torrens system & indefeasibility - web viewunfortunately, the lta does not define the word...

THE LAW OF PROPERTY B

Table of ContentsTorrens System & Indefeasibility 2

Introduction to Registration 3

Topic Two: Priority of Interests 4Distinguishing “equitable interest from “mere equities” 5Prior Equitable Interest v Latter Equitable Interest 5Prior equitable interest v latter mere equity 7Prior mere equity v latter equitable interest 7Equitable estate v latter legal estate 7Legal estates v latter equitable estate 8Postponing conduct through omission 8

Topic Three: Fraud Exceptions - S184 (3) b 9Definition of Torrens Fraud 10Fraud Against a Registered, or Previous Registered Owner 10Fraud Against The Holder Of An Unregistered Interest 12Fraud Supervening Post-Registration 14Forced Mortgage Ammendments 14

Topic Four: Personal Equities Exception – S185(1) 15General Rule 16Which Interests Are Protected? 16Scope of the Exception 16When Will Such An Interest Be Protected By Equity? 17Loss of the in personam Action 19

Topic Five: Other Exceptions to Indefeasibility 19Interest Of A Lessee Under A Short Lease: S 185(1)(B) 19Omitted, Or Misdescribed, Easements: S 185(1)(C) 20Adverse Possessor: s185(1)(d) 20Earlier Existing Indefeasible Titles: S185(1)(e) 22Failure to Cancel Following a Transfer: s185(1)(f) 23Wrong Inclusion of Land: s185(1)(g) 24Power to Correct the Registrar: ss15, 186 24Overriding Statutes 25

Topic Six: Easements 27Elements 28There Must Be A Dominant And Servient Tenement 28Must Accommodate the Dominant Tenement 29The Dominant and Servient Owners Must Be Different 30Must Be Capable of Forming the Subject Matter of a Grant 30On the Creation of an Easement 31Interpretation 32Easements post-Subdivision of the Dominant Tenement 32Extinguishment and Modification 33

Topic Seven: Mortgages 34Torrens System 34Contents of a Mortgage 35

Alexander O’Hara 1

Rights of the Mortgagor 36Rights and Duties of the Mortgagee 38

Topic Eight: Personal Property – Possession 44Possession of Property 45Competing Rights To Possess 47

Topic Nine: On Bailment 54Nature of Bailment 55Elements of Bailment 55Bailor’s Duties 57Bailee’s Duties 59On Limiting Liability 62Termination by Repudiation 63On Remedies 63

Topic Ten: Security Interests In Personal Property 64Equitable Mortgage 64Equitable Charge 65Equitable Lien 67Pledges 67Possessory Liens 68

Topic Eleven: The Personal Property Securities Act 2009 71Introduction 71Definition of a PPSA Security Interest 75Operation 77Signficant Changes 78Effects of Registration 79Re Arcabi Ltd. 79

Topic Twelve: Vesting of Title In Contracts of Sale 80Statute 81On Ascertainability & Appropriation 81On Exhaustion as a Means of Proving Appropriation 83On Creation of Trusts Through Sale of Bulk Goods 83

Topic Thirteen: Covenants Affecting Freehold Land 86Introduction 87Benefit of the Covenant at Law 87Burden of a Covenant 90Benefit of the Covenant in Equity 91Enforcement In Torrens System 93

Topic Fourteen: On Jurisdiction to Relieve Against Forfeiture 93


Torrens System & Indefeasibility

Introduction to Registration

Generally, S30 of the LTA 1994 imposes a mandatory requirement on the registrar to register an instrument that on the face of it complies with the requirements of the Act.

S182 of the LTA 1994 provides that on the registration of an instrument, the interest mentioned in the instrument:

a) Is transferred or created in accordance with the instrument; andb) Is registered; andc) Rests in the person identified in the instrument as the person entitled to that

instrument.

Accordingly, registration has the effect of passing the legal estate, even though there may be some defect in the transaction giving rise to the isntrument, or some defect in the instrument itself, or indeed even if the instrument is void (Breskvar v Wall).

The rights of the registered proprietor are defined not merely by the shorthand particulars of the insturments shown on the indefeasible title, but also by the terms of any such registered instruments. Per Windeyer J in Bursill Enterprises v Burger Bros:

What is notified to a prospective purchaser by his vendor’s certificate of title is everything that would have come to this knowledge if he had made such searches as ought reasonably to have been made by him as a result of what appears there [93].

However, as noted by Giles J in PT Ltd v Maradona, registration, “validates those terms and conditions which delimit or qualify the estate or interest, or are otherwise necesssary to assure that estate or interest to the registered proprietor” but not further.

Upon registration, instruments are accorded priority according to when each of them was lodged and not according ot the date of creation (S178 LTA 1994). Registration confers indefesaibility upon the proprietor’s title (S184 LTA).

S184(1): registered title is subject only to registered interests, but free from all other interests.

S184(2): affirms that a registered proprietor is not affected by actual or constructive notice of an interest unregistered that affects the lost. Simply, the effect of registration is to extinguish all prior unregistered interest which, but for that registration, would have conflcited with the proprietor’s interest unless a S185 exception applies (Leros v Terara).

There is a question as to whether or not the doctrien of immediate and deferred indefeasibility apply; deferred indefeasibility is the rule that the protection conferred by the indefeasibility provisons will be deferred until such time as the party to who


acquired an estate through the registration of a void instrument further transfers to a bona fide third party. In Clements v Ellis, Dixon and McTiernan JJ approved of deferred indefesasibility, whilst Rich and Evatt endorsed immediate indefeasibility, even though the instrument was a nullity. Not clear.

However, NZ Privy Council case of Frazer v Walker: facts – wife forges her husband’s signature on a mortgage document. The mortgage was then registered onto the Frazers’ title. No payments were made and a power of sale was subesequenctly executed and sold to Mr Walker, who was unaware of the fraud. Accepted by all that Walker had good title, to which both deferred and immediate advocates would agree. The question was whether the mortgage per se was valid – the bench led by Lord Wilberforce held yes, definitively endorsing immediate indefesasibility.

Breskvar v Wall: HCA endorses immediate indefesasibility. In that case, Barwick CJ noted that:

The torrens system of reigstered title is not a system of registaration, but a system of title by registration. Conseuqnelty, a regisration which results from a void isntrument is effective according to the terms of the registration. It matters not what the cause or ereason for which the isntrument is void [385-385].


Topic Two: Priority of Interests

Two different types of disputes:

Title disputes: Where two or more people assert the samet right in the same thing. In this case, the nemo dat quod non habet rule applies.

Priority disputes: Two or more people assert different rights in the same thing. Priority depends upon which rights are claimed.

Structure for priority disputes:

1. What is the nature of each parties competing interests?2. Which interest has priority?3. Are there any instances of postponing conduct?4. Answer e.g. can A enforce against B?

Distinguishing “equitable interest from “mere equities”

One of the main issues is defining what a mere equity is – it is a “slippery creature” which, “can be cornered and illuminated by example, but not captured and confined by definition” (Mills v Ruthol, Palmer J). For example, both fraud and undue influence are mere equities that sometimes demonstrate proprietary charactersitcs, even though they may become an equitable interest when relief is granted.

In Mills v Ruthol, held that a mere equity required the court’s assistance to validate or exercise it, whilst an equitable interest did not.

The difficulty is illustrated by the conflicting judgments in Hotel Terrigal:

Kitto J: Held that the mortgagor was entitled to have the sale set aside as he had a mere equity, not an equitable interest. The trustee’s equitable interest without notice is superior.

Taylor J: Both parties had equitable interest. Although the first in time rule should usually priviledge the mortgagor in this instance, the mortgator;s interest required the court to remove barriers to its title and the court would not grant such assistance against the trustee’s interest without notice.

Menzies J: Where a right is a mere equity or an equitable interest is contingent upon the purposes for which the enquiry is made. For priorities, the right to set aside a contract for fraud was a mere equity.


Prior Equitable Interest v Latter Equitable Interest

General rule in Rice v Rice, per Kindersley VC:

In a contest between persons having only equitable interest, priority of time is the ground of preference least resorted to; i.e. a court of equity will not prefer the one to the other, on the mere ground of priority of time, until it finds upon an examination of the relative merits that there is no other sufficient ground of proference between them, or in other words, that their equities are in all other respects equal. If one has a better equity than the other, priority of time is immaterial.

Different approach: ‘first in time’ is the relevant starting position for determing priority between competing equitable interests (Abigail v Lapin, per Lord Wright and also Heid) imposing on the latter equity holder the onus in reversing the order of temporal priority (Moffett v Dilon). Rice is still preferrable.

To determine which party has the better equity, the conduct of the holder of the prior interest is closely scrutinised (Heid v Reliance Finance Corp) to determine if he or she is guilty of some act or default that must prejudice her claim (Butler v Fairclough, per Griffith CJ). The conduct of the latter interest holder may be examine where he or she causes the prior interest holder to act contracry to that interest (Australian Guarentee v CFC Commerce).

NB:

I. The strength of an equity is not contingent upon the strength of the legal interest it reflects, but rather on matters of conscience (Mercantile Credit v Jorden Morgan Australia).

II. Where a latter equitable interest prevails over an earlier interest, the court shall ensure that the holder of the earlier equity is postponed only to the extent that her or his conduct has prejudiced the holder of the latter equity (Green v CBA no. 2).

Specifically, the courts will consider:

I. Estoppel: An owner of property who clothes a 3rd party with apparent ownership and the associated right of disposition may be estopped from asserting that title as against a person to whom the third party has disposed or charged the property, and who took it for good faith for value (Farwell J in Rimmer v Webster). Thus, the court enequire whether the holder of the prior equitable interest “armed” a 3 rd

party, “to go into the world under false colours” (Lord Selbourne LC in Dixon v Mucklestone).

II. Failure to caveat (see later section): If failure to lodge caveat or take, “sensible and obvious attempts to protect himself” then there may be nelgigence that causes the first equity holder to lose their temporal priority (AG(CQ) Ptd Ltd v A&T Promotions). Determining whether inequitable for the prior interest holder to retain priority, “was it reasonably foreseeable that a latter interest would be created and that the hodler of that latter interest would assume th enonexistence


of the earlier interest” (Heid v Reliance, Mason and Deane JJ). Delay in lodging a caveat is not sufficient negiglence to postpone the mortgagee, but may be, depending on the circumstance (Lynch O’Keefe).

III. Notice: The general rule is that if the latter equity holder has notice, actual or constructive, of the earlier equity, his or her claim to the property is deferreed (Australian Mutual Provident Society v Gregory). Such notice emay dervie from the earlier equity holder’s occupation of the relevant premises, per Perpetual Trustee Co v Smith. In that case, Moore and Stone JJ held that constructive notice was sufficient grounds to discriminate between equities. NB: The test is even more liberal when financial institutions hold the latter equity – notice of the existence of a relationship between the debtor and the claimant of the prior equity may be sufficient to claim priority. For example, a bank holding a latter equitable interest knew that a wife and husband lived together which was sufficient notice of the wife’s interest, that could have been confirmed upon reasonable enquiry

IV. Dong equity: Where a latter equity holder is given priority over an earlier equitable interest the court can, as a condition of giving effect to its decision, require the lattter equity holder to do equity (Australian Guarentee Corporation v CFC).

On Determining Chronology in Torrens Land:

S177: Provies that instruments must be reigstered in the order in which they are lodged.

S178: Provides that registered instruments have priority according to when each of them was lodged, and NOT when each was caveated.

Prior equitable interest v latter mere equity

First in time rule applies.

Prior mere equity v latter equitable interest

The mere equity will be postponed to a latter equitable interest acquired bona fide without notice of it because the latter is the better equity (Double Bay Newpapers v AW Holdings). Ergo, mere equities, “do not participate in competitions of priorities on the same basis as equitable interests” (Bryson J in Double Bay).

Equitable estate v latter legal estate

Bona fide purchaser of legal estate for value without notice of any prior equitable interest takes the legal estate unencumbered by any such interest (Pilcher v Rawlins). Exception to the nemo dat quod non habet rule.


This is because equity regards the subsequent legal purchaser’s conscience to be bound upon notification of the prior equitable interst, making it unconscionable to grant the latter estate priority (Pilcher v Rawlins, per Lord Hatherley LC).

Subsequent legal estate must acquire the property encumbered by the equitable interest for good consideration (Reeves v Poole) as equity shall not assist a volunteer.

Notice may be actual or constructve (Meth & Co v Commercial Banking Company of Sydney) per Sheppard J. Vague rumours are not sufficient to prick equity’s conscience (Barnhard v Greenshiels) . Imputed notice is even sufficient – viz. an agent of the latter interest holder acquires actual or constructive notice (Wylie v Pollen).

Legal estates v latter equitable estate

The general rule is that where the equities are equal, the legal estate prevails (Northern Counties v Whipp). There are, however, three exceptions:

Holder of the legal interest is a party to the fraud that has led to the creation of a subsequent equitable estate (Fry LJ in Whipp).

Gross negliglence - .e. gfailure of the legal esatte to obtain possession or enquire into the wherebaouts of the property is likely to make the court postpone the legal estate (Ettershank v Zea)

Holder of the leqal interest creates the equitable interest (Hansen J in Kooroontang v ANZ Bank).

Postponing conduct through omission

General rule: in Butler v Fairclough, the failure of an equitable mortgagee to lodge a caveat for one clear day brought about loss of priority over the holder of a competing equitable interest who had been misled by the result of a search. Griffith CJ said that, “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 claimiaint later in time to act to his prejudice.” His Honour went on to equate the failure to lodge a caveat with leaving title deeds, under the old system, in the possession of the mortgagor.

This strict view was qualified by Barwick CJ in J & H Holdings v Bank of NSW. His Honour at [552] stated that Griffiths CJ’s view was, “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… it is in my opinion unwarranted by general principle and be subversive of the well recognized ability of parties to create or maintain equitable interests in land… 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 acquire it that it was not in existence’ per Knox CJ in Lapin v Abigail”.

It was emphasized that, “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 initial priority. This is 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 (Dixon J in Lapin v Abigail). Went on in J & H that “In my opinion, the failure to lodge a protective caveat cannot properly be said necessarily to be such an act or default.”

i.e. may now be, “outweighed by other circumstances” per Double Bay Newspapers.


Topic Three: Fraud Exceptions - S184 (3) b

S184(3): Proscribes a person who has committed fraud to shelter behind the legislation.

FRAUD = intention to deviate from the agreement at the time of contract, whilst in personam exception is an intention to deviate that arose only after the contract was entered into in good faith?

1. Establish elements of fraud2. Causation3. Do the forced mortgage ammendments save the mortgator?4. Does the in personam exception apply? (Loke v Yew or Bahr?)5. Remedies

Definition of Torrens Fraud

“Fraud” in the context of s184 is not defined in the Act (Bank of SA v Ferguson). “Statutory fraud embraces less, not more, than the species of fraud which, at general law, founds the rescission of a conveyance” and “statutory fraud isnt itself directly generative of legal rights and oblgiations, its role being to qualify the doctrine of indefeasibility upon what would have been the rights and remedies of the complainant if the land in question were under unregistered title” (Bank of SA v Ferguson).

In Assets Co v Mere Roihi, Lord Lindley stated that Torrens fraud is not ‘equitable fraud’ or ‘constructive fraud’. Involves –

I. Dishonesty: Assets Co v Mere Roihi, Lord Lindley in the Privy Council.II. Moral Turpitude: Kitto J in Latec Finance v Hotel Terrigal. Affirmed by

Mason CJ and Dawson J in Bahr v Nicolay No.2III. Designed Cheating: “If the designed object of a transfer be to cheat a person of

a known existing right, that is fraudulent” [106-7] (Waimiha Sawmilling v Waione Timber).

Causation Element: In Bank of SA v Ferguson, the HCA held that such fraud must operate on the mind of the person said to have been defrauded and to have induced detrimental action by that person. In Young v Hoger it was affirmed that, “there must be a causal link between fraud and the defrauded party’s loss of an interest in the land” [665].

In Assets Co v Mere Roihi, Lord Lindley stated that torrens fraud is not ‘equitable fraud’ or ‘constructive fraud’. However, a person who presents for registration a document which is forged or has been fraudulently or improperly obtained is not guilty of fraud if he honestly believes it to be a genuine document which may be properly relied upon [210].


Fraud Against a Registered, or Previous Registered Owner

Grgic v ANZ: A son obtained a loan using his father’s property as collateral. The son obtained the assistance of a friend to impersonate the father at a bank branch in order to obtain the loan. The impersonator had on his person the certificate of title and thus misled the witnessing officer. Importantly, the witnessing officer was found to not have acted recklessly. ANZ then reigstered the mortgage – the son subsequently failed to fulfill his bargain and a power of sale was exercised, unbewknownst to Mr Grgic Sr. Court held that S184 speaks of fraud by the registered proprietor – in this case ANZ – and the facts did not show that ANZ had been guilty of fraud as:

a less than meticulous practice as to the identification of persons pruporting to deal with the land registered under torrens does not constitute a course of conduct so reckless as to be tantamount to fraud [221].

Mortgagee’s Liability for False Mortgages

General rule: If the misrepresentation is made with the intent of disadvantaging the party who has been deprived of the interest in land this will constitute fraud (Davis v Williams). Where there is no intent to disadvantage a person, fraud may still be established where a representation is made to the registrar knowing that it is false in a material aspect, with the intent that the registrar be induced by the representation to act in a way materially different from what otherwise would have been done (Davis v Williams).

A mortgagee who lodges a mortgage for registration with actual knowledge that the mortgage is a forgery will be guilty of torrens fraud (Young v Hoger). Fraud will also be established if the mortgagee does not have actual knowledge of the foregery, but this ignorance is due to “wilful blindness”, “reckless indifference” (Waimihia Sawmilling v Waione Timber). In the case of wilful blindness, it is also likely necessary to prove an element of actual dishonesty, not want of due care (Pyramid Building Society v Scorprion Hotel, per Hayne J).

Young v Hoger: Mortgagee’s solicitor abstained from making enquiries to ensure that the mortgage document was genuine. Held solicitor was not guilty of actual dishonesty, but that a lack of competence did not make out fraud. However, if a mortagee lodges a mortgage for registration with actual knoweldge that the mortgage is a forgery, the mortgagee will be guilty of fraud within the meaning of the torrens statute.

Fine line between negligence and reckless indifference: To lodge an instrument for registration in the knowledge that the attesting witness had not been present at execution must deprive the lodging party of an honest belief that it is a genuine document on which the registrar can properly act (Australian Guarentee Corporation v De Jager, per Tadgell J).

If the mortgagee adds additional land to the mortgage instrument post execution by the mortgagor, the court will find fraud (NAB v Maher).


Latec Investments Ltd. v Hotel Terrigal Pty. Ltd – Mortgagee exercsied power of sale after default by mortgagor. Latec sold the property to a subsiduary company for below market price. Held: there was a, “pretence and collusion in the conscious misuse of power” and, “a dishonest course” sufficient to constitute fraud.

NAB v Hedley: A bank manager lied that a mortgage had been signed in his presence; this constituted ‘Torrens Fraud’.

Russo v Bendigo Bank: Son in law forged father’s signature. No clerk of the bank witnessed the signing, even though the clark lied about having sighted it. However, the court held that this did not constitute fraud on behalf of the registered proprietor – the bank – as the naïve clerk did not realise the significance of attestation and thus did not act dishonesty as she had no understanding of the consequence of her actions.

Hilton v Gray: The mortgagee’s solicitors had an internal process to detect fradulent mortagges, though they were not followed, allowing fraud to occur. However, it was held that the solicitors were not guiltu of fraud as they had acted incompetently, not dishonestly.

