher right than the right to have specific performance of a contract, that the assignment creates an equitable charge which arises immediately upon the property coming into existence … I do not understand an assignment which at the time only operates as a contract, but when the property comes into possession operates without more as an actual assurance; and even if this were intelligible I do not understand why in its chrysalis state it is not subject to the laws of a chrysalis, why, being still only a contract, it is not discharged by a discharge of contracts.

This suggests that an assignee acquires a proprietary right in property before it vests in the assignor. It follows that, as soon as the property is acquired, the promise by the assignor to 188

Sir George Jessel MR at 353; Baggallay LJ at 353; and Lush LJ at 354, agreed.

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assign the property becomes capable of performance (equity regarding as done that which ought to be done) and is held on trust by the assignor for the assignee, provided the stipulated consideration is paid (Booth v Federal Commissioner of Taxation (1987) 76 ALR 375). Yet, although the right of an assignee before the property comes into existence appears to be more than a mere contractual right against the assignor, it is difficult to see it as an interest in property because, at that stage, no property exists. [15.395] Despite the difficulty involved in characterising the assignee’s interest in future

property as a proprietary interest, Dixon J in Palette Shoes Pty Ltd v Krohn (1937) 58 CLR 1 at 27 189 described the assignee’s prospective right in property as a “higher right than the right to have specific performance” which may survive the assignor’s bankruptcy because “it attaches without more eo instanti when the property arises and gives the assignee an equitable interest therein”. This appears to indicate that, at least for the purpose of priority disputes, assignees of future property for valuable consideration will be regarded in equity as having a proprietary interest in the property. 190

PROPERTY INCAPABLE OF ASSIGNMENT [15.400] The legal and equitable rules relating to the assignment of property capable of

assignment have been considered in this chapter. However, there are some forms of property that are not capable of being assigned at all, either at law or in equity. 191 Such interests may be rendered incapable of assignment either by statute (for example, testator’s family maintenance legislation that renders ineffective assignments of interests dependent upon court orders), under common law rules (which prohibit assignments contrary to public policy) or by a contractual prohibition on assignment. 192 Interests that are incapable of assignment under the common law fall into three broad categories: namely, public pay, personal contracts and bare rights to litigate. Each of these categories is considered below.

Public pay [15.405] The holder of a public office (such as the office of the Governor-General or one of

the State Governors) may not assign her or his pay if it enables her or him to maintain the dignity of the public office or to discharge public duties (Marr v Admiralty Commissioners 1926 SC 842).

189 190

191 192

See also Re Puntoreiro (1991) 104 ALR 523. In Garcia v Lam (unreported, NSWSC, McLaughlin M, 20 February 1997) it was held that since equity will not enforce a contract to assign future property unsupported by consideration, damages are not available for breach of that contract. As noted at [15.05], n 1, if assignability is a fundamental characteristic of the proprietary character of an item the fact that the item is not assignable may suggest that the item is not “property”. An assignment of contractual rights in breach of a prohibition against assignment is ineffective to vest contractual rights in the assignee: Westgold Resources NL v St George Bank (1998) 29 ACSR 396; (1998) 17 ACLC 327 (affirmed Phillips Fox (a firm) v Westgold Resources NL [2000] WASCA 85). The court left open the possibility that a purported assignment in breach of the contract constituted a breach, giving rise to a right to terminate the contract. [15.405]

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Bare rights to litigate [15.410] A bare right to litigate (for example, a right to seek damages for a tort) cannot be

assigned. 193 Such assignments are considered to be contrary to public policy in that, unless justified, they encourage litigation by persons not interested in the litigation. Indeed, in some jurisdictions, it is a common law tort 194 to supply a party, who has no interest in an action, with financial assistance to pursue that action in court (maintenance), or to enter into an agreement to divide any proceeds so derived (champerty). 195 Even in those jurisdictions where the torts of maintenance and champerty have been abolished by statute, courts may, subject to the terms of the statute, still treat agreements for maintenance as contrary to public policy (Singleton v Freehill Hollingdale & Page [2000] SASC 278 at p 10). 196 However, although a bare right to litigate may not be assigned, the proceeds of litigation instituted by the assignor may be assigned (Glegg v Blomley [1912] 3 KB 474 (CE)). The proceeds of litigation are an example of future property to which the principle in Holroyd v Marshall (1862) 10 HLC 191; 11 ER 999 197 applies, namely, that the assignment is enforceable in equity only if consideration is provided. [15.415] An exception to the general proposition that a bare right to litigate cannot be

assigned exists in cases where the assignee has “an interest” 198 or a “genuine and substantial” or “genuine commercial interest” 199 in the litigation. 200 This exception is also the basis of the rule that an assignment of a bare right of action in contract will be enforceable if it is annexed to a right of property that is also assigned. 201 Another exception allows a trustee in bankruptcy (or the liquidator of an insolvent company) to lawfully assign any of the 193 194

195

196

197 198 199 200

201

446

Trendtex Trading Corp v Credit Suisse [1982] AC 679; In the Marriage of Zorbas and Zorbas (1990) FLC 92-160. Maintenance today is probably not a crime: Clyne v New South Wales Bar Association (1960) 104 CLR 186 at 203. In New South Wales, criminal and tortious liability for maintenance was statutorily abolished by the Maintenance and Champerty Abolition Act 1993, ss 3 and 4. Champerty is “a particular form of maintenance”: Glegg v Blomley [1912] 3 KB 474, Parker J at 490. For examples of champertous agreements arising out of conditional fee arrangements between legal advisers and clients see Re Trepca Mines Ltd (No 2) [1962] Ch 511; Hughes v Kingston Upon Hull City Council [1999] QB 1193. By contrast, contingency agreements have been upheld provided the legal adviser does not take an interest in the subject matter of the proceedings and believes her or his client has a reasonable cause of action: Schokker v Commissioner of Taxation (No 2) [2000] 106 FCR 134. The rules relating to champerty apply not only to litigation but also to arbitration proceedings: Bevan Ashford (A Firm) v Geoff Yeandle (Contractors) Ltd (in liquidation) [1999] Ch 239 at 249. For a discussion of the concepts of maintenance and champerty see Magic Menu Systems Pty Ltd v AFA Facilitation Pty Ltd (1997) 142 ALR 198 at 205-207; Thai Trading Co (A Firm) v Taylor [1998] QB 781 at 786, 787; Norglen Ltd v Reeds Rains Prudential Ltd [1999] 2 AC 1 at 11; Bandwill Pty Ltd v Spencer-Laitt [2000] WASC 210 at 394-400. Discussed at [15.365]. Ellis v Torrington [1920] 1 KB 399, Bankes LJ at 406. Trendtex Trading Corp v Credit Suisse [1982] AC 679, Lord Wilberforce at 694; Lord Roskill at 703. A valid assignment of a debt is not invalidated because the need for litigation to recover the assigned debt is contemplated: Camdex International Ltd v Bank of Zambia [1998] QB 22. The Privy Council discussed the nature of a charge (stated to be fixed charge) over the book debts of a company in Agnew and Bearsley v The Commissioner of Inland Revenue [2001] UKPC 28 (5 June 2001). See, for example, Re Kenneth Wright Distributors Pty Ltd (in liq); W J Vines Pty Ltd v Hall [1973] VR 161, where an assignment of a right to sue a bailee for damages caused by the bailee’s negligence was enforceable on the basis that the assignment formed part of the assignment of the chattels themselves. [15.410]

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bankrupt’s bare causes of action that have vested in the trustee on terms that the trustee is to receive a share of the proceeds of the litigation, if successful. 202

Personal contracts [15.420] Rights under a contract may be incapable of assignment if those right are personal to

the party attempting to assign them. Personal contracts usually call for the exercise of skill or expertise or involve an element of personal confidence. 203 For example, if A agrees with B to play the leading role in a stage play to be directed by B, a famous producer and director, B cannot assign the benefit of his rights under that contract to another director. The reason for the refusal by courts to enforce the assignment of rights arising under personal contracts is that it is unfair to compel a person (such as A) to perform a contractual obligation for an assignee (the new director) when the obligation was intended to be personal to the assignor (Don King Productions Inc v Warren [1993] 3 WLR 276). As Collins MR succinctly explained in Tolhurst v Associated Portland Cement Manufacturers [1902] 2 KB 660 at 668, assignment is only permitted where “it can make no difference to the person on whom the obligation lies to which of two persons he is to discharge it”. In addition, and regardless of the nature of the contract, the contract may provide, either expressly or impliedly, that the rights under the contract may not be assigned. 204 Any purported assignment or agreement to assign such rights will have no effect at law or in equity, 205 although a contractual prohibition against assignment does not necessarily prevent the benefit of a contractual obligation being held on trust for an assignee (Don King Productions Inc v Warren [1999] 3 WLR 276).

202

UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd (1996) 21 ACSR 457; (1996) 14 ACLC 1610; Re Movitor Pty Ltd (1996) 64 FCR 380; Brookfield v Davey Products (1996) 14 ACLC 303; Re William Felton & Co Pty Ltd (1998) 145 FLR 211; In re Oasis Merchandising Services Ltd [1998] Ch 170; Re Daniel Efrat Consulting Services Pty Ltd (1999) 91 FCR 154; Norglen Ltd (in liq.) v Reeds Rains Prudential Ltd [1996] 1 WLR 864; Circuit Systems Ltd (in liq.) v Zuken-Redac (UK) Ltd [1997] 1 WLR 721; affd Norglen Ltd (in liq.) v Reeds Rains Prudential Ltd [1999] 2 AC 1.

203

Carter J and Harland D, Contract Law in Australia (2nd ed, Law Book Co, Sydney, 1991), at [1818]; Bruce v Tyley (1916) 21 CLR 277. Devefi Pty Ltd v Mateffy Pearl Nagy Pty Ltd [1993] RPC 493; Linden Gardens Trust Ltd v Lenesta Sludge Disposal Ltd [1994] 1 AC 45. It should be noted that the fact that a contract is personal and not assignable does not prevent the benefit or “fruits” of the contract from being assigned: McGowan v Commissioner of Stamp Duties (Qld) [2001] QCA 236. Nokes v Doncaster Amalgamated Collieries Ltd [1940] 3 All ER 549 at 561.

204

205

[15.420]

447

CHAPTER 16 Equitable Assignments of Legal Interests [16.05]

COMPLETE CONSTITUTION OF TRUSTS ............................................................ 449 [16.05]

Complete constitution by full legal transfer of trust property ........ 449 [16.10]

[16.20] [16.25]

Corin v Patton ...................................................................... 450

Exceptions to the rule that incompletely constituted trusts cannot be enforced ............................................................................. 461

EQUITABLE ASSIGNMENTS ................................................................................... 462 [16.30] [16.40]

Norman v FCT ...................................................................... 462 Equuscorp Pty Ltd v Haxton ................................................... 468

Extract from Dal Pont, Equity and Trusts: Commentary and Materials, Ch 18.

COMPLETE CONSTITUTION OF TRUSTS Complete constitution by full legal transfer of trust property [16.05] As noted at [13.125], express trusts can be created either by the owner of property

declaring a trust over it, or by that person transferring the property to another as trustee. In the case of a declaration of trust, the declarant is already the owner of the property, and so, subject to any statutory formalities (see [18.10]–[18.35] (Dal Pont)), the declaration is itself effective to create a trust. In the case of trusts by transfer, a further step is required to completely constitute the trust, the classic statement of which is found in the judgment of Turner LJ in Milroy v Lord (1862) 4 De GF & J 264; 45 ER 1185 at 274–275 (De GF & J), 1189–90 (ER): I take the law of this court to be well settled, that in order to render a voluntary settlement valid and effectual, the settler must have done everything which, according to the nature of the property comprised in the settlement, was necessary to be done in order to transfer the property and render the settlement binding upon him. He may of course do this by actually transferring the property to the persons whom he intends to provide, and the provision will then be effectual, and it will be equally effectual if he transfers the property to a trustee for the purposes of the settlement, or declares that he himself holds it in trust for those purposes; and if the property be personal, the trust may, as I apprehend, be declared either in writing or by parol but, in order to render the settlement binding, one or other of these modes must, as I understand the law of this court, be resorted to, for there is no equity in this court to perfect an imperfect gift. The cases I think go further to this extent, that if the settlement is intended to be effectuated by one of the modes to which I have referred, the court will not give effect to it by applying another of those modes. If it is intended to take effect by transfer, the court will not hold the intended transfer to operate as a declaration of trust, for then every imperfect instrument would be made effectual by being converted into a perfect trust. These are the principles by which, as I conceive, this case must be tried.

As a general rule, an incompletely constituted trust is not enforceable. The exceptions to this general rule are discussed below at [16.20]. Turner LJ’s judgment contains two important elements: [16.05]

449

Part 4: Assignment and Disposition of Interests

• Everything must be done – the settlor must have done everything that, according to the nature of the property in the settlement, is necessary to be done in order to transfer the property or declare the trust. This element has, in the past, created some confusion, specifically relating to whether “everything that must be done” is that which is required to be done by the transferor. It was not until 1990 that the High Court finally resolved the matter in Corin v Patton, extracted below. • The mode – the transferor must use the appropriate mode of transfer according to the nature of the property involved. For example, chattels are capable of passing by delivery; the required mode of transfer of a lease is by way of assignment; a drawn cheque must be endorsed to its beneficiary; the transferor of shares must deliver a duly executed instrument of transfer to the intended trustee. Extract from Moore, Australian Property Law: Cases and Materials (5th ed), Ch 9.

Corin v Patton [16.10] Corin v Patton (1990) 92 ALR 1 High Court of Australia MASON CJ AND McHUGH J: The respondent, Ronald John Patton, and his wife were joint registered proprietors of land under the Real Property Act 1900 (NSW). On about 6 July 1984 Mr Smallwood, a solicitor, received instructions to take the steps required to sever the joint tenancy. It is not altogether clear from whom those instructions were in fact received. Mr Smallwood prepared documents which he took on 12 July 1984 to the Pattons’ house where Mrs Patton was terminally ill. John Jeffrey Corin, the first appellant, who was Mrs Patton’s brother, also went to the house. Mr Smallwood produced and explained the documents, which were a form of memorandum of transfer and a declaration of trust. They were then executed by Mrs Patton and Mr Corin and taken away by Mr Smallwood, who was to do what was necessary to complete the transaction. The certificate of title was held by the State Bank of New South Wales as unregistered mortgagee of the property. Mrs Patton took no action to procure the production of the certificate of title so as to enable the transfer to be registered. Mrs Patton died on 17 July 1984. She left a will in which she appointed Mr Corin and the second appellant, Judith Jones, as executors. The instrument of transfer was in the prescribed form and expressed to be subject to the bank’s mortgage. In the instrument the printed provisions concerning consideration had been deleted and the following words substituted: In consideration of and pursuant to the terms of a Deed of Trust between the Transferor and Transferee of even date transfers her estate and interest as joint tenant in the said land to [John Jeffrey Corin]. The deed of trust stated, so far as is relevant: WHEREAS: 1 The beneficiary is the registered proprietor as joint tenant with her husband RONALD JOHN PATTON of the property known as 19 Wyatt Avenue, Belrose and being the whole of the land contained in Certificate of Title Volume 11010 Folio 202 (such land being hereinafter referred to as “the property”). 2 The beneficiary desires a severing of the joint tenancy over the said property. 3 The beneficiary has contemporaneously herewith executed a form of Transfer of her estate in interest in the said property to the Trustee to hold as tenants in common with the said Ronald John Patton. 450

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Corin v Patton cont. 4 Such Transfer as aforesaid is made to the Trustee for the beneficiary and the Trustee has agreed to execute the declaration of Trust hereinafter contained. NOW THIS DEED WITNESSETH AS FOLLOWS: 1. The Trustee HEREBY DECLARES that subject to the provisions contained herein he holds an interest as tenants in common with the said Ronald John Patton in the said property UPON TRUST for the beneficiary and further that, subject to the provisions contained herein, he agrees to deal with that interest in the said property in such manner as the beneficiary shall from time to time direct or in accordance with the direction or order of any relevant Court of law. At first instance, McLelland J held that the joint tenancy had not been severed and that Mr Patton was therefore entitled to the whole of the property. In his Honour’s view, any equitable interest which may have become vested in Mr Corin would have been held on trust for Mrs Patton. In these circumstances, Mr Corin could not have invoked the assistance of equity to claim his equitable interest as against Mrs Patton and there was therefore no effective alienation either at law or in equity of Mrs Patton’s interest in the land and the joint tenancy was not severed. McLelland J made a declaration accordingly in favour of Mr Patton. The Court of Appeal dismissed an appeal against this decision for reasons different from those advanced by McLelland J. Hope JA (with whom Priestley and Clarke JJA agreed) held that the question to be decided was whether by her acts Mrs Patton had placed Mr Corin in such a position that under the Real Property Act he had a right to have the transfer registered, a right which Mrs Patton or her executors could not defeat or impair. His Honour found that it was open to Mrs Patton at any time before her death to recall the transaction, since it had not been made for valuable consideration and under the terms of the deed of trust, to which the transfer was expressed to be subject, Mrs Patton could have withdrawn Mr Corin’s power to register the transfer. For this reason, no interest in the property was transferred to Mr Corin and the joint tenancy was not severed. In this Court, Mr Bennett QC for the appellants argued that Mrs Patton had done all that was in her power to effectuate a gift of her interest in the property, so that there was a transfer of the interest in equity. Mr Bennett submitted that Mrs Patton could not have recalled the gift except in her capacity as beneficiary under the trust, whereas it was only relevant to consider how she could have acted in her capacity as donor. He also argued that the transfer had operated as a declaration of trust itself and that an interest in the land had passed in this way. In the alternative, he suggested that the severance of a joint tenancy in equity does not require an actual transfer of property, but may be achieved by any act showing an intention to deal with the property in a manner inconsistent with the continuation of the joint tenancy. Mr Bennett said that, if these submissions failed, the Court should nonetheless endorse a test for determining whether there had been an effective transfer for the purposes of severing a joint tenancy which is less stringent than the gift rule. Finally, he contended that in the present case special rules needed to be developed to recognise the situation where a person conveys property to himself, a transaction made possible by s 24 of the Conveyancing Act 1919 (NSW). It is convenient to begin by considering the various ways in which a joint tenancy can be severed. The starting point is inevitably the judgment of Page Wood V-C in Williams v Hensman (1861) 1 J & H 546 (70 ER 862), in which his Lordship said, at 557-558 (867 of ER): A joint-tenancy may be severed in three ways: in the first place, an act of any one of the persons interested operating upon his own share may create a severance as to that share. The right of each joint-tenant is a right by survivorship only in the event of no severance having taken place of the share which is claimed under the jus accrescendi. Each one is at liberty to dispose of his own interest in such manner as to sever it from the joint fund-losing, of course, at the same time, his own right of survivorship. Secondly, a joint-tenancy may be severed by mutual agreement. And, in the third place, there may be a severance by any course of dealing [16.10]

451

Part 4: Assignment and Disposition of Interests

Corin v Patton cont. sufficient to intimate that the interests of all were mutually treated as constituting a tenancy in common. When the severance depends on an inference of this kind without any express act of severance, it will not suffice to rely on an intention, with respect to the particular share, declared only behind the backs of the other persons interested. In the present case, the second and third of these means are clearly not relevant. But there is the question whether a unilateral declaration of intention or other act inconsistent with the continuation of a joint tenancy may suffice for the purposes of the first method of severance. That question was answered firmly in the negative long before Page Wood V-C came to express the general principles already outlined. In Partriche v Powlet (1740) 2 Atk 54 at 55 (26 ER 430 at 431), Lord Hardwicke LC stated: This is not a severance; for, first, here is no agreement for this purpose; secondly, if no agreement, then there must be an actual alienation to make it amount to a severance; the declaration of one of the parties that it should be severed, is not sufficient, unless it amounts to an actual agreement. That statement of the law is consistent with the statement by Page Wood V-C that an intention “declared only behind the backs of the other persons interested” was insufficient to effect a severance. Lord Hardwicke’s view has been consistently adopted in Australia: see Lyons v Lyons (1967) VR 169 at 170-172; In the Marriage of Pertsoulis (1980) 6 Fam LR 39 at 43-47; McNab v Earle (1981) 2 NSWLR 673 at 675-676; Freed v Taffel (1984) 2 NSWLR 322 at 324-325; Patzak v Lytton (1984) WAR 353. In Wright v Gibbons (1949) 78 CLR 313, Latham CJ stated (at 322) that the agreement of some but not all tenants would not suffice to sever a joint tenancy. In England, however, a different approach has been taken. Thus, in Burgess v Rawnsley (1975) Ch 429, Lord Denning MR said (at 439): It is sufficient if there is a course of dealing in which one party makes clear to the other that he desires that their shares should no longer be held jointly but be held in common. I emphasise that it must be made clear to the other party. Sir John Pennycuick, at 447-448, appeared to agree with this statement of the law, while Browne LJ expressed no final opinion. There is no evidence in the present case of Mrs Patton’s intention to sever the joint tenancy having been communicated to Mr Patton. But in any event there are powerful reasons for declining to adopt in Australia the approach which was taken in Burgess v Rawnsley. First, as the judgment of Sir John Pennycuick makes clear (at 447), the decision turned on the construction of s 36(2) of the Law of Property Act 1925 (UK), which permits the severance of a joint tenancy by notice in writing by one joint tenant to the other, rather than on the state of the pre-existing law. Secondly, as a matter of history and principle, the severance of a joint tenancy can only be brought about by the destruction of one of the so-called four unities: see Blackstone, Commentaries on the Law of England (1778), vol 2, pp 185-186. Unilateral action cannot destroy the unity of time, of possession or of interest unless the unity of title is also destroyed, and it can only destroy the unity of title if the title of the party acting unilaterally is transferred or otherwise dealt with or affected in a way which results in a change in the legal or equitable estates in the relevant property. A statement of intention, without more, does not affect the unity of title. Thirdly, if statements of intention were held to effect a severance, uncertainty might follow; it would become more difficult to identify precisely the ownership of interests in land which had been the subject of statements said to amount to declarations of intention. Finally, there would then be no point in maintaining as a separate means of severance the making of a mutual agreement between the joint tenants.

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Corin v Patton cont. Accordingly, it is necessary in this case for the appellants to demonstrate that Mrs Patton effectively alienated the property in equity. Although this may involve questions of whether or not Mrs Patton could have withdrawn from the transactions, the issue is primarily whether or not the property was alienated. Mr Bennett contended that the rules for determining whether there has been an effective transfer should be relaxed in a case, such as the present, where the purpose of asking the question is to determine whether or not a joint tenancy has been severed. But such an approach cannot be reconciled with principle and would be productive of great uncertainty. Once it is accepted that a transfer is required, it is the general rules relating to transfers of land which must be applied. This particular case involved a voluntary transaction. In this respect we agree with Hope JA that the consent or agreement of Mr Corin to act as trustee did not constitute valuable consideration, and in any event it was not seriously suggested otherwise. Indeed, in the famous case of Milroy v Lord (1862) 4 De GF & J 264 (45 ER 1185), in very similar circumstances, the consent or agreement of the transferee to act as trustee was not regarded as constituting valuable consideration. … Two propositions emerged from the observations of Turner LJ. First, the donor must have done everything necessary to be done, according to the nature of the property, in order to transfer the property and render the gift binding. Secondly, if the gift was intended to have been effectuated by one means, the court will not give effect to it by another means. However, as the later cases were to reveal, there was an element of uncertainty in the first proposition. Did it require that the donor must have done himself all that was necessary to be done in order to transfer the property or did he only have to do all that was necessary to be done by him in order to achieve that result? This question clearly emerged for the first time in Anning v Anning (1907) 4 CLR 1049. There the donor executed a voluntary deed conveying real and personal property to his wife and children, including mortgages of land under the Torrens system and a Crown lease. Although the deed was executed and delivered, the mortgages were transferable under the Real Property Act 1900 (NSW) only by a transfer in the prescribed form and by registration of the transfer. No such transfer was executed. Likewise, the donor did not execute an instrument of transfer of the lease in the prescribed form, the registration of such an instrument being necessary to transfer title to the Crown lease. Each member of the Court held that the transfers of the donor’s estate and interest in the real property were void because they were not in the forms prescribed by statute. But each member of the Court had a different understanding of the principle to be applied. Griffith CJ said (at 1057): I think that the words “necessary to be done”, as used by Turner LJ in Milroy v Lord, mean necessary to be done by the donor … If, however, anything remains to be done by the donor, in the absence of which the donee cannot establish his title to the property as against a third person, the gift is imperfect, and in the absence of consideration the Court will not aid the donee as against the donor. But, if all that remains to be done can be done by the donee himself, so that he does not need the assistance of the Court, the gift is, I think, complete. Isaacs J took a stricter view of the matter. His Honour said (at 1069): If the legal title is assignable at law it must be so assigned or equity will not enforce the gift. If for any reason, whether want of a deed by the assignor, or a specifically prescribed method of transfer, or registration, or statutory notice, the transfer of the legal title is incomplete when the law permits it to be complete, equity regards the gift as still imperfect and will not enforce it. In such a case, the fact that the assignor has done all that he can be required to do is not applicable. [16.10]

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Part 4: Assignment and Disposition of Interests

Corin v Patton cont. Higgins J (at 1081-1082) appeared to adopt an intermediate position. His Honour stated that the word “necessary” refers to the nature of the property, not to any obligation upon the donor, and went on to say (at 1082): What the Courts look at is what the donor might have done. This point has been put so fully in the judgment of Mr Justice Isaacs that I need not deal with it further. Despite the reference to the judgment of Isaacs J, it seems that Higgins J would have been prepared to recognise in equity a gift which the donor could have done no more to perfect, for example, a gift incomplete simply because the transfer, lodged for registration, remained unregistered, the donor having done all that he could do. Isaacs J would not have recognised such a gift because the transfer of the legal title was incomplete. Isaacs J’s approach gave full effect to the related maxims “equity will not assist a volunteer” and “equity will not perfect an imperfect gift”. Moreover, this approach was entirely consistent with the statutory provisions regulating the transfer of title to Torrens system land. These provisions provide that an instrument shall not be effectual to pass an estate or interest in land until registration: see Barry v Heider (1914) 19 CLR 197. That is not to say that the approaches taken by Griffith CJ and Higgins J were inconsistent with the two maxims and the statutory provisions. We shall discuss this aspect of the judgments in Anning v Anning later. In Brunker v Perpetual Trustee Co (Ltd) (1937) 57 CLR 555, the donor executed in favour of his housekeeper a voluntary transfer of an estate in remainder expectant on his death of Torrens system land. He handed the executed transfer to a Mr Fuller who was a friend of both the donor and the housekeeper. The trial judge found that Mr Fuller had held the transfer as the donor’s agent at the time of the donor’s death. The transfer made no mention of a mortgage to which the land was subject, since the donor apparently wished his housekeeper to take the property free from the mortgage. After the death of the donor, Mr Fuller handed the transfer to the donee’s solicitors who inserted particulars of the mortgage and sought to register the transfer. The mortgagee at all times held the certificate of title. The Court, Latham CJ dissenting, held that there had been no gift of any interest in the land and that the transfer was void and of no effect. Latham CJ, after noting that the Torrens system did not prevent the creation and recognition of equitable interests in land, found that the donee was not prevented by the absence of the certificate of title or the alteration of the transfer from presenting the transfer for registration. His Honour rejected (at 589) the trial judge’s finding that Mr Fuller had held the transfer as the donor’s agent at the time of the donor’s death. In a passage in his judgment which is somewhat difficult to follow (at 588-590), he found that Mr Fuller had been acting in accordance with the donor’s wishes when he handed the transfer to the donee’s solicitors after the donor’s death and, that being so, also found that the donor had placed the donee in a position to obtain a legal title by the donee’s own action without further action by the donor. Since the donee was in a position to seek registration, the assistance of the Court was not required to enforce the gift. The Chief Justice distinguished the statement by Isaacs J in Anning v Anning (at 1069) on that basis and clearly preferred the approach of Griffith CJ, without acknowledging that the approach of Isaacs J differed from that of Griffith CJ. He finally found that the alteration to the transfer did not affect the validity of the instrument and that the absence of the certificate of title did not necessarily prevent the donee from obtaining registration. Dixon J (with whom Rich J agreed) found that the alteration to the transfer had not been authorised and that the donor gave no authority for it to be handed to the donee’s solicitors or presented for registration. However, his Honour also considered the rights of the donee in terms not dissimilar to the language used by Latham CJ. After stating that the donor had manifested no intention to create a trust and that an intended donee cannot obtain equitable remedies compelling the donor to give legal effect to his intention to give, Dixon J said (at 599-600): 454

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Corin v Patton cont. But, under the system of the Real Property Act, a transferee may be in a position by registering an instrument to obtain a legal estate, although prior to registration neither the legal nor any equitable estate was vested in him. If that system allows a volunteer to acquire an indefeasible right to the registration of an instrument in his favour, then, although it would remain true that before registration he had neither a legal nor an equitable estate in the land, yet he would be entitled to a right of a new description arising under the statute, and by its exercise he could vest the legal estate in himself. There is no a priori reason why statutory provisions making title depend upon registration should not confer upon a person in whose favour a registrable instrument has been made, a right to procure its registration, notwithstanding that it is voluntary, and no reason why it should not leave the transferor powerless to countermand his instrument. Such a right would not depend upon the doctrines or remedies of a court of equity, and, pending actual registration, the transferee could not be considered entitled to an equitable interest any more than to a legal interest in the land. After referring to Milroy v Lord, his Honour gave his own view of the appropriate question (at 602): [The question] is not whether the intending donor has divested himself of his estate or interest in the land, or has done all that lies in his legal power to do so. For obviously it was within his legal power himself to cause the immediate registration of the transfer. The question is whether by his acts he has placed the intended donee in such a position that under the statute the latter has a right to have the transfer registered, a right which the donor, or his executors, cannot defeat or impair. On this view of the matter it was necessary to determine whether property in the actual instrument of transfer had passed to the donee. If a registrable instrument had been delivered to the donee, then the donee had a right to have it registered, as against the donor. The absence of the certificate of title did not necessarily defeat the donee, because the Registrar-General could dispense with its production. In fact, however, the transfer was not given to the donee or to Mr Fuller as bailee for her “and, therefore, never became her property and was not placed by the deceased in her possession or control” (at 605). Accordingly, the property in it had not passed to the donee. McTiernan J found (at 609) that the donor had not taken any irrevocable step by executing the transfer. He did not give the transfer to the donee and his death had revoked any authority to perfect the intended gift by registration. His Honour therefore did not find it necessary to consider the significance of the certificate of title or the meaning of Milroy v Lord. Accordingly, Brunker did not answer the questions presented by the judgments in Anning v Anning. Although the judgment of Dixon J is consistent with the view of Isaacs J that no interest in land passes by way of gift prior to the registration of a transfer, the right recognised by Latham CJ accords with the approach taken by Griffith CJ. Subsequently, in Norman v Federal Commissioner of Taxation (1963) 109 CLR 9, a case which did not involve a transfer of land, Windeyer J, consistently with the view stated by Griffith CJ in Anning v Anning, said (at 28-29) that: “in equity there is a valid gift of property transferable at law if the donor, intending to make, then and there, a complete disposition and transfer to the donee, does all that on his part is necessary to give effect to his intention and arms the donee with the means of completing the gift according to the requirements of the law”. Evidently Dixon CJ was not “disposed to disagree” with that statement (at 16). The other members of the Court did not consider the question. Next, in Cope v Keene (1968) 118 CLR 1, the issue was whether a deceased person had made a completed gift of Torrens system land in his lifetime. Kitto J (with whom McTiernan J agreed) said (at 6): [16.10]

455

Part 4: Assignment and Disposition of Interests

Corin v Patton cont. To complete the gift the testator had to do all that, according to the nature of the property as land under the provisions of the Real Property Act, was necessary to be done by him in order to transfer the property: Anning v Anning. What this involved is shown by the judgment of Dixon J in Brunker v Perpetual Trustee Co (Ltd). His Honour said that this required property in the instrument of transfer to pass to the intended donees, and probably also involved production by or on behalf of the donees of the certificate of title. The instrument of transfer was not delivered to the donees with the intention that property in it should pass to them and so the intended gift failed. Two cases remain for consideration. The first is Olsson v Dyson (1969) 120 CLR 365, a case involving a purported oral assignment of a debt. The Court held that the assignment failed at law for the absence of writing as required by the Law of Property Act 1936 (SA). In holding that there was no assignment in equity, Kitto J (with whom Barwick CJ (on this aspect of the case), Menzies and Owen JJ agreed) spoke in terms similar to those of Isaacs J in Anning v Anning: Property which is assignable at law but is not assigned in the manner which the law requires for a legal assignment of it cannot be held in equity to be assigned unless by reason of some fact or circumstance which a court of equity regards as binding the legal owner in conscience to hold the property upon trust for the assignee … But there is no equity to perfect an imperfect gift: because of the absence of consideration a purported assignment, if incomplete as a legal assignment, effects nothing in equity (at 375-376). Windeyer J (at 386-387) reiterated the views he had expressed in Norman. The final case is Taylor v Deputy Federal Commissioner of Taxation (1969) 12 CLR 206. There the question for determination was whether certain land remained in the hands of the executors of a deceased estate or had passed to the relevant beneficiary. The executors had consented in writing to the transmission of the land, delivered the certificate of title to the beneficiary and caused the instrument of probate to be produced to the Registrar-General. It was held by the Court (Barwick CJ, Taylor and Menzies JJ) that the executors could no longer prevent registration by the beneficiary and that the property was accordingly no longer in the hands of the executors. The Court referred to Milroy v Lord and the observations of Griffith CJ in Anning v Anning, then quoted from the judgment of Dixon J in Brunker. Their Honours found that nothing remained for the executors to do to enable the beneficiary to become registered as proprietor of the land. Equally, nothing could be done by them to prevent or obstruct registration. As in Cope v Keene, the test of Dixon J in Brunker was applied. It was applied in a manner which involved recognition of an interest in land in a volunteer prior to registration. Further, the judgment reflects the approach of Griffith CJ, in contrast to the decision in Olsson v Dyson which draws on the view of Isaacs J. In both Cope v Keene and Taylor, the Court used the language of Dixon J in Brunker as a test for ascertaining the existence of equitable interests in property in accordance with the principle enunciated in Milroy v Lord, rather than for the purpose of ascertaining whether a personal statutory right to registration has come into existence. In this way it has become clear that, in the subsequent cases, the Court has not endorsed the personal statutory right favoured by Dixon J. That the Court has taken this course is not surprising. The legislation is silent as to the supposed statutory right. Given that the rule in Milroy v Lord is part of the law, the statute provides scant support for the concept of a personal right mirroring that rule in scope but differing in effect. All that can be said is that the legislation enables a donee to secure registration of a transfer of the donor’s interest when he is armed with an instrument of transfer in registrable form and he can produce, or arrange for the production of, the appropriate documents (which include the certificate of title). If the donor lacks the power to recall his transfer, that lack of power stems not from the statute, but from the principles of equity. 456

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Corin v Patton cont. Once it is recognised that Dixon J’s formulation no longer represents a correct statement of the law in this area, it becomes necessary to consider the authority and force of the three judgments in Anning v Anning. The view of Higgins J, to the extent that it differs from that of Isaacs J, has not found support in the later cases. Moreover, the difficulties which would be presented by an inquiry into what was within the power of the donor to achieve in a particular case constitute a sufficient reason for discarding his Honour’s view. The stricter approach of Isaacs J is consistent with the historic attitude of equity in developing rules applicable to intended gifts where no means of effecting a transfer at law were available: see William Brandt’s Sons & Co v Dunlop Rubber Company (1905) AC 454, per Lord Macnaghten at 461-462. There is also perhaps a conceptual difficulty in accepting, in accordance with the broader view, that a donor has done everything necessary to be done by him to complete a legal transfer in a case where the donor could in fact have procured a legal transfer, for example by seeing to registration personally. And, as we have already noted, Isaacs J’s view conforms to the notion, underpinned by the two equitable maxims, that equity will not assist a volunteer to perfect a title which is incomplete. Equity’s refusal may be justified on the footing that the donor should be at liberty to recall his gift at any time before it is complete. Although Griffith CJ did not expressly advert in Anning v Anning to the maxim that equity will not assist a volunteer (cf Isaacs J at 1063), the divergent approaches adopted by Griffith CJ and Isaacs J in that case may be taken to imply different understandings of the maxim. Isaacs J considered that equity would pay no regard at all to voluntary transactions which were insufficient to create proprietary or contractual rights at law. Thus, equity would not heed the volunteer’s plea for recognition of his interest. On the other hand, Griffith CJ must be taken to have regarded the maxim as an injunction against equity making its remedies available to perfect an imperfect gift. On this footing the recognition of the volunteer’s interest did not amount to the provision of assistance in violation of the maxim. Of course it would be a mistake to set too much store by the maxim. Like other maxims of equity, it is not a specific rule or principle of law. It is a summary statement of a broad theme which underlies equitable concepts and principles. Its precise scope is necessarily ill-defined and somewhat uncertain. It is subject to certain clearly established exceptions such as the rule in Strong v Bird (1874) LR 18 Eq 315 and the doctrine of equitable estoppel, where an equity arises in favour of an intended donee from the conduct of the donor after the making of the voluntary promise by the donor: see Olsson v Dyson, at 378-379. These exceptions have no bearing on the present case except in so far as they demonstrate that the maxim does not enunciate an inflexible or universal rule. What is of importance is that this and the related maxim that equity will not perfect an imperfect gift are primarily associated with the rule that a voluntary covenant is not enforceable in equity, a rule which itself has become the subject of critical scrutiny in some of its applications: see Macnair, “Equity and Volunteers”, (1988) 8 Legal Studies 172. Thus, a volunteer who is the object of an intended trust will only succeed if the trust has been completely constituted. This means, so it is said, that the trust must be constituted by a present declaration of trust or by a transfer by the settlor of the legal title to the intended trustee. And that brings us back to the statement of principle by Turner LJ in Milroy v Lord. But there is a distinction between the enforcement of a voluntary covenant to create a trust and the enforcement of a transfer by way of intended gift when the donor has done all that was within his power to vest title to the property in trustees for the donee or in the donee. In the first case, equity will not compel specific performance of the voluntary covenants, there being no completely constituted trust; in the second case, as the transaction is complete as far as the donor is concerned, no question of withholding specific performance can arise and equity will hold the donor to the completed transaction on the footing that title has been divested: see Ellison v Ellison (1802) 6 Ves Jun 656 at 662 (31 ER 1243 at 1246); Ex parte Pye (1811) 18 Ves Jun 140 at 149 (34 ER 271 at 274) (where [16.10]

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Corin v Patton cont. Lord Eldon LC observed “if the act is completed, though voluntary, the Court will act upon it”); Fletcher v Fletcher (1844) 4 Hare 67 at 74 (67 ER 564 at 567) (where the covenant being “complete”, the court was “not called upon to do any act to perfect it”, in the words of Wigram V-C). The point is, as Page Wood V-C noted in Donaldson v Donaldson (1854) Kay 711 at 718 (69 ER 303 at 306), that where there is an imperfect gift “which requires some other act to complete it on the part of the assignor or donor, the Court will not interfere to require anything else to be done by him”. These specific statements, which necessarily circumscribe the area of operation of the equitable maxims, were apt to apply to those situations in which legal title passed not on the delivery of an executed conveyance or transfer of property but subsequently on registration of a transfer, as is the case with stocks and shares in companies. The statements are equally apt to apply to the transfer of estates in land under the Torrens system. The rationale for refusing to complete an incomplete gift is that a donor should not be compelled to make a gift, the decision to give being a personal one for the donor to make. However, that rationale cannot justify continued refusal to recognise any interest in the donee after the point when the donor has done all that is necessary to be done on his part to complete the gift, especially when the instrument of transfer has been delivered to the donee. Just as a manifestation of intention plus sufficient acts of delivery are enough to complete a gift of chattels at common law, so should the doing of all necessary acts by the donor be sufficient to complete a gift in equity. The need for compliance with subsequent procedures such as registration, procedures which the donee is able to satisfy, should not permit the donor to resile from the gift. Once the transaction is complete so far as the donor is concerned, he has no locus poenitentiae. Viewed in this light, Griffith CJ’s approach has the advantage that it gives effect to the clear intention and actions of the donor rather than insisting upon strict compliance with legal forms. It is a reflection of the maxim “equity looks to the intent rather than the form”. By avoiding unnecessarily rigid adherence to the general rule and endeavouring to give effect to the donor’s intention, the law avoids unjust and arbitrary results. See Zines, “Equitable Assignments: When Will Equity Assist a Volunteer?”, (1965) 38 Australian Law Journal 337. In any event there is stronger support in the later cases for the view of Griffith CJ than that of Isaacs J. That support is found in the judgment of Latham CJ in Brunker, those of Dixon CJ and Windeyer J in Norman, the joint judgment in Cope v Keene, and the judgment of the Court in Taylor. Furthermore, the view of Griffith CJ is supported by the decision of the English Court of Appeal in Re Rose Rose v IRC (1952) Ch 499 at 510-511. Accordingly, we conclude it is desirable to state that the principle is that, if an intending donor of property has done everything which it is necessary for him to have done to effect a transfer of legal title, then equity will recognise the gift. So long as the donee has been equipped to achieve the transfer of legal ownership, the gift is complete in equity. “Necessary” used in this sense means necessary to effect a transfer. From the viewpoint of the intending donor, the question is whether what he has done is sufficient to enable the legal transfer to be effected without further action on his part. Although Griffith CJ did not explicitly say so, his proposition implicitly recognizes that the donee acquires an equitable estate or interest in the subject matter of the gift once the transaction is complete so far as the donor is concerned. So much was acknowledged by the English Court of Appeal in Re Rose. There the Court concluded that the donor had executed and delivered transfers and share certificates to the donee with the intention of transferring title to the shares to him and had placed him in a position to secure the legal title to the shares by registration subject to an exercise by the directors of their discretion to register the transfers. In this situation the donor could not recall the gift or invoke the aid of the court to prevent registra-tion: see at p 516. The Court held that the donor had parted with his beneficial interest and had become a constructive trustee for the donee. This conclusion did not affect the second proposition in Turner LJ’s judgment in Milroy v Lord. As Evershed MR stated (at 510): 458

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Corin v Patton cont. if a document is apt and proper to transfer the property – is in truth the appropriate way in which the property must be transferred-then it does not seem to me to follow from the statement of Turner LJ that, as a result, either during some limited period or otherwise, a trust may not arise, for the purpose of giving effect to the transfer. See also per Jenkins LJ at 517-518. The course of reasoning pursued by Evershed MR and Jenkins LJ within the framework of the statement of principle by Turner LJ in Milroy v Lord bears a marked similarity to the reasoning of Dixon J in Brunker which was, of course, directed to establishing the conditions on which a statutory right might be exercised. However, if we accept that in Re Rose correctly states the consequences of the approach taken by Griffith CJ in Anning v Anning, there remains the problem of accommodating that approach to the injunction contained in s 41 of the Real Property Act to the effect that, until registration, an instrument of transfer shall be ineffectual to pass an estate or interest in the land. Although that injunction applies to equitable as well as legal estates, it “does not touch whatever rights are behind” the instrument, as Isaacs J pointed out in Barry v Heider, at 216; see also Chan v Cresdon Pty Ltd (1989) 64 ALJR 111, at 117; 89 ALR 522, at 531-532. Where a donor, with the intention of making a gift, delivers to the donee an instrument of transfer in registrable form with the certificate of title so as to enable him to obtain registration, an equity arises, not from the transfer itself, but from the execution and delivery of the transfer and the delivery of the certificate of title in such circumstances as will enable the donee to procure the vesting of the legal title in himself. Accordingly, s 41 does not prevent the passing of an equitable estate to the donee under a completed transaction. The question is then whether Mrs Patton did all that it was necessary for her to do in order to effect a transfer. Two obstacles are suggested to completion of the gift. First, the certificate of title remained throughout with the mortgagee and Mrs Patton took no steps to arrange for its production for the purposes of registration. Secondly, it is not clear whether or not Mr Smallwood held the executed transfer on Mrs Patton’s instructions or those of Mr Corin. Whether or not it is correct to say that the production of a certificate of title is “necessary” to achieve registration of a transfer of Torrens system land, it is apparent that a gift of such land cannot be regarded as complete in equity while the donor retains possession or control of the certificate of title: Dixon J in Brunker, at 600-605; Scoones v Galvin and the Public Trustee (1934) NZLR 1004. That is because it can scarcely be said that the donor has done everything necessary to be done by him if he has retained the certificate of title, by virtue of the possession of which the gift might well be thwarted. In the present case Mrs Patton gave no authority for the mortgagee bank to hand the certificate of title to Mr Corin for the purposes of registration. At least, if she authorised Mr Smallwood to obtain the certificate, there is no clear evidence to that effect. In response to the difficulty this presents to the appellants, it was suggested that s 96 of the Conveyancing Act would have entitled Mr Corin to compel the bank to produce the certificate of title. Section 96 is in these terms: (1) A mortgagor, as long as his right to redeem subsists, shall by virtue of this Act be entitled from time to time at reasonable times on his request … to inspect and to be supplied with copies or abstracts of, or extracts from, the documents of title … in the custody or power of the mortgagee. (2) This section applies to mortgages under the Real Property Act 1900, and in such case the mortgagor shall be entitled to have the relevant certificate of title … lodged at the office of the Registrar-General, to allow of (sic) the registration of any authorised dealing by the mortgagor with the land … Section 7(1) defines “mortgagor” to include a person entitled to redeem a mortgage. The section is of no assistance to the appellants. Mr Corin was not a person entitled to redeem the mortgage unless and until there had been a transfer of Mrs Patton’s interest. Further, subs (2) concerns [16.10]

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Corin v Patton cont. the entitlement to the certificate of title of a mortgagor seeking registration of any authorised dealing by that mortgagor, that is, in this case, Mrs Patton. Although she could, in relation to an authorised dealing, have compelled production of the certificate of title, Mr Corin could not: Brunker, at 604. Accordingly, the transactions failed to pass the equitable property in the land to Mr Corin, and it is unnecessary to consider under whose control the instrument of transfer was after execution. Further, because the gift was incomplete, Mrs Patton could have recalled the transfer at any time. But it is not strictly relevant to ask whether or not Mrs Patton could have recalled the gift; that is not a criterion but rather a result of the efficacy or otherwise of the gift. Before turning to Mr Bennett’s final contention, it should be observed that the instrument of transfer cannot take effect in equity as a declaration of trust. Mrs Patton clearly did not intend to constitute herself trustee for Mr Corin and the terms of the instrument provide no support for such an interpretation, notwithstanding the element of flexibility introduced by Re Rose. The final matter to consider is whether a special approach should be taken to the rules concerning severance of joint tenancies, or those concerning gifts, in the situation where there is an attempted conveyance to oneself, as permitted by s 24 of the Conveyancing Act. Mr Bennett suggested that the rationale for the gift rules is inapplicable in that situation and so a different approach is required. He drew attention to the statement of Varny MR in Cray v Willis (1729) 2 P Wms 529 (24 ER 847) that a joint tenant “may sever the joint tenancy by a deed granting over a moiety in trust for himself”. But the Master of the Rolls was there doing no more than demonstrating that “survivorship can be no hardship, where either side may at pleasure prevent it”. The case does not suggest that a joint tenant can sever the tenancy by executing a document purporting but failing to pass his interest in the property. It was accepted in Re Murdoch and Barry (1975) 64 DLR (3d) 222 that a transfer to oneself could sever a joint tenancy. Whether or not that is so, there was in this case no transfer from Mrs Patton to herself, and no transfer to Mr Corin on trust for herself. There was an attempted transfer to Mr Corin followed by a purported declaration of trust over the property the subject of that attempted transfer: see DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW) (1982) 149 CLR 431 at 442, 443, 449-451, 460, 463-464, 473-474. The terms of the instruments are not consistent with an intention to transfer merely a legal interest to Mr Corin, but even if they were, this would not amount to a conveyance of the equitable estate from Mrs Patton to herself. The appeal must be dismissed. [Brennan, Deane and Toohey JJ agreed.]

Extracts from Dal Pont, Equity and Trusts: Commentary and Materials, Ch 18.

[16.15]

Notes&Questions

1.

Why did the court in Corin v Patton prefer the approach of Griffith CJ in Anning v Anning to that of Isaacs or Higgins JJ? Why was the trust in Corin v Patton held to be incompletely constituted? Can the court’s approach be subsumed within the bounds of intention to create a trust? In other words, can it be said that a failure to properly constitute a trust by transfer evidences a lack of intention to create a trust?

2.

Between the time in which the transferor does everything that it is necessary for her or him to do to effect the transfer, and the moment that the trust property actually vests in the transferee, what is the relationship between the transferor and the transferee?

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Consider in this context the following observation by Deane J in Corin v Patton (at 582), who identified the relevant test as a two-fold one: It is whether the donor has done all that is necessary to place the vesting of the legal title within the control of the donee and beyond the recall or intervention of the donor. Once that stage is reached and the gift is complete and effective in equity, the equitable interest in the land vests in the donee and, that being so, the donor is bound in conscience to hold the property as trustee for the donee pending the vesting of the legal title.

3.

When is a secret trust completely constituted? Is it at the date at which it takes effect (that is, the death of the settlor), such that it can be revoked or modified at any time prior to that date? Is there a role for the doctrine of estoppel here to prevent the settlor from unconscionably resiling from the promise the subject of the secret trust? If so, when does the estoppel equity arise: at the time of reliance, or at the time of the departure from the promise? If an estoppel operates, what is the appropriate remedy? See Pawlowski and Brown, “Constituting a Secret Trust by Estoppel” [2003] Conv 388, who suggest that the appropriate remedy may be to vest the property immediately in the secret trustee on trust for the testator for life with remainder to the secret trustee absolutely. Does such a remedy undermine the “secret” nature of the trust? Extract from Dal Pont, Equity and Trusts: Commentary and Materials, Ch 18.

Exceptions to the rule that incompletely constituted trusts cannot be enforced [16.20] The courts have traditionally noted four main exceptions to the rule that incompletely

constituted trusts are unenforceable: • An imperfect transfer may be enforceable where the transferee can show a representation by the transferor that was intended to be relied on and was in fact relied on to the transferee’s detriment (that is, to raise an estoppel): see Olsson v Dyson (1969) 120 CLR 365. On estoppel generally see Ch 10. • Under the rule in Strong v Bird (1874) LR 18 Eq 315, “if a testator intends to make a gift but does not make a complete gift before his or her death and still has the intention of making the gift at the time of death and appoints the donee his executor, then equity will assist the donee” (Blackett v Darcy (2005) 62 NSWLR 392 at [32] per Young CJ in Eq): see Dal Pont and Mackie, Law of Succession (LexisNexis Butterworths, 2013), [14.20]–[14.22]. • Gifts in contemplation of death (donationes mortis causa), which require proof of: (1) a gift in contemplation of death; (2) delivery of the subject matter of the gift or a transfer of the means (or part of the means) of getting at the property, or a transfer of the indicia of title; and (3) the gift being conditional upon the death of the donor: see Dal Pont and Mackie, Law of Succession (LexisNexis Butterworths, 2013), [1.15]–[1.23]. • An incompletely constituted trust can be enforced pursuant to a promise to create a trust to a person who has provided consideration (therefore falling outside the principle that equity will not assist a volunteer): see Dal Pont, Equity and Trusts in Australia (6th ed, Lawbook Co., 2015), [18.110]–[18.120]. Yet in Pennington v Waine the English Court of Appeal suggested other grounds for equitable intervention in this context. [16.20]

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Extract from Dal Pont, Equity and Trusts: Commentary and Materials, Ch 3.

EQUITABLE ASSIGNMENTS [16.25] The phrase “equitable assignment” can mean either an assignment of an interest that

is a creature of equity, such as the interest of a beneficiary under a trust, or the assignment of a legal chose in action not assignable except by the aid of equity. As the statutory mode of assignment (see [14.05]) applies to both legal and equitable choses in action, the concept of an equitable assignment is, for practical purposes, relevant only in respect of assignments that do not fulfil the statutory requirements, or that otherwise come outside the statute but are recognised and protected by equity. The latter is the case where the subject of the assignment is property yet to come into existence (“future property”), which is assignable only in equity (according to the maxim “equity regards as done that which ought to have been done”). An assignment of property to be acquired in the future is void at common law, which considers that what a person does not have cannot be assigned. Reflecting the maxim “equity looks to intent rather than form”, the essential requirements for a valid equitable assignment are an intention to assign and some act of assignment: Smith v Perpetual Trustee Co Ltd (1910) 11 CLR 148. Consideration is required if: (a) in the case of an assignment of a legal chose in action, the assignor has not done everything he or she is required by the statute to do to complete the assignment (that is, the assignment is not “completely constituted”); or (b) the assignment is of future property (a “future equitable chose” or “expectancy”). These requirements are discussed by Windeyer J in the leading case of Norman v FCT (extracted at [16.30]). The distinction between present (or vested) and future equitable choses is highlighted by comparing Norman with Shepherd v FCT (extracted at [18.05]). Notice to the debtor is not a requirement of an effectual equitable assignment; even absent such notice a valid assignment creates, as between assignor and assignee, a valid and effective title in the assignee. The question of whether in equity notice is relevant as between the assignor and a third party is discussed in the New Zealand Court of Appeal’s decision in the Mountain Road case (extracted at [3.55] (Dal Pont)), a decision that has not met with approval in at least two Australian Supreme Courts (see [3.60] (Dal Pont) note 1). The relevance of notice in determining the priority between successive equitable assignments of personalty is discussed in the Pfeiffer case (extracted at [3.65] (Dal Pont)).

Norman v Federal Commissioner of Taxation [16.30] Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 (High Court of Australia) [The taxpayer (the appellant) purported to assign to his wife: (a) the interest on a loan the husband had made to a partnership, which loan was repayable at will; and (b) the dividends from shares the husband was to receive from the distribution of two estates, the shares having been transferred to the husband. The Federal Commissioner of Taxation argued that the assignment was not effective and, as such, the interest and dividends were derived by the husband and thus taxable in his hands rather than in the hands of the wife. The judgment extracted below, that of Windeyer J, though partly in dissent, was held by Dixon CJ in the majority to express a correct statement of the relevant law: at 16.] WINDEYER J … [24] … (i) As to attempted assignments of things not yet in existence: As it is impossible for anyone to own something that does not exist, it is impossible for anyone to make a present gift of such a thing to another person, however sure he may be that it will come into existence and will then be his to give. He can, of course, promise that when the thing is his he will 462

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Norman v Federal Commissioner of Taxation cont. make it over to the intended donee. But in the meantime he may change his mind and when the time comes refuse to carry out his promise, even though it were by deed. A court of law could not compel him to perform it. A court of equity would not. Courts of equity never had the objections to all agreements about future interests that, until the seventeenth century, were deeply rooted in the common law. Equity did not share the view that such agreements were void on the ground of maintenance. But things not yet in existence could only be the subject of agreement, not of present disposition. And, in relation to promises and agreements, equity has been faithful to its maxim that it does not come to the aid of volunteers. For equity a deed does not make good a want of consideration. If we turn from attempted gifts of future property to purported dispositions of it for value, the picture changes completely. The common law objection remains. But in equity a would-be present assignment of something to be acquired in the future is, when made for value, construed as an agreement to assign the thing when it is acquired. A court of equity will ensure that the would-be assignor performs this agreement, his conscience being bound by the consideration. The purported assignee thus gets an equitable interest in the property immediately the legal ownership of it is acquired by the assignor, assuming it to have been sufficiently described to be then identifiable. The prospective interest of the assignee is in the meantime protected by equity … [26] (ii) As to assignments of choses in action: In Lampet’s Case (1612) 10 Rep 46b; 77 ER 994, Coke spoke of “the great wisdom and policy of the sages and founders of our law, who have provided that no possibility, right, title, nor thing in action, shall be granted or assigned to strangers, for that would be the occasion of multiplying of contentions and suits” (1612) 10 Rep at 48a; 77 ER at 997. It was a somewhat unsophisticated view of legal rights that led the common lawyers to classify choses in action and debts with mere possibilities, and to condemn all assignments of them as leading to maintenance. Assignment means the immediate transfer of an existing proprietary right, vested or contingent, from the assignor to the assignee. Anything that in the eye of the law can be regarded as an existing subject of ownership, whether it be a chose in possession or a chose in action, can to-day be assigned, unless it be excepted from the general rule on some ground of public policy or by statute. But a mere expectancy or possibility of becoming entitled in the future to a proprietary right is not an existing chose in action. It is not assignable, except in the inexact sense into which, again to use Maitland’s words, lawyers slipped when it is said to be assignable in equity for value. The distinction between a chose in action, which is an existing legal right, and a mere expectancy or possibility of a future right is of cardinal importance in this case, as will appear. It does not, in my view, depend on whether or not there is a debt presently recoverable by action because presently due and payable. A legal right to be paid money at a future date is, I consider, a present chose in action, at all events when it depends upon an existing contract on the repudiation of which an action could be brought for anticipatory breach. The common law doctrine that debts and other choses in action were not assignable never applied to Crown debts; and, by the influence of the law merchant, bills of exchange and promissory notes were outside it. And it was never accepted in equity … [27] … What had happened was that the common law rule came to be circumvented in various ways. One was by novation. Another was by the assignor giving a power of attorney to the assignee to sue the debtor at law in the assignor’s name, without having to render an account: the history of this has been narrated at length by Mr Bailey in learned articles in the Law Quarterly Review vols 27 and 28. And courts of equity would come to the assistance of the assignee if the assignor refused to do whatever was necessary to enable the assignee to get the benefit of the assignment. Thus a recalcitrant assignor would be required, on having an indemnity for his costs, to permit his name to be used in an action to recover the debt; or an assignor would be restrained from receiving the debt for himself … Because the assistance of equity was [16.30]

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Norman v Federal Commissioner of Taxation cont. available, it was generally not needed. The common law courts recognized that an assignee might sue in the assignor’s name … Therefore … it is somewhat misleading to say, as is often said, that before the Judicature Act the common law would not allow assignments of legal choses in action. Long before 1873 the development of common law processes and the impact of equity had pushed the common law prohibition of the assignment of choses in action back into history. Nevertheless the original doctrine survived, to this extent that, until the Judicature Act 1873, s 25(6), and the corresponding statutory provisions in Australia and elsewhere came into operation, an assignee of a legal debt could not in his own name bring an action against the debtor to recover the debt. The original creditor must be the plaintiff on the record. He remained in law the owner of the chose in action. What the provision of the Judicature Act 1873, did was to render unnecessary the previous circumlocutions. Debts and other legal choses in action were made directly assignable by the statutory method. But this, while it simplified [28] assignments, has not simplified the law surrounding them, as the argument in this case showed. It is settled that any assignment that satisfies the requirements of the statute is valid and fully effectual although it be voluntary. That is to say the law now provides a means whereby the legal owner of a chose in action may make a complete and perfect gift of it. That being so, and as equity does not perfect an imperfect gift, can there ever now be an effectual voluntary assignment unless all the statutory requirements are met? The question is not an easy one if a purely logical answer be sought. Equity intervened to assist the assignments of choses in action because they were not assignable at law. Now that they are, why, it may be asked, should equity aid imperfect attempts at voluntary assignments of them. On the other hand, it can be urged that the statute provides a method or machinery whereby assignment may be effected, but that it does not detract from the validity of any transaction that would have been effective in equity if it had occurred before the statute came into operation. There is some authority for the latter proposition: see eg German v Yates (1915) 32 TLR 52. And Lord Macnaghten’s well-known words in William Brandt’s Sons & Co v Dunlop Rubber Co [1905] AC 454 are sometimes invoked in support of it: “Why that which would have been a good equitable assignment before the statute should now be invalid and inoperative because it fails to come up to the requirements of the statute, I confess I do not understand. The statute does not forbid or destroy equitable assignments or impair their efficacy in the slightest degree” (at 461). But this was said in reference to an assignment for value. I do not think that his Lordship’s remarks should be read as qualifying the principle that equity does not perfect imperfect voluntary assignments. If an attempt is made to assign, by way of gift, a chose in action assignable under the statute, then, as I see the matter, the requirements of the statute cannot be ignored; for the general rule of equity is that an effective assignment occurs only if the donor does all that, according to the nature of the property, he must do to transfer the property to the donee. But the weight of authority is, I think in favour of the view that in equity there is a valid gift of property transferable at law if the donor, intending to make, then and there, a complete disposition and transfer to the donee, does all that on his part is necessary to give effect to his intention and arms the donee with the means of completing the gift according to the [29] requirements of the law: see Brunker v Perpetual Trustee Co (Ltd) (1937) 57 CLR 555 at 600–602 per Dixon J; Re Smith (1901) 84 LT 835; Re Rose [1949] Ch 78; Re Rose [1952] Ch 499. I think therefore that, if a man, meaning to make an immediate gift of a chose in action that is his, executes an instrument that meets the requirements of the statute and delivers it to the donee, actually or constructively, he has put it out of his power to recall his gift. It is true that until notice is given to the debtor or person against whom the chose is enforceable at law, all the requirements of the statute have not been complied with. But the notice can be given by the donee; and, if the donee has express or implied authority to give it, I think that equity would not allow the donor to deny the right of the donee to do so and so intercept his gift. I reach this conclusion with some hesitation, for it involves some departure from the majority view in Anning v Anning (1907) 4 CLR 1049. But it accords, 464

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Norman v Federal Commissioner of Taxation cont. it seems to me with general principle. For these reasons I consider that, if the debt that the deed in this case purported to assign had been an existing chose in action assignable by the statutory procedure, the only question would be whether the assignor had purported to make an absolute assignment of it, and whether he did all that on his part had to be done to that end. The difficulty is that, as will appear, what it was sought to assign was part only of a prospectively larger debt. (iii) As to assignments of part of a debt: It has been held that the statutory method of assignment is not available for the assignment of parts of debts or choses in action: Williams v Atlantic Assurance Co [1933] 1 KB 81; Re Steel Wing Co Ltd [1921] 1 Ch 349 … The conclusion does not depend simply on a literal interpretation of the statutory language and of the phrase “absolute assignment”. Before the statute an assignee was permitted to bring his action at law in the name of the assignor when he was seeking to recover a whole debt assigned to him. If a debt had been broken into parts this procedure was not appropriate. A creditor cannot recover a debt piecemeal in a court of law. Therefore, when part of a debt was assigned, proceedings to enforce the assignment had to be brought in a court of equity. And the assignee, not the assignor, would be the plaintiff in the suit. The assignor (the creditor) as legal owner, the debtor and any assignees of other [30] parts of the debt were all necessary parties, so that all the obligations of the debtor and the rights of all persons interested in the fund might be established by the decree. This was the rule of the Chancery Court. It is still the law: see Performing Right Society Ltd v London Theatre of Varieties Ltd [1924] AC 1 at 14, 20, 30, 31. As an assignment of part of a debt is still necessarily an equitable assignment, the question arises can it be made by way of gift; and, if so, how? (iv) As to whether consideration is required for the equitable assignment of a chose in action not assignable at law: … There are several senses in which the phrase “equitable assignment” may be used; and the question, Is consideration necessary for an equitable assignment?, does not admit of a single short answer covering all of them. If the interest to be assigned is a creature of equity, such as the beneficial interest of a cestui que trust, then, apart from any statutory provisions, an assignment of it can, of course, only be effected in equity; for the common law does not know it. Any present assignment of such an interest, that is to say of a chose in equity, is therefore necessarily an equitable assignment. Such an assignment can be by way of gift; and, except that writing is required by s 9 of the Statute of Frauds, no formality is necessary beyond a clear expression of an intention to make an immediate disposition. In short, there is no reason at all why a person should not give away any beneficial interest that is his … It is, of course, necessary that the transaction should take the form of, and be intended as, an immediate [31] transfer of the beneficial interest of the assignor, as distinct from an agreement to assign it. The distinction is critical, for consideration is always necessary to attract the support of equity to a transaction that is a contract rather than a conveyance … Turning, from assignments that are equitable because the property assigned is a chose in equity, to assignments that are equitable because the property assigned is a legal chose in action not assignable except by the aid of equity: It has been said that historically there could be no equitable assignment of a debt except for value. Whether this be correct or not as a general proposition, it never meant that there must be consideration as now understood in the law of contract. An assignment in satisfaction, or part satisfaction, of an antecedent debt was taken in equity as made for value. And this was what had happened in case after case appearing in the reports in which assignments were upheld in equity before the Judicature Act. Whether equity would then give any aid to an assignment of a chose in action made for no value at all, but as a pure gift, is less clear … [32] … It seems to me that, in principle, so far as a deed has any efficacy in connexion with equitable assignments, it is not that a deed takes the place of valuable consideration where that is needed to attract the aid of equity. Rather [16.30]

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Part 4: Assignment and Disposition of Interests

Norman v Federal Commissioner of Taxation cont. it is that, in cases where value is not so required but a clear expression of intention is, the delivery of a deed couched in terms of present gift manifests, in the best possible way, the intention of the assignor to make an immediate and irrevocable transfer. [33] The intervention of equity in support of assignments of choses in action has been ascribed historically, in the main, to one or other of two grounds. One is to hold men to agreements and promises which they have made for value; the other is the analogy of a trust … An assignment, of course, differs from a declaration of trust. And it is trite to say that an ineffectual attempt to assign property will not be rescued by equity by being construed as a valid declaration of trust: Milroy v Lord (1862) 4 De GF & J 264; 45 ER 1185. Nevertheless, the analogy between the creation of a trust and an equitable assignment of a chose in action, which creates an equitable interest in the assignee, is significant. An agreement to assign will be effective as an equitable assignment if it be for value; for then equity looks on that as done which ought to be done. But this does not mean that there cannot be in equity an actual assignment of a chose in action as distinct from an agreement to assign. I think there can, and that it can be by way of gift. In such a case equity enforces the assignment, not by compelling the assignor to do something, but by refusing to allow him to act in a way inconsistent with what he has done, that is by restraining him from derogating from his gift. His conscience becomes bound, not by value received, but because, as between him and the assignee, his gift was complete. This view of the matter is in accordance with the decision of the Court of Appeal in Re Patrick [1891] 1 Ch 82, a case concerning a voluntary settlement by which the settlor assigned certain debts to trustees before the Judicature Act 1873, came into operation. The Court, consisting of Lindley, Bowen and Fry LJJ, held that there had been a complete assignment of the debts. The decision has been somewhat depreciated by text-writers, because Lindley LJ said that the assignment of the debts was complete “within the principle of Kekewich v Manning [(1851) 1 De GM & G 176; 42 ER 519] which is the leading case on this subject” (at 87); and it has been pointed out that Kekewich v Manning was a case of the assignment of an equitable chose, not of a legal chose in action. But, as between assignor and assignee, does that [34] make any difference? Why should consideration be said to be necessary to bind the conscience in the one case when it is not necessary in the other? Before 1873 a chose in equity and a chose in action were both transferable in equity and only in equity. The assignments were alike made effective because of the remedies that a court of equity could provide. To speak of equity not perfecting an imperfect gift seems beside the point where no gift could be made except in equity. To say that the donor must do everything that according to the nature of the property is necessary to transfer it means little when it is in law not transferable; for equity looks to the intent not the form. These considerations have added weight in the case of part of a debt; for a part of debt never was assignable so as to be recoverable at law even in an indirect way. It being necessary for the decision of this case to come to a conclusion on a vexed question, my conclusion is that the deed that the taxpayer executed did not fail because it was voluntary. The whole of a debt being now voluntarily assignable under the statute, it would be a strange anomaly if a part could not be the subject of voluntary equitable assignment. To say, “you can give away the whole, but you cannot give away a part, for a part you must get a price” would seem to contradict common sense. And I do not think it

466

[16.30]

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Norman v Federal Commissioner of Taxation cont. necessary to do so.

[16.35]

1.

Notes&Questions

The High Court (per Dixon CJ, Menzies and Owen JJ, McTiernan and Windeyer JJ dissenting) held that the interest was a future chose, a mere expectancy, which had been assigned ineffectively for lack of consideration from the wife. Menzies J (at 21) characterised “interest which may accrue in the future upon an existing loan repayable without notice as having the character of a right to come into existence”. Windeyer J held that although the interest assigned was not due and payable at the date of the assignment, this did not mean that what was assigned was a future chose in action. His Honour reasoned as follows (at 37–38): [A] contract to pay a sum of money on a future day, call it interest or what you will, calculable according to conditions presently agreed, is in my view a presently existing chose in action. As between the parties to a contract of money lent at interest the borrower is simply a debtor who must pay a sum or sums (called interest) that he has, for good consideration (the forbearance of the creditor) contracted to pay to his creditor at the time or times stipulated. Why should not the creditor before the date when this debt becomes due and payable, assign his right to receive payment on the due date? He could assign the whole under the statute … Why not part in equity? What he assigns is not, it seems to me, a right to arise in the future but a present contractual right to be paid at a future date a sum of money, to be calculated in the agreed manner … Interest on money lent is recoverable by action at law as a debt separate from the principal, as the common indebitatus count for interest shows.