Young CJ attempted to reconcile these prima facie incongruous authorities in Davis v Williams, drawing the following conclusion:

Even though anyone who attests a dealing under the Torrens system falsley is in one sense comitting fraud against the Registrar-General, the cases show that it is not enough. It will be enough if an officer of the interested party which has become registered knowingly or recklessly certifies so that the registration is effected. It will not be enough if some officer of the person who obtains registration wihtout any moral turipitude or intention of depriving a person of an interest in land makes a false atttestation.

Fraud Against The Holder Of An Unregistered Interest

General Law

In equity, a transferee’s notice of an unregistered interest, coupled with an attempt by the transferee to rely on the provisions of a statute to defeat that interest constitutes equitable fraud. Per Hardwicke LC in Le Neve v Le Neve. Facts: two settelements of land; the first was unregistered, second was registered:

“It would be a most mischevious thing, if a person taking that advantage of legal form appointed by an act of Parliament, might under that protect himself against a person who had a prior equity of which he had notice” [295].


However, the Torrens system has displaced equity’s role – S184(2)(a) – indefeasibility, “is not affected by actual or constructive notice of an unregistered interest affecting the lot.”

Further, knowledge of an unregistered interest, coupled with the knowledge that the reigstration of an a dverse interest will defeat that interest, is not, of itself, torrens fraud within the meaning of S184 of the LTA as it falls short of “personal dishonesty” (Boursegun v Stannard Bros).

Loke v Yew v Port Swettenham Rubber: Facts involved a rubber plantation owner who subinfeudated 58 acres of land to Loke Yew. This transfer was not registered. Later, the Port Swettenham company offered to purchase all of the plantation owner’s land, with the exception of Loke Yew’s holding. However, the company’s solicitors prepared a sale contract that covered all of the land – the plantation owner refused unless the exception was made. To induce the owner to sell, the company stated that “As regards to Loke Yew’s land… I shall have to make my own arrangements.” On the basis of this assurance, the land was sold. Company commenced actions against Loke Yew, for all of the land. The Privy Council found that the company’s actions constituted “deliberate fraud” within the meaning of Torrens. Held:

a) The written assurance was false and fradulently made, for the purpose of inducing the conveyance;

b) The fraudulent statement induced the conveyance;c) The value of Loke Yew’s land was not included in the purchase price

paid to the plantation owner.

Clearly, the action of the company clearly went beyond notice of a registred interest, and they had knowledge that his interest would be defeated by registration of the adverse interest. Having found fraud, they concluded that the company’s title was defeasble. Ergo, moral turpitude.

Compare Waimiha Sawmilling v Waione Timber, where the PC held that knowledge of an unregistered interest will not be sufficient to constitute fraud, though the knowledge that the unregistered interest will be defeated by registration of an adverse interest may constitute torrens fraud. Per Lord Buckmaster :

If the designed object of a transfer be to cheat a man of a known existing right, that is fradulent, and so also fraud may be established bya deliberate and dishonest trick causing an interest not to be reigstered and thus fradulently keeping the register clear…. Each case must depend upon its own circumstances. The act must be dishonest, and dishonesty must not be assumed solely by reason of knowledge of an unregistered interest

Modern Queensland position

Even though the provision that “the knowledge of any trust or unregsitered interest in existence shall not of itself be imputed as fraud” means of fraud based


merely on notice will not constitute fraud within the meaning of s184 (Friedman v Barett). Must include the aforementioned moral turpitude.

Fraud Supervening Post-Registration

Bahr v Nicolay No. 2:

Wilson and Toohey JJ: fraud within the meaning of Torrens refers to fraud committed in the act of acquriing registered title only [633].

Mason CJ and Dawson J: “There is no difference between the false undertaking which induced the execution of the transfer… and an undertaking honstely given which induces the execution of a transfer and is subequently repdutated for the purpose of defeating the prior interest. The repudiation is fraudulent beceause it has as its object the destruction of the urnegistered interest notwithstanding that the preservation of the urnegistered interest was the foundation or assumption undelrying the exeuction of the transfer” [615].

Appears that the latter position ahs found favour in Queensland (Slorach v Mountain View Farm).

Forced Mortgage Ammendments

To ameliorate the harshness of the operation of indefasibility in the cases of forced mortages, new ammendments to the LTA were enacted:

New S185(1A): registerested mortgagee’s interest isn’t indefeasible if the registered mortgage failed to comply with S11 A and was forged.

New S11A: Require smortgagee’s to take reasonable steps to ascertain morgagaor’s true indentity and to compile written records of such steps taken, before lodging the mortgage for registration, and to retain such record for 7 years.

New S185(5): Places the burden of proof on the mortgagee to establish compliance with the ammendment regime.

New S188: Compensation for deprivation of lot or interest in lot(1) This section applies if a person (the claimant) is deprived of a lot, or an interest in a lot, because of—(a) the fraud of another person; or(b) the incorrect creation of an indefeasible title in the name of another person; or(c) incorrect registration; or(d) an error in an indefeasible title or in the freehold land register; or(e) tampering with the freehold land register; or(f) loss, destruction or improper use of a document deposited or lodged at the land registry or held by the land registry for safe custody; or


(g) an omission, mistake, breach of duty, negligence or misfeasance of or by the registrar or a member of the staff in the land registry; or(h) the exercise by the registrar of a power in relation to an application or dealing with which the person had no connection.(2) The claimant is entitled to compensation from the State for the deprivation.


Topic Four: Personal Equities Exception – S185(1)

Exam:

Worth trying if cannot make out fraud, or if the impugned fraud occurred post-registration, due to the unclear status on the requireid timing of the fraud exception in the wake of Bahr.

Fraud = Loke Yew, whilst in personam is Bahr. If intention to deviate at the time of the contract, fraud. If intention to deviate latter, IPE.

General Rule

Torrens in no way destroys, “the fundamental doctrines by which Courts of Equity have enforces, as against registered proprietors, conscientious obligations entered into by them” (Bary v Heider, per Isaacs J).

Lord Russell in the Privy Council in Oh Hiam v Than Kong: “Torrens law is a system of conveyancing; it does not abrogate the principles of equity; it alters the particular application of paritcular rules of equity but only so far as it is necessary to achieve its own special objects” [9454]. That case involved a dispute over the subject matter of a contract for the sale of land. Oh Hiam argued that it was only meant to include lands holding rubber plantations, and not the lot upon which her family owned a house. The Privy Council held that the right of rectification of a contract is an in personam right which is an exception to indefeasibility.

Torrens: designed to, “protect a transferee from defects in the title of the transferor, not to free him from hinterests which which he has burdened his own title” (Brennan J at [653] in Bahr v Nicolay No. 2).

Improtantly, an equity rising in personam need not be registered for the court to enforce it.

Which Interests Are Protected?

“Something more than a mere ancillary right” [428] Re Eastdoro. E.g.:

Fee simple (Gosper) Option to pruchase (Bahr) Unregistered long lease (Bourseguin) Mortage (Barry v Heider) Option to renew (Valbrin). Right to rectify an option included in a lease by mistake (Majestic Homes v

Wise) Land transferred in error (Tuut v Doyle) Lessee’s right to relief against forefeiture, if the re-entry has been noted on the

freehold title (Brooker’s Colours v Sproules)


Scope of the Exception

Unfortunately, the LTA does not define the word “equity”, so we must assume it is meant to reflect the general law (White v Tomasel).

In Mercantile Mutual Life Insurance v Gosper, Mahoney JA at [45] held that the terms “equity and equitable interest refer simply to the fact that the person involved may invoke the assistance of the equity court or equity principles to achieve the relevant relief”.

I. The conduct complained of must give rise to a recognised cause of action, either legal or equitale (Garofano v Reliance Finance Corp).

II. The conduct complained of must be that of the registered proprietor or her agent

III. Either before or after registration (Conroy v Knox).

IV. The interest may either be an eequitable estate in the land, or a personal equity (Bahr v Nicolay No 2, per Wilson and Toohey JJ).

V. Unconscionability element? Unclear - in QLD probably no – White v Tomasel. The in personam exeption is not limited to, “claims of an equity in the strictest sense” (White v Tomasel, per Williams JA at [59]). In that case, the Tomasels obtained a summary judgment against the appellant ordering the appellant to transfer land to them. The court order authorised the Reigstrat to execute the instrument of trainsfer if the appellant refused. Appellant repealed and failed to acquire a stay. Before the appeal was heard, the registrar executed the transfer. QCA held that the order should be set aside as there had been insufficient notice and an error of law. Tomasels argued that they had not been guilty of any personal dishonesty, and thus should not be subject to an in personam action. Majority rejeccted that submission – Williams JA stated that, “by securing registration through the aid of a court order the respondents impliedly accepted that their rights were conditional upon the validity of that order” [59].

Common situations where a personal equity will arise against the registered proprietor and survive registration include:

A. Founded on a contract between the partiesB. A trust or fiduciary relationship exists between the parties; orC. Where the registered proprietor gives an undertaking to be bound by the interest

of the claimant.

When Will Such An Interest Be Protected By Equity?

In Bahr No. 2, Mason CJ and Dawson J held that Cl. 4 in the agreement, in context of the facts, was more than a mere acknowledgement of a prior agreement and amounted


to an undertaking to be bound by the rights the Bahrs had under the prior purchase agreement. Brennan J held that the clause amounted to a contractual stipulation to the Thompsons that they would hold their own interest subsequent to the Bahrs’. Wilson and Toohey JJ held that Cl. 4, combined with the letter sent after registration acknowledging the repurchase agreement, indicated that the Thompsons had taken the transfer on the basis that they were bound by the repurchase agreement and by doing so became subject to a constructive trusts in favour of the Bahrs. Thus, there must be ‘something more’ that elevates mere notice into a personal equity – assumpsit.

Valbirn v Powprop – Powprop was the lessee of a restaurant at Airlie beach. The lease was for 3 years, with an option to renew for a further three; the lease was not registered. Valbirn entered into a contract to purchase the presmies – Cl. 30 specified that the sale was subject to existing tenancies. Valbrin, after the execution of the sale contract, argued that the indefeasibility rule precluded Powprop from having an interest in the property. However, de Jersey J affirmed the judgment of Brennan J in Bahr No.2:

“The title of a purchaser who not only has notce of an antecedent unregistered interest but who purchasees on terms that he will be bound by the unregistered interest is subject to that interest. Equity will compel him to perform his obligation” [653]

Accordingly, Valbirn could have taken the property unencumbered by Powprop’s interest, even if it had notice of the interest, had it not entered into the contractual undertaking to be bound by the lease terms.

Looking to both Bahr and Valbirn, it becomes apparent that there is a very fine line between taking an interest with notice and circumstances which brings the actions of the registered proprietor within equity exception. In the former scenario, the interest will not survive registration per S184(2) of the Act. This is so even when there is knowledge on behalf of the lattter party that the registration will extinguish the prior interest. The equity exception is enlivened only: (***ELEMENTS***)

I. Where the conduct of the registered proprietor goes beyond actual or constructive notice and involves an undertaking to honour the unregistered interest (assumpsit); and

II. The cirucumstances are such that to derogate from that bargain would be unconscionable, per Brennan J in Bahr at [654].

What constitutes an ‘undertaking’ sufficient to generate an equity?

in Bourseguin, there was a clause obliging the buyer to, “peruse all leases over the property within 14 days of the date thereof and being totally satisfied with the terms of such leases to the purchasers or the purchaser’s solicitors as soon as possible.” Held: “Unlike the provisions considered in Valbrin and Bahr, there is nothing in Cl. 30 or the surrounding cirucmstances, if they are relevant, to justify the conclusion that the second defendant affirmatively undertook to acknowledge, recognise ora ccept the plaintiff’s agreemtn for the lease or to be bound by its terms.” However, it


was found that a reasonable person would have taken the purchaser’s silence to constittue acceptance of this requirement.

In personam exception: It is necessary to show that the mortgagee or her or his agent has been guilty of some duress, indue influence or unconscionable conduct such that the morgagor has a direct right of action against the mortgagee (Parker v Mortgage Adgi?). Indefeasibility provisions will not hinder the court form granting appropriate relief stemming from the conduct of the mortgagee (Garcia v NAB). However, where the conduct in question is comitted by a 3rd party, the mortgagee’s title will not be defeasible unless the mortgagee is responsible for the acts of the 3 rd party (Parker v Mortgagee Ad…?)

On Trust Property

In QLD, where a person receives trust property with knowledge that it is trust property and that the property is being transferred in breach of trust, equity will impose a constructive trust on the property in the hands of the person to be held for the benefit of the beneficairies under the constructive trust (Barnes v Addy). Held by the QLDCA in Tara Shire Council v Garner that the principles of did not prevent a claimant from relying on a claim based on this recipient laibility.

Loss of the in personam Action

The claimaint’s right will be defeated if the registered proprietor transfers her or his registered interest to a third party who acquires an indefesasible title free of the earlier claim.

E.g. where A has a right to set aside a mortgage under the in personam exception, the right will be extinguished if the mortgage is transferred to B and B obtains registration without fraud (Tessman v Costello and PT Ltd v Maradona).


Topic Five: Other Exceptions to Indefeasibility

Interest Of A Lessee Under A Short Lease: S 185(1)(B)

Provides that the estate of a registered proprietor is subject to the interest of a lessee under a short lease. The term ‘short lease’ is defined as a term for three years or less, or from year to year, or a shorter period (sched. 2).

NB: Where a registered lease is combined with an option, but that option is not registered, the ption will be deemed registered as it is so intimately connected with the registered interest (Re Eastdoro).

Omitted, Or Misdescribed, Easements: S 185(1)(C)

The estate or interest of a registered proprietor of a lot is subject to the interest of a person entitled to the benefit of an easement if the particulars of the easement have been omitted from, or misdescrbed in, the freehold land register.

An easement will be defined as omitted if:

a) The easement was in existence when the lot burdened by it was first registered but particulars are no longer recorded in the freehold land register against the lot burdened; or

b) The easement was registered but later omitted by an error of the registrar.

In James v Registrar-General, an easement in the nature of a right of way was created over a lot in NSW. This easement was registered. Following the transfer of the dominant tenement, a new certiifcate was issued and, through an error, the notation of the easement was omitted. Transferred twice again, each time continuing the error. The majority of the Court of Appeal held that the easement fell within the omitted or misdescribed easement exception even thought he owner of the servient tenement, Mrs James, was not aware of the existence of the easement when she purchased the lot. Wallace P held at [369]:

The methods of extinguishing (or modifying) an easement are well known, and I know of no reason why a duly created easement should be extinguished merely because a notification thereof on the certificate of the servient tenement is not made or is omitted as against either the orignal owner of the dominant tenement or a purchaser for value from such owner.

However, an easement created by express grant after the servient tenement is brought under the provisions of the Torrens statute, but which has never been recorded on the folio of the freehold land register, shall not be afforded the protection of the exception – this was also the position under the Real Property Act 1861.


Adverse Possessor: s185(1)(d)

The concept of acquiring title to land by adverse possession is firmly grounded in the general law. The underlying policy reasons were articulated by Sir Thomas Plumer MR in Cholmondeley (Marquis) v Clinton (Lord):

The public have a great interest, in having a known limit fixed by law to litigation, for the quit of the community, and that there may be a certain fixed period, after which the possessor may know that his title and right cannot be called in question. It is better that the negligent owner, who has omitted to assert his right within the prescribed period, should lose his right, than that an opening should be given 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. The individual hardship will also be less.

To achieve this policy, we look to the S13 of the Limitations of Actions Act 1974 which provides that:

An action shall not be brought by a person to recover land after the expiration of twelve years from the date on which the right of action accrued to the person, or if it first accrued to some person through whom the person claims, to that person.

S19(1) also provides that “A right of action to recover land shall be deemed not to accrue unless that land is in the possession of some person in whose favour the period of limitation can run (adverse possession).”

Whether a claimant’s possession is adverse will be governed by the nature of the land in question and the particular circumstances of the case. (Kirby v Cowderoy). The general rule is that the “possession which will be necessary to bar the title of the true owner must be an actual, constant, visible occupation by some person or persons… to the exclusion of the true owner” (McConaghy v Denmark).

Bowen CJ in Mulcahy v Curramore clarified that, “possession which will cause time to run under the Act is possession which is open, not secret; peaceful, not by force; and adverse, not by the consent of the true owner.” Importantly, Bowen CJ stressed that possession cannot be adverse if it is with the consent of the registered owner; however, if consent is revoked, it then becomes adverse.

To establish this, a claimant must establish both:

factual possession (Buckinghamshire County Council v Moran). Factual possession may be demonstrated by an appropriate degree of physical control that is both exclusive and single. (Slade J in Powell v McFarlane).

and intention to possess the land (Mulcavy v Curramore). See:

Whittlesea City Council v Abbatangelo [2009] VSCA 188


In this case, the Abbatangelo family made varied use of land which was surrounded by their land on three sides but legally belonged to the Council. Various acts were relied upon to show intention to possess the land adversley:

– installation of a gate and maintenance of fences on the boundaries of the land, without seeking financialcontribution from the Council;– use of the land for grazing, shade, shelter and at times enclosure of the variety of animals kept by theAbbatangelos from approximately 1960;– installation of a bathtub;– maintenance of trees and vegetation, including mowing of grass, and removal of noxious weeds andpests — foxes, snakes and rabbits;– the construction of a cubbyhouse on the land; and,23– use of the land for sporting and recreational activities such as horse riding, archery, football, horse training, rabbit shooting, bike riding, ‘paddock bomb’ driving and cricket.

• The court found that all of these acts taken separately may be inadequate, but, together they were sufficient to make out a claim of adverse possession.– The court pointed out that the adverse possessor’s special circumstances had to be taken into account in addition to the nature of the land itself.– The Abbatangelo family used the land in a way which suited their needs and circumstances, and so forthem, all of the acts together were sufficient to show the requisite intention to exclusively possess.– This was notwithstanding that to a ‘farmer’s eye’ the land looked uncultivated and barely used.

NB Adverse possession against the Crown does not exist in Queensland per Limitations of Actions Act S6(4).

EFFECT ON TORRENS: Refina v Binnie: Land was fixed within the appellant’s property. The survey plan showed the land to be part of the respondent’s property. The respondent reigstered a plan of subdivision. The question was whether the appellant had personal equity against the respondent’s interest in the land? Held:

The effect of the Real Property Act 1900 (NSW), s 45C, is that under s 45D(1)(b), if an enquiry into whether, hypothetically, the title of the proprietor would have been extinguished by the statutes of limitation had those statutes applied to the land (ie, had the land been Old System land), returns a positive result then this satisfies one of the factors which may induce the Registrar-General to issue a title. This is the extent of the extinguishing effect of the Limitation Act on Torrens land.


Earlier Existing Indefeasible Titles: S185(1)(e)

Under this provision, a registered proprietor does not obtain the benefits of indefeasibility conferred by S184 against another registerered proprietor making a valid claim under an earlier existing indefeasible title for all or part of the lot.

The effect of this exception is that the earlier title prevails so far as any inconsistency is concerned, provided that the claim by the earlier proprietor is a valid one.

Registrar of Titles v Esperance Land Co: In that case, a block of land was divided into two. A certificate of title was issued to a buyer for the first block. Later, the second block was also sold; however, by an error on the part of the registrar, the certificate of title issued to the second owner included both blocks of land. The court held that Esperance Land Co. must delvier the certificate of title to the registrar to have the rror corrected.

This exception may also apply where there is a claim under an earlier existing indefeasibly title for part of the lot.

However, it is uncertain how this exception operates where the titles in question have been transferred to a number of successsors in title over the course of time, as that obviously changes which title preceded the other. Most academic commentary suggests that the “earlier title” in the exception should be interpeted as areferebce ti tge earkuer tutke exixting at the time that the rror first occurred, otherwise each transfer may lead to a change in priority (see Whalan; Woodman and Nettle).

Medical Benefits Fund of Australia v Fisher: An option to renew was contianed in a registered lease, the initial term of which had expired. The fee simple was sold and on registration of the transfer, the existing certificate of title was cancelled a new one issued without any notification of the expired lease. The lessee sought to exercise the option to renew against the new registered owner. The court held that the option did not prevail against the interest of the subequent registered owner. Cancelleation neuters it and effectively extinguishes registration of any interest not carried for in a new title.

Failure to Cancel Following a Transfer: s185(1)(f)

Provides that:

“A registered proprietor of a lot does not obtain the benefit of S184 if: the interest of another registered owner If there are 2 indefeasible titles for the same interest in the lot and the inconsistency has arisen through failure on transfer to cancel, wholly or partly, the indefeasible title of the first registered owner.

Deals with the same sitautions as S185(1)(e). However, it only applies where the inconsistency has arisen because of a failure to cancel an indefeasible title on registration of a transfer. It is also apparently limited to a competition between registered owners.


The effect of the provision seems to be that if there are two inconsitent titles in existence because of a failure to cancel a title on registration of a transfer, the title of the transferee will prevail, rather than the title of the transferor. Thus, it is an exception to the prior-registration rule. It gives priority to the transferee, in contravention of the general rule in S185(e).

Wrong Inclusion of Land: s185(1)(g)

The benefits of indefeasibility are not conferred upon a registered proprietor in relation to land wrongly included upon the register.

Where land is wrongly included in an indefeasible title, the true owner, rather than the registered owner, retains title to that land (Marsden v McAlister).

Extrinsic evidence is admissible to prove the true boundaries and area of the land. (Beames v Leader).

Where there is a dispute as to whether or not the land was wrongly included in the title, the court shall examine all the relevant evidence, which may include details as to how the land was laid out in subdivision, the location and size of adjoining blocks etc. (Overland v Lenehan).

Power to Correct the Registrar: ss15, 186

In appropraite circumstances, the conclusiveness of the register is subject to the power conferred on the registrar to correct errors. The extent of the power is uncertain, but the suggestion that the registrar may have an unqualified power has been consistently rejected (Medical Benefits Fund of Australia v Fisher, per McPherson J at [611]).

Section 15(1) of the LTA 1994 confers the power of correction upon the registrar if she or he is satsifed that the register is incorrect and the correction will not prejudice the rights of a holder of an interest recorded in the registrar.

S 160 empowers the registrar to compel a person to deposit an instrument, such as a certificate of title, for correction or cancellation.

S 187 LTA confers power to correct indefeasible title where the registrar is satsifed that there is wrongful inclusion of land.

S 19 allows the registrar to hold an equity to decide whether the register should be corrected.

If correction occurs, the registrar is obliged to record the state of the register before the correction and to note the cirucmstances of the correction (s15(3)).


The registrar’s power is naturally discretionary.

Register is incorrect

Held that the requirement that the register be incorrect means that there must be an error in the register, although it is not necessary that the error be apparent on the face of the register (Equitiloan Securities v Registrar of Titles).

This requirement is not satisfied by simply showing that there has been an error in the procedures adopted in the registrar’s office (Equitiloan).

Correction does not prejudice rights

In Equitiloan, that company lodged a mortgage for registration that was delayed for some time. The registered owners alleged that the mortage had been made fraudlunetly. Normal procedure is for the registrar to immediately investigate any alleged fraud – an administrative note is generally made. However, in this case the normal procedures were not followed and the mortgage registered. On the same day as the mortgage was registered, the register cancelled it and on the next day launched a caveat. Held that the cancellation was void because it exceeded the power conferred by s15 as, on the evidence, it was unclear whether or not fraud had occurred and therefore it was uncertain whether registration of the mortagage conffered and indefeasible title or not. In these circumstances, the court concluded that the court could not have been satisfied that the register was incorrect and that the cancellation would not prejudice the rights of the mortgagee.

NB: NO PREJUDICE IF INDEFEASIBILITY EXCEPTION PROVED: A registrar may correct an error where an exception to indefeasibility applies. A correction to the register will not prejudice the rights of a holder of an interest recorded in the register, if the correction involves re-registering an interest that theholder takes subject to one of the exceptions to indefeasibility (James v Registrar-General).

Overriding Statutes

A number of statutes which enable public entitites to obtain an interest in land which may override the indefeasibility conferred to a registered proprietor.

In determining whether a statute creates an exception to the benefits of indefeasibility looks to the following rules for guidance:

I. Special measure prevails over a general measure (Miller v Minister of Mines)II. Later statute overrides earleir statute (South-Eastern Drainage Board SA v

Savings Bank of South Australia).


e.g.

Quach v Marrickville Council (No 2)(1990)22 NSWLR 55 per Young J:

Overriding statutes are ‘the weakest point in the Torrens system’: 61. ‘They detract from the ‘mirror principle’ of the Torrens system as they are effective without recording in the title register and therefore impose significant burdens on purchasers’.

Note s 29(2) LTA: The registrar may also record in the freehold land register anything that the registrar considers should be recorded to ensure that the register is an accurate, comprehensive and useable record of freehold land in the State; and34 (1) The registrar may keep separately from the freehold land register information that the registrar considers necessary or desirable for the effective or efficient operation of the register.

Butler v Attorney General (Vic) (1961) 106 CLR 268 at 276:

‘there is a very strong presumption that the State legislature did not intend to contradict itself, but intended that both Acts should operate’

Hovarth v Commonwealth Bank of Australia 1999 1 VR 632:

s 49(a) of the Supreme Court Act provided that loan contracts entered into a minor are void. The latter Act was re-enacted more recently than the relevant Victorian Torrens statute. Held: Mortgage under void interest was indefeasible.

City of Canada Bay Council v F&D Bonaccorso Pty Ltd [2007] NSWCA 351:

Local Government Act 1993 provided by s 45(1) that a council “has no power to sell, exchange or otherwise dispose of community land”. Community land was sold and the transfer was registered.

HELD: the transferee obtained an indefeasible title by registration, notwithstanding that the sale was in contravention of s 45(1).

[75] … The question to be resolved is this: does a transfer of land in breach of s 45(1) of the LG Act deny the conclusive nature of the third respondent's title to the land comprising Chapman Reserve? Is such a breach so inconsistent with the indefeasibility provisions of the RP Act that s 45(1) must prevail over those provisions? As Ormiston JA observed (at 655 [29]), such an inconsistency would only be relevant and prevalent in its consequence if it works an implied repeal pro tanto of the relevant provision of the RP Act. The legislature must, by enacting s


45(1), have intended that that provision was one with which the indefeasibility provision of the RP Act could not stand.”

[88] “[s45(1)] neither declares any transfer (let alone a registered transfer) of such land to be void and of no effect nor does it invalidate or render unlawful the acquisition of the title to the land obtained by the purchaser or disposee.”

Koompahtoo Local Aboriginal Land Council v KLALC Property Investment Pty Ltd & Ors:

Concerned the dealing with a land which was done in contravention of a prohibition Held: registered interest is indefeasible, despite legislation.

It is [31] “void, but … it is not declared that the registration of the transactional document is void.”….. “[the section] declares the transaction to be void, not the title obtained by registration of that transaction”… I.E. LOOK TO THE PRECISE MEANING OF THE PROVISION.

Hillpalm Pty Ltd v Heaven’s Door Pty Ltd (2004), Kogarah v Golden Paradise Corporation:

NSWCoA held that the planning statute and the Torrens statute were inconsistent and as the planning statute was alter in time, its provisions prevailed; thus the registered proprietor’s title was not indefeasible.

HC, decided it on a different consideration, leaving aside the “real and lively question about how the two statutory schemes… were to be reconciled, and questions of implied repeal or amendment might arise”.


Topic Six: Easements

Exam Structure

I. Is it an easement to cross the land? Consider the definition, type, creation and interpretation of the easement

II. Do the characteristics required for an easement exist? Apply these to the facts of the case.

III. Has the easement been interfered with, extinguished or modified/subdivided?

IV. Are there any remedies available/applicable?

An easement is defined in White v Chandler at [31] as a:

Right of a definite and limited character attached to the enjoyment of a corporeal or incorporeal herditament (dominant tenement) by reason whereof the occupier of another corporeal tenement (servient tenement) is bound to permit the person in whom the right is vested to do something in or over the servient tenement other than taking corporeal substance, or whereby the owner or occupier of the servient tenement is bound to abstain from exercising one or more of the ordinary rights of ownership or occupation, or in rare cases, to do soemthing for the benefit of the occupier of the dominant tenement.

An easement is a registerable interest.

Elements

In Re Ellenborough, Lord Evershed MR described the four characteristics of an easement:

I. There must be a dominant and servient tenement; II. An easement must accommodate the dominant tenement;

III. The dominant and servient owners must be different persons; andIV. The easement must be capable of forming the subject matter of a grant.

There Must Be A Dominant And Servient Tenement

Dominant tenement is the property benefited by the easement (Re Registrar of Titles; Ex Parte Waddington). It is not sufficient that there be a person who takes the benefit of the easement; there must be a dominant tenement that is benefited – viz. the easement cannot exist in gross (Concord v Municipal Council v Coles).

If land is not benefited, then the interest is one of licence, rather than easement.


The servient tenement should be capable of being defined (Woodman v Pwllbach Collery).

However, s89 LTA provides an exception to this rule – it enables an easement to be created in favour of a, “public utility provider” even though the easement is not attached to, or used, or enjoued with another lot. S89(2) states that the only easements capable of registration udner this provision are rights of way, drainage, or swereage easements, or for supply of water gas, electricity, telecom etc.

Must Accommodate the Dominant Tenement

Whether an impugned easement accomodates the dominant tenement is a question of fact (Re Ellenborough).

It must be connected with the normal enjoyment of that tenement and is not satisfied simply by a contractual benefit to a person (City Developments v Registrar General of N.T.)

Neither is it sufficient that the right increases the value of the property to which it is attached, though this may be a relevant consideration (Re Ellenborough, [173]).

Ackroyd v Smith: A right was given “for all purposes.” Court held that it was not necessarily connected with the use and enjoyment of the dominant tenement and thus could not accurately be characterised as an easement.

Easements for Commerce

Hill v Tupper: A right to let boats out for hire on a canal, which was the servient tenement, was held not to create a vaid easement because it did not accommodate the dominant tenement as it was not conencted to the use and enjoyment of the land – rather, it was an independent business enterprise.

Clos Farming Estates v Easton

A vineyard and farm comprisng of 80 lots provided an easement to the dominant tenemeant which was a small parcel of neighbouring land.

The purpose of the easement was to permit the servient tenaents, Clos, to be used for viticulture, the the proceeeds to be distributed to the owners of the servient tenemenats.

Bryson J concluded that the easements did not accommodate the dominant tenemant – the smal neighbouring parcel of land – as there was no real or intelligble connection between the easement rights and the ordinary use of the dominant tenemant. The mere faciliation of commerce in which the the dominant tenemant is involved is not sufficient, though they are a relevant consideration in determining whether the easement accomodates the dominant tenement.


c.f.

Moody v Steggles: A prescriptive easement was created for the affixing of a commercial sign on the wall of a house on the servient teneamnt, advertising a public house on the nearby dominant tenemant. Chancery held that the easement accomodated the dominant tenemant as it was more or less codnnected to the mode the occupant used the dominant tenement for.

The Dominant and Servient Owners Must Be Different

S86 of the LTA provides that an instrument of easement may be registered even if both lots have the same registered owner.

Must Be Capable of Forming the Subject Matter of a Grant

Easements have been acknowledged for:

Elements:

I. The right granted must be sufficiently definite to be capable of forming the subject amtter of the grant (Re Ellenborough). The right must be well defined and understood, not an indefinite and unregulated priviledge. In Re Ellenborough, it was held that the right to use land as a pleasure ground or garden was sufficiently definite. Have included:

i. Height (Commonwealth v Registrar of Titles for Victoria)ii. Air (Commonwealth v Registrar of Titles for Victoria)

iii. Drainage (Renee v Elvin)iv. Jus Spatiandi et Manendi (Riley v Penttila)

II. The right granted must be limited and must not attempt to grant a right of joint occupation or a right of exclusive possession or excusive use over the servient tenement (Re Ellenborough).

a. Copeland v Greenhalf: A claim to a right to park an unlimited number of vehicles of another person’s property was held to amount to a claim for joint possession, and thus void.

b. Blenheim Estates v Ladbroke: Ouster principle – Q when is the grant too extensive? A: Is the owner left with any reasonable use of his or her land?

c. Weigall v Toman, Wilson J QLD suggested four factors were relevant. Held on facts that easement granting access to garage that was otherwise inaccessible was valid, as another garage for S.T. existed.i. Proportionality between the servient tenement as a whole and the

part of it over which the exclusive right is given - a q. of degree.


If only a small part of a larger lot, likely to be ok (White v Betali)

ii. Extent of exclusivity claimed.iii. Whether the alleged easement arose by prescirption or express

grant – less likely where prescribed.iv. Practicalities, including safety, maintenace, access and amenities.

d. V. murky case law. III. The right must be a right of utility and benefit.

On the Creation of an Easement

By Express Grant

E.g. execute a document under seal.

Beware s11(1) PLA – must be in writing and signed.

S82(1) LTA: An easement covering a lot may be created only by registering an instrument of easement.

S83: A plan of survey designanting the easement must also be registered.

By Implied Grant

The grant of an easement will be implied at common law under the rule in Wheeldon v Burrows. This principles is now severly circumscribed by the Torrens system.

Rule: Where the blocks of land in question were formally in the ownership of one person if, at that time, the owner had exercised rights over part of the land such that, had the land been in separate ownership, the rights would have constituted an easement, then when the land is severed either by sale or leasing, an implied easement may arise.

I. The easement will generally only be implied in favour of the land purchased or lesae – that land becomes the dominant tenement and the land retained by the vendor becomes the servient tenement.

II. Easement of reservation will generally not be mplied under this principle in favour of land retained by the vendor.

III. The rights in question must have been used by the original owner for the benefit of the new dominant tenement at the time of the sale or lease.

IV. The rights must be necessary for the reasonable enjoyment of that land.V. The rights must be continues and apparent.

NB: A Wheeldon v Burrows easement is implied by application of the principle of non-derogation from the grant.


However, this principle has been severly hamstrung by Torrens, as Torrens demands a written grant and is unregistrable otherwise, until the grantor executes documents capable of registration (Australian Hi-Fi v Gehl). However, the easement may be enforceable against the original owner if they own the servient land – thus, it begins to blend with the in personam exception.

Easements of Necessity

A way of necessity will arise by implied reservation where a landowner subdidveds land in such away that a parcel of it is landlocked and access can only be ontained by creating a right of way (Union Lighterage v London Graving Dock Co.).

Interpretation

As a general principle, the courts will construe an easement broadly, against the grantor (Cavacourt v Durian Holdings).

The use of extrinsic material is permissible in interpreting easements.

In St Edmunsbury and Ipswich Diocesan Board of Finance v Clark, Megarry J found that the narrow width of an easement was a factor in interprting it as giving access limited to foot traffic.

Courts are also prepared to acknowledge that the law mut keeup up with the times: this is reflected in the fact that an easement for a “right of carriageway” may be interpreted for access not only of horse and carriage but mechanically propelled vehicles assuming the circumstances or the expressed intentions of the easement do not indicate otherwise (Lock v Abercester).

Westfield Management v Perpetual Trustee Co.

Case involved an easement for right of way in Sydney CBD. Four buildings banked on a mall, of which only one had vehicle access. The owner of the building with access provided a reigstered carriageway easement to one of the three other properties, all of which were owned by W. W sought a decalaration that the use of the easement applied to the other two properties as well.

HCA held that the easement giving accesss to one property could not be construed to allow further access to the other properties. The decision relied on interpretation of the words of the agreement, along with extrinsic evidence.

Easements post-Subdivision of the Dominant Tenement

Gallagher v Rainbow (1994) 179 CLR 624


In 1985 the Brisbane City Council approved a subdivision of land in St Johns Wood, Brisbane.

– Lots 13 to 18 clustered around Buckingham Street. Lots 13 and 18 had a frontage to Buckingham Street. Lots 14 to 17 did not. They depended for access to Buckingham Street on a private road running between Lots 13 and 18.

– The private road was constructed on four slivers of land each being part of one of Lots 14 to 17. Each of the registered proprietors of Lots 14 to 17 owned one quarter of the private road. Each had an easement of way over the other three quarters.

– The respondents proposed to subdivide each of Lots 16 and 17 into three parcels. The appellant, the owner of Lot 14, objected to the proposal. The appellant’s concern extended to the additional use to which the private road would be put by reason of the added owners.

The High Court found that the subdivided lots were entitled to the benefit of the easement:

Whether the owners of subdivided lots of a dominant tenement are entitled to the benefit of an easement is a question of construction of the grant.

There is a presumption that an easement is appurtenant to the dominant tenement and to each part of it.

To the extent that any part of the dominant land may benefit from the easement, the easement will be enforceable for the benefit of that part unless the easement, on its proper construction, benefits the dominant land only in its original form.

Extinguishment and Modification

1. Surrender or Release

Section 90 of the LTA requires registration of an instrument of surrender, as well as the consent of registered mortgagees and lessees of the DT.

Section 91 provides similarly for amendments of easements.

2. Merger (obsolete)

– Sections 87–8 of the LTA provide that an easement is not necessarily extinguished even if the same person owns both the DT and the ST.

3. Court Order

Section 181(1) of the PLA provides that the Supreme Court may modify or extinguish an easement under application if:


1. The easement is deemed obsolete due to change in user or other circumstances,

2. no practical and substantial barrier exists, to do so would not be contrary to the public interest, and monetary compensation is adequate,

3. the DT holder provides their agreement, or they abandon or waive the easement, and

4. There would be no substantial injury to the DT holder.


Topic Seven: MortgagesTorrens System

Fundamentally altered the old system of mortages. Now a registered mortgage operates only as a statutory charge on the land for the debt or liability to be secured by the mortgage (s74 LTA). There is no conveyance of fee simple to the mortgagee, as there was previously.

A torrens mortgage is janus faced: it contains botha security interest in relation to the land and a personal covenant granted by the mortgagor to repay the amount secured. Tis means that if, say, the land is sold by the mortgagee after default and does not produce sufficient to discharge the debt, then it would be possible for the lender to bankrupt the mortgagor under the personal covenant.

Importantly, a legal mortgage is only created by registration – if the mortgage is unregistered, only an equitabl einterest is created.

Because a mortgage is only a species of charge, it is possible to have more than one legal mortgage (LTA SS181, 182) – in such an instance, priority naturally depends upon the order of registration.

To be effectively registered:

1. Mortgage must be contained within the prescribed instrument (s72)2. Must be validly executed by both parties (S73)3. Must contain a description of the lot and the debt

Once registered, a legal mortgage is created (s182) and is granted indefeasible status, subject to the regulr exceptions (s183, Tessman v Costello).

Contents of a Mortgage

Generally open ended, but there are a number of equitable doctrines that protect the mortgagor by limited what may be included in the mortgage.

Repayment of Money

S78 of the PLA implies into a written mortgage an obligation on the part of the mortgagee to pay an obligation on the part of the mortgagor to pay the principal money and interest according to the rate and times mentioned in the mortgage.


Where the mortgage provides for epayment on a specified date or in installments for a specified term, the mortgagor does not generally have the right to repay before the contractual date, unless the instrument specifies otherwise (Hyde Management Services v FAI Insurance).