McTiernan J (at 18) made similar observations. Was the minority correct on this point? The entire court held that the dividends were assessable income of the husband in that they were future choses that could not be assigned in equity without consideration. In the words of Windeyer J (at 40): “The Court will not compel directors to declare a dividend … A dividend is not a debt until it is declared. Until then it is in the eye of the law a possibility only.” 2.

Why can a part of a debt only be assigned at equity (except in Western Australia and New Zealand, where part of a debt may be assigned by statute: Property Law Act 1969 (WA), s 20(3); Property Law Act 2007 (NZ), s 48)?

3.

How do courts of equity treat assignments of future equitable choses? Why is consideration necessary for this purpose? Is contract law relevant in this regard? Consider the statements of Dixon J in Palette Shoes Pty Ltd (in liq) v Krohn (1937) 58 CLR 1 at 27: [Where] the subject to be made over does not exist, the matter primarily rests in contract. Because value has been given on the one side, the conscience of the other party is bound when the subject comes into existence, that is, when, as is generally the case, the legal property vests in him. Because his conscience is bound in respect of a subject of property, equity fastens upon the property itself and makes him a trustee of the legal rights or ownership for the assignee. But, although the matter rests primarily in contract, the prospective right in property which the assignee obtains “is a higher right than the right to have specific performance of a contract”, and it may survive the assignor’s bankruptcy because it attaches without more eo instanti when the property [16.35]

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Part 4: Assignment and Disposition of Interests

arises and gives the assignee an equitable interest therein (Re Lind [1915] 2 Ch 345 at 364, 365, 366). In that case Swinfen Eady LJ describes the effect of the decisions thus: “It is clear from these authorities that an assignment for value of future property actually binds the property itself directly it is acquired – automatically on the happening of the event, and without any further act on the part of the assignor – and does not merely rest in, and amount to, a right in contract, giving rise to an action. The assignor, having received the consideration, becomes in equity, on the happening on the event, trustee for the assignee of the property devolving upon or acquired by him, and which he had previously sold and been paid for” (at 360).

Why is equity’s intervention in cases of purported assignments of future choses in action not premised on the availability of specific performance? In what way is the assignor a trustee if the relevant property has yet to come into existence? What is the subject matter of this trusteeship? 4.

Why is consideration unnecessary for a valid assignment if the assignor has done everything that is necessary to effect the assignment (that is, if the gift effected by the assignment is completely constituted: see [16.05])? Why is consideration necessary if this is not case? Even in the absence of both complete constitution and consideration, can an assignment be given legal effect through the doctrine of estoppel (discussed in Ch 10)? Consider the following statement by Kitto J in Olsson v Dyson (1969) 120 CLR 365 at 376: A promise for valuable consideration to assign the property is enough for this purpose, for equity, regarding that as done which ought to be done in return for the consideration given, holds the assignee to have an equitable interest commensurate with the legal interest which specific performance of the promise would give him. But there is no equity to perfect an imperfect gift: because of the absence of consideration a purported assignment, if incomplete as a legal assignment, effects nothing in equity. True it is that some subsequent conduct of the intending donor, encouraging or inducing the intended donee to act to his prejudice on the footing that the property or some interest in it has become his, may make it unconscionable for the donor to withhold the property or interest from the donee, and equity may on that ground hold the donee to be entitled to the property; but that is another matter, and must be considered separately.

Can it alternatively be effected through a broader equitable principle, say, based in unconscionability? See Pennington v Waine [2002] 1 WLR 2075 (extracted at [18.95] (Dal Pont)).

Equuscorp Pty Ltd v Haxton [16.40] Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498; 286 ALR 12 (High Court of Australia) (footnotes omitted) GUMMOW AND BELL JJ … [69] In 1998, Equuscorp sued the respondents in the Supreme Court of Victoria as assignee of Rural Finance Pty Limited (“Rural”) under a written assignment for value (“the Assignment”) which was dated 30 October 1997 and executed on behalf of Rural by its receivers and managers. Written notice of the Assignment had been given by Equuscorp to the respondents in November 1997. [70] The Assignment was executed in performance of what in substance was a covenant for further assurance in an asset sale agreement dated 16 May 1997, the governing law of which was stated in cl 13 thereof to be that of Queensland. The litigation has been conducted on the footing that: (i) this also was the proper law of the Assignment, (ii) the intrinsic validity of the Assignment was governed by its 468

[16.40]

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Equuscorp Pty Ltd v Haxton cont. proper law, and (iii) s 199 of the Property Law Act 1974 (Q) selected for its operation instruments with a Queensland proper law. Section 199 is modelled on the familiar provision made in s 25(6) of the Judicature Act 1873 (UK) for absolute assignments of presently existing debts and other legal choses in action. [71] The receivers and managers had been appointed to Rural by Equuscorp in 1991 under a registered charge it held over the assets of Rural. Rural was wound up on 6 March 1996 pursuant to the resolution of its creditors at a meeting convened under s 439A of the Corporations Law. Neither the liquidator nor the receivers were joined as parties to the litigation. The objective sought to be achieved by Equuscorp in the Supreme Court litigation was the recovery of: (i) moneys representing principal and interest Equuscorp claimed to be due and owing by the respondents under written loan agreements which they had made with Rural in the period 1987-1989, and which had been assigned to Equuscorp as described above; and (ii) interest on that outstanding balance at the rate of 17 percent per annum as provided in the loan agreements. [72] The primary judge (Byrne J) held that each of the five loan agreements now the subject of the appeals to this Court was “unenforceable for illegality”. However, in the alternative, Equuscorp had claimed the same amounts as money had and received by the respondents to the use of Equuscorp. It is this alternative claim, not that in contract, and the anterior question of the effectiveness of the Assignment in this respect, which provide the subject matter of the grants of special leave to Equuscorp to appeal to this Court. [73] The principal relief Equuscorp seeks are judgments for orders “in a sum to be determined”. Such orders would be interlocutory in character. The Assignment [74] The Court of Appeal, differing from Byrne J, held that while “a robust construction” was applicable to “commercial documents”, the subject matter of the Assignment did not extend to alternative rights and remedies which were predicated upon the unenforceability of the loan agreements. [75] The reasoning of Byrne J is to be preferred and should be accepted. Clause 1 of the Assignment assigned the debts of Rural and its interests under the loan agreements. This did not catch the claims Rural might have to recover from the borrowers upon an action for money had and received. But the effect of cl 2 was that the instrument was to take effect as an immediate and absolute legal assignment not only of the subject matter of cl 1 but also of all “other remedies for these matters”. Any action for money had and received was a remedy “for these matters” in the sense that it arose out of or by reason of the failure of the loan agreements. There would have been little sense for the receivers and managers to retain these restitutionary actions and for Equuscorp to pay for some but not all of the rights of Rural against the borrowers. [76] It may be said that the actions by Rural against the respondents for money had and received only accrued after the Assignment, when in the course of the subsequent litigation the respondents, by their defences, pleaded that the loan agreements were unenforceable at their option. However, even if the actions for money had and received were to be regarded as no more than expectancies at the date of the Assignment, the presence of the value given by Equuscorp to the receivers and managers of Rural in equity would have immediately transferred the equitable title to the choses in action to Equuscorp when the actions accrued. [77] A further analysis, which may avoid any issues arising from the absence of Rural as a party to the enforcement of an equitable assignment of a legal chose in action, was offered by Equuscorp and is as follows. Section 420(2)(g) of the Corporations Law empowered the receivers and managers of Rural to convert its “property … into money”. “Property” was so defined in s 9 as to include any legal or equitable estate or interest, whether present or future, vested or contingent. The legislative end in [16.40]

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Equuscorp Pty Ltd v Haxton cont. view is the turning to account of all property of the company, including expectancies, in the course of the conduct of the receivership so as to remove the company from any further involvement as a necessary party in any subsequent litigation brought by the purchaser against an obligor – here, the respondent investors. [78] However that may be, an action by an equitable assignee without joining the assignor is not a nullity; the action may be liable to be stayed pending joinder, but no such application for a stay has been made in the present litigation. The authorities considered by Lord Collins of Mapesbury in Roberts v Gill & Co indicate that any outstanding assignor must be joined before final judgment can be obtained by the assignee, but that has been held not to be necessary where the assignee is seeking interlocutory relief. As noted above, if Equuscorp were to obtain the relief it seeks in these appeals, this would not be final in nature.

470

[16.40]

CHAPTER 17 Assignment of Equitable Interests [17.05]

Formal requirements for inter vivos trusts ........................................ 471 [17.05] [17.10]

Comptroller of Stamps (Vic) v Howard-Smith .......................... 471 PT Ltd v Maradona Pty Ltd .................................................... 472

Extracts from Dal Pont, Equity and Trusts: Commentary and Materials, Ch 3.

Comptroller of Stamps (Vic) v Howard-Smith [17.05] Comptroller of Stamps (Vic) v Howard-Smith (1936) 54 CLR 614 (High Court of Australia) DIXON J … [621] … A voluntary disposition of an equitable interest may take one of at least three forms. It may consist of an expression or indication of intention on the part of the donor that he shall hold the equitable interest vested in him upon trust for the persons intended to benefit. In that case he retains the title to the equitable interest, but [622] constitutes himself trustee thereof, and, by his declaration, imposes upon himself an obligation to hold it for the benefit of others, namely, the donees. In the second place, the disposition may consist of a sufficient expression of an immediate intention to make over to the persons intended to benefit the equitable interest vested in the donor, or some less interest carved out of it. In that case communication to the trustee or person in whom the legal title to the property is vested is not required in order effectually to assign the equitable property. Notice to the trustee may be important to bind him to respect the assignment and in order to preserve priorities. But it is not a condition precedent to the operation of the expression of intention as an assignment. Nor does it appear necessary that the intention to pass the equitable property shall be communicated to the assignee. What is necessary is that there shall be an expression of intention then and there to set over the equitable interest, and, perhaps, it should be communicated to someone who does not receive the communication under confidence or in the capacity only of an agent for the donor. In the third place, the intending donor for whom property is held upon trust may give to his trustee a direction requiring him thenceforth to hold the property upon trust for the intended donee. A beneficiary who is sui juris and entitled to an equitable interest corresponding to the full legal interest in property vested in his trustee may require the transfer to him of the legal estate or interest. He may then transfer the legal interest upon trust for others. Without going through these steps he may simply direct the existing trustee to hold the trust property upon trust for others. Without going through these steps he may simply direct the existing trustee to hold the trust property upon trust for the new beneficiaries. He cannot without the trustee’s consent impose upon him new active duties. But he may substitute a new object, at any rate in the case of any passive trust. Accordingly, a voluntary disposition of an equitable interest may be effected by the communication to the trustee of a direction, intended to be binding on him, thenceforward to hold the trust property upon trust for the donee. But it must be a direction, and not a mere authority revocable until acted upon. Such an authority is not in itself an assignment. It may, it is true, result in a transfer of an equitable interest. For the trustee acting [623] upon it may make an effectual appropriation of the trust property to the new beneficiary, or may acknowledge to him that he holds the trust property thenceforward on his behalf. If the authority contemplates or allows such a method of imparting an equitable interest to the donee, the action of the trustee may be effectual to bring about the result. But, in such a case, it is not the donor’s expression of intention which per se constitutes the assignment. It is the dealing with the trust [17.05]

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Part 4: Assignment and Disposition of Interests

Comptroller of Stamps (Vic) v Howard-Smith cont. property under his authorisation. The distinction is, of course, of great importance in considering whether a document is itself an assignment, and, as such, liable to stamp duty. Extracts from Dal Pont, Equity and Trusts: Commentary and Materials, Ch 18.

PT Ltd v Maradona Pty Ltd (No 2) [17.10] PT Ltd v Maradona Pty Ltd (No 2) (1992) 27 NSWLR 241 (Supreme Court of New South Wales) [EMFNV lent money to the defendant (Maradona) repayable after an expiry of three years. The loan was secured on a mortgage (and the evidence showed that EMF International SA was the beneficial owner of the mortgage portfolio). The plaintiff (PT, via EMF Mortgage Investments BV (EMFBV)) was assignee of the debt owed by Maradona to EMFNV. The court held that the assignment was an equitable assignment (see Ch 3) and so had to determine whether it was required to be evidenced in writing according to the statutory requirements.] GILES J … [249] … [I]t is necessary to go to the third question of whether in the events that happened there was a disposition of the equitable interest of EMF International SA falling within s 23C(1)(c). That came down to the sub-questions: (a)

whether there was a disposition of that equitable interest at all;

(b)

whether s 23C(1)(c) applied only to a disposition of an equitable interest which was an interest in land …

Disposition: The definition of “disposition” in s 7 of the [Conveyancing Act 1919 (NSW)] is inclusory: it points to a wide concept, extending to any form of assurance, disclaimer or release of property. In Grey v Inland Revenue Commissioners [1960] AC 1, the House of Lords considered the application of the equivalent to s 23C(1)(c) to a transaction in which a beneficiary orally directed the trustee to thenceforth hold the trust property on trust for third parties. It was held that the oral directions were dispositions of the beneficiary’s equitable interest in the trust property. Viscount Simonds said (at 12–13) that “disposition” should be given its natural meaning and included a direction whereby the beneficial interest in the trust property vested in the beneficiary became vested in another or others. Lord Radcliffe said (at 15) that the direction was in any ordinary sense of the words a disposition of the beneficiary’s equitable interest, and observed (at 16) that even if the effect of it was to determine completely or pro tanto the subsisting equitable interest of the giver of the direction: … Something had to happen to that equitable interest in order to displace it in favour of the new interests created by the direction: and it would be at any rate logical to treat the direction as being an assignment of the subsisting interest to the new beneficiary or beneficiaries or, in other cases, a release or surrender of it to the trustee. Lord Reid concurred in the speech of Viscount Simonds, and Lords Cohen and Keith agreed generally. [250] In Adamson v Hayes (1973) 130 CLR 276, there was considered the effect of s 34(1) of the Property Law Act 1969 (WA), the equivalent to s 23C(1) of the Act, on mining claims. Barwick CJ thought that the agreement did not transfer any interest in the claims because there was no intention to do so until other events occurred. Menzies J thought that there were either declarations of trust in relation to each claim or, if not that, the disposition of equitable interests because the effect of the agreement “was to alter equitable rights in the claims” (at 293). Walsh J considered that there were dealings with the equitable interests in the claims because the shares in which they were to be 472

[17.10]

Assignment of Equitable Interests

CHAPTER 17

PT Ltd v Maradona Pty Ltd (No 2) cont. beneficially held were altered (at 296). Gibbs J was of the view that the equitable interests were created by the agreement, and hence the agreement did not effect a disposition of those equitable interests and Stephen J said (at 319–320) that it “may be that … it is possible” to see the disposal of existing equitable interests as well as their creation. No clear guidance is provided by this case, but it does not call for any narrow concept of what may amount to a disposition … As I have said, other than by the suggestion of a vendor’s lien, PT did not submit that the path in my earlier reasons to the conclusion that there was no equitable interest outstanding in anyone other than PT was erroneous. In the beginning, EMF International SA held an equitable interest separate from the legal ownership of the debt. At the end, it no longer held that equitable interest, and (subject to s 23C(1)(c)) PT had the equitable interest in the debt. The events in between took place in accordance with the intention of EMF International SA that the legal title to the debt should be assigned to EMF BV and thence to PT, and that by reason of those acts PT should have the equitable title as well as the legal title. In my view, in the natural meaning of “disposition” there was a disposition of the equitable interest of EMF International SA. If regard be had to the words of Lord Radcliffe, something happened to that equitable interest whereby it was displaced in favour of the equitable interest of PT, whether what happened be regarded as an assurance of the equitable interest from EMF International SA to PT or a disclaimer or release of it in order that PT could have the legal and beneficial ownership (but in fact only beneficial ownership) of the debt. Realty or personalty: Paragraph (c) of s 23C(1) does not in terms confine the equitable interest to an equitable interest in land, and is to be contrasted in this respect with par (a) and par (b); its language is wide enough to encompass equitable interests in personalty. There has long been doubt whether it truly does so, provoked by the appearance of s 23C in Div 3 of the Act headed “Assurances of land”, a Division which true to that heading otherwise deals only with the creation or assurance of interests in land. The headings in a statute may be [251] taken into consideration as an aid to construction … and PT submitted that the heading to Div 3 indicated that the subject matter of the Division, and thus of s 23C(1)(c), was land rather than personalty. Decisions in England in relation to the equivalent provision (but without the heading) have applied par (c) to equitable interests in personalty: Grey v Inland Revenue Commissioners; Oughtred v Inland Revenue Commissioners [1960] AC 206; Vandervell v Inland Revenue Commissioners [1967] 2 AC 291. In Adamson v Hayes, Walsh, Gibbs and Stephen JJ considered that par (a) of the Western Australian provision applied to equitable interests (at 297, 304 and 318–319). Relevant to their Honours’ view was that s 33 of the Western Australian Act provided that conveyances of land were void for the purpose of conveying or creating a legal interest unless made by deed, and a provision to that effect is found in s 23B of the Act. It followed that their Honours rejected the construction of s 34(1) favoured by Menzies J by which par (a) dealt with the creation or disposition of legal interests in land, par (b) dealt with the creation by declaration of trust of equitable interests in land, and par (c) dealt with the disposition of equitable interests in land. Specifically in relation to whether par (c) applied to equitable interests in personalty, Menzies J considered that it did not (at 293), Gibbs J considered that it did (at 302), and the other members of the court expressed no opinion. But if par (a) applies to the disposition of an equitable interest in land, par (c) would have to apply to the disposition of an equitable interest in something else in order to have an independent operation. In so far as Walsh J and Stephen J were of the same mind as Gibbs J in holding that par (a) extended to the disposition of an equitable interest in land, and in rejecting the construction favoured by Menzies J, it may be that their Honours would have been led to the same conclusion as Gibbs J. That is somewhat speculative, and s 34(1) of the Western Australian Act was not contained in a portion of the Act directed to assurances of land. Authority does not provide a clear answer. [17.10]

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PT Ltd v Maradona Pty Ltd (No 2) cont. There is no compelling reason to require writing for the disposition of an equitable interest in land but not for the disposition of an equitable interest in personalty, as the English decisions demonstrate. In my opinion the better view is that par (c) extends to the disposition of equitable interests in personalty. But for the context of s 23C, that conclusion would follow both in principle (there being no reason to distinguish between interests in land and interests in personalty in this respect), from the terms of s 23C itself as construed by the majority in Adamson v Hayes, and from the application of an equivalent subparagraph to interests in personalty by the House of Lords. I would reach the same conclusion notwithstanding the context in which s 23C appears. As the authorities to which I earlier referred show, headings are but one factor to be taken into account in the event of uncertainty. It is undesirable that provisions in the same or substantially the same terms, which it must be taken were enacted to achieve the same purposes, should be given a meaning in New South Wales different from that which they have [252] been held to have in England and possibly in Western Australia because of the uncertain indication provided by the position of s 23C in the Act.

[17.15]

Notes&Questions

1.

The relevant provisions in each jurisdiction are as follows: Civil Law (Property) Act 2006 (ACT), s 201(3); Conveyancing Act 1919 (NSW), s 23C(1)(c); Law of Property Act 2000 (NT), s 10(1)(c); Property Law Act 1974 (Qld), s 11(c); Law of Property Act 1936 (SA), s 29(1)(c); Conveyancing and Law of Property Act 1884 (Tas), s 60(2)(c); Property Law Act 1958 (Vic), s 53(1)(c); Property Law Act 1969 (WA), s 34(1)(c).

2.

Do the formality requirements prescribed by s 23C(1)(c) extend to personalty? What is the rationale for this? Is it possible for a disposition to come within each of s 23C(1)(a), 23C(1)(b) and 23C(1)(c)? If so, what are the applicable formality requirements in such a case? If not, why not?

3.

If a beneficiary of an existing trust directs the trustee to hold the property on trust for a new beneficiary, is writing required? Is the release or surrender of an equitable interest required to be in writing? See Grey v Inland Revenue Commissioners [1960] AC 1 at 12–13 per Viscount Simonds. What about a disclaimer of an equitable interest? Is this a disposition for the purposes of s 23C(1)(c)? See the statutory definition of “disposition” in Civil Law (Property) Act 2006 (ACT), Dictionary; Conveyancing Act 1919 (NSW), s 7(1); Law of Property Act 2000 (NT), s 4; Property Law Act 1974 (Qld), Sch 6; Law of Property Act 1936 (SA), s 7; Property Law Act 1958 (Vic), s 18(1); Property Law Act 1969 (WA), s 7.

4.

Are the formalities required where the legal and beneficial owner disposes of her or his beneficial ownership, or intends to dispose of both legal and beneficial ownership? If not, why not? See Vandervell v Inland Revenue Commissioners [1967] 2 AC 291 at 312 per Lord Upjohn, at 317 per Lord Donovan.

5.

Why does an oral declaration of trust not offend s 23C(1)(c)? Conversely, must the assignment or surrender of an interest under a trust fulfil the s 23C(1)(c) requirements?

474

[17.15]

CHAPTER 18 “Assignment” of Future Property [18.05]

Shepherd v Federal Commissioner of Taxation ......................... 475

Extracts from Dal Pont, Equity and Trusts: Commentary and Materials, Ch 3.

EQUITABLE ASSIGNMENTS Shepherd v Federal Commissioner of Taxation [18.05] Shepherd v Federal Commissioner of Taxation (1965) 113 CLR 385 (High Court of Australia) [The appellant taxpayer was the grantee of certain letters patent relating to castors. He granted to a third party (Cowen) a licence to manufacture castors in accordance with the specifications in these letters patent. In return Cowen agreed to make payments each month to the appellant, or to his personal representatives or assigns, that were directly proportional to the gross sale price of the castors in question. The taxpayer, by deed, purported to assign to five persons by way of gift “all my right title and interest in and to an amount equal to ninety per centum of the income [by way of royalties from the sales of the castors] which may arise during a period of three years from the date of this assignment”. The issue was whether this assignment was effective to shift the burden of taxation on the royalties from the appellant to the assignees.] BARWICK CJ … [390] … [A] part or parts of a chose in action can be assigned in equity. In my opinion, if the assignment of a part of the chose in action consisting of the promise to pay royalties is complete, [391] it is effective to vest the appropriate part of the right equitably in the assignee, whether or not the assignment is for consideration or by way of gift. It is only if the donee needs the assistance of equity to complete the gift, as distinct from enforcing the right given, that he can be met with the defence that equity will not assist a volunteer. Here, if there was an immediate gift of a proportion of the right to the royalties, the donees need seek no assistance. If the deed upon its true construction evidences an intention presently to assign part of the right, the assignment would be complete within the doctrines of equity. If, on the other hand, the deed purports to assign the stated proportion of the royalties as after-acquired property the assignment would be ineffective in equity for want of consideration. The question therefore, in my opinion, is a narrow one, namely, whether upon its true construction the deed purports to assign part of the right to the royalties or of the royalties themselves as after-acquired property … The task in construing the deed is to find the meaning intended by the taxpayer as expressed. No form of words is required for an equitable assignment but it is necessary to find the expression of an intention to assign. The deed does purport in terms presently to assign its subject matter and to do so absolutely and unconditionally. In describing what he considered he had done by the operative words of the deed, the taxpayer in the second paragraph of the deed, speaks of the persons “to whom my right title and interest … is assigned”. The difficulty in the case arises in the description of the subject matter of the gift. That description begins with the words “all my right title and interest in and to” which words are appropriate to the assignment of a chose in action as distinct from its ultimate produce. But the words that follow create the problem, “an amount equal to ninety per centum of the income which may arise during a period of three years from the date of this assignment”. Had the taxpayer been dealing with his entire right to royalties, probably the description of the subject matter of the intended gift would not have been difficult. But because the deed was to deal [18.05]

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Shepherd v Federal Commissioner of Taxation cont. with only part of that right and that only for a limited period of years, the draftsman, it seems to me, has been led into the use [392] of the awkward words which I have quoted. I think it not inappropriate when seeking the intended meaning of the words to notice the consequences of not finding in the language of the deed, as a whole, an intention to make a present gift of part of the right to royalties arising under the licence to manufacture. For if the deed poll is not an equitable assignment of part of that right it must be, in my opinion, an attempted equitable assignment of the royalties as after-acquired property. Equity would treat such an assignment as or as evidencing a promise to hand over the royalties when received: but the promise being voluntary would not be enforced by it. The directions given by the taxpayer to the licensee subsequent to the execution of the deed poll would then be no more than revocable mandates. As such, of course, they would not support the taxpayer’s objections. No doubt to speak of the subject matter of the gift as an amount of income to accrue from royalties would seem to support the conclusion that what is to be given is the property in the form of money produced by the promise to pay royalties. But the full description of the subject matter of the assignment is of “the right” to such amounts – an unlikely expression to describe the money itself. In my opinion, it indicates that the taxpayer was not intending to promise that he would pay money measured by the amount of royalties accrued or that he was intending to assign the royalties themselves. Its use rather suggests, to my mind, that he was intending to place the persons he wished to benefit in the position of being able themselves to assert a right to receive the appropriate amounts from the licensee. As I have mentioned, the dominant consideration is the intention of the taxpayer as expressed in the deed. The expressed indications of an intent presently to assign portions of his right to royalties are strong enough, in my view, to overbear any contrary indication which might possibly be derived from the words which I have just discussed. These clumsy expressions are used, in my opinion, as I have said, in an endeavour to attain the two desiderata of a gift of part only of the right and only for a limited period of years. They are not in any case really so inappropriate to a present gift of a part of the right to royalties that they should be allowed to dominate the construction and to displace the evident intention expressed in the earlier part of the deed. I have come to the conclusion that upon the true construction of the deed poll the taxpayer did thereby equitably assign to the named donees the stated proportions of his right during [393] the ensuing three years to royalties from the licensee under the licence to manufacture the patented article. It was also submitted by the Commissioner that the subject matter of the intended assignment was a mere spes or possibility which could not be voluntarily assigned. This argument concedes the intention to assign, but attacks its subject matter as insusceptible of assignment by way of gift. If there is no such intention to assign evidenced, the Commissioner would succeed on other grounds, as I have mentioned. The basis of this submission is that in the event there may not be any amount payable for royalties because no sales of castors may be made. But this misconceives the matter. That a promise may not be fruitful does not make it incapable of assignment. Reference was made on behalf of the Commissioner in this connexion to Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 [extracted at [16.30]]. But that case did not decide anything to the contrary of what I have just said. So far as the case dealt with the attempted assignment of the promise to pay interest, it must, in my respectful opinion, depend upon the view that the promise to pay interest in that case inhered in the existence of a principal sum upon which the interest was to be calculated and payable. Consequently, there was there no promise to pay interest, if no principal remained due. The case, in my opinion, has

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Shepherd v Federal Commissioner of Taxation cont. no relevance to the problem raised by the language of this deed poll as applied to the facts of this case.

[18.10]

1.

Notes&Questions

A majority of the High Court held that the deed was not an attempt to assign future property (mere expectancies) but was a present assignment of an existing chose in action. See also at 397 per Kitto J. Owen J, in dissent, concluded (at 399–400) that: The opening words of the provision point to the conclusion that what was being assigned was a then existing right but the difficulty that seems to me to lie in the way of the construction for which the appellant contends is that what was expressed to be assigned was not the appellant’s right, title and interest in and to ninety per cent of the royalties that might thereafter become payable under the licence. It was his “right title and interest in and to an amount equal to ninety per centum of the income which may accrue … from royalties payable by … Cowen” and “the income which may accrue” is plainly a reference to income which may accrue to the covenantor. Notwithstanding the opening words of the covenant I think it is one by which the appellant undertook to pay to each of the persons named an amount to be measured by reference to the amount of royalties if and when they accrued to him under the licence. For the appellant reliance was also placed upon the fact that the later provision of the deed, which named the persons to whom the payments were to be made and defined the amount to be paid to each of them, speaks of the persons “to whom my right title and interest in such income is assigned and the proportions in which the amount of ninety per centum of such income is assigned” and the words “such income” refer back to “the income which may accrue from royalties”. It was submitted that this shows that by the earlier clause it was intended to assign the appellant’s contractual right to receive royalties if and when they became payable or at least to assign so much of that contractual right as would have entitled him to receive ninety per centum of such royalties. It is true that the two clauses do not run well together. One or the other must be moulded to some extent to fit the other but the first is the operative provision and the purpose of the later clause is merely to identify the persons who are intended to be benefited and specify the extent to which each is to benefit. In the result, therefore, I am of opinion that what the appellant covenanted to do was to pay to the persons named amounts to be ascertained by reference to so much of his future income as might consist of royalties and that he did not assign a contractual right to receive any part of that income.

How does Owen J’s approach differ to that of the majority? 2.

What explains the divergent outcomes between Norman and Shepherd? Was it simply factual distinctions, or were there differences in approach? Is Barwick CJ’s attempt to distinguish Norman convincing? Kitto J in Shepherd also distinguished Norman, reasoning as follows (at 395–396): [Norman], however, stands in clear contrast with the case that is before us. The deposit had been made under an agreement which provided that the firm might repay the money or any part of it at any time without notice, but that the taxpayer should not be entitled to require payment except upon eighteen months’ notice. As it turned out, the money was not repaid before the end of the relevant year of income, so that interest in accordance with the agreement became payable and was paid in respect of that year. The interest was held to be the assignor’s income, on the ground that the attempt to assign the right to receive it was void as being an attempt to assign, without valuable consideration, property not presently in existence. To understand the ground of [18.10]

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decision it is necessary to remember that in respect of the future year the loan agreement recorded the terms which should apply to the relationship of borrower and lender so long as such a relationship should exist, but it left the borrower free to decide whether such a relationship should exist in the relevant year. It gave the lender no right in any possible event to insist upon there being a loan in existence in that year. In the present case the situation at the date of the assignment was exactly the opposite. There existed at that time a contractual relationship between the appellant and Cowen which by its terms must continue throughout the ensuing three years, whether Cowen should wish it to continue or not. The appellant, therefore, had a vested right in respect of those three years. It might indeed become divested, for the licence agreement provided for cesser of Cowen’s liability to pay royalties if the letters patent should not be maintained or should be declared void; but the right existed, though it was thus subject to defeasance by events not within the control of Cowen. It is true also that what the appellant’s right under the licence agreement would yield in royalties in those years – indeed, whether it would yield any royalties at all in those years – no doubt depended upon contingencies partly within the control of Cowen. It was for him to decide how many castors, if any, he would manufacture in accordance with the appellant’s inventions and try to sell. Market conditions would then determine how successful his efforts to sell would be. But whatever he might do or desire to do, the existence of the appellant’s contractual right would be unaffected, though the quantum of its product might be. The tree, though not the fruit, existed at the date of the assignment as a proprietary right of the appellant of which he was competent to dispose; and he assigned ninety per centum of the tree.

Is Kitto J’s attempt to distinguish Norman any more convincing? Do you discern any sympathy in the judgments of Barwick CJ or Kitto J in Shepherd for Windeyer J’s conclusion in Norman regarding the assignment of interest (as to which see [16.30])? 3.

In Rodick v Gandell (1852) 1 De GM & G 763 at 777, 778; 42 ER 749 at 754 Lord Truro stated that “an agreement between a debtor and a creditor that the debt owing shall be paid out of a specific fund coming to the debtor … will operate as an equitable assignment of the … fund”. Is this correct? Is more required to effect an equitable assignment than a mere request to a debtor to pay the debt to the creditor of the person making the request? In light of Norman and Shepherd, what is the appropriate inquiry regarding the assignor’s intention?

4.

The distinction between present and future choses is highlighted by the case law dealing with purported assignments of partnership interests. Note that “a partner has an interest in every asset of the partnership and this interest has been universally described as a ‘beneficial interest’, notwithstanding its peculiar character”: Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd (1974) 131 CLR 321 at 327 per McTiernan, Menzies and Mason JJ. In the leading Australian case, Federal Commissioner of Taxation v Everett (1980) 143 CLR 440, the respondent taxpayer, who was a partner in a law firm, assigned by deed and for valuable consideration 6/13 of his 13 per cent partnership share to his wife “together with all those rights including the right to receive an appropriate share of the profits of the partner to which an assignee of a share in a partnership is entitled by virtue of section 31 of the Partnership Act”. The deed declared that the wife was not to become a partner of the firm as a consequence of the assignment, nor was she entitled to interfere with partnership business. The issue was whether the assignment was effective to make the wife taxable on six per cent of the partnership profits and to relieve the taxpayer from liability to

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taxation in respect of the share assigned. The High Court found that the assignment was indeed effective for this purpose, reasoning as follows (at 450–451, 452): [A]n equitable assignment of present property for value, carrying with it a right to income generated in the future, takes effect at once whereas a like assignment of mere future income, dissociated from the proprietary interest with which it is ordinarily associated, takes effect when the entitlement to that income crystallizes or when it is received, and not before … The consequence in the present case is that because the respondent assigned present property, a chose in action, being a share of his interest in the partnership which carried with it the right to a proportionate share of future income attributable to his interest, the assignment became effective at once and conferred on his wife an immediate equitable entitlement as against the respondent and the other partners to such income referable to the share assigned as might subsequently be derived. This case is to be distinguished from Kelly’s Case and other cases in which there have been assignments of future income dissociated from the property or proprietary right to which that income is attributable.

The reference to Kelly’s Case is to Kelly v Commissioner of Inland Revenue (1969) 1 ATR 380, where two taxpayers, both members of two partnerships, attempted to alienate their respective rights to partnership income to relatives of the other partner. Woodhouse J held that a right to share in the income of a partnership cannot exist independently of the specified share in the partnership, and so no effective alienation of income took place for tax purposes. His Honour reasoned (at 383): [I]t is clear enough that one partner’s interest in the capital of a partnership is not something which can be quantified and assigned separately from the share in the partnership itself. During the continuance of the partnership a partner can assign all or part of his share in it and consequentially the right to prospective profits and any interest he may have in partnership capital. But such a share is not a thing separate from the share of another partner. It is a fractional interest in a surplus of assets over liabilities on a winding-up and a fractional interest in the future profits of the partnership business … If this be the position concerning a capital interest or the fractional share in the partnership a fortiori it must be the position in relation to shares in prospective partnership income.

[18.10]

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(A): Priority Regimes ...................................................................................................... Chapter 19: Priorities Under the Sale of Goods Act ...................... .. 483 Chapter 20: General Law Priority Rules: Contests Between Legal and Equitable Interests ............................................ .. 513 Chapter 21: General Law Priority Rules: Contests in Equity ......... .. 525 (B): Commercial Dealings as Security Interests Over Property ............................... Chapter 22: Traditional Forms of Security .................................... .. 557 Chapter 23: Security Within the Scope of the Personal Property Securities Act 2009 (Cth) ........................................... .. 575

PART5

PART 5: (A) PRIORITY REGIMES AND (B) COMMERCIAL DEALINGS AS SECURITY INTERESTS OVER PROPERTY

CHAPTER 19 Priorities Under the Sale of Goods Act [19.05]

OVERVIEW ............................................................................................................... 483

[19.10]

THE CONDUCT OF THE OWNER ......................................................................... 484 [19.20]

A metaphorical title becomes a real title .......................................... 484 [19.25] [19.35]

[19.40]

THE SELLER WITH A VOIDABLE TITLE ................................................................... 494 [19.45]

[19.50]

Car and Universal Finance Co Ltd v Caldwell ........................... 494

THE SELLER IN POSSESSION ................................................................................ 496 [19.60] [19.70]

Sale – seller to owner .......................................................................... 497 “Continues or is in possession” ......................................................... 497 [19.75]

[19.80]

Eastern Distributors Ltd v Goldring (Murphy, Third Party) ................................................................................... 484 Thomas Australia Wholesale Vehicle Trading Co Pty Ltd v Marac Finance Australia Ltd ................................................ 488

Pacific Motor Auctions Pty Ltd v Motor Credits (Hire Finance) Ltd .......................................................................... 497

THE BUYER IN POSSESSION ................................................................................. 504 [19.90]

Bought or agreed to buy .................................................................... 504 [19.100]

Gamer’s Motor Centre (Newcastle) Pty Ltd v Natwest Wholesale Australia Pty Ltd .................................................... 505

Extracts from Pearson, Commercial Law: Commentary and Materials, Ch 9.

OVERVIEW [19.05] A problem arises if a purchaser buys goods from someone with no right to sell them.

It is possible to contract for the sale of goods which the seller does not yet own as the assumption is that the seller will be able to procure the goods. This is commonly the case with unascertained commodities and sometimes with future specific goods. It is a different matter if the seller purports to transfer title to goods when he has no right to do so. In such a situation the owner may wish to recover the goods. This may be easier in the case of specific goods than with unascertained goods. The true owner may have an action in the torts of conversion, detinue, or trespass to goods. (See Chapter 21 (Pearson).) It may be possible to claim for money had and received or in restitution. The actions in tort require actual possession or an immediate right to possession of the goods, in effect the right of the true owner. If the true owner has lost title, she will not be able to bring such an action. The true owner may have lost title as a result of the use of the goods in some way – through accession or if they are destroyed. Co-ownership may result, as with specification and commingling. (See Chapter 3 (Pearson).) If the owner has effectively reserved title, these rules will not protect the owner if the goods are used in a manufacturing process. (See Chapter 8 (Pearson).) The true owner may also lose title by the operation of statute. This part is concerned with how a seller with no right to goods can pass good title to a third party. The classic contest is between two innocent [19.05]

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parties – the original owner and the purchaser – each asserting ownership in the goods. The resolution is which of these two innocent parties will suffer for the fraud of the third. The general rule is that one cannot give better title to property than that which one possesses – nemo dat quod non habet. The Sale of Goods Acts, Factors Acts and the Personal Property Securities Act 2009 (Cth) (yet to apply) provide exceptions to this rule. While the legal rules sometimes appear simple, their application is usually subtle. At [7.05] (Pearson) we introduced some of the actors – the rogue, the factor – in the story of contesting title. There is another actor, the innocent purchaser who must buy in good faith.

THE CONDUCT OF THE OWNER [19.10] The problem occurs when the true owner has not sold the goods, so is still the owner,

but may have done something which disentitles him or her from saying “these are my goods” and effectively asserting ownership in the goods. Actual possession of the goods is not enough to establish that a person who is not the true owner is an apparent owner or has apparent authority. Something more is required and this is sought in what the true owner has done or failed to do. Read s 26(1) Sale of Goods Act 1923 (NSW) (SGA) extracted at (Pearson).

Questions

[19.15]

1. Would an agreement for sale be sufficient for a buyer to gain title by SGA s 26(1)? Suggest some of the categories of conduct which might preclude the owner from denying the seller’s authority to sell. 2. What is another legal term suggested to you by the word precluded? A metaphorical title becomes a real title [19.20] Section 26(1) gives title that is good against the whole world not just against the

person who made or was privy to the representation. The precluding conduct of the true owner may involve indicating that someone else is the true owner, that the owner has given authority to someone else to sell on his or her behalf or failure to do something which would indicate that someone else is not entitled to sell the goods.

Representation of apparent ownership

Eastern Distributors Ltd v Goldring (Murphy, Third Party) [19.25] Eastern Distributors Ltd v Goldring (Murphy, Third Party) [1957] 2 QB 600 (Court of Appeal, Eng) [Murphy owned a Bedford van. He wanted to buy a Chrysler as well. He didn’t have enough money for a deposit on the Chrysler. Murphy agreed with Coker, a car dealer, that Coker should pretend to the hire purchase company, Eastern Distributors, that the Bedford van belonged to Coker and that Coker was going to sell both vehicles to Murphy. The objective in doing this was to raise money. Coker pretended that Murphy had already paid the deposit for the two vehicles and raised from the hire purchase company the money to pay for the two vehicles. Murphy signed the hire purchase documents for both vehicles. The proposal for the Chrysler did not go through but the proposal for the Bedford van did go through. Coker let Murphy have the Chrysler for a short time and then took it away. He told Murphy that the transaction was cancelled. Murphy regarded himself as the owner of 484

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Eastern Distributors Ltd v Goldring (Murphy, Third Party) cont. the Bedford van. Murphy sold the van to Goldring along with the greengrocer business. Murphy did not pay any hire purchase instalments and the hire purchase company tried to recover the van.] DEVLIN J: [read the judgment of the Court]: [605] On January 31, 1957, judgment was given for the plaintiff against the defendant and for the defendant against the third party. The defendant says that his judgment against the third party is worthless, and the plaintiffs have not even bothered to sue him. So the case raises the familiar question of which of two innocent parties, the plaintiffs or the defendant, shall suffer for the misconduct of a third; and it is necessary to determine which of the two is in law entitled to the Bedford van. The plaintiffs depend for their title on the transaction with Coker. If Coker had sold the van on behalf of Murphy and with his authority, that would dispose of the matter. So it would if Murphy had actually transferred the property to Coker so as to give him something which he could sell in his own name. But in fact Murphy never transferred the van to Coker; and although he gave a general authorisation to Coker to act in the way in [606] which he did, he put, as the learned judge has found, a specific limitation on Coker’s authority and on which indeed followed from the nature of the transaction contemplated: this was that the two proposals should go forward together. Coker, the judge has found, had no authority to deal with the Bedford separately from the Chrysler. So the plaintiffs cannot claim that they bought the van from the owner or from one who has his actual authority to sell. Equally it is clear that as against Murphy the plaintiffs acquired a good title to the Bedford. Coker represented that the van was his, and Murphy was privy to that representation being made; so neither can be heard to say that Coker had not a good title to transfer to the plaintiffs. Or, if the matter be looked at as one of principal and agent, the plaintiffs, being ignorant of the limitation placed on Coker’s authority, are not affected by it. The defendant’s case is that, although estoppel will prevent both Coker and Murphy from asserting that the property in the Bedford van did not pass to the plaintiffs, it does not prevent anyone else from so doing. The defendant, as an outside party quite ignorant of what Murphy and Coker had done, is, it is submitted, entitled to rely on the reality of the transaction; and in reality the property never passed from Murphy. The judge finds that Murphy intended to sell the van to Coker if the double transaction had gone through, but that he never in fact did so. The real position is, therefore, that Murphy never sold to Coker and Coker had no title to pass to the plaintiffs. It is well established that an estoppel cannot affect the reality of the transaction. In Simm v Anglo-American Telegraph Co (1879) 5 QBD 188, Brett LJ puts the principle as follows: (ibid at p 206): … it seems to me that an estoppel gives no title to that which is the subject-matter of estoppel. The estoppel assumes that the reality is contrary to that which the person is estopped from denying, and the estoppel has no effect at all upon the reality of the circumstances. If this is the true principle to be applied in this case, then the plaintiffs never in truth and in fact acquired any title to the Bedford van; and the only question would be whether the defendant, because he acquired the van from Murphy, was bound by the estoppel which prevents Murphy from pleading the truth of the matter. An estoppel affects others besides the representor. [607] The way it has always been put is that the estoppel binds the representor and his privies. But it is not easy to determine exactly who for this purpose is a privy. There can be no doubt that although the representation was actually made by Coker, Murphy on the facts of this case was privy to the making and is bound by it; see Downs v Cooper [1841] 2 QB 256. It would also appear that anyone whose title is obtained from the representor as a volunteer is a privy for this purpose. But it is very doubtful whether a purchaser for value without notice is bound by the estoppel. The point is fully discussed in Ewart on Estoppel (1900) at p 196 to p 208, and the author concludes that a purchaser for value without notice is not bound. This part of the doctrine of estoppel has been worked out by courts of equity and chiefly in relation to the sale of land. There is no trace of its application to contracts for the sale of goods. There are many [19.25]

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Eastern Distributors Ltd v Goldring (Murphy, Third Party) cont. cases of sale of goods where an agent has been held out or represented to have an authority to sell which he has not in fact got and the solution of the difficulty so created might no doubt have been found by the application of the doctrine of estoppel, but in fact the courts of common law approached the problem of the unauthorised sale from a different angle. They began with the principle that no-one could pass a better title than that which he had: nemo dat quod non habet. To this general principle they admitted a number of exceptions, simply on the ground of mercantile convenience. The best known exceptions relate to transfers of currency and negotiable instruments. Sales in market overt afford another example. In these cases, as is well known, a transferee may acquire a better title than that of his transferor. In the same way, and for the same reason of mercantile convenience, the courts of common law allowed a good title to a buyer who bought in good faith from a man who had apparently been given by the true owner the right to dispose of the goods. Such a buyer did not merely acquire a title by estoppel, based on the implied representation by the owner that there was a right of disposition and vulnerable at the suit of anyone who was not bound by that representation. He acquired in the same way as the transferee of a negotiable instrument or the buyer in market overt a good title against all the world. The doctrine of apparent authority was most clearly laid down by Lord Ellenborough CJ in Pickering v Busk (1812) 15 East 38, at p 43. As we [608] have said, he based it, not on estoppel, but on mercantile convenience: Strangers can only look to the acts of the parties, and to the external indicia of property, and not to the private communications which may pass between a principal and his broker: and if a person authorise another to assume the apparent right of disposing property in the ordinary course of trade, it must be presumed that the apparent authority is the real authority. I cannot subscribe to the doctrine, that a broker’s engagements are necessarily and in all cases limited to his actual authority, the reality of which is afterwards to be tried by the fact. It is clear that he may bind his principal within the limits of the authority with which he has been apparently clothed by the principal in respect of the subject matter; and there would be no safety in mercantile transactions if he could not. The case in which this principle was then most commonly applied was that of a factor, the nature of whose position was to be taken as giving him an implied authority to sell goods entrusted to him; he was able to pass a good title to a buyer even if, by reason of a special limitation put by the principal on his powers, he had no actual authority to do so. But the courts held that, although a factor must be taken to have general authority to sell, it could not be assumed that he had the same authority to pledge; and consequently that, unless he was specially held out as having authority to pledge, he could not, without actual authority, create a valid pledge. It was this ruling which gave rise to the Factors Acts, the first of which was passed in 1823. All this is expounded by Willes J in Fuentes v Montis (1868) LR 3 CP 268 at p 276 where he refers to … the class of questions which relate to how far a person who is not the real owner of goods, but who appears to the world, or rather to those who deal with him, as owner, and who deal with him on the faith of his apparent ownership, should be allowed to confer upon a third person a greater title than he himself has. He then refers to transfers of currency and negotiable instruments and sales in market overt and continues as follows (ibid, at p 277): A third case in which a man may convey a better title to goods than he himself had, and one which is more apposite to the present, is, where an agent who carries on a public business deals with the goods in the ordinary course or it, though he has received secret instructions from his principal [609] to deal with them contrary to the ordinary course of that trade. In that case he has what has been sometimes called an apparent authority, or, as my brother Byles more accurately calls it, an ostensible authority, to deal in such a way with the goods as agents ordinarily deal with them; and, if he deals with them in the ordinary way of the trade, 486

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Eastern Distributors Ltd v Goldring (Murphy, Third Party) cont. he binds his principal. These instances, however, are exceptional to the rule that no man can give a better title to goods than he has himself, and that the real owner is not bound except to the extent of an interest which he has parted with or an authority which he has given. Now, the result of that state of the law with respect to agents employed to sell, led to the course of legislation which is known by the general description of the Factor Acts; because it was held by the courts of law that the case of a pledge of goods by a factor entrusted with the possession of goods, and authorised to sell them, fell within the general rule to which the instances above enumerated are exceptions, and that it did not fall within the exceptions by reason of a pledge being an ordinary and accustomed transaction to be entered into by a person entrusted as agent to sell, or perhaps more properly by reason of the courts of law having treated a pledge as being out of the scope of an authority to sell. There has been a series of Factor Acts, and the principle of them has been extended also to sellers who are left in possession of goods after the property in them has passed. These situations are covered by s 8 and s 9 of the Factors Act, 1889, and also by s 25 of the Sale of Goods Act, 1893. The legislation which now governs the position of factors, or “mercantile agents”, is the Factors Act, 1889, s 2. There can be no doubt that these sections are based on and supplement the common law, and the language which they employ, which in this respect has been the same from the first, is not the language of estoppel. The Factors Act 1889, s 2, for example, says that a sale, pledge or other disposition which is within its terms “shall … be as valid as if he were expressly authorised by the owner of the goods to make the same.” The Factors Act, 1889, and the example given by Willes J in Fuentes v Montis (1868) LR3 CP 268 apply to an agent who is entrusted with goods. No doubt cases in which the only evidence of apparent authority is the possession of goods must now be treated as being [610] governed by the Factors Act 1889, which in this respect codifies as well as amplifies the common law; and it does not apply in this case since Coker was not put into possession of the van. But there are other ways besides the possession of the goods in which a man can be clothed with apparent ownership or apparent authority to sell. The common law principle is, as it has always been, wide enough to govern this. This is shown by the early cases on pledges. Because the factor was not held out merely by virtue of his position as having apparent authority to pledge, the doctrine of apparent authority did not apply at common law if nothing more than possession could be shown. It was otherwise if there was other evidence of holding out. Thus, in Martini v Coles (1813) 1 M & S 140, Baylen J said (ibid at p 150): A factor has authority to sell, but not to pledge, and therefore a person who takes a pawn of a factor takes it at his peril. If the principal does anything to induce the person to believe the factor really the principal, that would be a different case. Similarly, in Boyson v Coles (1817) 6 M & S 14, the headnote reads: A factor cannot pledge, unless the owner of the goods arm him with such indicia of property as to enable him to deal with it as his own … Abbott J, in particular, said (ibid at p 27): … possession alone is not a sufficient emblem of authority to entitle a factor to pledge, so as to enable the pawnee to hold the goods against the real owner. In the present case, it does not appear that the defendant was misled by any act or document with which the plaintiffs were concerned, other than such as regarded possession … In many cases since then this common law principle has been considered concurrently with the Factors Acts; for example, Vickers v Hertz (1871) LR 2 Sc & Div 113; Johnson v Credit Lyonnais Co (1877) 3 CPD 32; Lowther v Harris [1927] 1 KB 393. The apparent ownership or authority has generally taken the form of arming the agent with some indicia which made it appear that he was either the owner or had the right to sell. In our judgment the principle applies to any form of representation or holding out of apparent ownership or the right to sell. It is embodied in s 21(1) of the Sale of Goods Act, 1893, which provides: [19.25]

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Eastern Distributors Ltd v Goldring (Murphy, Third Party) cont. where goods are sold by a person who is not the owner thereof, and who does not sell them under the authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had, unless [611] the owner of the goods is by his conduct precluded from denying the seller’s authority to sell. This section expresses the old principle that apparent authority to sell is an exception to the maxim nemo dat quod non habet; and it is plain from the wording that if the owner of the goods is precluded from denying authority, the buyer will in fact acquire a better title than the seller. We doubt whether this principle, which is sometimes referred to – eg, by Wright J in Lowther v Harris – as common law estoppel, ought really to be regarded as part of the law of estoppel. At any rate it differs from what is sometimes called “equitable estoppel” in this vital respect, that the effect of its application is to transfer a real title and not merely a metaphorical title by estoppel. It is unnecessary to determine in this case whether it covers the exercise of every sort of apparent authority in relation to the sale of goods or whether it is confined to apparent authority to sell. In Simm v Anglo-American Telegraph Co both Brett, LJ and Cotton, LJ in the course of their judgments referred by way of analogy to the sale of goods. Cotton, LJ (5 QBD at p 216) seems to consider that a good title might be given to goods if the seller was in relation to an act or appropriation estopped from denying that the property had passed. It looks from Brett, LJ’s judgment (ibid at p 207) as if he might have taken a different view. But that case was not in fact concerned with the transfer of title or with authority to transfer. It related to a transfer of shares which had been attempted by a forged instrument and the question was whether the company which had registered the transferee as the owner of the shares and issued a certificate accordingly was estopped from denying his title. It is sufficient to say that, whatever the limits of the doctrine, it clearly applies to the facts of this case. Coker was armed by Murphy with documents which enabled him to represent to the plaintiffs that he was the owner of the Bedford van and had the right to sell it. The result is that Murphy is, in the words of the Sale of Goods Act, 1893, s 21(1) precluded from denying Coker’s authority to sell, and consequently the plaintiffs acquired the title to the goods which Murphy himself had and Murphy had no title left to pass to the defendant. [The court then considered the English equivalent of SGA s 28(1). See the Pacific Motor Auctions case extracted at [19.75].]

Negligent omission [19.30] In the situations above, the true owner has done something positive to make it appear

as if the seller is the owner or has authority to sell. The true owner may be silent or neglect to do something, thus failing to correct the appearance that the seller has the right to sell. In other words, the true owner fails to deny the authority of the seller to sell. In what circumstances will such a failure amount to precluding conduct? It is accepted that the owner of the goods must owe some duty to the person who buys from the non-owner. Yet, the true owner is not obliged to safeguard his goods against all the world. He may be credulous or careless and retain title. The question is, when will the duty owed to the buyer arise and, even if a duty can be found, is it breached?

Thomas Australia Wholesale Vehicle Trading Co Pty Ltd v Marac Finance Australia Ltd [19.35] Thomas Australia Wholesale Vehicle Trading Co Pty Ltd v Marac Finance Australia Ltd (1985) 3 NSWLR 452 (Supreme Court of New South Wales, Court of Appeal) 488

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Thomas Australia Wholesale Vehicle Trading Co Pty Ltd v Marac Finance Australia Ltd cont. [Barclays, a finance company, owned a Mercedes Benz. Barclays leased the car to ICC a company controlled by Kerr. The lease contained the following provisions: “6. Location. The Equipment shall be kept in the Lessee’s possession and control at such place as is from time to time approved by Lessor in writing … 13. Use. The Lessee shall at its own cost comply with all laws in any way relating to the Lessee or to the use, operation or maintenance of the Equipment. The Lessee shall attach to the Equipment and maintain thereon such labels or marks as the Lessor requests.” Kerr put his personalised number plate on the car which was then registered in the name of Kerr Real Estate Pty Ltd. He kept it garaged at his home and drove it to and from the city. Kerr, who had no title or right to sell, sold the car to Thomas Vehicle Trading Company. Thomas inspected the car first in the city and a few days later at Kerr’s house. Before paying the purchase price, he asked if there was any money owing on the car and from whom it had been bought and was given untruthful answers. He asked to see the registration certificate and was told it was in the city office. He also asked Kerr to produce the receipt given when he purchased the car and was given the same answer. Thomas paid for the car and took delivery without sighting either of these documents. Thomas sold the car to Marac, a finance company, which leased it to a third party. ICC defaulted under the lease and Barclays repossessed the car. Marac Finance sued Thomas Trading for breach of the implied condition that Thomas had title to the car and thus the right to sell the car. Marac, the plaintiff was awarded damages. Thomas, the defendant appealed. Thomas relied on s 26(1).] KIRBY P: Preclusion by conduct The result of the line of authority which I have reviewed is that a gloss has been placed upon the language of the statute. There is nothing in the Sale of Goods Act, s 26(1), which preconditions the disentitling conduct (by which the owner will be precluded from denying the seller’s authority to sell) to the existence of a duty relationship between the owner and the innocent purchaser. That duty relationship has been read into the legislation by a long series of decisions which, in my view, reflect a fascination with the law of estoppel which preceded the enactment of the Sale of Goods Act 1893, s 21, (now in this State, the Sale of Goods Act 1923, s 26). The 1893 Act bore the long title “An Act for codifying the Law relating to the Sale of Goods”. Similarly, the 1923 Act was titled “An Act to codify and amend the law relating to the Sale of Goods”. It is a misfortune, as it seems to me, that the familiar words of Lord Herschell in Bank of England v Vagliano Brothers [1891] AC 107 at 144-145, on the analogous provisions of the Bills of Exchange Act 1882, another of the great codes of the late 19th century, were not observed: … True it is the attention of s 26(1), being addressed to conduct which precludes the owner denying the seller’s authority, it is apt to consider both the acts and omissions of the owner and the extent to which, by their influence on the innocent purchaser, justice requires that the owner should be “precluded” from denying that the seller had his authority to sell. But there is nothing in the legislative language which necessitates a duty relationship between the owner and the purchaser or the owner and a group of persons such as (or who include) the purchaser. Still less is there any warrant in that language for narrowing the operation of the subsection to a case where a duty is owed to a specific individual known to be exposed to the probability of financial loss. All that the statute requires is attention to the “conduct” of the [459] owner. Whilst the law of estoppel undoubtedly necessitates the existence of a duty (cf Tai Hing at 333; 959), the statute, by its terms, does not. The imposition of the requirement of a duty relationship is a wholly unwarranted diminution by the judges of the beneficial protection which s 26(1) of the Act, by its terms, was apt to provide. When the imposition of the requirement of a duty relationship is understood by reference to the pre-existing law of estoppel and is put to one side, by deference to the approach to the interpretation of this code suggested by Lord Herschell, the limitation imposed by requiring the existence of a duty is disclosed as unnecessary. Of course, the existence of a duty relationship will more readily render the conduct such as to preclude [19.35]

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Thomas Australia Wholesale Vehicle Trading Co Pty Ltd v Marac Finance Australia Ltd cont. the owner from denying the seller’s authority to sell. But the inability of a purchaser to point to a specific duty relationship, relevant for other purposes of the law (as in negligence or for the law of estoppel) should not completely disentitle the purchaser who suffers from the beneficial protection of s 26(1) if, within the statutory language, the conduct of the owner complained of is such as to preclude him from denying the seller’s authority. In short, in an area of the law where it has long been recognised that inconsistent decisions have complicated and obscured the operation of the statute (cf Walsh J in Motor Credits (Hire Finance) Ltd v Pacific Motor Auctions Pty Ltd (1962) 79 WN (NSW) 684 at 689) and where, beyond duty relationships, practices and commercial realities are changing and developing all the time, it is illegitimate, as it seems to me, to bridle the statutory language by imposing the requirement of a pre-condition of a duty relationship which is not to be found in that language, is not necessary for its operation, can be explained by reference to pre-existing law and which frustrates the purpose of the statute and its beneficial operation in the just resolution of the claims of innocent purchasers who will otherwise suffer by virtue of careless conduct on the part of the owner. The assertion that the owner of property is entitled to be careless with it if he likes, and even extremely careless, stated as a robust doctrine by Lord Fraser of Tullybelton must be qualified by the actual provisions of s 26(1). If that careless, or extremely careless, conduct is such as, in the circumstances, to preclude the owner from denying the authority of the seller, a brake is imposed upon the extreme carelessness. Such a privilege of carelessness is itself a remnant of earlier laissez faire attitudes. The reason for imposing the brake is the notorious injustice that is done by the rigid application of the principle nemo dat quod non habet. The interposition of the requirement, in order to qualify for the operation of s 26(1), that there should have been a duty relationship between the owner and the innocent purchaser is doubtless protective of ownership. But it is insufficiently tender to the adjustment of rights between the owner and the innocent purchaser which s 26(1) of the Act is designed to permit. Attention should be confined strictly to the “conduct” of the owner, irrespective of the existence or absence of a duty relationship required for other purposes of the law. The danger of encrustation of the statute The “conduct” complained of: … Had it been established by the evidence, that the purchaser had actually relied upon the register, which did not disclose Barclay’s interest, this consideration, in combination with the absence of any label or mark as authorised by the lease could well, in my view, have been sufficient to attract the protective operation of s 26(1) of the Act. But, as it was clear in the evidence and conceded by counsel for the appellant that no reliance was here placed upon the state of the register and, on the contrary, that the registration certificate had not been obtained, this is not a case where the conduct of the owner in that regard precludes it from denying the seller’s authority to sell. “Precludes” imports a notion of punishment. And it would not be just to hold that Barclays was precluded from denying Kerr’s authority to sell by reason of failure to register the vehicle, where it was plain that such failure played no part in the decision of the appellant to purchase the vehicle from Kerr. Conclusions and order The result is that I agree with the order proposed by Glass JA. The problem dealt with in this appeal is a common one. It involves the adjustment by the law of the respective claims to title of parties, both of whom, typically, are comparatively innocent. The law must attempt to reconcile their competing claims. Appeals to the Latin maxim nemo dat and to robust laissez faire notions of the rights of owners to be careless must adjust, as s 26(1) of the Act requires, to the more finely balanced consideration of “conduct” which is there envisaged. Great injustice can be 490

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Thomas Australia Wholesale Vehicle Trading Co Pty Ltd v Marac Finance Australia Ltd cont. done to innocent purchasers of motor vehicles, some of whom will not be in the position of this appellant to absorb the loss. If finance companies, who can (and under the regulations should) register their interest in the central registry fail to do so, it is no answer to this contention to say that they owed no duty to the world at large or to prospective purchasers and hence were not relevantly bound to register. That may be an answer to a claim in estoppel at [466] common law. But it is not, as it seems to me, an answer to a claim based on s 26(1) of the Act. It will be a beneficial outcome of this case if the warning is given that, freed from the limitations of Moorgate Mercantile Co Ltd v Twitchings, a future decision may be differently decided if it is shown that the innocent purchaser relied upon the failure of the owner to secure notification of his interest in the central motor vehicle registry. But for the absence of that element of reliance in the present case, I should have been prepared to hold that the appellant could rely upon the statute. But as that evidence did not exist, the statute does not avail the appellant. Accordingly, the appeal should be dismissed with costs. GLASS JA: [467] It is well established by authority that estoppel by conduct in this context is not limited to positive conduct which has encouraged a buyer to believe that the sale to him is made with the owner’s authority. The estoppel by conduct can also arise from inaction or omission. But in the latter event it is requisite that the owner’s failure to disclose its interest should be in breach of a duty owed by it to the purchaser who has bought from a seller without title: Mercantile Bank of India Ltd v Central Bank of India Ltd [1938] AC 287 at 304; Moorgate Mercantile Co Ltd v Twitchings [1977] AC 890 at 903. Mr Sully submitted that the relationship between Barclays as owner of the vehicle and lessor of it to ICC (which was Kerr’s alter ego) on the one hand and the defendant as purchaser of that vehicle on the other was such that Barclays owed a duty to his client to take care to prevent Kerr from being able to represent falsely to intending bona fide purchasers for value that Kerr was the owner of the vehicle. Support is claimed for the existence of such a duty in the judgment of Lord Wilberforce in Moorgate Mercantile Co Ltd v Twitchings. The criterion for [468] determining the existence of a duty was stated by His Lordship in the following terms (at 903): … What I think we are looking for here is an answer to the question whether, having regard to the situation in which the relevant transaction occurred, as known to both parties, a reasonable man, in the position of the “acquirer” of the property, would expect the “owner” acting honestly and responsibly, if he claimed any title in the property, to take steps to make that claim known to, and discoverable by, the “acquirer” and whether, in the face of an omission to do so, the “acquirer” could reasonably assume that no such title was claimed. Having stated the test, his Lordship then concluded that the circumstances in evidence were such as to satisfy it. The particular context, however, which, in the opinion of Lord Wilberforce, generated a duty of care was the existence of a central register of motor vehicle hire purchase agreements maintained by an organisation of which the plaintiff dealer and the defendant financier were both members. He made it clear that in the absence of such an organisation no duty of care and hence no estoppel could have arisen (904). I am content to adopt this view and hold that in the absence of a register and of any relevant transaction known both to Barclays as owner and the defendant as acquirer there are no circumstances which would raise a duty of care. This conclusion renders it unnecessary to consider whether the decision of the High Court in Caltex Oil (Australia) Pty Ltd v The Dredge “Willemstad” (1976) 136 CLR 529 requires the adoption in Australia of a different and more stringent test for determining the existence of the duty of care upon which the estoppel depends. Assuming a duty of care was owed, the breaches were said to be three in number. The failure of Barclays as lessor to exercise the power given by Cl 6 of the lease to control the location of the car, the failure to exercise its power under Cl 13 to require the attachment of labels or marks, and the failure to prevent the registration of the vehicle in the name of Kerr Real Estate Pty Ltd. Assuming a duty, I do not think that the failure to prevent the garaging of the car at Kerr’s home and office could amount to a [19.35]

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Thomas Australia Wholesale Vehicle Trading Co Pty Ltd v Marac Finance Australia Ltd cont. breach. The failure to prevent registration could arguably be a breach but the evidence established that it had no causal connection with the defendant’s loss since Thomas did not tarry to inspect the certificate. The failure to attach indelible marks in a place accessible to an interested buyer but not conspicuous to the general public is an interesting allegation of breach but without a duty to support it can only produce carelessness in the abstract. Order Since preparing the above reasons I have had the advantage of reading the draft judgments of the President and McHugh JA. I agree with the reasons expressed by the latter for concluding that the owner is not precluded by his conduct within the meaning of the Sale of Goods Act, s 26(1), unless he either [469] made a representation to the buyer that the sale was authorised or influenced the buyer to his disadvantage by neglecting to deny the authority of the seller in breach of a duty owed to the buyer or a class of persons to which he belonged. I do not accept that the courts which have construed the statute in this way have imparted to it an alien gloss which defeats the intentions of the legislature. I take my position alongside those who discern in the language of the section an intention that an owner will not be precluded from asserting that he and not the seller had title to the goods sold simply by reason of his failure to disclose his interest to the buyer. His failure must be in breach of a duty to speak out. Unless the conduct of the taciturn owner is subjected to the litmus test of duty, I know of no way to discriminate between conduct which precludes and that which does not. I would propose that the appeal be dismissed with costs. MCHUGH JA: [469] The judgments of the President and Glass JA in this case differ as to the principles by which the Sale of Goods Act 1923, s 26(1), is to be applied. In his judgment Glass JA says that, where a buyer relies on the omission of the owner to take steps to prevent the sale of goods, he can only succeed if the owner owed him a duty of care. In his judgment, the President says that the existence of a duty is never essential to the operation of s 26(1). I am of opinion that the view of Glass JA is correct. [470] The requirement of a duty is no gloss upon the language of the statute. The Sale of Goods Act gives no guidance as to what conduct precludes an owner “from denying the seller’s authority to sell”. The general terms of s 26(1) have, therefore, required the courts to state general principles to give content to the statutory provision. The statement of principles, elucidating the meaning of statutory enactments, which then become binding in subsequent cases, is an essential part of the common law system. The words “by his conduct precluded from denying” are redolent of, if not synonymous with, estoppel. Quite naturally, these words directed the minds of the interpreters of s 26 and its equivalents to the law of estoppel, particularly in relation to the sale of goods. The requirement, by judicial interpretation of s 26(1), of a duty of care does not constitute any conflict with the well-known passage from Lord Herschell’s speech in Bank of England v Vagliano Bros [1891] AC 107 at 144-145 which is set out in the judgment of the President. His Lordship emphasised that “in the first instance” the proper way to interpret a Code is to examine the language uninfluenced by the previous state of the law. But he went on to point out (at 145) that he was “far from asserting that resort may never be had to the previous state of the law for the purpose of aiding in the construction of the provisions of the code”. Lord Herschell pointed out that if a provision “be of doubtful import, such resort would be perfectly legitimate”. Moreover, the Sale of Goods Act 1923, s 4(2), expressly preserves the common law principles unless they are excluded by the Act. In the case of the Sale of Goods Act, s 26(1), the requirement of a duty has long been recognised and acted upon by courts of the highest authority in reaching their decisions. Moreover, to set aside the necessity for a duty would make the operation of s 26(1) even more difficult than it already is. It would make the result of cases depend not on principles, but on what each individual judge felt should be the result of the case. This would be wholly undesirable. 492

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Thomas Australia Wholesale Vehicle Trading Co Pty Ltd v Marac Finance Australia Ltd cont. The history of the legislation also shows that Parliament beyond doubt intended that s 26 should be interpreted in accordance with the principles of common law estoppel. Thus, for thirty years before the passing of the New South Wales Act, courts and text writers, giving effect to the intention of its makers, had treated the English equivalent of s 26 as incorporating the common law principles of estoppel. In the light of this history, it seems clear that the New South Wales Parliament in enacting s 26 intended to give effect to the common law doctrine of estoppel. None of the foregoing means that I think that the conception of duty in this context is a limited one. I agree with the remarks of Lord Wilberforce (at 903) in Moorgate Mercantile Co Ltd v Twitchings that the tests for duty in other fields are not wholly appropriate. No doubt the area of duty in this field is one where it is still open to the courts to develop the law, bearing in mind, as Lord Wilberforce said (at 903-904), “that the duty of care should not be stretched so widely as to make it a universal duty on the part of property owners to safeguard others against loss”. His Lordship thought (at 903) that the existence of a duty was to be determined by the answer to the question … whether, having regard to the situation in which the relevant transaction occurred, as known to both parties, a reasonable man, in the position of the “acquirer” of the property, would expect the “owner” acting honestly and responsibly, if he claimed any title in the property, to take steps to make that claim known to, and discoverable by, the “acquirer” and whether, in the face of an omission to do so, the “acquirer” could reasonably assume that no such title was claimed. I think that the test of duty as formulated by Lord Wilberforce is not inconsistent with what was said and decided by the other Law Lords in [474] Moorgate Mercantile Co Ltd v Twitchings. It is true that the application of his Lordship’s test led him to find that there was a duty in that case. But it does not follow that the decision of the majority would have been different if they had applied that test. Lord Wilberforce held that there was a duty (at 905) because a “man who knows that others rely on a particular source of information, which derives that information from him, may surely be under a duty to supply that information if he has it, even though transmission of the information makes the seeker of it less than 100 per cent secure”. Lord Salmon, applying the conventional neighbour test of duty also held that a duty was owed. Of the majority, Lord Fraser said (at 926) that the buyer knew that all finance companies were not members of the registration scheme and took the risk with respect to them. If they owed no duty to the buyer, he did not think that a member could be in a worse position if he failed to register. The reasoning of Lord Edmund Davies and Lord Russell of Killowen seems to be based on similar considerations (at 919-920, 929-930). I doubt that the use of Lord Wilberforce’s test would have brought about a different result in Moorgate. In the formulation of Lord Wilberforce’s test of duty, the words “as known to both parties” are of critical importance. However, it is the situation in which the transaction occurred which must be known to both parties, not their actual interests or existence. The duty may be owed to the general public if the other conditions are fulfilled. In Mercantile Bank of India Ltd v Central Bank of India Ltd (at 304) Lord Wright, speaking for the Judicial Committee, expressly approved a passage in the judgment of Blackburn J in Swan v North British Australasian Co (Ltd) (at 182; 76), where his Lordship had said that the duty may be owed “to the general public of whom the person is one”. That passage was also approved by Lord Sumner in R E Jones Ltd v Waring and Gillow Ltd [1926] AC 670 at 693. Nothing in the majority or minority speeches in Moorgate Mercantile Co Ltd v Twitchings indicates any disapproval of what Lord Wright had approved in the Mercantile Bank of India Ltd case. Indeed, the speeches of their Lordships, who constituted the majority, must have proceeded upon the basis that a duty might be owed to the buyer simply because he was a member of the same organisation as the owner. Otherwise, the appeal could have been disposed of upon the ground that the owner was not [19.35]

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Thomas Australia Wholesale Vehicle Trading Co Pty Ltd v Marac Finance Australia Ltd cont. aware of the existence of the buyer. I think that the proper test of duty is that formulated by Lord Wilberforce in Moorgate read against the Judicial Committee’s approval of the dictum of Blackburn J. Subject to the foregoing. I agree generally with the reasons which Glass JA has given for dismissing the appeal. In my opinion this appeal should be dismissed with costs.