Penalty Clauses

Covenant to pay a higher interest rate on default: A provision that a higher interest rate is payable upon default is considered a penalty clause and thus unenforceable. However, if a mortgage provides that a rate of interest is payable and provides for a lower rate of interest if payments are received on time, then this is not considered a penalty (Strode v Parker).

Covenant to pay whole of principal and interest on default: If a mortgage provides that upon default the principal sum becomes payable along with interest to the end of the term, then the coursts will say that such a term is a penalty and unenforcable. Only a genuine pre-estimate of the mortgagee’s loss will on default be enforceable (Wanner v Caruana).

In O’Dea v Allstates Leasing System: involved a hire agreement for 36 months for $39,000, due on signing of agreement. If payments on time, the entire rent was not due. However, on default entire sum was due plus reasonable costs. Lessor tried to sue but HCA held that “upon breach by the lessee of the terms of the agreement and the amount the lessee was entitled to receive was manfiestly excessive in comparison with the greatest loss it was could possibly suffer.”

Covenants to Protect the Property

Will usually include covenants requiring the mortgagor to maintain the property in good repair, to ensure, to pay rates and comply with the statutory requirements not to deal with the property sans consent of mortgagee (GA Investments v Standard Insurance).

S78(1)(b): keep all improvements on the land in good repair and allow the mortaggee to inspect.

S83(1) a power, at any time after the date of the instrument of mortgage, to insure and keep insured against loss or damage by fire and by storm and tempest any building, or any effects or property of an insurable nature, whether affixed to the freehold or not, being or forming part of the property which or an estate or interest in which is mortgaged, and the premiums paid for any such insurance shall be a charge on the mortgaged property or estate or interest, in addition to the mortgage money, and with the same priority, and with interest at the same rate, as the mortgage money;

Rights of the Mortgagor

Clogging the Equity of Redemption


The right of the mortagor to redeem the mortgage after discharging the debt secured by the mortgae has been regarded in equity as a fundamental right, worthy of proteciotn

“Once a mortgage, always a mortgage”: Any provision or stipulation in a mortagge which has the effect of preventing the mortgagor from getting back his property on paying off what is due is void in equity (Noakes v Rice). In that case, Lord MacNaghten stated:

Equity will not permit any device or contrivance designed or calculated to prevent or impede redemption.

Extinguishment of Right to Redeem

Has been held that a provision conferring on the mortgagee an option to purchase the property is void if the option to purchase is given as part of the mortgage transaction, because it would effectively give the mortgagee power to extinguish the equity of redemption (Samuel v Jarrah Timber and Wood, per Lord Lindley).

However the general rule is a very narrow and austere one, as it does not apply where the option is granted to the mortgaggeee in a separate and independent transaction from the mortgage (Lord Haldane in Kreglinger’s Case). Even an option given one day after the transaciton avoids attracting equity’s ire (Knight v Majorbanks).It is a question of substance, not form, as to whether the grant of the option is part of the mortgage transaction; it must be genuinely independent (Jones v Morgan). The fact that the option is presented in a separate document from the mortgage will be salient, though not conclusive.

Best QLD SC Authority: Sun North v Dale. Involved a loan of $500,000 to a company in streights, in exchange for a fixed charge for the same sum over shares, and an option to buy them for $2m. At the time of default, worth $4.5m. Company attempted to repay, but the creditor refused. Henry J held that as the option was entered into as part of the security transaction it had the effect of extinguishing the plaintiff’sequity of redemption. Rejected the sugestion of Young CJ in the NSWSC in Westfield Holdings v ACT that the rule was only applicable where unconscionable conduct could be shown.

NB: A provision that restricts the right to redeem to a particular person is regarded as a clog – e.g. limits to the lfie of the borrower and not the estate – and thus will be void (Salt v Marquess of Northampton).

On Postponing the Right to Redeem

Postponing per se is not a clog, unless it renders the right to redeem illusory or nugatory, or is oppressive or unconscionable (Knightsbridge Estates v Byrne).


Fairlcough v Swan Brewery: Leasehold interest – only reedemable 6 weeks before expiry. Could not pay faster under the contract. Privy Council found that this rendered the right to redeem nugatory.

Collateral Advantages

A collateral advantage in a mortgage may be valid even though it may endure beyond redemption provdided it is:

1. Not unfair or unsconscionable;2. Not in the nature of a penalty clause or clogger on the equity of redemption;

or3. Not inconsistent with a or repugnant to the contractual or equitable right to

redeem(Krieglinger v New Patagonia Meat & Cold Storage)

A collateral advantage that ends with repayment is not a clog unless it is very harsh (Biggs v Hoddmott).

A collateral advantage that is intended to operate post full repayment will not be void if it is part of a sperate transaction and fully independent (De Beers v British South African Co.).

If, however, the collateral advantage forms part of the mortgage and purportedly operates post repayment, it will be wholly void in equity (Toohey v Gunther).

Mortgagor’s Right to Possession of Documents of Title

S80(1) of the PLA gives the mortgagor a right to inspect and to make copies or be supplied with copies of documents of title. The mortgagor must pay the mortgagee’s costs. This right only exists whilst the debt remains.

Mortgagors Right to Deal With the Land

Provided there are no restrictions contained in the mortagge, at common law, a mortgagor is free to deal with the interests retained by him.

However, often mortgages contain clasues that require the consent of the mortgagee to deal with the land – in Nia v Phong, a clause proscribed action without the mortgagee’s consent. The court held that the breach of this term gave rise to a personal right only, which would sound in damages.

In QLD, the requirement to gain consent is irrelevant (s80(4)).


S94(1) of the PLA confers a right on the mortgagor to require the mortgagee to transfer the mortgage to any 3rd person as the mortgagor direccts. However, it may not be transferred to an alter ego of the mortgagor (Ley v Scarff).

Mortgagee may be bound by a short term lease or registered lease created before registration or a lease that they consent to (s184 LTA).

Rights and Duties of the Mortgagee

Suit On The Personal Covenant

A right to sue arises as soon as default occurs. It is an action for debt against the mortgagor, rather than the property over which the mortgage has been granted. It is useful where a power of sale has been exercised, but the value of the property is insufficient to discharge the debt. Ergo, it may be enforced against any assets of the mortgagor, not just the secured property and may lead to the bankruptcy of the mortgagor.

As a general rule, a mortgagee is not permitted to sue on the personal covenant after foreclosure because, as mentioned above, the property is transferred to the motgagee in full satisfaction of the debt owed (Heath v Pugh).

Enter Into Possession – S 78 (2)(a)

A torrens mortgage is a charge only on the land and the mortgagor retains legal ownership and consequently the right to possession, subject to agreement between the parties (Figgins Holdings v SEAA Enteprises).

Consequently, it is usual for a Torrens mortgage to include an express right to enter into possession in the event of a default. However, it is unclear whether equitable morgages entitle the mortgagee to the same right: Vacuum Oil v Ellis states that they have no such right, whilst Barclays bank v Bird states that an equitable mortgagee may enter sans a court order.

Importantly, a mortgagee who enters into possession must account to the mortgagor for all rents and profits received. Further, a mortgagor who through gross lack of dilligence omits to recover profits will be obliged to account to the mortgagor for those profits that would otherwise have been recovered (NAB v United Hand-in-Hand Band of Hope).

A mortgagee in possession is liable for any adamages caused by negligence (Tannock v North Queensland Securities).

The right to re-entry must be exercised peacefully or by court proceedings. It must not use unnecessary force or cause a breach of peace or a resaonable apprehension of breaching the peace (S78(2)(a) LTA) (Camfield Pastoral v Dickson).


Power of Sale

Any surplus proceeds beyond what is required to pay the costs of the sale and the debt to the mortgagee will:

1. Be distributed to any subsequent mortgagees; and2. Remained to the mortgagor

(PLA S88)

S83: Power of sale only if it is a written instrument.

S89(4) PLA: Once s83 has become exercisable, the mortgagee is entitled to recover the certificate of title.

When there are multiple mortgages upon the same asset, the mortgagee with priority is the one who may exercise the power of sale.

The conditions of exercising the power of sale are established by S84(1) of the PLA:

1. Default has been made in payment of the princiapl money or interest secured by the mortgage; or

2. Defaut has been made in the observance of any provisions under the mortgage; and

3. Notice of default has been served to the mortgagor; and4. Default has persisted for 30 days post notification.

Importantly, if the default is remedied within 30 days, the mortgagee cannot sell the property relying upon that particular act of default (Hunter v Hunter).

The notice should be such that it is clear what the mortgagor is required to do to remedy the default. The amount ought to be specified (Stephenson Developments v Finance Corp). However, an insubstantial error in the stated amount will not render the notice invalid.

S95 of the PLA: contains accelereation clauses – viz. if default occurs in payment of any discrete installment, the whole sum becomes due immediately. However, this provisions ensures that if the mortgagor pays the default pre-sale, the accelerated sum will no longer be due.

S86 PLA: Confers on the mortgagee under a registered mortage a power when exercising the power of sale to transfer the land and all the interest of the mortgagor to the purchaser.

S88 concerns allocation of the proceeds of the sale:


I. Costs of the sale; thenII. First mortgagee; then

III. Second mortgagee; thenIV. Mortgagor’s residual.

Mortgagee’s Duty of Care When Selling

At common law, a mortgagee exercising a power of sale must act in “good faith” – viz. without fraud and must not wilfully or recklessly disregard or sacrifice the interests of the mortaggor (Forsyth v Blundell).

Negligence? Unclear at common law (Forsyth v Blundell ).

However, s85(1) PLA QLD imposes a further statutory duty on ALL mortgagees to take reasonable care to ensure that any mortgage property is sold for market value. Market value is defined as the price that, “a person desiring the land would have had to pay for it on the day to a vendor willing to sell it for a fair price but not desirous to sell (Cameron v Brisbane Fleet Sales).

Gibbs CJ in CAGA Ltd. v Nixon explicated the Queensland duty further:

“[in QLD] The duty of the mortgagee is not merely to take care to ensure that the sale is carried out by competent agents. It is to take reasonable care to ensure that the property is sold at the market price. The duty to take reasonabe care is one that the mortgagee is bound to perform, and it cannot espace liability by a breach of duty by delegation to another.”

It is not unduly burdensome to require a mortgagee to exericse similar care as to what a reasonable man selling his own property at auction would do (Gibbs CJ in CAGA v Nixon).

In that same case, Brennan J noted that: “The duty to be performed in the exercise of a power of sale extends to the steps taken to attract potential buyers for the proprty, the negotiations of sale and the settling of the terms of sale.”

Importantly, the obligation of the mortgagee is to use reasonable care to obtain market value, not an absolute oblgiation to realise that value (Tyler v Custom Credit Corp)

Further, if principal place of residence: S 85(1A)

(a) adequately advertise the sale; and(b) obtain reliable evidence of the property's value; and(c) maintain the property, including by undertaking any reasonable repairs; and(d) sell the property by auction, unless it is appropriate to sell it in another way; and(e) do anything else prescribed under a regulation.


On Valuation: It will usually be prudent for a mortgagee to obtain a written valuation of the property before sale and to be wary of selling the property at a price substantially below that valuation (Stockl v Rigura).

Whatever deficiencies there might have been in the sale process, if the property is actually sold at its market value, then s.85 gives no remedy (Apple Fields Ltd v Damesh Holdings Ltd).

On Advertisements: Advertisement is obligatiory in auctions (Pendelbury v CML Assurance). The advertisement should contain material details concering the proprty and should clearly identify its location and the agent to contact in relation to the sale (Pendelbury). Where the proprty is situated outside the capital city, advertisement in local and state wide newspapers will suually be appropriate (McKeon v Maloney). The advertisement should be disseminated a reasonable period before the auction or sale (McKeon v Maloney). An error or ommission in pre-sale advertising will not, per se, establish that the property was sold for less than the price obtainable (Tyler v Custom Credit). It may be necessary for th elink between the omission and the depressed price to be proved by an expert (Stone v Farrow Mortgage Services).

On Timing: The mortgagor is not obliged to sell at any time as he or she is not a fiduciary for the mortgagor, per Lord Templeman in The China and South Sea Bank v Tan Soon Gin. May sell even if the market is depressed – there is no absolute obligation to wait (Pendlebury v Colonial Mutual Life)

On Independence: It must be an independent bargain; it is forbidden to sell to the mortgagee or his or her trustee (Farrers v Farrers Ltd).A mortgagee may sell the property to a close associate; however, extreme care must be taken to ensure that the sale constitutes an independent bargain. The onuse of proof will rest on the mortgagee and the purchaser (ANZ Bank v Bangadilly Pastoral). In that case, the mortgagee failed to ask for a higher price for the property when it knew that the prospective purchaser was willing to pay more; there was also inadquate advertising, and the house was sold at the quiet time of two days before Christmas.

Remedies for the Improper Exercise of the Power of Sale

Mortgagor who suffers a loss from an inappropriate sale may recover damages from the selling mortgaggee (S85(3) PLA, Higton v BFC Finance).

Provided the mortgagee is acting in good faith and the power of sale is properly exercised, the mortgagor is not entitled to have the sale set aside, though the mortgagee may be in a position to redeem (Waring London v Manchester Assurance Co.)


However, if the power of sale is improperly exercised, the mortgagor may be entitled to an injunction restraining the sale. Whether or not they are capacitated depends upon the nature of the breach and if the sale has been completed.

If a claim is that the mortgage agreement per se is invalid – e.g. through fraud – the rule is more flexible and relaxed.

If the pruchaser has knowledge at the time of entering into the contract of the lack of good faith by the mortgagee, or of the facts which show the lack of good faith, then the purchaser cannot obtain a right superior to the right of the mortgagor and the sale will be restrained. The contract may be set aside even after completion of the contract (Forsyth v Blundell). If there is no notice, the sale cannot be challenged.

S85(3) provides that the title of the pruchaser from the mortgaggee is not impeachable on the ground that the mortgagee has committed a breach of the statutory duty of care imposed by S85(1), but a person damnified by the breach has a remedy in damages against the mortgagee exercising the power of the sale.

S87 states that the title of the purchaser shall not be impeachable on the ground that:

a) No case has arisen to authorise the sale; orb) Due notice was not given; orc) Leave of the court, when so required, was not obtained; ord) The power was otherwise improperty or irregularly exercised.

Power to Appoint a Receiver

Most mortgages will contain a clause which gives the mortgagee power to appoint a receiver of the income and rents of the mortgage property if there is default by the mortgagor.

If there is no express power within the insturment, S83(1)(c) of the PLA is enlivened, which provides for an implied power to do so.

Before the appointment of a receiver under s83(1)(c), the mortgagor must be in default, the mortgagee must have sent the the mortgagor notice of the default under s84, and the default must have persisted for 30 days.

The purpoes for the appointment of a receiver is to enable th eincome from the mortgage property to be collected and applied in reduction of the debt owed to the mortgagee.

S92(8) of the PLA mandates how the money received by the receiver ought to be applied:


a) In discharge of outgoings of the mortgaged property;b) Payment to those credits which have priority over the mortgagee that

appointed the receiver;c) Payment of the receiver’s commission and the cost of necessary repairs

to the property.d) Interest due on the mortgaged debt;e) Discharge of the principal if so directed by the mortgagee.

Receiver owes a duty to the mortgagor to act in good faith and not to disregard recklessly the interests of the mortgagor.

Foreclosure

The remedy of foreclosure enables the mortgagee to take beneficial title to the mortgage property in full satisfaction of the mortgaged debt (Heath v Pugh).

A final order, followed by registration of the mortgagee as owner of the property, generally has the effect of extinguishing the mortgaged debt and releasing the mortgage (Fink v Robertson).

In QLD, obtaining a foreclosure order equires a two step application before a court of competent jursidiction (S78(2)(c) LTA).

The court will require evidence of the value of the property and the amount owing under the mortgage. The court has a discretionary power to order sale of the mortgage property instead of foreclosure (s99(2) PLA).

Importantly, if the value of the property exceeds the outstanding mortgaged debt, the court is likely to order the sale of the property instead of foreclosure, thus prevent the mortgagee from obtaining a windfall from the remedy.

Once the prescribed time to pay has elapsed, an order for foreclosure will be given that will operate immediately to delvier the mortgagor from redeeming the mortgage.

The mortgagee thus becomes the reigstered owner.


Topic Eight: Personal Property – Possession

Exam structure:

1. Which parties have possession of the object in law?2. Which party has a greater claim to the object?

Possession of Property

Per Lightman J in Costello v Chief Constable of Derbyshire Constabulary:

[A possessor’s] entitlement is not prejducied by the fact that it was obtained unlawfully or under an illegal transaction. His claim can only be defeated by a superior title.

The concept of possession is important and privileged by the law for several reasons:

• Possession of a thing can generate a separate right to possession in someone else.

• Possession provides evidence of ownership - it is the manifestation of ownership in many cases - and indeed possession for long enough can lead to ownership.

• Possession is a pre-legal concept. • It is usually much easier to prove possession than to prove ownership, so the

focus on possession brings efficiency, has commercial efficacy (e.g. generally preventing people from having to investigate title to chattels when they are bought and sold), and is ideal in an adversarial system of justice.

• It is necessary to protect possession to maintain order and to decrease the applicability of self-help.

• In terms of real property, the notion of “ownership” was viewed as incompatible with the doctrine of tenure, since there could be no ownership outside of the Crown’s allodium. Indeed, the notion of “ownership” is relatively recent, and possession has been the main concern in property law.

Possession is distinguishable from ownership: clearly, one can possess something without owning it (e.g. a hired vehicle) and one can own things without possessing them (intangible things). Further, possession is a question of fact while ownership is a question of law. Similarly, possession is distinguishable from title, discussed above.

Elements

In order to legally possess something, a person must control that thing and intend to possess it:


I. •Control: Control, or factual possession, refers to physical control, in terms of a capacity to limit access to the thing (Riley v Pentilla – facts involved the fencing off of land to create a tennis court. Held to be insufficient control, as the intention was not to alienate but build a communal area). For things with a tendency to escape, a capacity to detain them is required to satisfy the control element (corpus possessionis) for example, in Bremner v Bleakley, a poacher who caught fish from a fisherman’s net was allowed to keep his spoils, as the original catcher’s net was riddled with holes and thus the fish could escape. Court may look to the specific factual matrix, placing weight on the size and location of the property and its relationship with other things (The Tubantia – marking the area around a shipwreck with buoys and employing vessels around it to perform salvaging was sufficient having regard to the size of the wreck, the extent to which it was buried and the weather conditions; the plaintiffs were doing everything reasonable to exercise control

Examples:

Things attached to or in other things which someone controls are generally themselves controlled by that person; (Waverley Borough Council v Fletcher – involved a prospector using a metal detector on council land who found valuables. Held council had control as it was there land, and also had signs put up proscribing prospecting.)

By contrast, for example, things merely found on land to which the public enjoys access (Bridges v Hawkesworth – plaintiff found banknotes in the defendant’s shop and left the notes with the defendant to return to the proper owner, but then reclaimed them). Found for the plaintiff).

Even if an occupier is unaware of the object, they are deemed to exercise sufficient control over it, in law (Elwes v Briggs Gas Co – involved a boat found during excavations below the land. Held that the occupier was the owner, even though unaware of the boat’s existence). In South Staff Water Co v Sharman, two gold rings were found embedded in the mud of the occupier’s swimming pool, which the finder was employed to clean – court held that the occupier owned the ring.

There is a policy reason for favouring the occupier’s rights is that the true owner is more likely to return to the occupier than to ‘some casual licensee who happened to make the find’ (Tamworth Industries v Attorney-General).

The tendency of certain domestic animals to return home provides their owners with sufficient control (Hamps v Derby).

It is possible to temporarily relax control over a thing and to still possess it. For example, people do not lose possession of their homes when they leave for work every


day.

II. Intention: Intention requires an intention to control the thing to the exclusion of the world at large (animus possidendi). All that is required is an intention to possess the thing for the time being, not an intention to possess it permanently (Buckinghmashire County Council v Moran).

It is possible to intend to possess something (e.g. the contents of something else) without knowing that it exists (Flack v National Crime Authority + Mouskataff v British Overseas Airways Corp, where it was found that the registered carrier of air male has possession of bank notes, despite not knowing the contents of their mail bags). At the same time, particularly in the context of public places, it is necessary to carefully consider whether such an intention really exists (e.g. the controller of a public place will generally not intend to possess everything brought there by members of the public) (Parker v British Airways Board). Intention is generally proved by reference to acts of control and surrounding circumstances, since a subjective mindset is difficult to prove.

Actual and legal possession must be distinguished from constructive possession, which is the right to take actual possession, and exists where the person in actual and legal possession must recognise a superior right to possession in another person. Constructive possession may be immediate (where the person has an immediate and unqualified right to take actual possession, e.g. in the case of a bailment) or qualified (where the person cannot take immediate actual possession, e.g. in the case of hiring goods).

Competing Rights To Possess

Courts are concerned with which party to a case has a better right to possess, not whether a party has the best possible right to possess, even when a third party ahs a better right (Wilson v Lombank) except where the third party consent to one of the claimants possession, known as jus tertii (Asher v Whitlock).

The most common scenario involves the finding of goods, whereby the hierarchy of competing claims exists roughly as follows:

(i) the true owner of the item;(ii) the person on whose land the item was found;(iii) the employer of the person finding the item; (iv) the person finding the item;(v) a subsequent possessor of the item; and finally,(vi) the Crown bona vacantia (the law of treasure trove is beyond the scope of

this course).

The claims of each of these parties are subject to them establishing that position in the hierarchy, as well as a number of factors specific to the position, discussed below.

The True Owner


Title to personal property is absolute, not of the crown as in real property.

The true owner, as a result, is literally the highest in the chain of ownership. The overarching objective of the law of personal property is to reunite the item with its true owner (Tamworth Industries Ltd v Attorney-General (1991) 3 NZLR 616).

To establish true ownership, one must demonstrate how it was obtained, not dissimilarly to the method of establishing ownership of old system land.

The true owner may lose title through abandonment. A person does not lose title to goods simply by leaving them somewhere or forgetting to take them with them. There must be a demonstrable intention to relinquish their property in an object.

Re Jigrose Pty Ltd [1994] 1 Qd R 382

An agricultural property was sold, upon which were a number of very valuable hay bales. Upon realising that he had left the hay bales on the property, the vendor sought their return. The purchaser argued that they had been abandoned and that he had obtained title as a result. The court found that the hay bales had been abandoned.

Absent the contractual provision, it is unlikely that the hay bales would have been found to have been abandoned.

– ‘As a general proposition, if I throw something away I truly abandon it. I intend no longer to retain possession. I do not 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’ (385).

– Where parties are willing to go to court to seek the return of an item, it is unlikely that they would have intended to abandon it in the first place.

Moorhouse v Angus & Robertson (No 1) Pty Ltd [1981] 1 NSWLR 700

P was a writer who submitted a number of manuscripts to D for the purpose of printing and publication. – In each case, there was a written agreement between P and D. In 1978, P sought the return of the manuscripts from D, but they had lost them.

– ‘To attract the principle, it would be necessary for the party asserting the abandonment to present evidence which established an express intention to abandon or from which such an intention might be inferred.’


– The court considered that the years of inactivity did not provide any evidence from which an unequivocal intention to abandon title to the manuscripts could have been inferred.

Moffatt v Kazana [1969] 2 QB 152

R purchased a bungalow in which he resided with his wife until he sold it to D. Three years after the sale, some bricks were dislodged in the kitchen chimney and there fell down from above a biscuit tin containing £1 notes.

On the evidence, it was established that R owned the money, and he had not abandoned it.

– The court considered that R had merely forgotten the existence of the money, which was not sufficient to amount to abandonment.

Munday v Australian Capital Territory (1998) 146 FLR 17

P was a scavenger at a tip in the ACT. The tip was open to members of the public for the purpose of disposing domestic and commercial waste.

– The Territory sold the rights to take anything of value to a third-party and sought to exclude P from doing so.

– In support of this argument, the Territory argued that as the occupier of the land, it could assert control over the goods for the benefit of the third-party.

The court found that the Territory could assert a superior right to possession after the goods had been abandoned.

– The goods were not immediately abandoned upon their deposit at the tip. The previous owner would have been well within their rights to return and collect anything they left in error or over which they changed their mind.

– P was entitled to take goods from the tip face before they were compacted into landfill, but the original owner would have been able to assert a superior title.

Finders


Most commonly, disputes will not involve the true owner or situations where the goods have been abandoned. The most common scenario involves the finding of goods where the identity of the owner is unknown. A finder of goods is a possessor. They will have a superior title against the whole world, but for the true owner.

The claim of the first finder of goods will also prevail over any subsequent possessor. The same tests apply to a subsequent possessor as the first, though the first retains better title.

Armory v Delamirie (1722) 1 Strange 505; 93 ER 664

• P was a chimney sweep’s boy who found a jewel in the setting of a ring.

– He took the jewel to the shop of the great silversmith Paul de Lamerie (his name was mis- spelled by the court reporter) to have it valued.

– An apprentice, the agent of Delamirie, surreptitiously removed the gems from the setting on the pretense of weighing it.

– The apprentice returned with the empty setting and informed Armory that it was worth three halfpence. The apprentice offered to pay him for it but Armory refused and asked the apprentice to return the stones and setting in their prior condition.

• The court held that both P and D had property rights in the jewel, even though neither was the true owner.

– They each have a right to possession that is enforceable against everyone except those with a greater right to the possession. The true owner of the jewel was not relevant, the court was only concerned with who had a better right to possession.

– As the true owner could not be found, P had full title to the jewel and could maintain trover.

Parker v British Airways Board [1982] 1 QB 1004

• As a general statement of the law: “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.”


• The finder has a duty take reasonable steps to seek out the true owner, otherwise the finder may not exercise his or her rights.

Employer Of A Finder

• The general rule is that “the possession or custody of a servant or employee is that of his master or employer [...] so that any control exercised by a corporate officer over property of a corporation would be considered the control of the corporation itself.”

– Director of Public Prosecutions (Cth) v Hart (No 2) [2005] 2 Qd R 246.

Byrne v Hoare [1965] Qd R 135

An on-duty policeman found a gold ingot while walking towards where he was to be working (supervising traffic at a drive-in theatre).

Held that the policeman was entitled to keep the ingot as his employment was not the effective cause of the finding.

– His employment was merely the incidental occasion for the finding rather than the effective cause.

– He was walking where any member of the public might have walked and was not doing anything particular to his employment.

Occupier Of Land Or Premises On Which Land Is Found

Parker v British Airways Board [1982] 1 QB 1004

On November 15, 1978, the plaintiff, Alan George Parker, had a date with fate - and perhaps with legal immortality. He found himself in the international executive lounge at terminal one, Heathrow Airport. And that is not all he found. He also found a gold bracelet lying on the floor.

– He was lawfully in the lounge and, as events showed, he was an honest man. Clearly he had not forgotten the schoolboy maxim ‘Finders keepers’. But, equally clearly, he was well aware of the adult qualification ‘unless the true owner claims the article’.

– Parker handed the bracelet to the owners of the land (British Airways), and requested that it be returned him should the original owner not be found.

– When British Airways Board sold the unclaimed bracelet for


£850, Mr Parker challenged their claim to the bracelet.

• The court upheld the claim of Mr Parker.

– The defendants could not assert any title to the bracelet based upon the rights of an occupier over chattels attached to a building. Here, the bracelet was lying loose on the floor.

– There was no sufficient manifestation of any intention of the defendant to exercise control over lost property before it was found which would otherwise give the defendants a right superior to that of the plaintiff or indeed any right over the bracelet.

– Relevantly, the bracelet was found in an area accessible to the public. Although it was exclusive to Business Class customers, it was still considered public enough not to be an area controlled by BA.

• The occupier has a duty take reasonable steps to seek out the true owner, otherwise the finder may not exercise his or her rights.

Bridges v Hawkesworth (1851) 21 LJQB 75•

P found a bundle of banknotes on the floor of a public area of a shop. – He handed it into the shopkeeper in order that the owner of the notes might be found. Al- though the owner was not found, the shopkeeper refused to return the notes. • The court found for the finder.

– As in Parker, the shop was an area open to the public and therefore the owner had not manifested sufficient control over the area to establish a superior title to that of a finder.

Elwes v Brigg Gas Co (1886) 33 Ch D 562•

A prehistoric boat was embedded in clay several feet below the surface of the land.

– Some workmen in the course of excavating a hole on the land found it was wished to take it for themselves.

– The landowner refused to let them take it. • The court found for the landowner.

– Evidently, the right of the original owner could not be established.

– The landowner was in possession of the ground, not merely the surface, but everything that lay beneath it.


South Staffordshire Water Co v Sharman [1896] 2 QB 44•

D was employed by P company to clean out a pool located on P’s land.

– During the operation, two gold rights were found embedded in the bottom of the pool.

– Although P demanded the rings, D refused to give them up and handed them to the police to find the true owner, which they could not. • The court found for P landowner.

– If a person has possession of a house or land with a manifest intention to exercise control over it and the objects which may be upon or in it, then there is a presumption that things found there are in the possession of the owner.

– It makes no difference that the possessor is not aware of the existence of the found objects.

Waverley Borough Council v Fletcher [1995] 4 All ER 756 (CA)•

D, a metal detector enthusiast, went to a public park to see if he could find any items of interest.

– The park was open to the public for leisure and recreational use and D was a lawful visitor to the park. He found a medieval gold brooch nine inches below the surface, and reported his findings to police. The Coroner found that the brooch was not treasure trove and returned it to D. The Council brought an action as the owner of the park. • The court found for the landowner.

– The general rule that items in the land are the property of the landowner was applied. Relevantly, the rules of the park explicitly forbade people from digging, a further manifestation of an intention to control.

City of London Corporation v Appleyard [1963] 1 WLR 982

Construction workers found valuable chattels on a property that was leased. Court found that the lessee had a better right to them than the finder. However, a contractual stipulation in the lease granted the owner the right to any valuable objects found on the premises.

Costello v Chief Constable of Derbyshire Constabulary [2001] 1 WLR 1437

• The police seized a car from P under a statutory authority in the belief that it was stolen.– The police never brought criminal proceedings against P, but refused to return the car when the permitted statutory period for detaining goods expired.


• The court found that P was entitled to the return of the car.

– Possession means the same thing and is entitled to the same legal protection whether or not it has been obtained lawfully or by theft or by other unlawful means. It vests in the possessor a possessory title which is good against the world save as against anyone setting up or claiming a better title.

– In the case of theft, the title is frail and of likely limited value, but nonetheless remains a title to which the law affords protection.


Topic Nine: On Bailment

Exam Structure:

1. Is the relationship one of bailment or license?2. Is it a gratuitious bailment or a bailment for reward/contract?3. Identify the duties of the bailor and bailee.4. Is there a breach of these duties, on the facts?5. Is an exclusion clause valid and operative?6. Has the alleged breach terminated the bailment?

No conclusive definition of bailment:

Bailment is the transer of possession of bailed goods on certain terms wihtout the transfer of ownership (Hobbs v Petersham Transport Co.)

“The voluntary taking into custody of goods which are the property of another” (Morris v CW Martin & Sons).

Importantly, a bailment can only arise in respect of tangible goods – i.e. nto in respect of choses in action or land (Morris Martin v Sons).

Nature of Bailment

Papathanasopoulus v Vacopoulus: Question before the court was whether an engagement ring was a bailment? Woman attempted to give the ring back; suitor refused. Held that the engagement ring was a conditional gift, that the woman would own absolutely upon marriage, unless there was a legal excuse for her refusal to marry. As she merely changed her mind, this constituted a rejection of the gift and she held the ring in bailment. “It is not open to a bailee to cause the item bailed to be thrown into a bing” and that holding “such a small item is no great chore.” Ordered to pay damages for the destruction fo the ring.

Elements of Bailment

The elements/indicia of a bailment are:

4. (1) the delivery of the exclusive right of possession by the bailor; (Midland Silicones v Scruttons, per Diplock J)

5. (2) the voluntary assumption of possession by the bailee; (Hobbs v


Petersham Transport Co.)6. (3) an assumption of the responsibility by the bailee to keep the goods

safe; (Gilchrist Watt v York Products) and7. (4) the obligation to return the thing bailed (SA Insurance v Randell).8.Whilst a bailment will usually occur in circumstances where there is a contract, either express or implied, this will not always be the case. For example, bailment will arise where a finder of a lost chattel takes the chattel into his or her own custody, and there is thus no delivery of possession by the bailor. Whilst under no duty to take the chattel into custody, if the finder does so, he or she becomes a bailee and is under an obligation to take reasonable steps to locate and inform the true owner (Parker v British Airways Board); to be careful for the safety of the chattel and to return it to the true owner upon demand (Newman v Bourne & Hollingsworth).

A feature of all types of bailment is that the bailee may bring an action for damages in trespass or trover against a wrongdoer. This follows from the general principle of law that possession gives title against a stranger (Peters v Kilmurray)

Traditional classification of bailment, per Lord Hold in Coggs v Bernard:

I. Gratuitous deposit for safe keepingII. Deposit for safe keeping for reward

III. Gratuitious loanIV. Delivery for use by the bailee for reward – i.e. hireV. Delivery of goods for reward to do something with them – e.g.

carriage/repairVI. Delivery of goods wihtout reward to do something with them – e.g.

carriage/repairVII. Goods delivered as security for a loan

Distinguishing Between Bailment and License

A license is distinguishable from a bailment because, without specific contractual provision, a license places no active obligation on the licensor towards the licensee in relation to the chattel subject to the license (Greene MR in Ashby v Tolhurst).

The following are examples of bailments where there is a transfer of possession and an obligation to return the items in their original or altered form:

9. (1) a car that is left at a repairer for repair and return;(Holier v Rambler Motors)

10. (2) an overcoat that is left with the concierge at a hotel;(Ultzen v Nichols) and

11. (3) the relationship between taxi-cab owner and driver (Commisioner of Taxation Commonwealth v De Luxe Red and yellow Caps Co-op).


12.The following examples are NOT bailments:

parking a car on parking ground where the driver retains the keys; (compare Ashbury v Tolhurst, where merely leaving a car on a parking lot involves no transfer of possession with Sydney City Council v West where the issueing of a ticket with a condition that the council had possession of the car was held to constitute bailment. See also Walton Stores v Sydney City Council, where the issueing of a car park ticket stating that the car could not be released sans presentation of the ticket constituted possession)

leaving a caravan at a caravan site; (Halbauer v Brighton Corporation) a sale of goods; (SA Insurance v Randall) an employer delivering chattels to an employee to deal with in the course of

the employee’s employment; (since an employee merely has custody of the chattel, possession remains in the employer per Associated Portland Cement Manufacturers v Ashton) and

a time or voyage charter that is a contract for the rendering of services by the owner but not a hiring out or parting with possession of the vessel to the charterer. (Carlton International v Crayford Freight Services)

Leaving goods in a locker: See Greenwood v Council of the Municipality of Waverley. Greenwood went swimming at bondi and left clothes in a council locker, from where they were stolen. He had paid a fee to store them there – alleged bailment and a breach by the council of its duties. Held that merely placing clothes in a locked owner by the council did not make the council a bailee as it had never acquired possession or control of Greenwood’s clothes, either in fact or intention. The council had hired him a locker, which is a relationship of liecense.

Storing Goods: See Robertson v Strang: Tenant was an obssessive compulsive shopper and had lots of boxes of things in her apartment. Landlord told her to remove them and store the boxes in the storage area of the apartment complex, from where they were subsequently stolen. The tenant argued bailment; the landlord, license. Parret J found bailment becaues transfer of possession and coluntary acceptance of safe-keeping on the facts. Facts suggested that the tenant had surrenered control, as she did not have a key to the storage area. The fact that she could remove the chattels at any time did not preclde the court from finding bailment.

Bailor’s Duties

I. Authority to bailII. Not to interferere with possession of the bailee in breach of bailment

termsIII. Communicate to the borrower defects in the articles lent which is aware,

and if either deliberately or through negligence he does not discharge this


duty, he is liable for injury resulting to the borrower (Coughlin v Gillison)

IV. When goods are held for use, duty to ensure the the goods are in reasonable condition and reasonably fit for stated use (Derbyshire Building Co v Becker)

Fit for reasonable prupose: only if for reward, as it arises via contract.

However, the bailor is not liable for such injuries in cases where the borrower is using the chattel for a purpose or in a manner that is not authorised by the bailor (Blakemore v Bristol and Exeter Railway Co.).

E.g.

Derbyshire Building Co v Becker: Contractor received a power saw with a defective safety catch and was subsequently injured. The HCA held that the contractor was a bailee for reward and, as a result, there was the implied condition that the goods would be reasonably fit for the purpose for which they were bailed. However, had the bailment been gratuititious, the duty would not have arisen as it exists only through the law of contract, not the common law of bailment.

Cottee v Franklin’s Self-Serve: Plaintiff was injured whilst using a shopping trolley supplied by the defendant. P had been using the trolley as a result of shopping at D’s store, but did not provide monetary consdieration for its use. The QCA held that the relationship was one of bailment for reward, as the consideration was constituted by P’s coming into the store with a view to shopping there. Accordingly, there was an implied term that the trolley would be reasonably fit for its contemplated used.

Gernell Power Farming v Niles: Jordan CJ:When one person, for value, supplies a chattel to another to be used for an agreed or state purpose, or for a purpose indicated by the nature of the chattel, he impliedly promises, in the absence of some provision to the contrary, that it is reasonably fit for such use.

Townesend v BBC Hardware: P orally contracted with D to fabricate roof tresses for him. Under the contract, D would supply him with all the necessary equipment. Acircular saw was used that had no guard and thus caused injury. McMurdo P found that th erelationship amounted ot bailment and thus D as bailor was obliged to ensure the saw was fit for roof truss manufacture.

Statute: The Australian Consumer Law provides an express guarantee that goods supplied in trade or commerce, including by lease or hire, will be reasonably fit for any disclosed purpose and for any purpose for which the supplier represents that they are reasonably fit (s55(1)) This guarantee does not apply if the circumstances show that the consumer did not rely on, or that it was


unreasonable for the consumer to rely on the skill or judgment of the supplier, any prior negotiator or the manufacturer, as the case may be (s55(3)).

Stated purpose may be implied, see Cottee v Franklins Self-Serve: On the implications arising from the facts, it should be held that the respondant was injured due to the breach of an implied term of fitness of the trolley for the particular puprose which was obvious to both parties as being intended.

In all bailments, whether gratuitious or for reward, there exists a duty to warn.

Pivovaraff v Chernabaeff – gratituious bailment. Told bailee to not allow children near the machine; the bailee disregarded this advice, and a child had his hand crushed. Held that the bailor was not liable as he had discharged his duty to warn of risks and provide information as to the proper operating procedure of the machine.

The bailor is under a duty to warn not only of those defects he or she knows about, but also about those of which he or she ought reasonably to have been aware of (Griffiths v Arch Engineering Co Newport).

Bailee’s Duties

Extend to agents of the baillee (Makover v Dalgety).

Old view:The greater the benefit the bailee receives, the higher the standard that is owed (Giblin v McMullen).