THE SELLER WITH A VOIDABLE TITLE [19.40] A person who buys goods in circumstances in which the seller may have the right to

bring the contract of sale to an end as in the case of fraud, misrepresentation, undue influence, unconscionability or breach of fiduciary duty may, as a subsequent seller, still be able to pass good title to a buyer. That person must have bought, not merely agreed to buy, else she would have no title not even a voidable title. Similarly if the contract is void then no title passes. However, if the original seller has brought the contract to an end before the subsequent seller with the voidable title sells to the buyer, then that buyer cannot obtain good title. You may need to revise all those circumstances in which a contract may be rescinded and in particular whether a contract is voidable for mistake. Read s 27 Sale of Goods Act 1923 (NSW) , extracted in [9.10] (Pearson).

Car and Universal Finance Co Ltd v Caldwell [19.45] Car and Universal Finance Co Ltd v Caldwell [1965] 1 QB 525 [Caldwell owned a Jaguar which he advertised for sale in the newspaper. One Sunday in January Norris appeared, said he wanted to buy the car, and paid a small deposit. Caldwell was reluctant to relinquish possession of the car for a cheque. But on Tuesday Caldwell let Norris take the car in exchange for a cheque for the full price plus a Hillman car that was worth much less than the Jaguar as security. On Wednesday, Caldwell presented the cheque which bounced. The bank manager advised him to go to the police. Caldwell went straight to the police who showed him a photograph of Norris. There was a warrant out for the arrest of Norris in the name of Rowley. The police alerted their patrols. In the afternoon Caldwell telephoned the Automobile Association which alerted their patrols. On Wednesday, Norris sold and delivered the car to Motobella Co Ltd which had notice of the defect in title. On Friday, Motobella sold the jaguar to G & C Finance Corporation Ltd for hire to K, a fictitious person. In March, Motobella proposed another hirer, S (also fictitious) to G & C Finance so that it appeared as if Motobella had taken back their car from K. S also appeared to fall into arrears and G & C authorised Motobella to repossess the car and sell it. Motobella sold the car to Brunswick Car Sales, a dealer. In August, Brunswick sold the car, as part of a hire purchase proposition, to Car and Universal Finance Co Ltd, who bought in good faith and without notice. Back in January, the car had been found with a director of Motobella who claimed that it was the property of Motobella. Caldwell sued Motobella for the return of the car and Motobella was ordered to deliver up the car. The sheriff seized the car. Car and Universal Finance claimed the car. Lord Denning sitting as an additional judge of the Queen’s Bench Division held that where a seller of goods had a right to avoid a contract for fraud, the seller sufficiently exercised his election if on discovering the fraud he immediately took all possible steps to regain the goods even though he could not find the buyer or communicate with him. The sale to N was avoided by Caldwell, the defendant. The property in the car revested in him and the 494

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Car and Universal Finance Co Ltd v Caldwell cont. purported sales to Motobella and G & C were ineffective to pass property. Alternatively Motobella was the agent for G & C to investigate title and Motobella’s knowledge of the defect in title was fixed on G & C who did not acquire good title. On appeal.] SELLERS LJ: [549] This appeal raises a primary point in the law of contract. The question has arisen whether a contract which is voidable by one party can in any circumstances be terminated by that party without his rescission being communicated to the other party. Lord Denning MR has held in the circumstances of this case that there can be rescission without communication where the seller of a motor car, who admittedly had the right to rescind the contract of sale on the ground of fraudulent misrepresentation, terminated the contract by an unequivocal act of election which demonstrated clearly that he had elected to rescind it and to be no longer bound by it. The general rule, no doubt, is that where a party is entitled to rescind a contract and wishes to do so the contract subsists until the opposing party is informed that the contract has been terminated. The difficulty of the seller in this case was that, when he learnt of the fraud and, therefore, ascertained his right to terminate the bargain, he could not without considerable delay find either the fraudulent buyer or the car which had been sold. Such circumstance would not appear to be so rare in transactions in motor cars (or horses in earlier days) that they would not, it might be thought, have given rise to litigation and an authoritative decision, but it seems that over the years the point in issue has not been decided in any reported cases in similar or comparable circumstances. The sole question on this part of the appeal is whether the defendant avoided the contract of sale and recovered his title to the car before the purported sale by Motobella to G & C Finance on January 15, 1960. If he did not do so then, subject to the other contention which arises on the appeal, G & C finance obtained a good title and were able to pass it on to the plaintiffs later in the same year. [550] An affirmation of a voidable contract may be established by any conduct which unequivocally manifests an intention to affirm it by the party who has the right to affirm or disaffirm. Communication of an acceptance of a contract after knowledge of a fundamental breach of it by the other party of fraud affecting it is, of course, evidence establishing affirmation but it is not essential evidence. It may be said that a contract may be more readily approved and accepted than it can be terminated where a unilateral right to affirm or disaffirm arises. The disaffirmation or election to avoid a contract changes the relationship of the parties and brings their respective obligations to an end, whereas an affirmation leaves the contract effective though subject to a claim for damages for its breach. Where a contracting party could be communicated with, and modern facilities make communication practically worldwide and almost immediate, it would be unlikely that a party could be held to have disaffirmed a contract unless he went so far as to communicate his decision so to do. It would be what the other contracting party would normally require and unless communication were made the party’s intention to rescind would not have been unequivocally or clearly demonstrated or made manifest. But in circumstances such as the present case, the other contracting party, a fraudulent rogue who would know that the vendor would want his car back as soon as he knew of the fraud, would not expect to be communicated with as a matter of right or requirement, and would deliberately, as here, do all he could to evade any such communication being made to him. In such exceptional contractual circumstance, it does not seem to me appropriate to hold that a party so acting can claim any right to have a decision to rescind communicated to him before the contract is terminated. To hold that he could would involve that the defrauding party, if skilful enough to keep out of the way, could deprive the other party to the contract of his right to rescind, a right to which he was entitled and which [551] he would wish to exercise, as the defrauding party would well know or at least confidently suspect. The position has to be viewed, as I see it, between the two contracting parties involved in the particular contract in question. That another innocent party or parties may suffer does not in my view of the matter justify imposing on a defrauded seller an impossible task. He has to establish, clearly and unequivocally, that he terminates the contract and is no longer bound by it. If he cannot communicate [19.45]

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Car and Universal Finance Co Ltd v Caldwell cont. his decision he may still satisfy a judge or jury that he had made a final and irrevocable decision and ended the contract. I am in agreement with Lord Denning MR who asked (ante p 531) “How is a man in the position of Caldwell ever to be able to rescind the contract when a fraudulent person absconds as Norris did here?” and answered that he can do so (ante p 532) “… if he at once on discovering the fraud, takes all possible steps to regain the goods even though he cannot find the rogue nor communicate with him.” In the case of an innocent misrepresentation, in circumstances which would permit the party misled to rescind, the other party would not deliberately avoid communication (for that would seem to negative innocence) and circumstances would be rare where [552] communication could not be readily made in one way or another. If communication were possible, it is difficult to see how there could be rescission without communication, and the inference would be that the contracting parties required communication of termination. I can see nothing unjust in the loss falling on G & C Finance (against whom the plaintiffs can claim redress), who made the minimum enquiries, who bought a car which, apparently, they never saw and hired it out to a man, of whose existence and identity they did not know, and who may well have been fictitious, rather than the loss should fall on the defendant, who acted immediately and did all in his power to retract the transaction. I would dismiss the appeal on this issue. [His Lordship held further that Motobella was not the agent of G & C Finance to make enquiries as to title on behalf of G&C Finance. Motobella was the agent only to hand over the car; there was no general agency. Motobella’s knowledge of the defect in title was not fixed on G & C Finance.] [Upjohn and Davies LJJ delivered judgments to similar effect.]

THE SELLER IN POSSESSION [19.50] Both the seller and the buyer in possession exceptions to the nemo dat rule operate on

the appearance of the right to sell by virtue of possession of the goods by the person selling. In the first exception, the seller has already sold but still has possession of the goods. In the second exception, the seller is a prior buyer who has obtained possession of the goods but does not yet have title to the goods. There is a difference in the nature and circumstances of the possession required by the seller in possession compared with the buyer in possession. A person who buys from a person who has sold the goods to someone else but who still retains possession of the goods may obtain good title in certain circumstances. The seller in possession must have continuity of physical possession. In some circumstances this may be met when the seller has constructive possession. Both of these exceptions also apply to the possession of the documents of title to the goods which may be transferred. Documents of title are those documents including bills of lading, warehouse-keeper’s certificates, delivery orders, even railway receipts or other documents which are used in the ordinary course of business to signify possession of the goods and or authorisation to transfer or receive the goods. See the statutory definition in Factors (Mercantile Agents) Act 1923 (NSW), s 3. The most common of these is the bill of lading which is issued on shipping. It evidences the contract of carriage, is a receipt for the goods and represents the goods. The bill of lading is the only one of these documents which is negotiable. Like a negotiable instrument, it may be negotiated by endorsement or delivery. Unlike a bill of exchange, negotiation of the bill of lading will not of itself cure any underlying defect in the 496

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title of the original shipper to the goods. The holder of the bill of lading to goods with a defect in title is still obliged to establish an exception to the nemo dat rule. See Goods Act 1958 (Vic) s 30, at [9.15] (Pearson), on the transfer of documents of title by indorsement or delivery. Read SGA s 28(1) extracted at [9.10] (Pearson).

Figure 19.1 The seller in possession – a visual representation

[19.55]

Questions

1. What are the elements of SGA s 28(1)? 2. How does the section operate to give good title to the buyer under the second sale? Sale – seller to owner [19.60] The initial inquiry is whether the person who retained possession had first sold the

goods to the person who becomes the new owner. [19.65]

Questions

1. Why does the section require a sale and not just an agreement to sell? 2. Does the section apply to any kind of seller? Does the seller have to be a mercantile agent or a seller in the ordinary course of business? “Continues or is in possession” [19.70] The person, the seller, who was the owner and then sold to a person who becomes the

new owner must have possession. The meaning of this element of the provision has changed over time. In reading the following cases consider the legal quality of the possession, the question of physical custody, an interruption to the possession of the goods and whether the goods be in the seller’s possession although physically in the custody of someone else on behalf of the seller? See also Goods Act 1958 (Vic), s 30 at [9.15] (Pearson).

Pacific Motor Auctions Pty Ltd v Motor Credits (Hire Finance) Ltd [19.75] Pacific Motor Auctions Pty Ltd v Motor Credits (Hire Finance) Ltd [1965] AC 867; [1965] 2 All ER 105 (Privy Council) [Motor Credits was a hire purchase finance company. It authorised Motordom, a motor dealer, to buy as agent under the written agreement, as owner under the subsequent practice, cars. The cars were then sold to Motor Credits. Motordom kept possession of the cars and displayed them on a floor plan arrangement. Motordom had authority from Motor Credits to sell the cars in its own name and to [19.75]

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Pacific Motor Auctions Pty Ltd v Motor Credits (Hire Finance) Ltd cont. account to Motor Credits. On the afternoon of November 2 Motor Credits withdrew Motordom’s authority to sell the cars which were on the floor plan. Motor Credits did not inform anyone else of the withdrawal of the agency. Pacific Motor Auctions was an auctioneer who bought and sold cars with Motordom. Cheques of Motordom’s in favour of Pacific Motor Auctions were dishonoured. On the evening of November 2, after ordinary working hours, Pacific Motor Auctions bought 16 cars from Motordom which had been put on the floor plan with Motor Credits and were the property of Motor Credits. Motordom signed a form saying that it had title to the cars. Pacific Motor Auctions paid Motordom with a cheque which was indorsed on the back in favour of Pacific Motor Auctions. Motor Credits demanded the return of its cars and claimed damages for detention. The NSW Supreme Court held that the buyer Pacific Motor Auctions had good title and applied Eastern Distributors. The High Court held that the Owner, Motor Credits had good title. It held that this was not a case of apparent ownership but of apparent authority and that as the sale in question was outside the scope of the actual authority, SGA s 26(1) could not apply. Section 5 of the Factors (Mercantile Agents) Act 1923 could not apply as the sale was not a sale in the ordinary course of business. The High Court had rejected the application of SGA s 28(1).] LORD PEARCE: [107] The present case is concerned with the title to certain motor cars which were sold to each party in turn by a dealer who became insolvent … [108] At the trial, there was much controversy over the details of the complicated events which led up to the situation in which one or other of the parties, by reason of Motordom’s misbehaviour, must lose its money. It was clear that, unless the appellant could establish that it bought the cars on Nov 2, bona fide in the belief that the cars belonged to Motordom, it had no case. For bona fides and ignorance of the former sale to the respondent were essential to any defence which it could raise against the respondent, who was the true owner at the time of the transaction. The appellant’s general manager maintained that Webb had told him nothing about the “floor plan”, and that he believed that Motordom owned the cars. This was not challenged directly, but he was naturally cross-examined on his knowledge of “floor plans” in order to show that he must have some knowledge or suspicion that the cars did not belong to Motordom. The learned judge who heard his evidence did not accept it on all points. For instance, he disbelieved his denial of a visit paid to the appellant’s premises by an agent of the respondent who was checking Motordom’s statement that it had sold seven cars to the appellant shortly before and who accepted without any query the appellant’s assurance that it had purchased them – a visit which would show the appellant that some of Motordom’s cars were “on floor plan”. The learned judge, however, did not deduce that the appellant knew that the particular cars in dispute were “on floor plan”; and he held that since the appellant’s previous dealings with Motordom had been in the belief and on the basis that Motordom had the right to dispose of the cars in its own name (which up to that time was in truth the position), the agent’s visit “would serve to confirm the belief” if the appellant “entertained any doubts about it”. The trial judge accepted that the transaction on the appellant’s part was done in good faith. He also held that, in spite of the unusual features of the transaction, it must be regarded as one of the sale and purchase of the cars in question. Further, the trial judge considered that it was not material if the transaction was not one “in the ordinary course of business”, since that is a limitation applicable where the only basis of the apparent [109] authority is the possession of the goods and where the Factors (Mercantile Agents) Act, 1923, is applicable. Had that question been relevant, their lordships deduce that he would have held (and rightly held) that the transaction was not in the ordinary course of business. The New South Wales Sale of Goods Act, 1923, provides as follows: [Sections 26(1) and …; 28(1) … not reproduced.] The appellant relied on each of these sections. The trial judge having considered SGA s 26(1) and the question of estoppel and Eastern Distributors, Ltd v Goldring (Murphy, Third Party) [1957] 2 QB 600; 498

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Pacific Motor Auctions Pty Ltd v Motor Credits (Hire Finance) Ltd cont. [1957] 2 All ER 525, came to the conclusion that the respondent was, by its conduct in clothing Motordom with apparent ownership or apparent authority to sell, precluded from denying Motordom’s authority to sell. It was, therefore, not necessary for him to deal with the contention that the appellant had acquired a good title under SGA s 28(1). He accordingly dismissed the respondent’s claim. On appeal to the High Court of Australia, the respondent succeeded by a majority. McTiernan J, agreed with the learned trial judge. Taylor J, however, distinguished the facts from Eastern Distributors, Ltd v Goldring on the ground that the transaction here was not in the ordinary course of the dealer’s business and that the present case was not one of ostensible ownership, since the appellant was aware of the fact that Motordom was receiving “floor plan” finance from the respondent. In Taylor J’s view, Motordom’s authority, even had it not been revoked, would not have covered the present transaction. On the point under s 28(1) of the New South Wales Sale of Goods Act, 1923-1953, he took the view that Motordom did not continue in possession since the character of its possession had changed from that of a seller to that of a bailee (following Staffs Motor Guarantee, Ltd v British Waggon Co, Ltd [1934] All ER Rep 322; [1934] 2 KB 305 and Eastern Distributors, Ltd v Goldring). Owen J, took the view that “there can be no doubt that had Motordom sold the cars in the ordinary course of its business, the [appellant] would have got a good title to them notwithstanding the fact that the [respondent] had revoked Motordom’s authority to sell”; since the Factors (Mercantile Agents) Act, 1923, would have applied. He also considered that the respondent held Motordom out as having authority to sell in the ordinary course of business, but that it had not held out Motordom as having authority to sell otherwise. For that reason he held that the respondent was not precluded from denying Motordom’s authority to sell the cars under the circumstances in question. As to s 28(1), he held the same view as Taylor J. The appellant contended before their lordships both that the respondent was estopped or precluded from denying Motordom’s authority as the learned trial judge had found, and also that the appellant obtained a good title under s 28(1) of the Sale of Goods Act, 1923-1953, of New South Wales. Owing to the view taken by their lordships on the effect of s 28(1), it became unnecessary to consider [110] the difficult question of estoppel. The point under s 28(1) turns on the construction of the words “Where a person having sold goods continues or is in possession of the goods”. Are those words to be construed in their full sense, so that wherever a person is found to be in possession of goods which he has previously sold he can, whatever be the capacity in which he has possession, pass a good title? Or is some, and if so what, limitation to be placed on them by considering the quality and title to the seller’s possession at the time when he sells them again to an innocent purchaser? Section 28(1) does not limit its effect to a sale “made” in the Factors (Mercantile Agents) Act, 1923, and the corresponding English provision (See Factors Act, 1889, s 2(1), and compare ibid, s 8; 1 Halsbury’s Statutes (2nd Edn) 30, 33). Counsel for the respondent, however, urged their Lordships to limit the application of s 28(1) in a like manner, since Motordom was in fact a mercantile agent and, therefore, it was not right to attribute to it a wider authority than was provided by the section particularly directed to its activity. Their lordships are unable to accept this view. Section 28(1) is not limited to any particular class of seller; it applies to a purchase from any kind of seller made in good faith and without notice of the previous sale. The English statutory provision (the Factors Act Amendment Act, 1877, s 3) which was the origin of s 28(1) was introduced in 1877 with the object of mitigating the asperity of the common law towards an innocent party purchasing goods from a person who has all the trappings of ownership but in truth has no proper title to the goods. Nemo dat quod non habet. The purchaser had no defence at common law against the true owner, subject to certain exceptions which are set out by Willes J, in Fuentes v Montis (1868) LR 3 CP 268 at pp 276, 277. [19.75]

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Pacific Motor Auctions Pty Ltd v Motor Credits (Hire Finance) Ltd cont. In Johnson v Credit Lyonnais Co (1877) 2 CPD 224 an innocent purchaser attempted to establish that the true owner had “so conducted himself as to have lost the right to follow his own goods into the hands of the purchaser or pledgee”. The true owner had in that case left in the hands of the seller the documents of title to the goods which he had bought, and had failed to have an entry made in the books of the dock company which had custody of the goods, thus facilitating the fraudulent second sale. Denman J, held that there was no estoppel. As a direct consequence statutory protection was given to purchasers by s 3 of the Factors Act Amendment Act, 1877. When Johnson’s case was dismissed on appeal, Cockburn CJ, said (1877), 3 CPD 32 at p 36: And I am strongly fortified in this view by the fact that, as soon as the decisions here appealed from had been made public, the legislature by statute (40 & 41 Vict c 39) at once proceeded to settle the question in that view in the future by applying the protection given by the Factors Acts to persons acquiring title from agents, to innocent parties purchasing or making advances in such cases as the present. Whether, prior to and independently of such legislation, the law as it stood would have afforded protection is a different matter. There is thus no doubt about the general intention of the original provision and the general mischief at which it was aimed. It was intended as a protection to innocent purchasers in cases where estoppel gave insufficient protection. Section 3 of the Factors Act Amendment Act, 1877, dealt only with sellers who continued in possession of documents of title, but later s 8 of the Factors Act, 1889, which took its place, dealt with the seller’s continued possession both of goods and of documents of title. The wording of this latter section was included in identical terms in the Sale of Goods Act, 1893 (s 25(1)). In the Sale of Goods Act, 1923-1953, New South Wales adopted the same form of words as that contained in the two English sections. The first reported question that arose about the construction [111] of those same words is to be found in Mitchell v Jones (1905) 24 NZLR 932, a case under the New Zealand Sale of Goods Act, 1895. There the owner of a horse sold it to a buyer and some days later obtained it back from him on lease. Then, having possession of the horse in the capacity of lessee, he sold it a second time to an innocent purchaser. The full court held that the innocent purchaser was not protected. Stout CJ, said (1905) 24 NZLR at p 935: The point turns on how the words “or is in possession of the goods” … are to be construed … The meaning is first, that if a person sells goods and continues in possession, even though he has made a valid contract of sale, provided that he has not delivered them, he may to a bona fide buyer make a good title; and, secondly, the putting-in of the words “or is in possession of the goods” was meant to apply to a case of this character: If a vendor had not the goods when he sold them, but they came into his possession afterwards, then he would have possession of the goods, and if he sold them to a bona fide purchaser he could make a good title to them. He would be in the same position as if he had continued in possession of the goods when he made his first sale. In such a case as that he could make a good title to a bona fide purchaser. That is not this case. In this case the person who sold the goods gave up possession of them, and gave delivery of them to the buyer. The relationship, therefore, of buyer and seller between them was at an end. It is true that the seller got possession of the goods again, but not as a seller. He got the goods the second time as the bailee of the buyer, and as the bailee he had no warrant, in my opinion, to sell the goods again, nor could he make a good title to them to even a bona fide purchaser. And Williams J, said (1905) 24 NZLR at p 936 that the section “does not … apply where a sale has been absolutely final by delivery, and possession has been obtained by the vendee”. It has not been doubted in argument nor do their Lordships doubt that that case was rightly decided. In 1934, however, MacKinnon J, founding on that case, put a further gloss on the statutory provision in Staffs Motor Guarantee, Ltd v British Waggon Co, Ltd [1934] All ER Rep 322; [1934] 2 KB 500

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Pacific Motor Auctions Pty Ltd v Motor Credits (Hire Finance) Ltd cont. 305. In April, one Heap agreed with a finance company to sell his lorry to it and then to hire it from the company on hire-purchase terms. He filled up a proposal form which was accepted, and a hire-purchase agreement, dated May 2, was signed. During the term of the hiring he sold it to an innocent purchaser. It seems that there was an interval between the agreement to sell and the hire-purchase agreement, but it does not appear from the report that there was any physical delivery or interruption of Heap’s physical possession. MacKinnon J, held that [1934] All ER Rep at p 325; [1934] 2 KB at p 314: Heap’s possession of the lorry [at the time of the second sale] … was not the possession of a seller who had not yet delivered the article sold to the buyer, but was the possession of a bailee under the hire-purchase agreement … Although the sale had not been completed by physical delivery nor had there been interruption of the seller’s physical possession, he held that the case was covered by the principle in Mitchell v Jones (1905) 24 NZLR 932. In Union Transport Finance, Ltd v Ballardie [1937] 1 All ER 420; [1937] 1 KB 510, Du Parcq J, while not doubting the correctness of the decision of MacKinnon J, came to a contrary conclusion in slightly different circumstances. One Clark sold his car to a finance house with a view to its being let on hire-purchase to his employee. The employee signed the agreement, but the whole transaction was colourable and Clark at all times was intended to keep possession of the car. The learned judge held that, at different stages, the finance [112] house and the employee had a right to the possession of the car but that neither had exercised the right at the date of delivery of the car to the innocent purchaser. Clark had never attorned to the employee so as to make his possession a bailment under the hire-purchase. The section, therefore, applied. This conclusion is, in their lordships’ opinion, correct. In Olds Discount Co, Ltd v Krett and Krett [1940] 3 All ER 36; [1940] 2 KB 117, Stable J, accepted the decision of MacKinnon J. There, a finance house agreed with Goldstein that it would buy his goods whenever he could negotiate a contract with somebody who would hire the goods on hire-purchase from the finance house. He did so. The finance house bought the goods from Goldstein and the hirer took possession of them. He defaulted, however, and Goldstein, as agent for the finance house, took possession and then dishonestly sold them to an innocent purchaser. Stable J, rightly held that it was a mere accident that the agent to whom the finance house subsequently gave their mandate to hold the goods was the person who had sold them to the finance house. That decision, in their lordships’ opinion, is clearly maintainable on the principle of Mitchell v Jones (1905) 24 NZLR 932. Finally, a judgment of the Court of Appeal delivered by Devlin J, in Eastern Distributors, Ltd v Goldring [1957] 2 All ER 525; [1957] 2 QB 600 on one point in a complicated case accepted and followed the decision in Staffs Motor Guarantee, Ltd v British Waggon Co, Ltd [1934] All ER Rep 322; [1934] 2 KB 305 without discussing it or questioning its validity. There is thus no case which holds that the section does not apply where, after the sale, the seller simply attorns to the buyer and holds the goods as his bailee. It is plainly right to read the section as inapplicable to cases where there has been a break in the continuity of the physical possession. On this point, their lordships accept the observations of the learned judges in Mitchell v Jones (1905) 24 NZLR 932 as to the words “or is” which are the sole grounds for any doubt on this point. What is the justification, however, for saying that a person does not continue in possession where his physical possession does continue, although the title under or by virtue of which he is in possession has changed? The fact that a person having sold goods is described as continuing in possession would seem to indicate that the section is not contemplating as relevant a change in the legal title under which he possesses. For the legal title by which he is in possession cannot continue. Before the sale he is in possession as an owner, whereas after the sale he is in possession as a bailee holding goods for the new owner. The possession continues unchanged, but the title under which he possesses has changed. One may, perhaps, say in loose terms that a person having sold goods continues in possession as long as he is holding because of, and only because of, the sale; but what justification is there for imposing such an elaborate and artificial construction on the [19.75]

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Pacific Motor Auctions Pty Ltd v Motor Credits (Hire Finance) Ltd cont. natural meaning of the words? The object of the section is to protect an innocent purchaser who is deceived by the vendor’s physical possession of goods or documents and who is inevitably unaware of legal rights which fetter the apparent power to dispose. Where a vendor retains uninterrupted physical possession of the goods, why should an unknown arrangement, which substitutes a bailment for ownership, disentitle the innocent purchaser to protection from a danger which is just as great as that from which the section is admittedly intended to protect him? Since the original provision under the Factors Act Amendment Act, 1877 (s 3), dealt only with the continuing in possession of documents of title to goods, it seems clear that it was intending merely to deal with the physical possession of the documents and that it did not intend that a consideration of the legal quality of the possession of the documents should have any relevance. When the Factors Act, 1889 (s 8), added continuance in possession of the goods themselves to continuance in possession of the documents, it can hardly be suggested that the word “possession” was intended to have any more esoteric meaning in relation [113] to goods than it had in relation to documents of title. Moreover, such a construction would be in direct conflict with the definition (s 1(2) of the Factors Act, 1889) whereby A person shall be deemed to be in possession of goods or of the documents of title to goods, where the goods or documents are in his actual custody or are held by any other person subject to his control or for him or on his behalf. When s 8 of the Factors Act, 1889, came to be enacted again as s 25(1) the Sale of Goods Act, 1893, the identical words cannot have been intended to bear a different meaning from that which by definition they bore under the Act of 1889. Further, s 25(1) of the Sale of Goods Act, 1893, was accompanied by sub-s (2) which was in identical terms with s 9 of the Factors Act, 1889 (originally s 4 of the Factors Act Amendment Act, 1877), and dealt with a person who, having bought or agreed to buy goods, obtained possession of the goods. Possession under sub-s (1) must surely mean the same as possession under sub-s (2), which has been held to mean actual custody. In sub-s (2) there is a reference to “mercantile agent” which, by sub-s (3), “has the same meaning as in the Factors Acts”. In Hugill v Masker (1889) 22 QBD 364 at p 370, Lord Esher MR, said of sub-s (2): It is to be observed that the section is not dealing with the rights of the parties to that contract as against each other, but with the rights of third persons who enter into another transaction on the faith of the possession which the vendee under that contract has obtained of the documents of title. Again in Cahn and Mayer v Pockett’s Bristol Channel Steam Packet Co, Ltd [1899] 1 QB 643 at p 658, Collins LJ, with reference to sub-s (2), said: “Possession” by the Factors Act, 1889, s 1(2), means actual custody. The Factors Act, 1889, which is thus referred to, and as to part of it in terms again enacted, in the Sale of Goods Act, is the last of a series of statutes whereby the legislature has gradually enlarged the powers of persons in the actual possession of goods or documents of title, but without property therein, to pass the property in goods to bona fide purchasers. Possession of, not property in, the thing disposed of is the cardinal fact. From the point of view of the bona fide purchaser the ostensible authority based on the fact of possession is the same whether there is property in the thing, or authority to deal with it in the person in possession at the time of the disposition or not. The climate of legislative opinion was, at the time of the passing of the Factors Acts, 1877 and 1889, favourable to legislation which would prevent the buyers or others from being misled by an apparent possession of goods which was belied by legal transactions, which were unknown to the world at large. In 1878, the Bills of Sale Act, 1878, destroyed the validity of assignments and the like without

502

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Pacific Motor Auctions Pty Ltd v Motor Credits (Hire Finance) Ltd cont. delivery unless registered, and in 1882, the Bills of Sale Act (1878) Amendment Act, 1882, made similar provisions in respect of agreements to secure money on goods remaining in the apparent possession of the borrower. The heredity of the section which their Lordships are now considering can, therefore, be summed up as follows. Its words are identical with those of s 8 of the Factors Act, 1889, where they first appeared in this exact form. In that Act, it was expressly deemed that “actual custody” should constitute possession. In the Sale of Goods Act, 1893, s 25(1), the same form of words was again enacted. Part of that section (namely s 25(2)) contains an implicit reference, and part of it (namely, s 25(3)) an explicit reference, to the Factors Acts. There was strong authority for saying that in part of the section (namely, s 25(2)) “actual custody” constitutes possession. It had never been suggested by 1923, when the same form of words was first enacted in New South Wales, that there could be written into another part of s 25 (namely, s 25(1)) an implied proviso that actual custody should not constitute possession if the possession, though continuous, became attributable to a [114] bailment – thus giving to possession a meaning different from that which it had under the rest of the section and different from that which it had under a previous and co-existing section in identical terms (Factors Act, 1889, s 8). There is, therefore, the strongest reason for supposing that the words “continues … in possession” were intended to refer to the continuity of physical possession regardless of any private transactions between the seller and purchaser which might alter the legal title under which the possession was held. Their Lordships do not think that such a view of the law which they believe Parliament to have intended could in practice create any adverse effect. It would mean that, when a person sells a car to a finance house in order to take it back on hire-purchase, the finance house must take physical delivery if it is to avoid the risk of an innocent purchaser acquiring title to it. In any event, however, such arrangements where there is no delivery are not without some jeopardy owing to the Bills of Sale Acts. It seems to their Lordships that Staffs Motor Guarantee, Ltd v British Waggon Co, Ltd [1934] All ER Rep 322; [1934] 2 KB 305 (and Eastern Distributors, Ltd v Goldring [1957] 2 All ER 525; [1957] 2 QB 600 in so far as it followed it), was wrongly decided. Even if it were rightly decided, it would not cover the facts of this case. For, even assuming that a separate agreement of bailment, following a sale, without any break in the seller’s physical possession, were sufficient to break its continuity for the purposes of the section, here there was no such separate bailment. Motordom’s continued physical possession was solely attributable to the arrangement which constituted the sale. It was a term of the sale by Motordom to the respondent that Motordom should be entitled to retain possession of the cars for the purpose of selling them to customers. Motordom only received ninety per cent of the price on the sale to the respondent, and it cannot be argued that the sale ended at that stage. It would be absurd to suppose that either party intended Motordom to sell its stock for ninety per cent of its value without getting a right to any further benefit. The transaction by which Motordom sold the cars to the respondent was inextricably mixed with Motordom’s right to keep the cars for display at its premises. In their lordships’ opinion, Motordom, having sold the goods whose ownership is disputed, continued in possession of them. In spite of counsel for the respondent’s arguments, their Lordships cannot question the learned trial judge’s conclusions as to the bona fides of the appellant and its lack of notice of the previous sale. No doubt those arguments were put to him at the trial, but, having heard and seen the witnesses, he did not accept the arguments. Their Lordships will, therefore, humbly advise Her Majesty that the appeal should be allowed, the order of the High Court dated Aug 28, 1963, set aside with costs, and the order of the Supreme Court [19.75]

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Pacific Motor Auctions Pty Ltd v Motor Credits (Hire Finance) Ltd cont. of New South Wales dated July 25, 1962, restored.

THE BUYER IN POSSESSION [19.80] This exception complements the seller in possession provision. In certain

circumstances, a buyer who buys from a prior buyer who has possession but not title, may obtain good title. Possession is not limited to physical custody. The buyer may be in constructive possession of the goods. This nemo dat exception exhibits the classic tension between possession and title. Note the discussion of the Goods Act 1958 (Vic), s 30 above at [9.15] and [9.280] (Pearson). The succeeding section in the Goods Act 1958 (Vic), s 31, is “Buyer in possession after sale”. Read s 28(2) Sale of Goods Act 1923 (NSW) extracted at [9.10] (Pearson).

[19.85]

Question

1. What are the elements of SGA s 28(2)? Bought or agreed to buy [19.90] For the buyer in possession exception to the nemo dat quod non habet rule, under the

first sale, the buyer may have bought or simply agreed to buy. This contrasts with the seller in possession provision which requires a sale.

[19.95]

Questions

1. What is an agreement to buy? See SGA s 6(3) at [6.45] (Pearson). When might the buyer have possession but not property? Consider reservation of title, discussed in Chapter 8 (Pearson). 2. Will SGA s 28(2) protect a person who buys from a person who has possession of the goods under a hire purchase agreement? Will s 28(2) be applicable if a person buys from someone who has possession of the goods under a “sale or return” arrangement? 3. Note that for the purposes of the Personal Property Securities Act 2009 (Cth) in s 12, a conditional sale agreement is a security interest. 4. Why is there a reference to “bought” in SGA s 28(2)? Why might it be necessary to make use of a nemo dat exception if the buyer has already bought the goods? Consider SGA s 27. See Figure 21.2. Consider Newtons of Wembley Ltd v Williams [1965] 1 QB 560 at [9.365] (Pearson).

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Figure 19.2 The voidable title exception

If A rescinds before the disposition by B to C, title revests in A. However, B still has possession, and B is a person who bought goods. SGA s 27 will not apply to enable B to pass good title to C because the contract has been rescinded. B no longer has a voidable title. B doesn’t have title because the title has revested.

Gamer’s Motor Centre (Newcastle) Pty Ltd v Natwest Wholesale Australia Pty Ltd [19.100] Gamer’s Motor Centre (Newcastle) Pty Ltd v Natwest Wholesale Australia Pty Ltd (1987) 163 CLR 236; 61 ALJR 415 (High Court of Australia) [Gamer’s Motor Centre was a motor vehicle wholesaler in the business of selling cars to retail dealers. Evans & Rose Motors Pty Ltd was a retail dealer (the Dealer). In July, Gamers agreed to sell and the Dealer agreed to buy eight cars. The Dealer took delivery of the eight cars but did not pay any part of the purchase price. The invoice set out a number of conditions and warranties. One said: “Where payment is made other than in full settlement and in cash, all property rights in the vehicle remain in the vendor.” The Dealer had a floor plan agreement called “Used Vehicle Bailment Agreement (Dealers Stock)” (the “Agreement”) with Natwest. The agreement provided for Natwest to buy used cars acquired by the Dealer as stock. The Dealer would retain possession of the cars as bailee for Natwest (cl 8) pending the sale of the vehicle in the course of the Dealer’s retail business or the earlier termination of the bailment. Natwest agreed to pay 90 per cent of the agreed purchase price of a vehicle on completion of the sale to Natwest and 10 per cent when the vehicle was disposed of by the Dealer (cl 2). The Dealer warranted that each vehicle sold to Natwest would be his own unencumbered property (cl 3) and that he would indemnify Natwest against any loss arising from defective title (cl 6). For each of the eight cars, the Dealer completed and signed a “Delivery Receipt for Trade-In or Used Vehicles” and sent them to Natwest. These documents described the car, indicated that it was purchased from Gamer and acknowledged that the Dealer took delivery in terms of the agreement. Natwest paid the Dealer 90 per cent of the purchase price of the eight cars. When the Dealer did not pay Gamer, Gamer seized the cars. Natwest sued Gamer in detinue and conversion. In the District Court it was held that title passed to Natwest as Gamer authorised the Dealer to sell the vehicles before Gamer was paid and this was a variation of the condition on the invoice. The NSW Court of Appeal held that there was no variation of the conditions on the invoice. The Court held that SGA s 28(2) applied as there was a constructive delivery by the Dealer to Natwest and that title passed to Natwest. Gamer appealed contending that s 28(2) is confined to physical delivery.] MASON CJ: [239] This appeal raises the important question whether the reference in s 28(2) of the Sale of Goods Act 1923 (NSW) (the “Act”) to “delivery” of the goods by the person who has bought or [240] agreed to buy them under any sale, pledge or other disposition to a person receiving the same in good faith and without notice of any lien or other right of the original seller in respect of the goods, is confined to actual delivery and excludes forms of constructive delivery. [242] Section 28(2) also needs to be read with s 5(1) of the Factors (Mercantile Agents) Act 1923 (NSW) which provides that a sale, pledge or other disposition of goods in the ordinary course of business of a mercantile agent, by a mercantile agent entrusted with the possession of goods is, subject to that Act, as valid as if he were expressly authorized by the owner to make the sale, pledge or other disposition. The effect of s 28(2) is, if its requirements are satisfied, to validate the delivery or [19.100]

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Gamer’s Motor Centre (Newcastle) Pty Ltd v Natwest Wholesale Australia Pty Ltd cont. transfer and not the sale, pledge or other disposition: see Cahn v Pockett’s Bristol Channel Steam Packet Company [1899] 1 QB 643; City Fur Manufacturing Co Ltd v Fureenbond, Ltd [1937] 1 All ER 799. Although the last clause in s 28(2) makes no reference to a sale, pledge or other disposition by a mercantile agent in the ordinary course of his business, it has been considered in Australia and New Zealand that, if the conditions stated in the sub-section are satisfied, the delivery of the goods is to have the same effect as if the sale of the goods had been legally effected by a mercantile agent, that is, as if it had been in the ordinary course of his business: Langmead v Thyer Rubber Co Limited [1947] SASR 29, at p 39; Jeffcott v Andrew Motors Ltd [1960] NZLR 721, at p 729. It can scarcely be suggested that the sub-section was intended to provide that a buyer in possession could confer a good title only in cases where his disposition was in the ordinary course of his business as a [243] mercantile agent: Dean, The Law Relating to Hire-Purchase Law in Australia, 2nd ed (1938), pp 54-55; Else-Mitchell and Parsons, Hire-Purchase Law, 4th ed (1968), pp 211-212. On the other hand in Newtons of Wembley Ltd v Williams [1965] 1 QB 560, Pearson LJ (at pp 577-580) and Sellers LJ (at pp 574-575) considered that the effect of the section is to validate a transaction if the buyer does something which would amount to acting in the ordinary course of business if he were a mercantile agent. Although it is unnecessary to make a choice between these competing opinions for the purpose of deciding the present case, there is some force in the view that the last clause of s 28(2) speaks to a situation in which the assumption is made that a mercantile agent entrusted by the owner with the goods or documents of title sells, pledges or otherwise disposes of them in the ordinary course of his business. See the discussion in Atiyah, The Sale of Goods, 7th ed (1985), at pp 301-302. The word “delivery” is defined in s 5(1) of the Act to mean, unless the context or subject-matter otherwise requires, “voluntary transfer of possession from one person to another”. This is the legal meaning of “delivery” and it differs from the popular meaning of the word which, as Professor Atiyah points out (at p 71) is the dispatch of goods. The word “possession” is not defined by the Act, though s 6(3) of the Factors (Mercantile Agents) Act provides that, for the purposes of that Act: … an agent shall be deemed to be possessed of goods or documents of title to goods whether the same are in his actual custody or control or are held by any other person subject to his control or for him or on his behalf. Gamer submits that the word “possession” should be given its common or ordinary meaning. This, according to the argument, is actual physical custody. The argument, if accepted, entails the consequence that delivery must be actual. Whether the popular understanding of “possession” confines it to actual custody is open to doubt. But this question may be put to one side as “possession” is an established legal concept, particularly in its application to goods and chattels … [244] … Here, as I have said, the word “delivery” is defined in terms of its legal meaning. There is therefore a strong foundation for the conclusion that the statutory definition of “delivery” referred to “possession”, not in its popular sense or as meaning actual custody, but in its legal or technical sense. Indeed, the seller’s obligation under s 30 of the Act cannot always be sensibly discharged by actual delivery. A commodity or chattel incapable of actual physical delivery, except perhaps at great inconvenience and cost, such as a yacht (see Bank of New South Wales v Palmer [1970] 2 NSWR 532), must be capable of constructive or symbolic delivery falling short of actual delivery. And there is no suggestion in s 30 that “deliver” is used otherwise than in its defined sense. Section 32(3) of the Act expressly recognizes constructive delivery by attornment. The sub-section provides: Where the goods at the time of sale are in the possession of a third person, there is no delivery by seller to buyer unless and until the third person acknowledges to the buyer that he [the third person] holds the goods on his[the buyer’s] behalf …

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Gamer’s Motor Centre (Newcastle) Pty Ltd v Natwest Wholesale Australia Pty Ltd cont. The sub-section is not expressed in such a way as to indicate that it was intended to make provision for delivery otherwise than in the defined sense of the term. The point of s 32(3) was to negate the existence of a delivery unless in the situation described there was an acknowledgment by the third person to the buyer. It is significant that Sir Mackenzie Chalmers, in his Commentary on the original Sale of Goods Bill of 1888 treated the reference in the statutory definition to “possession” as a reflection of the antecedent common law. He drew attention to those features of the Bill which were departures from the common law and did not suggest that the statutory definition of “delivery” constituted such a departure. In his Sale of Goods Act, 1893, 5th ed (1902) which was substantially a reproduction of his Commentary, he said (at p 118) of the statutory definition of “delivery”, which was the same as that contained in s 5 of the New South Wales Act: Delivery may be actual or constructive. Delivery is [245] constructive when it is effected without any change in the actual possession of the thing delivered, as in the case of delivery by attornment or symbolic delivery. Delivery by attornment may take place in three classes of cases. First, the seller may be in possession of the goods, but after sale he may attorn to the buyer, and continue to hold the goods as his bailee. Secondly, the goods may be in the possession of the buyer before sale, but after sale he may hold them on his own account. Thirdly, the goods may be in the possession of a third person, as bailee for the seller. After sale such third person may attorn to the buyer and continue to hold them as his bailee. The third class of case is now dealt with in s 32(3). Sir Mackenzie Chalmers also drew attention to Sir Frederick Pollock’s definition of “delivery” as “voluntary dispossession in favour of another” and later went on to refer to that author’s discussion of “symbolic delivery” by giving the buyer the key of the place where the goods are stored, accepting the view that the key is not the symbol of the goods, but that the transaction “consists in such a transfer of control in fact as the nature of the case admits, and as will practically suffice for causing the new possessor to be recognized as such”: Pollock and Wright, Possession in the Common Law, (1888), at p 61. See Dublin City Distillery, Limited v Doherty [1914] AC 823, at pp 843, et seq, 852; Wrightson v McArthur and Hutchisons [1921] 2 KB 807, at pp 816-817. The importance of these comments is that, though made with reference to the concept of “delivery” as defined by the statute, they nonetheless reflected the tenor of the antecedent judicial decisions on the common law, the statute being a codification of the common law. Each of the three examples of constructive delivery by attornment given in the passage which I have quoted was an illustration taken from the earlier common law. Lindley LJ expressed the general principle in Mills v Charlesworth (1890) 25 QBD 421 in this way (at p 425): In point of law possession of goods may be changed by agreement without any physical change in their position or in the position of the person who actually guards them. The right to possession may be transferred by agreement, and the character in which the custodian holds them may be changed by attornment. … [246] Lord Parker in Dublin City Distillery, speaking of pledges, said (at p 852): There are … cases in which possession may pass to the pledgee without actual delivery, for example, whenever there is some agreement between the parties the effect of which is to change the possession of the pledger from a possession on his own account as owner into a possession as bailee for the pledgee: see Meyerstein v Barber (1866) LR 2 CP 38. And his Lordship went on to say (at p 852) that where the goods were in the possession of a third party the pledger usually gave a direction to the third party requiring him to deliver or to hold the goods for the pledgee, followed either by actual delivery to the pledgee or by an acknowledgment by the third party that he holds for the pledgee. See also Official Assignee of Madras v Mercantile Bank of India, Ltd [1935] AC 53, at pp 58-59. [19.100]

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Gamer’s Motor Centre (Newcastle) Pty Ltd v Natwest Wholesale Australia Pty Ltd cont. Gamer contests the relevance of the decisions on s 17 of the Statute of Frauds on the ground that the courts were there concerned with the interpretation of the words “actually receive the goods” and not with the words “delivery” or “possession”. The response to this argument is that a central element in the reasoning in the decisions was the concept of delivery and change of possession expressed in the broad principle stated by Lindley LJ in Mills v Charlesworth. This principle was accepted by this Court in Minister for Supply and Development v Servicemen’s Co-operative Joinery [247] Manufacturers Ltd (1951) 82 CLR 621, a decision on the Sale of Goods Act 1895 (SA), which was not referred to in argument in this Court or in the courts below. Williams J observed (at p 641): It is well established that constructive delivery sufficient to pass the title in chattels may be effected by a change in the character of an uninterrupted custody. For this proposition his Honour cited Elmore v Stone, Marvin v Wallis, Dublin City Distillery and Akron Tyre Co Pty Ltd v Kittson (1951) 82 CLR 477. Webb J (at p 643) agreed with Williams J on this point, but considered (at p 644) that the evidence did not establish a case of constructive delivery. Latham CJ also thought that there could be constructive delivery under the Act. His Honour said (at p 635): The fact that the buyer was in possession as a bailee has no significance in relation to delivery under the subsequent contract of sale. There could be a delivery under that contract only if there was a change in the character of the possession – ie, from possession as bailee to possession in pursuance of the contract of sale: Pollock and Wright, Possession in the Common Law (1888), pp 57, 74, 75. In Akron Tyre Co Pty Ltd v Kittson, the joint judgment of Williams and Kitto JJ states (at p 494) the proposition which I have quoted from the judgment of Williams J in Minister for Supply and Development. These statements in this Court, like those in Dublin City Distillery, indicate that the Sale of Goods Act contemplates constructive delivery just as the common law did. However, Gamer submits that in the context of s 28(2) “delivery” bears a more confined meaning. This is because one aspect of the doctrine of constructive possession includes the notion of a change in the right to possession and because the assumption which the sub-section predicates is that the buyer in possession of the goods or documents of title, having no property in the goods, cannot pass title to them, except through the operation of the sub-section. It is said that this demands that the reference to “delivery” be read as a reference to actual delivery. I would reject this argument on the ground that s 28(2) makes provision for the buyer in possession to pass property in the goods as if the person making the delivery were a mercantile agent entrusted by the owner with the goods or the documents of title. This it does by validating the delivery, [248] notwithstanding the absence of title in buyer in possession. In other words, the effect of the sub-section is to give validity to a delivery which would, but for absence of title in the person making it, be an effective delivery. Gamer also relies on the interpretation given by the Judicial Committee in Pacific Motor Auctions Pty Ltd v Motor Credits (Hire Finance) Ltd (1965) 112 CLR 192; [1965] AC 867, to “possession” in s 28(1) of the Act. In a passage quoted with approval by Barwick CJ in Mercantile Credits Ltd v FC Upton & Sons Pty Ltd (1974) 48 ALJR 301, at p 302, Lord Pearce speaking for the Judicial Committee said (at p 204; p 888 of AC): The heredity of the section which their Lordships are now considering can therefore be summed up as follows. Its words are identical with those of section 8 of the Factors Act, 1889, where they first appeared in this exact form. In that Act it was expressly deemed that “actual custody” should constitute possession. In the Sale of Goods Act, 1893, section 25, the same form of words was again enacted. Part of that section (namely, 25(2)) contains an implicit reference and part of it (namely, 25(3)) an explicit reference to the Factors Acts. There was strong authority for saying that in part of the section (namely, 25(2)) “actual custody” constitutes possession. It had never been suggested by 1923, when the same form of words 508

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Gamer’s Motor Centre (Newcastle) Pty Ltd v Natwest Wholesale Australia Pty Ltd cont. was first enacted in New South Wales, that there could be written into another part of section 25 (namely, 25(1)) an implied proviso that actual custody should not constitute possession if the possession though continuous became attributable to a bailment – thus giving to possession a meaning different from that which it had under the rest of the section and different from that which it had under a previous and co-existing section in identical terms (Factors Act, 1889, section 8). Earlier his Lordship had observed (at p 202; p 886 of AC): The object of the section is to protect an innocent purchaser who is deceived by the vendor’s physical possession of goods or documents and who is inevitably unaware of legal rights which fetter the apparent power to dispose. The “strong authority” for saying that the reference in s 28(2) to “possession” is to actual custody is found in Hugill v Masker (1889) 22 QBD 364, at p 370, per Lord Esher MR, and more particularly in Cahn, at p 658, per Collins LJ. And it must be accepted, in accordance with what was said in Pacific Motor Auctions that “possession” has the same meaning in s 28(1) and (2). But this does not mean that the meaning which the word has in the context in which it appears at the commencement of the two sub-sections is the meaning which it bears when it appears in the statutory definition of “delivery”. The point is that the object of s 28, the protection of innocent third parties dealing with a seller or buyer in possession of goods or the documents of title thereto and therefore appearing to be the owner of the goods, as well as the legislative history of the provisions, requires that “possession” be construed in a particular way. These considerations have no application at all to the statutory definition of “delivery” which is designed to identify or describe the act which passes title to goods as between seller and buyer. Indeed, to treat “delivery” as embracing constructive delivery is to enhance the protection given by s 28(2) to the innocent purchaser. There is no valid reason why his title should depend upon actual, as distinct from constructive, delivery. The mischief aimed at is a sale by a buyer in possession of goods or documents of title who is not the owner of them, the object being to protect the sub-buyer who is deceived by the appearance of ownership arising from possession. There is no point in confining the protection to the sub-buyer who takes under an actual delivery. Once this is appreciated, the history of s 28(1) and (2), which can be traced through the Factors Acts, beginning with the English Act of 1823, ceases to have any importance. That history shows that the protection afforded to the innocent buyer was gradually extended, but it throws no light on the question now under consideration. Gamer then relies on authority not binding on this Court. Nicholson v Harper [1895] 2 Ch 415, as McHugh JA pointed out, does not decide that s 28 contemplates actual delivery. It decides no more than that there must be a delivery or transfer in addition to the sale (p 418). In Bank of New South Wales v Palmer, Helsham J concluded (at p 536) that “delivery” in s 28 is restricted to a “change in physical possession of goods or title deeds”, his view being applied by O’Regan J in NZ Securities & Finance Ltd v Wrightcars Ltd [1976] 1 NZLR 77. I do not consider that his Honour’s conclusion is supported by the reason assigned for it, namely that the section neither refers to property in goods the subject of the transfer, nor to any transaction which is ordinarily accompanied only by a transfer of property in goods rather than the goods themselves. This reason supports no more than the limited conclusion reached in Nicholson v Harper that there must be a delivery apart from the sale, pledge or [250] other disposition. So long as this requirement is satisfied, a constructive delivery is a delivery within the statutory definition and within the meaning of s 28(2). Thus, each of the three classes of constructive delivery by attornment instanced by Sir Mackenzie Chalmers would satisfy the statutory definition. But cases of constructive delivery are not confined to these three examples, as the statements dealing with a change in the character of possession, previously quoted, so clearly indicate. The question then is whether on the evidence there was a change in the character of the Dealer’s possession of the vehicles which amounts to a constructive delivery to Natwest. The majority in the [19.100]

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Gamer’s Motor Centre (Newcastle) Pty Ltd v Natwest Wholesale Australia Pty Ltd cont. Court of Appeal held that the effect of the Agreement between Natwest and the Dealer was that, on payment of 90 per cent of the purchase price, the Dealer became the bailee of Natwest. This, in the opinion of their Honours, constituted a transfer of possession and was a delivery for the purpose of s 28(2). Despite the discrepancy in the dates of the Gamer invoices, the delivery receipts and the dates on which Natwest drew cheques in favour of the Dealer, it seems that the Dealer, having agreed to buy and having taken possession of the vehicles from Gamer, then delivered the receipts to Natwest against which cheques were subsequently drawn in favour of the Dealer. That was the effect of the oral evidence given by the officers of Natwest and the Dealer. The delivery receipt had a dual operation. When read with the Agreement, it evidenced the terms of the agreement for sale to Natwest, that agreement being made on delivery of the receipt, and acknowledged that the Dealer held the vehicle for and on behalf of Natwest. And the receipt also operated as an acknowledgment that the Dealer held the vehicle as bailee for Natwest pursuant to the Agreement. It may be that in this respect the operation of the receipt was conditional, not only upon Natwest’s agreement to purchase the vehicles, but also upon Natwest’s payment of 90 per cent of the agreed price. However this may be, I see no difficulty in regarding the handing over of the delivery receipt as serving the dual purpose already mentioned, namely an acknowledgment that the Dealer holds the vehicle to which it relates for Natwest pursuant to the agreement for sale contemporaneously made and as an acknowledgment that it holds, or will hold, as bailee pursuant to the Agreement. The receipt, though it evidences the terms of sale, is not itself the sale or the agreement for sale. The delivery of the receipt is something apart from the sale so that the constructive delivery which it evidences is [251] something more than a mere change in the right to possession arising from the sale from the Dealer to Natwest. I would dismiss the appeal. Dawson J: [concluded that there could be constructive delivery and that constructive delivery had occurred.] [262] Delivery is sometimes said to be constructive where it is symbolic as, for example, where the keys to goods kept under lock and key are handed over. Sir Frederick Pollock doubted that in such circumstances, at least where control of the goods went with the key, there was a mere symbolic transfer of possession: see Pollock and Wright, op cit, p 61. He preferred the view that there was a transfer of control in fact which constituted a change in possession. For it is control [263] which is central to the notion that possession in law may consist of something other than physical or actual possession. In the present case, the Dealer was not only a buyer in possession pursuant to the sale of the vehicles to it by Gamer, but also a bailee of the vehicles from Gamer, property not having passed. An obligation to redeliver the goods to the bailor at the conclusion of the bailment is no longer a necessary feature of bailment: Motor Mart Ltd v Webb [1958] NZLR 773. This is exemplified by the modern hire-purchase agreement under which the hirer is a bailee, but is under no obligation to return the goods if he exercises the option to purchase: Karflex, Ltd v Poole [1933] 2 KB 251, at pp 263-264. The fact that the Dealer was the buyer of the vehicles was, therefore, no impediment to his being also a bailee of them until such time as property passed to him or the bailment was otherwise determined. See the discussion in Palmer, Bailment (1979), pp 4-5. The classification of the Dealer’s right to possession is, however, less important than the fact, for that right carried with it the capacity to pass control in such a way as to amount to a constructive delivery of the goods. The Dealer might have physically delivered the vehicles to Natwest pursuant to the sale by it to Natwest. There would then have been a delivery for the purposes of s 28(2). In fact it sold the vehicles to Natwest and agreed at the same time to take them on hire from Natwest, thus creating a bailment. That bailment was not created by way of attornment nor was it a sub-bailment. But it is important to recognize that just as with attornment or sub-bailment delivery may be effected constructively by 510

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Gamer’s Motor Centre (Newcastle) Pty Ltd v Natwest Wholesale Australia Pty Ltd cont. an alteration in control without any change in physical possession, so in this case the simultaneous sale by the Dealer to Natwest and the acknowledgment by the Dealer of the passing of control to Natwest was sufficient to constitute a constructive delivery of the vehicles by the Dealer to Natwest. The character of the possession of the vehicles by the Dealer was altered. The same would have been so had there been an attornment or sub-bailment, but in this case, upon delivery, property simultaneously passed under s 28(2) from Gamer through the Dealer to Natwest, and any bailment of the vehicles by Gamer to the Dealer came to an end at the same time as the bailment by Natwest to the Dealer came into existence. The bailment of the vehicles by Natwest to the Dealer was a fresh bailment which was neither in substitution for any bailment between Gamer and the Dealer nor a sub-bailment. The argument put by the appellant, as I understand it, went [264] further than to contend that, merely as a matter of construction, the delivery of goods referred to in s 28(2) must be confined to a physical delivery. It was submitted that even if the creation of a bailment between Natwest and the Dealer could amount to a constructive delivery, the Dealer was, without the aid of s 28(2), unable to pass property in the vehicles to Natwest and it was only if it could do that that the latter could make the Dealer its bailee. That argument, however, fails to recognize that the Dealer, being in possession of the vehicles, was capable not only of effecting a physical delivery of them to Natwest, but was also capable of altering the character of its possession of the vehicles in such a manner as to amount to a constructive delivery of them. Constructive delivery is not dependent upon the deliveror having, or being able to pass, property in the goods delivered. Of course, the possessory rights conferred would, save for some such provision as s 28, be liable to be defeated by the true owner. But property or title is something different from possession and a person in actual possession, being able to deliver goods by physically handing them over to another, must be in a position to effect constructive delivery by acknowledging control of the goods in that other without an alteration in physical possession. If it were otherwise a mere token handing over of possession and an immediate handing back would suffice to effect delivery whereas an express agreement for the transfer of control would not. That would be quite artificial. Thus constructive delivery by the Dealer was not dependent upon the application of s 28(2), although at the same time as constructive delivery took place, the sub-section applied to pass property in the goods. Such a result is entirely consistent with the underlying policy of the sub-section which is to afford protection to an innocent purchaser relying upon the apparent ownership of a vendor who is a buyer in possession under a previous sale. Brennan J delivered a judgment in similar terms to that of Mason CJ. Gaudron J accepted that there can be constructive delivery but rejected that there was constructive delivery in this case. Toohey J said that “delivery” in SGA s 28(2) does not embrace constructive delivery. Appeal dismissed with costs.

Note

[19.105]

See also extract of Gamer’s Motor Centre (Newcastle) Pty Ltd v Natwest Wholesale Australia Pty Ltd (1987) 163 CLR 236; 61 ALJR 415 at [10.20].

[19.105]

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CHAPTER 20 General Law Priority Rules: Contests Between Legal and Equitable Interests [20.05]

PRIORITIES UNDER THE GENERAL LAW LAND SYSTEM ..................................... 513 [20.10]

Prior legal interest, subsequent equitable interest ........................... 514 [20.10] [20.15]

[20.20]

Northern Counties Fire Insurance Co v Whipp ......................... 514 Walker v Linom ..................................................................... 517

Bona fide purchaser for value of a legal estate without notice of equitable interests ............................................................................... 518 [20.20]

Pilcher v Rawlins ................................................................... 518

Extract from Moore, Australian Property Law: Cases and Materials (5th ed), Ch 2.

PRIORITIES UNDER THE GENERAL LAW LAND SYSTEM [20.05] A priority dispute arises where two or more persons claim wholly or partially

inconsistent proprietary interests in the land (see Moore, Grattan and Griggs, Australian Real Property Law (6th ed, Thomson Reuters, Sydney, 2016), [2.375] – [2.380]). The interests may be legal or equitable and may involve different types of proprietary interests (for example, a fee simple, a mortgage, a lease, an easement). In relation to general law land, rules evolved to settle the various kinds of priority disputes: some of these rules are highlighted in the cases extracted at [20.20]–[20.30]. Although only a very small number of general law land titles remain, some knowledge of these rules is necessary in order to understand properly the way in which the Torrens system operates. Further, several of the principles form the basis for the resolution of some priority disputes under the Torrens system and thus clearly retain relevance (see [21.10]–[21.20]). A more detailed examination of general law land priority rules can be found in Moore, Grattan and Griggs, Australian Real Property Law (6th ed, Thomson Reuters, Sydney, 2016), Ch 2, Pt VI. The specific rules for determining priority between inconsistent interests centre around two factors. The first is the respective dates of creation of the interests (that is, which was created earlier and which was created later). The second is the nature of each of the competing interests: that is, whether it is a legal interest, an equitable interest, or a mere equity. The ways of differentiating between interests that are legal and those that are equitable are dealt with in Chapter 9 (Moore) (where it will be seen that the formalities required for the creation of legal interests differ from those required for equitable interests) and in Chapter 10 (Moore) (where it will be seen that equitable interests can arise in some cases where a transaction is to some extent “defeasible”). The nature and means of creation of a mere equity is dealt with in Chapter 21. Accordingly, specific priority rules apply in the following contexts: • prior legal interest against subsequent legal interest (where the rule is that the prior interest prevails: see Moore, Grattan and Griggs, Australian Real Property Law (6th ed, Thomson Reuters, Sydney, 2016), [2.400]) [20.05]

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• prior equitable interest against subsequent legal interest (considered below) • prior legal interest against subsequent equitable interest (considered below) • prior equitable interest against subsequent equitable interest (considered below and, because of its particular importance in regard to Torrens land, also in [6.85]–[6.185] (Moore)) • prior mere equity against subsequent equitable (or legal) interest (considered in the context of Torrens land in [21.25]–[21.30]). Prior legal interest, subsequent equitable interest

Northern Counties Fire Insurance Co v Whipp [20.10] Northern Counties Fire Insurance Co v Whipp (1884) 26 Ch D 482 English Court of Appeal On the 11th of January 1878, Crabtree, who was the manager of the Plaintiff company, executed a legal mortgage of a freehold property, known as Millbank, to the Plaintiff company, to secure £4,500, and, according to the conclusion drawn by the Court of Appeal from the evidence, Crabtree, at or about the same time, delivered the title deeds to the company, and received the £4,500 from the company in cash. On the 24th of May, 1878, Crabtree made a legal mortgage to the Plaintiff company of certain other freehold property to secure £2,500, and the title deeds were (according to the conclusion at which the Court of Appeal arrived on the evidence) delivered to the Plaintiff company … The deeds of the mortgaged properties were placed in a safe of the company, and were seen there on the occasion of the audit in May 1878. Crabtree, … was entrusted with one of the two keys which opened the one lock which secured the safe in which the deeds of the company were kept, and it appeared that in November 1878, he produced the deeds in question to the Defendant’s solicitor, Mr Milne Whitehead, to whom Crabtree had applied for a loan on mortgage of these two properties. As the result of this application the Defendant, Mrs Whipp, advanced £3,500 to Crabtree on a mortgage, dated the 19th of December 1878, of the two properties included in the Plaintiffs’ securities, and she at the same time received from Crabtree the title deeds of the two properties, but not the mortgages to the Plaintiff company. The Defendant’s mortgage was taken by her, and the mortgage money paid by her to Crabtree, in entire ignorance of the securities to the Plaintiff company. Crabtree went into liquidation in November 1879, and in the following month an order [was made] for winding up the Plaintiff company. In 1880 the liquidator commenced, in the name of the company, this action, against Mrs Whipp and Crabtree’s trustee in liquidation, for foreclosure. The trustee disclaimed, and the action was dismissed as against him. Mrs Whipp put in a defence and counterclaim by which she asked that the securities of the Plaintiff company might be declared fraudulent and void as against her, or in the alternative that they might be postponed … FRY LJ (delivering the judgment of the court comprising Cotton, Bowen and Fry LJJ): The Plaintiffs being possessed of mortgages earlier in date than the mortgage of the Defendant, and under these instruments, being the owners of the legal estate, are prima facie entitled to priority over the Defendant, but the Defendant seeks to postpone the Plaintiffs’ legal estate on various grounds. The main contention on the part of the Defendant, which succeeded in the Court below, was that by reason of the negligent conduct of the Plaintiffs, after they had taken their mortgages, these securities ought to be postponed to the security of the Defendant; and this point has been argued at such length and with so extensive a reference to the authorities, that it appears to us necessary to consider the matter fully. 514

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Northern Counties Fire Insurance Co v Whipp cont. The question which has thus to be investigated is – What conduct in relation to the title deeds on the part of a mortgagee who has the legal estate, is sufficient to postpone such mortgagee in favour of a subsequent equitable mortgagee who has obtained the title deeds without knowledge of the legal mortgage? The question is not what circumstances may as between two equities give priority to the one over the other, but what circumstances justify the Court in depriving a legal mortgagee of the benefit of the legal estate. It has been contended on the part of the Plaintiffs that nothing short of fraud will justify the Court in postponing the legal estate. It has been contended by the Defendant that gross negligence is enough. The cases which assist in answering the question thus raised will be found to fall into two categories: (1), those which relate to conduct of the legal mortgagee in not obtaining possession of the title deeds; (2), those which relate to the conduct of the legal mortgagee in giving up or not retaining the possession of the title deeds after he has obtained them. The two classes of cases will not be found to differ in the principles by which they are to be governed, but they do differ much in the kind of fraud which is to be most naturally looked for … [T]he cases which have arisen on the conduct of the mortgagee in not obtaining possession of the title deeds may be ranged in the following classes: (1)

Where the legal mortgagee or purchaser has made no inquiry for the title deeds and has been postponed, either to a prior equitable estate as in Worthington v Morgan 16 Sim 547, or to a subsequent equitable owner who used diligence in inquiring for the title deeds, as in Clark v Palmer 21 Ch D 124. In these cases the Courts have considered the conduct of the mortgagee in making no inquiry to be evidence of the fraudulent intent to escape notice of a prior equity, and in the latter case that a subsequent mortgagee, who was, in fact, misled by the mortgagor taking advantage of the conduct of the legal mortgagee, could as against him take advantage of the fraudulent intent.

(2)

Where the legal mortgagee has made inquiry for the deeds and has received a reasonable excuse for their non-delivery, and has accordingly not lost his priority, as in Barnett v Weston 12 Ves 130; Hewitt v Loosemore 9 Hare, 449; Agra Bank v Barry Law Rep 7 HL 135.

(3)

Where the legal mortgagee has received part of the deeds under a reasonable belief that he was receiving all and has accordingly not lost his priority, as in Hunt v Elmes 2 DF & J 578, Ratcliffe v Barnard Law Rep 6 Ch 652, and Colyer v Finch 5 HLC 905.

(4)

Where the legal mortgagee has left the deeds in the hands of the mortgagor with authority to deal with them for the purpose of his raising money on security of the estate, and he has exceeded the collateral instructions given to him. In these cases the legal mortgagee has been postponed, as in Perry-Herrick v Attwood 2 De G & J 21. This case was decided not on the ground that the legal mortgagees had been guilty of fraud, but on the ground that as they had left the deeds in the hands of the mortgagor for the purpose of raising money, they could not insist, as against those who in reliance on the deeds lent their money, that the mortgagor had exceeded his authority.

The cases where the mortgagee having received the deeds has subsequently parted with them, or suffered them to fall into the hands of the mortgagor, will be found to fall into the following classes: (1)

Where the title deeds have been lent by the legal mortgagee to the mortgagor upon a reasonable representation made by him as to the object in borrowing them, and the legal mortgagee has retained his priority over the subsequent equities, as Peter v Russel, or Thatched House Case 1 Eq Ca Abr 321; Martinez v Cooper 2 Russ 198.