Modern view: Duty to take reasonable care is owed in all cirucmstances, but what constitues a breach of the duty will depend upon the precise factual matrix (Pitt Son & Badgery v Proulefco)In that case, P purchased 86 bales of wool from D at an acuction, fully paid for but the wool had not yet been delviered and remained in the auctioneer’s warehouse. A fire later destroyed the wool. The HCA found that a relationship of bailment was created once the wool had been fully paid for. On the facts, D had not taken reasonable care of the bailed wool, as it was insecure and had an insufficient fire-fighting system. Given the extensive value of the wool, the duty had not been discharged and D bore the onus in disproving negligence, which it could not.

In a Gratuitious Bailment

I. Take reasonable care of the bailed goods (WHG Nominees v Tomblin)II. Retain possession of bailed goods


Return or redeliver the bailed goods (Duty to return goods in species or redeliver: the identity of the goods must be preserved (Chapman Bros v Verco Bros))

III. Not to convert or misuse bailed goodsIV. Not to dispute the bailor’s title to the bailed goods (Edwards v Amos)

Unless otherwise agreed, the borrower is not responsible for wear and tear, since the chattel has been lent to him or her to use (Blakemore v Bristol and Exeter Railway Co, per Coleridge J).

Lord Salmon in Port Swettenham v T.W. Wu and Co.: “In all cases of bailment, the bailee is bound to take as much care of the goods bailed to him as a man of ordinary prudence would, under the circumstances, take of his own goods of the same bulk, quality and value.”

In a Bailment for Reward

A bailee for reward is under a duty to exercise reasonable care (Corbett v Packingham) for the safety of the goods entrusted to him or her (Port Swettenham v TW Wu and Co).

The standard of care depends upon the particular circumstances of the case (Houghland v RR Low Luxury Coaches) including the bailee’s trade, the purposes of the bailment, the value and vulnerability of the goods, the likely hazards, the condition of the goods upon delivery and whether the bailee is a professional custodian (Giles v Carter) or a private bailee. (Houghland v RR Low Luxury Coaches).

Other duties of the bailee include:(1) accounting to the bailor for profits made from the bailment;(The Winkfield)(2) not denying the bailor’s title;(China Pacific SA v Food Corp of India)(3) returning the goods in the condition in which they were bailed, reasonable wear and tear excepted;(Morhouse v Angus and Robertson, per Samuels JA) and(4) returning the goods on demand to the bailor or delivering them in accordance with his or her instructions. (Makower v Dalgety).

The standard of care has been variously applied by the courts to hold the bailee liable to ensure that:

(1) the place in which the chattel is kept is suitable; (Searle v Laverick)(2) the chattel is in proper custody; (Quiggin v Duff)(3) any machinery used in connection with the chattel is fit and proper for the purpose; (Thomas v Day)(4) the chattel is protected against unexpected dangers that might arise; (Brabant v King)


(5) if goods are stolen, they are recovered; (Coldman v Hill) and(6) the bailor’s interest is safeguarded against adverse claims.(Ranson v Platt)

Unless agreed otherwise, the bailee for reward is not an insurer of the goods (Coggs v Bernard) and so will not be liable if, without negligence on his or her part, the goods are lost or damaged as a result of an accident, (Searle v Laverick – building collapse) fire, (Garside v Trent and Mersey Navigation Proprietors) the acts of third parties or the unauthorised acts of employees outside of the scope of their employment.(Mintz v Silverton – theft by a servant).

However, if the bailee fails to return the chattel upon demand or uses the chattel in an unauthorised manner he or she will become an insurer of the chattel and so liable for any loss or damage which arises from its loss, whether or not as a result of his or her negligence (Streeter v Horlock).

Onus of Proof

Bailor: Must establish:(1) that the goods have been delivered to the bailee; (2) that the goods are within the bailee’s custody and control;(Quiggin v Duff) and(3) that loss or injury resulted to the goods during the bailment.

(Moukataff v BOAC)

Once this has been proved, onus flips on the bailee to establish that: (Cowper v JG Goldener)

All reasonable care had been taken –i.e. not negligent; or The loss or damage would have occurred despite all reasonable

care being taken – i.e. a question fo causation.

On Non-Delivery and Misdelivery

Per McPherson J in Jackson v Cochrane: “misdelivery stands on a different plane from mere failure to take reasonable care. In cases of conversion by misdelivery notions of care… are irrelevant… Expressed simply, a bailee is liable for loss or damage resulting form his dealing with the goods in a manner not authorised by the bailor.” Case involved a man claiming to own the bailed caravan and the bailees delivering it up to the imposter without permission.

Misdelivery constitues a repudiation of the contract and thus terminate the bailment (Sydney City Council v West – car park ticket and abetted theft case).


This duty extends to agents: A bailee for reward is liable when an article is lost owing to the neglience of an employee who has actual custody of the article (Makower, McBeath & Co v Dalgety).

On Agents – same for both gratuitious and reward bailments

The bailee is responsible for the negligence (Randleson v Murray) and wrongful or fraudulent acts (Barwick v English Joint Stock Bank) of his or her agents or employees committed in the course of their employment.

However, if a servant’s or agent’s negligent or wrongful actions occur outside the scope of his or her employment, the bailee is not liable (Swiss Bank v Brink’s MAT) unless he or she has been negligent in employing the servant or agent (Williams v Curzon Syndicate)

On Sub-Bailment

If a bailee sub bails with the knwoledge and authority of the bailor, unless the bailee is negligent in choosing the sub bailee, the only person liable for a breach of bailment is the sub bailor.

However, if the bailee sub bails without authority, the sub bailment per se consittutes a berach of the duty to retain possession

See e.g. Morris v CW Martin & Sons:

Plaintiff delivered fur to be cleaned. The bailee, with consent of the head bailor, sub-bailed to D for reward. It was subsequently stolen by D’s servant. P sued D. Contract between the original bailee and the sub-bailee contained an exemption clouse. CA found that P had a remedy against D, notwithsanding the lack of a contractual relationship between them. D owed P duties of a bailee for reward. As a general rule, if a sub-bailee wishes to rely on an exclusion clause agreed with the sub-bailor, they must make the head bailor privy to the contract.

On Limiting Liability

Incorporation

the question is not whether the plaintiff ought have read the terms, but rather whether the defendant has taked reasonable steps to notify the plaintiff of the existence of terms and where they may be considered (Per Parker v South East Railway).


Lord Denning held that "the more unreasonable a clause is, the greater the notice which must be given of it” establishing the "red hand rule” (J Spurling v Bradshaw).

EXCLUSION CLAUSES DO NOT APPLY IN CASES OF GRATUITIOUS BAILMENT AS THERE IS NO CONSIDERATION.

Effect

The HCA stated that an exclusion clause is to be accorded its natural and ordinary meaning, read in light of the contract as whole (Darlington and Nissho Iwai Australia v Malaysian International Shipping Corp)

The HCA affirmed in Darlington that in cases of ambiguity, where appropriate, an exclusion clause may be construed contra proferentem.

In TNT v May & Baker (1966) HCA , it was held that interpreting exemption clauses was merely a question of construction, and the more serious the breach, the less likely it is that general words could exclude it. It also applied the contra proferentrm rule. This case rejected Lord Denning’s attempt to outline a rule of law that an exclusion clause was ineffective where there was a fundamental breach in Karsales v Wallis.

Furthermore, the ‘four corners rule’ supports the position that courts have shown some unwillingness to construe an exclusion clause as excluding liability for acts that are not authorised by a contract. (Council of the City of Sydney v West).

Termination by Repudiation

“Any act which is inconsistent with or repugnant to the bailment, constitutes a repudiation of it. If the bailment is created by contract, the extent to which the common law applies depends upon the construction of the contract” per Young CJ in Anderson Group v Tynan Motors. Further held that: “Bailment is a very ancient part of our law” and that “any act necessary to terminate a bailment must be a very serious one… which is virtually a disclaimer of the contract of bailment. A deviation from the terms of the bailment, short of repugnancy or disclaimer of the bailment, does not amount to the bailee losing all rights to possession.”

Anderson was applied in Hills v Reglor: Repudiation is an act “inconsistent with or repugnant to the bailment.” Effective repudiation brings the bailment to an an end, and the right to immediate possession revers to the bailor in the case of term bailment.

On Remedies


Trespass to Chattels: Direct and intentional interference with another’s possession of goods.

Elements:

1. Direct: (Cresswell v Sirl).

2. Intentional: (Colwill v Reeves).

3. The plaintiff must have at the time of the trespass actual or constructive possession of the goods (Johnson v Diprose).

Bailment: Retain ownership of good but part with possession. Person who retains ownership is called a bailor whilst the person who is granted possession is known as the bailee.

Conversion: Dealing with goods in a manner that is repugnant with the immediate right of possession of the person who has the property and/or chattel (Penfold’s Wines v Elliot). The chattel must be rendered useless or the plaintiff must be deprived of possession of the chattel and the act must be deliberate (Kuwait Airways Corporation v Iraq Airways Co and Others).

Thus for title to sue, one must be in possession or have immediate right. Conversion includes:

1. Wrongful destruction or alteration (Hollins v Fowler).2. Wrongful taking of an item with a goal to exercise dominion over it

(Healing Sales v Inglis) .3. Wrongful delivery (Foster v Franklin).4. Wrongful detention (Flo Fill Packaging v Fytore).5. Wrongful use of goods, provided there is an intention to exercise

dominion over the goods (Penfold’s Wines v Elliot).6. Wrongful deposition – viz. giving someone else title in goods (Douglas

Valley Finance v S. Hugh).

Detinue: The action is not for damages to chattel but for its detention. There must be a proper demand and a refusal (John F Goulding).


Topic Ten: Security Interests In Personal Property

Equitable Mortgage

An equitable mortgage over chattels is created by:(1) an agreement to give a legal mortgage over the chattels;(2) a mortgage of an existing equitable interest in the chattels; or(3) an unsuccessful attempt to grant a legal mortgage over chattels.

An equitable mortgage does not of itself give the mortgagee power to seize and take possession of the chattels mortgaged (White v Elder, per Napier J). Subject to the terms of the agreement, the appropriate remedy for an equitable mortgagee is to seek a court order for possession (Barclays Bank v Bird) An equitable mortgage of a legal or equitable chose in action is also available.

See also later section on Lee’s articles on the difference between equitable charges and mortgages.

Equitable Charge

An equitable charge is constituted by an agreement between a debtor and a creditor that the creditor will have limited rights of recourse (Matthews v Goodday) exercisable on default, to the charged property. The intention of the debtor generally is to retain possession of the property and there is no intention, as in an equitable mortgage, to transfer beneficial or legal title to the charged property to the creditor on the basis that it should revert to the debtor upon repayment of the debt (Re Slee).

Generally, an equitable charge is a security over property which has been created by an inter vivos act, consensual or otherwise, by the owner of the property. In a contractual setting, the question is whether the contractual parties have expressly or impliedly evinced an intention to appropriate property for the discharge of a debt or other obligation and to give the creditor a present right to have the property made available: National Provincial & Union Bank of England Ltd v Charnley. An equitable charge gives a right of realisation of the property by judicial process in case of non-payment: Hewett v Court [1983] HCA 7; (1983) 149 CLR 639 at 643; Chief Commissioner of Stamp Duties v Buckle [1998] HCA 4; (1998) 192 CLR 226 at 246 - 247.


http://www.austlii.edu.au/cgi-bin/LawCite?cit=(1998)%20192%20CLR%20226?stem=0&synonyms=0&query=%22equitable%20charge%22%20and%20white

http://www.austlii.edu.au/au/cases/cth/HCA/1998/4.html

http://www.austlii.edu.au/cgi-bin/LawCite?cit=(1983)%20149%20CLR%20639?stem=0&synonyms=0&query=%22equitable%20charge%22%20and%20white

http://www.austlii.edu.au/au/cases/cth/HCA/1983/7.html

In general, an equitable charge will allow the creditor to:• (1) apply to the court for an order for sale (see Matthews v Goodday (1861) 31 LJ Ch

282; 5 LT 572; 10 WR 148; Tennant v Trenchard (1869) LR 4 Ch App 537; 20 LT 856);

• (2) appoint a receiver pursuant to the terms of the charge; or• (3) apply to the court for the appointment of a receiver (see Melbourne Tramways

Trust v Melbourne Tramway and Omnibus Co Ltd (1887) 13 VLR 487 at 490)

However, the chargee may not bring an action to foreclose: Re Owen [1894] 3 Ch 220.

Lee on the Difficulties with Equitable Charges v Equitable Mortgages

Mortgage: A mortgagee will gain equitable title to the security whilst the mortgagor enjoys an equity of redemption.

By contrast, a charge does not obtain an equitable title; the charge only ‘burdens’ the property once it has been appropriated to the charge. The chargee’s remedy is to enforce by means of sale in court or appointment of a receiver (Independent Fisheries v The Altair II).

Although theoretically distint, in practice it can be quite difficult to distinguish between the two.

Roberts v Investwell: NSWCA, Bathurst CJ: “It is a trite law that a specifically enforceable agreement to grant a legal mortgage over property will constitute an equitable mortgage.” This leads to the problem of circularity, as identified in Tanwar v Cauchi by the HCA: viz. the existence of the equitable interest depends upon the availability of the remedy, and the remedy is only available if the interest exists.

There is no particular form or words required to create an equitable mortgage, as it arises as a matter of contract between parties, either express or implied.

A charge is a proprietary interest. “For an equitable charge or equitable mortgage to come into existence, there must be an intention to create an immediate proprietary interest or immediate right to recourse to identifiable present, or in the case of a charge, future property.” Accordingly, mere agreement to create a charge does not create an immediate beneficial interest in the intending charge; i.e. if the existence of the charge is conditioned on a request or demand, then until that has happened “no property has been identified” to which the charge can attach (Sir Robin Cooke in Philpott v NZ Bank).

A Floating Equitable Charge

A floating charge is a varietal of equitable security interest over changing assets


that “floats” or hovers until the point that it reifies into a fixed charge that attaches to the specific assets of the company. A floating charge is a creature of equity. Generally speaking, default by the charger is a trigger for crystallization. In Holroyd v Marshall, it was held that equity would recognize a charge over after-acquired property as being effective to create a security interest over that property automatically upon acquisition.

Contracts came to be drafted that purported to grant security over all the debtor’s present and future property, but expressly permitted the debtor to dispose of these assets, free from the charge, until such times as the debtor’s business ceased. The operation of floating charges was affirmed in Re Panama, NZ and Australian Royal Mail Company – held that a secured creditor could not interefere with assets pre-winding up, but after winding up it allowed the creditor to realize the security and assert its charge in priority to general creditors. Collateral must be sufficiently identifiable when it comes into existence (Tailby v Official Receiver).

NB: The PPSA distinguishes between “non-circulating” and “circulating” assets and all security interests created in either species are now treated as fixed.

Equitable Lien

Unlike liens at common law, equitable liens do not depend on possession.(Hewett v Court). Equitable liens arise by implication of law because of(Hewett v Court)

(1) the special relationship of the parties;(Octavo Investments v Knight)(2) estoppel;(Jackson v Crosby No 2, per Cox J)(3) subrogation; or(4) the application of equitable principles generally.

Equitable liens confer rights in rem that are (Hewett v Court, per Deane J)• (1) enforceable by judicial sale pursuant to a court order or, if the lien is over a fund,

an order for payment from that fund; and• (2) not enforceable by foreclosure or repossession.

Pledges

The essence of a pledge is the factual transfer of possession by the debtor to the creditor (Official Assignee of Madras v Mercantile Bank of India):

(1) as security for the payment of a debt; (Hilton v Tucker) or(2) for the performance of some other obligation (ANZ v Curlett, Cannon and Galbell)

The transfer may be actual, legal or even constructive (Dublin City Distillery v Doherty).


The re-delivery of possession by the creditor to the debtor will terminate the pledge unless it was induced by the debtor’s fraud (Babcock v Lawson) or was for a purpose not inconsistent with the creditor’s rights. (Reeves v Capper).

A pledge does not involve any transfer of the title to the chattel, unlike a chattel mortgage (Palgo Holdings v Gowans).

Transfer Of Possession By Delivery Of Documents

At common law, the mere delivery of documents of title to goods does not affect a transfer of possession for the purposes of the creation of a pledge (Official Assignee of Madras v Mercantile Bank of India). However, under the factors and sale of goods legislation a pledge may be created by endorsing particular documents of title in favour of the creditor.

Pledgee’s Rights And Remedies

The pledgor retains both legal and equitable title to the goods and the pledgee obtains a special property in the goods (Ryall v Rolle). The special property consists of:• (1) an immediate right to possession, deriving from the existence of de

facto or legal possession; and• (2) a power to sell the goods upon default.(The Odessa)

Where no time for payment has been set, the pledgee must make demand for payment before exercising the right to sell (Re Moritt). The pledgee must also give notice to the pledgor of the pledgee’s intention to exercise the power of sale (France v Clark). The pledgee must account to the pledgor for any surplus in the proceeds of the sale (The Woolston). A pledgee may use the pledged goods provided that the pledgee takes reasonable care of them (Coggs v Bernard). A pledgee’s rights will survive the sale of the goods by the pledgor, even though the pledgee’s interest was not disclosed (Franklin v Neate). A pledgee may dispose of the pledgee’s possessory interest in the goods.(Halliday v Holgate) The pledgee may also deliver possession to the pledgee’s bailee or sub-pledgee without necessarily losing the power of sale (Gunnedah v Municipal Council v New Zealand Loan and Mercantile Agency).

The Pledgor’s Rights And Remedies

The pledgor has a right to have possession of the pledged goods returned to the pledgor by repaying the debt and interest owing at any time prior to the valid exercise of the power of sale by the pledgee (Re Morritt).

Where the pledgee refuses to restore possession after the due tender of the money owing, or improperly exercises the pledgee’s power of sale after the due tender of the money owing, the pledgor may sue in conversion or detinue (Franklin v Neate).


Possessory Liens

A common law lien is a right given to a person in possession of goods (the lienee) belonging to another (the lienor) to retain possession of those goods until certain debts owed by the lienor to the lienee are paid (Leggs v Evans). Common law liens may be either general or specific (Rushford v Hadfield). A specific possessory lien enables a creditor to retain the debtor’s goods until a debt associated with those goods is paid. A general possessory lien enables a creditor to retain the debtor’s goods until all debts, whether associated with those goods or not, are paid.

The common law prefers a special lien over the general.

The common law lien (whether particular or general) is a mere right to retain possession of the chattel and does not confer a power of sale (Toll Logistics v McKay).

At common law, a lien is possessory only and depends on the lien-holder having rightful and continuous possession of the property concerned until the claim is satisfied. It is well established that at common law a person expending labour and skill on the improvement or repair of chattels delivered for that purpose is entitled to a lien over them for payment of charges for that work. But a significant body of authority supports the proposition that there can be no lien for the mere maintenance of chattels or for work done to prevent their deterioration as distinct from their improvement.

As a general rule, a possessory lien is lost by the outright delivery of the article to the owner or his or her agent and cannot be revived if possession is subsequently obtained. However, a lien may subsist when the article is released to the owner on a temporary basis, on terms that it is to be returned after use and the lien should continue.

A general possessory lien may arise at common law only by: (Majeau Carrying v Coastal Rutile)(Banks v Ferrari)

13. (1) implication of law;14. (2) proof of customary usage; or15. (3) express agreement.

General Lien By Implication Of Law

A general possessory lien exists by operation of law in favour of:(1) solicitors;(2) bankers; (MPS Constructions v Rural Bank of NSW)(3) factors; (Rolls Razor v Cox)(4) stockbrokers; (Re London Global Finance Corp) and

(5) insurance brokers (Hewison v Guthrie)


It appears that no common law general possessory lien exists in favour of warehouse operators, subject to the possibility that it may arise from proof of usage in a particular locality (Majeau). It is unclear whether accountants have a general possessory lien over accounts and statements prepared by them, but they will hold a specific possessory lien (Woodworth v Conroy)

General Lien By Customary Usage

In order to establish a general lien arising by usage or custom in a particular case, such as in a particular locality, it must be shown that the usage or custom is not only certain, unambiguous, reasonable and long standing, but also that it is so notorious that anyone subject to the lien enters into contracts with that usage or custom as an implied term (Majeau) .

This is a question of fact (Bleaden v Hancock).

If the evidence is sufficient to establish the usage or custom, the parties are presumed to be aware of, and are bound by, that usage or custom (Re Spotten Co)

The standard of proof is a high one (Majeau).

General Lien By Agreement

A general lien may be created by agreement, but only becomes effective outside of contract law once the creditor gains possession of the goods(George Barker v Eynon).

Where a commercial relationship which might involve a lien implied by law is created by contract, the lien created by the contract will prevail over any lien arising by operation of law to the extent that there is any inconsistency.(Seka v Fabrick Dyeworks Aust).

Evidence of the existence of a general lien arising by usage in a particular case, such as a particular locality, may be admitted so as to add to the construction of the contract where the parties are either presumptively or actually aware of the usage in question (Kirchner v Venus).

A possessory lien created by agreement will take effect from the time of the agreement and upon delivery will take effect as a pledge (Re Vital Learning Aids v Fabric Dyeworks).

Specific Common Law Possessory Liens

Specific possessory liens over goods may arise by implication of the common law in respect of:


(1) services performed by a person, such as an innkeeper or carrier, under certain legal obligations in relation to the goods; or

(2) improvements to the goods by the expenditure on those goods of skill and labour by a person plying their trade.

The implication at law of a specific possessory lien may be negated by the course of conduct between the parties, even where the owner of the goods owes money to their possessor (Re Molton)


Topic Eleven: The Personal Property Securities Act 2009

Introduction

Came form 1972 Molomby committee and law reform commissions etc through the 1980s and 1990s

Prior to PPSA there were 72 statures at Commonwealth and state level - a real dogs breakfast, also needed 30 government departments to administer - existed at both CL and equity (equitable interests)

Provides enforceability of security interests of a 3rd party, and is a register of all interests (excepts some statutory licenses). Provides priority rules for those with interests over personal property, and also extinguishment rules.

Brought it into a single act that revolutionises personal property security for Australia however important to realise not unique.

Canada – is in all common law provinces and territories. Came to Ontario first, where it was modelled off A9 of the US Uniform commercial code. Law differs in provinces (not a federal system due to the strength of the provinces under the constitution)

NZ – have had it for 10 years – similar to Australia, some teething problems. NZ system was modelled off the Saskatchewan province PPSA with important differences

The PPSA was introduced as historically, to the extent tha t security interest has been regultated, it has fallen within the scope of state-based legislation that depends in application upon the nature of the personal preoprty in question. To remedy this ocmplex situation, harmonising practice in personal property security interests through a single national law supported by a national online register, the PPSA 2009 (cth) was passed.

Introduction of the PPSA in 2011 requires property lawyers to “unlearn” a number of basic concepts which have hitherto underpinned much of his or her customary thinking.


This legislation looks to the function of a particular transaction, so that if its basic effect is to confer a security interest, then a faiure to register that interest on the Registrar may well result in a loss of priority either the chattel itself, or the proceeds of its sale.

Under the PPSA ‘title’ is irrelvant. Essentially, the PPSA assumes that assets are generallly available for reasliasation by an insolvency practiioner and reimbursement by secured creditors, regardless of ‘title’ unless ‘security’ over them is ‘perfected’ by the true owner or holder of that title. Thus, title per se does not equate to rights over one’s own proprty in such circumstances. Failure to register an interest in an asset may result in the true owner having no protected claim in an insolvency scenario.

S3 PPSA:This Act is a law about security interests in personal property.

A security interest is an interest in personal property provided for by a transaction that secures payment or the performance of an obligation. The form of the transaction and the identity of the person who has title to the property do not affect whether an interest is a security interest.

Personal property includes many different kinds of tangible and intangible property, other than real property. Examples include motor vehicles, household goods, business inventory, intellectual property and company shares. Personal property is known as collateral if it is (or is anticipated to be) the subject of a security interest.

A security interest is enforceable against a grantor when it attaches to collateral. A security interest attaches to collateral when a person gives value for acquiring the security interest (or does something else to acquire it), and in return, the person gains rights in the collateral.

A security interest is enforceable against third parties when it has attached to the collateral and either the secured party has possession or control of the collateral, or a security agreement covers the collateral.

If a security interest in collateral is perfected, it takes priority over another security interest that is unperfected when the security interest comes to be enforced. A security interest is perfected if:

(a) it has attached to collateral; and(b) it is enforceable against third parties; and(c) certain extra steps (possession or control of the collateral,

or registration on the Register of Personal Property Securities) have been taken to protect the interest.

Certain security interests are also declared to be temporarily perfected, or perfected, under this Act.

The secured party whose security interest has the highest priority is entitled to enforce that interest ahead of secured parties with security interests that have a lower priority.

Between perfected security interests, perfection by control has a higher priority than other forms of perfection. The next level of priority is given (subject to certain rules) to perfected purchase money security interests. If no other way of working out priority between perfected interests is provided, the highest priority is given to the security interest that has been continuously


perfected for the longest period.

The Register of Personal Property Securities enables secured parties to give notice of actual or prospective security interests. Notice is given by the recording of data about secured parties, grantors and collateral. The register may be kept electronically, for example in a form that is interactive and accessible over the internet.

Summary

Chapter 1 deals with some preliminary matters, including the general application of the Act (Part 1.2) and its interpretation (Part 1.3).

Chapter 2 sets out general rules relating to security interests. These include the following:

(d) general principles relating to security agreements, security interests, attachment and perfection (Part 2.2);

(e) interpretation provisions about possession and control (Part 2.3);

(f) rules about when attachment and perfection of security interests occurs in particular situations (Part 2.4);

(g) the circumstances in which personal property is taken free of a security interest in the property (Part 2.5);

(h) how to work out the priority between competing security interests (and in some cases, other sorts of interests) in personal property (Part 2.6);

(i) rules about the transfer of interests in collateral (Part 2.7).

Chapter 3 contains specific rules about the following:

(a) agricultural interests (Part 3.2);(b) security interests in accessions to personal property and

their priority (Part 3.3);(c) security interests in personal property that is processed or

commingled and their priority (Part 3.4);(d) intellectual property and intellectual property licences

(Part 3.5).

Chapter 4 deals with how to enforce a security interest in personal property. Parties can contract out of some of the provisions of Chapter 4.

Chapter 5 provides for the establishment and maintenance of a register with respect to personal property securities and certain prescribed personal property (the Register of Personal Property Securities).

The Registrar of Personal Property Securities is responsible for maintaining the register. Chapter 5 also deals with how the register can be searched, and how certain non-registered data can be provided through the register (as a portal).

A search by reference to the details of an individual grantor must be made for an authorised purpose set out in the Act. A person who carries out an unauthorised search, or uses data from an unauthorised search, may be liable to pay compensation or a civil penalty (or both).

Chapter 6 deals with the role of the courts in proceedings that relate to security interests in


personal property. It confers jurisdiction on courts and provides rules for the transfer of proceedings between courts. It also describes the Registrar's role in judicial proceedings and contains provisions about proceedings for contravention of a civil penalty provision.

Chapter 7 deals with how this Act interacts with foreign laws, the constitutional operation of this Act and the relationship between this Act and other Australian laws.

Chapter 8 deals with the following:

(e) rules about the vesting of certain unperfected interests (Part 8.2);

(f) rights to damages and compensation in relation to contraventions of this Act (Part 8.3);

(g) requests to secured parties for information, how notices may be given and certain other procedural and administrative matters (Parts 8.4 to 8.7).

Chapter 9 deals with the initial application of this Act.

The Act starts to apply under Part 9.3 at the registration commencement time, which is 1 February 2012 (the first day of the month that is 26 months after this Act was given the Royal Assent), or another time determined by the Minister.

Chapter 9 also deals with references to charges and fixed and floating charges in this Act and in security agreements, and provides for the review of the operation of the Act within 3 years after it starts to apply.

Definition of a PPSA Security Interest

S 12(1) defines a security interest as:

An interest in relation to personal property provided for by a transaction that, in substance, secures payment or perforamnce of an obligation wihtout regard to the form of the transaction or the identity of the person who has title to the property

Rabobank NZ v McAnulty

Involved a gratuitious bailment of a stallion owned by a syndicate to Storey Bridge.

As part of the agreement, the bailor agreed to pay the bailee to stable the stallion at St. Reims.

The syndicate did not register on the PPSR its interest as the bailor. The bailee subsequently granted a General Security Agreement to Rabobank,

who did register and perfect this interest. Court held that the arrangement between the syndicate and Storey Bridge was

not a “lease for more than a term of one year” and thus the bailor did not lose priority compared to Rabobank.

The syndicate was not in the business of regularly bailing goods.


NB: In Australia, the PPSA is explicit that it does not apply to gratuitious bailments of any length, unlike the NZ legislation.

Exclusions

S8 provides that the following interests are excluded from the Act’s operation:

Interests to which this Act does not apply (1) This Act does not apply to any of the following interests (except as provided by

subsection (2) or (3)): (a) the interest of a seller who has shipped goods to a buyer under a negotiable

bill of lading, or its equivalent, to the order of the seller, or to the order of an agent of the seller, unless the parties have otherwise evidenced an intention to create or provide for a security interest in the goods;

(b) a lien, charge, or any other interest in personal property, that is created, arises or is provided for under a law of the Commonwealth (other than this Act), a State or a Territory, unless the person who owns the property in which the interest is granted agrees to the interest;

(c) a lien, charge, or any other interest in personal property, that is created, arises or is provided for by operation of the general law;

(d) any right of set-off or right of combination of accounts (within the ordinary meaning of the term "accounts");

(e) any right or interest held by a person, or any interest provided for by any transaction, under any of the following (as defined in section 5 of the Payment Systems and Netting Act 1998 ):

(i) an approved netting arrangement; (ii) a close-out netting contract; (iii) a market netting contract; (f) an interest provided for by any of the following transactions: (i) the creation or transfer of an interest in land; (ii) the creation of an interest in a right to payment, or the creation or transfer

(including a successive transfer) of a right to payment, in connection with an interest in land, if the writing evidencing the creation or transfer specifically identifies that land;

(iii) a transfer (including a successive transfer) of an unearned right to payment under a contract to a person who is to perform the transferor's obligations under the contract;

(iv) a transfer of present or future remuneration (including wages, salary, commission, allowances or bonuses) payable to an individual as an employee or a contractor;

(v) a transfer of an interest or claim in, or under, a contract of annuity or policy of insurance, except a transfer of a right to an insurance payment or other payment as indemnity or compensation for loss of, or damage to, collateral (or proceeds of collateral);

(vi) a transfer of an account made solely to facilitate the collection of the account on behalf of the person making the transfer;

(vii) without limiting subparagraph (vi), a transfer of an account, if the transferee's sole purpose in acquiring the account is to collect it;

(viii) a transfer of an account or negotiable instrument to satisfy (either wholly or partly) a pre-existing indebtedness;

(ix) a sale of an account or chattel paper as part of a sale of business, unless the seller remains in apparent control (within the ordinary meaning of that term) of the business after the sale;

(x) 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;

(g) the following interests in property created under the Bankruptcy Act 1966 :


(i) the interest of the Official Trustee or a registered trustee who has taken control (within the meaning of section 50 of that Act) of a debtor's or grantor's property under that section;

(ii) the interest of the Official Trustee or a registered trustee in property of a debtor or grantor that has vested in the Official Trustee or the registered trustee under section 58 of that Act;

(iii) a charge created under section 139ZN of that Act; (iv) a charge created under section 139ZR of that Act; (v) an interest created under a personal insolvency agreement under Part X

of that Act; (h) 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;

(i) a right entitlement or authority, whether or not exclusive, that is granted by or under the general law or a law of the Commonwealth, a State or a Territory in relation to the control, use or flow of water;

Note: See also subsection (5). (j) an interest in a fixture; (ja) a security interest in personal property taken by a pawnbroker, if

subsection (6) applies to the security interest; (jb) an interest that a person has: (i) as a member of a superannuation fund (within the meaning of the

Superannuation Industry (Supervision) Act 1993 ); or (ii) as a member of an approved deposit fund (within the meaning of the

Superannuation Industry (Supervision) Act 1993 ); or (iii) as a holder of a retirement savings account (within the meaning of the

Retirement Savings Accounts Act 1997 ); or (iv) in an account kept under the Small Superannuation Accounts Act 1995 in

the name of the person; or (v) as a holder of a superannuation annuity (within the meaning of the

Income Tax Assessment Act 1997 ); (jc) a charge created by section 5 of the Loans Redemption and Conversion Act

1921 ; (k) a particular right, licence or authority (the statutory right ) granted by or under

a law of the Commonwealth, a State or a Territory, if, at the time when the statutory right is granted, or at any time afterwards, a provision of that law declares that kind of statutory right not to be personal property for the purposes of this Act (no matter whether the provision remains in force);

S13 – On PPS Leases and Bailments

A PPS Lease or bailment of goods is a lease that:

Is for a term of more than on eyear; or For an indefinite term.

However, a PPS lease does not include:

A lease by a lessor who is not regularly engaged in the business of leasing goods; or

A bailment by a bailor who is not regularly engaged in the business of bailing goods; or

A gratuititious bailment.


Operation

In order for the Act to apply, such a “security interest” needs to “attach” to “collateral” (s 19) and then be “perfected” as against a third party (s 20).

A security interest will so attach when the “grantor” has rights to the colalteral and value is given for the security interest, or the grantor does an act by which the interest arises. Perfection may occur by means of psosession, contract or registration. The latter is the most probable and effective method.

Signficant Changes

Fixed And Floating Charges

A floating charge has previously operated in equity by providing an inchoate right enforceable as against sufficiently identified collateral as and when it comes into existence, upon crystallisation: Tailby v Official Receiver (1888) 13 App Cas 523.

– The PPSA distinguishes between ‘non-circulating’ and ‘circulating’ assets and all security interests created in either species are now treated as fixed.

There is a conceptual difficulty in having a ‘fixed’ interest in ‘future assets’. As noted by Gonthier J in Royal Bank of Canada v Sparrow Electric Corp [1997] 1 SCR 411:

16. – ‘The concept of attachment to tangible and ascertainable property, of course, is impossible to achieve in the case of assignment of inventory, where that collateral is changing constantly.’

17. – ‘In short, the traditional concept of the [floating] charge seems to be at odds with the notion of having a proprietary right over collateral such as after-acquired inventory which, by definition, is not yet in existence at the time the security agreement is executed.’

18. – ‘[A] fixed charge over all present and future inventory represents a proprietary interest in a dynamic collective of present and future assets. To this extent, our conception of the form of charge must change to meet the modern realities of commercial law.’

19.

20. Functional Approach To Matters

21. The new legislation adopts a ‘functional’ approach to the taking of a security interest, so the old law with respect to the paramountcy of legal title of a particular chattel will in many cases be entirely overridden.


• It will no longer be enough for a supplier of personalty to rely upon a retention of title clause, or a lease, or bailment with a view to retaining a priority interest in the particular property.

• The legislation looks to the function of the particular transaction, so that if its basic effect is to confer a security interest, then a failure to register that interest on the PPSR may well result in a loss of priority.

True Lease Versus Finance Lease

Latter will be caught by the PPSA whereas the former will not. It is securing an obligation for payment. In many situations, making periodic payments with final residual to vest ownership. – Prior to legislation, title would have operated. Now, invariably regarded as financing lease, if lessor need to register statement to ensure that interest is on the register. Automatic vesting of ownership upon completion of the term. Is cost amortised over the term of the lease? Many financial leases: acceleration of obligation to pay, may invoke equitable doctrine of penalties. By paying in advance might be paying more (Andrews v ANZ Bank).

Effects of Registration

If there are two imperfected interests, first attachment will confer priority (s55(2)).

Any perfected interest will naturally have priority over an imperfected one (s55(3)).

Between perfected security interests, perfection by control has a higher priority than other forms of perfection (s57). The next level of priority is given (subject to certain rules) to perfected purchase money security interests (s62). If no other way of working out priority between perfected interests is provided, the highest priority is given to the security interest that has been continuously perfected for the longest period (s55(4)).

See, for example, Rabobnak New Zealand v McAnutly, per Gendall Assoc. J:

It appears to be accepted now that the implications of the PPSA priority rules are that the title of a secured party whose security interest has not been perfected may be subordinated to another’s perfected security interest. It should be emphasised here that title can still defeat a registered security interest if it remains outside of the PPSA and does not, in itself, form a security interest.

Re Arcabi Ltd.

Facts: Receivers and liquidators were appointed to Arcabi Ltd., which operated a business of storing and selling rare coins and notes for its customers. Much of the


property stored on the presmises was not owned by Arcabi; it was stored for safekeeping or held on consignment. The receivers became concerned that though not a security interest, these arrangements might bring the customers’ goods within the scope of the PPSA, which would mean that:

The customers’ interest in the goods would not have been perfected; The imperfected interest would vest in Acrabi upon the appointment of

liquidators; and The Bank would be entitled to priority to the stored and consigned goods over

the customers pursuant to its securityl

Thus, the receivers applied to the court for directions under the PPSA provision that enables them to do so. Asked for advice on:

1. Was the storage arrangement a bailment that required registration?2. Was the consignement arrangement subject to the PPSA?3. Were the Receivers entitled to claim an indemnity and lien over the customers’

goods, even though those goods were not necessarily subject to their appointer’s security?

Held, by Master Sanderson:1. A bailement arrangment may amount to a security interest which requires

reigstration were: a) In substance, secures payment or performance of an obligation; or b) meets the requirements of a PPSA lease. The court held that the storage arrangements did not secure payment or performance of an obligation, so were not subject to the PPSA.

2. The bailment arrangement was not a PPSA lease. To be a PPSA lease it must be shown that a) it 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 renewed at the option of one of the parties; and b) the bailor is regualrly engaged in the business of bailing goods; and c) the bailee provies value for possession of the underlying collateral. As the customsers of Arcabi were not regularly enggaged in bailing goods, there was no PPSA lease.

3. The consignment arrangement was not a PPSA arrangement either as it did not secure payment or performance of an obligation. It is not a commercial assignment as the customers did not regularly engage in the busness of consignment.


Topic Twelve: Vesting of Title In Contracts of Sale

Exam structure:

Has title passed?

In the alternative, was there sufficient intention to create a trust?

Statute

NB: s 3 of the same Act defines goods as all chattels other than things in action and money – this definition excludes shares.

Sale of Goods Act 1896 S21 Rules for ascertaining intentionUnless 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 1When 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, is or are postponed.Rule 2When 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 into a deliverable state, the property does not pass until such thing is done and the buyer has notice thereof.Rule 3When 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 is done and the buyer has notice thereof.Rule 4(1) When 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 the buyer's approval or acceptance to the seller, or does any other act adopting the transaction;(b) if the buyer does not signify the buyer's 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.(2) What is a reasonable time is a question of fact.

Rule 5

(1) When 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.

(1A) Such assent may be express or implied, and may be given either before or after the appropriation is made.