(2)

Where the legal mortgagee has returned the deeds to the mortgagor for the express purpose of raising money on them, though with the expectation that he would disclose the existence of the prior security to any second mortgagee: Briggs v Jones Law Rep 10 Eq 92. In such cases the [20.10]

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Northern Counties Fire Insurance Co v Whipp cont. Court has, on the ground of authority, postponed the legal to the equitable estate. This is the same in principle as the decision in Perry-Herrick v Attwood 2 De G & J 21. No case has been cited in which the legal mortgagee has (as by the Vice Chancellor in this case) been postponed by reason of negligence in the custody of the deeds. The decisions on negligence at common law have been pressed on us in the present case, but it appears to us enough to observe that the action at law for negligence imports the existence of a duty on the part of the defendant to the plaintiff, and a loss suffered as a direct consequence of the breach of such duty; and that in the present case it is impossible to find any duty undertaken by the Plaintiff company to the Defendant, Mrs Whipp. The case was argued as if the legal owner of land owed a duty to all other of Her Majesty’s subjects to keep his title deeds secure; as if title deeds were in the eye of the law analogous to fierce dogs or destructive elements, where from the nature of the thing the Courts have implied a general duty of safe custody on the part of the person having their possession or control. This view is in our opinion impliedly negatived by the whole course of decisions, and it is expressly repelled by the observations of the present Lord Chancellor in Agra Bank v Barry Law Rep 7 HL 157, where he said, “It has been said in argument that investigation of title and inquiry after deeds is ‘the duty’ of a purchaser or a mortgagee; and, no doubt, there are authorities (not involving any question of registry), which do use that language. But this, if it can properly be called a duty, is not a duty owing to the possible holder of a latent title or security. It is merely the course which a man dealing bona fide in the proper and usual manner for his own interest, ought, by himself or his solicitor, to follow, with a view to his own title and his own security. If he does not follow that course, the omission of it may be a thing requiring to be accounted for or explained. It may be evidence, if it is not explained, of a design, inconsistent with bona fide dealing, to avoid knowledge of the true state of the title. What is a sufficient explanation, must always be a question to be decided with reference to the nature and circumstances of each particular case.” These observations appear to us conclusive on the point, and they at the same time suggest the conclusion, that if in any case it shall appear that a prior legal mortgagee has undertaken any duty as to the custody of the deeds towards any given person, and has neglected to perform that duty with due care, and has thereby injured the person to whom the duty was owed, there the legal estate might be postponed by reason of the negligence. But no such case appears as yet to have arisen, nor does it seem one likely often to occur. The point certainly does not rise in the present case, and we therefore give no opinion upon it. The authorities which we have reviewed appear to us to justify the following conclusions: (1) That the Court will postpone the prior legal estate to a subsequent equitable estate: (a), where the owner of the legal estate has assisted in or connived at the fraud which has led to the creation of a subsequent equitable estate, without notice of the prior legal estate; of which assistance or connivance, the omission to use ordinary care in inquiry after or keeping title deeds may be, and in some cases has been, held to be sufficient evidence, where such conduct cannot otherwise be explained; (b), where the owner of the legal estate has constituted the mortgagor his agent with authority to raise money, and the estate thus created has by the fraud of misconduct of the agent been represented as being the first estate. But (2) that the Court will not postpone the prior legal estate to the subsequent equitable estate on the ground of any mere carelessness or want of prudence on the part of the legal owner. Now to apply the conclusions thus arrived at to the facts of the present case. That there was great carelessness in the manner in which the Plaintiff company through its directors dealt with their securities seems to us to admit of no doubt. But is that carelessness evidence of any fraud? We think that it is not. Of what fraud is it evidence? The Plaintiffs never combined with Crabtree to induce the Defendant to lend her money. They never knew that she was lending it, and stood by. They can have had no motive to desire that their deeds should be abstracted and their own title clouded. Their 516

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Northern Counties Fire Insurance Co v Whipp cont. carelessness may be called gross, but in our judgment it was carelessness likely to injure and not to benefit the Plaintiff company, and accordingly has no tendency to convict them of fraud. Then comes the inquiry whether the Plaintiff company constituted Crabtree their agent to raise money, in which case the Defendant might be entitled to priority. The circumstance most favourable to this contention was, in our opinion, the possession by Crabtree of the key. But the Defendant has not proved the circumstances attending this fact, or the duties for the performance of which the key may have been essential, with sufficient distinctness to enable us to conclude from the possession of the key that it implied an authority to deal with the securities of the Plaintiff company. The cases in which Crabtree did so deal with the securities, when carefully considered, appear to us insufficient to support the authority claimed; and the fact that Crabtree in dealing with the Defendant suppressed his mortgage to the company and dealt with her, not as agent of the company having an authority to pledge its securities, but as the unencumbered owner of the property, goes, we think, far to negative the suggested authority. On this point, therefore, we agree with the Vice Chancellor.

Walker v Linom [20.15] Walker v Linom [1907] 2 Ch 104 English High Court of Justice, Chancery Division [Walker was the holder of the legal fee simple. He conveyed the legal fee simple to trustees to be held on certain trusts. The relevant trusts were to Walker for life or until he attempted to alienate, then to his wife for life and thereafter upon other stated trusts. The solicitors who acted for both Walker and the trustees took possession of the title deeds but unbeknown to them or to the trustees, Walker retained the deed in the chain by which the land had originally been conveyed to him. At a later date, Walker, by using the deed, held himself out to be the legal owner of the property and procured a loan from X on the security of the deed. He also purported to execute a formal legal mortgage in favour of X. Subsequently, X sold to Linom.] PARKER J: [I]t will be convenient to consider separately the position of the plaintiff and her trustees. I will deal first with the position of the trustees. Now it cannot be disputed that the settlement constituted a conveyance for value, and that the trustees have the legal estate. The circumstances under which a mortgagee or purchaser with the legal estate is, by reason of some conduct on his part in relation to the title deeds, postponed to some person having only an equitable interest is discussed fully in the case of Northern Counties of England Fire Insurance Co v Whipp … Now, as I have already said, I cannot under the circumstances of this case find that anyone concerned in the 1896 settlement, with the exception of George Church Walker, acted otherwise than honestly, and, if I treat Fry LJ’s judgment as meaning that in no case can a prior legal estate be postponed to a subsequent equitable estate without the existence of fraud in its ordinary common law sense as necessarily connoting a dishonest intention, I must hold that the trustees are not postponed. There are, however, subsequent cases which suggest that at any rate in cases of postponement, based on no inquiry having been made for the deeds, fraud is not necessary. [After considering these cases, Parker J continued:] In my opinion any conduct on the part of the holder of the legal estate in relation to the deeds which would make it inequitable for him to rely on his legal estate against a prior equitable estate of which he had no notice ought also to be sufficient to postpone him to a subsequent equitable estate the creation of which has only been rendered possible by the possession of deeds which but for such conduct would have passed into the possession of the owner of the legal estate. This must, I think, have been the opinion of Fry LJ in Northern Counties of England Fire Insurance Co v Whipp 26 Ch D 482; [20.15]

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Walker v Linom cont. for he explains both Worthington v Morgan 16 Sim 547 and Clarke v Palmer 21 Ch D 124 as based upon the same sort of fraud. I do not think, therefore, that there is anything in the authorities to preclude me from holding, and I accordingly hold, that the trustees, although they have the legal estate, are postponed to the defendant.

Bona fide purchaser for value of a legal estate without notice of equitable interests

Pilcher v Rawlins [20.20] Pilcher v Rawlins (1872) 7 Ch App 259 English Court of Appeal [The abbreviated facts are taken from the headnote of the case. The trustees of a settlement advanced the trust money on the security of real property which was conveyed to them by the mortgagor, the mortgage deed noticing the trust. The surviving trustee of the settlement afterwards reconveyed part of the property to the mortgagor on payment of part of the mortgage money, which he appropriated. The mortgagor then conveyed that part of the property to new mortgagees, concealing, with the connivance of the trustee, both the prior mortgage and the reconveyance. When the fraud was discovered, the cestuis que trust under the settlement filed a bill against the new mortgagees claiming priority.] SIR G MELLISH LJ: I agree in the conclusion to which the Lord Chancellor and the Lord Justice have arrived. I do not think it necessary to give any opinion whether Carter v Carter 3 K & J 617 was rightly decided. In my opinion if it is to be supported it must be supported upon the grounds stated by the Lord Chancellor to-day, namely, that there were such peculiar circumstances in that case as to make it inequitable that the purchaser should be allowed to rely upon the second will. But I think it cannot be supported on the grounds upon which the Master of the Rolls thought it had been decided, and upon which the Master of the Rolls acted in the case now before us. The Master of the Rolls, as I understand his judgment, held that a purchaser for valuable consideration, who has obtained a conveyance of the legal estate, is in this Court always to be held to have notice of the contents of the deeds which form a link in the chain by which the legal estate was conveyed to him. And he held that the doctrine of constructive notice ought to be enlarged, and that, although in point of fact the deed in question was never produced to the purchaser – although he had neither knowledge nor the means of knowledge of its contents – although he and his advisers were guilty of no negligence whatever in not obtaining knowledge of its contents – yet, nevertheless, he must in this Court be held to have notice of the contents, if it was a deed which, when ejectment was brought against him in a Court of Law, he would be bound to produce. It is admitted that that rule had never been laid down prior to the case of Carter v Carter; there were not even dicta, or any authority whatever that I have been able to find, tending to shew that any such rule had prevailed in this Court; and I am of opinion most clearly that it ought not to be so laid down. I do not agree with the Master of the Rolls that the purchaser for valuable consideration in such a case as he describes, is approbating and reprobating. A person who approbates and reprobates is acting inconsistently. He must, in fact, be affirming and denying the same proposition at the same time. But I cannot see any such inconsistency here. If an action of ejectment is brought, it is wholly immaterial whether the Defendant in that action of ejectment had or had not at any time whatever notice of the contents of the deed or instrument on which he rests his title. What inconsistency is there in his saying, “If I am attacked in a Court of Law, and an action of ejectment is brought against me, I rely on this deed as being one of the deeds through which the legal estate has been conveyed to me,” and then, if he is attacked in a Court of Equity, saying, as the truth is, “I had no notice of this deed. At 518

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Pilcher v Rawlins cont. the time when I obtained my conveyance I had no knowledge and no means of knowledge of the deed.” I cannot see that there is any inconsistency in his so acting. The general rule seems to be laid down in the clearest terms by all the great authorities in equity, and has been acted on for a great number of years, namely, that this Court will not take an estate from a purchaser who has bought for valuable consideration without notice; and I find that the Appellants in both the cases before us are very clearly purchasers for valuable consideration without notice. Unless this doctrine of constructive notice, enlarged as it has been by the Master of Rolls, is to prevail, I am of opinion that the Appellants have made out their case. As it is admitted that, with the exception of what is supposed to have been said in Carter v Carter, this rule of constructive notices, as laid down by the Master of the Rolls, has never been established, I will proceed to consider it a little upon principle. It happens, curiously enough, that in one, if not in both, of the two cases before us the Appellants are themselves trustees for other cestuis que trust, and the question then arises which of the two sets of cestuis que trust are to bear the loss. Is the loss to fall upon the cestuis que trust whose trustee has fraudulently conveyed away the estate which was entrusted to him? Or is the loss to fall upon those whose trustees have honestly taken a conveyance of that estate and who have advanced the money of their cestuis que trust on the faith of the estate which they have really got? It is surely desirable that the rules of this Court should be in accordance with the ordinary feelings of justice of mankind. Now if the first set of cestuis que trust, those who will unfortunately have to bear the loss, were asked how it happened that they had suffered this loss, they would answer that their father conveyed the estate to the uncle, and he turned out to be a dishonest man, and parted with the estate. That is an explanation which any ordinary man of intelligence would understand. It might not be satisfactory to the losers, but they must see at once how it came to happen that they lost their estate. If you trust your property to a man who turns out to be a rogue, it stands to reason that you may lose it. But supposing the Master of the Rolls’ doctrine to prevail, and supposing the other cestuis que trust to be asked how they had lost their property, the answer would be, “Our trustee invested our property on mortgage on the faith of a person who said that he had the legal estate, and who had it, and who conveyed it to our trustee as a security for the sums advanced, our trustee being guilty of no negligence whatever, having taken the advice of a perfectly competent conveyancer in order to see that the title was a good one. But the Court of Chancery says that we have lost it because our trustees had notice of the prior mortgage; though they had, in fact, no notice whatever. They had neither knowledge nor means of knowledge, but nevertheless the Court of Chancery says that, according to its doctrine, they had notice.” The only conclusion which any one would come to is that these cestuis que trust had been deprived of their property by the Court of Chancery, for reasons which, to an ordinary mind, were perfectly incomprehensible. I am clearly of opinion, whether, under the peculiar circumstances of that case, Carter v Carter, was rightly decided or not, as to which I will say nothing, that where a trustee in breach of trust conveys away a legal estate which he possesses, and that legal estate comes into the possession of a purchaser for valuable consideration without notice, that purchaser can hold the property against the cestuis que trust who were defrauded by the conveyance of the trustee; and that it makes no difference whatever that if the purchaser is challenged in a Court of Law, and an action of ejectment is brought against him, he may have to rely upon some deed which was in fact concealed from him, and of which he had neither knowledge nor means of knowledge. SIR W M JAMES LJ: I propose simply to apply myself to the case of a purchaser for valuable consideration, without notice, obtaining, upon the occasion of his purchase, and by means of his purchase deed, some legal estate, some legal right, some legal advantage; and, according to my view of the established law of this Court, such a purchaser’s plea of a purchase for valuable consideration without notice is an absolute, unqualified, unanswerable defence, and an unanswerable plea to the [20.20]

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Pilcher v Rawlins cont. jurisdiction of this Court. Such a purchaser, when he has once put in that plea, may be interrogated and tested to any extent as to the valuable consideration which he has given in order to shew the bona fides or mala fides of this purchase, and also the presence or the absence of notice; but when once he has gone through that ordeal, and has satisfied the terms of the plea of purchase for valuable consideration without notice, then, according to my judgment, this Court has no jurisdiction whatever to do anything more than to let him depart in possession of that legal estate, that legal right, that legal advantage which he has obtained, whatever it may be. In such a case a purchaser is entitled to hold that which, without breach of duty, he has had conveyed to him. In the case of Carter v Carter, which was decided by the present Lord Chancellor, and which was followed by the Master of the Rolls in this case, and with which I am bound to say I am unable to agree, an exception from that rule was, under the circumstances, supposed to exist. It is very clearly expressed in a few lines of the judgment in that case: “But here the purchaser taking the conveyance under one will, supposed by all parties to be really the last will of the testator, finds himself driven to rely upon another and a second will containing on the face of it all the trusts which the testator has created;” – and that circumstance is supposed to create the exception. To my mind there are to that supposition two short and conclusive answers – the one a matter of principle, and the other a matter of fact. My view of the principle is, that when once you have arrived at the conclusion that the purchaser is a purchaser for valuable consideration without notice, the Court has no right to ask him, and has no right to put him to contest the question, how he is going to defend himself, or what he is going to rely on. He may say, honestly and justly, “I am not going to tell you. I have got the deeds; I defend them, and you will never be able to make me produce them, and you will never be able to produce secondary evidence of them. I am not obliged to produce them at all; probably before you get half way through your action of ejectment you will find a jus tertii which you will not dispose of; the estate is in the hands of a legal tenant to whom I have let it, and no one can determine that tenancy without notice, and no one can give that notice but myself; I will not give that notice, and no Court has any power to compel me to give it. I have a right to rely, as every person defending his position has, on the weakness of the title of the person who is seeking to displace me.” That seems to be exactly the position of such a purchaser as this. The purchaser in Carter v Carter did not rely on the will which created the trust; he relied on another title; for the will formed the title of the adverse party. And the answer to that adverse party is, by the good luck which sometimes attends honest men, “Though you produce an instrument which points out your title, and gives the property to some one else, yet I am prepared with a legal defence in a conveyance which was executed before.” It appears to me that there is no right in this Court to prevent the purchaser from setting up that defence to the claim so made against him. If there was ever a case in which, according to my judgment, any Court ought to be in favour of a purchaser and against such a title, it is a case in which a testator has, through the grossest negligence, allowed two wills to exist after his death, so that some members of his family produce one will apparently making out a perfectly good title to a mortgagee or purchaser, and then, when a mortgagee or purchaser has been induced unwittingly to pay or advance his money, some other members of the family produce the other will, which has been suppressed or concealed during the whole of that time, and then seek to take the estate away from the mortgagee or purchaser. It seems to me to be a very ingenious device by which a testator would be able to give his property twice over to his family; but, in my opinion, it is a device which ought not to be encouraged in any way in a Court of Equity. I am therefore of opinion that whatever may be the accident by which a purchaser has obtained a good legal title, and in respect of which he has paid his money and is in possession of the property, he is entitled to the benefit of that accident, just as a purchaser would be entitled to avail himself of the possession so acquired, without any reference to the rights of the persons who may be otherwise interested. 520

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Pilcher v Rawlins cont. [Lord Hatherley LC delivered a judgment to similar effect.]

[20.25]

Notes&Questions

1.

What is the principle expressed in Pilcher v Rawlins (1872) 7 Ch App 259 and why were the holders of the equitable interest unable to demonstrate that there was no notice of their interest?

2.

What is the difference in the sphere of enforceability of a legal interest on the one hand and an equitable interest on the other?

3.

If a purchaser of the legal estate for value without notice of a prior equitable interest, subsequently sells the legal estate to a person who does have notice of the equitable interest, what is the result? See Wilkes v Spooner [1911] 2 KB 473 discussed in Moore, Grattan and Griggs, Australian Real Property Law (6th ed, Thomson Reuters, Sydney, 2016), [2.555].

4.

The doctrine of notice is considered in some detail at [20.30] and [6.170]-[6.185] (Moore). Other parts of the principle expressed in Pilcher v Rawlins (1872) 7 Ch App 259 have also been subject to interpretation and scrutiny by the courts: see Moore, Grattan and Griggs, Australian Real Property Law (6th ed, Thomson Reuters, Sydney, 2016), [2.460]-[2.465].

[20.30]

Notes&Questions

1.

The case of Hunt v Luck [1902] 1 Ch 428 also demonstrates that there are limits to the duty to investigate. In this case it was held that the purchaser was not under a duty to investigate to whom a tenant paid the rent. Such an inquiry would have revealed that the recipient was not the vendor and was a person with some beneficial interest in the property.

2.

The categories of notice recognised at common law are set out in statutory form in some jurisdictions (Conveyancing Act 1919 (NSW), s 164; Property Law Act 1958 (Vic), s 199; Property Law Act 1974 (Qld), s 346; Law of Property Act 1936 (SA), s 117; Conveyancing and Law of Property Act 1884 (Tas), ss 5 and 35A (relating to notice and restrictive covenants)). The provision in Victoria, s 199, is in the following form: (1) A purchaser shall not be prejudicially affected by notice of any instrument, fact or thing unless – (a) it is within his own knowledge, or would have come to his knowledge if such inquiries and inspections had been made as ought reasonably to have been made by him; or (b) in the same transaction with respect to which a question of notice to the purchaser arises, it has come to the knowledge of his legal practitioner or other agent, as such, or would have come to the knowledge of his legal practitioner or other agent, as such, if such inquiries and inspections had been made as ought reasonably to have been made by the legal practitioner or other agent. [20.30]

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(2) This section shall not exempt a purchaser from any liability under, or any obligation to perform or observe, any covenant condition, provision or restriction contained in any instrument under which his title is derived, mediately or immediately; and such liability or obligation may be enforced in the same manner and to the same extent as if this section had not been passed. (3) A purchaser shall not by reason of anything in this section be affected by notice in any case where he would not have been so affected if this section had not been passed. (4) This section shall apply to purchases made either before or after the commencement of this Act.

Although the forms of notice are now effectively limited by the statutory provisions, case law interpreting what constitutes each form of notice is relevant: see Moore, Grattan and Griggs, Australian Real Property Law (6th ed, Thomson Reuters, Sydney, 2016), [2.490]-[2.550]. With respect to constructive notice (s 199(1)(b)) it appears that the inquiries which a purchaser of the legal estate should make fall into two main categories: first, the purchaser should check the title documents and secondly, he or she should inspect the land in order to determine if any outstanding equitable interests exist (see, for example, Barnhart v Greenshields (1853) 9 Moo 18; 14 ER 204). 3.

With respect to checking the title documents, the purchaser should search the documents in the vendor’s chain of title and a purchaser who does not do so is said to have constructive notice of all the equitable interests which he or she would have discovered had a search been made. In the absence of statutory provisions restricting necessary searches, a prudent purchaser would need to search all documents in the vendor’s chain of title going back to the original Crown grant. In all States except South Australia there are statutory provisions which attempt to limit the searches required of a purchaser to a set period (generally 30 years), providing the documents go back to a “good root of title”. (Conveyancing Act 1919 (NSW), s 53(1); Property Law Act 1958 (Vic), s 44(1); Property Law Act 1974 (Qld), s 237(1); Conveyancing and Law of Property Act 1884 (Tas), s 35(1) (20 years); Sale of Land Act 1970 (WA), s 22. Presumably the 60-year period insisted upon at common law in England is the relevant period for South Australia.) Further statutory provisions provide protection from notice of equitable interests contained in documents before the commencement of the statutory period. (Property law statutes: Conveyancing Act 1919 (NSW), s 53(3); Property Law Act 1958 (Vic), s 44(6); Property Law Act 1974 (Qld), s 237(6); Conveyancing and Law of Property Act 1884 (Tas), s 35(5).) See Moore, Grattan and Griggs, Australian Real Property Law (6th ed, Thomson Reuters, Sydney, 2016), [2.525]-[2.545].

4.

The nature and the extent of the duty to inspect the land have been considered in a number of cases: see, for example, Caunce v Caunce [1969] 1 WLR 286; Hodgson v Marks [1971] Ch 892; Williams and Glyn’s Bank Ltd v Boland [1981] AC 487; Kingsnorth Trust Ltd v Tizard [1986] 1 WLR 783; Platzer v Commonwealth Bank of Australia [1997] 1 Qd R 266; Lloyds Bank Plc v Rosset [1989] Ch 350 (Court of Appeal decision. Reversed by the House of Lords on another ground: [1991] 1 AC 107). Problems may arise where the vendor/legal title holder is in possession of the land but another person, with some equitable interest in the property, is also in possession with the vendor. This may often occur in family situations. It appears that such co-occupation constitutes constructive notice of the equitable interest: Williams and

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Glyn’s Bank Ltd v Boland [1981] AC 487; Kingsnorth Trust Ltd v Tizard [1986] 1 WLR 783; Platzer v Commonwealth Bank of Australia [1997] 1 Qd R 266; Lloyds Bank Plc v Rosset [1991] 1 AC 107. Cf the earlier decision of Caunce. (Note that most of the English decisions did not directly concern constructive notice: rather they concerned an interpretation of s 70(1)(g) of the Land Registration Act 1925 (UK). See now Land Registration Act 2002 (UK), Sch 3, para 2. See Note 6 below and Moore, Grattan and Griggs, Australian Real Property Law (6th ed, Thomson Reuters, Sydney, 2016), [2.515]-[2.520]. 5.

In Kingsnorth Trust Ltd v Tizard [1986] 1 WLR 783 the issue of constructive notice was raised directly. The wife was separated from the husband, but returned to the matrimonial home on most days to care for the children. In these circumstances, the mortgagee was held to have constructive notice of her interest. The agent of the mortgagee had not inquired or inspected with sufficient diligence: first, the occupation of the children should have alerted the mortgagee to the possibility of a spouse; secondly, the husband had originally described himself as a spouse and admitted to being married but separated; and thirdly, the time of inspection (a Sunday afternoon) was set up by the husband. It was held that where one of the objects was to ascertain who is in possession, “an inspection at a time pre-arranged with the vendor” will not necessarily achieve that object. Do you consider that the duties required of a purchaser as suggested in the Kingsnorth case are too onerous?

6.

In Lloyds Bank Plc v Rosset [1989] Ch 350 the property in dispute was being renovated and the wife visited each day to supervise. The wife was held to be in “actual occupation” under the English statutory regime and so her equitable interest was protected. (The Court of Appeal decision was reversed by the House of Lords but on the basis that the wife had not demonstrated that she had an equitable interest: see Lloyds Bank Plc v Rosset [1991] 1 AC 107.) See similarly Platzer v Commonwealth Bank of Australia [1997] 1 Qd R 266, a Torrens title case, extracted at [6.170] (Moore) where the occupation of a builder constructing a house on the land (together with some other factors) was sufficient to provide notice of the wife’s equitable interest held under a resulting trust. See Moore, Grattan and Griggs, Australian Real Property Law (6th ed, Thomson Reuters, Sydney, 2016), [2.515].

7.

Even where a person is only in possession of part of the land, such possession may still provide notice of an interest over all the land. In Ferrishurst Ltd v Wallcite Ltd [1999] Ch 355, the English Court of Appeal held that the overriding interest under s 70(1)(g) of the Land Registration Act 1925 (UK) of “the rights of a person in ‘actual occupation’, protected all the rights even where the person was only in possession of part of the premises”. The case concerned registered land and the Court of Appeal cautioned against aligning directly statutory “actual occupation” with the doctrine of notice. The Court of Appeal made it clear that although the purpose of both doctrines was to protect the interest of the occupier, the method used to provide such protection in each case was different and care should be taken not to draw direct analogies: per Robert Walker LJ at 372. Cf the earlier view of Russell LJ in Hodgson v Marks [1971] Ch 892 at 931 where his Honour was “prepared to assume … that s 70(1)(g) of the Land Registration Act 1925 is designed only to apply to a case in which the occupation is such, in point of fact, as would in the case of unregistered land affect a purchaser with [20.30]

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constructive notice of the rights of the occupier”. The ramifications of the Ferrishurst case are discussed in Hill, “Overriding Interests: Occupation of Part of the Land” (2000) 63 MLR 113. See also McNicol, “Constructive Notice of a Spouse in Actual Occupation” (1981) 13 MULR 226. In England, the principle in the Ferrishurst case has been effectively reversed by statute. By Sch 3, para 2 of the Land Registration Act 2002 (UK), the rights of an occupier are now only protected insofar as they relate to “land of which he is in actual occupation.” Query the position in Australia. Will the doctrine of notice be applied so that occupation of part of land provides notice of an interest in the whole of the land? 8.

Once a person has actual notice of a prior interest, he or she can only take free of the interest if all reasonable care has been taken to independently ascertain that the prior interest has been expunged. It is insufficient to rely on the assurance of a vendor or mortgagor who created the earlier interest: Jared v Clements [1903] 1 Ch 428; Oversea-Chinese Banking Corp Ltd (OCBC) v Malaysian Kuwaiti Investment Co (MKIC) [2003] VSC 495. Cf IGA Distribution Pty Ltd v King & Taylor Pty Ltd [2002] VSC 440 at [223]. A failure to make reasonable enquiries to verify the discharge of earlier equitable interests, means the actual knowledge cannot be negated. In general, the doctrine of notice applies to general law land in Australia. The Torrens system of land registration sets up a different scheme under which the doctrine of notice is inapplicable to disputes between unregistered (equitable) interests and subsequent registered (legal) interests: see [5.45]–[5.55]. However, the doctrine of notice has been used in some types of priority disputes concerning Torrens land: [6.170]-[6.180] (Moore). For recent examples, see Platzer v Commonwealth Bank of Australia [1997] 1 Qd R 266, Moffett v Dillon [1999] 2 VR 480 and Perpetual Trustee Company Ltd v Smith (2010) 186 FCR 566; [2010] V ConvR 54-779.

9.

The deeds registration system (see [4.05]) sets up a scheme under which instruments affecting interests in general law land may be registered. A purchaser would be deemed to have notice of any equitable interest which could have been discovered by a search of the deeds register (see Mills v Renwick (1901) 1 SR (NSW) (Eq) 173). Note, however, the phasing out of deeds registration systems: see Moore, Grattan and Griggs, Australian Real Property Law (6th ed, Thomson Reuters, Sydney, 2016), [2.605].

10.

Consider whether the same duties as suggested in Kingsnorth would be required of a purchaser in the Australian jurisdictions. What is the impact of legislation such as s 32 of the Sale of Land Act 1962 (Vic) requiring the vendor to provide specific information to the purchaser? See Jacobs v Platt Nominees Pty Ltd [1990] VR 146 extracted at [6.125] (Moore).

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[20.30]

CHAPTER 21 General Law Priority Rules: Contests in Equity [21.05]

“COMPARABLE” EQUITY INTERESTS ................................................................... 525 [21.05]

[21.10]

PRIORITY BETWEEN EQUITABLE OR UNREGISTERED INTERESTS UNDER THE TORRENS SYSTEM ................................................................................................. 531 [21.10]

The test and its theoretical basis ....................................................... 531 [21.10]

[21.20] [21.25]

Abigail v Lapin ...................................................................... 525

Heid v Reliance Finance Corporation Pty Ltd ............................ 531

Application of the test ........................................................................ 541

MERE EQUITIES ...................................................................................................... 542 [21.25] [21.35]

Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) ............... 542 Double Bay Newspapers Pty Ltd v A W Holdings Pty Ltd ........... 549

Extracts from Moore, Australian Property Law: Cases and Materials (5th Ed), Ch 6.

“COMPARABLE” EQUITABLE INTERESTS Abigail v Lapin [21.05] Abigail v Lapin [1934] AC 491; (1934) 51 CLR 58 Privy Council LORD WRIGHT: … On December 5, 1923, Mr and Mrs Lapin executed two memoranda of transfer, duly witnessed by a solicitor in the statutory form required by the Real Property Act 1900, of New South Wales, of two properties, in respect of which they were then respectively registered as proprietors of an estate in fee simple, to Mrs Heavener; in the one case the consideration money was expressed to be £1,800, and in the other case £1,200; the receipt of these sums respectively was acknowledged on the transfers. The titles of the Lapins were at the time subject to a registered mortgage of £1,320 to the Union Bank, which was discharged on December 7, 1923. On December 18, 1923, Mrs Heavener, or Heavener on her behalf, lodged these transfers and the certificates of title, which she had received from the respondents, at the land registry, where the transfers were entered in the land registry books, and particulars were indorsed on the certificates of title which the Heaveners held and which accordingly showed Mrs Heavener as the proprietor in fee simple of the estates. On March 14, 1924, Mrs Heavener mortgaged the properties in statutory form to the English, Scottish and Australian Bank; this mortgage was duly registered, as appears on indorsements on the certificates of title, which the mortgagee bank held. On September 2, 1925, as appears from further indorsement on the certificates of title, these mortgages were discharged, as is sufficiently clear, out of moneys lent by Abigail to the Heaveners on or about September 2, 1925; these moneys, which amounted in all to £5,500, were secured by a statutory mortgage dated September 2, 1925, granted by Mrs Heavener in terms as “being the registered proprietor of an estate in fee simple” in the specified properties, including the two properties in question; the mortgage was also signed by Abigail as being correct. Abigail thereafter held the certificates of title. On September 4, 1925, Abigail as mortgagee lodged a caveat under the Act in respect of these two properties. On February 24, 1926, Abigail lodged the mortgage for

[21.05]

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Abigail v Lapin cont. registration, but it was referred back by the registrar for the correction of some minor formal defects; before it was finally relodged the respondents lodged caveats and in due course brought the present action. The respondents claimed as against the Heaveners that the register should be rectified by registering them as full proprietors of the lands and that the certificates of title should be delivered up to them; they alleged that they had handed over the certificates of title solely as collateral security for a loan in respect of another transaction, but the loan had since been discharged; they further alleged as regards the transfers that they did not sign them at all, or if they did, were induced to do so by Heavener’s fraud in the belief that they were by way of further security for the other transaction. Heavener by way of answer alleged that the lands were transferred absolutely in order to discharge the Union Bank mortgage and in payment of costs due to him. Abigail was joined as defendant by the respondents, as having no better title than the Heaveners because she did not take bona fide as a purchaser for value and without notice. It was also alleged that the security was void because Abigail was acting as a moneylender in the transaction without being registered as such. The trial before Long Innes J took a somewhat unusual course: after evidence had been given and closed on these issues, the respondents were allowed to amend as against the Heaveners, though not in terms as against Abigail, by alleging that, if they knowingly signed the transfers, they did so on the terms that Heavener would hold the transfers as security for his professional costs and not otherwise, and that he registered the transfers in fraud of that understanding and without their knowing what he had done until October, 1925. This was a new case, contrary to the evidence given by both parties. By his judgment delivered on March 22, 1929, Long Innes J did not accept the evidence of the respondents, but found that they did sign the transfers, and signed them, moreover, knowing that they were signing transfers of the properties, that they were signing as transferors, and that the transferee was Mrs Heavener; he did however, further find that they understood the transfers were to be by way of security only for Heavener’s costs and for repayment of the mortgage debt to the Union Bank. In so finding the judge took a midway course, disbelieving the sworn evidence of both parties. As to Abigail, who gave, so the judge said, his evidence with great frankness and whose evidence the judge accepted, he found that it was not established that he was a moneylender within the meaning of the Moneylenders and Infants Loan Act 1905: the judge also found that Abigail, as regards the mortgage in question, discharged the onus of establishing that he was a bona fide purchaser for value without notice: he further found that Abigail made the advance in question on the faith of the transfers of December 5, 1923, and of the certificates of title in Mrs Heavener’s name and of the mortgage executed by Mrs Heavener as registered proprietor. He accordingly held in regard to the mortgage of September 2, 1925, that the respondents were estopped by their representations from asserting as against Abigail that their equity was prior in point of time to that of Abigail. A later mortgage given by the respondents to Abigail on the lands, which stood on a different footing, is not here material. This judgment was on appeal affirmed by the Full Court of the Supreme Court of New South Wales. The Court agreed with the findings of fact of the trial judge: in effect, the Court held that the case was covered by the decision of the High Court of Australia in Butler v Fairclough (1917) 23 CLR 78: that Abigail’s equity, though subsequent in time, was the better equity: that the respondents’ conduct “in executing a memorandum of transfer on the face of it clear and unfettered, and the failure to place on the register any embargo which would prevent the Heaveners from using those transfers at their face value, is such unreasonable and negligent conduct as to make their equity inferior” to Abigail’s. They also agreed with the judge’s finding that Abigail was not carrying on business as moneylender. They accordingly dismissed the appeal. The respondents then appealed to the High Court of Australia, the judges of which by a majority (Knox CJ, Isaacs and Dixon JJ) allowed the appeal, Gavan Duffy and Starke JJ dissenting. 526

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CHAPTER 21

Abigail v Lapin cont. It is difficult fairly to summarise these carefully reasoned judgments; but taking the crucial issue to be whether the equitable interest of the respondents was to be postponed to that of Abigail, the conclusion on that point of the late learned Chief Justice, Sir Adrian Knox, long a distinguished member of the Judicial Committee, may be found in substance in the following passage from his judgment 44 CLR 183. The registration of Mrs Heavener as proprietor in fee simple was consistent with the existence of an equitable interest outstanding in some other person, and not inconsistent with the whole beneficial title to the lands being in the appellants. Mrs Heavener was in a fiduciary relation to the appellants, and was entitled under the arrangement between them and Heavener to become registered as proprietor and to hold the documents of title until the debt intended to be secured was paid off. The decisions in Shropshire Union Rys and Canal Co v The Queen LR 7 HL 496; Carritt v Real and Personal Advance Co (1889) 42 Ch D 263; and Taylor v London and County Banking Co [1901] 2 Ch 231; and the observations of Farwell J in Rimmer v Webster [1902] 2 Ch 163 at 172; and Burgis v Constantine [1908] 2 KB 484 at 501 seem to me to indicate that the possessor of the prior equity is not to be postponed to the possessor of a subsequent equity unless the act or omission proved against him has conduced or contributed to a belief on the part of the holder of the subsequent equity, at the time when he acquired it, that the prior equity was not in existence. On the evidence as it stands no such act or omission on the part of the appellants has, in my opinion, been proved. The transfers did not amount to such an act, for there is no evidence that Abigail ever saw them. The certificates of title showing Mrs Heavener as registered proprietor were consistent with the beneficial ownership of the lands being in the appellants or any other persons, and did not indicate that she held the beneficial as well as the legal interest. The omission to lodge a caveat can have had no effect in inducing Abigail to advance the money, for it is not proved that any search was made before the money was advanced. Isaacs J, dealing with the same issue, said 44 CLR 188: The Full Court’s concurrence on that point is open, as I think, to the observation that too great significance is attached to the single fact of Heavener’s registration, and too little both to the lack of evidence as to Abigail’s conduct being in part influenced by the absence of a caveat, and to the silence of Harris. (Harris was Abigail’s clerk; his connection with the case appears at 503 int.) Dixon J lays emphasis on the fact that (205): Although the appellants did not caveat, it does not appear that any search for caveats was made on Abigail’s behalf, or that he acted in the belief that there was no caveat. The default of the appellants – if default it be – therefore did not contribute directly to any assumption upon which Abigail may have dealt with the Heaveners. On the other hand, the final conclusion of Gavan Duffy and Starke JJ is summed up in the following words (198): In our opinion, the Lapins are bound by the natural consequences of their acts in arming Olivia Sophia Heavener with the power to go into the world as the absolute owner of the lands and thus execute transfers or mortgages of the lands to other persons, and they ought to be postponed to the equitable rights of Abigail to the extent allowed by the Supreme Court. In this conflict of eminent judicial opinion their Lordships find themselves in agreement with Gavan Duffy and Starke JJ in regard both to their reasoning and their conclusion. The Real Property Act 1900, of New South Wales, embodies what has been called, after the name of its originator, the Torrens system of the registration of title to land. It is a system which is in force throughout Australasia and in other parts as well. It is a system for the registration of title, not of deeds; the statutory form of transfer gives a title in equity until registration, but when registered it has the effect of a deed and is effective to pass the legal title; upon the registration of a transfer, the estate or [21.05]

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Abigail v Lapin cont. interest of the transferor as set forth in such instrument with all rights, powers and privileges thereto belonging or appertaining is to pass to the transferee. No notice of trusts may be entered in the register book, but it has long been held that equitable claims and interests in land are recognised under the Real Property Acts. This was held in Barry v Heider (1914) 19 CLR 197 and in Great West Permanent Loan Co v Friesen [1925] AC 208; for the protection of such equitable interests or estates, the Act provides that a caveat may be lodged with the registrar by any person claiming as cestui que trust, or under any unregistered instrument or any other estate or interest; the effect of the caveat is that no instrument will be registered while the caveat is in force affecting the land, estate or interest until after a certain notice to the person lodging the caveat. Thus, though the legal interest is in general determined by the registered transfer, and is in law subject only to registered mortgages or other charges, the register may bear on its face a notice of equitable claims, so as to warn persons dealing in respect of the land and to enable the equitable claimant to protect his claim by enabling him to bring an action if his claim be disputed. In the registry all statutory transfers are filed and duplicate certificates of title are kept and noted up from time to time with all registered dealings; the other duplicate certificate of title is held by the registered proprietor. The register is open to inspection and search. Provision is made by the Act for mortgages in statutory form, and for their registration; in such a case the legal estate remains in the registered proprietor of the fee simple, and the mortgage constitutes a charge of debt on the land; hence it may not be technically correct, though it is common, to speak of the mortgagor as having the equity of redemption, though the legal title remains in him. But a practice has sprung up of affecting what amounts to a mortgage by registering an instrument of transfer of the legal title from the mortgagor, and at the same time executing a document certifying that it was by way of security only. This is no doubt done for the purpose of facilitating dealings with the land by the transferee. Such a practice has been recognised in various decisions of the Courts, and in particular in Currey v Federal Building Society 42 CLR 421. In the present case the same result was effected as the judge found as between the parties by an oral agreement; but all that appeared in the registry was the absolute grant of transfer as for full consideration paid and received; no document of qualification was executed and no caveat was lodged. In the result the public register showed to all the world, that is, to any one who cared to inspect, that the fee simple was in the two estates vested in Mrs Heavener; the equity of redemption (if it is so to be called for convenience) was in no way indicated to any searcher of the register. The Full Court of New South Wales regarded the present case as governed in principle by Butler v Fairclough (1917) 23 CLR 78 at 91, already mentioned, where there was a conflict of equities between a prior equitable incumbrancer who had lodged no caveat and a subsequent transferee who had, after a search of the register and without notice of the unregistered equitable charge, paid the purchase consideration. It was held that the former was to be postponed: Griffith CJ thus summed up the position 23 CLR 78 at 91: It must now be taken to be well settled that under the Australian system of registration of titles to land the Courts will recognise equitable estates and rights except so far as they are precluded from doing so by the statutes. This recognition is, indeed, the foundation of the scheme of caveats which enable such rights to be temporarily protected in anticipation of legal proceedings. In dealing with such equitable rights the Courts in general act upon the principles which are applicable to interests in land which is not subject to the Acts. In the case of a contest between two equitable claimants the first in time, all other things being equal, is entitled to priority. But all other things must be equal, and the claimant who is first in time may lose his priority by any act or omission which had the effect or might have had the effect of inducing a claimant later in time to act to his prejudice. Thus, if an equitable mortgagee of 528

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CHAPTER 21

Abigail v Lapin cont. lands allows the mortgagor to retain possession of the title deeds, a person dealing with the mortgagor on the faith of that possession is entitled to priority in the absence of special circumstances to account for it. Under the Australian system a clear title on the register is, for some purposes at any rate, equivalent to possession of the title deeds. A person who has an equitable charge upon the land may protect it by lodging a caveat, which in my opinion operates as notice to all the world that the registered proprietor’s title is subject to the equitable interest alleged in the caveat. In the present case the plaintiff might, if he had been sufficiently diligent, have registered his charge of June 30 on that day. The defendant, having before parting with the purchase money to Good found on searching the register that Good had a clear title, and relying on the absence of any notice of defect in Good’s title, paid the agreed price. Their Lordships think that case was rightly decided, though it may be that the statement as to retention of the title deeds needs some qualification. But the only distinction between Butler v Fairclough (1917) 23 CLR 78 at 91, and the present case appears to be that in the present case it was not proved that (though he had no notice of the prior charge) Abigail made any search before lending the money: he said he instructed his conveyancing clerk Harris to examine the title and left it to him. Though there is no reason why Harris should have neglected his duty, Harris was not called, it seems, because of the unfortunate course taken at the trial of raising fresh issues after the evidence was closed. That the question whether or not a search of the register had been made might be regarded as of decisive importance, does not emerge on the record or in any of the judgments until those in the High Court. The question is whether in such a case as this, where the title on the register was clear, the failure to prove a search by the second incumbrancer can make any difference. There is no reason to think that Heavener would have ventured to claim that Mrs Heavener was proprietor in fee simple unless she was so registered, and in that sense the grant of the transfer by the respondents to her did cause or contribute to Abigail’s lending the money. A search by or on behalf of Abigail would merely have shown that the transfer purported to be for full consideration, thus excluding any idea of it being by way of security. The case is closely parallel to that of Honeybone v National Bank of New Zealand 9 NZLR 102, where the second incumbrancer’s equity was preferred, on the ground that the act of the plaintiff in falsely representing the transaction with the first incumbrancer to have been a sale and not a mortgage, and in placing him in a position to obtain a title as registered proprietor and so obtain an advance from the bank the second incumbrancer, disentitled him to put his equity in competition with the later equity. No question is raised in that case, whether the second incumbrancer made any search or inquiries: the emphasis is placed on the conduct of the mortgagor. This is in accordance with the judgment of Kindersley V-C in Rice v Rice (1853) 2 Drew 73, where the question was whether the equity of the plaintiff in respect of his lien as unpaid vendor should be preferred to that of a subsequent equitable mortgagee, who had lent his money to the purchaser against a deposit of the title deeds and of an assignment showing payment of the purchase money in full. The opinion of the Vice-Chancellor no doubt has not been approved in so far as he says that priority in time is only taken as the test where the equities are otherwise equal: it is now clearly established that prima facie priority in time will decide the matter unless, as laid down by Lord Cairns LC in Shropshire Union Rys and Canal Co v The Queen LR 7 HL 496, that which is relied on to take away the pre-existing equitable title can be shown to be something tangible and distinct having grave and strong effect to accomplish the purpose. The Vice-Chancellor did not treat the possession of the title deeds as necessarily decisive: he said that the conduct of the parties having the equitable interests and all the circumstances must be taken into consideration in order to determine which has the better equity. He held that the second incumbrancer was not bound to go and inquire of the vendors whether they had received all the purchase money: he then describes the conduct of the vendors in this language: They voluntarily armed the purchaser with the means of dealing with the estate as the absolute legal and equitable owner, free from every shadow of incumbrance or adverse [21.05]

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Abigail v Lapin cont. equity. In truth it cannot be said that the purchaser in mortgaging the estate by the deposit of the deeds has done the vendors any wrong, for he has only done that which the vendors authorised and enabled him to do. These words can aptly be applied to the present case if “for deposit of the deeds” there is substituted that the respondents had authorised and enabled Mrs Heavener to register herself as owner in fee simple. Apart from priority in time, the test for ascertaining which incumbrancer has the better equity must be whether either has been guilty of some act or default which prejudices his claim; in the present case the respondents on the one hand enabled the Heaveners to represent themselves as legal owners in fee simple, while on the other hand it cannot be said that Abigail did or omitted to do anything which he should have done in lending the money on the security, though he might, by registering the mortgage, have secured the legal title; it may be that he accepted Heavener’s word that he or his wife were registered as having the legal title, but that was a true statement, and no search or inquiry that could have been made would have displaced it. … But it may be that the majority judgment in the High Court laid emphasis on the absence of search of the register by Abigail because they were of opinion that there must be something in the nature of a direct representation by the respondents to Abigail. In fact, in this case the only documents under the hand of the respondents or either of them which a search would have revealed are the transfers, the terms of which embody a transfer out and out as for full consideration: and if these had been seen by or on behalf of Abigail they might in one sense be construed as a direct representation from them to him; but it seems that the transfers were put on the register by the Heaveners, not by the respondents: the transfers could thus only in an artificial sense be described as representations made by the respondents to Abigail. In truth, the essence of the matter was the conduct of the respondents in giving the transfers to Heavener: so far as there was any representation in any strict sense to Abigail, it was made by Heavener. In Dixon v Muckleston LR 8 Ch 155 at 160, Lord Selborne in terms distinguishes the case of an express representation from the case of acts of negligence: a man, he says, “is not entitled to deny being bound by the natural consequence of his own acts, if it be a case of positive acts”. He adds, in much the same language as that of Kindersley V-C quoted above: “By one or other of those means he may have armed another person with the power of going into the world under false colours; and if it be really and truly the case that by his act, or his improper omissions, such an apparent authority and power has been vested in that other person, he is bound upon equitable principles by the use made of that apparent authority and power.” Lord Selborne also adds that the equitable charge will be good if there has been a positive statement honestly believed. It is true that in cases of conflicting equities the decision is often expressed to turn on representations made by the party postponed, as for instance in King v King [1931] 2 Ch 294. But it is seldom that the conduct of the person whose equity is postponed takes or can take the form of a direct representation to the person whose equity is preferred: the actual representation is in general, as in the present case, by the third party, who has been placed by the conduct of the party postponed in a position to make the representation most often, as here, because that party has vested in him a legal estate or has given him the indicia of a legal estate in excess of the interest which he was entitled in fact to have, so that he has in consequence been enabled to enter into the transaction with the third party on the faith of his possessing the larger estate. Such is the position here, which in their Lordships’ judgment entitles the appellants to succeed in this appeal. In the High Court, Gavan Duffy and Starke JJ also relied on a further or supplementary reasoning, based on the principle of an authority being acted upon to create the later equity, but acted upon either contrary to or in excess of the authority actually intended to be given. As they point out, the form of actual transfer was adopted “so that Olivia Sophia Heavener might deal with the lands as if 530

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Abigail v Lapin cont. they were her own and without the restrictions created by an instrument of mortgage under the Act of New South Wales”: she was thus necessarily trusted by the respondents as to the time and method of realisation (that is, in order to pay the cash due to her husband) and not to exceed the limits of her security. On this view the case falls within the general principles laid down in Brocklesby v Temperance Permanent Building Society [1895] AC 173. Lord Herschell LC thus sums up the rule: “Where a person has thus been intrusted with the possession of title deeds with authority to raise money upon them, the owner of the deeds cannot take advantage of any limitation in point of amount which he has placed upon the authority as against a lender who had no notice of it.” The same principle, it was held, had been applied in equity in the case of Perry-Herrick v Attwood (1857) 2 De G & J 21; 44 ER 895. This decision of the House of Lords was followed in the later case of Rimmer v Webster [1902] 2 Ch 163, where certain stock had been transferred to a broker by the owner with instructions to sell it, but the broker abused his position as transferee of the stock in order to borrow money for his own purposes on its security: it was held by Farwell J that the borrower’s equity must prevail: Sir George Farwell thus stated the principle: “When … the owner is found to have given the vendor or borrower the means of representing himself as the beneficial owner, the case forms one of actual authority apparently equivalent to absolute ownership, and involving the right to deal with the property as owner, and any limitations on this generality must be proved to have been brought to the knowledge of the purchaser or mortgagee.”

PRIORITY BETWEEN EQUITABLE OR UNREGISTERED INTERESTS UNDER THE TORRENS SYSTEM The test and its theoretical basis

Heid v Reliance Finance Corporation Pty Ltd [21.10] Heid v Reliance Finance Corporation Pty Ltd (1983) 154 CLR 326 High Court [Heid (the appellant) agreed to sell his land to Connell Investments Pty Ltd (Connell), and signed a memorandum of transfer that contained an untrue acknowledgment that he had received full payment of the purchase price. The appellant, who therefore held a vendor’s lien over the property, then gave the memorandum of transfer and authority to collect the certificate of title to Gibby, whom McKay (Connell’s principal) had falsely described as the “company solicitor”. In fact, Gibby was an unqualified employee of Connell’s controlling company: Newman, McKay and Co. Once Gibby had obtained the certificate of title, Connell created an equitable mortgage in favour of Reliance Finance Corporation Pty Ltd (Reliance) who had advanced the money relying on the acknowledgment set out in the transfer, and on the fact that the transfer was regular on its face and was accompanied by the certificate of title. Kearney J resolved the priority dispute between the two unregistered interests by holding that the appellant’s lien should not be postponed to Reliance’s equitable mortgage. The Court of Appeal reversed this decision, and the appellant appealed to the High Court.] GIBBS CJ (with whom Wilson J agreed): … [I]t is convenient first to discuss the question which arises between the appellant and Reliance Finance. Each of those parties had an equitable interest in the land – the appellant because of his vendor’s lien, and Reliance Finance as an equitable mortgagee. In all cases where a claim to enforce an equitable interest in property is opposed on the ground that after the interest is said to have arisen a third party innocently acquired an equitable interest in the same property, the problem, if the facts relied upon as having given [21.10]

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Heid v Reliance Finance Corporation Pty Ltd cont. rise to the interests be established, is to determine where the better equity lies. If the merits are equal, priority in time of creation is considered to give the better equity. This is the true meaning of the maxim qui prior est tempore potior est jure: Rice v Rice (1853) 2 Drew 73 at 78 (61 ER 646 at 648). But where the merits are unequal, as for instance where conduct on the part of the owner of the earlier interest has led the other to acquire his interest on the supposition that the earlier did not exist, the maxim may be displaced and priority accorded to the later interest: Latec Investments Ltd v Hotel Terrigal Pty Ltd (In liq) (1965) 113 CLR 265 at 276. In the present case the interest of the appellant was first in time. The question therefore is whether his conduct in handing to Gibby a completed memorandum of transfer, containing an acknowledgment of payment and accompanied by the certificate of title, thus enabling Connell Investments to represent itself to Reliance Finance as having a title free from outstanding equitable interests, has the consequence that Reliance Finance has the better equity, and that the appellant’s interest should be postponed to that of Reliance Finance. In Rimmer v Webster [1902] 2 Ch 163 at 173, Farwell J stated the following proposition which appears to govern cases such as the present: If the owner of property clothes a third person with the apparent ownership and right of disposition thereof, not merely by transferring it to him, but also by acknowledging that the transferee has paid him the consideration for it, he is estopped from asserting his title as against a person to whom such third party has disposed of the property, and who took it in good faith and for value. There is no doubt as to the general correctness of that proposition: see also Capell v Winter [1907] 2 Ch 376 at 381, and Tsang Chuen v Li Po Kwai [1932] AC 715 at 728-729. It is illustrated by the decision in Rice v Rice. In that case the vendors, who had not in fact received the purchase money, delivered to the purchaser the title deeds indorsed with a receipt acknowledging payment. The purchaser made a mortgage by deposit of the deeds. It was held that possession of the deeds and the fact of the indorsement of the receipt gave the mortgagee a better equity, so that his equitable interest prevailed over that of the unpaid vendor. Kindersley V-C said (1853) 2 Drew 73 at 83-84 (61 ER 646 at 650): they (the vendors) voluntarily armed the purchaser with the means of dealing with the estate as the absolute legal and equitable owner, free from every shadow of incumbrance or adverse equity. In truth it cannot be said that the purchaser, in mortgaging the estate by the deposit of the deeds, has done the vendors any wrong, for he has only done that which the vendors authorised and enabled him to do. This passage was cited with approval in the judgment of the Judicial Committee in Abigail v Lapin (1934) 51 CLR 58 at 68. In that case the respondents (Mr and Mrs Lapin), one of whom was indebted to one Heavener, transferred certain land to Mrs Heavener as her husband’s nominee. The transfers were absolute in form but were in fact given as security for the debt. After the transfer was registered, Mrs Heavener executed a registrable mortgage in favour of the appellant (Abigail) as security for advances made by him. It was held that the equitable mortgage of Abigail took priority over the Lapins’ equitable right to redeem. Lord Wright, who delivered the judgment of the Judicial Committee, approved (1934) 51 CLR 58 at 64 the reasons of Gavan Duffy and Starke JJ in this court which concluded as follows (see Lapin v Abigail (1930) 44 CLR 166 at 198): In our opinion, the Lapins are bound by the natural consequences of their acts in arming Olivia Sophia Heavener with the power to go into the world as the absolute owner of the lands and thus execute transfers or mortgages of the lands to other persons, and they ought to be postponed to the equitable rights of Abigail to the extent allowed by the Supreme Court. Lord Wright went on to say (1934) 51 CLR 58 at 68-69: 532

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Heid v Reliance Finance Corporation Pty Ltd cont. Apart from priority in time, the test for ascertaining which incumbrancer has the better equity must be whether either has been guilty of some act or default which prejudices his claim; in the present case the respondents on the one hand enabled the Heaveners to represent themselves as legal owners in fee simple, while on the other hand it cannot be said that Abigail did or omitted to do anything which he should have done in lending the money on the security, though he might, by registering the mortgage, have secured the legal title. Lord Wright pointed out (1934) 51 CLR 58 at 70 that it was only in an artificial sense that it could be said that the Lapins had made any representations to Abigail and continued (1934) 51 CLR 58 at 71: It is true that in cases of conflicting equities the decision is often expressed to turn on representations made by the party postponed, as, for instance, in King v King [1931] 2 Ch 294. But it is seldom that the conduct of the person whose equity is postponed takes or can take the form of a direct representation to the person whose equity is preferred: the actual representation is, in general, as in the present case, by the third party, who has been placed by the conduct of the party postponed in a position to make the representation, most often as here because that party has vested in him a legal estate or has given him the indicia of a legal estate in excess of the interest which he was entitled in fact to have, so that he has in consequence been enabled to enter into the transaction with the third party on the faith of his possessing the larger estate. The decisions in such cases as Rimmer v Webster and Abigail v Lapin may be based, alternatively, on the principle that a person who hands over title deeds to an agent with authority to deal with the property in a restricted manner cannot rely on the restrictions as against the third party who had no notice of them, and on the doctrine of estoppel. The former principle is said to have its origins in equity, and has been distinguished from estoppel (see Capell v Winter [1907] 2 Ch 376 at 382), but it seems to me that it may be regarded as a particular form of estoppel. However, either principle will determine the present case, and it is sufficient to deal with the question whether the ordinary rules of estoppel prevent the appellant from asserting his equitable interest against the respondents. The essential elements of an estoppel by representation, summarily stated, are that there must have been a representation (by words or conduct or, if there was a duty to speak or act, by silence or inaction) upon the faith of which the representee has acted to his detriment. No direct representation in the present case was made by the appellant to Reliance Finance but, as Lord Wright explained in Abigail v Lapin, that is immaterial. The act of the appellant in allowing Gibby to have the certificate of title and the memorandum of transfer which acknowledged receipt of the purchase price armed Gibby’s employer with the means of dealing with the land as absolute legal and equitable owner; in other words it armed Connell Investments “with the power of going into the world under false colours”: Dixon v Muckleston (1872) LR 8 Ch App 155 at 160. When in these circumstances Reliance Finance acted to its detriment on the assumption, to which the appellant’s conduct had contributed, that no adverse equitable interest existed, the appellant is estopped from setting up his equitable interest. The result may be explained in point of principle by saying (as was said in Lapin v Abigail (1930) 44 CLR 166 at 198) that the appellant is bound by the natural consequences of his acts, although I would prefer to say, in the words of Griffith CJ in Barry v Heider (1914) 19 CLR 197 at 208, that “the transfer operated as a repre-sentation, addressed to any person into whose hands it might lawfully come without notice”, that Connell Investments had an absolute interest. It was submitted that in the present case no estoppel was raised against the appellant, because the fraudulent conduct of Gibby was not a natural consequence of the appellant’s acts, and that the appellant was not guilty of any negligence in entrusting Gibby with the memorandum of transfer and the certificate of title. The foundation of this argument was that the appellant was entitled to believe that Gibby was a solicitor, and that it was not unreason-able of the appellant to allow Gibby to have the memorandum of transfer and certificate of title for the purpose of completing the transfer when payment was received, and that the misapplication of such documents by a fraudulent solicitor was [21.10]

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Heid v Reliance Finance Corporation Pty Ltd cont. not a natural consequence of entrusting them to him. It was accepted by the learned judges of the Court of Appeal that if an owner of land engages a solicitor to act upon the sale of it, and gives to the solicitor the certificate of title and an executed memorandum of transfer, the owner’s interest will not necessarily be postponed to someone who is led by the possession of those documents by the transferee to believe that the latter is the sole legal and equitable owner, since the conduct of the owner in those circumstances “is entirely in accordance with established practice, and is necessary to enable conveyancing transactions to be completed”, and that the position is no different when the one solicitor acts for both the vendor and the purchaser. The argument for the appellant, proceeding from this assumption, was that the position is the same in the present case, where the appellant believed Gibby to be a solicitor, even though it was known that Gibby was an employee of Connell Investments. If, in truth, it is in accordance with common usage for a vendor of land to entrust to his solicitor a completed and receipted memorandum of transfer before payment of the purchase price has been made, for the purpose of allowing the solicitor to complete the transaction when the payment is made, it might well be held that a vendor who gave the documents to his solicitor in those circumstances would not be guilty of any neglect of duty to those who might subsequently act on the faith of the documents, and that he would therefore not be estopped, by his failure to guard against the possible fraud of the solicitor, from asserting his equitable interest as unpaid vendor: cf Rimmer v Webster [1902] 2 Ch 163 at 172. Although the broad principle stated in Lickbarrow v Mason (1787) 2 TR 63 at 70 (100 ER 35 at 39) that “wherever one of two innocent persons must suffer by the acts of a third, he who has enabled such third person to occasion the loss must sustain it”, is often repeated and relied on, “warnings have often been given of the danger of applying it literally as a rule of law, and more than once attention has been recalled to the need of a duty and some neglect of it before the occasioning of the loss can be correctly attributed to the party sought to be made responsible”: Thompson v Palmer (1933) 49 CLR 507 at 546. However, it is unnecessary for the purposes of the present case to consider these questions further, or to discuss the cases in which it has been held that a person has not been deprived of an equitable interest by reason of the fraudulent acts of his solicitor. The fact is that Gibby was not a solicitor. But he was, as the appellant knew, an employee of Newman, McKay & Company, and therefore, in effect, of Connell Investments. The appellant gave the receipted memorandum of transfer and the certificate of title to an employee of the purchaser believing that he was a solicitor and trusting him to deal honestly and fairly with the documents entrusted to him. The appellant trusted Gibby because he trusted McKay. The case is indistinguishable from any other in which an unpaid vendor trustingly puts a purchaser in a position to represent himself as absolutely entitled to the land in law and in equity. It was imprudent of the appellant to have accepted, without further inquiry, the statements by McKay and Gibby that the latter was a solicitor. However, even if Gibby was a solicitor, there is no proof of any custom whereby a vendor delivers to a solicitor employed by the purchaser, but acting for the vendor as well, a receipted memorandum of transfer before payment of the purchase price has been received, and judicial notice cannot be taken of the existence of any such custom. If, contrary to my opinion, the appellant acted reasonably in accepting without inquiry that Gibby was a solicitor, his knowledge that Gibby was an employee of Newman, McKay & Company meant that in giving the documents of title to Gibby he failed in his duty to those persons into whose hands the documents might subsequently come to take care that they would not be misled by them. If it is necessary to find a breach of a duty of that kind before an estoppel comes into existence, the breach occurred when the vendor delivered the indicia of title to the purchaser or his servant or agent notwithstanding that he had not received the purchase price. The present case falls squarely within the principle of such decisions as Rice v Rice (1853) 2 Drew 73 (61 ER 646), Rimmer v Webster [1902] 2 Ch 163 and Abigail v Lapin (1934) 51 CLR 58. It is unnecessary finally to decide whether that principle applies when the indicia of title are delivered to a solicitor in conformity with 534

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Heid v Reliance Finance Corporation Pty Ltd cont. the ordinary course of conveyancing practice, for this is not such a case. For these reasons the Court of Appeal was right in holding that the equitable interest of Reliance Finance as mortgagee prevailed over that of the appellant. … The appellant’s failure to lodge any caveat in respect of his vendor’s lien (the belated caveat lodged on 23 September referred only to his interest as mortgagee) was not in itself fatal to his case, but if he had promptly lodged an appropriate caveat that would have been a means of giving notice to Reliance Finance …of his equitable interest: cf J & H Just (Holdings) Pty Ltd v Bank of NSW (1971) 125 CLR 546 at 554-555, 557-559. MASON AND DEANE JJ: … Where the merits are equal, the general principle applicable to competing equitable interests is summed up in the maxim qui prior est tempore potior est jure – priority in time of creation gives the better equity. But where the merits are unequal and favour the later interest, as for instance where the owner of the later equitable interest is led by conduct on the part of the owner of the earlier interest to acquire the later interest in the belief or on the supposition that the earlier interest did not then exist, priority will be accorded to the later interest: Latec Investments Ltd v Hotel Terrigal Pty Ltd (In liq) (1965) 113 CLR 265 at 276; Abigail v Lapin (1934) 51 CLR 58 at 63; IAC (Finance) Pty Ltd v Courtenay (1963) 110 CLR 550 at 575-576. A common illustration of conduct on the part of the owner of an equity which postpones his interest is the arming of a third person with the indicia of title, such as the delivery of title deeds and an instrument of transfer of the property containing or accompanied by an acknowledgment that the third party has paid the consideration for it in full. Generally speaking in this situation a person who acquires an interest from the third party for value without notice of the prior interest takes in priority: Abigail v Lapin (1934) 51 CLR 58 at 68 et seq, reversing Lapin v Abigail (1930) 44 CLR 166; the dissenting judgment of Gavan Duffy and Starke JJ in Lapin v Abigail (1930) 44 CLR 166 at 197-198; Tsang Chuen v Li Po Kwai [1932] AC 715 at 728-729; Rice v Rice (1853) 2 Drew 73 (61 ER 646); and Rimmer v Webster [1902] 2 Ch 163 at 173; cf Courtenay (1963) 110 CLR 550 at 578. To use the words of Lord Selborne LC in Dixon v Muckleston (1872) LR 8 Ch App 155 at 160, words which have often been repeated in the cases to which we have referred, the owner of the first equity is said to have “armed” the third party “with the power of going into the world under false colours”. The theoretical basis for granting priority, in such circumstances, to the later interest has been the subject of debate. Some have found the basis in the doctrine of estoppel; others have identified a more general principle that a preference should be given to what is the better equity on an examination of the circumstances, especially the conduct of the owner of the first equity. In favour of a person to whom the third person disposed of the interest without authority and who took it without notice of the outstanding interest and for value, Farwell J in Rimmer v Webster (1902) 2 Ch 163 at 173-174, thought that this conduct created an estoppel, a view that seems to have been endorsed by the Judicial Committee in Tsang Chuen [1932] AC 715 at 728-729. But in Capell v Winter [1907] 2 Ch 376 at 382, Parker J vigorously denied that the principle was based on estoppel. Although he did not refer to Rimmer v Webster, he examined two of the earlier decisions and correctly asserted that they were not based on estoppel. He pointed out that in Rice v Rice, a decision on similar facts, Kindersley V-C embarked on a consideration of which was the better equity and held “that the incumbrancer had the better equity, because he was in possession of a title deed containing the proper indorsed receipt, and which did not therefore put him upon inquiry, whereas the conduct of the vendor in parting with such deed made it inequitable for him to rely on the priority of his lien in point of time”. And in Abigail v Lapin (1934) 51 CLR 58 at 68, the Judicial Committee, after quoting the judgment of Kindersley V-C in Rice v Rice with approval, said: “Apart from priority in time, the test for ascertaining which incumbrancer has the better equity must be whether either has been guilty of some act or default which prejudices his claim …” [21.10]

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Heid v Reliance Finance Corporation Pty Ltd cont. It is difficult, if not impossible, to accommodate all the cases of postponement of an equity under the umbrella of estoppel. In Dixon v Muckleston (1872) LR 8 Ch App 155 at 160, Lord Selborne LC pointed out that the holder of the first equity might arm the third party with the indicia of title by means of express representation, positive act or omission, or negligence, though he unnecessarily confined it to “wilful and unjustifiable neglect”. As the Judicial Committee noted in Abigail v Lapin (1934) 51 CLR 58 at 71, it is seldom that the conduct of a person whose equity is postponed takes the form of a direct representation to the person whose equity is preferred or is otherwise such as to found a conventional estoppel in pais. The actual representation is usually made by the third party who has been enabled to make it by the holder of the first equity, who has, for example, armed the third party with the indicia of title. In this situation, it is the adoption of the fiction that what the third party does is within the actual authority given by the holder of the first equity that fits the case to the doctrine of estoppel: see Rice v Rice (1853) 2 Drew 73 at 83-84 (61 ER 646 at 650); approved in Abigail v Lapin (1934) 51 CLR 58 at 68; Rimmer v Webster [1902] 2 Ch 163 at 172-173; Central Newbury Car Auctions Ltd v Unity Finance Ltd [1957] 1 QB 371 at 391. But the true position is that in the situation contemplated, where there is fraud on the part of the third party, the first holder gives no authority, express or implied, to him to make the representation to the second holder: see the discussion by Starke J in Thompson v Palmer (1933) 49 CLR 507 at 526-527. While the conduct of the holder of the first equity may, in such a case, be blameworthy, the operative representation was neither made nor authorised by him. For our part we consider it preferable to avoid the contortions and convolutions associated with basing the postponement of the first to the second equity exclusively on the doctrine of estoppel and to accept a more general and flexible principle that preference should be given to what is the better equity in an examination of the relevant circumstances. It will always be necessary to characterise the conduct of the holder of the earlier interest in order to determine whether, in all the circumstances, that conduct is such that, in fairness and in justice, the earlier interest should be postponed to the later interest. Thus in Latec Investments (1965) 113 CLR 265 at 276 Kitto J said that the case where the conduct of the prior owner leads the later owner to acquire his interest on the supposition that the earlier interest does not exist – the test stated by Dixon J in Lapin v Abigail (1930) 44 CLR 166 at 204 – was just one “instance” of a case when the merits are unequal: see also Lapin v Abigail (1930) 44 CLR 166 at 185-186, per Isaacs J; General Finance Agency, etc, Co (In liq) v Perpetual Executors and Trustees Association, etc (1902) 27 VLR 739 at 742-744. To say that the question involves general considerations of fairness and justice acknowledges that, in whatever form the relevant test be stated, the overriding question is “… whose is the better equity, bearing in mind the conduct of both parties, the question of any negligence on the part of the prior claimant, the effect of any representation as possibly raising an estoppel and whether it can be said that the conduct of the first or prior owner has enabled such a representation to be made …”: Sykes, Law of Securities, 3rd ed (1978), p 336; see also Dixon v Muckleston (1872) LR 8 Ch App 155 at 160; Latec Investments (1965) 113 CLR 265 at 276. Thus elements of both negligence and estoppel will often be found in the statements of general principle: see, for example, Lapin v Abigail (1930) 44 CLR 166 at 204, per Dixon J. It may be that an equitable interest will not be postponed to an equitable interest created later in time merely because there is a causal nexus between an act or omission on the part of the prior equitable owner and an assumption on the part of the later equitable owner as to the non-existence of the prior equity. Fairness and justice demand that we be primarily concerned with acts of a certain kind – those acts during the carrying out of which it is reasonably foreseeable that a later equitable interest will be created and that the holder of that later interest will assume the non-existence of the earlier interest. Thus, the mere failure of the holder of a prior equitable interest in land to lodge a caveat does not in itself involve the loss of priority which the time of the creation of the equitable interest would 536

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Heid v Reliance Finance Corporation Pty Ltd cont. otherwise give (J & H Just (Holdings) Pty Ltd v Bank of NSW (1971) 125 CLR 546), notwithstanding that the person acquiring the later interest had, before acquiring that interest, searched the register book and ascertained that no caveat had been lodged. It is just one of the circumstances to be considered in determining whether it is inequitable that the prior equitable owner should retain his priority. In deciding whose is the better equity in this case it is necessary to ask whether there has been an act, neglect or default of the kind mentioned on the part of the appellant. We need to consider what are the reasonably forseeable consequences of his act in entrusting Gibby with the instrument of transfer and the authority to collect the certificate of title. Lord Selborne LC in Dixon v Muckleston (1872) LR 8 Ch App 155 at 160 had pointed out that the holder of the first equity is bound by the natural consequences of his positive acts. More recently in Courtenay (1963) 110 CLR 550 Kitto J made use of this concept in considering whether there was negligence on the part of the first holders which resulted in a postpone-ment of their interest. There the vendor received a portion of the purchase money in cash, and agreed to accept a mortgage back from the purchasers (the Courtenays) to secure payment of the balance. The transfer and mortgage were left with the vendor’s solicitor to lodge for registration. The solicitor lodged the documents but later fraudulently withdrew them from registration. The solicitor for a sub-divider (Denton) later relied upon the ostensibly clear title. Kitto J (1963) 110 CLR, 578, speaking of the Courtenays’ conduct, said, adopting the Dixon v Muckleston (1872) LR 8 Ch App 155 at 160 formula, that the question was “whether their conduct was such that the deception was a natural consequence”, so that they might fairly be said to have armed the third party with the power of going into the world under false colours. He went on to say (1963) 110 CLR 578 at 578-579: the answer to the question, in my opinion, is that in the circumstances it was not reasonably to be foreseen by the Courtenays or their solicitor that a third party might, without inquiring of them, part with money on an assumption that, contrary to all ordinary experience, their transferor’s solicitor had their authority to withdraw from registration the transfer which to all appearances they were absolutely entitled to have registered. … But the Courtenays did lodge their transfer for registration, and in my judgment it is not to be laid at their door that Denton’s solicitor was deceived by the assurances of a rogue. See also per Taylor J (1963) 110 CLR 578 at 590. The question then is whether the risk of some such deception as that practised by McKay was reasonably foreseeable when the appellant delivered to Gibby the signed instrument of transfer and the authority to collect the certificate of title. In Union Bank of London v Kent (1888) 39 Ch D 238 at 248, Fry LJ said: I know of no decided case in which the mortgagee has been postponed on the ground that he did not take precautions against a future fraud by the mortgagor; and I do not know of any general rule which obliges you to assume that every person with whom you are dealing is likely to be a knave. But this comment does not deny that in some situations a person may be under a duty to take care to avoid or minimise the risk of fraudulent or deceptive conduct by others or that a person may be negligent in placing another in a position in which he can readily misrepre-sent to a third party that he is the owner of property. There are two elements of special significance in the appellant’s conduct. The first is that the instrument of transfer signed by the appellant contained an acknowledgment of the receipt by him of the purchase money which was in fact unpaid and which lay at the heart of his equitable lien. The second is that the appellant left the signed instrument of transfer together with the authority to collect the certificate of title with Gibby, who, as far as the appellant was led to believe, was a solicitor acting for the purchaser as well as for the appellant and, moreover, was a servant of a group of companies or firms of which the purchaser corporation was a member. The two circumstances are interrelated. [21.10]

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Heid v Reliance Finance Corporation Pty Ltd cont. In the Court of Appeal Hope JA (with whom Glass and Mahoney JJA agreed) thought that if Gibby had been an independent solicitor the appellant would have been entitled to retain his priority. His Honour said (1982) 1 NSWLR 466 at 482: If an owner of land engages a solicitor to act upon the sale of it, and gives to the solicitor the certificate of title and an executed memorandum of transfer of the land, whether in favour of the purchaser or without a named transferee, the owner has enabled the solicitor to arm the purchaser, or has armed the solicitor, with documents allowing the purchaser, or the solicitor (or some other person) to appear to the world as the absolute owner of the land. But this conduct may not postpone the owner’s interest, for it is entirely in accordance with established practice, and is necessary to enable conveyancing transactions to be completed. The fact that in such a case the owner’s action is based upon a trust that his solicitor will deal with the documents in accordance with his authority is not something which in itself will lead equity to postpone his interest. We agree with his Honour’s remarks, though we would prefer to say that, having regard to the established practice in conveyancing transactions and the trust which the client reposes in his solicitor to deal with the documents in accordance with his authority, the risk of deceptive use of the documents by the solicitor is not, in the ordinary case, a reasonably foreseeable consequence of entrusting the solicitor with the documents. A contrary view would entail delay and complexity in the completion of conveyancing transactions. Seemingly the vendor would always need to be present. The situation revealed by the facts in the present case is, of course, far removed from the usual conveyancing transaction in which vendor and purchaser are represented by separate solicitors. The primary judge and the Court of Appeal expressed different views as to the outcome of the present situation in which the vendor instructed an employee of the purchaser to act for him. The case for the appellant here is that it was reasonable for him to accept and act upon McKay’s representation and on that basis to hand to Gibby the instrument of transfer and the authority to collect the certificate of title in order to complete the transaction. In short, the appellant submits that the case is to be determined on the footing that he reasonably believed that Gibby was a solicitor acting for both parties, not on the footing that he was merely an employee of the purchaser. There are two flaws in this argument. The first is that, in all the circumstances of the present case, including the circumstances that Gibby was introduced to the appellant as an employee who was concerned with the transaction on the purchaser’s behalf, it was reckless for the appellant, without further inquiry, to accept McKay’s representation that Gibby was a solicitor who could act for him. The second is that the appellant, knowing that Gibby was an employee, should reasonably have apprehended that Gibby might be required by the purchaser to act in accordance with its instructions and in its interests and that there was a risk that Gibby might give effect to that requirement. There was therefore a greater risk that the documents might be put to use for the purposes of the purchaser, in a manner inconsistent with the appellant’s interests, than would have been presented by the delivery of the documents to an independent solicitor retained by the appellant. The principal foundation of a client’s justifiable trust that his solicitor will not use the documents of title in a conveyancing transaction for unauthorised purposes – the duty which the solicitor owes to his client – is necessarily compromised if the solicitor owes a duty as an employee in relation to the very transaction in which he is instructed. Accordingly, we must look at the case as one in which the appellant handed the documents to an employee of the purchaser. The delivery of the documents to the employee armed the purchaser with the capacity to represent itself to be the true owner of the property and to engage in fraudulent and deceptive conduct of the kind which took place. The risk of the purchaser engaging in that conduct was reasonably foreseeable. Indeed, that conduct, though not intended by the appellant, was the natural consequence of his positive act in handing over the documents to Gibby – in effect to the purchaser – without taking any steps, as for instance, by lodging a caveat, to protect himself and others who might otherwise be deceived by misuse of the documents. 538

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Heid v Reliance Finance Corporation Pty Ltd cont. [Their Honours concluded that the appellant’s negligence amounted to postponing conduct, and dismissed the appeal.] MURPHY J: … As a general principle, a party who makes such an untrue statement must, as between himself and an innocent third party, bear any loss resulting from his bringing it into existence. This is consistent with statements in the English cases such as Rice v Rice (1853) 2 Drew 73 at 83-84 (61 ER 646 at 650); Rimmer v Webster [1902] 2 Ch 163 at 173; Tsang Chuen v Li Po Kwai [1932] AC 715 at 728-729; and the Privy Council decision in Abigail v Lapin (1934) 51 CLR 58. It accords with the broad principle stated in Lickbarrow v Mason (1787) 2 TR 63 at 70 (100 ER 35 at 39) “wherever one of two innocent persons must suffer by the acts of a third, he who has enabled such third person to occasion the loss must sustain it”. Australian authority is to the same effect: see Barry v Heider (1914) 19 CLR 197 at 208; Thompson v Palmer (1933) 49 CLR 507 at 547-548; and IAC (Finance) Pty Ltd v Courtenay (1963) 110 CLR 550 at 578. In Lapin v Abigail (1930) 44 CLR 166 at 198 Gavan Duffy and Starke JJ stated: It (sic.) our opinion, the Lapins are bound by the natural consequences of their acts in arming Olivia Sophia Heavener with the power to go into the world as the absolute owner of the lands and thus execute transfers or mortgages of the lands to other persons, and they ought to be postponed to the equitable rights of Abigail to the extent allowed by the Supreme Court. On appeal this was approved by the Privy Council (1934) 51 CLR 58 at 64. Although that passage refers to “natural consequences”, in my opinion the rule should not be confined to natural consequences. Also, the rule should not be confined to circumstances where the party making the untrue statement has acted negligently. I prefer the statement in the same case made by Dixon J (1930) 44 CLR 166 at 204: The act or default of the prior equitable owner must be such as to make it inequitable as between him and the subsequent equitable owner that he should retain his initial priority. This, in effect, generally means that his act or default must in some way have contributed to the assumption upon which the subsequent legal owner acted when acquiring in equity. No doubt, when the appellants executed transfers which expressed the consideration as the receipt of a money payment, they did something which might well have operated to lead a person who dealt with the transferee on the faith of the transfers and read the statement of the consideration, to suppose that she had bought the land and paid the purchase money, and thus become the beneficial owner. Where a person creates a danger which will cause harm to others if it gets out of control the general theme of the law is that strict liability should apply, that is, he is liable for harm to others even without his negligence. To sign an untrue acknowledgment on a memorandum of transfer that the purchase price has been received is to create a dangerous instrument which, if it falls into the wrong hands, may be used to injure prospective purchasers or those who advance money on the security of the land. Here, as between himself and the innocent third parties, who acted without negligence, the appellant should bear the loss. The appeal should be dismissed.

[21.15]

1.

Notes&Questions

Heid v Reliance Finance Corporation Pty Ltd (1983) 154 CLR 326 highlights the confusion surrounding the precise formulation of the test to be used to resolve the priority dispute between competing unregistered interests. Under the formulation preferred by Mason and Deane JJ, priority in time should be considered only where the [21.15]

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competing equities are equal in all other respects (at 339. See also Rice v Rice (1853) 2 Drew 73; 61 ER 646; Butler v Fairclough (1917) 23 CLR 78 at 91 per Griffith CJ; Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) (1965) 113 CLR 265 at 276 per Kitto J (semble.); Clark v Raymor (Brisbane) Pty Ltd [No 2] [1982] Qd R 790 at 795 per Thomas J; Jacobs v Platt Nominees Pty Ltd [1990] VR 146; Platzer v Commonwealth Bank of Australia [1997] 1 Qd R 266; Moffett v Dillon [1999] 2 VR 480 at 500-502 per Ormiston JA.) Gibbs CJ, by contrast, seemed to endorse this approach early in his judgment, then went on to hold that the order of creation determines priority unless there is a reason for postponing the holder of the first interest. ((1983) 154 CLR 326 at 333. See also Lapin v Abigail (1930) 44 CLR 166 at 204 per Dixon J; Abigail v Lapin [1934] AC 491; (1934) 51 CLR 58 at 504 (AC) per Lord Wright; IAC (Finance) Pty Ltd v Courtenay (1963) 110 CLR 550 at 583 per Taylor J; J & H Just (Holdings) Pty Ltd v Bank of New South Wales (1971) 125 CLR 546 at 556 per Barwick CJ; Avco Financial Services Ltd v Fishman [1993] 1 VR 90 at 93 per Tadgell J; Avco Financial Services Limited v White [1977] VR 56; Breskvar v Wall (1971) 126 CLR 376 at 388 per Barwick CJ.) It is unlikely that these formulations would yield different results on the same set of facts. Neave stated that “[i]n most (but not all) cases these formulations will not produce different results”. (Neave, “Towards a Uniform Torrens System: Principles and Pragmatism” (1993) 1 APLJ 114 at 126.) In what circumstances might different results be produced? 2.

As Mason and Deane JJ commented, the “theoretical basis for granting priority … has been the subject of debate” (at 339). Interestingly, the three judgments extracted above each proceed along different theoretical paths. Gibbs CJ (with whom Wilson J agreed) preferred an estoppel analysis: Heid was estopped from asserting the priority of his interest because his conduct induced Reliance to act to its detriment. Mason and Deane JJ preferred to avoid the “contortions and convolutions” associated with the estoppel approach by endorsing a general and flexible principle that the better equity in the circumstances should prevail. This approach is based on negligence and, to a lesser extent, on estoppel. Murphy J, in a judgment that has largely been ignored by commentators and subsequent cases, held that principles of strict liability formed the basis of granting priority to Reliance’s subsequent interest. This is clearly the most far-reaching of the three approaches.

3.

Recently it has been held by the Victorian Court of Appeal that there is a further separate and independent test, applicable to some fact situations, for determining this type of priority dispute: see Moffett v Dillon [1999] 2 VR 480 extracted at [6.175] (Moore) and Perpetual Trustee Company Ltd v Smith (2010) 186 FCR 566; [2010] V ConvR 54-779 extracted at [6.175] (Moore).

4.

Whilst many of the Torrens cases on priority disputes involve the issue of the relevance of caveating, one case where this was not so is AG(CQ) Pty Ltd v A&T Promotions Pty Ltd [2010] QCA 83. AG(CQ) was the registered proprietor of land that was to be subdivided. Ikin, who was involved in obtaining the land for AG(CQ) was entitled to have one of the subdivided lots transferred to him. Ikin, prior to the transfer to him, granted a mortgage over his lot to A & T Promotions. Ikin then granted a mortgage over the land to AG(CQ). This was done to secure repayment of advances made by AG(CQ). As part of this transacton, AG(CQ) retained the transfer instrument for the

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proposed lot for Ikin (with the details left blank). The court concluded that AG(CQ)’s interest, despite later in time, prevailed over A & T Promotions. In the view of the court, A & T Promotions had failed to act as a prudent lender. Do you agree? What should they have done? 5.

Sir Robert Torrens probably envisaged a system where only registered interests would be enforceable; consequently, scant attention was paid to unregistered interests and possible disputes between them. As can be gleaned from above, the courts opted to use the principles governing disputes between equitable interest holders of unregistered land and apply them to Torrens land. Recently, attention has been focused on developing alternative, simpler and more certain means of resolution of such disputes. It has been argued that the introduction of electronic conveyancing will provide a feasible opportunity to introduce a better scheme. See O’Connor, “Information, Automation and the Conclusive Land Register” in Grinlinton, Torrens in the Twenty-First Century (2003), pp 249-275.

Application of the test [21.20] Irrespective of the precise formulation of the test, the cases reveal that the courts tend to focus their attention on the conduct of the first equitable interest holder. Indeed, in the absence of any act or omission by the first holder, he or she will win the priority dispute on the basis of priority of time. Where such an act or omission is demonstrated, however, the conduct of the second interest holder will be examined. Such conduct may act as a counterbalance in “weighing” the relative merits of the equities. Broadly speaking, priority disputes between competing unregistered interests can be divided into the following two categories:

1.

Where the registered proprietor arms a third party with the means to become registered proprietor, and another person purchases an interest in the land from the new registered proprietor (see, for example, Abigail v Lapin [1934] AC 491; (1934) 51 CLR 58; Breskvar v Wall (1971) 126 CLR 376; Heid v Reliance Finance Corporation Pty Ltd (1983) 154 CLR 326); and

2.

Where the registered proprietor creates two inconsistent unregistered interests (see, for example, J & H Just (Holdings) Pty Ltd v Bank of New South Wales (1971) 125 CLR 546; IAC (Finance) Pty Ltd v Courtenay (1963) 110 CLR 550; Jacobs v Platt Nominees Pty Ltd [1990] VR 146; Avco Financial Services Ltd v Fishman [1993] 1 VR 90; Double Bay Newspapers v AW Holdings Pty Ltd (1996) 42 NSWLR 409; Platzer v Commonwealth Bank of Australia [1997] 1 Qd R 266). The relevance of the failure to lodge a caveat by the holder of the first equitable interest has been considered in many cases in both these categories: as you read the following cases, keep in mind the category of dispute which is involved and the way in which the court considers the lodgment or non-lodgment of a caveat. The cases extracted reveal that there remain a number of uncertainties in the application of the rule relating to competing equitable interests. Various alternatives and reforms for the resolution of disputes between equitable interest holders have been suggested: see Neave, “Towards a Uniform Torrens System: Principles and Pragmatism” (1993) 1 APLJ 114 at 128-129; VLRC, Priorities, Report No 22, 1989, p 2, recommendation 10; McCrimmon, “Protection of Equitable Interests under the Torrens System: Polishing the Mirror of Title” (1994) 20 Mon ULR 301; Hughson, Neave and O’Connor, “Reflections on the Mirror of [21.20]

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Title: Resolving the Conflict” (1997) 21 MULR 460; Rodrick, “Resolving Priority Disputes between Competing Equitable Interests in Torrens System Land – which Test?” (2001) 9 APLJ 172; O’Connor, “Information, Automation and the Conclusive Land Register” in Grinlinton, Torrens in the Twenty-First Century (2003), pp 249-275; McEniery, “A dedicated means of giving notice of the existence of unregistered interests under Torrens” (2006) 12 APLJ 244.

MERE EQUITIES Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) [21.25] Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) (1965) 113 CLR 265 High Court [Latec was the mortgagee of land owned by Hotel Terrigal. Hotel Terrigal went into arrears and Latec wished to exercise its power of sale under the New South Wales Torrens statute. It conducted an auction on an unfavourable day of the week with little time for proper advertisement. The property failed to sell and some weeks later, Latec sold it to its wholly owned subsidiary, Southern Hotels. Southern became the registered proprietor. The sale price was substantially lower than the reserve price. Subsequently, Southern gave the MLC Nominees, a trustee for debenture holders, a floating charge over its assets, including the land in question. Some five years later, Hotel Terrigal sought to have the sale to Southern set aside on the basis that the power of sale had been conducted fraudulently. The court found on the evidence that Latec and Southern had been fraudulent and that, therefore, Hotel Terrigal had a right to have the contract and transfer set aside. The court then had to consider the priority position as between Hotel Terrigal and MLC.] KITTO J: … But, as I have said, the mortgagor took no step to establish its equity of redemption for nearly five years. One reason was that the voluntary liquidator had no funds available for litigation. But whatever the full tally of the reasons may have been, if there were nothing more to consider than the bare fact of the delay it may be that the mortgagor would not be precluded from asserting its rights even after so long a time: see Fysh v Page (1956) 96 CLR 233 at 243. But an important change in the situation occurred a little more than a year after the sale. On 18th March 1960, the first appellant executed a trust deed in respect of debentures to be issued, and it put out to the public a series of prospectuses which led many persons to take up debentures. The prospectuses showed, as the fact was, that the purchaser of the mortgaged property, the second appellant, had joined in the trust deed as a guarantor and had given the trustee, who is the third appellant here, a floating charge over all its assets as security for the debentures. Each prospectus, moreover, contained an explicit statement that the Hotel Terrigal was owned by the second appellant. The statement, of course, would have been true if the second appellant’s title had been unimpeachable by the mortgagor, and neither the trustee nor the persons who took up debentures were given any cause to doubt it. It is a fair inference that the liquidator of the mortgagor company had notice of what was happening, for he was the auditor of the mortgagee. After another two and a half years the floating charge crystallised. The trustee of the debenture deed appointed a receiver of both the first and the second appellants, but it was not until a year later still that a new liquidator of the purchaser was appointed and the present proceedings were begun. In these circumstances the trustee, with the support of its co-appellants, contends that the mortgagor ought not to be given the relief to which, according to the views I have expressed, it would otherwise be entitled. As between the trustee and the mortgagor I am of opinion the contention should succeed. In all cases where a claim to enforce an equitable interest in property is opposed on the ground that after the interest is said to have arisen a third party innocently acquired an equitable interest in the same property, the problem, if the facts relied upon as having given rise to the interests 542

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Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) cont. be established, is to determine where the better equity lies. If the merits are equal, priority in time of creation is considered to give the better equity. This is the true meaning of the maxim qui prior est tempore potior est jure: Rice v Rice (1853) 2 Drew 73 at 78 (61 ER 646 at 648). But where the merits are unequal, as for instance where conduct on the part of the owner of the earlier interest has led the other to acquire his interest on the supposition that the earlier did not exist, the maxim may be displaced and priority accorded to the later interest. In the present case it seems to me that there is much to be said for holding that, since during the long period of the mortgagor’s delay in setting up the invalidity of the purchaser’s title persons were induced to lend money on debentures in the belief that an unencumbered fee simple in the subject property formed part of the security under the trustee’s floating charge, the mortgagor ought not to be allowed to insist upon its equity of redemption as against the equitable interest of the trustee. But apart altogether from any question of estoppel by conduct, in my opinion the equitable charge of the trustee for the debenture holders stands in the way of the mortgagor’s success because it was acquired for value and without any notice either of the existence of the mortgagor’s right to set aside the sale or of any facts from which such a right might be inferred. The trustee, of course, has not the legal estate; its rights are purely equitable; but the case falls within one of the categories described in the judgment of Lord Westbury in Phillips v Phillips (1861) 4 De G F & J 208 at 218 (45 ER 1164 at 1167) in which the legal estate is not required in order that a defence of purchase for value without notice may succeed. It is the case of a suit “where there are circumstances that give rise to an equity as distinguished from an equitable estate – as, for example, an equity to set aside a deed for fraud, or to correct it for mistake” (1861) 4 De G F & J 208 at 218 (45 ER 1164 at 1167). In such a case, his Lordship said, if the purchaser under the instrument maintains the plea of purchase for value without notice “the Court will not interfere” (1861) 4 De G F & J 208 at 218 (45 ER 1164 at 1167). It is true that if the mortgagor in the present case was entitled to have the mortgagee’s sale set aside it had more than a mere equity: it had, as I have pointed out, an equity of redemption, and such an interest, being in respect of an estate in fee simple, has been considered an equitable estate ever since Lord Hardwicke decided Casborne v Scarfe (1737) 1 Atk 603 (26 ER 377) see also (1738) 2 J & W 194 App (37 ER 600). But each of the illustrations Lord Westbury chose was also a case where the equity was accompanied by an equitable interest which might constitute an equitable estate. So much had been shown by decisions of most eminent judges, at least twice in the ten years before his Lordship spoke: see Stump v Gaby (1852) 2 De G M & G 623 (42 ER 1015); Gresley v Mousley (1859) 4 De G & J 78 (45 ER 31), and Lord Westbury’s judgment gives every indication of an intention to state systematically the effect of previous decisions, and not to depart from them in any degree. The illustrations, therefore, make it clear, it seems to me, that the cases to which his Lordship was referring were not only those in which there is an assertion of an equity unaccompanied by an equitable interest as was held to be the case in Westminster Bank Ltd v Lee [1956] Ch 7 and National Provincial Bank Ltd v Hastings Car Mart Ltd [1964] Ch 9 – indeed he may not have had them in mind at all – but those in which an equity is asserted which must be made good before an equitable interest can be held to exist. In the latter class of cases the equity is distinct from, because logically antecedent to, the equitable interest, and it is against the equity and not the consequential equitable interest that the defence must be set up. That the defence of purchase for value without notice (in the absence of the legal estate) is a good defence against the assertion of the equity in such a case had been established long before Lord Westbury’s time. In Malden v Menill (1737) 2 Atk 8 at 13 (26 ER 402 at 405), for example, Lord Hardwicke had refused rectification of an instrument for mistake, as against a purchaser of an equitable interest without notice, on the ground that the mistake should not “turn to the prejudice of a fair purchaser”. Such cases as Garrard v Frankel (1862) 30 Beav 445 (54 ER 961) and Bainbrigge v Browne (1881) 18 Ch D 188 were soon to be decided on the same principle. See generally Halsbury’s Laws of England (3rd ed), Vol 14, p 537, par 1008. The reason of the matter, as I understand it, is that the purchaser who has [21.25]

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Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) cont. relied upon the instrument as taking effect according to its terms and the party whose rights depend upon the instrument being denied that effect have equal merits, and the court, finding no reason for binding the conscience of either in favour of the other, declines to interfere between them. Consequently the party complaining of the fraud or mistake finds himself unable to set up as against the other the equitable interest he asserts; but the fact remains that it is against the preliminary equity, and not against the equitable interest itself, that the defence of purchase for value without notice has succeeded. The maxim qui prior est tempore is not applicable, for it applies only as between equitable interests, the logical basis of it being that in a competition between equitable interests the conveyance in virtue of which the later interest is claimed is considered, as Lord Westbury pointed out, to be innocent, in the sense of being intended to pass that which the conveyor is justly entitled to and no more: (1861) 4 De G F & J 208 at 215 (45 ER 1164 at 1166). Where a claim to an earlier equitable interest is dependent for its success upon the setting aside or rectification of an instrument, and the court, notwithstanding that the fraud or mistake (or other cause) is established, leaves the instrument to take effect according to its terms in favour of a third party whose rights have intervened, the alleged earlier equitable interest is unprovable against the third party, and consequently, so far as the case against him discloses, there is no prior equitable interest to which his conveyance can be held to be subject. On the principle to which Lord Westbury referred it seems to me inevitable that the mortgagor’s claim in the present case to have the mortgagee’s sale and the transfer to the purchaser “set aside”, that is, treated as if they were only a sale and transfer of the mortgage, should fail as against the trustee for the debenture holders, though it should succeed as against the mortgagee and the purchaser. It appears that the mortgage was a second mortgage and that after the sale the purchaser paid off the first mortgage. The purchaser is entitled therefore to stand in the shoes of the first mortgagee. The result is that the mortgaged property is subject, first, to the purchaser’s rights in respect of the discharge of the first mortgage; secondly, to the trustee’s charge; and thirdly, to the purchaser’s rights as notional transferee of the second mortgage under the (otherwise invalid) sale. The mortgagor is entitled to anything that may remain of the property or its proceeds after these encumbrances have been satisfied. The indications seem to be that after the rights of the trustee have been satisfied there will be nothing left, and for that reason it seems unnecessary to make an order for working out the rights of all parties in detail. MENZIES J: … The second question – that is, the question of priority between Terrigal’s and MLC Nominees’ equitable rights – I find one of substantial difficulty. If the maxim “Qui prior est tempore potior est jure” applies, Terrigal’s right to have the conveyance set aside and to be restored to the register, without regard to MLC Nominees’ equitable interest, prevails, but the appellants’ contention is that this right is a mere equity and the maxim has no application when the contest is between such an equity and an equitable interest of the character held by MLC Nominees. This contention rests upon the line of authority based upon Phillips v Phillips (1861) 4 De G F & J 208 (45 ER 1164). Lord Westbury there said: Hence grantees and incumbrancers claiming in equity take and are ranked according to the dates of their securities; and the maxim applies, “Qui prior est tempore potior est jure”. The first grantee is potior – that is, potentior. He has a better and superior – because a prior – equity. The first grantee has a right to be paid first, and it is quite immaterial whether the subsequent incumbrancers at the time when they took their securities and paid their money had notice of the first incumbrance or not … Now, the defence of a purchaser for valuable consideration is the creature of a Court of Equity, and it can never be used in a manner at variance with the elementary rules which have already been stated … But there appear to be three cases in which the use of this defence is most familiar … Thirdly, where there are circum-stances that give rise to an equity as distinguished from an equitable estate – as for example, an equity to set aside a deed for fraud, or to correct it for mistake – and the purchaser under the 544

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Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) cont. instrument maintains the plea of purchase for valuable consideration without notice, the Court will not interfere: (1861) 4 De G F & J 208 at 215-218 (45 ER 1164 at 1166, 1167). In Cave v Cave (1880) 15 Ch D 639, Fry J, referring to the defence of purchaser for value without notice, said: That defence, as we all know, has been the subject of a great deal of decision, and it is by no means easy to harmonize the authorities and the opinions expressed upon the subject. Criticisms upon old cases lie many strata deep, and eminent Lord Chancellors have expressed diametrically opposite conclusions upon the same question. The case of Phillips v Phillips (1861) 4 De G F & J 208 (45 ER 1164) is the one which has been principally urged before me, and that, as being the decision of a Lord Chancellor, is binding upon me, notwithstanding the subsequent comments upon it of Lord St Leonards in his writing: (1880) 15 Ch D 639 at 646. His Lordship went on to cite the passage I have already quoted from Lord Westbury’s judgment in Phillips v Phillips (1861) 4 De G F & J 208 (45 ER 1164) and, having come to the conclusion that he was dealing with a contest between equitable estates and not between an equitable estate and a mere equity, concluded: Therefore I shall conclude that, within the case of Phillips v Phillips (1861) 4 De G F & J 208 (45 ER 1164), the interest of the plaintiff in this case is an equitable interest, and not merely an equity like the equity to set aside a deed, and therefore it must take its priority according to the priority of date: (1880) 15 Ch D 639 at 649. There is, however, as Fry J said, another line of cases, the authority of which is beyond question, establishing that where there is an equity to have the voidable conveyance of an estate set aside, there remains in the conveyor, notwithstanding the conveyance, an equitable estate which may be devised or transferred. Thus, in Stump v Gaby (1852) 2 De G M & G 623 (42 ER 1015), Lord St Leonards, speaking of a conveyance by an heir at law to his solicitor, said: I do not deny that a deed may be so fraudulent as to be set aside at law; this, however, is not such a case; but I will assume that the conveyance might have been set aside in equity for fraud: what then is the interest of a party in an estate which he has conveyed to his attorney under circumstances which would give a right in this Court to have the conveyance set aside? In the view of this Court he remains the owner, subject to the repayment of the money which has been advanced by the attorney, and the consequence is that he may devise the estate, not as a legal estate, but as an equitable estate, wholly irrespective of all question as to any rights of entry or action, leaving the conveyance to have its full operation at law, but looking at the equitable right to have it set aside in this Court. The testator therefore had a devisable interest. My strong impression is that this very point is concluded upon authority, but if not I am ready to make an authority on the present occasion, and to decide that, assuming the conveyance to have been voidable, the grantor had an equitable estate which he might have devised: (1852) 2 De G M & G 623 at 630 (42 ER 1015 at 1018). Likewise, in Gresley v Mousley (1859) 4 De G & J 78 (45 ER 31), Knight Bruce LJ, in deciding that a conveyor of land who has an equity to be relieved against a sale, has a devisable interest in the property sold, said that the Lords Justice were bound by the cases cited to the Court, including Stump v Gaby (1852) 2 De G M & G 623 (42 ER 1015). He added that, if the Lords Justice were not so bound, “I still think that the decisions were correct and ought to be followed” (1859) 4 De G & J 78 at 90 (45 ER 31 at 35). The argument that Stump v Gaby (1852) 2 De G M & G 623 (42 ER 1015) proceeded on a sound principle, which seems to have been accepted, was as follows: “When a decree is made for setting aside a conveyance it relates back, and the grantee is to be treated as having been, from the first, a trustee for the grantor, who, therefore, has an equitable estate, not a mere right of suit” (1859) 4 De G & J 78 at 86 (45 ER 31 at 34). As to the conveyance inter vivos of such an interest carrying the right to sue the original conveyee, see Dickinson v Burrell (1866) LR 1 Eq 337. [21.25]

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Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) cont. If there is a difference between the two lines of authority, that difference seems to me to arise from concentration upon different aspects of what follows from a voidable conveyance. Thus, Phillips v Phillips (1861) 4 De G F & J 208 (45 ER 1164), in so far as it says that a person with the right to have a voidable conveyance set aside has but a mere equity, directs attention to the right to have the conveyance set aside as a right to sue which must be successfully exercised as a necessary condition of there being any relation back of the equitable interest established by the suit. Stump v Gaby (1852) 2 De G M & G 623 (42 ER 1015) directs attention to the result of the eventual avoidance of the conveyance upon the position ab initio and throughout of the persons by whom and to whom the conveyance of property was made and says that, in the event of a successful suit (which may be maintained by a devisee), the conveyor had an equitable estate capable of devise and that the conveyee holds, and has always held, as trustee. There is no doubt that the two lines of authority are well established. See, for instance, Halsbury’s Laws of England (3rd ed), Vol 14, pars 1009 and 1030. Furthermore, there is room for the application of each in appropriate circumstances. Thus, if Terrigal were a person instead of a company and the question were whether, in the circumstances here, that person had a devisable interest in the hotel property by virtue of his equity to have the conveyance to Southern set aside, Stump v Gaby (1852) 2 De G M & G 623 (42 ER 1015) would require an affirmative answer on the footing that, in the circumstances, Terrigal had an equitable interest in the hotel property. Where, however, the question arises in a contest between Terrigal and MLC Nominees, the holders of an equitable interest in the hotel property acquired without notice of Terrigal’s rights, the authority of Phillips v Phillips (1861) 4 De G F & J 208 (45 ER 1164) is (i) that the contest is between Terrigal’s equity to have the conveyance set aside and the equitable interest of MLC Nominees and (ii) that in that contest, Terrigal’s equity is not entitled to priority merely because it came into existence at an earlier time than the equitable interest of MLC Nominees. In the circumstances here, therefore, the maxim “Qui prior est tempore potior est jure” has no application. The conclusion I have just expressed with regard to the second matter in issue makes reference to the third matter unnecessary. Accordingly, it is because I think that the equitable estate of MLC Nominees takes priority over the equity of Terrigal that I would allow this appeal. I agree that, in the circumstances, the course we should follow is that proposed by Kitto J. TAYLOR J: … This contention was based upon an observation of Lord Westbury in Phillips v Phillips (1861) 4 De G F & J 208 (45 ER 1164), a case in which the proposition was asserted in argument that a court of equity “would give no relief whatever to any claimant against a purchaser for value without notice” (1861) 4 De G F & J 208 at 215 (45 ER 1164 at 1166). His Lordship was “struck with the novelty” (1861) 4 De G F & J 208 at 215 (45 ER 1164 at 1166) of the proposition and for the purpose of dealing with it found it “necessary to revert to first principles” (1861) 4 De G F & J 208 at 215 (45 ER 1164 at 1166). He said: I take it to be a clear proposition that every conveyance of an equitable interest is an innocent conveyance, that is to say, the grant of a person entitled merely in equity passes only that which he is justly entitled to and no more. If, therefore, a person seised of an equitable estate … makes an assurance by way of mortgage or grants an annuity, and afterwards conveys the whole estate to a purchaser, he can grant to the purchaser that which he has, viz, the estate subject to the mortgage or annuity, and no more. The subsequent grantee takes only that which is left in the grantor: (1861) 4 De G F & J 208 at 215 (45 ER 1164 at 1166). Having further examined the doctrine he went on to say: “where there are circumstances that give rise to an equity as distinguished from an equitable estate – as for example, an equity to set aside a deed for fraud, or to correct it for mistake – and the purchaser under the instrument maintains the plea of purchase for valuable consideration without notice, the Court will not interfere” (1861) 4 De G F & 546

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Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) cont. J 208 at 218 (45 ER 1164 at 1167). However, in the case before the Court on that occasion the plaintiffs had, as his Lordship found, an equitable estate and so what passed to the defendants by virtue of the deed upon which they relied was necessarily subject to the plaintiff’s earlier interest and, so, the case was not affected by the quoted proposition. Lord Westbury’s observations were quoted by Fry J in Cave v Cave (1880) 15 Ch D 639 but this again was a case in which the plaintiffs were held to have an equitable interest in the subject-matter of the litigation. In the present case it is contended on behalf of the MLC Nominees that after the sale and transfer to Southern Hotels, Hotel Terrigal had on the view of the facts most favourable to it nothing more than a mere equity to set aside the transaction and, as I understand the argument, this proposition is put upon the authority of the examples given by Lord Westbury of cases where the right which is being asserted is “an equity as distinguished from an equitable estate – for example, an equity to set aside a deed for fraud, or to correct it for mistake”. But to my mind the argument misconceives the significance of Lord Westbury’s observation and the assertion that Hotel Terrigal had nothing more than a mere equity is made in the face of abundant authority to the contrary to which I shall presently refer. [His Honour referred to a number of authorities in support of his view that an equitable interest existed and continued:] I regard these authorities as establishing that where the owner of property has been induced by fraud to convey it the grantor continues to have an equitable interest therein and that that interest may be devised or assigned inter vivos and that the grantor’s interest in the property does not come into existence only if and when the conveyance is set aside. These cases, however, have nothing to say concerning the principles upon which the priority of competing equitable interests is to be determined. But they do serve to indicate that where a grantor is entitled to set aside a conveyance for fraud he has, in every sense of the term, an equitable interest in the subject land and that if he is to be postponed to an equitable interest acquired without notice at some later time it is not because it can be said, in the sense in which the appellants use that expression, that he has a mere equity as distinguished from an equitable estate; if he is to be postponed then there must be some other reason. In his “Chapters on Equity in New South Wales” the late Sir Frederick Jordan mentions that “The equitable assignee of property other than a chose in action takes subject to any equities which are in substance interests in the property; but not subject to equities in the nature of rights of set-off” ((6th ed, 1945), p 61). He then makes reference to the proposition that as against a person who has an equity as distinguished from an equitable estate, the defence of purchaser for value without notice may be maintained by a person who has an equitable interest only. But on the authority of Stump v Gaby (1852) 2 De G M & G 623 (42 ER 1015) and other cases to which I have referred he expressed the view that an equity is in itself an equitable estate and the real principle upon which the title of the owner of a subsequent equitable estate has been allowed to prevail is that the claimant under the prior equity has been estopped by his conduct from disputing the title of the person who has purchased the interest in good faith. For this proposition the learned judge cited Hunter v Walters (1871) 7 Ch App 75; Bickerton v Walker (1885) 31 Ch D 151; and French v Hope (1887) 56 LT 57; and these are cases where, if the proposition advanced in this case be sound, it would have been unnecessary to enquire whether the claimant earlier in point of time had been negligent or to examine the consequences of that negligence. It must be remembered that there was a considerable conflict of opinion between Lord Westbury and Lord St Leonards concerning the availability of the defence of purchaser for value without notice in the case of competing equitable interests and this is to be noticed in Lord St Leonard’s writings in the year following the decision in Phillips v Phillips (1861) 4 De G F & J 208 (45 ER 1164). (Sugden, The [21.25]

547

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Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) cont. Law of Vendors and Purchasers, 1862.) He maintained that the defence was always available to the bona fide purchaser of an equitable interest and observed (798) that: “Till the case of Phillips v Phillips (1861) 4 De G F & J 208 (45 ER 1164) the validity of the defence against an equitable title appears not to have been questioned”. Yet that case, which Lord St Leonards thought departed from the earlier law, did not deny the availability of the defence to a subsequent purchaser of an equitable interest without notice of an earlier interest which was of the character under consideration in the present case. It cannot, of course, be disputed at the present time that the defence of purchaser for value without notice of a prior equitable interest cannot be generally maintained but it does appear that it has always – that is to say, both before and after Phillips v Phillips (1861) 4 De G F & J 208 (45 ER 1164) – been allowed to prevail where the person entitled to the earlier interest required the assistance of a court of equity to remove an impediment to his title as a preliminary to asserting his interest. In such cases it seems that the court will not interfere and to me it does not seem to matter much whether it be said that this is because, as Lord Westbury’s observations suggest, that a plaintiff seeking to set aside a deed for fraud or to reform it for mistake is, at that stage, asserting an equity as distinguished from an equitable estate, or, because a plaintiff in such cases will be denied the assistance of a court of equity to remove the impediment to his title if, before he seeks that assistance, an equitable interest in the subject property has passed to a purchaser for value without notice of the plaintiff’s prior interest. I prefer the latter as a more precise statement of the law and, indeed, I think this is the true meaning of Lord Westbury’s observations. But either statement leads to the same result which in the present case means that the interest of the MLC Nominees should be taken to prevail over that of Hotel Terrigal. For these reasons I am of the opinion that the appeal should be allowed and that it should be otherwise disposed of in the manner suggested by Kitto J.

[21.30]

Notes&Questions

1.

Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) (1965) 113 CLR 265 concerned Torrens land. The principles set out would apply equally to general law land.

2.

In Breskvar v Wall (1971) 126 CLR 376, the High Court took the view that the right to have a sale set aside because of fraud was an equitable interest. No detailed analysis was undertaken, presumably in view of the fact that, in the circumstances, the interest of the Breskvars would be defeated by the subsequent equitable interest of Alban Pty Ltd even if they had a full equitable interest.

3.

After you have read the decision in Swanston Mortgage Pty Ltd v Trepan Investments Pty Ltd [1994] 1 VR 672 extracted at [6.45] (Bradbrook), consider again whether you think Kitto and Menzies JJ found that the mortgagor had a proprietary interest in the land. Were the competing interests the same in the Latec and Swanston Mortgage cases?

4.

In a priorities dispute, the categorisation of the interests may be vital to the outcome and yet there remain many areas of uncertainty in relation to whether particular interests are equitable interests or equities. In this regard, consider the following areas: • a common intention constructive trust • a Baumgartner unconscionability constructive trust • a right to have a transaction set aside for fraud, mistake, undue influence • a contract of sale which is specifically enforceable because it has been partperformed

548

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• promissory estoppel (Waltons Stores) • a right arising under the Garcia principles. See Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) (1965) 113 CLR 265; Muschinski v Dodds (1985) 160 CLR 583 at 614 per Deane J; Swanston Mortgage Pty Ltd v Trepan Investments Pty Ltd [1994] 1 VR 672; Double Bay Newspapers Pty Ltd v AW Holdings Pty Ltd (1996) 42 NSWLR 409; Parsons v McBain (2001) 109 FCR 120; 192 ALR 772; Ruthol Pty Ltd v Mills (2003) 11 BPR 20,793; Patmore v Upton (2004) 13 Tas R 95. 5.

The constructive trust based on unconscionability seems to raise special difficulties. In Baumgartner v Baumgartner (1987) 164 CLR 137 and in two other High Court cases, Muschinski v Dodds (1985) 160 CLR 583 and Giumelli v Giumelli (1999) 196 CLR 101, the remedial and highly discretionary nature of rights arising pursuant to the trust and the need to protect the position of third parties have been emphasised. Thus, for example, it was suggested by Deane J that the enforceability of rights arising under a constructive trust may not be operative until the date the court so decrees they will be operative. In Re Sabri (1996) 137 FLR 165 at 178, Chisholm J emphasised that there was no “absolute or fixed” rule as to when the interest under a constructive trust arises (see also Youssef v Victoria University of Technology [2005] VSC 223). It is arguable that a person who seeks the exercise of the court’s discretion in her or his favour on the basis that it would be unconscionable for the legal title holder to retain sole title, does not hold an equitable interest under a constructive trust in the period of time before the court has made its decision. Such a person may be viewed as holding an equity – a right to go to court to seek an equitable remedy in relation to the property in question (see Dal Pont, “Timing, Insolvency and the Constructive Trust” (2004) 24 Aust Bar Rev LEXIS 3; cf Levine, “Does Equity Treat as Done that which Ought to be Done?” (1997) 5 APLJ 74). However, in Parsons v McBain (2001) 109 FCR 120; 192 ALR 772 the court found that the constructive trust was not simply a remedy which came into existence when so decided by a court: rather it is a substantive right which comes into being at the time of the conduct which gives rise to its imposition. (Note, however, that the trust involved was a common intention constructive trust.) It has been argued that such a trust is more in the nature of an institutional constructive trust: see Edgeworth, Rossiter and Stone, Sackville and Neave Property Law – Cases and Materials (7th ed, LexisNexis, Sydney, 2004), p 444. See also Jabbour v Sherwood [2003] FCA 529. Extracts from Dal Pont, Equity and Trusts: Commentary and Materials, Ch 2.

Double Bay Newspapers Pty Ltd v AW Holdings Pty Ltd [21.35] Double Bay Newspapers Pty Ltd v AW Holdings Pty Ltd (1996) 42 NSWLR 409 (Supreme Court of New South Wales) [In 1992 the mortgagors (Mr and Mrs Yannacoulacos) granted a registered first mortgage over their house to Perpetual Trustee Australia. The mortgagors were directors of Spadtan Pty Ltd (“Spadtan”). The defendant (named Easyfind (NSW) Pty Ltd at the time of the relevant events) agreed to sell its business to Spadtan, the balance of the purchase price to be “secured to the vendor by a second registered mortgage over [the mortgagors’ house] and a registered fixed and floating charge over the [21.35]

549

Part 5: (A) Priority Regimes and (B) Commercial Dealings as Security Interests Over Property

Double Bay Newspapers Pty Ltd v AW Holdings Pty Ltd cont. undertakings of the purchaser company”. The latter (equitable) charge was registered. However, the mortgage was not registered (and no caveat was lodged in respect of it) until early 1995, at which time the plaintiff had a caveat over the property. This caveat stemmed from credit advanced by the plaintiff to Spadtan secured by a second mortgage over the house and an equitable charge over the company. The plaintiff had searched the title to the house, which showed the registered first mortgage and no unregistered dealings. The charge was registered in December 1993, and the caveat lodged in January 1994. In October 1993 Spadtan entered into a service agreement with Australian Postal Commission (“APC”), being prepared to accept a second mortgage over the mortgagors’ house. APC made no search of the register in granting credit. It did not register the mortgage, but did lodge a caveat in respect of it in May 1994. In that the proceeds from the sale of the house were insufficient to repay the amount owing to each creditor, there arose a priority dispute between the creditors.] BRYSON J … [420] … Caveats and priorities of equitable interests: The courts have not adopted the view that the order in which caveats are lodged establishes the priorities of the unregistered interests claimed in the caveats. To do so would be to treat lodging a caveat as a provisional registration of the interest claimed. The terms of the legislation and the function of caveats in it prevent this. The fact that a caveat has been lodged, or that no [421] caveat has been lodged can have some influence on recognition of which competing interest is the better equity. Actual notice of an interest can be gained by searching the title and seeing the claim to the interest made in a caveat. The fact that no caveat has been lodged has sometimes been part of the circumstances in which priorities in point of time have been disturbed. In Butler v Fairclough (1917) 23 CLR 78 the failure of an equitable mortgagee to lodge a caveat for one clear day – from 30 June to 2 July – brought about loss of priority over the holder of a competing equitable interest who had been misled by the result of a search. The majority in the High Court saw the matter in fairly simple terms: Griffith CJ at 91–92 and Isaacs J (with whom Barton J concurred) at 97. Griffith CJ said: In the case of a contest between two equitable claimants the first in time, all other things being equal, is entitled to priority. But all other things must be equal, and the claimant who is first in time may lose his priority by an act or omission which had or might have had the effect of inducing a claimant later in time to act to his prejudice. The Chief Justice went on to equate not lodging a caveat with leaving title deeds, under the old system, in the possession of the mortgagor. Isaacs J also dealt with the matter as a fairly simple one at 97: In my opinion, in the absence of some clear explanation justifying or excusing this failure it is one which, at all events in so simple a case as an equitable mortgage, postpones a mortgagee to the person bona fide misled by the result of a search as in the present case. The protection given by the Act to an unregistered and, perhaps, unregistrable transaction is coupled with the price of diligence in guarding others against loss arising through ignorance of the transaction. … In J & H Just (Holdings) Pty Ltd v Bank of New South Wales (1971) 125 CLR 546 Barwick CJ reviewed this subject extensively and, as he spoke with the concurrence of McTiernan and Owen JJ forming a majority, he spoke authoritatively. Some observations in the judgment of Griffiths CJ in Butler v Fairclough were subjected to qualifying observations in J & H Just (Holdings): see Menzies J (at 557) and Windeyer J (at 558–559). Barwick CJ made observations (at 552) which show that he rejected the view expressed by Griffiths CJ to the effect that a caveat operates as notice to all the world that the registered proprietor’s title is subject to the equitable interest alleged. These observations do not detract from the force of a caveat as notice to those who actually find it on search, or from the significance which there being no caveat may have in some chain of events which upsets priorities. 550

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Double Bay Newspapers Pty Ltd v AW Holdings Pty Ltd cont. Barwick CJ (at 553–554) reviewed Abigail v Lapin (1934) 51 CLR 58, in the Privy Council on appeal from the High Court in Lapin v Abigail (1930) 44 CLR 166. It was a significant element in the facts of that case that there was no caveat to protect an interest which might have been the subject of a caveat, but as Barwick CJ showed (at 554) observations on that subject were obiter dicta and the appeal was disposed of on another basis. The following passage (at 554 and 555) shows that it was Barwick CJ’s view that the failure to lodge a caveat, combining with other circumstances, may lead to loss of priority of the interest which a caveat could have asserted: Whilst it may be true in some instances that “the register may bear on its [422] face a notice of equitable claims”, this is not necessarily so and whilst in some instances a caveat of which the lodgment is noted in the certificate of title may be “notice to all the world” that the registered proprietor’s title is subject to the equitable interest alleged in the caveat this, in my opinion, is not necessarily universally the case. To hold that a failure by a person entitled to an equitable estate or interest in land under the Real Property Act to lodge a caveat against dealings with the land must necessarily involve the loss of priority which the time of the creation of the equitable interest would otherwise give, is not merely in my opinion unwarranted by general principles or by any statutory provision but would in my opinion be subversive of the well recognized ability of parties to create or to maintain equitable interests in such lands. Sir Owen Dixon’s remarks in Lapin v Abigail (1930) 44 CLR 166 at 205 with which I respectfully agree, point in this direction. Of course, there may be situations in which such a failure may combine with other circumstances to justify the conclusion that “the act or omission proved against” the possessor of the prior equity “has conduced or contributed to a belief on the part of the holder of the subsequent equity, at the time when he acquired it that the prior equity was not in existence”: cf per Knox CJ in Lapin v Abigail (1930) 44 CLR 166 at 183–184. This is the relevant principle to apply if it is claimed that the priority of a prior equitable interest has been lost in competition with a subsequent equitable interest. “In general an earlier equity is not to be postponed to a later one unless because of some act or neglect of the prior equitable owner. In order to take away any pre-existing admitted title, that which is relied upon for such a purpose must be shown and proved by those upon whom the burden to show and prove it lies, and … it must amount to something tangible and distinct, something which can have the grave and strong effect to accomplish the purpose for which it is said to have been produced: per Lord Cairns LC in Shropshire Union Railways and Canal Co v The Queen (1875) LR 7 HL 496 at 507. The Act or default of the prior equitable owner must be such as to make it inequitable as between him and the subsequent equitable owner that he should retain his initial priority. This in effect means that his act or default must in some way have contributed to the assumption upon which the subsequent legal owner acted when acquiring his equity”: Lapin v Abigail (at 204) per Dixon J. In my opinion, the failure to lodge a protective caveat cannot properly be said necessarily to be such an act or default. It could not properly be said to be so in the present case. In J & H Just (Holdings), the solicitor for the holder of a later interest had searched the register and found that there were no caveats or encumbrances, and then took what purported to be a first mortgage without obtaining the duplicate certificate of title or ascertaining how it came about that it was held by the Bank, which held it to support a registrable but unregistered mortgage which was prior in time. In my view the decision in J & H Just (Holdings) does not injure the authority of Butler v Fairclough but shows that a decision on priorities must be made in view of all the relevant facts, which when complex may not produce the same result as in Butler v Fairclough. [His Honour then made reference to Heid v Reliance Finance Corporation Pty Ltd, extracted at [21.10], and continued:] [423] … In the presence of these authorities McLelland J in Person-to-Person Financial Pty Ltd v Sharari [1984] 1 NSWLR 745 made observations which show the significance which in my opinion ought to be attributed to a failure to lodge a caveat. I respectfully share his Honour’s view that the [21.35]

551

Part 5: (A) Priority Regimes and (B) Commercial Dealings as Security Interests Over Property

Double Bay Newspapers Pty Ltd v AW Holdings Pty Ltd cont. decision in Butler v Fairclough continues to be of authority. Priority which would otherwise exist according to time may be lost where some act or omission by the holder of the earlier interest has led the holder of a later interest to acquire his interest on the supposition that the earlier did not exist. Examples of those circumstances occur where the holder of a later interest searched the register, found no such information as lodgement of a caveat would have put there and acted in reliance on the apparent absence of any such interest. As is shown by J & H Just (Holdings), where these circumstances exist they may not be the only significant circumstances, and they may be outweighed by other circumstances. Competing equities: equitable interests and mere equities: A distinction of great importance for competing priorities must be drawn between equitable interests and mere equities. This terminology which does not have a clear and well-settled meaning. The distinction which I make between an equity (or a mere equity) and an equitable estate (which could also be called an equitable interest) was stated with clarity by Upjohn J (as his Lordship then was) in Westminster Bank Limited v Lee [1956] 1 Ch 7 at 18–20. The passage which I will cite illustrates the way in which I will use terminology and distinguish an equitable estate from a mere equity. Upjohn J cited a passage from the judgment of Fry J in Cave v Cave (1880) 15 Ch D 637 which in turn included a citation from Lord Westbury’s judgment in Phillips v Phillips (1861) 4 De GF & J 208; 45 ER 1164 including the passage which had close attention in judgments in Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) (1965) 113 CLR 265. Upjohn J said (at 18–20): Now the bank’s charge is equitable, and therefore it takes subject to all equities affecting the land whether it has notice of them or not, subject only to the following qualification. The Court of Equity has been careful to distinguish between two kinds of equities, first, an equity which creates an estate or interest in the land and, secondly, an equity which falls short of that. An equitable mortgagee takes subject to all prior equitable estates or interests in the land whether he has notice of them or not, but in relation [424] to a mere equity it is otherwise; the defence of purchaser for value without notice may be available by the owner of an equitable estate against the owner of a prior equity. The principle was laid down by Lord Westbury LC sitting at first instance in Phillips v Phillips; as the relevant passages in his judgment are set out and followed in a subsequent judgment of a great master of equity, Fry J in Cave v Cave (1880) 15 Ch D 639, I propose to go straight to that case. He said this (at 646): The case of Phillips v Phillips is the one which has been principally urged before me, and that, as being the decision of a Lord Chancellor, is binding upon me, notwithstanding the subsequent comments upon it of Lord St Leonards in his writings. That case seems to me to have laid down this principle, that, as between equitable interests, the defence will not prevail where the circumstances are such as to require that this court should determine the priorities between them. The classes of cases to which that defence will apply are other than that. Lord Westbury in the course of his judgment in that case said this (at 215): “I take it to be a clear proposition that every conveyance of an equitable interest is an innocent conveyance, that is to say, the grant of a person entitled merely in equity passes only that which he is justly entitled to and no more. If, therefore, a person seised of an equitable interest (the legal estate being outstanding), makes an assurance by way of mortgage, or grants an annuity, and afterwards conveys the whole estate to a purchaser, he can grant to the purchaser that which he has, namely, the estate subject to the mortgage or annuity, and no more. The subsequent grantee takes only that which is left in the grantor. Hence grantees and incumbrancers claiming in equity take and are ranked according to the date of their securities, and the maxim applies, ‘Qui prior est tempore potior est jure.’ The first grantee is potior – that is, potentior. He has a better and superior – because a prior – equity.” His Lordship then proceeded to explain the different classes of cases in which that defence is available, and the one which has been relied upon as bringing the case of the defendants within the decision of Lord Westbury is the third class, which is this, that (1) “where there are circumstances that 552

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Double Bay Newspapers Pty Ltd v AW Holdings Pty Ltd cont. give rise to an equity as distinguished from an equitable estate – as, for example, an equity to set aside a deed for fraud, or to correct it for mistake – and the purchaser under the instrument maintains the plea of purchase for valuable consideration without notice, the court will not interfere.” Now the question I have to determine is this, is the right of the parties to follow this money into the land an equitable estate or interest, or is it an equity as distinguished from an equitable estate. That is the question I have to determine. Upjohn J recognised by saying (at 19): “… the defence of purchaser for value without notice may be available by the owner of an equitable estate against the owner of a prior equity” that equities (or mere equities) do not participate in competitions of priorities on the same basis as equitable interests; they may be defeated by equitable interests acquired for value without notice of them; yet they may prevail against equitable interests which are acquired with [425] notice of them. The way in which they may prevail is illustrated by the judgment of Fry J in Bainbrigge v Browne (1881) 18 Ch D 188 in the passage commencing (at 197) “I must therefore inquire whether the defendants Browne, Rogers, and Rock had notice or knowledge of the circumstances upon which the equity which is alleged against them arose?” to the end of the judgment. Although on the facts it was found that they did not have knowledge of the circumstances in which there was an equity to set aside a transaction for undue influence exercised over the plaintiffs by another defendant, it is evident that if Browne, Rogers and Rock had had such notice Fry J would have treated them as bound by the plaintiffs’ equity. In my respectful view the law now relevant appears more clearly in the passage which I have cited from Westminster Bank v Lee than from observations in Latec Finance v Hotel Terrigal, where the decision was complicated by factors not present here. Kitto, Taylor and Menzies JJ gave judgments in Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq). They were each of high personal authority in this field and they did not speak with one voice; an indication of its difficulties. The distinction between equitable interests and mere equities was not the matter under decision. Their Honours’ statements on the distinction were made on the path to decision and appear to express opinions which each of their Honours regarded as not open to debate. The conclusion which I base on their observations is that a mere equity, meaning a claim to have an equitable interest which can only be enforced by succeeding in some claim to a court for equitable relief (such as a claim for rectification, a claim to set aside a conveyance obtained by fraud or (as I think) a claim the enforcement of which depends on the doctrine of part performance) does not participate in competitions of priorities with equitable interests which have been acquired in good faith, for valuable consideration and in a manner which can be clearly shown without obtaining any decision of the court upholding them. In the Latec case, the mere equity was the claim of a mortgagor whose land had been sold and transferred in purported exercise of a mortgagee’s power of sale to recover the land from the purported purchaser on the basis that there had been a fraudulent exercise of the power of sale. The significance of the difference between the views of Kitto J and Taylor J about the standing of an equitable estate which is subject to an impediment which there is a claim in equity to remove need not be established now and may not be great. Equitable estates which have difficulties of that kind can be left out of consideration for my present purposes. In my opinion each of their Honours’ views shows clearly that an equity which requires the assistance of a court if it is to be established at all does not enter into a competition of priorities with an equitable interest which was obtained for value and without notice of it. A claim which depends on success under the doctrine of part performance is in my view a mere equity of the same kind as the illustration given of a claim which depends on success in a suit for rectification. Conclusions: I am of the view that the claim of the plaintiffs should be classified as a mere equity, and does not have any standing in the competition of priorities with the equitable interest of Easyfind. But for this [21.35]

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Part 5: (A) Priority Regimes and (B) Commercial Dealings as Security Interests Over Property

Double Bay Newspapers Pty Ltd v AW Holdings Pty Ltd cont. matter, the plaintiffs should in my view have succeeded. If the plaintiffs had actually obtained a properly [426] constituted and evidenced equitable mortgage in accordance with statute law, their reliance on the state of the register as shown by search, and the contribution made by Easyfind’s not having registered its mortgage or lodged a caveat to Mr Yannacoulacos’ opportunity to cheat the plaintiffs would have required the priority in point of time to be reversed in favour of the plaintiffs. APC, which did not rely on a search or know of the state the register, was not influenced by Easyfind’s inaction and does not have a claim to higher priority than Easyfind. Easyfind’s priority in point of time remains undisturbed. I propose to give judgment for the first defendant.

[21.40]

1.

Notes&Questions

Why was the plaintiff’s claim classified as a “mere equity”? What were the implications of this classification? What is the distinction between a mere equity and an equitable interest? The distinction was explained as follows by Bryson J in Cranston v CBFC Ltd (unreported, SC(NSW), 11 June 1993) at 28–29: Classification of equities as equitable estates, equitable interests, personal equities and mere equities, and their allocation according to their classifications in competitions of priorities are beset with lack of well-settled terminology. No clear and reliable categorisation of the interests protected by equitable remedies for the purpose of ranking them in competitions of priorities has emerged. One categorisation which must be considered is the place of the equity in a division between property rights on the one hand and personal rights on the other hand. No claim protected by an equitable remedy can be completely satisfactorily described as a property right, although for many of them the way in which they are established is so unmistakable and their claim to protection by courts on well-settled principles is so clear that there is no real difficulty in treating them as property rights and in appraising the position in conscience of people who take interests in conflict with them on the basis that they should have recognised the existence of those rights. Many equities protected by equitable remedies are not highly concrete, and the grant of equitable remedies often depends on an appraisal of the behaviour and merits of the persons involved and on judicial discretions which lead to a range of reasonably available conclusions. For these it would be far less easy to demonstrate that a person with a competing interest knew the relevant facts which gave rise to them and ought to have interpreted them correctly so as to perceive that someone else would get an equitable remedy in respect of them. These may be classified as personal rights, equities or mere equities, although there is no well-accepted terminology.

In Pelenoy Pty Ltd v Donovan Oates Hannaford Mortgage Corp [2004] NSWSC 4 Barrett J rejected the submission that an equitable chargee never had, in relation to the property, more than a “mere equity” because its position was always one in which it was dependent on the assistance of the court to obtain relief in respect of the property, remarking that if “that submission … were correct, there could never be an equitable interest as such, since all such interests are, of their nature, the product of equity’s willingness to provide relief in personam” (at [34]). As all equitable interests are by definition dependent to a greater or lesser degree on the discretion of the court, is the distinction between an equitable interest and a mere equity grounded in the likelihood that a court of equity will recognise (or not deny) an interest in property? If this 554

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distinction is not, as it appears, clear-cut, should the law continue to attempt to make distinctions of this kind? See Hepburn, “Reconsidering the Benefits of Equitable Classification” (2005) 12 APLJ 157. 2.

Does a right to rectify a contract constitute a mere equity or an equitable interest? Does your answer depend on whether or not the contract creates property rights? See Child v Dynes [1985] 2 NZLR 554. Cf Longtom Pty Ltd v Oberon Shire Council (1996) 7 BPR 14,799 at 14,814 per Young J. As to rectification see [37.20]–[37.40] (Dal Pont).

3.

In determining equitable priorities, how much weight should be accorded to a failure to caveat? Should not persons with a security interest over land be expected to lodge a caveat thereby notifying others of their claimed interest? Should it not be expected that a person who has failed to search the register should fail to do so at her or his own peril, and thereby lose priority? What practical lessons can be learned in this respect from cases such as Double Bay Newspapers?

4.

In Elderly Citizens Homes of SA Inc v Balnaves (1998) 72 SASR 210 at 229 Debelle J opined that “[t]here will be cases where it can be shown that there is no causal connection between the failure to lodge the caveat and the creation of a later interest”. In what type of case might this be so? Consider in this context the decision of the New Zealand Court of Appeal in Harris v Anais Holdings Ltd [2002] 3 NZLR 511.

[21.40]

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CHAPTER 22 Traditional Forms of Security [22.05]

INTRODUCTION .................................................................................................... 557

[22.10]

SECURITY OVER PROPERTY ................................................................................... 559 [22.20] [22.30] [22.35] [22.40] [22.75]

[22.95]

Legal mortgage – security interest arising by transfer of legal title ........................................................................................................ 560 Equitable mortgage and charge – security interests arising by agreement ........................................................................................... 562 Equitable mortgage ............................................................................ 562 Equitable charge ................................................................................. 563 Pledge – security interest arising consensually by possession ........ 569

SECURITY INTERESTS ............................................................................................. 570 [22.95]

Palgo Holdings Pty Ltd v Gowans ........................................... 570

Extracts from Everett & McCracken, Financial Institutions Law, Ch 14.

INTRODUCTION Meaning of security outside the scope of PPSA [22.05] The term “security” has traditionally been used loosely in Australia, its meaning

varying according to its context. 1 Prior to the implementation of the Personal Property Securities Act 2009 (Cth) (PPSA) on 30 January 2012 2 a broad distinction was typically drawn between: • a right over or an interest in property of the contracting party (or of a third party); and • a contractual right enforceable against the contracting party personally (or a third party). The first of these meanings represented the strict legal view of security at common law. Thus, where a financial institution was recognised as having a security at common law, it was entitled to some interest in the property of the contracting party (or of a third party) to which recourse might be had to satisfy the debt, in addition to the contractual right to sue the contracting party for default under the terms of the particular facility. There were, and continue to be, essentially four forms of security at common law: 3 • mortgage (see [22.20]-[22.35]); 1

General Motors Acceptance Corporation Australia v Southbank Traders Pty Ltd (2007) 234 ALR 608 at 612. See also Handevel Pty Ltd v Comptroller of Stamps (Vic) (1985) 157 CLR 177 at 196-197.

2 3

See [23.10]. Statute may create a specific security interest, which may change or at least blur these traditional security interests. Under Real Property Act 1900 (NSW) s 57(1), the only form of legal mortgage that can be created is that which complies with the various statutory requirements. Although described as a legal mortgage, it is in fact rather a statutory interest which operates as a charge (see [22.25]). For legislation in other States, see Land Title Act 1994 (Qld), s 74; Real Property Act 1886 (SA), s 132; Land Titles Act 1980 (Tas), s 73; Transfer of Land Act 1958 (Vic), s 74; Transfer of Land Act 1893 (WA), s 106. See [22.20]. [22.05]

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• charge (see [22.40]-[22.70]); • pledge (see [22.75]-[22.90]); and • lien (see [24.95]-[24.120]). Despite the implementation of the PPSA, it remains important to understand the meaning of each of the common law forms of security and the range of remedies they each confer on the creditor. These forms of security are available in circumstances which fall outside the scope of the PPSA. The property over which security is sought may, for example, not be personal property for the purposes of the PPSA, either because it is land or because statute has declared it not to be personal property for these purposes. 4 Alternatively, the particular interest in relation to the particular collateral may be excluded by the PPSA. 5 The statute, for example, is stated not to apply to a lien arising by operation of the general law 6 (PPSA s 8(1)(c)). The operation of the common law forms of security outside the scope of the PPSA (and beyond the statutory transitional period) 7 is specifically recognised in the Corporations Act 2001 (Cth). Sections 9, 51A of the Corporations Act 2001 define “security interest” as meaning “(a) a PPSA security interest; 8 or (b) a charge, lien or pledge”. “Charge” is itself defined to include a mortgage (Corporations Act 2001 s 9). Perhaps more controversially the common law forms may also be argued to remain important in terms of identifying whether a particular transaction is within the scope of the PPSA. The PPSA does not abolish the mortgage, charge and pledge over personal property. While it clearly attributes to them new statutory consequences and lays down different criteria for their effectiveness and mode of operation, it explicitly regards them nonetheless as examples of transactions that amount to a statutory security interest (PPSA s 12(2)). 9 Furthermore, although PPSA Ch 4 confers on a security interest various statutory remedies (see [13.450]-[13.480] (Everett & McCracken)), it permits parties to contract out in certain circumstances and specifically states that the PPSA does not “derogate from” remedies otherwise available (s 110; see [13.450] (Everett & McCracken)). Hence an understanding of the nature of the particular security interest is critical to drafting contractual remedies in the security agreement. The second meaning of security suggested above is a more general usage often heard in the commercial context to refer to some right given by contract to support the original promise by the contracting party to perform a particular obligation. It may be given either by the contracting party itself in the form of, for example, a set-off (see [14.830] (Everett & McCracken)) or a negative pledge (see [14.920] (Everett & McCracken)), or by a third party in the form of a guarantee (see [14.1000] (Everett & McCracken)). This additional contractual 4 5 6 7 8

Personal Property Securities Act 2009 (Cth), s 10 “personal property”. Personal Property Securities Act 2009 (Cth), s 8. See also s 12(5), (6). This is subject, however, to Personal Property Securities Act 2009 (Cth), s 8(2), (3). The Act may give a lien priority over a PPSA security interest (PPSA, s 8(2), Item 1, s 73). See Appendix to Part 4. A “PPSA security interest” is defined as “a security interest within the meaning of the Personal Property Securities Act 2009 and to which that Act applies, other than a transitional security interest within the meaning of that Act” (Corporations Act 2001 (Cth), s 51).

9

See, for example, i Trade Finance Inc v Bank of Montreal 2011 SCC 26, [2011] 2 SCR 360 where the Supreme Court of Canada identified the transaction as a pledge and hence a security interest. Quaere, however, whether the transaction would have been regarded as a pledge in Australia as it was taken over shares which are choses in action and hence incapable of being possessed at common law (see [22.85]).

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right is only as valuable as the creditworthiness of the person who grants it, for it merely gives the financial institution a right to sue under that particular contract and confers no right over the property of that person. The discussion of the nature of security in this chapter is divided into two parts: the first part deals with security over property and the remedies offered by that security; the second with the additional contractual rights. This chapter focuses simply on explaining the different forms of security. It does not discuss the formalities relating to their creation.

SECURITY OVER PROPERTY Classification of property at common law [22.10] As a matter of common law classification, property is generally divided into two

broad categories: real property (being land, which at common law includes fixtures) 10 and personal property (being all other property, including property expressly designated by statute as personal property, such as copyright, patent rights, registered trade marks 11 and shares). 12 Personal property can be further broken down into that property which is tangible (choses in possession) and that which is intangible (choses in action). 13 Failure to appreciate this classification caused security at common law to be invalidated. Hence, for example, financial institutions which purported to take a “pledge over shares” found their security ineffective as a pledge. A share as a bundle of rights is a chose in action. A pledge is a possessory security, requiring the transfer of physical possession (see [22.75]). It is conceptually impossible to create a pledge over a chose in action. 14 This language of chose in possession and chose in action is no longer used in the Personal Property Securities Act 2009 (Cth) (PPSA), which has introduced a new classification. Nonetheless, the common law classification remains important, both for security dealings outside the scope of PPSA as well as for identifying transactions amounting to a security interest within the PPSA. 15

Security interests at law and in equity [22.15] Security at common law may be either legal or equitable. The classification describes

the characteristics of the interest and, in the absence of statutory direction, it assists in determining its priority. The reason for the two types of interest is historical. 16 Equity has had a considerable role in the development of security. For example, a legal mortgage may require compliance with certain formalities in order to be valid. Where an element is lacking, equity may nonetheless be prepared to recognise the existence of a mortgage if the parties have intended to create a mortgage and have entered into a valid 10 11

Compare Personal Property Securities Act 2009 (Cth), s 10 “land”. Copyright Act 1968 (Cth), s 196; Patents Act 1990 (Cth), s 13; Trade Marks Act 1995 (Cth), s 21.

12 13

Corporations Act 2001 (Cth), s 1070A. Technically, choses in possession and choses in action fall under the rubric of chattels personal which are contrasted with chattels real, the latter being leasehold interests in land which historically were treated as personal rather than real property. See McCracken, “Security over Shares: Recent Decisions in Singapore” (1993) 4 JBFLP 232. See [22.05]. For a more detailed discussion, see Meagher, Heydon and Leeming, Meagher, Gummow and Lehane’s Equity Doctrines and Remedies (4th ed, Sydney: LexisNexis Butterworths, 2002), pp 3-39.

14 15 16

[22.15]

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contract for that purpose. Equity looks on as done that which ought to be done. 17 The mortgage in equity may be weaker than that at law in that it may lose priority to a legal interest acquired bona fide for value over the same property but it gives protection against those who have no security at all and of course against debtors themselves. The equitable charge as a security interest is purely the creation of equity and, like the equitable mortgage, is based on a valid contract between the parties to create an interest in property in respect of which equity will order specific performance. The pledge (see [22.75]) and lien (see [22.95]) are legal interests, being creatures of the common law, although in certain circumstances equity has recognised the existence of an equitable lien. 18 Legal mortgage – security interest arising by transfer of legal title

Nature of legal mortgage [22.20] A legal mortgage is created by a transfer of the legal title to property owned by the

mortgagor to the mortgagee pursuant to an agreement which is in substance 19 that the transfer is not to effect an outright disposal of the property but to be simply a means of assuring the mortgagee that the mortgagor will perform its obligations. 20 The effect of this agreement is that although the legal title is vested by the transfer in the mortgagee, making it at law the owner of the property, its rights of ownership are qualified. This intention that the transfer is only by way of security has two fundamental consequences: • The rights of ownership are limited to a specific period. Hence, the transfer will be made on the express or implied basis that, upon payment of the debt or performance of the obligation which the mortgage secures by an agreed date, the title is to be retransferred to the mortgagor by the mortgagee. • Equity recognises that although the legal title is vested in the mortgagee, the mortgagor has, by virtue of its right to call for a retransfer of title, retained a significant interest in the property. Equity in fact still regards the mortgagor as the owner. The interest that equity affords the mortgagor is known as the equity of redemption. Equity protects this interest in three ways, which are designed to prevent the mortgagee from taking unfair advantage of its legal status as owner: (1)

17

18

Although the mortgage document may state that payment of the debt which the mortgage secures is to be made by a certain date (known as the contractual date of redemption) 21 and that failure to repay by that date will place the mortgagor in default and entitle the mortgagee to disregard its contractual obligation to retransfer, equity will still in certain circumstances permit the mortgagor to make payment after this contractual date and enable the mortgagor to reclaim the property. Equity will permit This is one of the “maxims of Equity”. They embody the fundamental principles upon which equity operates. See Meagher, Heydon and Leeming, Meagher, Gummow and Lehane’s Equity Doctrines and Remedies (4th ed, Sydney: LexisNexis Butterworths, 2002), Ch 3. Sykes and Walker, The Law of Securities (5th ed, Sydney: Law Book Co, 1993), pp 199-206.

19 20

Gurfinkel v Bentley Pty Ltd (1966) 116 CLR 98. See, for example, Handevel Pty Ltd v Comptroller of Stamps (Vic) (1985) 62 ALR 204 at 214 where the High Court of Australia referred to the classic definition in Santley v Wilde [1899] 2 Ch 474 at 474 of a mortgage as “a conveyance of land or an assignment of chattels as a security for the payment of a debt or the discharge of some other obligation for which it is given”.

21

The mortgagor can only redeem earlier if there is an agreement or statutory right to that effect. See, for example, Conveyancing Act 1919 (NSW), s 93.

560

[22.20]

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such payment or performance provided that it is tendered within a reasonable time. 22 This later date is known as the equitable date of redemption. (2)

Equity will render void any attempt by the mortgagee to drive an unfair bargain, by making, for example, the price for redemption more than simply payment of principal, interest and costs: it is the essence of a mortgage that in the eye of a Court of Equity it should be a mere security for money, and that no bargain can be validly made which will prevent the mortgagor from redeeming on payment of what is due, including principal, interest, and costs. He may stipulate that he will not pay off his debt, and so redeem the mortgage, for a fixed period. But whenever a right to redeem arises out of the doctrine of equity, he is precluded from fettering it. This principle has become an integral part of our system of jurisprudence and must be faithfully adhered to. 23

Placing a fetter, or as it is technically known, placing a “clog on the equity of redemption” 24 can be done in a number of ways; for example, by a brewery company, which has taken a mortgage over a hotel, requiring the owners to enter into an agreement obliging them to obtain their supplies only from that brewery company. 25 Although this intervention by equity may seem to be an interference with the parties’ freedom of contract, equity is not purporting to rewrite the bargain but rather to protect the mortgagor in limited circumstances, namely where he or she has entered into a bargain which is unfair or unconscionable. 26 (3)

Equity will also render void any attempt by the mortgagee to impose a penalty on the mortgagor; for example, by making it a term of the mortgage that the rate of interest on the loan is to be increased in the event of default by the mortgagor. The terms of the mortgage, like those of any contract, are also subject to legislative control under general provisions such as those contained in the Competition and Consumer Act 2010 (Cth) and the Contracts Review Act 1980 (NSW). 27

Property subject to a legal mortgage [22.25] As the legal mortgage is a security interest that was created and developed by the

common law, it is only available to secure property that is recognised by the common law. Thus, property which is recognised in equity only cannot be protected by a legal mortgage. Rather, it can be protected by an equitable mortgage or an equitable charge (see [22.30]). Parliament has also intervened by statute to restrict the availability of certain types of property which would otherwise have been available. Land held under the Real Property Act 1900 (NSW) (Torrens title land) is not, as a general rule, subject to a traditional legal mortgage because under the terms of the legislation the security interest, although described as a 22 23

24 25 26 27

In most cases the mortgagor will have to give six months’ notice of intention to redeem or pay six months’ interest (Smith v Smith [1891] 3 Ch 550). Kreglinger v New Patagonia Meat and Cold Storage Co Ltd [1914] AC 25 at 38. For a recent discussion of its application in the context of a securities lending agreement, see Beconwood Securities Pty Ltd v Australia and New Zealand Banking Group Ltd (2008) 66 ACSR 116; Lift Capital Partners Pty Ltd v Merrill Lynch International (2009) 253 ALR 482. For more detailed discussion see Butt, Land Law (6th ed, Sydney: Lawbook Co., 2010), pp 592-599. Toohey v Gunther (1928) 41 CLR 181. Kreglinger v New Patagonia Meat and Cold Storage Co Ltd [1914] AC 25. See also Wily v Endeavour Health Care Services Pty Ltd [2003] NSWCA 321. See Chapter 6 Allocation of Risk (Everett & McCracken). [22.25]

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“mortgage” operates as a charge. 28 The significance of its operation as a charge is that title to the land does not pass to the mortgagee. This exclusion is significant in practice since a substantial majority of separate titles to land in New South Wales are held under Torrens title. However, the courts have been influenced in their treatment of Torrens title mortgages by the position at common law. While the mortgagor retains legal title by reason of that title being registered in the mortgagor’s name, and thus technically has no equity of redemption, the mortgagor’s position is perceived as similar in substance to that of a mortgagor of land held under old system title, and he or she too is afforded the protection of equity once the contractual date of redemption has passed. 29 Equitable mortgage and charge – security interests arising by agreement

Nature of equitable mortgages and charges [22.30] Equitable mortgages and charges are interests that are recognised in equity as distinct

from at law. They are created pursuant to a contract and are recognised as giving rise to an interest in the property where the contract is one which equity will enforce. Equitable mortgage

Nature of equitable mortgage [22.35] Equitable mortgages arise where the intention of the parties is to create a security

interest but that interest does not amount to a legal mortgage, either because the subject matter of the proposed mortgage would not be recognised at law or because the necessary formalities have not been observed. The reason for equity’s intervention is to ensure that the parties who have struck a bargain are bound by that bargain. In the terms of the familiar maxim: equity looks on as done that which ought to be done. As in the case of the legal mortgage, the purpose behind the equitable mortgage is to effect a security transaction and not to dispose outright of the interest. It too does not purport to extinguish either technically (as the legal mortgage does) or in substance all the rights of the mortgagor. Thus, even where an equitable mortgage is created, there remains in the mortgagor an equity of redemption; that is, the right protected by equity to have the property returned on due performance of the obligation secured. An equitable mortgage is generally recognised as arising in four situations: (1)

where there is an agreement (express or implied) to create a mortgage, whether legal or equitable; 30

(2)

where the documents of title to certain types of property are deposited with the lending institution;

(3)

where the mortgage to be created is over property to be acquired in the future; and

(4)

where the property in question is equitable in nature, such as an interest in a partnership.

28

30

Real Property Act 1900 (NSW), s 57(1). For legislation in other States, see Land Title Act 1994 (Qld), s 74; Real Property Act 1886 (SA), s 132; Land Titles Act 1980 (Tas), s 73; Transfer of Land Act 1958 (Vic), s 74; Transfer of Land Act 1893 (WA), s 106. Re Forrest Trust [1953] VLR 246. See also Trust Agency Company v Markwell (1874) 4 QS Ct 50; Lyons v Lyons [1967] VR 169; MBF Investments Pty Ltd v Nolan [2011] VSCA 114. See Pico Holdings Inc v Wave Vistas Pty Ltd (2005) 214 ALR 392 at 407.

562

[22.30]

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Neither of the transactions outlined in (1) and (2) are enforceable at law as a legal mortgage since they do not comply with the formal requirements for execution and therefore do not confer a transfer of legal title. The transactions noted in (3) and (4) also fail to be enforceable at law. The transaction in (3) could only be valid at law if and when the mortgagor acquired the future property and subsequently transferred legal title to it to the mortgagee. Equity by contrast, acting on the intention of the parties, can provide protection through an equitable mortgage from the date at which the mortgagor acquires the property, without the need for any act of appropriation. The situation in (4) arises simply because the property involved is equitable. A common form of security interest is the equitable mortgage over land created by the deposit of title deeds. 31 Since it is created by the deposit and requires no document, it has the benefit of not attracting stamp duty and is neither susceptible to nor capable of registration under the provision for the registration of instruments in conveyancing legislation. In the finance context, bridging finance is often initially secured by a deposit of share certificates in unlisted companies. It was recognised at common law that an equitable mortgage over certificated shares may be created through delivery of the share certificates together with blank transfers. 32 An equitable mortgage over such property would now be categorised as a “security interest” under the Personal Property Securities Act 2009 (Cth) (PPSA). 33 Equitable charge

Nature of equitable charge [22.40] The equitable charge, like the equitable mortgage, is the creation of equity and arises

under an agreement which equity will specifically enforce. It differs, however, from the equitable mortgage because the agreement does not entail a transfer to the chargee of either title to the property or an existing interest in the property. Rather, the agreement creates new rights short of ownership over the property in the event of default by the chargor under the terms of the facility, such as a right to realise the property. 34 Upon satisfaction of the obligation which the charge secures, the rights of the chargee are automatically extinguished. Unlike the position regarding legal and equitable mortgages, there is no need for the chargee to retransfer any property since upon execution of the charge none was transferred. A charge is frequently described as the appropriation of property for the satisfaction of an obligation. 35 On a traditional analysis the charge is generally regarded as conferring on the chargee a proprietary interest from the date of its creation, or, where it is a floating charge (see [22.50]), from the date of its crystallisation (see [22.70]). Charges themselves may be either fixed charges (see [22.45]) or floating charges (see [22.50]). The characterisation of a particular charge is seemingly a question of law to be determined by the court: see Agnew v Commissioner of Inland Revenue [2002] 1 NZLR 30 at 31 32 33 34 35

See Theodore v Mistford Pty Ltd (2005) 221 CLR 612; [2005] HCA 45. Harrold v Plenty [1901] 2 Ch 314. See also Beconwood Securities Pty Ltd v Australia and New Zealand Banking Group Ltd (2008) 66 ACSR 116. See [23.40]. Swiss Bank Corp v Lloyds Bank Ltd [1982] AC 584 at 594-595. See also Southern Wine Corp Pty Ltd (in liq) v Frankland River Olive Co Ltd (2005) 31 WAR 162; Roberts v Investwell Pty Ltd (in liq) (2012) 88 ACSR 689. See, for example, Swiss Bank Corp v Lloyds Bank Ltd [1980] 2 All ER 419 at 425 per Buckley LJ; Re Cosslett (Contractors) Ltd [1998] Ch D 495 at 508 per Millett LJ; Beconwood Securities Pty Ltd v Australia and New Zealand Banking Group Ltd (2008) 66 ACSR 116 at 124. [22.40]

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44, on appeal to the Privy Council from the New Zealand Court of Appeal; National Westminster Bank plc v Spectrum Plus Ltd [2005] 2 AC 680; [2005] 4 All ER 209. 36

Nature of fixed charge [22.45] A fixed charge recognised by equity is a charge which attaches to the property over

which it is expressed to extend from the moment of its creation, thus enabling the chargee, on a traditional analysis, to claim an interest in that property. Although the rights of the chargee to seize the property cannot arise until default under the agreement, the chargee is able to restrain the chargor from disposing of the property. The chargor’s freedom of dealing is curtailed by the contract, which will specifically prohibit the chargor from disposing of the property. This contractual prohibition may be enforced by equity through the grant of an injunction to prevent breach of the contract.

Nature of floating charge [22.50] As the name suggests, the floating charge is an interest which floats over the assets

that it is intended to secure. It was described by the House of Lords in Illingsworth v Houldsworth [1904] AC 355 (at 358) in the following terms: [It is] ambulatory and shifting in its nature, hovering over and so to speak floating with the property which it is intended to affect until some event occurs or some act is done which causes it to settle and fasten on the subject of the charge within its reach and grasp.

This has been echoed by the House of Lords in National Westminster Bank plc v Spectrum Plus Ltd [2005] 2 AC 680; 4 All ER 209 (at 247), where Lord Scott described its essential characteristic in the following terms: the essential characteristic of a floating charge, the characteristic that distinguishes it from a fixed charge, is that the asset subject to the charge is not finally appropriated as a security for the payment of the debt until the occurrence of some future event. In the meantime, the chargor is left free to use the charged asset and to remove it from the security.

Development of floating charge [22.55] The floating charge originated in England in the late 19th century as a response to the

needs of companies. 37 The then recognised forms of security interests such as pledge, fixed charge and mortgage were inefficient from the company’s point of view since the form of these securities gave control of the assets to the lender and prevented the company from dealing with them. While courts of equity had been prepared both to reduce the formalities attaching to the creation of an interest and to recognise lesser interests than title or possession as being enforceable by way of security, these interests nonetheless had effectively necessitated the “freezing” of the asset. This meant that the company was unable to give security over its circulating assets (such as stock in trade) which generally represented a very substantial proportion of the total assets of the company. The lenders to the company, although initially prepared to advance credit simply against bonds, which meant that in the event of a 36

The High Court of Australia has not yet had the opportunity to consider this line of authority. Nonetheless, dicta of the New South Wales Supreme Court and the Full Federal Court of Australia suggest initial approval of this approach. See, respectively: B & B Budget Forklifts Pty Ltd v CBFC Ltd (2008) 216 FLR 294; [2008] NSWSC 271 at [30]-[43]; Bowesco Pty Ltd v Zohar (2007) 61 ACSR 99.

37

See Pennington, “The Genesis of the Floating Charge” (1960) 23 MLR 630. See also Agnew v Commissioner of Inland Revenue [2002] 1 NZLR 30.

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liquidation their investment would be returned prior to that of shareholders but on a pro rata basis with other external creditors, had gradually come to require more security as they invested longer term. The opportunity for the courts to strike a balance between the company and its potential financiers came with the House of Lords decision in Holroyd v Marshall (1862) 10 HLC 191; 11 ER 999. The Holroyds had advanced credit to Taylor (a tenant of a cloth mill) on the security of a mortgage which was expressed to cover (at 999): all machinery, implements, and things which, during the continuance of this security, shall be fixed or placed in or about the said mill, buildings, and appurtenances, in addition to or in substitution for the said premises, or any part thereof …

The Holroyds subsequently purported to enforce this security by selling all the original and after-acquired machinery. Their right to do so was challenged by the sheriff acting on behalf of a judgment creditor of Taylor, who took forcible possession of the after-acquired machinery and resold it. The issue before the House of Lords was whether the Holroyds’ mortgage could extend to cover not only the machinery that existed at the date of execution of the mortgage, but also that which was subsequently acquired. It was quite clear that at law the transfer was void because at the date of execution the new machinery had not yet been acquired. The new machinery could have only been transferred at law if there had been an appropriation by the mortgagee once it came into the mortgagor’s possession. Counsel for the sheriff claimed that equally in equity the mortgagee would need to take possession or do some other act equivalent to the taking of possession before equity would be prepared to recognise the alleged right of the mortgagee. The House of Lords rejected this argument. In the words of Lord Westbury (at HLC 211; ER 1007): [I]f a vendor or mortgagor agrees to sell or mortgage property, real or personal, of which he is not possessed at the time, and he receives consideration for the contract, and afterwards becomes possessed of property answering the description in the contract, there is no doubt that a Court of Equity would compel him to perform the contract, and that the contract would, in equity, transfer the beneficial interest to the mortgagee or purchaser immediately on the property being acquired.

The reason for equity’s intervention was to give effect to the intention of the parties. By acquiring the goods, the mortgagor was doing an act which should have bound his conscience to the agreement. Holroyd v Marshall concerned the establishment of an equitable mortgage. However, the decision was crucial in the development of the floating charge because of its recognition that equity would recognise the underlying contract and enforce it against assets which were to be subsequently acquired. It mattered not whether that contract was one intended to transfer ownership or to create rights on default. In a series of cases in the late 19th century, the validity of the floating charge was upheld in England, culminating in 1903 in Re Yorkshire Woolcombers Association Ltd [1903] 2 Ch 284 38 where the Court of Appeal grappled with the difficulty of defining it. While making it clear that he was not claiming to lay down an exhaustive definition, Romer LJ identified three characteristics which he thought would result in a security interest being classified as a floating charge (at 295): (1) If it is a charge on a class of assets of a company present and future; 38

The decision was affirmed by the House of Lords in Illingsworth v Houldsworth [1904] AC 355. [22.55]

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(2) if that class is one which in the ordinary course of the business of the company, would be changing from time to time; and (3) if you find that by the charge it is contemplated that, until some future step is taken by or on behalf of those interested in the charge, the company may carry on its business in the ordinary way as far as concerns the particular class of assets I am dealing with.

It is this third characteristic which is now regarded as the critical feature. 39 In Agnew v Commissioner of Inland Revenue [2002] 1 NZLR 30 (at 37), the Privy Council, tracing the history of the floating charge, noted that the English Insolvency Law Review Committee in 1982 had warned against underestimating the importance of this security in English commercial life. 40 Although there was no reason to believe that it had any less importance in Australia, the Personal Property Securities Act 2009 (Cth) has curtailed its operation for transactions falling within the scope of the legislation, seemingly on the grounds that it is “out of keeping with the functional approach to secured transactions”. 41

Attachment of floating charge prior to crystallisation? [22.60] In attempting to describe the nature of the charge in Re Yorkshire Woolcombers

Association Ltd [1903] 2 Ch 284, Romer LJ did not focus on the question of the moment at which the charge would attach. While it is clear that it will attach, or (in the technical usage) crystallise (see [22.70]) upon the occurrence of certain events, there continues to be some dispute as to whether it may attach prior to crystallisation. Traditionally, there have been basically two possibilities. Either the charge attaches to the assets from the moment of execution of the agreement and the chargor is given a licence to deal with those assets in the ordinary course of business, or it does not attach until the moment of crystallisation. Although Romer LJ did not discuss the point, the other two judges who concurred on the existence of the charge, adopted the analysis of immediate attachment coupled with a licence. However, six years later the Court of Appeal in Evans v Rival Granite Quarries Ltd [1910] 2 KB 979 had to consider this point. Vaughan Williams LJ, who had heard the earlier case, reaffirmed his analysis but the majority clearly rejected the existence of a licence. Lord Justice Buckley explained the alternative analysis as follows (at 999): A floating security is not a specific mortgage of the assets, plus a licence to the mortgagor to dispose of them in the course of his business, but is a floating mortgage applying to every item comprised in the security, but not specifically affecting any item until some event occurs or some act on the part of the mortgagee is done which causes it to crystallise into a fixed security.

The debate has continued and the position in Australia has not yet been conclusively resolved at common law. 42 39 40 41

42

566

See Agnew v Commissioner of Inland Revenue [2002] 1 NZLR 30 at 38; National Westminster Bank plc v Spectrum Plus Ltd [2005] 2 AC 680; 4 All ER 209 at 245. Report of the Review Committee on Insolvency Law and Practice (1982 Cmnd 8558) at para 1525 (the Cork Committee). See Commonwealth Attorney-General’s Department, Personal Property Securities Bill 2008 Commentary May 2008, available at http://www.ag.gov.au under “Consultations Reforms & Reviews” and then “Personal Property Securities Reform” and “PPS Downloads” (viewed 14 September 2012). See [23.20]. See Barcelo v Electrolytic Zinc Co of Australasia Ltd (1932) 48 CLR 391; Luckins (Receiver and Manager of Australian Trailways Pty Ltd) v Highway Motel (Carnarvon) Pty Ltd (1975) 133 CLR 164; United Builders Pty Ltd v Mutual Acceptance Ltd (1980) 144 CLR 673; compare Landall Holdings Ltd v Caratti [1979] WAR 97; Hamilton v Hunter (1982) 7 ACLR 295; Re Margart Pty Ltd (in liq) (1984) 9 ACLR 269. More recent judicial authority such as Atkins v Mercantile Credits Ltd (1985) 10 ACLR 153; Tricontinental Corp Ltd v Commissioner of [22.60]

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The divergence in views may be explained, at least in part, by the need to strike a balance between the chargee who wants security and the company which wants to be able to deal with the assets in order to have maximum flexibility in trading. In preferring the licence theory the balance appears to be shifting in favour of the chargee. There has, however, been a failure to appreciate that on the alternative theory the chargee is also protected from the date of execution by, for example, the issuing of an injunction to prevent a company from dealing otherwise than in its ordinary course of business, 43 even though the earliest moment at which an equitable interest in the property could come into existence would be crystallisation.

Disposal of assets in the ordinary course of business [22.65] Until crystallisation the chargor is allowed by the contractual terms of the floating

charge to deal with the assets subject to the charge provided that the dealings are confined to those “in the ordinary course of business”. 44 This power is extensive in ambit but clearly there are limits to it. The point was considered by the New South Wales Court of Appeal in Reynolds Bros (Motors) Pty Ltd v Esanda Ltd (1983) 8 ACLR 422. 45 The narrowest formulation was that adopted by Glass JA who thought that the only question for consideration was whether the transaction in issue was undertaken by the chargor in the course of maintaining its business. Priestley JA would have included those transactions made for the purpose of carrying on the business or, and at this point he extended the formulation of Glass JA, those transactions made to “achieve ends not disparate from those of the business activity”. Mahoney JA was reluctant to define the limits of the power but made it clear that the term “ordinary” could not be restricted to what as a matter of fact was ordinarily done in the course of business of that particular company (at 428): Transactions will be within this principle [in the ordinary course of the business] even though they be, in relation to the company, exceptional or unprecedented. 46

43

44

45 46

Taxation [1988] 1 Qd R 474; Re Bartlett Estates Pty Ltd [1989] 2 Qd R 175; Lyford v Commonwealth Bank of Australia (1995) 130 ALR 267; Wily v St George Partnership Banking Ltd (1997) 150 ALR 329; R v Jackson (2005) 194 FLR 215 and B & B Budget Forklifts Pty Ltd v CBFC Ltd (2008) 216 FLR 294; [2008] NSWSC 271 (but compare Electrical Enterprises Retail Pty Ltd v Rodgers (1989) 15 NSWLR 473 at 496 and Cinema Plus Ltd (admins apptd) v Australia and New Zealand Banking Group Ltd (2000) 35 ACSR 1 (at 8) where Spigelman CJ found it unnecessary to consider the point) and academic opinion favour Buckley LJ’s analysis; see, for example, Gough, “The Floating Charge: Traditional Themes and New Directions”, in Finn (ed), Equity and Commercial Relationships (Sydney: The Law Book Company Limited, 1987), pp 252-259; Everett, The Nature of Fixed and Floating Charges as Security Devices (Sydney: Centre for Commercial Law & Applied Legal Research, Monash University, 1988), pp 13-26. See also the further argument at common law that the interest of the chargee should be regarded as an “interest in a fluid fund of assets”, drawing on the analogy of a beneficiary’s interest in a trust fund (Goode, Commercial Law (3rd ed, London: Penguin Books 2004), pp 678-679). Atkins v Mercantile Credits Ltd (1985) 10 ACLR 153; Re Woodroffes (Musical Instruments) Ltd [1986] 1 Ch 366. In Re Bartlett Estates Pty Ltd [1989] 2 Qd R 175 at 180, the Supreme Court of Queensland suggested that the chargee might be able to recover property so mishandled, at least where third parties’ rights were not affected. Re Yorkshire Woolcombers Association Ltd [1904] AC 355. For a recent discussion of the meaning of this phrase in various contexts, see Australian Receivables Ltd v Tekitu Pty Ltd (Subject to Deed of Company Arrangement) (Deed Administrators Appointed) [2011] NSWSC 1306 at [359]-[369]. See also Fire Nymph Products Ltd v Heating Centre Pty Ltd (1988) 14 NSWLR 460; Re Bartlett Estates Pty Ltd [1989] 2 Qd R 175. See also Electrical Enterprises Retail Pty Ltd v Rodgers (1989) 15 NSWLR 473 at 495. [22.65]

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Even under the narrow formulation of the test, a chargor could clearly grant security over its assets or sell part of its assets. What it certainly does not have power to do is to dispose of all its assets without replacing them by others, and thus to cease to be a going concern.

Crystallisation [22.70] Crystallisation is the technical term used to indicate that a floating charge ceases to

float and becomes a fixed charge attaching to the assets expressed to be covered by the charge. It is well established that a charge will crystallise, as a matter of operation of law, if a company goes into liquidation, if it ceases to be a going concern or if a receiver is appointed. 47 The question then arises: will mere default under the terms of the facility be sufficient? In Evans v Rival Granite Quarries Ltd [1910] 2 KB 979 it was held that the debenture holder must actually intervene. The fact that he has a right to do so is in itself insufficient. The taking of possession pursuant to a default would be sufficient because the freedom of the company to deal with its business is terminated. As one academic commentator has noted, 48 it became fashionable in England in the 1970s to set out in the contract of accommodation those events which were to cause the charge to crystallise. This approach was also adopted in Australia. The process of automatic crystallisation was not directly challenged in either England or Australia until quite recently. While as a matter of contract it was clear that it would certainly terminate the company’s right to deal with the assets, the effect on third parties had not been judicially explored. In Re Brightlife Ltd [1986] 3 All ER 673, 49 however, Hoffmann J considered (although his comments were obiter) that a floating charge could crystallise on agreement. While recognising the potential prejudice to the general body of creditors, he argued (at 680-681) that: The public interest requires a balancing of the advantages to the economy of facilitating the borrowing of money against the possibility of injustice to unsecured creditors. These arguments for and against the floating charges are matters for Parliament rather than the courts and have been the subject of public debate in and out of Parliament for more than a century. Parliament has responded, first, by restricting the rights of the holder of a floating charge, and, second, by requiring public notice of the existence and enforcement of the charge …These limited and pragmatic interventions by the legislature make it in my judgment wholly inappropriate for the courts to impose additional restrictive rules on grounds of public policy. It is certainly not for a judge of first instance to proclaim a new head of public policy which no appellate court has even hinted at before.

This view was specifically approved by the New South Wales Supreme Court in Fire Nymph Products Ltd v Heating Centre Pty Ltd (1988) 14 NSWLR 460. 50 Rogers J stated that he was firmly of the view that floating charges were a matter of contract and accordingly held that an agreement that a charge should become fixed on the occurrence of a specified event was

47 48 49

Governments Stock and Other Securities Investment Company Ltd v Manila Railway Co Ltd [1897] AC 8 1; Re Yorkshire Woolcombers Association Ltd [1904] AC 355. Gullifer, Goode on Legal Problems of Credit and Security (4th ed, London: Sweet & Maxwell, 2008), p 163. See also Re Permanent Houses (Holdings) Ltd (1989) 5 BCC 151.

50

This was affirmed by the Court of Appeal in Fire Nymph Products Ltd v Heating Centre Pty Ltd (in liq) (1992) 7 ACSR 365.

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effective. 51 However, care must be exercised by the chargee in taking action because if possession is taken prior to crystallisation, a breach of contract will be committed. 52 In recent years there has been a further attempt to expand the concept of crystallisation by providing for automatic decrystallisation, namely, for the reconversion of a charge that had crystallised into a floating charge. It has been argued that such a clause would be effective, provided that neither receivership nor liquidation had intervened, since, until the occurrence of such events, the debenture holder is in control of the assets. 53 Pledge – security interest arising consensually by possession

Nature of pledge [22.75] Although one of the oldest forms of security, the pledge has been frequently used in

modern commercial dealings. It is, for example, a form of security interest acknowledged as permitted by the regulations of Austraclear Ltd 54 over negotiable instruments lodged with it. A pledge arises when one person, described as the pledgor, delivers possession of tangible property to another, known as the pledgee, as security for a debt. 55 Its effect is to divorce from the bundle of rights that make up ownership the right of possession. The essence of the pledge is thus the fact of possession. This reflects its development in the early days of the common law. Unsophisticated in dealing with rights, the early common law was only able to protect an interest in property that was obvious to all the world. It had little difficulty in recognising that if a person was given possession by another, that person had some form of interest which required protection. The relationship that is created by delivery of possession has traditionally been classified as a contract of bailment, 56 namely, a contract under which A gives B custody of A’s goods for a particular purpose.

Meaning of possession [22.80] The fact of possession is crucial to the creation of this type of security interest. The

term “possession” has been given an extended meaning. It covers more than actual physical possession. For example, if a person pledges goods and these are deposited in a warehouse, the 51

52 53 54

55 56

Fire Nymph Products Ltd v Heating Centre Pty Ltd (1988) 14 NSWLR 460 at 471. See also Re Bartlett Estates Pty Ltd [1989] 2 Qd R 175; North Western Shipping & Towage Co Pty Ltd v Commonwealth Bank of Australia (1993) 118 ALR 453 at 457; National Australia Bank Ltd v Finlay (1995) 13 ACLC 1 at 175; B & B Budget Forklifts Pty Ltd v CBFC Ltd (2008) 216 FLR 274; [2008] NSWSC 271. Evans v Rival Granite Quarries Ltd [1910] 2 KB 979. Gullifer, Goode on Legal Problems of Credit and Security (4th ed, London: Sweet & Maxwell, 2008), p 168. See also Gough, Company Charges (2nd ed, London: Butterworths, 1996), pp 406-407. See Austraclear Regulations, reg 9. See [3.070] (Everett & McCracken). This regulation does not appear to have been changed in the wake of the Personal Property Securities Act 2009 (Cth). The current regulations date from August 2010: see http://www.asxgroup.com.au/austraclear-regulations.htm (viewed 14 September 2012). See definitions in Donald v Suckling (1866) LR 1 QB 585 at 594. See Palgo Holdings Pty Ltd v Gowans (2005) 221 CLR 249 (extracted at [22.95]), in which the High Court of Australia (at 257-258) distinguishes it from a mortgage and a lien. See also Askrigg Pty Ltd v Student Guild of the Curtin University of Technology (1989) 18 NSWLR 738. There is, however, one major difference from the standard contract of bailment; the recognition of a power to sell (The Odessa [1916] 1 AC 145, [14.760] (Everett & McCracken)). See generally Coggs v Bernard (1703) 2 Ld Raym 909; 92 ER 107 (see [11.10]) where the court identified six types of bailment. [22.80]

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necessary element of possession will be present if the pledgee has the key and thus the control of the goods. 57 It is not necessary that the pledgee should own the warehouse. At common law, the goods need not necessarily be held by an independent third party. They may even be left in the possession of the pledgor. In the 19th century case Martin v Reid (1862) 11 CB (NS) 730; 142 ER 982, A pledged to B his “horse, van, cart, and two sets of harness”. B did not have any place to store the cart and one of the sets of harness. B thus left them in the actual possession of A but on the clear understanding that B was entitled to take them whenever he pleased. It was held that there had been a sufficient delivery of possession, vesting the special property of the pledgee in B. What is essential at common law is that the character in which the pledgor holds the goods should clearly change from that of owner to that of bailee for the pledgee. 58 Although possession will normally be delivered pursuant to a contract between the parties, no right over the property will be created at common law until the delivery has been made. 59

Property subject to a pledge [22.85] The fact that the essence of this security interest is possession limits the nature of the

property that can be pledged. Only that property which is physically capable of possession is available. Property includes not simply chattels but documents of title to those chattels, for example, bills of lading. While the necessity for physical possession will exclude choses in action, documents of title which represent them are capable of being pledged. For so long as transfer of such documents of title is capable of effecting a transfer of the underlying chose in action, a pledge of the document of title will preclude other dealings with the chose in action and, in a loose sense, give rise to an effective security over that chose. 60 Negotiable instruments are the most common example (see [5.150]-[5.200] (Everett & McCracken)).

Interest of pledgee [22.90] The interest that a pledgee has in the property pledged is generally described as a

special property by reason of the existence of the power of sale. However, it does not amount to ownership, not even in part. 61 By virtue of the possession arising from this special property, the pledgee also has an action in conversion. Extract from Moore, Australian Property Law: Cases and Materials (5th ed), Ch 4.

Security interests

Palgo Holdings Pty Ltd v Gowans [22.95] Palgo Holdings Pty Ltd v Gowans (2005) 221 CLR 249; 215 ALR 253; 79 ALJR 1121; [2005] HCA 28 High Court of Australia McHUGH, GUMMOW, HAYNE AND HEYDON JJ (footnotes omitted) 57 58 59 60

Dublin City Distillery Ltd v Doherty [1914] AC 823; Askrigg Pty Ltd v Student Guild of the Curtin University of Technology (1989) 18 NSWLR 738. Dublin City Distillery Ltd v Doherty [1914] AC 823 at 852. Meyerstein v Barber (1866) LR 2 CP 38 at 51. Barclays Bank Ltd v Commissioners of Customs and Excise [1963] 1 Lloyd’s Rep 81.

61

The Odessa [1916] 1 AC 145 where the Privy Council preferred the term “special interest” as being less confusing. See also Donald v Suckling [1866] LR 1 QB 585.

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Palgo Holdings Pty Ltd v Gowans cont. Palgo Holdings Pty Ltd (which we refer to as “the lender”) carried on business in Byron Bay, New South Wales, under the name “Cash Counters Byron”. It was charged in the Local Court of New South Wales at Lismore with carrying on, between 16 October 2000 and 1 March 2001, the business of lending money on the security of pawned goods within the meaning of the Pawnbrokers and Second-hand Dealers Act 1996 (NSW) (“the 1996 Pawnbrokers Act”) whilst not being the holder of a licence under that Act. The lender was convicted in the Local Court, and fined. Its appeal to the Supreme Court of New South Wales against conviction and sentence was dismissed. Its appeal to the Court of Appeal against those orders (by leave, because the appeal was instituted out of time) was dismissed. By special leave the lender now appeals to this Court. The central issue debated in the courts below, and the only issue in the appeal to this Court, is whether the lender’s business was the business of lending money on the security of pawned goods. In particular, were the loans which it made to its customers loans on the security of “pawned goods”? The facts There was little controversy about the facts. The lender made short-term loans of small amounts. Typically, the loans were for a term of seven days. The loans were secured. Each borrower signed a document, the first part of which bore the heading “Secured Loan Agreement”, and the second part the heading “Bill of Sale/Goods Mortgage”. The first part of the document (“the Secured Loan Agreement”) recorded the amount of the loan and the date on which the principal and an agreed amount for interest were due for repayment. (In the example contained in the Appeal Book, and drawn from the evidence given at the hearing in the Local Court, the amount lent was $70 and the amount due, one week later, was $77.) The second part of the document (“the Bill of Sale/Goods Mortgage”) was made as a deed between the borrower as mortgagor and the lender as mortgagee and recorded that the parties agreed “that the terms of the bill of sale are set out in the schedule of terms attached”. The document identified certain goods as the “Mortgaged Property” and recorded the “Location of Goods” as being “In storage at mortgagors request”. More significant indications of the meaning to be attributed to “pawned”, in the expression “lending money on the security of pawned goods”, come elsewhere in the 1996 Pawnbrokers Act, particularly Pts 3 and 4. Part 3 (ss 14-27) contained provisions for the regulation of all businesses authorised by licence granted under the Act. That is, those provisions applied to both pawnbrokers and second-hand dealers licensed under the Act. Part 4 (ss 28-32) made special provisions relating to pawnbrokers. Provisions of both Parts made frequent use of the word “pawn”, or cognate terms. For example, s 15 made repeated reference to “goods offered for sale or pawn”, s 28 spoke of “an agreement by which the goods are pawned” and “the person pawning the goods”, and ss 29, 30 and 31 took the expression “pawned goods” or “pawned article” as the hinge about which their operation turned. These uses of the word “pawn”, or cognate terms, must be understood in the light of the Act’s use, elsewhere, of the expressions “pawned” or “pawned goods” in conjunction with “pledge”. That reveals that “pawn” and “pledge” were used interchangeably to describe the transaction of lending money on the security of pawned goods. It is sufficient to point to some examples of this usage. Section 28 required a pawnbroker to make certain records. That obligation was to make a record of the agreement “[a]t the time possession of goods is taken under an agreement by which the goods are pawned”. Among other things, the record had to include “the date of the pledge”, and no pledge was “validly made unless the person pawning the goods” signed the record. Sections 29 and 30 regulated the redemption of pawned goods and the sale of forfeited pledges and, apart from the heading to s 30 (“Sale of forfeited pledges”), spoke only of “pawned goods”. But s 16(1)(b) required licensees to keep [22.95]

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Palgo Holdings Pty Ltd v Gowans cont. records, including records of all transactions “for the redemption of any pawned goods, or the disposal of any forfeit pledge”. “Pawn” (and its cognate expressions) and “pledge” can thus be seen to have been used interchangeably Both “pawn” and “pledge” are words having a long-established legal meaning. That is hardly surprising when the ancient origins of such transactions are recalled. For centuries, pawn or pledge (the terms are used interchangeably) has been recognised as one class of bailment of goods. It was treated as such in Roman law. This understanding of pawn or pledge was established very early in the common law and was reflected in the writings of the great commentators. It underpinned the way in which legislation regulating the activities of pawnbrokers was framed in Great Britain, in the Australian colonies and later in the Australian States. Commentators and the courts have long recognised that pawn or pledge is “a bailment of personal property, as a security for some debt or engagement”. They have identified such a transaction as distinct and different from mortgage where “the whole legal title passes conditionally to the mortgagee”. This distinction was sometimes expressed in terms of the difference between the “special property” of the pledgee and the “general property” which remained in the pledgor. The “special property” of the pledgee was described as the right to detain the goods for the pledgee’s security and “is in truth no property at all”. That “special property” depends upon delivery of possession, whereas in the case of a mortgage of personal property the right of property passes by the conveyance and possession is not essential to create or support the title. It has also long been recognised that pawn and pledge must also be distinguished from lien. “One who has a lien has only a right of detaining the res until the money owing is paid: a lien disappears if possession is lost, and there is no right of sale”. A lien is merely a personal right and cannot be taken in execution; a pledge creates an interest in the pledgee that can be seized in execution. Nothing in the text of the 1996 Pawnbrokers Act provides a foothold for arguing that “pawned goods” include goods that are the subject of other forms of security transaction. On the contrary, the text of the legislation, read in the context provided by the history of this kind of legislation, reveals that those who drafted the 1996 Pawnbrokers Act used one of the known “building blocks of the law of property” when using the expression “pawned goods”. “Pawn” and “pledge” refer to a bailment of personal property as security for a debt. That is a transaction which is distinct from a chattel mortgage and the distinction is not to be elided by treating one kind of transaction as being subsumed in the other. None of the courts below found the transactions which the lender made with borrowers to be shams. As five members of the Court pointed out in Equuscorp Pty Ltd v Glengallan Investments Pty Ltd: “Sham” is an expression which has a well-understood legal meaning. It refers to steps which take the form of a legally effective transaction but which the parties intend should not have the apparent, or any, legal consequences. While the word “sham” appears to have been used in submissions in the Local Court, it was not, and never has been, suggested that the transactions now in question were without any legal effect. It is not to the point to ask whether the statement that goods were stored at the borrower’s request was accurate. What is important is whether the transactions were pledges or were mortgages of chattels. All of the courts below found that the transactions which the lender made with borrowers were mortgages of chattels. Because the transactions were mortgages of chattels they were “bills of sale” as defined in the Bills of Sale Act 1898 (NSW). Section 4 of that Act provided that if not registered within 30 days after its making, the bill of sale should be void against the persons identified in sub-s (2) of that section. No question about the application of those avoiding provisions need be decided in this matter. What is important for present purposes is the observation that the mortgages which the lender took were not 572

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Palgo Holdings Pty Ltd v Gowans cont. unregulated. It is important because the premise for the reasoning adopted in the courts below has been that to give “pawned goods” a meaning that did not embrace all transactions (whether of pawn, mortgage or, presumably, of any other character) in which the appellant, as lender, in fact had possession of the goods offered by a borrower as security would defeat the purposes of the 1996 Pawnbrokers Act. When enacted, the 1996 Pawnbrokers Act took its place as only one of several Acts of New South Wales regulating the provision of credit to borrowers. (The position in other States was not materially different.) Foremost among that other legislation was the Consumer Credit (New South Wales) Act 1995 (NSW), adopting the Consumer Credit Code (“the Code”) set out in the Consumer Credit (Queensland) Act 1994 (Q). The Code commenced operation in the mainland States of Australia on 1 November 1996. The 1996 Pawnbrokers Act commenced operation on 30 April 1997. Section 7(1) of the Code provided that it did not apply to the provision of credit limited by the contract to a total period not exceeding 62 days. Section 7(7) provided that (apart from certain provisions dealing with reopening unjust transactions) the Code did not apply to the provision of credit by a pawnbroker in the ordinary course of a pawnbroker’s business which was being lawfully conducted. The making of those provisions (taken in conjunction with the recasting of the law relating to consumer credit) might suggest that their enactment provoked the revisions made to the law relating to pawnbrokers reflected not only in the 1996 Pawnbrokers Act but also in the pawnbroking legislation of other States enacted at about that time. No express reference, however, to a connection between the enactment of the Code and revision of the law relating to pawnbrokers is to be found in second reading speeches about those laws. Rather, extrinsic material in States other than New South Wales tends to suggest that the revision of pawnbroking legislation may have been undertaken as part of a general review of occupational regulation. Subject to the express extensions made by the 1996 Pawnbrokers Act (at the time, only s 5), lending money on the security of pawned goods referred to lending money on the security of pledges of goods – bailments of goods as security for debts. That was not shown to be the appellant’s business. It lent money on the security of chattel mortgages.

[22.95]

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CHAPTER 23 Security Within the Scope of the Personal Property Securities Act 2009 (Cth) (PPSA) [23.05]

INTRODUCTION .................................................................................................... 575

[23.20]

A SECURITY INTEREST ........................................................................................... 580

[23.55]

EFFECTIVENESS OF A SECURITY INTEREST .......................................................... 591 [23.75] [23.80]

Re Arcabi Pty Ltd (in liq); ex parte Theobald & Herbert ............ 600 Forge Group Power Pty Ltd (in liq) v General Electric International, Inc .................................................................. 610

Extracts from Everett & McCracken, Financial Institutions Law, Ch 13.

INTRODUCTION Legal regimes governing consensual security interests [23.05] With the recent implementation of the Personal Property Securities Act 2009 (Cth)

(PPSA) (see [23.10]), there are now several distinct regimes governing security interests in Australia. Which regime applies depends broadly 1 on the answer to the following questions (see Table 23.1): • what is the nature of the property 2 which serves as the object of the security interest? – is it real property 3 or personal property? • where it is personal property, what is the nature of that personal property? – is it personal property within the definition stated in PPSA, s 10? • where it is personal property within the definition of PPSA, what is the scope of the transaction? 1

2

3

A cautionary note may usefully be sounded at the start of this discussion. The Personal Property Securities Act 2009 (Cth) (PPSA) is a complex piece of legislation. This chapter can only provide an introduction to, and a summary of, the fundamental rules. It is pitched at a general level. It is always important to examine the specific rules in detail and test their application in various scenarios. For general texts now available on PPSA, see Meehan, The PPS Guide, (Woof Creative, 2011); Duggan and Brown, Australian Personal Property Securities Law, (LexisNexis Butterworths Australia 2012). See also Harris and Mirzai, Annotated Personal Property Securities Act 2009 (Cth), CCH Australia 2011. It is assumed for the purposes of this discussion that the particular assets amount to “property”. It is arguable that the term “property” may be more broadly construed under the Personal Property Securities Act 2009 (Cth) than at common law (see [23.25]). The division of “property” into “real property” and “personal property” represents the traditional common law classification of property (see [22.10]). The Personal Property Securities Act 2009 (Cth) (PPSA) contrasts “personal property” with “land” rather than “real property”, excluding fixtures from the meaning of “land” and thereby narrowing the common law meaning of “land” (see [23.25]): s 10. Given, however, that PPSA, s 8(1)(j) now expressly excludes an interest in fixtures from the scope of the PPSA (see [23.45]), the broad distinction between real property and personal property remains useful in attempting to work out which regime is currently applicable. If interests in fixtures were permitted, this distinction would need to be refined. [23.05]

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– does that transaction provide for an interest under PPSA, s 12? – has the interest provided for by that transaction nonetheless been excluded from the operation of the PPSA by the terms of the PPSA under s 8(1) (subject to s 8(3)) 4 or s 12(5), (6), or by the terms of the Personal Property Securities Regulations 2010 (Cth)?

Table 23.1: Regimes governing consensual security interests Nature of property Real property

Personal property within the definition of PPSA, where the particular interest in that property is not excluded Personal property within the definition of PPSA, where the particular interest in that property is excluded plus Personal property outside the definition of PPSA

Legal regime Real property legislation plus common law PPSA

Types of security Legal (statutory) mortgage Equitable mortgage Charge Statutory security interest under PPSA s 12

Common law, as supplemented by statute

Legal mortgage Equitable mortgage Charge Pledge

This chapter analyses the new statutory regime governing security interests in personal property established by the PPSA, while Chapter 22 examines the regimes applying to security interests in real property and in personal property outside the scope of the PPSA. Chapter 22 also examines rights that are typically regarded commercially as security. Appendix A (Everett & McCraken) provides an overview of the transitional provisions which are stated to operate until 30 January 2014.

Application of the Personal Property Securities Act 2009 (Cth) [23.10] The PPSA was enacted as Commonwealth legislation in December 2009. 5 Originally

anticipated to come into effect in 2010, it finally became fully operative on 30 January 2012, 6 following delays largely attributable to the functionality of the electronic Personal Property Securities Register (PPS Register) in which financing statements with respect to security 4

As at the date of writing, only one regulation has been made pursuant to Personal Property Securities Act 2009 (Cth) (PPSA), s 8(3). It relates to a mortgage-backed security and in specified circumstances, a real property mortgage loan (see Personal Property Securities Regulations 2010 (Cth), reg 1.5). This regulation is discussed in context in Chapter 17 Structuring Securitisations at (Everett & McCracken) [17.040].

5

Personal Property Securities Act 2009 (Cth), Pt 7.3 sets out the constitutional basis of operation of the legislation. For the history of the legislative process, see http://www.ag.gov.au under “Personal Property Securities” and “History of PPS” (viewed as at 14 September 2012). For a general overview of the scope of the legislation, see Davidson, “Overview of the New Personal Property Securities Law” (2011) 35 Aust Bar Rev 93. For discussion of some fundamental concepts, see McCracken, “Getting to grips with the reforms to the Personal Property Securities law” (2011) 25(3) CLQ 3.

6

This is the “registration commencement time” (Personal Property Securities Act 2009 (Cth) (PPSA), ss 10, 306). There is a transition period of 24 months (see Part 4, Appendix A). Provision has been made for a review of the operation of the PPSA to be undertaken and completed within three years after the registration commencement time (s 343).

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interests are registered. The PPSA is supported by state and territory legislation under which states and territories have referred power to the Commonwealth. 7 It is supplemented by regulations: Personal Property Securities Regulations 2010 (Cth). The PPSA has its origins in legislation which was first adopted in the United States in the form of Article 9 of the US Uniform Commercial Code in the 1950s. The Uniform Commercial Code has subsequently been taken up, albeit in modified form, in the 1970s and 1980s in Canada through provincial legislation in the form of Personal Property Security Acts in all provinces except Quebec 8 and, more recently, in New Zealand through the Personal Property Securities Act 1999 (NZ) which came into force in May 2002. The Replacement Explanatory Memorandum to the Australian Personal Property Securities Bill 2009 (Cth) indicates that the PPSA has also been influenced by the work of both UNCITRAL 9 and UNIDROIT. 10 The extent to which such influences and overseas commentary and case law may impact on the interpretation of the Australian legislation is likely to be the subject of some debate within Australia in the early years of the operation of the legislation. 11 Although the PPSA states that it is a “law about security interests”, 12 the broad definition of “security interest” in s 12 means that the transactions which come within the scope of the PPSA are significantly more wide ranging than those traditionally considered at common law to be security interests; namely, the mortgage, charge and pledge. 13 The PPSA is far-reaching in its coverage. It extends to transactions long regarded commercially as functionally equivalent to traditional security interests. Retention of title arrangements and finance leases are typical examples. It also now encompasses other specific transactions such as sales of certain types of debts as well as certain types of leasing and bailment arrangements, which have been expressly brought within the scope of the PPSA for policy reasons. 14 The PPSA contains some 343 sections, setting out many complex provisions and establishing what is very clearly a “rules based system”. In applying the rules, it is important to recall that the PPSA is not intended to operate as an exhaustive code. The PPSA is stated to work concurrently with the general law where it is “capable” of doing so (s 254). Determining the extent to which general law principles apply in particular factual scenarios where they have not obviously been displaced by the operative PPSA provision, may at times provide a challenge. The New Zealand Court of Appeal has recently pointed out, “[c]are should be taken 7

8

9 10

11 12 13 14

See, for example, Personal Property Securities (Commonwealth Powers) Act 2009 (NSW) and generally discussion in John G H Stumbles, “The PPSA: the Extended Reach of the Definition of the PPSA security interest” (2011) 34(2) UNSWLJ 448 at 461-463. See generally Cuming, Walsh and Wood, Personal Property Security Law, (Irwin Law Inc, Toronto 2005). The Australian PPSA appears to draw in particular on the Saskatchewan and Ontario legislation: Personal Property Security Act, 1993, S.S. 1993, c.P-6.2 (Saskatchewan); Personal Property Security Act, R.S.O. 1990, c.P.10 (Ontario), available at http://www.canlii.org. See now UNCITRAL Legislative Guide on Secured Transactions, 2010: http://www.uncitral.org. See in particular Convention on International Interests in Mobile Equipment (Cape Town, 2001) and the Convention on Substantive Rules for Intermediated Securities (Geneva, 2009): http://www.unidroit.org. In October 2012 the Commonwealth Government announced its intention to sign up to the Cape Town Convention: http://www.minister.infrastructure.gov.au/aa/releases/2012/October. For discussion of a similar debate in New Zealand, see for example Gedye, “The Development of New Zealand’s Secured Transactions Jurisprudence” (2011) 34(2) UNSWLJ 696. Personal Property Securities Act 2009 (Cth), s 3. See Chapter 22 for discussion of these forms of security interest. See [23.40]. [23.10]

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not to import pre-PPSA language and concepts into the interpretation of the PPSA”. 15 Yet the PPSA itself may require reference to some of those concepts for the effective operation of the legislation. 16 The PPSA applies where there is a “connection with Australia”: see legislative heading to s 6. This is a critical threshold question. The existence of such a connection does not, however, mean that Australian law necessarily governs the whole of the transaction. The PPSA contains its own rules for determining which law should govern the validity and perfection of a particular security interest. 17 It is assumed for the purposes of this chapter that the relevant governing law is that of an Australian state or territory. The sufficiency of a connection for the purposes of the PPSA may arise in several ways, depending on the location of personal property over which the security interest is taken or whether the grantor of that interest is an “Australian entity”. This latter term includes not only a company within the meaning of the Corporations Act 2001 (Cth) but also an individual, provided that the individual’s principal place of residence is in Australia 18 (PPSA, s 10). The fact that the grantor is an Australian entity is sufficient to provide the necessary connection. Where the grantor is not an Australian entity, the connection is determined by reference to a set of rules whose application generally depends on the location of the particular property. Where the property is, to use the specialised defined terms of the PPSA, 19 “goods” or “financial property”, the connection depends on whether the goods or financial property are located in Australia. Where the property is an “intermediated security”, location of the intermediary in Australia provides the connection. For “intangible property”, the connection depends on the type of intangible. There is sufficient connection if the intangible is, for example, an “ADI account” or an “account” that is payable in Australia. It is further assumed for the purposes of this chapter that the relevant transaction is governed by the PPSA.

Terminology [23.15] The PPSA introduces significant new terminology. Section 10 contains the general

Dictionary, while ss 12 – 15 set out explanations of the meaning of “security interest”, “PPS lease”, “purchase money security interest” and “intermediated security”; 20 terms which are described in the PPSA as “concepts” (Pt 1.3, Div 3). Many of the new terms in the Dictionary relate to different categories and types of personal property, which are discussed in more detail at [23.25]. Understanding the scope of each term becomes important not only in selecting the appropriate rule where the application of a rule is determined by reference to the nature of the property, but also in determining the correct category of property for the purpose of completing the financing statement required to make an “effective registration” (see [23.70]). 15

Commissioner of Inland Revenue v Stiassny [2012] NZCA 93 at [55]. The decision is currently on appeal to the Supreme Court.

16

PPSA assumes, for example, an understanding of such concepts as mortgage, charge, conditional sale and other types of transactions listed by way of example of security interests in Personal Property Securities Act 2009 (Cth), s 12(2), which it does not define (see [23.40]). Personal Property Securities Act 2009 (Cth), Pt 7.2. See Personal Property Securities Act 2009 (Cth), s 235(5) for definition of “located”. See Personal Property Securities Act 2009 (Cth), ss 10, 15 for these definitions and generally [23.25].

17 18 19 20

These are discussed in context in subsequent sections. See [23.40] (security interest), (PPS lease), (purchase money security interest]; and [23.25] (intermediated security).

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It is also in the Dictionary that the terms “grantor” and “secured party” are found, being the descriptions applied to those who have more commonly been described under traditional common law security transactions as borrower, mortgagor, chargor and pledgor on the one hand, and the creditor, mortgagee, chargee and pledgee on the other. “Grantor” is defined generally as: a person who has the interest in the personal property to which a security interest is attached.

“Grantor” is also the term used to describe other persons who are treated as providing a security interest, even though technically they do not act by way of a “grant” of an interest. “Grantor” specifically includes, for example, a lessee under certain types of leases and a transferor of certain types of debts (see [23.40]). “Grantor” is distinguished from “debtor”, 21 the latter being a person who owes the payment or performance of an obligation and who may or may not also be the grantor. “Collateral” becomes the term used to describe the property to which a security interest is attached. Professor Grant Gilmore, a co-drafter of Article 9 of the US Uniform Commercial Code and author of the classic US text on Security Interests in Personal Property, likened learning the vocabulary to mastering a foreign language. 22 The Dictionary is not exhaustive. There are terms used in the PPSA which are not defined. Some of these terms seemingly bear their traditional common law meanings. Examples include “mortgage” and “charge” as well as “conditional sale” and “lease”. Other terms, however, have less established meanings, such as the “flawed asset arrangement”. It is typically understood in a banking context to refer to an arrangement under which a person making a deposit with a bank agrees that it will not withdraw that deposit until such time as an obligation owed to the bank (whether by that person or a third party) is discharged. The asset of the depositor, which is the debt owed by the bank to the depositor, 23 is said to be “flawed” in that the depositor gives up its right to make demand for the debt until the conditions for withdrawal are satisfied. It is unclear precisely what conditions are sufficient to create this form of arrangement and, more generally, whether the term could be extended by analogy beyond the banking context. 24 The PPSA does not itself offer guidance on what general terminology, if indeed any, should be used to describe security agreements (see [23.65]). This is no doubt due to the fact that security agreements may take many forms. They may, for example, simply be sales contracts, where the arrangements involve the vendor making a sale in circumstances where title to goods is retained. Newly drafted security documentation taken to support the repayment of loans and now circulating in Australia, typically draws on terminology used in Canada and New Zealand to describe documentation providing for a security interest in present and future acquired property as a “General Security Agreement”, a phrase often abbreviated to “GSA”. An Australian variation on that term is the “All PAP” or the “All PAP except”, the initials signifying “all present and after acquired property”. This usage derives from the class collateral descriptions of “all present and after acquired property” and “all present and 21

Compare Personal Property Securities Act 1999 (NZ), s 16 “debtor”, where the term “debtor” is used to mean both the person owing payment or performance of the obligation and the person owning or having rights in the collateral. New Zealand usage follows the Canadian model.

22

Gilmore, Security Interests in Personal Property, (Little, Brown and Company Boston 1965; reprint LawBook Exchange New Jersey 1999), Vol 1, p 302. See [4.260] (Everett & McCracken).

23 24

See generally Loxton, “One Flaw over the Cuckoo’s Nest – Making Sense of the “Flawed Asset Arrangement” Example, Security Interest Definition and Set-Off Exclusion in the PPSA” (2011) 34(2) UNSWLJ 472. [23.15]

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after-acquired property, except” prescribed by the regulations for the financing statement: Personal Property Securities Regulations 2010 (Cth), Sch 1, clause 2.3. Reference to a “SSA” – a specific security agreement over individual items of collateral – can also be found, by way of direct contrast to a “GSA”.

A SECURITY INTEREST The concept of a security interest in personal property [23.20] The concept of a “security interest” is set out in PPSA, s 12(1): A security interest means an interest in personal property provided for by a transaction that, in substance, secures payment or performance of an obligation (without regard to the form of the transaction or the identity of the person who has title to the property).

This definition of a security interest (typically referred to as an “in substance” security interest) may be broken down into several elements, each of which is discussed in more detail in the following paragraphs: • an interest in personal property ([23.30]); • a transaction ([23.35]); and • the securing of payment or performance of an obligation ([23.35]). The emphasis clearly lies on the substance of the arrangement. It flows from the definition itself and, in particular, the use of the phrase “in substance, secures payment or performance”, together with the explicit direction to disregard the form of the transaction as well as the identity of the title holder. Nonetheless, it should be noted that this does not mean that title is to be disregarded for all purposes. 25 The list of examples of transactions set out in s 12(2) does not purport to be exhaustive. As a result, whether a particular arrangement amounts to an “in substance” security interest depends on how the courts interpret the scope of s 12(1). 26 Section 12(1) does not give the complete answer to the question “what is a security interest?”. The term is further expanded by s 12(3), which includes certain specified interests: whether or not the transaction concerned, in substance, secures payment or performance of an obligation.

The inclusion of such interests within the term “security interest” has led to a distinction being drawn between an “in substance” security interest and a “deemed” security interest. This important distinction is explored further in [23.40]. 25

26

See Scott, “The PPSA: the Continued Relevance of Conventional Legal Principles in Determining the Existence of a Security Interest” (2009) 15 NZBLQ 205. Note that Personal Property Securities Act 2009 (Cth), s 273 provides “The fact that title to collateral is in a secured party rather than a grantor does not affect the application of any provision of this Act relating to rights, duties, obligations and remedies” (emphasis added). Title may still be relevant for other purposes. See Gilmore, Security Interests in Personal Property, (Little, Brown and Company Boston 1965; reprint LawBook Exchange New Jersey 1999), Vol 1, pp 334-335. “It is not suggested that anything useful could have been done to explain the phrase ‘an interest … which secures … an obligation’”: the draftsman’s art does not go so far. What is important to remember is that, ultimately, the Article 9 security interest floats, unmoored, in a void. Whether any particular transaction creates “an interest … which secures … an obligation” is a question for judicial determination. Compare Cuming, Walsh and Wood, Personal Property Security Law, (Irwin Law Inc, Toronto 2005), p 59.

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Meaning of “personal property” [23.25] The Guide offered in PPSA, s 3 refers to a range of personal property, giving by way of

example: “motor vehicles, household goods, business inventory, intellectual property and company shares”. “Personal property” is a defined term, referring to property other than land or rights expressly declared by statute not to be property for the purposes of the Act (s 10). The specific exclusion of “land” is not in itself surprising, but “land” is expressly defined to exclude “fixtures” (s 10: “land”), which is contrary to the meaning of the concept at common law. Currently, an interest in fixtures is excluded from the reach of the Act. 27 Nonetheless, the specific inclusion of the term “fixtures” as a form of personal property, together with an express definition of the term in s 10, 28 suggests the possibility in the future of assets which facilitate separate fixtures financing, a form of financing under which typically a loan is secured over property that is, or subsequently becomes, affixed to the land. Such a form of financing is already available under US and Canadian legislation. The definition of “personal property” clearly assumes that property exists. “Property” is not, however, defined, other than by way of an indication in the definition of “personal property” that it includes a licence, licence itself being a defined term (s 10). The inclusion of “licence” appears intended to avoid uncertainty over the vexed question at common law of whether a particular licence is property or merely a personal permission to do something which is otherwise prohibited. Canadian courts have long grappled with this issue. In 2008, the Supreme Court of Canada held 29 that particular fishing licences could be regarded as “property” for the purposes of equivalent PPS legislation, even though they might not have amounted to property at common law. The Court observed: 30 Because a fishing licence may not qualify as “property” for the general purposes of the common law does not mean that it is also excluded from the reach of the statutes. For particular purposes, Parliament can and does create its own lexicon.

The Court stressed that its task in determining whether commercial assets were property for the purposes of the legislation was that of statutory interpretation, 31 concluding that: 32 Our concern is exclusively with the extended definitions of “personal property” in the context of a statute that seeks to facilitate financing by borrowers and the protection of creditors.

The extent to which Australian courts may be willing to extend the common law notion of property for the purposes of PPSA remains to be assessed. At present, a common starting point for discussion of the meaning of “property” is the statement by Lord Wilberforce in National Provincial Bank Ltd v Ainsworth [1965] AC 1175 (at 1247-1248): 33 27 28 29 30 31 32 33

Personal Property Securities Act 2009 (Cth), s 8(1)(j). Personal Property Securities Act 2009 (Cth), s 10: “fixtures means goods, other than crops, that are affixed to land”. Saulnier v Royal Bank of Canada [2008] 3 SCR 166, 2008 SCC 58 (CanLII). Saulnier v Royal Bank of Canada [2008] 3 SCR 166, 2008 SCC 58 at [16]. Saulnier v Royal Bank of Canada [2008] 3 SCR 166, 2008 SCC 58 at [16]. Saulnier v Royal Bank of Canada [2008] 3 SCR 166, 2008 SCC 58 at [51]. The High Court of Australia has referred to the description with approval in several cases, whilst indicating that assignability is not in all circumstances an essential characteristic. See, for example: National Trustees Executors and Agency Co of Australasia Ltd v Federal Commissioner of Taxation (1954) 91 CLR 540; R v Toohey; Ex parte Meneling Station Pty Ltd (1982) 158 CLR 327; Australian Tape Manufacturers Association Ltd v Commonwealth (1993) 176 CLR 480. [23.25]

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Before a right or an interest can be admitted into the category of property, or of a right affecting property, it must be definable, identifiable by third parties, capable in its nature of assumption by third parties, and have some degree of permanence or stability.

Assuming that the relevant property is personal property, it then becomes important to categorise that property in accordance with the terms used in the Act. As noted in [23.10], different rules may apply according to the category of property. At a practical level, the on-line template for the financing statement requires the secured party to select a specific category 34 in order to make an “effective registration” (see [23.70]). There are four categories, which emerge from a reading of the Dictionary in s 10. They are: 1.

goods;

2.

financial property;

3.

intermediated security; and

4. intangible property. Financial property includes a further sub-set of property. The categories can be usefully represented diagrammatically as follows:

34

Note that the current collateral classes in the online PPS register do not match exactly the legislative categories. They are divided into four categories: tangible property, general property, intangible property and financial property. An intermediated security is included under the heading of financial property. Part 2(2.1) of Sch 1 to the Personal Property Securities Regulations 2010 (Cth) provides that for the purposes of the Part, an intermediated security is to be treated as financial property.

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Figure 23.1: Personal Property under the PPSA

The categories appear intended to be exclusive of each other. Furthermore, PPSA generally uses the category of “intangible property” as a residual category of personal property, expressly defining the term as personal property that is not financial property, goods or an intermediated security (s 10). These categories of personal property are clearly different to those at common law, where a distinction is traditionally drawn between, first, choses in possession and choses in action and secondly, between property which is legal and that which is equitable (see [22.10]-[22.15]). It is important not to confuse the classifications. Although “goods” as tangible property approximates to “choses in possession”, it is not a complete equivalence. Currency, for example, although tangible and hence at common law a chose in possession, is categorised under the PPSA as “financial property”. While other examples of property which is financial property (such as certificated shares, being “investment instruments”) and property which falls into the separate category of intermediated security (which includes uncertificated shares) would at common law be choses in action as they have no physical manifestation and hence are commonly described as intangible (in the sense of being incapable of being touched), they are not classified as “intangible” under the PPSA. By reason of being explicitly included as “financial property” or “intermediated security”, they are necessarily excluded from the statutory definition of “intangible property”. There are other statutory terms that are used in particular provisions which cut across the four PPSA categories of property. Personal property may, for example, be “consumer” or “commercial” property. Such a distinction becomes relevant in determining, for example, the [23.25]

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permitted duration of a registered financing statement (s 153(1) (Item 5)). The personal property may amount to “inventory”, a classification which becomes important in, for example, working out the procedural requirements for enabling some forms of security interest in that property to obtain “super-priority” as a “PMSI” (see [13.290] (Everett & McCracken)) or in determining whether a person can take free of a security interest (see [13.400] (Everett & McCracken)). The personal property may represent “proceeds” arising from the collateral, which may enable that property to be covered automatically by a security interest taken over the original collateral (see [13.390] (Everett & McCracken)). Personal property may also come within the definition of a “circulating asset”, as a result of which the holder of a security interest over it may rank behind preferential creditors in a liquidation under the Corporations Act 2001 (Cth) (see [15.470] (Everett & McCracken)). Furthermore, once a security interest is attached to particular personal property, that personal property becomes described generally as “collateral”. 35

Meaning of “an interest in personal property” [23.30] The word “interest” in the context of property law has long been problematic.

Although it tends often in practice to be used interchangeably with “title”, it is used more technically as a measure of the quantum of rights that a person may hold. 36 PPSA simply defines “interest” in s 10 as including a “right in the personal property”. Some understanding of its meaning may be gleaned from PPSA, s 12(2), which offers examples of transactions providing for an “interest in personal property”. For the most part, the interests arising under the various transactions are property interests, representing interests amounting to ownership, possession, or an equitable interest. A chattel mortgage, for example, involves a transfer of title, either at law or in equity. A pledge involves a transfer of possession, whereas a charge gives rise to an equitable interest. The inclusion, however, of a “flawed asset arrangement” (see [23.15]) has caused discussion as to whether a contractual right might be sufficient, given that this form of arrangement is generally understood to refer to a situation arising by contract. Examples of what have become described as possible “security interests on the margins” include powers of attorney and “step-in rights”, both of which may under their contractual terms enable access to property on default. 37

Meaning of “a transaction that secures payment or performance” [23.35] It is easy to gloss over this part of the definition of “security interest”, yet both

elements are important. Transaction

The term “transaction” is not defined, although PPSA, ss 12(2) – (3) offer examples of transactions which potentially give rise to a security interest. Such transactions include: • a mortgage; • a charge; 35 36

The definition of “collateral” is somewhat circular, given the statement as to when a security interest becomes enforceable against the grantor under Personal Property Securities Act 2009 (Cth), s 19(1). Goode, Commercial Law, (Penguin Books: London, 3 rd ed 2004), p 31.

37

See, for example Tolhurst, Coburn and Peckham, “Security interests at the margins” (2012) 40(4) Australian Business Law Review 241-262.

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• a pledge; • a conditional sale agreement; • a hire purchase agreement; • an assignment; • a lease; • a commercial consignment; and • a transfer of an account or chattel paper. The term appears generally to be understood as serving two purposes. First, it is thought to indicate that the arrangement must be consensual, an interpretation reinforced by the specific exclusion of security interests arising by operation of law in PPSA, s 8(1)(b) – (c). 38 Secondly, it implies the existence of a valid agreement. 39 Secures payment or performance

Often it seems evident that a particular transaction secures payment or performance of an obligation. At times, however, difficulty may arise in construing a particular transaction. Is the transaction on the facts a secured loan or simply a sale with an option to repurchase? 40 Is the transaction a sale or a sale on credit? 41 What if a trust structure is used – can that trust be said to secure payment or performance of an obligation? 42 In considering this latter question, the New Zealand Court of Appeal has drawn a useful distinction between the circumstances where there is a separate contractual debtor-creditor relationship between trustee and beneficiary under which the trustee is required to make payment to the beneficiary and those circumstances where the trustee simply has an obligation to account to the beneficiary for moneys held or received on behalf of the beneficiary. 43 It was in the former circumstances that a security interest was considered potentially to arise where “the associated trust obligations did not exhaust the obligations of [the trustee] to [the beneficiary]”, 44 the court having first recognised that in the absence of additional contractual arrangements “[t]he interest held by a beneficiary does not secure any obligation independent of those arising pursuant to the trust.” 45

Classification of security [23.40] Security arrangements under the PPSA are classified by reference to the definition of a

“security interest”. A security interest is commonly described as either an “in substance” security interest or a “deemed” security interest. Some interests falling into these categories 38 39 40 41 42 43 44 45

For further discussion, see D’Angelo and Busljeta, “The Trustee’s Lien or Charge over Trust Assets: A PPSA Security Interest or Not?” (2011) 22 JBFLP 251. See, for example, Ellingsen v Hallmark Ford Sales Ltd 2000 BCCA 458 (CanLII) (British Columbia Court of Appeal). Kaak v Bank of Montreal 2003 CanLII 38834, affirmed by the Court of Appeal for Ontario at 2003 CanLII 12500. Compare JS Brooksbank v EXFTX (in rec & in liq) [2009] NZCA 122 and Segard Masurel (NZ) Ltd v Nicol [2008] NZHC 109. Compare Re Skybridge Holidays Inc 1998 CanLII 5525 (British Columbia Supreme Court) and North Shore City Council v Stiassny [2009] 1 NZLR 342. North Shore City Council v Stiassny [2009] 1 NZLR 342 at [30]-[31]. The discussion was obiter. North Shore City Council v Stiassny [2009] 1 NZLR 342 at [30]. North Shore City Council v Stiassny [2009] 1 NZLR 342 at [29]. [23.40]

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may additionally be classified for the purpose of determining priority as purchase money security interests (often referred to as “PMSIs”) (see [13.290] (Everett & McCracken))). The major changes in the classification of consensual security caused by the PPSA are shown in Figure 23.2. Figure 23.2: Classification of security

Pre-PPSA

Post-PPSA

1. Bank of Montreal v Innovation Credit Union [2010] 3 SCR 3, [18] and discussion in text below. 586

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In substance security interests

The category of “in substance” security interests must inevitably be substantial. At the least, it includes the examples given in PPSA, s 12(2). This means that it covers not simply the traditional common law security interests arising under a mortgage, charge and pledge discussed in Chapter 13, but also those interests which at common law would have been classified separately as arising under “quasi-security” or “functionally equivalent” arrangements on the basis that such arrangements did not at common law involve a grant of an interest, but rather a reservation of title. Moreover, the specific inclusion of a “flawed asset arrangement” in s 12(2) means that the status of contractual arrangements that were not previously classified as security is now being reconsidered, with a view to determining whether they might in fact give rise to “in substance” security interests (see [23.15]). The category is open-ended. The sheer breadth of s 12(1), confirmed by the fact that the list of transactions in s 12(2) is not exhaustive, means that the PPSA applies, in the words of the Supreme Court of Canada, to “almost anything which serves the function of a security interest”. 46 Deemed security interests

The concept of a “deemed” security interest is introduced by PPSA, s 12(3). This provision explicitly expands the notion of a security interest by including within the concept three specific types of interest in property, whether or not the transaction under which they arise does in substance secure payment or performance. Those interests are: 1.

the interest of a transferee under a transfer of an account or chattel paper;

2.

the interest of a consignor who delivers goods to a consignee under a commercial consignment; and

3. the interest of a lessor or bailor of goods under a PPS lease. It is the third category in particular which has attracted much initial attention, given that it potentially covers operating leases. Operating leases, and indeed bailments (other than in the form of a pledge), are not at common law conceptualised as security arrangements. Their inclusion within PPS style legislation seemingly results from a twofold concern; a general concern to avoid the possibility of a third party dealing with a person who appears to be the owner being misled as to the extent of that person’s assets (the so-called “evil of apparent wealth”) as well as an additional more pragmatic concern in the case of leases to attempt to prevent, or at least reduce, the amount of litigation that has occurred in some PPS jurisdictions over the often difficult question of whether a particular lease is a financing or operating lease. A “PPS lease”, which is defined in PPSA, s 13 as including not only leases but also bailments where the bailee provides value, has essentially two characteristics: 1.

a particular duration; and

2.

regular engagement by the lessor or bailor in the business of leasing or bailing goods. 47

46

Bank of Montreal v Innovation Credit Union [2010] 3 SCR 3 at [18]. See [23.45] for discussion of exclusions to the definition. This is expressed in the Personal Property Securities Act 2009 (Cth) (PPSA) in the form of an exclusion to the definition of a PPS lease. A PPS lease is said not to include leases or bailments by a lessor or bailor who is not regularly engaged in the business of leasing or bailing goods respectively: PPSA, s 13(2)(a), (b).

47

[23.40]

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The relevant duration is generally 48 “a term of more than one year” or, where the goods are “serial number goods”, 49 “a term of 90 days or more”. The duration period seemingly reflects the practical view that the longer the term, the more likely it is to resemble a form of financing arrangement. Short-term arrangements are thus excluded. The second characteristic of “regular engagement”, which has provoked differing views in Canadian courts, has been considered recently by the New Zealand Court of Appeal in the context of a single bailment of a horse to a stud farm. 50 In concluding on the facts that there was no regular engagement, the court observed: [46] It is not strictly necessary for us to deal with the controversy about the meaning of “regularly” in s 16(1)(i)(c) [the equivalent of Australian PPSA s 12(3)(c), s 13(2)]. The Canadian cases reflect their very unusual facts and we hesitate to draw from them any generic principle. Each case will depend on its facts. But we do consider that it requires some straining of the concept “regular” to say it includes a single, isolated transaction. [47] We doubt that that is what Parliament intended. It is clear that a course of business involving a series of leasing transactions will involve regular engagement in the business of leasing. We think it is equally clear that a single transaction in circumstances where it can be established that the transaction was a one-off would not be “regular”. Where a transaction was the first but has been followed by others, a good case can be made for the proposition that even the first was “regular” because it was the start of the regular engagement in the business. That will be a factual issue in the particular case.

The court also took the view (at [40]) that the words “in the business of leasing goods” should be read as “importing a requirement that the owner should actually be intending to profit from the bailment or lease.” PMSIs

The further classification of a particular security interest as a “purchase money security interest” (PMSI) is important for priority purposes. As discussed at [13.290] (Everett & McCracken), a PMSI whose perfection complies with specified procedural requirements may confer priority over a perfected “non-PMSI”, which would otherwise enjoy priority. Furthermore, an additional special priority rule applies to some competing PMSIs. It is possible for a security agreement to provide for both PMSIs and non-PMSIs. One security interest may be a PMSI as to only part of the collateral and to the extent of only part of the obligations secured (s 14(3) – (4)). 51 There are two types of “in substance” security interests and two types of “deemed” security interests which constitute PMSIs. The “in substance” security interests may be described – in

48 49

51

See Personal Property Securities Act 2009 (Cth), s 13(1) for the manner in which the term is calculated. “Serial number” is defined in Personal Property Securities Act 2009 (Cth), s 10 as meaning “a serial number by which the regulations require, or permit, the collateral to be described in a registration”. See Personal Property Securities Regulations 2010 (Cth), Sch 1, clause 2.2. Serial numbered goods include motor vehicles, watercraft, aircraft and aircraft engines. Rabobank New Zealand Ltd v McAnulty [2011] NZCA 212. Compare Cuming, Walsh and Wood, Personal Property Security Law, (Irwin Law Inc, Toronto 2005) at p 95 who indicate that Canadian cases suggest that “The word ‘regularly’ modifies ‘business’ rather than ‘engaged’”. Clark Equipment of Canada Ltd v Bank of Montreal [1984] 4 WWR 519; 8 DLR (4 th) 424; 27 Man R (2d) 54.

588

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very broad terms, and subject to exceptions 52 – as those security interests which are taken to secure financing which has been provided specifically for the acquisition of particular collateral, whether by the vendor or by a third party lender. A common example of such “in substance” security interests amounting to PMSIs would be provided by a manufacturer who wants to buy new machinery and seeks financing for the purchase, either from the vendor of the machinery or from a bank. Under the former scenario, an arrangement under which the manufacturer obtains possession of the machinery but the vendor of the machinery retains title until the manufacturer pays the purchase price is a PMSI, being: a security interest taken in collateral, to the extent that it secures all or part of its purchase price (s 14(1)(a)).

This has been described in other PPS jurisdictions as a “seller’s PMSI”. An alternative arrangement under which the bank makes a loan to the manufacturer to purchase the machinery and takes a security interest over the machinery to secure that loan is also a PMSI, where it is: a security interest taken in collateral by a person who gives value for the purpose of enabling the grantor to acquire rights in the collateral, to the extent that the value is applied to acquire those rights (s 14(1)(b)).

Such an arrangement is typically described as a “lender’s PMSI”. It should be noted that PMSI status will not be obtained if the value is not in fact given for the particular purpose or is not in fact applied to acquire the relevant rights. Canadian courts have explicitly referred to commercial considerations in making that determination. 53 The Saskatchewan Court of Appeal, for example, held in Agricultural Credit Corporation of Saskatchewan v Pettyjohn [1991] 90 Sask R 206 that value had been so given in circumstances where a grantor acquired the property relying on a bank’s binding commitment to make a loan. The fact that the loan advances were made after the acquisition of the property did not preclude that finding, given that the advances were used to pay off credit extended by the vendor as well as interim financing advanced by a further lender. Determining (at [49]) that the initial binding commitment was the “ultimate source of value” with which the rights had been acquired, the court observed (at [52]) that the legislative purpose was: as a whole…to simplify commercial transactions and to make the law governing them accord with practical commercial realities.

In concluding that the advances made after the acquisition could be said to have been used to acquire rights, the court further commented (at [53]): It is…commercially unreasonable to divide the transactions so minutely. The [grantors] used the value given to them to pay off interim financing, but the interim financing had not been obtained as a separate transaction, but always with the view that it would be repaid through the moneys advanced by [the secured party claiming the PMSI]. The [grantors] used the value given as part of a larger, commercially reasonable transaction to acquire rights in [the property]. The fact that the use of the value given was, due to the nature of the transaction, after the acquisition of rights does not alter the conclusion that the value given was used to acquire those rights. 52

53

Personal Property Securities Act 2009 (Cth), s 14(2) excludes interests acquired under a sale and lease back transaction; interests in chattel paper, an investment instrument, an intermediated security, a monetary obligation or a negotiable instrument; and a security interest in collateral intended by the grantor to be used predominantly for personal, domestic or household purposes. See, for example, Unisource Canada Inc v Laurentian Bank of Canada (1999) 47 OR (3d) 616 at [13]. [23.40]

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The two “deemed” security interests which amount to PMSIs are, on the one hand, the interest of the lessor or bailor of goods under a PPS lease and, on the other, that of a consignor delivering goods to a consignee under a commercial consignment.

Excluded interests [23.45] Although the definition of security interest is very broad (see [23.40]), certain

interests are specifically excluded. While for the most part such exclusions are found in PPSA, s 8, several may be found in s 12 itself. Even though an interest is excluded from the definition by s 8, its operation may nonetheless be impacted by the legislation where it falls within the table set out in s 8(2). Regulations may also apply the PPSA to particular types of interest, despite their apparent exclusion under s 8(1) (see s 8(3)). While each transaction requires checking against the list of exclusions, some of the exclusions may usefully be highlighted. Not surprisingly, interests arising by operation of law are not regarded as security interests, reflecting the view that PPSA is directed at consensual transactions (see [23.35]). Typical examples would be a common law possessory lien, such as a banker’s lien, and a constructive trust. A notable express exclusion is the “Quistclose trust” (see s 8(1)(h)), 54 seemingly representing an attempt to avoid the controversy at general law over the juridical nature of such a trust 55 and the concern that a loan agreement setting up the circumstances in which such a trust might be found to arise would be regarded as creating a security interest. Also important in the financing context is the exclusion of “any right of set-off” (s 8(1)(d)). Unfortunately, the term “set-off” is not defined. Given the uncertainty over the scope of set-off, 56 the mere fact that a right is described in documentation as a “set-off” may not necessarily protect it. It is critical to look at the substance of the arrangement. Where the set-off purports to appropriate property (and hence resembles an equitable charge (see [22.35])) rather than simply to discharge a debt, its exclusion is in doubt. Furthermore, where the set-off arises on the part of a bank in the context of a deposit made with it and in conjunction with a contractual restriction on the depositor’s ability to withdraw that deposit until the performance of an obligation, the consequential bundle of rights held by the bank may arguably (and controversially) amount to a “security interest”, whether as part of a “flawed asset arrangement” under s 12(2)(l) or more generally under s 12(1). 57 An interest in fixtures is also excluded (see [23.15]).

The nature of a security interest [23.50] It is sometimes stated by commentators in PPS jurisdictions that it is unnecessary to

determine the nature of the security interest unless the security interest is in competition with another interest that is not governed by the PPSA. The Canadian Supreme Court has recently 54 55 56

See Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 where moneys advanced under a loan made for a particular purpose which was unable to be fulfilled, were found to be held on trust for the lender. See generally Young, Croft and Smith, On Equity, (LawBook Co: Sydney 2009), pp 469-470. See [14.820]-[14.870] (Everett & McCracken).

57

See Caisse Populaire Desjardins de L’Est de Drummond v Canada [2009] 2 SCR 94 and commentary by Duggan, “Some Canadian PPSA cases and their implications for Australia and New Zealand” (2010) 38 ABLR 161 and by Loxton, “One Flaw over the Cuckoo’s Nest – Making Sense of the “Flawed Asset Arrangement” Example, Security Interest Definition and Set-Off Exclusion in the PPSA” (2011) 34(2) UNSWLJ 472.

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in such a dispute characterised the interest as legal in nature, given its statutory origin. 58 It also regards the interest as “fixed”, 59 a conclusion which logically follows from the manner in which a security interest attaches under the legislation (see [23.60]). The term “unitary interest” is also used to describe the security interest. To the extent that this phrase means that the various forms by which a security interest may arise are to be disregarded for the purposes of applying the PPSA and that each interest is to be treated in the same manner irrespective of its source, the description is appropriate. Sometimes, however, the phrase appears to be used to signify that the security interest must take one type of form; namely, that the security interest must be understood as an encumbrance on title. Such characterisation becomes controversial where the particular transaction which provides for the interest takes a form other than that of a general security agreement. Whether or not transactions such as mortgages, conditional sales and leases should be analysed in such a way remains open to argument, with commentators adopting differing views. 60 Such a debate has a practical impact in terms of how the “charging clause” of the security agreement should be drafted. Should it purport to create simply a security interest? Should it state the particular form by which the security interest arises if such form arises on the facts – by way of, for example, mortgage, or conditional sale? Understanding where title resides can still be important for purposes other than determining the existence of the security interest. 61 In commercial transactions, for example, it is possible to confer on the statutory interest contractual remedial powers which operate in conjunction with, or in substitution for, statutory remedial powers conferred by PPSA, Ch 4 (see [13.450] (Everett & McCracken)). In order to understand what contractual remedial powers may be required, it is important to know how the security interest has arisen (see [22.05]).

EFFECTIVENESS OF A SECURITY INTEREST The “central concepts” [23.55] “Attachment” and “perfection” have been characterised by the Supreme Court of

Canada as “central concepts” of PPS style legislation. 62 They are common to PPS legislation in the US, Canada, New Zealand and Australia. “Perfection” itself has been more particularly described by the High Court of New Zealand as: 63 the process by which the holder of a security interest obtains the optimal level of protection offered by the [legislation]. 58

Bank of Montreal v Innovation Credit Union [2010] 3 SCR 3 at [42].

59 60

Bank of Montreal v Innovation Credit Union [2010] 3 SCR 3 at [48]. See, for example, discussion by McCracken, The Personal Property Security Interest: identifying some essential attributes’ paper presented at the inaugural Banking and Finance Law and Regulation Workshop, Faculty of Law and Management, La Trobe University, Melbourne, 16 December 2011. See also Loxton, “New bottle for old wine? The characterisation of PPSA security interests” (2012) 23 JBFLP 163; Cuming, Walsh and Wood, Personal Property Security Law, (Irwin Law Inc, Toronto 2005) at pp 60-61, 64-67. Compare Duggan and Brown, Australian Personal Property Securities Law, (LexisNexis Butterworths Australia 2012) at p 44; Gedye, Cumming and Wood, Personal Property Securities in New Zealand, (Thomson Brookers: Wellington 2002) at pp 73-74; Widdup and Mayne, Personal Property Securities Act a Conceptual Approach, (LexisNexis Butterworths: Wellington (rev ed) 2002), pp 4-5. See [23.20]. Bank of Montreal v Innovation Credit Union [2010] 3 SCR 3 at [20], [21]. Graham v Portacom New Zealand Ltd [2004] 2 NZLR 528 at [12].

61 62 63

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Under the Australian PPSA such protection depends on the security interest being: • “attached” (s 19); • “enforceable against third parties” (s 20); and • “perfected”, whether by force of the Act or by taking a requisite step, that step being the taking of possession or control of the collateral or the making of an effective registration (s 21). Both the concepts of attachment and enforceability against third parties are generally pre-requisites to perfection, with attachment being a pre-requisite to enforceability against third parties. 64 By themselves, however, they are insufficient to offer the optimal protection. Although satisfaction of the requirements for “attachment” renders the security interest enforceable as against the grantor (see [23.60]) and compliance with the requirements for “enforceability against third parties” prevents the security interest from being rendered unenforceable against a third party for lack of appropriate corroboration (see [25.65]), the security interest risks loss of priority if not actually perfected (see [23.70], [13.270] (Everett & McCracken)). Furthermore, an unperfected security interest may vest in the grantor on insolvency (see [23.70]) and a third party may in certain circumstances take free of an unperfected security interest on buying or leasing the property (see [23.70], [13.400] (Everett & McCracken)). The fact that attachment is a pre-requisite for perfection of a security interest does not preclude a secured party taking a relevant step towards perfection before attachment occurs. While it is obviously possible for a security interest to attach prior to a secured party taking a step towards perfection, the legislation expressly contemplates the possibility of the secured party taking one of those steps prior to the actual attachment (s 21(3)). This means, for example, that a financing statement can be registered prior to the creation of the security interest, although a prospective secured party must have reasonable grounds to believe that it will become a secured party (s 151). This, in turn, can have important implications for determining a secured party’s priority ranking (see [13.270] (Everett & McCracken)).

Attachment [23.60] Attachment is a critical concept, since the security interest is made enforceable against

the grantor “only if the security interest has attached to the collateral” (s 19(1)). In other words, attachment represents the time at which the secured party obtains an interest in the property; a time that also has significance for a secured party’s priority ranking where competing security interests are unperfected (see [13.270] (Everett & McCracken)). It is thus important to examine the criteria for attachment. Moreover, it is from these criteria that emerges the proposition that the statutory security interest is necessarily a fixed interest.

64

Under the New Zealand legislation the criterion of “enforceability against third parties” is encompassed within the concept of “attachment”, although set out in a separate provision (see Personal Property Securities Act 1999 (NZ), ss 36, 40). This follows the model of the Saskatchewan legislation (Personal Property Security Act 1993 (Sask), ss 10, 12). Compare Personal Property Security Act 1990 (Ontario), s 11. For the situation where perfection occurs by force of the legislation, see Personal Property Securities Act 2009 (Cth), s 21(1)(a).

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Criteria for attachment

A security interest is said to “attach to collateral” 65 on the satisfaction of two criteria specified in PPSA s 19(2). The time at which those criteria are satisfied may coincide with the date of execution of a written agreement, but not necessarily. It is possible for the security interest to attach without any written agreement. Perhaps the more straightforward of the two criteria is the requirement that either value is given by the secured party or the grantor “does an act by which the security interest arises” (s 19(2)(b)). “Value” includes not only consideration in the technical sense (that is, sufficient to support a contract) but also an antecedent debt or liability (s 10). The alternative requirement of an act would seem to be satisfied by, for example, the grantor entering into a security agreement. More problematic is the criterion in PPSA, s 19(2)(a) that the grantor must have “rights in the collateral”, a phrase that is unfortunately not defined. “Rights” obviously includes title. Section 19(5) makes clear, however, that it also includes “possession”: For the purposes of paragraph (2)(a), a grantor has rights in goods that are leased or bailed to the grantor under a PPS lease, consigned to the grantor, or sold to the grantor under a conditional sale agreement (including an agreement to sell subject to retention of title) when the grantor obtains possession of the goods.

It is important to note that the rights of a grantor are relevant not simply vis-à-vis the lessor, bailor, consignor or vendor under the transactions specified in s 19(5) but also vis-à-vis a further secured party seeking to take (or having taken) a security interest over the grantor’s property, typically the grantor’s bank under a general security agreement. The wording of s 19(5), under which the grantor has rights through the fact of possession, indicates that that possession is also sufficient to enable a security interest of a third party such as the bank to attach over the collateral. This means that the lessor, bailor, consignor or vendor finds itself in a priority dispute with the bank as a third party. At common law, in contrast, the bank would only have obtained security over the grantor’s possessory interest in the goods, rather than in the goods themselves. Several conceptual issues are raised by s 19(5), the first of which is the resulting characterisation of the grantor’s rights. In Canada and New Zealand courts examining the interest of a lessee under the equivalent of a PPS lease have described the grantor’s rights as not simply a common law possessory interest but also a statutory proprietary interest, with the grantor being implied or deemed to have ownership. 66 Whether this additional characterisation of the rights as proprietary in nature is necessarily required under the terms of the Australian legislation arguably remains open. 67 A second interesting conceptual issue is 65

66

67

If collateral gives rise to proceeds, the security interest also attaches to those proceeds, subject to contrary agreement in the security agreement (see Personal Property Securities Act 2009 (Cth), s 32(1)(b) and [13.390] (Everett & McCracken)). See Re Giffen (1998) 1 SCR 91; 155 DLR (4 th) 332; Graham v Portacom New Zealand Ltd [2004] 2 NZLR 528; New Zealand Bloodstock Ltd v Waller [2006] 3 NZLR 629. The source of such a proprietary right was queried by the High Court of New Zealand in Rabobank New Zealand Ltd v McAnulty [2010] NZHC 1534, but not addressed by the Court of Appeal at [2011] NZCA 212. See McCracken, “Conceptualising the Rights of a Lessee under the Personal Property Securities Regime: the Challenge of “New Learning” for Australian Lawyers” (2011) 34(2) UNSWLJ 547 where it is argued that it is unnecessary to deem ownership on the part of the lessee under a PPS lease and that recognition of the possessory interest is sufficient to enable the security interest to attach to the goods by force of the legislation. Compare Whittaker, “The Scope of “Rights in the Collateral” in Section 19(2) of the PPSA – Can Bare Possession Support Attachment of a Security Interest?” (2011) 34(2) UNSWLJ 524. [23.60]

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whether the possession of goods obtained by a grantor by a means other than pursuant to a transaction specified in s 19(5) might be sufficient for a security interest to attach to the goods. Can, for example, a thief whom the common law recognises as having the legal interest of possession in the stolen goods give a security interest over those goods to a third party such as its bank? Contrasting arguments are: • on the one hand, that the thief has insufficient rights for the purposes of s 19 and hence that the bank cannot acquire a security interest; 68 • on the other hand, that a thief has sufficient rights through possession but that the bank’s security interest is defeasible to the claim of the true owner based on title. 69 The above discussion assumes that the property to which the security interest relates is already in existence and in the ownership or possession of the grantor at the time at which value is given (or a relevant act done). Where property is future property, the requirement for the grantor to have “rights in the collateral” means that a security interest over such future property can only potentially attach on the acquisition of those rights. 70 Impact of attachment

As PPSA, s 19(2) provides that the security interest attaches to the property on satisfaction of the two criteria, the interest is necessarily a fixed interest as from that time. The provision thus renders the equitable concept of a floating charge ([22.50]) irrelevant. Although it is possible for the secured party and the grantor to agree that a security interest should attach at a later time, 71 this does not equate to the floating charge security where the secured party could be protected as a matter of contract from the date of agreement but the interest only became fixed on a subsequent crystallising event (see [22.70]). The fact that the security interest is fixed in nature has ramifications for subsequent dealings with the collateral, in particular sales of goods by the grantor. Generally, the PPSA enables dealings in collateral by two distinct mechanisms: • by providing that a security interest in collateral which gives rise to proceeds should not continue in the collateral where the secured party has either authorised the disposal or agreed that a dealing would extinguish the security interest (see s 32(1)(a), [13.380] (Everett & McCracken)); or

68

See, for example, Scott “The PPSA: the Continued Relevance of Conventional Legal Principles in Determining the Existence of a Security Interest” (2009) 15 NZBLQ 205; Whittaker, “The Scope of “Rights in the Collateral” in Section 19(2) of the PPSA – Can Bare Possession Support Attachment of a Security Interest?” (2011) 34(2) UNSWLJ 524.

69

McCracken, “Grappling with new concepts under personal property securities legislation: Possession as a source of security rights”, presented at the Commonwealth Lawyers’ Association (CLA) Regional Law Conference, Sydney, 22 April 2012. Such an argument can be developed by analogy to Gray v Royal Bank of Canada (1997) 143 DLR (4 th) 179. Given that the owner’s interest would not itself be a security interest within Personal Property Securities Act 2009 (Cth) (PPSA), s 12 as it does not secure payment or performance of an obligation, the priority conflict would have to be resolved outside the terms of the PPSA. Hence the owner’s claim based on title would prevail at common law, in the absence of additional arguments based on other doctrines such as estoppel. This is consistent with the position established at general law in Holroyd v Marshall (1862) 10 HLC 191; 11 ER 999.

70 71

Mere use of floating charge terminology is not sufficient to defer the attachment time: Personal Property Securities Act 2009 (Cth), s 19(4).

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• by enabling a third party, generally a buyer or lessee, to take free of a security interest which has continued in the collateral in specified situations (see Pt 2.5, [13.400] (Everett & McCracken)). The fixed nature of the security interest is of particular concern in dealings with inventory which by its nature is intended to be bought and sold. To what extent, in the absence of an express authorisation by the secured party, is it possible to imply an authorisation to the grantor to dispose of such collateral? (see [13.380] (Everett & McCracken)).

Enforceability against third parties [23.65] The role of this concept is somewhat unclear. Compliance with the statutory criteria

does not necessarily mean that the security interest is enforceable for all purposes. 72 Rather, the provision appears to establish a minimum threshold whereby failure to comply means that the security interest is not enforceable against a third party. Canadian commentators suggest that the concept plays an evidentiary role, describing equivalent Canadian provisions as “‘Statute of Frauds’ or writing requirements”. 73 Under the PPSA the concepts of “attachment” and “enforceability against third parties” represent two distinct stages, with attachment being a pre-requisite to enforceability against third parties 74 (s 20(1)(a)). In terms of its criteria, the later is significantly more straightforward than the former (see [23.60]). Section 20 requires one of three events to occur; namely, 1.

the secured party possesses the collateral; or

2.

the secured party has perfected the security interest by control; or

3. a security agreement covers the collateral in the manner stipulated. The taking of possession and control are steps that are also relevant to perfection and their meaning is discussed at [23.70]). In many commercial transactions, it is likely that a secured party will have to satisfy the criterion relating to the security agreement. The taking of possession or control is a less common event, given that on the one hand the secured party usually does not take possession of the collateral pre-enforcement as the grantor needs to be able to use it to generate revenue and, on the other, the types of property which are capable of being perfected by control are very restricted (see [23.70]). Where control of the property is available to a secured party, control is likely to be taken, given the powerful priority ranking it confers (see [13.280] (Everett & McCracken)). The term “security agreement” is defined in s 10 as meaning: (a)

an agreement or act by which a security interest is created, arises or is provided for; or

(b) writing evidencing such an agreement or act. The validity of such an agreement is generally dependent on the law of contract as it is stated to be “effective according to its terms”. 75 72 73

74 75

See Boxall, “Personal Property Securities Act 2009 (Cth): some consequences for buyers of personal property” (2011) 25(1) CLQ 15 at 15-16. See, for example, Duggan and Ziegel, Secured Transactions in Personal Property, Emond Montgomery, (Toronto (5 th ed) 2009), p 100. Compare Royal Bank of Canada v Radius Credit Union [2010] 3 SCR 38 at [31]. Compare the position under other PPS style legislation: see above n 64. Personal Property Securities Act 2009 (Cth) (PPSA), s 18. For the position where State law requires the security agreement to be in a particular form, see PPSA, s 263 (does not limit effect of security agreement). [23.65]

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Section 20(2) requires the security agreement to be evidenced by writing 76 that is signed or adopted in accordance with the provision and to contain a prescribed description of the collateral. The purpose of equivalent criteria under other PPS legislation has been explained by one Canadian court as being: 77 to enable one creditor to be able to identify that another creditor has a security interest in identifiable collateral.

The same court noted that the security agreement could be “oral or in writing or some combination thereof” 78 and that the written part could be formed by more than one document. 79

Perfection [23.70] The Replacement Explanatory Memorandum to the Personal Property Securities Bill

2009 (Cth) notes the role of the concept of perfection in determining priority (see para [18] and [13.270] (Everett & McCracken)). This is a role which the Supreme Court of Canada has also recently emphasised, observing: 80 The significance of perfection in the PPSA scheme is that a perfected security interest generally takes priority over an unperfected security interest.

The fact of perfecting a security interest also reduces the circumstances in which a third party can take free of that interest. 81 Additionally, under the Australian PPSA, perfection is generally 82 critical to ensuring that the security interest does not vest in the grantor on insolvency. In taking one of the three steps towards perfection required by PPSA, s 21(1)(b)(iii) – whether it be the registration of a financing statement or the taking of possession or control of the particular collateral (s 21(2), discussed below) – a secured party is often said to give public notice that it has a claim to the collateral. 83 Yet in technical legal terms, the fact of registration itself does not give notice. 84 PPSA, s 300 states: A person does not have notice, or actual or constructive knowledge, about the existence or contents of a registration merely because data in the registration is available for search in the register. 76

“Writing” includes electronic recording (see Personal Property Securities Act 2009 (Cth), s 10).

77 78 79 80

MacEwan Agricentre Inc v Beriault & McLennan (2002) 61 OR (3d) 63 at [31]. MacEwan Agricentre Inc v Beriault & McLennan (2002) 61 OR (3d) 63 at [18]. MacEwan Agricentre Inc v Beriault & McLennan (2002) 61 OR (3d) 63 at [19]. Bank of Montreal v Innovation Credit Union [2010] 3 SCR 3 at [21].

81

Personal Property Securities Act 2009 (Cth), s 43 (taking free of an unperfected security interest); s 52 (taking free of a temporarily perfected security interest). See [13.400] (Everett & McCracken).

82

Personal Property Securities Act 2009 (Cth), ss 267 sets out when a security interest vests in the grantor. Certain security interests are, however, excluded under s 268. Where the grantor is a company, time limits for registration apply pursuant to the Corporations Act 2001 (Cth), s 588FL. See text below, [15.340] (Everett & McCracken) and In the matter of Barclays Bank plc [2012] NSWSC 1095 (application for extension of registration time). See, for example, Replacement Explanatory Memorandum to the Personal Property Securities Bill 2009 (Cth), para [19]. Compare the position in relation to charges previously registrable under the now repealed Ch 2K of the Corporations Act 2001 (Cth). Registration gave constructive notice by operation of Corporations Act 2001 s 130(2) (now repealed but see Corporations Act 2001 (Cth), s 1501B).

83 84

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Furthermore, in some circumstances the security interest is perfected without any step being taken by the secured party, the security interest being declared to be “temporarily perfected, or otherwise perfected, by force of this Act” (s 21(1)(a), discussed below). There is sometimes a tendency to equate “perfection” with “registration”, but this is incorrect. The accurate position is reflected in the new terminology. A secured party does not register a security interest; rather, it applies to register a financing statement with respect to a security interest. Through effective registration of that financing statement, the secured party perfects its security interest, assuming that the security interest is both attached and enforceable against third parties (see [23.60], [23.65]). While insistence on the changed language may seem pedantic, it decreases the risk of confusion as to whether, and if so when, perfection has actually occurred if registration is the method used to perfect. Steps to perfection under the PPSA

There are three different steps that may be taken to achieve perfection: possession, registration and control. Possession and some form of registration pursuant to statute have long been traditional methods by which pre-PPSA a secured party would give notice of its security interest and thereby meet concerns (at a policy level) that third parties dealing with a grantor might be misled over the extent of a grantor’s unencumbered assets. Their inclusion in modern PPS-style legislation is a logical development, even if the fact of registration under PPSA does not of itself give notice (as discussed above). “Control” is a more recent concept. It has arisen under US and Canadian legislation relating to dealings with shares and other investment property. In this context it introduces modern terminology said to be more suited to dealings with property that is not tangible. In the Australian context, “control” is not, however, a direct equivalent to “possession” for all property that is not tangible. Only certain types of property that are not tangible are capable of control. They are: an ADI account; an intermediated security; an investment instrument; a negotiable instrument not evidenced by a certificate; and rights evidenced by a certain type of letter of credit (PPSA, s 21(2)(c)(i) – (v)). Moreover, one class of tangible property is also included; namely, satellites and other space objects (s 21(2)(c)(vi)). The manner in which control may be taken over the specified types of property (other than space objects) is set-out in PPSA, ss 25 – 29 and generally reflects the notion that the secured party is in a position to deal with the property without further recourse to the grantor. 85 Which step of perfection (possession, registration or control) is chosen on a particular set of facts will be determined in part by the type of property subject to the security interest and whether “control” can be taken of that property. The ability to take “control” can itself be a decisive factor, given that a security interest perfected by control takes priority over security interests perfected by any other means (s 57, [13.280] (Everett & McCracken)). In certain circumstances, the step of registration may also be taken in conjunction with either that of possession or control. This is done for reasons other than simply obtaining perfection of the security interest. Perfection by registration may enable a secured party to claim, for example, that the security interest is perfected automatically as to proceeds (s 33(1); [13.390] (Everett & McCracken)) or that the security interest, being a security interest over an ADI account (other than a term deposit) or over certain other assets, is not regarded as a “circulating asset” 85

See Replacement Explanatory Memorandum to the Personal Property Securities Bill 2009 (Cth), para 33: “Perfection by control would occur when a creditor takes all steps necessary to be in a position to sell the collateral without further action by the grantor.” [23.70]

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(s 340(2)). A finding that a security interest is in circulating assets impacts adversely on a secured party’s ranking in a corporate insolvency (see [15.470] (Everett & McCracken)). The type of property in which a security interest is taken is relevant more generally because not all steps to perfection can be taken in relation to all types of collateral. It is clear, on the one hand, that a registration can be made in respect of all kinds of collateral and, on the other, that control is limited to the six specified kinds of collateral. Some ambiguity in interpretation arises, however, where the proposed step to perfection is possession. Two questions arise: first, whether possession can be taken of “all collateral” and, secondly, assuming that the relevant collateral is capable of being possessed, whether all forms of possession recognised at common law are sufficient for the purpose of s 21. Under s 21(2)(b) possession appears on first reading to be an appropriate step in relation to “any collateral”. The first question is whether that phrase “any collateral” has to be read down to refer only to collateral that has a physical manifestation and hence is physically capable of being possessed? A response to this question must take into account the impact of s 10 which states that “possession has a meaning affected by s 24”. Two provisions of s 24 – subsections (5) and (6) – enable certain types of intangible property (in the common law sense of choses in action) to be possessed, through possession of an electronic record or of a certificate. The legislation does not make clear whether these provisions are statutory exceptions to the general common law rule that only physical property can be possessed or whether they are suggestive of a wider meaning to be given to the concept of possession. If the former interpretation (which would be consistent with the Canadian position) 86 is adopted by Australian courts, the taking of possession will only be available in respect of collateral that has a physical manifestation and hence a more limited range of property than the wording in s 21(2)(b) initially indicates. Once it is established that the collateral is capable of being possessed, the second question arises as to the form of possession. Not all forms of possession are sufficient for the purpose of perfecting by possession under s 21. Possession arising as a result of enforcement action is insufficient (s 21(2)(b)). 87 Constructive possession where possession is left with the grantor or the debtor (or their agents) is also insufficient (s 24(1)). Possession may, however, be held through a third party other than the grantor or the debtor, such as through a bailee of the secured party (s 22). Registration 88 generally means a “registered financing statement ... with respect to ... a security interest” (s 10). A “financing statement” is defined as “data registered (or that is to be registered) pursuant to an application for registration under subsection 150(1)” (s 10). The content of the financing statement is prescribed by s 153 which sets out in tabular form the data required. This includes: brief data about the secured party, the grantor, the collateral and 86 87 88

See eg Cuming, Walsh and Wood, Personal Property Security Law, (Irwin Law Inc, Toronto 2005), p 212. See also Personal Property Securities Act 2009 (Cth), s 123(4); s 126(4). See generally Duggan, “A PPSA Registration Primer” (2011) 35 MULR 865. For operational issues causing concern on the initial operation of the PPS register, see “PPSA – the first 50 days”, available at http://www.mallesons.com/publications/marketalerts/2012/regulator-march-2012 (viewed 14 September 2012) where commentators note multiple registrations being made against grantors as well as a need for multiple searches to find the security interests. See also Carson, in the matter of Hastie Group Ltd (No 3) [2012] FCA 719 where administrators sought directions with respect to disposing of plant and equipment of companies against whom 995 registrations had been made. The Federal Court of Australia observed (at [10]): “Given the level of generality of many of the registrations in the PPSR and the existence of many transitional security interests that are not registered, it has proved extremely difficult for the administrators to rely upon the PPSR for the purpose of identifying property that is subject to third party security interests.”

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the proceeds, the end time for registration as well as an indication as to whether the security interest is a PMSI. Hence the financing statement differs significantly from the security agreement (see [25.65]). It serves simply as a notice or warning that a person claims (or will claim) a security interest. The registration must be an “effective” registration. This is a defined term indicating that the registration must comply with PPSA, Pt 5.4. Section 164(1) provides the basis on which a registration (in respect of particular collateral) is ineffective because of a defect in the register. There are two grounds: (a) a seriously misleading defect 89 in any data relating to the registration, other than a defect of a kind prescribed by the regulations; or (b) a defect mentioned in s 165.

In addition to any circumstances prescribed by the regulations, s 165 addresses circumstances where an appropriate search 90 would not disclose the registration or where a financing statement inaccurately describes the security interest as a PMSI. Where the grantor is a company, time limits for registration are specified in the Corporations Act 2001 (Cth) (see [15.340] (Everett & McCracken) and note 82). Temporarily or otherwise perfected by force of the PPSA

Section 21(1)(a) of the PPSA provides for automatic perfection by force of the legislation itself in two circumstances; namely, where a security interest is “temporarily perfected” or “otherwise perfected”. 91 Different levels of protection apply according to which of these two forms the automatic perfection takes. Temporary perfection, as the phrase suggests, is available only for a limited time – often a very short time – and generally requires a secured party during this period to take an appropriate step to perfect the security interest. Furthermore, a security interest which has been only temporarily perfected may be vulnerable to a claim by a third party such as a buyer or lessee to take free of it. 92 The circumstances in which each type of perfection is available is indicated by the legislation. The Replacement Explanatory Memorandum conveniently lists typical situations in which temporary perfection is conferred (para [22]): • collateral moved to Australia [now ss 39 – 40]; • proceeds not included in the registered description of collateral or arising from collateral perfected in another way [now ss 33(2) – (3)]; • transferred collateral [now s 34]; • goods or documents of title, perfected by the bailee’s possession and returned to the grantor or debtor for dealing [now s 35]; 89

See Simpson & Walton as Receivers of Service Foods Manawatu Ltd (in rec and in liq) v New Zealand Associated Refrigerated Food Distributors Ltd [2006] NZCA 349.

90

Whether it is a search by reference to the serial number only or to the grantor’s details only depends on whether the collateral is required by the regulations to be described by serial number: Personal Property Securities Act 2009 (Cth), s 165(a), (b). See Fairbanx Corporation v Royal Bank of Canada (2010) 68 CBR (5 th) 102; 2010 ONCA 385. See McCracken, “Personal Property Securities Legislation: Striving for Perfection”, paper delivered at the Specialist Accreditation Business and Property Law Conference, College of Law, Terrigal, 1 June 2012. Personal Property Securities Act 2009 (Cth), s 52. See [13.400] (Everett & McCracken).

91 92

[23.70]

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• negotiable and investment instruments, perfected by the bailee’s control or possession, and returned to the grantor or debtor for dealing [now s 36]. 93

Less readily identifiable are the circumstances in which a security interest is “otherwise perfected”. They include circumstances where a security interest in goods which are processed or commingled continues in the new product (s 100). 94 Perhaps a more common example is a security interest in proceeds where the security interest in the original collateral has been perfected by an appropriate registration (as described in s 33(1) and discussed at [13.390] (Everett & McCracken)).

Re Arcabi Pty Ltd (in liq); ex parte Theobald & Herbert [23.75] Re Arcabi Pty Ltd (recs & mgrs apptd) (in liq); ex parte Theobald & Herbert (2014) 288 FLR 236 1 MASTER SANDERSON: On 17 December 2013 I gave certain directions to the plaintiffs in relation to the conduct of the receivership of Arcabi Pty Ltd (Receivers & Managers Appointed) (in liq) (Arcabi). On 15 May 2014 the Receivers sought further directions. Based upon detailed submissions made on behalf of the Receivers I made the orders as sought. These reasons deal with why the orders were made. However to fully explain why I made the orders it is necessary to not only provide details of the factual background but to explain why I made the orders I did in December. Accordingly these reasons are intended to explain both the orders made in December 2013 and the orders made in May 2014. 2 In support of the orders made in December 2013 the plaintiffs relied on two affidavits of Mr Simon Guy Theobold the first sworn on 22 November 2013 and the second sworn on 13 December 2013. The Receivers were appointed to the assets and undertakings of Arcabi on or about 17 July 2013 by the Westpac Banking Corporation (the Bank). 3 The business of Arcabi included storage and sale of rare coins and bank notes (referred to generally as Goods). The Goods were stored on premises at 12 Sanford Road, Albany (the Premises). The Premises are not owned by Arcabi but by the directors of Arcabi, Robert and Barbara Jackman. The Bank has security over the Premises and it has enforced its security and taken possession. 4 Operating the business of Arcabi includes responding to requests for return of Goods, dealing with Goods on consignment and storing and selling items belonging to Arcabi. The Goods dealt with by Arcabi in the course of its business are not all owned by Arcabi. Some items are the property of Arcabi and those will no doubt in due course be realised by the Receivers. Some items are property of third parties. These third parties are referred to throughout the affidavit material as “Investors”. 5 Since their appointment the Receivers have operated the business in order to preserve it and have undertaken extensive investigations in order to ascertain what inventory is owned by Arcabi and what is owned by third parties. The operations and investigations are detailed exhaustively in Mr Theobold’s first affidavit. 6 Having undertaken these investigations the Receivers formed the view that a substantial number of items are not the property of Arcabi or subject to any security in its favour under the Personal Property Securities Act 2009 (Cth) (PPSA) and so should be returned to the Investors. Accordingly the Receivers proposed various steps for the return of certain assets. They sought directions that their proposed course was justified. The Receivers also sought directions as to the treatment of the expenses and fees which they have incurred investigating and preserving the business of Arcabi and bringing matters to the point where they can identify which Goods are owned by Arcabi and which Goods are owned by Investors and can be returned. 93

The reference in Personal Property Securities Act 2009 (Cth), s 36 to “goods” appears to be an error.

94

It should be noted, however, that automatic perfection of this security interest is expressly limited to the purposes of the default priority rules under s 55 (see [13.270] (Everett & McCracken)).

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Re Arcabi Pty Ltd (in liq); ex parte Theobald & Herbert cont. 7 More particularly the Receivers sought directions as to whether in their capacity as the Receivers and Managers of Arcabi they were justified in: (a)

returning to Investors certain Goods which were part of an arrangement between Arcabi and an Investor whereby Arcabi would store such Goods at the Premises (referred to as “Mixed Storage Goods”);

(b)

returning to Investors certain Goods which were part of an arrangement between Arcabi and an Investor whereby the Investor requested Arcabi to sell the Goods on consignment, when these Goods had not sold at the time of the appointment of liquidators to Arcabi and remained at the Premises (referred to as “Consignment Only Goods”);

(c)

taking out insurance for Goods stored at the Premises, including Goods of the Investors; and

(d)

seeking to recover a proportional contribution towards those insurance costs from Investors, except in the case of Investors who informed the Receivers they did not wish them to take out insurance for their Goods.

8 The Receivers also sought a direction that they were justified in asserting an entitlement to an indemnity, secured by an equitable lien upon the assets of Arcabi (including proceeds of the sale of company owned items), for the repayment of their costs, expenses and remuneration relating to the payment of insurance over the Goods (regardless of ownership) and all enquiries and assessments necessary to ascertain the ownership of the Goods, ascertain any other rights with respect to the Goods and facilitate distribution of the Goods. The Receivers were not asking the court to quantify the costs which might be protected by the lien. They relied on the principle that in appropriate cases the entitlement to a lien and the actual amount so secured can be determined separately: see Dixon v Wieselmann [2013] VSC 118 [45]; Re Morgan; Brighton Hall Securities Pty Ltd (in liq) [2013] FCA 970 [152] and for the orders in that case Re Morgan; Brighton Hall Securities Pty Ltd (in liq) (No 2) [2013] FCA 1228. It was always anticipated by the Receivers the December application would be the first stage of a process to deal with simple Investor arrangements. Further applications particularly dealing with more complex claims were anticipated. 9 The Receivers identified five legal issues which arose out of the application. They can be summarised as follows: (a)

whether the PPSA affects ownership of the Mixed Storage Goods (ie do the relevant Investors retain title to those specified Goods or has their interest vested in Arcabi);

(b)

whether the PPSA affects ownership of the Consignment Only Goods (ie do the relevant Investors retain title to those specified Goods or has their interest vested in Arcabi);

(c)

whether the out of court Receivers are entitled to an indemnity supported by an equitable lien over Arcabi’s assets in circumstances where the costs incurred and which continue to be incurred relate to Goods which are not solely the property of Arcabi but also the property of Investors (ie does an indemnity and lien extend to such work);

(d)

whether the Receivers’ costs incurred in taking out insurance for Goods stored at the Premises is a cost properly incurred in the course of receivership in circumstances where investigations have disclosed that not all Goods are Goods of Arcabi; and

(e)

whether it is appropriate to seek a contribution from Investors for post-appointment insurance of Goods.

10 It is worth noting there was no contradictor to the plaintiffs’ application. No doubt, conscious of her obligations to the court, senior counsel for the plaintiffs provided detailed and very helpful written submissions. The submissions taken together with the comprehensive affidavits made it plain all relevant facts had been put before the court. The first question then is whether or not it was appropriate to make directions under s 424(1) of the Corporations Act 2001 (Cth). [23.75]

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Re Arcabi Pty Ltd (in liq); ex parte Theobald & Herbert cont. 11 Section 424(1) of the Corporations Act is in the following terms: A controller of property of a corporation may apply to the Court for directions in relation to any matter arising in connection with the performance or exercise of any of the controller’s functions and powers as controller. 12 The power to make directions pursuant to the section is a broad power intended to facilitate the work of receivers: see Re Odessa Promotions Pty Ltd (in liq); Pescod v Harrison (1979) CLC 40-523, 32, 103. The section provides a statutory exception to the general rule that a court will not give an advisory opinion: see North City Developments Pty Ltd; Re; Ex parte Walker (1990) 20 NSWLR 286, 290. The generally cited statement of the circumstances in which the court would make a direction under s 447D(1) of the Corporations Act is what was said by Goldberg J in Re Ansett Australia Ltd (No 3) (2002) 115 FCR 409: There must be something more than the making of a business or commercial decision before a court will give directions in relation to, or approving of, the decision. It may be a legal issue of substance or procedure, it may be an issue of power, propriety or reasonableness, but some issue of this nature is required to be raised [65]. 13 If a receiver has made full and fair disclosure to the court of all material facts a direction will protect the receiver from liability for any alleged breach of duty as receiver to a creditor, a contributory of the company or the company in respect of anything done by him in accordance with that direction: see Hawke v Daniel Efrat Consulting Service Pty Ltd (1999) 17 ACLC 733, 739. 14 The PPSA is recent legislation and there is virtually no relevant Australian authority on the statute. In Re Maiden Civil (P&E) Pty Ltd; Albarran v Queensland Excavation Services Pty Ltd [2013] NSWSC 852 Brereton J found the Commonwealth Parliament in enacting legislation that was modelled on the New Zealand and Canadian legislation should be taken to have intended a similar approach to that which is well established in those jurisdictions. Accordingly the plaintiffs relied heavily on New Zealand and Canadian decisions in relation to provisions of the PPSA which were equivalent to the Australian provisions. 15 The relevance of the PPSA is this: the arrangements between the Investors and Arcabi may be such that the Investors have a secured interest in the Goods in the possession of Arcabi but have failed to perfect it as required under the PPSA resulting in a vesting of their interest in Arcabi so allowing for the Bank (as secured creditor with a perfected charged over Arcabi’s assets) to have priority to these Goods. That may be the effect of s 267 of the PPSA. The Receivers were alive to that possibility. However they determined the Investors remained entitled to the Goods the subject of the application. The Bank accepted that position and consented to the application as made by the Receivers. 16 The Receivers undertook an extensive review of the claims made by Investors for Goods and other items. The review included requesting Investors to provide documents to support their claims to the Goods. The initial application concerned only those Investors who provided sufficient documentation and which the Receivers verified as matching the records of Arcabi. The Receivers used the term “Mixed Storage Goods” to include Investors who entered into three types of arrangements with Arcabi to store Goods at the Premises. They were “Storage Only Goods”, “Investors’ Retailed Goods” and “Personal Goods”. The reasons why this was done were fully described in Mr Theobold’s first affidavit at par 57 and in the supplementary affidavit at par 28. 17 Investors with Storage Only Goods were usually charged a “storage fee” and were issued with an invoice. The files at the premises relating to Storage Only Goods usually contained authenticity certificates, tax invoices documenting the initial purchase of the Goods and “numismatic evaluations” in the Investors’ files. Files relating to Investors’ Retailed Goods usually included only the tax invoices for the purchase of the coins and bank notes. Personal Goods were usually Goods belonging to Investors and stored at their request that were not purchased from Arcabi; plus other such items as wills and duplicate certificates of title. In most cases there were no hard copy records stored with the 602

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Re Arcabi Pty Ltd (in liq); ex parte Theobald & Herbert cont. Personal Goods. Where there were sufficient records for Goods they were covered by the initial application. Other items such as wills and title deeds were not covered by that application. Where Investors were able to provide only a list of Goods which were stored with Arcabi the Receivers returned such Goods where they corresponded to Arcabi’s records. 18 The arrangement between Investors and Arcabi for Mixed Storage Goods arose generally by way of an Investor directing Arcabi to store the Goods and Arcabi issuing a storage invoice. This was arguably a bailment arrangement. A bailment is where a bailor delivers the goods to the bailee upon a promise, express or implied, that they will be delivered the bailor or dealt with in a stipulated way: see Hobbs v Petersham Transport Co Pty Ltd (1971) 124 CLR 220, 238. The question was whether the arrangements were of such a nature as to be captured by the security interest provisions of the PPSA which affect bailments. 19 Two types of bailment may comprise a security interest under the PPSA. First, an “in substance” security interest under s 12(1) of the PPSA but only if the bailment secures payment or performance of an obligation. Second, if certain conditions are met the bailment is deemed to be a “PPS lease” under s 13 and so is a security interest under s 12(3)(c). 20 There are several factors accepted by overseas courts as indicia of when bailment arrangements secure payment or performance of an obligation. These include: (a)

the bailment provides that the ownership of the goods will vest in the bailee on expiry of the bailment agreement;

(b)

the bailee has an obligation to purchase the goods or an option to purchase the goods or extend the term of the arrangement at a “bargain” price such that it would be reasonable to expect the bailee to exercise the option;

(c)

the term of the arrangement is for a major part of the economic life of the goods; and

(d)

the minimum payments under the bailment amount to substantially all the capital cost of the goods.

21 It was the Receivers’ position the bailments created by the storage arrangements between Investors and Arcabi did not secure payment or performance of an obligation. They reached that conclusion for a number of reasons. First, having considered the records and made due enquiry there was no suggestions the Goods would vest in Arcabi on the expiry of the bailment. Second, there was no suggestion that Arcabi would have an obligation to purchase the Goods. Third, the term of the arrangement was not likely to be for the major part of the economic life of the Goods as those Goods had an indefinite life subject to storage conditions. Finally, the nominal payment for the bailment which was usually $240 - did not equate to the capital cost of the Goods. 22 Clearly the Receivers reached the right decision for the right reasons. On the facts this is not a case where the bailment was in substance a security interest. 23 The next question is whether the bailments were PPS leases. The interest of a bailor of goods under a PPS lease is a “security interest” for the purposes of the PPSA: see s 12(3)(c). The effect of s 13(1), (2) and (3) of the PPSA is that if the bailment: (a)

is for a term of more than one year or is for an indefinite term or for a term of up to one year that is automatically renewable or renewable at the option of one of the parties;

(b)

the bailor is regularly engaged in the business of bailing goods; and

(c) the bailee provides value for possession of the underlying collateral; the bailment will be deemed to be a PPS lease. 24 It is a requirement of s 13(2)(b) that the bailor must be “regularly” engaged in “the business of bailing goods” which on its face permits differing views. Many bailment arrangements may be [23.75]

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Re Arcabi Pty Ltd (in liq); ex parte Theobald & Herbert cont. incidental aspects of a particular type of contract but are nevertheless likely to be a regular occurrence in the everyday course of business. There is no concept of a PPS lease in the New Zealand or Canadian legislation. The equivalent concept is a lease for more than one year. The Canadian versions of the legislation do not refer to “bailment” in the definition of a “lease for more than one year”. However the New Zealand equivalent does refer to the concept. There is one relevant New Zealand case to which counsel referred. That is the decision of the Court of Appeal in Rabobank New Zealand Ltd v McAnulty [2011] NZCA 212. The facts in that case were as follows. A syndicate put a race horse out to stud and entered into a standing arrangement with a stud farm. The farm agreed to manage and stable the horse. A bank had loaned money to the farm and had a perfected secured interest in all the farms present and after acquired personal property. The bank claimed the horse as part of its collateral. The Court of Appeal said: In our view, the words “in the business of leasing goods” should be read as importing a requirement that the owner actually be intending to profit from the bailment or lease. This would exclude gratuitous bailments where the bailor was not receiving any payment for the use of the goods and bailments where the bailee is in the business of bailments, not the bailor. We see this as best reflecting the Parliamentary intention of treating some lease and bailment transactions as security interests, and requiring the bailor to perfect its interest in order to ensure its interest defeats that of any secured creditors of the bailee. The reason for the deeming provision is to ensure that lease/bailment transactions that are not easily distinguishable from finance leases are treated as if they are finance leases. Bailment transactions that could not possibly be confused for finance leases do not need to be drawn into that net, and there is nothing to indicate that Parliament intended that they should be [40]. 25 The Court of Appeal found that the syndicate was not in the business of bailing goods but was instead in the business of maintaining and profiting from the horse. The cost of bailment of the horse was an incidental expense to the business, not the business itself. Accordingly, the bailment of the horse was not “a lease of a term for more than one year” as would have been required for the PPSA to deny the syndicate its priority. The Court of Appeal also found this interpretation had the practical effect of excluding bailments in respect of which the bailor did not receive consideration with a view to profit. The court noted that the Australian PPSA “has express statutory language that yields that outcome”. That was a reference to s 13(3) of the Australian PPSA. 26 Section 10 of the PPSA defines the term “value”. It means consideration that is sufficient to support a contract that includes an antecedent debt or liability. There are at least two possible interpretations of this requirement. One is that any bailment under a contract for which the bailee provides consideration (including a promise to provide particular services) is potentially a PPS lease, even though the bailment aspect of the contract is incidental to its performance. The alternative is that s 13(3) requires specific consideration to be given by the bailee for the bailment. Any determination as to the meaning of “value” in an application of this type is difficult. For the purposes of this application I need not resolve the question. It was the Receivers’ position that the question as to whether the arrangements comprise a PPS lease can be determined on the basis there is no evidence the Investors “regularly engaged in the business of bailing Goods”. That is a submission that I accepted for the following reasons. 27 The arrangements between Arcabi and the Investors with Mixed Storage Goods appear to be for either an indefinite term or for a term of up to one year that is automatically renewable or renewable at the option of one of the parties. On their face then these arrangements fall within s 13(1). However, even if the Investors with Mixed Storage Goods did operate businesses - a doubtful prospect - by analogy with Rabobank Investors were in the business from profiting from the exchange of rare coins/bank notes rather than from the bailment itself. Moreover it appears in many instances the 604

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Re Arcabi Pty Ltd (in liq); ex parte Theobald & Herbert cont. exchange of coins/bank notes was a hobby for those Investors with Mixed Storage Goods and they did not engage in a business at all: see par 67 of Mr Theobold’s first affidavit. 28 As the arrangements do not comprise a PPS lease the Investors do not have a security interest in the Goods that is capable of being perfected. Any failure to perfect is therefore irrelevant and there is no priority dispute with the Bank as secured creditor. The Investors own their Goods and the bailment arrangements do not affect that ownership in any manner which gives priority to the Bank under its perfected security. Accordingly it is appropriate that the Goods be returned to the identified Investors. 29 Turning then to the Consignment Only Goods under the PPSA a security interest includes “a consignment (whether or not a commercial consignment) if the transaction, in substance, secures payment or performance of an obligation”: s 12(2)(h). The security interest also expressly includes the interest of a consignor who delivers goods to a consignee under a commercial assignment: see s 12(3)(b). The context in which the PPSA is to be considered with respect to consignments is that the Investors (as consignors) may have a secured interest in the Goods in the hands of Arcabi under s 12(2)(h) or under a commercial consignment arrangement by reason of s 12(3)(b). 30 The Receivers contended the Investors remained entitled to the Consignment Only Goods the subject of the application. The Bank accepts that position. The Receivers put forward four reasons for their decision. First having considered the terms upon which the Consignment Only Goods were held they were of the opinion such Goods were not assets of Arcabi but were held on consignment. Second, the consignments do not secure payment or performance of an obligation. Third, consignments were not “commercial assignments”. Finally, even if the consignments secured payment or performance of an obligation, the transitional provisions of the PPSA would protect the Investors’ interest until 30 January 2014, such that there was no vesting of the security interest in Arcabi. 31 It fell for determination on this application whether or not the decision of the Receivers was correct. In determining that question there is a threshold question as to the arrangements between Arcabi and the Investors when a purported consignee in fact buys the Goods so acquiring the property in them rather than a consignment. The term “consignment” is not defined in the Australian PPSA. However in Canada in the decision of Re Stephanian’s Persian Carpets Ltd (1980) 34 CBR (NS) 35 Saunders J put the position as follows: In its simplest terms, a consignment is the sending of goods to another. An arrangement whereby an owner sends goods to another on the understanding that such other will sell the goods to a third party and remit the proceeds to the owner after deducting his compensation for effecting the sale is an example of a consignment agreement. 32 In Access Cash International v Elliot Lake Inc & North Shore Corp for Business Development (2000) Carswell Ont 2824 Molloy J listed 15 indicia to characterise a consignment. These were: (a) the merchant is the agent of the supplier; (b) title to the goods remains in the supplier; (c) title passes directly from the supplier to the ultimate purchaser and does not pass through the merchant; (d) the merchant has no obligation to pay for the goods until they are sold to a third party; (e) the supplier has the right to demand the return of the goods at any time; (f) the merchant has the right to return unsold goods to the supplier; (g) the merchant is required to segregate the supplier’s goods from his own; (h) the merchant is required to maintain separate records; (i) the merchant is required to hold sale proceeds on trust for the supplier; [23.75]

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Re Arcabi Pty Ltd (in liq); ex parte Theobald & Herbert cont. (j) the goods are shown as an asset in the books and records of the supplier and are not shown in the books and records of the merchant as an asset; and (k) the supplier has the right to stipulate a fixed or floor price. 33 Usually Arcabi offered an Investor three methods by which they could dispose of their Goods. They could be sold to a third party on a consignment basis, either privately or at auction, or Arcabi could offer to repurchase them. There is some difficulty in analysing the arrangements between an Investor and Arcabi because different forms and terms were used for “consignments” over time. Mr Theobold has set out some of these different terms in his summary of the forms and “resale request forms” in his first affidavit. The earliest version, used prior to July 2011, provided that Arcabi would “choose the most appropriate method of liquidation” of the Goods. Later versions of the “resale request forms” provided, in a number of variations, that Arcabi would “consign” the Goods for sale. 34 Some of the forms use the language of purchase by Arcabi but it is generally as an alternative to a true consignment sale and without an obligation on the part of Arcabi to purchase. What is consistent through the various forms is the language of consignment is present. The evidence considered against the backdrop of the indicia referred to in the Access Cash decision can be summarised as follows. 35 There is some evidence consistent with an agency arrangement between Arcabi and Investors references to selling “at your request”, consigning “on your behalf” and “resale request” forms that were required to be signed before an Investor put Goods on consignment. 36 There is considerable evidence that title was to stay with the Investors. The “resale request” forms post-July 2011 expressly provided that the Goods would remain the property of the Investors until they were sold. Earlier versions of the form refer to selling “your” numismatic investments. A document known as “Arcabi’s Guide” expressly referred to rarities remaining the “sole property of the Investor”. 37 There is no persuasive evidence that Arcabi ever had title to the Goods which it sold on consignment. None of the materials provided to Investors referred to Arcabi having title to the Goods. Consignment Only Goods were separated in the accounting database and given a different code. Whilst accounting records for the year ended 2011 noted Goods on consignment as Arcabi purchases and assets those accounting entries do not accurately reflect their status and were a product of the accounting programme used. This is detailed in Mr Theobold’s first affidavit at par 75. 38 Arcabi had no obligation to pay for the Goods until they were sold to a third party. In the case of each Investor the subject of the application Arcabi was not under an obligation to pay until the consigned Goods had been sold. 39 It appears that the Goods placed on consignment were capable of being specifically identifiable in the vault at the Premises. It must be said however there is no evidence that Arcabi was required in its agreement with Investors to keep the Goods separate. 40 There does not appear to be any evidence that Arcabi was obliged to keep proceeds of the sale of Investors’ Goods separate from the sale of its own Goods. Arcabi did not maintain a trust account but kept a record of those Investors whose Goods had been sold on consignment and to whom they belonged. 41 So-called “Maximiser” notes for each Investor indicated which Goods were on consignment and recorded them as an asset of the Investor until such time the Goods were sold. It appears from the Investor identification form submitted by Investors who had Consignment Only Goods that they considered they held such Goods as their asset. 42 The “resale request” form used by Investors since at least December 2011 provided that the Investor could withdraw their Goods from consignment with Arcabi at any time - provided the Goods 606

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Re Arcabi Pty Ltd (in liq); ex parte Theobald & Herbert cont. had not already been sold. The Investor could also complete a “cancellation” request form. The advertisements published by Arcabi since July 2011 referred to this as a feature of the arrangements. There is no evidence that Arcabi had the right to return the Goods to Investors if they were not sold. However the Canadian authorities do not regard the fact that a right to return is not expressly provided for as being determinative. 43 At least from 2012 Investors would set the price point at which Arcabi could sell their Goods. 44 Arcabi introduced a policy whereby the Investor who had Goods on consignment would be required to pay storage fees (including an allocation for insurance) until the date their Goods had been sold. 45 It is clear from the above that not all of the criteria to satisfy the Canadian definition of consignment have been met. But it seems to me on any reasonable interpretation of the arrangement between the parties there was a consignment of the Goods. Title remained with the Investors. The Receivers were justified in taking the approach they did. 46 The next step was to consider the nature of the consignment. Not all consignments are subject to the PPSA. A “consignment” will be a security interest if it, in substance, secures payment or performance of an obligation: s 12(2)(h). In assessing whether the consignment comprises a security the Canadian courts have considered it permissible to look at the substance of the transaction not its form. In my view this approach has much to recommend it. 47 In Re Stephanian’s Saunders J considered what was meant by “intended to secure the payment or performance of an obligation”. The case concerned Persian Carpets, a company that sold oriental rugs on a retail basis, and Anglo, a company that sold rugs on a wholesale basis. Anglo in the course of its business supplied rugs to Persian Carpets for sale by Persian Carpets to third parties or for purchase on Persian Carpets own account. The parties describe the arrangement as providing “security”. Saunders J found that there were other purposes to the consignment arrangement - that is, other than security. His Honour reached that conclusion principally because Anglo was able to market through Persian Carpets and Persian Carpets was not required to pay unless and until an item had been purchased. There was, in effect, a “mutual advantage” of the arrangement. However the persuasive point was that as a matter of logic the goods were not security for a debt as no monies were payable by Persian Carpets unless it sold a rug. 48 The logic applied by Saunders J in Re Stephanian’s is equally applicable to this case. There is no logical reason the consignment would have been intended to secure a debt due by Arcabi. If an item was sold on consignment, an obligation on the part of Arcabi to pay the Investors would follow but title would have passed to the third party purchaser. If the item was not sold then title would remain with the Investor and there is no obligation on the part of Arcabi to pay the Investor. The Investor remained entitled to take back its consigned Goods - even in circumstances where all that was involved was a change of mind on behalf of the Investor. 49 Furthermore, Saunders J’s analysis of “mutual advantage” is also applicable to Arcabi. Arcabi had the advantage of more stock to promote and sell to other Investors without the need to purchase such goods itself. The Investor would have the advantage of “realizing” their investment through Arcabi with its client base and knowledge of the market for a certain sum but without the risk of Arcabi’s creditors having access to their item. The effect of this mutual advantage suggests the arrangement between the parties was intended for a purpose other than to secure the performance of any obligation or payment. In my view the only conclusion that can properly be drawn is that the consignment of the Consignment Only Goods did not comprise security for a payment or for performance. Accordingly it is not a security interest for the purposes of s 12(2)(h) of the PPSA, and there is no room for the application of s 267 and no vesting of any interest in Arcabi. [23.75]

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Re Arcabi Pty Ltd (in liq); ex parte Theobald & Herbert cont. 50 Turning then to commercial consignments the PPSA definition provides that a consignment will be a “commercial consignment” if: (a) the consignor retains an interest in goods that the consignor delivers to the consignee; and (b) the consignor delivers the goods to the consignee for the purposes of sale, lease or other disposal; and (c) the consignor and the consignee both deal in goods of that kind in the ordinary course of business; but does not include an agreement under which the goods are delivered to: (d) an auctioneer for the purpose of sale; or (e) a consignee for sale, lease or other disposal if the consignee is generally known to creditors of the consignee to be selling or leasing goods for others. 51 Clearly elements (a) and (b) are made out. As to “delivery” the Goods generally remained at Arcabi’s Premises when purchased by an Investor and held under consignment arrangements. So it may be there was a notional delivery. But it cannot be doubted that there was a “delivery” as required by the section. 52 Under element (c) a “commercial consignment” requires that the consignor and consignee both deal in goods of that kind in the ordinary course of business. The effect of this limitation is that consignments by consumers of their property to a commercial consignee are not caught by the PPSA. A similar limitation exists in both the Canadian and New Zealand Acts. The intention of this requirement appears to be to limit the automatic application of the statute to situations in which consignment is used as a means of financing the acquisition of trading stock. 53 The Receivers sent all consignment creditors of Arcabi a questionnaire. The term “consignment creditor” refers to those Investors who had put Goods on consignment but whose Goods had been sold and no proceeds remitted to the Investor. The consignment creditors make up the majority of Arcabi’s creditors. 54 The Receivers asked whether those consignment creditors regularly dealt with rare coins and/or bank notes in the course of their business. Thirteen consignment creditors responded in the affirmative. It appears however that all but seven of those consignment creditors (who are also Investors) have since responded that they do not regularly deal in rare coins/bank notes. Save and except for those seven it does not appear the majority of Investors regularly dealt with rare coins and/or bank notes in the course of their business and therefore the definition of “commercial consignment” is not satisfied. There is no direct evidence of whether the Investors with Consignment Only Goods regularly dealt with rare coins and/or bank notes. However I am prepared to infer that the small rate of response is representative of the Investors across the board - that is, including those the subject of this application. Where the Receivers have identified an Investor who appears to “deal” it has been noted. Further based on his knowledge and involvement in the business of Arcabi Mr Theobold is of the opinion that the coin/bank notes were a hobby for those Investors with Mixed Storage Goods and they did not engage in business at all. I am prepared to accept that opinion from an experienced insolvency practitioner who has had day to day involvement with the running of Arcabi’s business. 55 The New Zealand PPSA version of the definition of “commercial consignment” does not include a provision excluding those persons who are generally known to be selling or leasing goods of others. The Canadian Provinces versions of the PPSA (there is a different version in each Province) generally does not include such a provision. The Supreme Court of British Columbia in Community Futures 608

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Re Arcabi Pty Ltd (in liq); ex parte Theobald & Herbert cont. Development v Spargo et al (2000) BSCS 809 cited the following passage from Roland Cumming & Roderick Wood, British Columbia Personal Property Securities Handbook (Carswell, 4th ed, 1998): The legislative purpose for including non-security consignments within the scope of the Act is to provide public disclosure of the existence of interest in goods in the possession of persons other than holders of those interests. There is no need to require public disclosure of consignors interests in goods in possession of consignees who are known to be selling or leasing goods belonging to other persons. The Act does not define what constitutes general knowledge of a consignee’s business sufficient to exclude a transaction from the scope of the Act. Knowledge or lack of knowledge of the existence of particular consignment contract is not determinative. The definition of “commercial consignment” in section 1(1) refers to general knowledge concerning the consignees relationship with her suppliers not specific knowledge concerning a particular consignment arrangement. The general knowledge to which the section refers is knowledge on the part of persons who might be expected to deal with the consignees creditors. This is the case of people for whose benefit the public disclosure system of the Act was created. It is, of course, not enough that the consignee has the requisite knowledge (pages 62 - 63). 56 In Canadian Imperial Bank of Commerce v Williams (2007) Carswell ALTA 1482 the Alberta Court of Appeal found that there was no reason why consignors cannot furnish evidence as to what was generally known by the creditors of a consignee. Canadian case law suggests that the knowledge is not limited to the knowledge of a particular creditor but the persons who may be expected to deal with the consignee as creditors: see Canadian Imperial Bank of Commerce v Westfield Industries Ltd (1990) Carswell SASK 115 (QB). Saskatchewan courts have concluded that this may be established through objective evidence including signage at the consignee’s premises or proof of a general understanding of this in the community in which the consignee carries on business: see Royal Bank v Autotran Manufacturing Ltd (1991) 6WWR 238. 57 In this present case Arcabi advertised the option of Investors putting Goods on consignment in its advertising materials. It is clear from the significant number of items (over 700) in the Consignment Only Goods category that consignments were a large part of the business of Arcabi. In the questionnaire to which I have referred above the Receivers asked the consignment creditors whether they believed Arcabi sold coins/bank notes on behalf of others. Over 84% of consignment creditors who responded indicated they did believe that Arcabi sold coins/bank notes on behalf of others. 58 The Receivers also wrote to 27 known valuers, auctioneers and other businesses associated with numismatics. Of the nine responses, six indicated they believed that Arcabi sold coins/bank notes on behalf of others. The remaining two valuers were unsure whether Arcabi sold coins/bank notes on behalf of others. While this evidence is of interest, little weight can be attached to it. There were few responses and they were not creditors of Arcabi. 59 The best evidence as to the general knowledge of Arcabi’s creditors is the large response rate from the consignment creditors. This evidence is telling and it can properly be said Arcabi was generally known to its creditors as being in the business of selling the goods of others. On this basis none of the consignments between Arcabi and the Investors should be considered as “commercial consignments”. Accordingly the PPSA does not apply to the Investors’ assets. No security interest vests in Arcabi pursuant to s 267 of the PPSA on the basis of any commercial consignment. The Consignment Only Goods should be returned to the Investors. 60 As an alternative the Receivers relied upon the transitional provisions in the PPSA. Strictly speaking it is not necessary for me to deal with this aspect of the submissions. However for the sake of completeness I will deal briefly with this question. 61 If it were the case that arrangement between Arcabi and Investors were “security interests” such arrangements which were entered into prior to 30 January 2012 are “transitional security interests” [23.75]

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Re Arcabi Pty Ltd (in liq); ex parte Theobald & Herbert cont. which are afforded “temporary perfection” for 24 months from the commencement of the Act - that is until 30 January 2014: see PPSA s 322(1). For Investors who supplied Goods to Arcabi after 30 January 2012 the transitional provisions do not apply and there is no “temporary perfection”. For those Investors who supplied Goods to Arcabi after 30 January 2012 but had a pre-existing supply relationship it is possible that supplies from Investors to Arcabi made after that date may be subject to the PPSA in the same way as supplies made under a new relationship. Accordingly, even if the PPSA did apply to those storage and consignment arrangements for post 30 January 2012 arrangements it would not operate to vest any security interest in the Consignment Only Goods in Arcabi as the security interest would only be taken to be perfected. Arcabi would not acquire an interest in the Consignment Only Goods and the relevant Goods can be returned to those Investors who requested Arcabi to put such Goods on consignment. The Receivers have been unable to determine precisely which arrangements are clearly pre or post January 2012. They therefore have not been in a position to rely solely on the transitional provisions in order to resolve these issues. It would appear there are a number of pre 30 January 2012 arrangements in place. 62 It is clear placing reliance on the transitional provisions alone would produce different outcomes for different groups of Investors. That would be an unfortunate result. Fortunately the Goods can be dealt with other than by relying on the transitional provisions. 63 To this point when dealing with Consignment Only Goods in each case the Goods were acquired by an Investor from Arcabi but then retained by Arcabi on consignment. There were some external suppliers who deposited Goods with Arcabi on consignment. One of these persons was a Mr Scheer. The December application dealt with only one transaction involving Mr Scheer. This related to 21 Australian specimen notes. That transaction is evidenced in a tax invoice dated 18 August 2011 and a document marked “consignment” dated 20 August 2011. These documents appear as attachment SGT18 to the second affidavit of Mr Theobold. 64 In my view Mr Scheer is in no different position to other Investors with Consignment Only Goods. The title to the Goods remained with Mr Scheer the person who supplied the Goods. Arcabi had no obligation to pay Mr Scheer for the Goods until they were sold to a third party. The consigned inventory was identifiably Mr Scheer’s. Mr Scheer set a price for the Goods. Although it is not clear from the documentation there is no reason to believe Mr Scheer did not have a right to resume possession of the Goods. Accordingly Arcabi does not have an interest in the Goods which are the subject of the arrangement between Arcabi and Mr Scheer.

Forge Group Power Pty Ltd (in liq) v General Electric International, Inc [23.80] Forge Group Power Pty Ltd (in liq) v General Electric International, Inc (2016) 305 FLR 101 What This Case is About 1 HAMMERSCHLAG J: This dispute arises out of the installation at a site eight kilometres south of Port Hedland, Western Australia, of four model TM 2500+ mobile gas turbine generator sets (“the Turbines”) as part of a temporary power station established by Regional Power Corporation (“Horizon Power”), a statutory body formed under s 4(1)(d) of the Electricity Corporations Act 2005 (WA). 2 Under a written Design Build Operate and Maintain Contract dated 23 January 2013 (“the Head Contract”), Horizon Power retained the plaintiff, Forge Group Power Pty Ltd (in liquidation) (receivers and managers appointed) (“Forge Power” or “the Contractor”), to design the power station and supply, construct, test and commission all equipment installed. 610

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Forge Group Power Pty Ltd (in liq) v General Electric International, Inc cont. 3 On 5 March 2013, Forge Power, in turn, entered into a written contract for Rental of Power Generation Equipment and Supply of Associated Services (“the Lease”) with the first defendant, General Electric International Inc. (“GE”), under which GE agreed to rent the Turbines to Forge Power for a fixed term, and provide to Forge Power certain services including the installation, commissioning and demobilisation of the Turbines. 4 On 11 February 2014, not long after the Turbines had been installed, pursuant to s 436A of the Corporations Act 2001 (Cth), Forge Power appointed voluntary administrators. On 18 March 2014, Forge Power went into liquidation. 5 The proceedings raise for consideration significant issues concerning the construction and operation of provisions of the Personal Property Securities Act 2009 (Cth) (“the PPSA”), which commenced operation on 30 January 2012 and introduced an innovative (some might say, revolutionary) new national code for determining priorities between parties holding security interests in personal property. A detailed exposition of the underlying principles and rationales of the PPSA is not necessary for present purposes, suffice it to say that, amongst other things, the PPSA establishes a Register of Personal Property Securities on which security interests may be “perfected” by registering an instrument called a financing statement, and that primacy is given to the Register. No financing statement for the Lease was registered. 6 Unless the context otherwise indicates, references below to section numbers are references to sections of the PPSA. 7 The PPSA gives an expansive meaning to the concept of a security interest by, for example, including the interest of a lessor of goods under a PPS lease which, relevantly, is a lease of goods for a term of more than one year. However, a lease by a lessor who is not regularly engaged in the business of leasing goods is excluded (s 13(2)(a)). 8 The PPSA does not apply to an interest in a fixture (s 8(1)(j)). Fixtures are defined, relevantly, to mean goods that are affixed to land (s 10). 9 If the PPSA applies to the Turbines, that is, if GE’s interest in them is a security interest, there is no dispute that GE’s security interest became vested in Forge Power immediately before administrators were appointed (s 267(2)). 10 The ultimate question is whether the PPSA is engaged. It will be engaged if the Lease is a PPS lease. The Lease will be a PPS lease unless GE was not regularly engaged in the business of leasing goods within the meaning of s 13(2)(a) or if the Turbines became fixtures within the meaning of s 10. 11 Forge Power seeks declarations that, by operation of s 267(2), the interest of GE and the other defendants (to whom GE assigned its rights and title in the Turbines) vested in Forge Power immediately before the appointment of the administrators, and that its right or title to, or interest in, the Turbines, is superior to theirs. 12 I will deal with the issues in turn, but before doing so, it is necessary to set out the relevant provisions of the PPSA. Relevant Sections of The PPSA 13 Section 6(1) provides: “Connection with Australia (1) This Act applies to a security interest in goods or financial property if: (a) the location of the goods or property is in Australia; or (b) the grantor is an Australian entity.” 14 Section 8(1)(j) provides, relevantly, that:

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Forge Group Power Pty Ltd (in liq) v General Electric International, Inc cont. “Interests to which this Act does not apply (1) This Act does not apply to any of the following interests … (1) ... (j) an interest in a fixture;” (1) ...” 15 Section 10, headed “the Dictionary”, provides, relevantly, that: ”Australian entity means any of the folowing entities: (a) an individual who is located in Australia; (b) a company or registrable Australian body (within the meaning of the Corporations Act 2001); ... collateral: (a) means personal property to which a security interest is attached; … … collateral means goods, other than crops, that are affixed to land. ... grantor means: ... (c) a lessee under a PPS lease; ...” 16 Section 12 provides: ”Meaning of security interest (1) A security interest means an interest in personal property provided for by a transaction that, in substance, secures payment or performance of an obligation (without regard to the form of the transaction or the identity of the person who has title to the property). (2) For example, security interest includes an interest in personal property provided by any of the following transactions, if the transaction, in substance, secures payment or performance of an obligation: (2) ... (i) a lease of goods (whether or not a PPS lease); (2) ... (3) A security interest also includes the following interests, whether or not the transaction concerned, in substance, secures payment or performance of an obligation: (3) ... (c) the interest of a lessor or bailor of goods under a PPS lease; (3) ... “ 17 Section 13 provides: ”Meaning of PPS lease (1) A PPS lease means a lease or bailment of goods: (a) for a term of more than one year; or (b) for an indefinite term (even if the lease or bailment is determinable by any party within a year of entering into the lease or bailment); or 612

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Forge Group Power Pty Ltd (in liq) v General Electric International, Inc cont. (c) for a term of up to one year that is automatically renewable, or that is renewable at the option of one of the parties, for one or more terms if the total of all the terms might exceed one year; or (d) for a term of up to one year, in a case in which the lessee or bailee, with the consent of the lessor or bailor, retains uninterrupted (or substantially uninterrupted) possession of the leased or bailed property for a period of more than one year after the day the lessee or bailee first acquired possession of the property (but not until the lessee’s or bailee’s possession extends for more than one year). (2) However, a PPS lease does not include: (a) a lease by a lessor who is not regularly engaged in the business of leasing goods; … (2) ... 18 Section 24 provides: ”POSSESSION Possession by one party exclusive of possession by others (1) A secured party cannot have possession of personal property if the property is in the actual or apparent possession of the grantor or debtor, or another person on behalf of the grantor or debtor. (2) A grantor or debtor cannot have possession of personal property if the property is in the actual or apparent possession of the secured party, or another person on behalf of the secured party. Timing rule for possession of goods transported by common carrier (3) A grantor or debtor to whom goods are transported by a common carrier acquires possession of the goods only when the earlier of the following occurs: (a) the grantor or debtor, or another person at the request of the grantor or debtor, actually acquires possession of the goods; (b) the grantor or debtor, or another person at the request of the grantor or debtor, acquires possession of a document of title to the goods. ... ” 19 Section 19(1) provides: ”ENFORCEABILITY OF SECURITY INTERESTS AGAINST GRANTORS – ATTACHMENT Attachent required for enforceability (1) A security interest is enforceable against a grantor in respect of particular collateral only if the security interest has attached to the collateral.” 20 Section 19(2)(a) provides: Attachment rule (2) A security interest attaches to collateral when: (a) The grantor has rights in the collateral, or the power to transfer rights in the collateral to the secured party; and (b) either: (i) value is given for the security interest; or (ii) the grantor does an act by which the security interest arises.” 21 Section 19(5) provides: “Goods leased, bailed, consigned or sold under a conditional sale agreement. [23.80]

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Forge Group Power Pty Ltd (in liq) v General Electric International, Inc cont. (5) For the purposes of paragraph (2)(a), a grantor has rights in goods that are leased or bailed to the grantor under a PPS lease, consigned to the grantor, or sold to the grantor under a conditional sale agreement (including an agreement to sell subject to retention of title) when the grantor obtains possession of the goods.” 22 Section 21 provides: Perfection – main rule (1) A security interest in particular collateral is perfected if: (a) the security interest is temporarily perfected, or otherwise perfected, by force of this Act; or (b) all of the following apply: (i) the security interest is attached to the collateral; (ii) the security interest is enforceable against a third party; (iii) subsection (2) applies. (2) This subsection applies if: (a) for any collateral, a registration is effective with respect to the collateral; or (b) (b) for any collateral, the secured party has possession of the collateral (other than possession as a result of seizure or repossession); or (2) ... (3) A security interest may be perfected regardless of the order in which attachment and any step mentioned in subsection (2) occur. (4) A single registration may perfect one or more security interests.” 23 Sections 24(1), (2) and (3) provide: “Possession by one party exclusive of possession by others (1) A secured party cannot have possession of personal property if the property is in the actual or apparent possession of the grantor or debtor, or another person on behalf of the grantor or debtor. (2) A grantor or debtor cannot have possession of personal property if the property is in the actual or apparent possession of the secured party, or another person on behalf of the secured party. Timing rule for possession of goods transported by common carrier (3) A grantor or debtor to whom goods are transported by a common carrier acquires possession of the goods only when the earlier of the following occurs: (a) the grantor or debtor, or another person at the request of the grantor or debtor, actually acquires possession of the goods; (b) the grantor or debtor, or another person at the request of the grantor or debtor, acquires possession of a document of title to the goods.” 24 Section 267 provides: VESTING OF UNPERFECTED SECURITY INTERESTS IN THE GRANTOS UPON THE GRANTOR’S WINDING UP OR BANKRUPTCY ETC. Scope (1) This section applies if: (a) any of the following events occurs: ... 614

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Forge Group Power Pty Ltd (in liq) v General Electric International, Inc cont. (ii) an administrator of a company or a body corporate is appointed (whether under section 436A, 436B or 436C of the Corporations Act 2001, under that section as it is applied by force of a law of a State or Territory, or otherwise); ... (b) a security interest granted by the body corporate, company or bankrupt is unperfected at whichever of the following times applies: ... (ii) in the case of any other company or body corporate – when, on a day, the event occurs by virtue of which the day is the section 513C day for the company or body, within the meaning of the Corporations Act 2001 (including that Act as it is applied by force of a law of a State or Territory, or otherwise); ... ″ (2) The security interest held by the secured party vests in the grantor immediately before the event mentioned in paragraph (1)(a) occurs. ... Was GE regularly engaged in the business of leasing goods? 25 The first issue which divides the parties is whether, in determining if a lessor is or is not regularly engaged in the business of leasing goods for the purpose of s 13(2)(a), regard may be had to activity outside of Australia. Forge Power contends that business activity outside Australia is to be taken into account, whereas GE and the other defendants contend that regard is to be had only to business activity within Australia. 26 It is common cause that at all material times, GE has, outside of Australia, regularly been engaged in the business of leasing goods. Accordingly, if activity outside of Australia is captured, the exclusion in s 13(2)(a) will not apply in this case. 27 The parties are in dispute as to whether GE was regularly engaged in such business within Australia. They are also divided as to the point in time the test in s 13(2)(a) applies. 28 Forge Power contends that the test applies at the date the security interest is created, which it contends is the date of entry into the Lease. GE and the other defendants contend that the test applies either at the date on which the security interest attaches to the collateral, which they argue was when Forge Power obtained possession of the Turbines (which they say was in January or February 2014) or, alternatively, on the date of the event which brings about the vesting of the security interest of GE in Forge Power, which they argue is the date of the appointment of the administrators. They contend that at both of these times, GE was not regularly engaged in the business of leasing goods in Australia, but more particularly, they say it was not so engaged from and after 22 October 2013 when GE’s large-scale, long-term, temporary power generation rental business was sold. 29 For the reasons which follow, I have concluded that: ″(1)

in testing whether a person is (or is not) regularly engaged in the business of leasing goods, regard is to be had to activity wherever it occurs, and not only to activity in Australia.

(2)

the test applies at the time the Lease was entered into;

(3)

when the Lease was entered into, and at all material times thereafter, GE was regularly engaged in the business of leasing goods within Australia.”

Australia? 30 There are a number of considerations which, in my view, make it clear that s 13(2)(a) does not restrict business activity to be regarded to that which solely occurs within Australia. [23.80]

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Forge Group Power Pty Ltd (in liq) v General Electric International, Inc cont. 31 TFirst, the plain words of s 13(2)(a) place no such geographic limitation or restriction on the activity to be assessed, and there is no warrant to read them as so doing: see Thompson v Goold & Company [1910] AC 409 at 420; Bermingham v Corrective Services Commission (NSW) (1988) 15 NSWLR 292 at 302. 32 Indeed, the general operation of the PPSA is not confined to goods or property in Australia. By s 6, it applies to a security interest in goods or financial property (even if they are outside Australia) if the grantor is an Australian entity. 33 Secondly, the restriction would not serve the policy underlying the s 13(2)(a) exclusion. The evident (perhaps self-evident) purpose of the exclusion was referred to in the Review of the Personal Property Securities Act 2009 – Final Report (27 February 2015) commissioned by the Attorney-General as required by s 343 of the PPSA, and tabled in Parliament on 18 March 2015, in the following terms: “4.3.5.7.1 … Any lease that satisfies the term requirements in s 13 has the capacity to mislead outsiders. It could also be unclear for such a lease whether it is also an in-substance security interest under s 12(1). The thinking behind s 13 accepts however that it would not be fair to impose the implications of s 13 and the Act on ad hoc lessors, and that it should only apply to lessors that are in the business of leasing and so should be expected to have investigated the content of the laws that affect their business, including the Act. There is no need in this context to limit the application of the section to leases of goods of the particular type that the lessor regularly leases out”” 34 A leasing transaction within Australia, by an entity regularly engaged in such business internationally, cannot fairly be described as ad hoc. Such an entity has no less an incentive to investigate local law requirements when it engages in business activity in this jurisdiction, than does an entity regularly carrying on such business only within Australia. Concomitantly, such an entity wishing to conduct business within Australia would not get the benefit of being able to register its lease. 35 Thirdly, components of a transaction may involve cross-border activity. The limitation which the defendants suggest raises the uninviting spectre of lengthy and detailed examination of such activity in a quest to determine whether activity outside of Australia is part of carrying on business within it. 36 The defendants submit that the construction for which they contend is necessitated by the application of s 21(1)(b) of the Acts Interpretation Act 1901 (Cth), which provides: “21 Office etc. means office etc. of the Commonwealth (1) In any Act: (1) ... (b) references to localities jurisdictions and other matters and things shall be construed as references to such localities jurisdictions and other matters and things in and of the Commonwealth.” 37 They submit that business can only be engaged in at a locality, and that it follows that the reference to such activity in s 13(2)(a) is a reference to a locality within the meaning of the section, with the consequence that the reference to that activity is a reference to that activity in, and only in, the Commonwealth. 38 I reject the submission. First, s 13(2)(a) contains no reference to a locality, but rather to an activity. Secondly, engaging in business does not have to occur in a single place. Thirdly, I consider that s 2(2) of the Acts Interpretation Act 1901 (Cth) applies. It provides: “2 Application of Act … (2) However, the application of this Act or a provision of this Act to an Act or a provision of an Act is subject to a contrary intention.” 39 I consider that there is such a contrary intention. 616

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Forge Group Power Pty Ltd (in liq) v General Electric International, Inc cont. Point in time to which s 13(2)(a) is directed 40 Section 12(3) provides that a security interest includes the interest of a lessor under a PPS lease. Section 13(1) provides, relevantly, that a PPS lease means a lease of goods for a term of more than one year. The exclusion in s 13(2)(a) applies to a lease by a lessor who is not regularly engaged in the business of leasing goods. Each of these provisions is directed to the point in time at which the interest of the lessor under the instrument arises, namely, the time at which mutual rights and obligations of the parties under it are brought into existence. In my opinion, in this case, this was when the Lease was entered into. The test is not directed to the time for performance of obligations undertaken, such as payment of rent or passing of possession of the leased goods. In any event, as will appear below, I consider that GE was regularly engaged in the business of leasing at each of these times. Regularly engaged in the business of leasing goods 41 The Court was not referred to any pertinent Australian authority on the meaning of the precise phrase in s 13(2)(a). The equivalent sections in various Canadian provincial enactments (upon which the PPSA is broadly based), including s 1(1)(y) of the Personal Property Security Act 1988 (Alberta) and s 2 of the Personal Property Security Act 1993 (Saskatchewan), as well as s 16(1)(i)(c) of the Personal Property Securities Act 1999 (New Zealand), have been the subject of judicial consideration in those countries. 42 The Canadian and New Zealand enactments also exclude from the definition of security interest a lease involving a lessor who is not regularly engaged in the business of leasing goods. 43 The Canadian position is stated in David Morris Fine Cars Ltd v North Sky Trading Inc [1996] 7 W.W.R. 332; (1996) 11 PPSAC (2d) 142 (David Morris). A car dealer advertised itself as being in the business of buying, selling and leasing vehicles, even though it only directly arranged one or two leases a year, and normally referred leases to the manufacturer’s credit company. The dealer entered into a 46 month direct lease of a vehicle to a corporation, but did not register it. The lease was assigned to a bank. The lessee went bankrupt. There was a priority contest between the bank and the trustee which depended on whether the car dealer was exempt from a requirement to perfect its security because it was not regularly engaged in the business of leasing. 44 At David Morris Fine Cars Ltd v North Sky Trading Inc [1996] 7 WWR 332, 336-337 [12]-[14], the Alberta Court of Appeal held as follows: [12] The Bank contends that the practice of occasionally leasing vehicles does not amount to regularly engaging in the business of leasing. Reliance is placed on the definition of “regular” in the Pocket Oxford Dictionary, 7th ed., 1984, p. 627 which provides: … conforming to a rule or principle, systematic, harmonious, symmetrical; acting or done or recurring uniformly or calculably in time or manner habitual, constant, orderly; According to the bank, that definition suggests the need for a constant rather than occasional or sporadic pattern of leasing. However, we do not agree that the frequency of leasing is determinative. Rather, we are of the view that so long as leasing was a proper component of the business, it can correctly be said that leasing was regularly engaged. [13] The Bank also argues that the chambers judge fell into error in relying upon the Saskatchewan Court of Appeal decision in Royal Bank of Canada v 216200 Alta Ltd. (1987) 1 WWR 545. That case involved consideration of the clause “in the ordinary course of business” found in s 30(1) of the Saskatchewan Personal Property Act, S.S. 1979-80 c. P-6.1. That section is similar to s 30(2) of the PPSA. Those sections provide that buyers or lessees of goods sold in the ordinary course of business take the property free of perfected or unperfected security interests. In Royal Bank Vancise J.A. relied on Fairline Boats Ltd v Leger (1980), 1 PPSAC 218 (Ont. H.C.), in which Linden J. listed a number of factors to be considered in determining whether a sale occurs in the ordinary course of business. Included in those factors was the [23.80]

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Part 5: (A) Priority Regimes and (B) Commercial Dealings as Security Interests Over Property

Forge Group Power Pty Ltd (in liq) v General Electric International, Inc cont. need to consider whether the transaction is one that is normally entered into by people in the seller’s business. Applying those factors Vancise, J.A. concluded: In my opinion, a sale, in the ordinary course of business, includes a sale to the public at large, of the type normally made by the vendor in a particular business where the basic business dealings between buyer and seller are carried out under normal terms and consistent with general commercial practice. It does not include sale between individual buyers. Here the sale of goods of the kind normally sold by the vendor were made at its premises, to members of the public at large, under normal terms and conditions of sale of retail merchants. The sales were clearly sales to buyers in the ordinary course of business. We agree that the clause “regularly engaged in business” in s 1(1)(y) of the PPSA means something quite different than the clause ‘in the ordinary course of business’ found in s 30(2). The former pertains to whether the lessor is in the business of leasing. The focus is the business practice of that lessor. The latter pertains to whether the particular transaction was made in the course of conducting that business. The focus is whether other persons in that type of business engage in similar transactions. [14] Nonetheless, the reliance placed by the chambers judge on Royal Bank of Canada does not trouble us. The factors to consider in determining the application of either clause are similar. The difference is that in determining whether a lessor regularly engages in the business of leasing, those factors are applied to the consideration of whether leasing is a proper component of the lessor’s business. That determination is a question of fact. We see no palpable or overriding error in the conclusion of the chambers judge that this lessor regularly engages in leasing.” 45 This approach was also taken by the Saskatchewan Queen’s Bench in East Central Development Corp v Freighter Truck Sales (Regina) Ltd [1997] 5 W.W.R. 231; (1997) 12 PPSAC (2d) 328, where a truck had been leased from an entity (Freightliner) which was primarily in the business of selling new and used trucks. It was not in the business of financing truck purchases. At [18], Gunn J said: “… Freightliner does most of its business in other ways, but the true lease transaction was available and was used on rare occasions. On this basis, Freightliner cannot qualify as someone not regularly involved in leasing goods. Leasing trucks is a part of its business, even though a small part. The exemption provision in ss 2(y)(iv) was not designed to exempt Freightliner, when it was part of its business to lease trucks … ” 46 Approaching the matter in this way, the question (which is one of fact) is whether or not, at the material time, leasing goods was a proper component of GE’s business. 47 In Rabobank New Zealand Ltd v McAnulty [2011] 3 NZLR 192 at [46]-[47] the New Zealand Court of Appeal held, obiter, as follows: “It is not strictly necessary for us to deal with the controversy about the meaning of “regularly” in s 16(1)(i)(c). The Canadian cases reflect their very unusual facts and we hesitate to draw from them any generic principle. Each case will depend on its facts. But we do consider that it requires some straining of the concept “regular” to say it includes a single, isolated transaction. We doubt that that is what Parliament intended. It is clear that a course of business involving a series of leasing transactions will involve regular engagement in the business of leasing. We think it is equally clear that a single transaction in circumstances where it can be established that the transaction was a one-off would not be “regular”. Where a transaction was the first but has been followed by others, a good case can be made for the proposition that even the first was “regular” because it was the start of the regular engagement in the business. That will be a factual issue in the particular case.” 48 The Court went on to hold that on the facts, the transaction in question was a single one intended to be the sole transaction of that kind and would not have involved a regular engagement in the business of leasing goods. 618

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Forge Group Power Pty Ltd (in liq) v General Electric International, Inc cont. 49 The word “regular” can in one of its meanings connote periodic or a recurrence at fixed times. However it can also, and in this case in my view does, mean, as the Canadian authorities consider, normal, that is, not abnormal in the context of the lessor’s business, but a proper component of it: see Macquarie Concise Dictionary (4th ed 2006, Macquarie Dictionary Publishers Pty Ltd) at 1025. 50 The New Zealand approach does not, I respectfully suggest, sufficiently recognise that the exclusion is directed to activity which constitutes engaging in the business of leasing, not to engaging in the activity of entering into leases. 51 Engaging in the business of leasing is clearly a concept of wider reach than merely entering into leases. For example, a person who sets up a significant infrastructure, including, say, acquiring significant capital equipment for lease and then advertises its ability and willingness to lease that equipment would be engaged in the business of leasing, and may be doing so regularly, before any particular transaction is concluded and in my opinion, even if none ever is. 52 In my opinion, the correct approach is to recognise that frequency or repetitiveness of transactions is a factor relevant to, and in an appropriate case may be the critical factor in, the assessment of whether the leasing business being engaged in is regular. But it is not to be equated with it, as the New Zealand approach appears to require. 53 The New Zealand approach would not, incorrectly, in my opinion, permit a conclusion of regularity where an initial transaction was intended to be followed by others, but no more transactions of the type concerned actually eventuated, despite the best intentions, advertised willingness over a significant period of time and ability of the lessor to enter into more. In my opinion, in considering frequency or repetitiveness as an element of regularity of business, account may be taken of more than simply actual transactions entered into. 54 In any event, in the present case, the facts establish that GE was regularly engaged in the business of leasing even if frequency or repetitiveness of transactions is a necessary component of the concept. 55 I turn to the facts. The facts 56 GE is incorporated in Delaware, United States. It has been registered as a foreign company doing business in Australia since 22 June 1995. 57 It is a wholly owned subsidiary of General Electric Company (General Electric), a formidable United States Corporation headquartered in Connecticut. 58 It has a presence in many foreign markets and it has established foreign branches in over 100 countries, including Australia. Its activities are organised into different businesses according to their specific industry focus. One of its businesses is concerned with providing solutions for power generation requirements. The products in its portfolio include a variety of turbines and engines. 59 Prior to about 2006, GE carried on a business renting equipment related to power generators. In about 2006, it sold its rental business, excluding that part relating to the leasing of turbine generators. As it was registered to carry on business in over 100 countries, GE continued to own and rent newly manufactured turbine generators. 60 So far as its business in Australia is concerned, in March 2003, GE entered into an agreement with Newcrest Mining over a term of six years to lease, upon request, a spare turbine generator, should it be needed, to be used to supply electrical power to Newcrest’s Telfer mine in Western Australia. On 23 May 2008, Newcrest made a request to lease a spare turbine generator until January 2011. [23.80]

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Forge Group Power Pty Ltd (in liq) v General Electric International, Inc cont. 61 Until 2013, when General Electric sold its large scale, long term temporary power generation business, GE was the entity within the group that was predominantly responsible for the leasing and sale of turbine generators globally. It owned approximately 14 of these which were leased globally (and internally within General Electric). 62 According to the evidence of Mr Steven Lawrence, a Tax Director of General Electric, GE was at the time of the sale of that business leasing four turbine generators in Australia. This is apparently a reference to an agreement dated 26 July 2004 between an entity styled GE Energy Rentals Pty Ltd and Western Power Corp of Perth for the rental of four turbine generators for use at Pinjar Gas Turbine Station, Pinjar, Western Australia, for a period to end no earlier than 31 March 2005. 63 On 26 November 2009, GE entered into a Plant, Parts and Services Agreement with Atco Power Australia (Karratha) Pty Ltd (“Atco”) to supply parts and services for maintenance of the Karratha power station near Dampier in Western Australia, for a term of 20 years. The Agreement provides that during its term, Atco can elect to enter into a Lease Engine Support Agreement, which would entitle it to rent replacement turbine generators from GE if needed. To this point, Atco has not made such an election, and GE has not provided any replacements. 64 Between March and October 2012, GE advertised and promoted the possible leasing of the Turbines for the power station to various potential bidders for the power station project. The material included information of GE’s “Proven Experience” which, since 2000, was stated to include 29 mobile turbine rental projects in 12 countries, including 4 units in Western Australia from 2004 for a term of 5 years. 65 On 29 March 2012, GE entered into a Contractual Services Agreement with Birla Nifty Pty Ltd (“Birla Nifty”), which operates turbine generators at the Birla Nifty copper mine near Telfer, Western Australia, to provide for a term expiring on 22 May 2018, services including replacing turbine generators if needed. The Agreement makes provision for Birla Nifty to participate in and become a member of a Lease Pool Membership Service, which would give access to turbine generators in a pool established by General Electric entities. To facilitate the provision of turbine generators, GE, internally, entered into an Engine Lease Agreement under which GE would be provided with an engine for delivery to Birla Nifty if it was required. On 20 April 2015, Birla Nifty informed GE that it wished to terminate its participation in the Lease Pool Membership Service. At no time did GE provide Birla Nifty with any replacement turbine generator. 66 On 5 March 2013, GE and Forge Power entered into the Lease. 67 On 22 October 2013, GE’s large scale, long-term, temporary power generation rental business was sold to APR Energy Plc. On 27 October 2013 GE assigned the benefit of the Rental Agreement to the second defendant (“OpCo”), a company incorporated in Delaware and registered as a foreign company doing business in Australia since 19 December 2013, and on 27 October 2013 it assigned title to the Turbines to the third defendant (“AssetCo”), also a company incorporated in Delaware. 68 On 21 November 2014, GE entered into an Agreement with Origin Energy Power Ltd (“Origin”) to provide a replacement turbine generator for use by Origin at the Ladbroke Grove Power station, Penola, South Australia, whilst a turbine operated by Origin was being repaired under warranty. The replacement was provided free of charge. 69 On 25 August 2015, GE made available to GE Oil & Gas Australia Pty Ltd, for ad hoc purposes, a temporary turbine generator. 70 It is common cause that on and from 27 October 2013, GE has provided replacement turbine engines in Australia where it has sold (either before or after 27 October 2013) a power generation unit containing a turbine engine to a customer, the customer has engaged GE to provide maintenance services to that power generation unit, and the maintenance services require the existing turbine engine to be removed from the power generation unit temporarily. For the duration of the 620

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CHAPTER 23

Forge Group Power Pty Ltd (in liq) v General Electric International, Inc cont. maintenance of the turbine engine, GE provides a replacement turbine engine in accordance with forms of standard agreement styled, either, a Member Agreement (where the customer pays an annual fee for the period of the agreement and a usage fee for the period it gets a replacement engine), or a Non Member Agreement (where the customer does not pay an annual fee but an initial fee and a usage fee for the period it gets a replacement engine). Provisions for replacements may be contained in other agreements, which include so-called Contractual Services Agreements. It was not contended that these types of arrangements should not be characterised as leasing. 71 There are approximately 280 Member Agreements and Non-Member Agreements in operation outside of Australia. Discussion 72 The following establishes that from 2003, and continuing even until now, GE has been regularly engaged in leasing both in the sense of it being a proper component of GE’s business (regarding repetitiveness as a relevant element) and also if repetitiveness is an essential requirement: (a)

GE advertised and promoted its desire to lease the Turbines by referring and relying upon the turbine generators which had been leased for use at the Pinjar Gas Turbine Station.

(b)

at the date of the Lease, it was contractually obliged to both Atco and Birla Nifty to supply a rent replacement turbine if needed.

(c)

after the Lease it concluded arrangements with Origin to provide a replacement turbine generator.

(d)

after the Lease it made a temporary turbine engine available to GE Oil & Gas Australia Pty Ltd.

(e)

after 27 October 2013 it has continued to provide replacement turbine engines.”

Did The Turbines Become Fixtures? The issues 73 First, the parties are divided as to whether, where the PPSA defines fixtures as goods that are affixed to land, it has in mind the common law test for affixation as reflected in the maxim quicquid plantatur solo, solo cedit (whatever is affixed to the ground belongs to the ground), or some other test. Forge Power contends that the common law test applies. GE and the other defendants contend that the definition in s 10 introduces a bespoke meaning of affixed to land, being a non-trivial attachment. 74 Secondly, the parties are divided as to whether, on either test, the Turbines have become affixed to land. Forge Power contends that the Turbines remained chattels and did not become affixed. Somewhat ironically, because of the manner in which the PPSA operates, GE and the other defendants find themselves arguing that their property has become affixed to Horizon Power’s land. 75 For the reasons which follow, I hold that: (1) the words “affixed to land” in the definition of fixtures in s 10 means affixed according to common law concepts; and (2) the Turbines did not become fixtures. Meaning of “affixed” 76 The defendants put that, where the definition of fixtures in s 10 refers to affixed to land, this does not embrace the well-known common law concepts, but is a bespoke definition connoting any “non-trivial attachment” of the goods to land. 77 I do not accept the submission. Leaving aside the difficulty of ascribing meaning to the notion of “non-trivial”, one of the critical demarcation lines underpinning the operation of the PPSA is that [23.80]

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Part 5: (A) Priority Regimes and (B) Commercial Dealings as Security Interests Over Property

Forge Group Power Pty Ltd (in liq) v General Electric International, Inc cont. between personal property and land. Land is expressly excluded from the definition of personal property in s 10, and consequently, from the definitions of interest and security interest in ss 10 and 12(1). 78 Applying the common law definition accords with this demarcation because goods affixed, according to common law concepts, become part of the land. 79 There was little debate about the applicable principles under common law. They are settled. Whether an item has become a fixture depends upon the objective intention with which the item was put in place, having regard to the degree and object of annexation, but each case depends on its own circumstances: Agripower v Blomfield [2015] NSWCA 30; (2015) 317 ALR 202 at [74]-[81]. 80 In National Australia Bank Ltd v Blacker (2000) 104 FCR 288; 179 ALR 97; [2000] FCA 1458 (cited with approval in Agripower v Blomfield) at [10] Conti J said: There is a variety of general principles which should be considered in assessing whether an item of personal property has become attached to land in a manner designed to achieve a specific objective or a variety of objectives, such as to become a part of the realty and therefore, a fixture. Whether an item has become a fixture depends essentially upon the objective intention with which the item was put in place. The two considerations which are commonly regarded as relevant to determining the intention with which an item has been fixed to the land are first, the degree of annexation, and secondly, the object of annexation. 81 Conti J relied on the following frequently cited passage from the judgment of Sir Frederick Jordan in Australian Provincial Assurance Co Ltd v Coroneo (1938) 38 SR (NSW) 700 at 712: The test of whether a chattel which has been to some extent fixed to land is a fixture is whether it has been fixed with the intention that it shall remain in position permanently or for an indefinite or substantial period, or whether it has been fixed with the intent that it shall remain in position only for some temporary purpose. In the former case, it is a fixture, whether it has been fixed for the better enjoyment of the land or building, or fixed merely to steady the thing itself, for the better use or enjoyment of the thing fixed. If it is proved to have been fixed merely for a temporary purpose it is not a fixture. The intention of the person fixing it must be gathered from the purpose for which and the time during which the user in the fixed position is contemplated. If a thing has been securely fixed, and in particular if it has been so fixed that it cannot be detached without substantial injury to the thing itself or to that to which it is attached, this supplies strong but not necessarily conclusive evidence that a permanent fixing was intended. On the other hand, the fact that the fixing is very slight helps to support an inference that it was not intended to be permanent. But each case depends on its own facts 82 At [13] Conti J went on to identify the factors that the courts generally ought to take into account in determining the purpose or object and degree of annexation as follows: • whether the attachment was for the better enjoyment of the property generally or for the better enjoyment of the land and/or buildings to which it was attached; • the nature of the property the subject of affixation; • whether the item was to be in position either permanently or temporarily; • the function to be served by the annexation of the item. 83 At [14] Conti J identified the factors that the courts generally ought to take into account in determining the purpose or object and degree of annexation as follows: • whether removal would cause damage to the land or buildings to which the item is attached; • the mode and structure of annexation; • whether removal would destroy or damage the attached item of property; 622

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Forge Group Power Pty Ltd (in liq) v General Electric International, Inc cont. • whether the cost of renewal would exceed the value of the attached property. 84 In Agripower v Blomfield Sackville AJA (with whom Bathurst CJ and Beazley P agreed) remarked at [81] that: The factors identified by Conti J are useful guides, but, as his Honour indicated, they are neither exhaustive nor definitive 85 I turn to the facts. The facts 86 The first two Turbines were delivered to the site on 19 October 2013, and two more were delivered on 11 November 2013. The Turbines remain in situ. The Head Contract 87 On 21 January 2013, Horizon Power and Forge Power entered into the Head Contract. Forge Power became obliged to perform Works under the Head Contract, which are described in cl 1.1 of the Head Contract, relevantly, as all work required to be performed in connection with the design, engineering, procurement, supply, construction, testing and commissioning and start-up of the Plant. 88 Plant is defined, relevantly, to mean “the South Headland Temporary Power Station (including the … Equipment)”. The equipment to be supplied included “Generator Equipment”, which is defined to include “Generator Sets” which is defined to mean “one or more gas turbine and generator package(s) including gas turbine, alternator and all auxiliary apparatus, equipment and plant as part of each gas turbine and generator package”. 89 The Head Contract includes a Scope of Works, which provides that the Plant would include dual fuel open cycle gas turbines and a switchyard. The Scope of Works records that the switchyard would consist of “double bus design” and would have to be expandable. It provides that the gas turbine generators “will be leased for a fixed term”. The Head Contract provides that once the Plant is in operation, Forge Power is to make available to Horizon Power electricity generated by the Plant. The End Date of the Head Contract is specified as 31 December 2015 with provision for Horizon Power to elect to extend it, but only so that the aggregate of all additional periods do not exceed 18 months. 90 Clause 17.1(a) of the Head Contract is relevantly in the following terms: … all rights, title and ownership in the Materials & Equipment (excluding Contractor Materials & Equipment and the Generator Sets) required to provide the Work under Contract in the O&M Phase, passes to Horizon Power upon delivery to the Site of those Materials & Equipment. 91 The O&M Phase (presumably meaning operation and maintenance) is the period from the completion of the works to the Expiry Date, which is six weeks from the End Date. 92 Part F of the Head Contract is entitled Permanent Works. It, together with definitions in the Head Contract, envisages that Horizon Power may undertake works to facilitate the transition of the Plant to a permanent facility on property adjacent to the site. The Lease 93 Forge Power and GE entered into the Lease on 5 March 2013. Its provisions are referred to in it as Articles. 94 Its Preamble provides that it is a “Contract for rental of power generation equipment and supply of associated services … entered into as of the 5th day of March, 2013 (‘Effective Date’)””. 95 The Recitals to the Lease record that: WHEREAS, GE is engaged in the business of renting various kinds of power plant equipment and of providing services in support of the installation of the rental equipment and use thereof; and [23.80]

623

Part 5: (A) Priority Regimes and (B) Commercial Dealings as Security Interests Over Property

Forge Group Power Pty Ltd (in liq) v General Electric International, Inc cont. WHEREAS, Forge Power desires to rent from GE, and GE desires to rent to Forge Power the Equipment described herein; and Forge Power desires to purchase the Services described herein all in connection with the Project located at South Hedland, WA, Australia, all subject to the terms set forth herein; ... 96 The Lease contains the following definitions: “‘Delivery’ shall mean ExWorks (INCOTERM 2010) to the Delivery Point. ‘Delivery Point’ shall mean GE’s facility at Houston, Texas, USA. ‘Equipment’ shall mean the power generation equipment described in the ‘Power Generation Rental Equipment’ portion of Attachment 1.” 97 Article 1 provides, relevantly, that Forge Power shall rent four TM 2500+ Units for the Rental Term. The Rental Term is specified in Article 9 to commence on 1 January 2014 and to continue for two years ending on 31 December 2015, subject to an extension pursuant to Article 10, which provides for Forge Power, before 1 July 2015, in writing to obtain an extension of the Rental Term up to 30 June 2016 and thereafter to extend it for up to 18 additional months. 98 Article 2 provides that the services provided by GE are limited to items described in Attachment 1, Section II, which describes the services to be installation of the Equipment, commissioning of the Equipment and demobilisation of the Equipment. 99 Article 4 provides that the Equipment Rental Price for the Rental Term is $28,662,706.00 and the price for the Services for the Rental Term is $4,598,294.00, making a total of $33,261,000.00. 100 Article 5 provides, relevantly, that Forge Power shall be responsible for transportation of the Turbines, spare parts and initial consumables and shall, at its expense, arrange carriage by a reputable transport operator acceptable to GE. 101 Article 9 includes the following statement: GE and Forge Power confirm their intent that the rental of the Equipment as designated by and pursuant to this Contract shall be a true lease and not a sale or financing transaction and that neither the execution nor the filing of any financing statement with respect to any of the Equipment or with respect to the Contract, or the recording thereof, shall in any manner imply otherwise. 102 Article 11 provides that if Forge Power fails to provide GE Unimpeded Access to the Equipment on the expiration or termination of the Rental Term, or, in the event Forge Power is responsible for return transportation of the Equipment to GE, and the Equipment has not been received by GE on the expiration or termination of the Rental Term, Forge Power shall be obligated to pay GE liquidated damages until the date that the Equipment is returned to the designated GE location in good condition. A formula for the calculation of liquidated damages is provided. 103 Article 12.7 provides that if Forge Power is in possession of any Equipment at the time GE suspends or terminates the Contract or portion thereof pursuant to the terms and conditions in this Contract, in addition to its other rights thereunder, GE may also: require Forge Power at Forge Power’s expense to return promptly all or any portion of the Equipment to GE; enter upon the premises where the Equipment is located and take immediate possession and remove some or all of it, all without liability to Forge Power; or exercise any other right or remedy available to GE under any applicable law. No right or remedy of GE referred to in this Article is exclusive, but each is cumulative and in addition to any other right or remedy otherwise available to GE at law or in equity. 104 Article 13 provides, relevantly, that Forge Power is responsible for ensuring the prompt and timely return of the Equipment to GE. Upon demobilisation of the Equipment, Forge Power must arrange for Equipment exportation and/or shipment back to GE’s point of origin or designated location within 30 days after Equipment demobilisation. 624

[23.80]

Security Within the Scope of the Personal Property Securities Act 2009 (Cth) (PPSA)

CHAPTER 23

Forge Group Power Pty Ltd (in liq) v General Electric International, Inc cont. 105 Article 14 includes a provision in the following terms: The Equipment is, and shall at all times be and remain, solely and exclusively the property of GE or its affiliates, and no right, title or interest in the Equipment shall pass to Forge Power other than, conditioned upon Forge Power’s compliance with and fulfilment [sic] of the terms and conditions of the Contract, the right of Forge Power to maintain, as Forge Power, possession and use as described in the Contract for the Rental Term. The Equipment is, and shall at all times remain, personal property notwithstanding that the rented Equipment or any part thereof may now be, or hereafter become, in any manner affixed or attached to any other personal or real property 106 Article 20 provides, relevantly, that Forge Power shall keep the Equipment and its interest in the Contract free and clear of all liens, charges, security interests and encumbrances, and shall indemnify GE for all reasonable costs resulting from any breach of this obligation. 107 On 28 March 2013, Forge Power made a down payment to GE under the Lease of $US 1.65 million. Delivery and Installation 108 On 14 June 2013, Forge Power entered into a formal instrument of agreement with P.T. Rolitrans International for transport of the Turbines from GE’s facility in Houston, Texas, to the power station site. 109 Cargo delivery receipts signed by P.T. Rolitrans International and Forge Power, respectively, established that Turbines TM33 and TM35 were received by P.T. Rolitrans International at the Delivery Point in Houston, Texas, on 19 October 2013 and Turbines TM36 and TM37 were received on 11 November 2013. 110 The evidentiary material relating to the nature of the Turbines, the installation process and demobilisation procedure consisted of affidavits and a fairly significant body of other material, including photographs, plans, graphic depictions and an Installation and Commissioning manual (“the Manual”). 111 The Manual describes the Turbines as comprising trailers that contain the gas turbine generator, air filtration and exhaust equipment, fuel systems, switch gear, lubricating systems, fire protection equipment, and auxiliary systems. There are two trailers, a main trailer which carries and houses the Turbine in a turbine enclosure, the Generator and switch gear. The auxiliary trailer carries and houses a control house, cooling system, auxiliary skid, and generator exhaust silencer. 112 The Turbines may be configured in one of two configurations. They may be either installed at a site, and configured as an operating generator, or in a transport configuration, in which the Turbine comprises two very large trailer units, together with several flat-bed truckloads of support equipment (described as ship loose). 113 When in the transport configuration, each of the two trailer units can be towed on a normal road by an oversized prime mover or semi-trailer truck. 114 The main trailer contains the bulk of the machinery, including the gas turbine, the electric generator and associated systems, and weighs approximately 75 metric tonnes. In its installed configuration, the main trailer is 21,305 mm long, 3,124 mm wide and 9,363 mm high. In its transport configuration, the main trailer is 33,825 mm long, 3,124 mm wide and 4,172 mm high. The auxiliary trailer contains the auxiliary support systems, various pumps, and a control room. The auxiliary trailer weighs approximately 27 metric tonnes. In both the transportation and installed configurations, the auxiliary trailer is 14,496 mm long, 2,591 mm wide and 4,000 mm high. Accordingly, the total weight of a turbine is approximately 102 metric tonnes. The dimensions of a Turbine, in its installed configuration, are approximately 21,305 mm long, 6715 mm wide and 9,363 mm high. [23.80]

625

Part 5: (A) Priority Regimes and (B) Commercial Dealings as Security Interests Over Property

Forge Group Power Pty Ltd (in liq) v General Electric International, Inc cont. 115 There are manufacturer’s specifications for the surface on which the Turbines will be put. A concrete foundation is optional, because they can be parked on flat ground. If there is no concrete foundation, then it is necessary for the earth to be levelled and compacted. The site for installation requires careful preparation for the Turbines to be operated safely and properly. 116 On arrival at the site, the prime mover positions the Turbines in the desired position on the foundation at the site. Then, the trailers are lowered and stabilised by eight so-called landing gear mounted on each trailer, which have telescoping feet hand-cranked until they make contact with the ground or foundation on which the Turbines are positioned. The landing gear rest on spacers (metal pedestals that sit between the landing gear and the ground or foundation). Once the stabilising is complete, the prime mover will disconnect from the trailers. 117 Figure 1 below shows the main trailer set up. [Graphic omitted.] 118 As can be observed, the main trailer has wheels to facilitate being towed. The same is the case with the auxiliary trailer, which is depicted in Figure 2. The wheels facilitate transport to and from the site after the Turbines have served their purpose. [Graphic omitted.] 119 Installation required concrete foundation slabs. 120 The installation phase (which normally takes seven days) involves the installation of the ship loose components, and the installation of two large external components, the air inlet filter and exhaust stack. The installation of these components entails the removal of shipping material (such as wood packaging and plastic sheeting) in which they have been transported, the installation of gasket material on the top of the main trailer, and the rigging and hoisting (using a crane) of the air inlet filter and exhaust stack in place on the main trailer. The air inlet filter and exhaust stack are then bolted to the main trailer. Once the Turbines have been delivered and installed, the site representative issues a Certificate of Mechanical Completion. Once Mechanical Completion has been reached, they are ready to proceed to the commissioning phase (in this case Mechanical Completion of Turbines occurred on 28 October 2013 for TM033 and TM035 and on 19 November 2013 for TM036 and TM037). 121 The commissioning phase (which normally takes 14 days) involves the connection of the Turbines to external fuel sources and plumbing. 122 Decommissioning and preparing the Turbines for removal from a site involves the processes described above in reverse. The Turbines must be completely disconnected and prepared for removal. While the Turbines are in operating configuration, the part of the trailers to which the prime mover connects is removed. If the decommissioning process is not properly followed, the Turbines can be seriously damaged when they are removed. Accordingly, it is not possible to immediately remove the Turbines from the site without re-attaching the necessary parts or risking serious damage to the Turbines or the site. 123 Equipment (including spare parts) such as intakes, exhaust and air filters for the first two Turbines (designated TM033 and TM035) arrived on trucks between 12 and 17 October 2013. The main trailers were last to arrive. Forge Power had received delivery at the site of these two Turbines by 19 October 2013. 124 The second two Turbines (designated TM036 and TM037) were delivered on 9 and 10 November 2013. 125 The positioning of the main trailers on the slabs was completed on 11 November 2013. 126 The Turbines were connected via isolation valves to the fuel and water supplies on the site by removable bolts. The wheels on the Turbines remained in place. 127 The Turbines each have an in-built secure control room, the only place from where they can be operated. It is possible to divert control to a central control room, but that did not happen here. 626

[23.80]

Security Within the Scope of the Personal Property Securities Act 2009 (Cth) (PPSA)

CHAPTER 23

Forge Group Power Pty Ltd (in liq) v General Electric International, Inc cont. The Seismic and Wind Kit 128 To ensure stability of the Turbines, they can be installed with additional equipment supplied by GE known as the “Seismic & Wind Kit”. 129 Because the site is in an area which is prone to severe tropical cyclones, the Seismic & Wind Kit was installed for the Turbines. 130 Eight heavy steel cables are attached to hardware attached to each of the main and auxiliary trailers, fastened by using a clevis and bracket. 131 The Manual includes an Installation Work Package, which describes how the Seismic & Wind Kit is to be installed and removed, and contains specific provision for the installation of a used Seismic & Wind Kit. 132 The cables are fastened at the other end to studs set in concrete blocks, separate to the main concrete foundation, again by the use of clevises, which surround each Turbine. Additionally, eight turbine outrigger feet (which are different to the landing gear) are bolted on to the Turbine and then bolted to the concrete foundation using four bolts (per foot). 133 Installation of the Seismic & Wind Kits was completed on 22 October 2013 for the first two Turbines and on 17 November 2013 for the second two Turbines. Discussion 134 The following factors drive the conclusion, in my opinion, that the objective intention with which the Turbines were put in place was not that they should become fixtures, but the contrary: (1)

the Turbines were designed to be demobilised and moved to another site easily and in a short time. Significantly, the trailers keep their wheels throughout;

(2)

the Turbines were only intended to be in position on the site, which was a temporary power station site, for a rental term of two years subject to limited optional extensions;

(3)

Forge Power was contractually obliged to return the Turbines at the end of the rental term;

(4)

the Seismic & Wind Kits were to prevent damage to the Turbines during cyclonic conditions and are themselves designed to be easily removed for demobilisation and then reused at a new site;

(5)

the attachment of the Turbines to the land (via the Seismic & Wind Kits and connection to utilities) was for the better enjoyment of the Turbines as turbines, and not for the better enjoyment of the land;

(6)

removal of the Turbines would cause no damage to the land;

(7)

a design feature is that removal will not destroy or damage the Turbines;

(8)

the cost of the removal of the Turbines from the site would not exceed the value of the Turbines – it would be modest in comparison;

(9)

the Head Contract includes an express term that property in the Turbines will not pass to the owner of the land;

(10)

the Lease includes a term that the Turbines will remain at all times personal property notwithstanding that they may in any manner be affixed or attached to any other personal or real property;

(11)

Forge Power was not the owner of the site and it plainly did not intend to make a gift of the Turbines to Horizon Power; and

(12)

GE prescribed the mechanism for attachment and plainly did not intend the units to become the property of the owner of the land. [23.80]

627

Part 5: (A) Priority Regimes and (B) Commercial Dealings as Security Interests Over Property

Forge Group Power Pty Ltd (in liq) v General Electric International, Inc cont. 135 One feature of these proceedings worthy of mention and brought about by the way the PPSA operates is that GE was impelled (counter intuitively one might think) to argue that objectively viewed, it intended to lose its own very valuable property. Common Carrier 136 I record that there was some debate as to the date upon which Forge Power obtained possession of the Turbines in the context of the date at which the test in s 13(2)(a) was to apply. Forge Power’s position was that it obtained possession when P.T. Rolitrans International (as its carrier agent) took delivery in Houston, Texas. In a late submission, the defendants sought to contend that P.T. Rolitrans International was a common carrier with the consequence that delivery to it did not amount to possession by Forge Power. Forge Power objected to the common carrier submission being made because it had not been pleaded and Forge Power was denied the opportunity to lead evidence which it could have led in response. There is substance in Forge Power’s position, and procedural fairness would have dictated that the defendants not be permitted to take the point. However, as things transpired, it was not necessary to determine this issue because of my finding that GE was regularly engaged in the leasing of goods at all possible material times. Conclusion 137 The Lease is a PPS lease. It follows that by operation of s 267(2), the interests of any of the defendants in the Turbines vested in Forge Power immediately before the appointment of voluntary administrators on 11 February 2014 and Forge Power’s right or title to, or interest in the Turbines, is superior to that of the defendants. 138 The parties are to bring in Short Minutes reflecting this outcome, and I will hear them on costs should it be necessary. 139 The exhibits are to be returned.

628

[23.80]

INDEX A

requirement for writing and notice, [15.310]–[15.320] history, [12.05] legal, [12.30] transfer of personal property, [15.35], [15.40]

Agency trusts and, [13.85] Appropriation unconditional, with assent, [10.115] Assignment equitable — see Equitable assignment future property capable of — see Future property legal — see Legal assignment legal property capable of, [15.15] overview, [15.10] property incapable of — see Property incapable of assignment property types, [15.10] statutory, [14.05] voluntary, [15.55]–[15.90]

Choses in possession delivery — see Delivery gift, [10.50]–[10.55] losing and finding, [10.25] sale, [10.60]–[10.70] transfer of personal property, [1530] Consideration assignment of legal property, [15.50] Contract trusts and, [13.100] circumvention of privity of contract via trust, [15.80]

B

D

Bailment classification, [11.05] trusts and, [16.40]

Debt trusts and, [13.60], [13.150]

Banker’s lien duration, [22.95] liabilities secured by, [22.110] nature, [22.105] origin, [22.100] property extended over, [22.115]

Deeds registration system effect on general law land priority disputes, [4.05] Delivery actual, [10.10] constructive, [10.15] overview, [10.05]

Beneficiaries nomination, [15.240]–[15.250]

E

C

Equitable assignment future property, [18.05]–[18.10] legal property, [15.45] gifts, [15.55]–[15.90] only assignable in equity, [15.325] valuable consideration, [15.50] overview, [15.10], [16.25]

Charges crystallisation, [22.70] disposal of assets in ordinary course of business, [22.65] equitable, [22.40] fixed, [22.45] floating attachment prior to crystallisation, [22.60] development, [22.55] nature, [22.50] Choses in action, [12.15] characteristics, [12.20] common law, [12.10] equitable, [12.25], [13.05]

Equitable estates nature, [13.10]–[13.25] Equitable interests assignment agreements, [15.125]–[15.145] agreements’ effect, [15.130], [15.135] direct, [15.120] trustees’ direction, by, [15.165]–[15.215] beneficiaries, nomination of, [15.240]–[15.250] 629

Introduction to Property and Commercial Law

Equitable interests — cont comparable, [21.05] disclaimers, [15.220] divestiture of, under resulting trusts, [15.255]–[15.305] land, in, [3.15], [3.20] nature, [13.10]–[13.25], [13.180] property, in, whether, [13.15] releases, [15.225]–[15.235] Torrens system priority between equitable or unregistered interests test, [21.10], [21.20] trusts and, [13.25] Equitable property assignment, [15.100]–[15.110] consideration, [15.110] formalities, [15.105], [15.110] writing requirement, [15.115] legal property, distinguished, [1.75] overview, [15.95] subtrust declarations, [15.150]–[15.160] Equitable rights classification, [13.20] property and, [13.15] Equity historically, [13.10] mere, [21.25]–[21.35] Estates doctrine, [2.10]–[2.20] equitable, nature, [13.10]–[13.25]

F

Finding, [10.25] Fixtures annexation degree, [7.10] object, [7.15] hire-purchase contracts, [7.40] overview, [7.05] security rights, [7.40] tenant’s, [7.20] permanent fixture, distinguished, [7.25] removal, [7.35] statutory regulation, [7.30] Future property assignable, [15.330], [15.335] assignee’s rights determination before acquisition, [15.380]–[15.395] equitable assignment, [18.05]–[18.10] equitable enforcement of assignments, basis, [15.365]–[15.375] present rights and, distinguished, [15.340]–[15.360] 630

G

Gifts assignment, [15.55]–[15.90] choses in possession, [10.50]–[10.55] Goods ascertainment, [10.80], [10.105] contracts for sale, [10.75], [10.80] definition, [1.65] finding, [10.25] fixtures — see Fixtures future, [10.105] land, distinguished, [1.65] negligent omission, [19.30] possession, buyer in, [19.80], [19.90] possession, seller in, [19.50]– [19.70] sale without right to sell, [19.05] owner’s conduct, [19.10]–[19.30] title metaphorical becoming real, [19.20] voidable, seller with, [19.40] unascertained, [10.105]

I

Indefeasibility of title deferred, [5.75] extent, [5.75] immediate, [5.75] meaning, [5.75] paramountcy provisions, [5.05]–[5.40] reinforcement, [5.45] ejectment, [5.65] notice, [5.50], [5.55] protection, [5.55]–[5.65] time of, [5.75] Interests equitable — see Equitable interests legal — see Legal interests personal property, in, [8.05]

L

Land — see also Real property direct assignments of equitable interests in, [15.120] distinction from other property, [1.65] equitable interests, [3.15], [3.20] fixtures — see Fixtures general law land system priorities, [20.05] deeds registration system’s effect on disputes, [4.05] prior legal, subsequent equitable interests, [20.10], [20.15] purchaser of estate without notice of equitable interests, [20.20] legal interests, [3.05] Torrens title — see Torrens title land

Index

execution liability, [1.120] harm prevention, [1.115] rights, [1.100], [1.105] execution liability, [1.120]

Legal assignment legal property, [15.20] personal property, [15.30]–[15.40] real property, [15.25] Legal interests land, in, [3.05] transfer by trustees’ direction, [15.165]–[15.215] Legal property equitable assignment — see Equitable assignment equitable property, distinguished, [1.75] legal assignment — see Legal assignment only assignable in equity, [15.325] voluntary assignment, [15.55]–[15.90] Liens banker’s duration, [22.120] liabilities secured by, [22.110] nature, [22.105] origin, [22.100] property extended over, [22.115] common law, [22.95]

M

Mortgages equitable, [22.35] legal nature, [22.20] property subject, [22.25]

N

Native title definition, [2.45] protection procedures, [2.55] statutory, [2.40] recognition, [2.25]–[2.35] statutory, [2.40] validation of Commonwealth government’s acts, [2.50]

O

Ownership — see also Possession alienability, [1.105] concept, [9.50] content, [9.50] definitions, [9.45]–[9.60] exclusivity and control, [9.60] overview, [1.90], [9.40] owner definition, [9.55] goods, conduct related, [19.10]–[19.30] possession, distinguished, [1.95] responsibilities, [1.110]

P

Personal property interests in, [8.05] meaning under PPSA, [23.25] real property, distinguished, [1.65], [1.70] taxonomy, [8.05] transfer choses in action, [15.35], [15.40] choses in possession, [15.30] types, [8.05] Personal Property Securities Act 2009 (Cth) (PPSA) application, [23.10] effectiveness attachment, [23.60] central concepts, [23.55] enforceability against third parties, [23.65] perfection, [23.70] security classification under, [23.40] excluded interests, [23.45] meaning outside, [22.05] nature, [23.50] terminology, [23.15] interest in personal property, [23.30] personal property, [23.25] security interest, [23.20] transaction securing payment or performance, [23.35] Personal rights property rights, distinguished, [1.15], [1.20] Pledges nature, [22.75] pledgee’s interest, [22.90] possession, meaning, [22.80] property subject, [22.85] Possession — see also Ownership buyer in, [19.80], [19.90] common law, [9.10], [9.25] definition, [9.05], [9.15] meaning extended for pledges, [22.80] degrees, [9.20] delivery, [10.05] — see also Delivery ownership, distinguished, [1.95] seller in, [19.50]–[19.70] PPSA — see Personal Property Securities Act 2009 (Cth) (PPSA) Property assignment, property incapable of — see Property incapable of assignment common law classification, [22.10] 631

Introduction to Property and Commercial Law

Property — cont definitions, [1.10]–[1.20] equitable — see Equitable property equitable and legal, distinguished, [1.75] equitable assignment — see Equitable assignment events which create, [1.85] future — see Future property intangible, [12.05] tangible and, distinguished, [1.80] interests equitable — see Equitable interests legal — see Legal interests legal — see Legal property legal and equitable, distinguished, [1.75] ownership — see Ownership passing, [10.75], [10.80] personal — see Personal property real — see Real property real and personal, distinguished, [1.65], [1.70] rights — see Property rights security over, [22.10], [22.15] specific purpose, given for, [13.145] tangible and intangible, distinguished, [1.80] taxonomy — see Taxonomy transferrable rights, as, [1.15] trusts — see Trusts types, and assignment, [15.10] Property incapable of assignment, [15.400] litigation rights, [15.410], [15.415] personal contracts, [15.420] public pay, [15.405] Property rights assignable rights, [1.15] characteristics, [1.25], [1.40] alienability, [1.45] enforceability, [1.30] excludability, [1.50] existence of some thing, [1.35] value, [1.55] definition, [1.05] equitable, [13.15] essentials, [1.25]–[1.55] overview, [1.05] property as transferrable rights, [1.15] rights in personam, [1.20] rights in rem, [1.20]

R

Real property — see also Land personal property, distinguished, [1.65], [1.70] Torrens title — see Torrens title land transfer, [15.25] Rights assignable, [1.15] in personam, [1.20] in rem, [1.20] personal and property rights, distinguished, [1.15], [1.20] property, [1.05] 632

transferrable, property as, [1.15]

S Security interests attachment, [23.55], [23.60] charges crystallisation, [22.70] disposal of assets in ordinary course of business, [22.65] equitable, [22.40] fixed, [22.45] floating, [22.50], [22.55] floating charge’s attachment prior to crystallisation, [22.60] classification under PPSA, [23.40] concept under PPSA, [23.20] creation, [6.05] deemed, [23.40] definition exclusions, [23.45] PPSA, outside, [22.05] PPSA, under, [23.40] effectiveness under PPSA attachment, [23.60] central concepts, [23.55] enforceability against third parties, [23.65] perfection, [23.70] enforceability against third parties, [23.55], [23.65] excluded interests, [23.45] “in substance”, [23.40] law and equity, at/in, [22.15] legal regimes governing, [23.05] liens common law, [22.95] meaning outside PPSA, [22.05] mortgages equitable, [22.35] legal, [22.20], [22.25] nature, [6.05] PPSA, under, [23.50] overview, [6.05] perfection, [23.55], [23.70] personal property, meaning under PPSA, [23.25] interest in personal property, [23.30] Personal Property Securities Act — see Personal Property Securities Act 2009 (Cth) (PPSA) pledges nature, [22.75] pledgee’s interest, [22.90] possession, meaning, [22.80] property subject, [22.85] property, security over property classification at common law, [22.10] security interests at law and in equity, [22.15] purchase money (PMSIs), [23.40] regimes governing, [23.05] terminology under PPSA, [23.15]

T Taxonomy overview, [1.60]

Index

Taxonomy — cont personal property, [8.05]

classification, [13.45] constitution complete, by full legal transfer of trust property, [16.05] incomplete, unenforceability rule exceptions, [16.20] contract and, [13.100] circumvention of privity of contract via trust, [15.80] debt and, [13.60], [13.150] definition, [13.30] development, [3.20] equitable interests, [13.25] equitable obligations, [13.10] express, creation, [13.125] inter vivos, formal requirements, [17.05]–[17.15] legal relationships other than, distinguished, [13.55] overview, [3.25] property given for specific purpose, [13.145] subtrust declarations, [15.150]–[15.160] words, [13.130]

Tenure doctrine, [2.05] overview, [2.05] Title indefeasibility — see Indefeasibility of title metaphorical becoming real, [19.20] voidable, seller with, [19.40] Torrens title land indefeasibility of title — see Indefeasibility of title overview, [5.05] priority between equitable or unregistered interests test, [21.10] application, [21.20] Transfer — see Assignment Trusts agency and, [13.75] bailment and, [13.70] certainty of intention, [13.130] characteristics, [13.30]

U

Unassignable property — see Property incapable of assignment

633