(2) When, 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 contrac

On Ascertainability & Appropriation

Aldridge v Johnson

A contract was made to exchange 32 bullocks for 100 quarters of barley; Aldrige, who owned the bullocks would also pay GBP23 to make up the differenc ein the valuation of the livestock and grain. The barley was measured from a larger bulk. Three quarters of the sacks sent to pack the barley were filled and then emptied again; the court held that the property in the barley that was packed and unpacked did in fact pass to Aldrige. However, property in the barley that was never packed did not do so. Lord Campbell CJ said that the claimant had sinpected the barley and approved of it. Therefore, when the defendant seller took the balrey and filled the claimant’s sacks he was doing so by the direction of the buy. When the sacks were filled propery passed immediately; the fact that the sacks were unpacked afterwards did not change that.

Wardars v Norwood and Sons: An unconditional appropriation occurs when some ascertained assets are earmarked irrevocably to the ocontract – this may occur through the act of a third party bailee who is storing the goods for the seller.

However, simply setting the goods aside is insufficient – there must also be the consent of the buyer, as otherwise the seller could change his or her mind. There must thus be appropraition by agreement. There seller “must have, or reasonably supposed to have, an intention to attach the contract irrevoacnly to those goods. Assent can sometimes be conferred in advance by the contract itself” (Pearson J in Carlos Felderspiel v Charles Twigg).

Re Wait

Facts: Wait bought 1,000 tons of wheat ex Challenger under the main contract and, a day later, by a sub-contract, he sold 500 tons to sub-purchasers. After the wheat had been shipped to its destination, the bill of lading for the 1,000 tons was forwarded to Wait and, the day before the purchase money was due from him, he received the sub-purchasers' cheque due in respect of the sub-contract. Wait paid this cheque into the bank and hypothecated the bill of loading. He then went bankrupt. Reversing the Divisional Court, the majority of the Court of Appeal held that the subpurchasers had no interest in any of the 1,000 tons, and were left to their remedy in damages.

Atkin LJ held that a buyer could not claim an equitable interest in individual bulk as “the goods were never so ascertained that specific


performance could have been ordered of them… This consideration would appear to defeat the supposed equitable assignment.”

At [606] Atkin LJ - "Ascertained probably means identified in accordance with the agreement after the time a contract of sale is made."

“No 500 tons of wheat have ever been earmarked, identified or appropriated as the wheat to be delivered to the claimants under the contract.

At [637-638], he went on to hold that the fact that the purchase money had been paid under the contract in advance of the due date made no difference, in his view, to the result.

Lord Hansworth MR agreed, affirming that “it must be perfectly clear that in order to create an equitable assignment, the obligation must be to deliver a particular chattel, not deliver any chattel.”

In dissent, Sargent LJ argued "Is there then any real difference in the equitable position of the [sub-purchasers] because they agreed to buy not the whole 1,000 tons parcel but 500 tons or one half only of that parcel? I think not... It would be a fraud for [Wait] to sell or deal with the 1,000 tons in any manner that would prevent 500 tons part thereof be it left available to satisfy the claim of the [sub-purchasers]."

On Exhaustion as a Means of Proving Appropriation

Karlshamm Oljefabriker v Eastport Navigation Co.

Ascertainment may occur through exhaustion.

Buyers purchased 6,000 tonnes of copra, shipped in a mixed bulk of 22,000 from the Phillipines to Sweden. On delivery to Sweden, 825 tonnes had been damaged by seawater. The question was whether or not the buyers were entitled to sue in tort as the owners of the copra at the time of the accident. Mustil J held that the strict appropriation under rule 5(1) was not necessary for the passage of title – the goods were however ascertained after which time only the buyer’s cargo was on board. As it was ascertainable at this time through exhaustion, the secondary question became whether or not it was the intnetion of the parties for title to pass upon discharge or upon the penultimate Hamburg delivery? Found that the claim failed as they intended only for title to vest upon discharge.

Re Stapylton Fletcher

Ascertainment occurerd upon rrevocable separation from the bulk.

Similarly, property could pass to a group of customers where the wine was segregated from the mass so the customers could know that their wine would come from that group of cases, even if the individual bottles were not appropriated to particular customers. In that instance, customers would own the wine as tenants in common amongst themselves. After the point when the bulk


was reduced in size by deliveries to various customers, ascertainment could take place by exhaustion.

On Creation of Trusts Through Sale of Bulk Goods

Re Goldcorp Exchange Ltd.

Facts: Goldcorp ran a business of holding gold reserves in coins and ingots fo rcusomers wishing to invest in gold. The company’s employees also told customers that the company would maintain a separate and sufficient stock of each type of bullion to meet their demands, but in fact did not. Business was wound up, and there was not enough money to either deliver the gold to entitled customers, nor satisfy the debts to the bank. The members of the public alleged that the gold was held on trust for them. The bank argued that because the gold stocks had never been isolated the customers were unsecured creditors and the floating charge of the Bank of New Zealand held priority.

Lord Mustill, with whom Templeman, Llyod and Eichelbaum LLJ agreed, held that the customers’ purchase contracts did not transfer title, because which gold specifically was to be sold was not yet certain.

In the alternative, there was no intention and or declaration of trust.

Claims of customers would only sound in contract.

Hunter v Moss

A company director owned 950 shares/1000 in his company. He declared that the finance director could have 50 of those shares. Later, the director refused to transfer them. The finance director argued that they were held on trust for him. Dillon LJ in the Court of Appeal held that as there was no tangibel distinction between the shares, there was no reason to hold the trust void for uncertainty just because the 50 shares had not been segregated. Clarified however that if “I declare that I hold fifty of my shares on trust for B wthout indicated that the company I had in mind of the various companies in which I hold shares” there would be no trust.

In England, in Re Hardvard Securities, Neuberger J affirmed that there was no need to segregate intangible property such as shares, following Hunter.

White v Shorthall

Relevant principle may be that in order to create a trust over goods, specific items must be dientified or sparated from any pre-existing bulk held by the settlor, but no equitavelnt process need occur where intangibles such as shares, money or debts are the subject of the trust.


In this case, involved a written confirmation, following the breakfdown of a domestic relationship, by the male party that he held 222,000 shares in a company (out of 1,500,000 owned by him) on trust for the female party.

Cambell J held that a valid trust had been created.

Lehman Brothers

If it is not immediately obvious to the reader what Rascals was all about from its title, fear not: by the time of the Lehman collapse in 2008, it appears not to have been very clear to Lehman itself either what Rascals was doing or why it was doing it. (It was, however, at least apparently, moving billions of dollars of value around the group every day.)

What the Rascals processes appeared at least to be doing by the time of, and for some years preceding, the group’s collapse was effecting daily ‘repos’ between the Lehman European ‘hub’ company based in London, called Lehman Brothers International (Europe) (LBIE) Limited, and other Lehman affiliates (being group companies) around the globe in relation to some forms of securities and periodic ‘stock loans’ between those parties of other sorts of securities. The securities were of many different types, held within accounts maintained by LBIE at Euroclear: it is important to have in mind that while everyone speaks about account holders holding ‘securities’ at global custodians, all in fact even LBIE ever had was a right as against Euroclear representing its claims to ‘securities’ held by Euroclear (or by some depository for Euroclear), most often in the form of ‘Global Notes’ of some description. Part of the relevance of the case lies in its consideration of the chains of beneficial ownership in the modern world of ‘intermediated securities holdings’.

The whole Lehman machine collapsed, of course, in September 2008. The consequences of its collapse are working their way through the insolvency courts of the world. One result of the collapse which emerged as the smoke began to clear was that LBIE was left still holding many securities in its accounts at Euroclear which (i) had been bought by it for the book of an affiliate; (ii) were on the affiliates’ inventory accounts and not its own; (iii) had, however, been subject to Rascals repos or stock loans between LBIE and the affiliates; and (iv) on LBIE’s case, had been paid for by it and still had not been paid for by the affiliates. The issue was, therefore, did LBIE hold them beneficially for itself or did the Respondent affiliates have beneficial title to them.

Repos, or repurchase contracts, are, as their name suggests, in essence no more than contracts under which Party A agrees to sell a security to Party B on Day 1 and Party B agrees to sell the security or an equivalent security back to Party A on Day 2


. The nature of the interests of LBIE as against Euroclear and of investors, such as the respondent affiliates, as against LBIE.

2. The principles to be applied when determining whether a trust relationship between LBIE and the respondent affiliates had come into existence.

3. The effects of the repo and stock loan arrangements as they operated on securities positions acquired by LBIE for the respondent affiliates.

Topic Thirteen: Covenants Affecting Freehold Land

Exam Structure:


1. Does a covenant exist, and if so is it a burden or benefit?2. If it is a burden, is it binding against subsequent owners:

a. At law?b. In equity?

3. If it is a benefit, is the benefit binding against subsequent owners:a. At law?b. In equity?

4. Can it be registered? (protected in QLD?)5. If no, can it be protected in other ways?

Introduction

Such planning involves the use of freehold covenants: viz. a promise made in deed. The term, however, is sometimes used to describe a promise contained in any contract or agreement relating to land.

Covenants come in two varietals:

I. The benefit of a covenant is the right to enforce the obligation contianed in the covenant – i.e. the right to sue on the covenant.

II. The burden of the covenant is the obligation to perform the promise contained in the covenant.

III. A positive covenant requires an act to be done.IV. A negative covenant restrains the covenantor from doing some act.

Generally a benefit will run with the land, but a burden will not in law, though there are equitable exceptions.

Benefit of the Covenant at Law

Difficulties arise where the original convenantee sells the property to another – can the covenantee enforce against this sucessor in title, given privity of contract?

Assignment - I

It is possible to assign the benefit of a covenant to a third party, provided it conform to the form requirements set out in S199 of the PLA 1974. Once assigned in law, th ebenefit can be enforced by the assignee against the covenantor.

Touching the Land - II

Elements:

I. The covenant touches and concerns the land of the covenantee; II. There is an intention that the benefit of the covenant should run with the land of

the covenantee;


III. The covenantee, at the time of making the covenant, holds a legal estate in the land.

If these conditions are met, the covenant becomes attached to the land without the need to explicitly mention it or assign the benefit in subsequent contracts. It is presumed that the benefit of the covenant will run with the land, or “go with it” without more, unless there is something which rebuts this presumption (Rogers v Hosegood).

To be enforceable, it is not necessary for the purchaser of the benefited land to have notice of the benefit of the covenant – may enforce at any date, even if ignorant at time of sale (Rogers v Hosegood).

Touching and Concerning the Land of the Covenantee

The covanentee must own the land when the covenant is made to which the benefit of the covenant is attached (Rogers v Hosegood).

However, it is irrelvant whether or not the covenant attaches to or benefits the land of the covenantor (Spencer’s Case).

Must only touch and concern the land of the covenantee. Per Farwell J in Rogers v Hosegood:

The covenant must either affect the land as regards the mode of occupation, or it must be such as per se, and not merely from collateral cicrcumstances, affects the value of the land.

A covenant which is personal to the covenantee will not run with the land (Smith and Snipes Hall Farm v River Douglas Catchment Board). In that case, it was held that a covenant to maintain a system of flood-proofing measures did touch and concern the land of the covnenatee, because it converted the land from flood meadows to agricultural land and therefore affected the value of the land per se.

The test is not determined solely by considering whether the covenant increases the pecuniary value of the land and there are examples of cases where a covenant has been held to touch and concern the land even though the evidence suggested that the land might sell for more on the open market free of the covenant (Marten v Flight Refuelling).

Where the covenant is to do or not do something on the covenantor’s own land, the benefited land must be sufficiently close to the brudened land to satisfy the test that the covenant touches and concerns the benefited land – they need not be adjoining parcels of land, but there must be sufficient proximity (Clem Smith Nominees v Farelly – in that case 32kms separated land that was required not to carry on racing sports was held to not touch and concern the benefited land).

It has been held that a covenant does not touch and conceern the covenantee’s land where the area of land is so large that it cannot in fact reasonably benefit


the land (Re Ballard’s Conveyance). In that case, a covenant restricting building on a land of 18 acres – the benefited land was 1,700 acres.

Intention

Originally, it was necessary at law to demonstrate that the covenantor and covenantee, at the time of the agreement, intended the covenant to run with the land (Smith and Snipes v River Douglas).

However, post 1 December 1975 S 53 of the PLA automatically implies the intention that the covenant is to run with the land, provided the covenant touches and concern the land (Federated Homes v Mill Lodge Properties).

Although s 53(1) does not expressly provide that it it subject to the contrary intention, it is suggested that the better view is that this section will not supply an intention when there it is contrary to the express or implied eterms of the covnenat (Forestview Nomineees v Perpetual Trustees), nor will it enable a party to enforce the benefit of a convenat where, by the expresss terms of the covenant, he or she is excluded from taking the benefit (Forestview).

Covenantee Must Hold a Legal Estate In the Land

S 53(1) now provides that covenants made after 1 December 1975 which touch and concern the land of the covenantee to be enforced by “persons deriving title under the covenantee.”

S13 of the PLA – Standing to Sue Option 1

At common law a person could not sue to enforce a covenant contained in a deed made inter partes, nor take an immediate interest in land under a deed inter partes, unless that person was named as a party to the deed (Scudamore v Vanderstene).

S13 was enacted to overcome this rule :

13 Persons taking who are not parties(1) In respect of an assurance or other instrument executed after the commencement of this Act, a person may take—(a) an immediate or other interest in land; or(b) the benefit of any condition, right of entry, covenant or agreement over or respecting land;even though the person may not have executed the assurance or other instrument, or may not be named as a party to the assurance or other instrument, or may not have been identified or in existence at the date of execution of the assurance or other instrument.


(2) Such person may sue, and shall be entitled to all rights and remedies in respect of the assurance or other instrument, as if the person had been named as a party to and had executed the assurance or other instrument.

Thus, this section clearly enables a beneficiary to enforce the benefit of a covenant where the covenant purports to be made “with” the beneficiary but the beneficiary is not named as aparty to the deed and does not execute the deed (Beswick v Beswick).

Accordingly it has a narrow operation as it must be made “with” the third party. (Application of Caroline Chisholm Village). This narrow construction was accepted as applying to the equivalent section in WA by three members of the HCA in Jones v Bartlett. However, as S 13 is drafted in wider terms than the WA provision, there is a stronger argument in favour of a wider view in QLD.

S 55 of the PLA – Standing to Sue Option II

Enables a person to enforce a promise, which has been made for her or his benefit, against the promisor in specified circumstnaces even though the beneficiary is not a party to the agreement and provides no consideration. Such a right is dependant upon the acceptance of the benefit of the promise by the beneciciary being communicated to the promisor wihtin the time specifiedi in the promise, or if no time is specified, within a reasonable period of time (Davies v Wickham).

E.g. A and B enter into a covenant to so that B will maintain fences for agreement of all neighbours and that the neighbours are intended to be able to enforce it. Provided acceptance is communicated, neighbours will have standing to sue under S 55.

Burden of a Covenant

It is a firmly established rule that the burden of a covenant does not run with the land at law (Austerberry v Oldham Corp). The rationale for such a rule is that a person cannot be made liable upon a contract unless she or he is a party to it (Rhone v Stephens). This rule applies to both positive and negative covenants.

This prohibiton applies even if the covenant expressly purports to bind sucessors in title to the orignal covenantor (Austerberry v Oldham Corp).

A way to practically bypass this rule is to establish a chain of covenants between the covenantors – this involves each successor in title from the covenantor contracting with her or his vendor or transferor to comply with the covenant. Or, the original contrac tmay be drafted with the extra requirement that the covenantor agrees that if she or he sells the property he or she will only do so on the condition that her or his sucessor enterse into the same covenatns with the covenantee.


Exception – A Grant of a Right Condituional Upon Assuming the Burden

A covenant may grant to a person some right relating to land such as to use a road or a party wall, and the grant of the right may be conditional upon the person dischargin certain specified obligations relevant to he exercise of that right. Where this is the case, a successor in title who elects to exercise the right will be held liable to discharge the obligations which are conditional to the exercise of the right (Halsall v Brizell).

Per Megarry VC in Tito v Waddell No. 2:

One of the most important distinction sis between conditional benefits, on the one hand and on the other hand, independent obligations. An instrument may be framed so that it confers only a conditional or qualified right, the condition or qualification being that certain burdens are assumed… Such restrictions are an intrinsic part of the right: you take the right as it stands, and you cannot pick out the good and reject the bad. In such cases sucessors in title are unable to take the right without also assuming the bruden. The benefit and the burden had been annexed to each other ab initio.

See for example Rufa v Cross – involved adjoining shop premises. In 1959 owners granted reciprocal easement rights in respect of the party wall. Party could extend the wall, but also to pay all construction costs. Also pay half of the value of the extension to the other. A successor in title extended the wall, but refused to pay the respondent a half share of the cost of the extension. Held to be an “essential fabric” of the exercise of the right to pay.

Equity

Provided certain conditions are satisfied, equity will enforce a restrictive covenant against a sucessor in title of the origianl covenantor where the successor in title takes the property with notice of the covenant (Tulk v Moxhay).

Elements per Tulk:

The covenant must be negative in nature; The covenant must be made for the protection of the land retained by the

covenantee; The burden of the covenant must have been intended to run with the

coventantor’s land; Equitable remedies must be available (e.g. injunction)

Benefit of the Covenant in Equity


Can the benefit of the original covenant be enforced by a successor in title to the original covantee against a successor in title to the original covenantor? I.e. A sells to A1 and B to B1 and A1 wants to enforce the original covenant against B1 even though the agreement was between A-B.

The benefit of the covenant runs in equity by:

Annexation; Assignment; or Scheme of development.

Annexation

I. The covenant must touch and concern the land of the covenantee;II. The covenantee must, at the time the covenant is entered into, own land

which is benefited by the covenant;III. The instrument creating the covenant must show that there is an intention

that the benefit of the covenant is to run with the land if the covenant was made pre 1 December 1975.

IV. The land benefited must be sufficient identified by the terms of the covenant.

Assignment

A successor in title of the covenantee’s land may enforce the benefit of a restrictive covenant aganst a successor in title of the covenantor’s land if the benefit of the covenant has been expressly assigned to him or her. The benefit of the covenant is regarded as a chose in action and is therefore assignable in equity. Additional requirements:

It must be shown that the covenant was intended to benefit the land, rather than simply benefitting the covenantee personally (RE Union fof London and Smiths Bank’s Conveyance)

The benefit must be assigned as part of the transaction by which the land was transferred (Chambers v Randall).

The assignment must be in writing (s 11(1)(c) PLA).

Schemes of Development

To overcome difficulties, equity has developed rules which enable purchasers and successors in title to mutually enforce restrictive covennats when a building scheme is esatblished. The covenants are regarded as ‘local law’ enforceable by all those who become owners in the scheme (Reid v Bickerstaff).

In Elliston v Reacher, Parker J explicated the elements required for a scheme of development in equity:


I. Both the plaintiff (the person seeking enforcement) and the defendant derive title under a common vendor.

II. Prior to selling the land, the vendor laid out the estate for sale in lots subject to restrictions intended to be imposed on all lots, and which, though varying in details, are consistent with some general scheme.

III. These restrictions were intended by the common vendor for the benefit of all the lots.

IV. Both plaintiff and defendant, or predecessor in title, purchased the lots from the vendor upon the footing that the restrictions subject to which the purchases were made were to ensure for the benefit of other lots in the general scheme, whether or not they were also to ensure for the benefit of lots retained by the vendor.

Doubts whether enforceable in Queensland against a subsequent purchaser.

Enforcement In Torrens System

General rule: Cannot be enforced in QLD, unless concerning state/local governments per S 97A of the LTA.

May be protected in two other ways:

Firstly, the benefit of the covenant can be enforced against the original covenantor because, the covenant arising out of his/her own actions, gives rise to a personal equity to which their indefeasible title is subject to (Ryan v Brain). Must obviously go beyond mere notice of an existing covenant.

Secondly, while the burden cannot be enforced against a subsequent registered proprietor due to indefeasibility of title, a caveat may be lodged (s 122) prior to registration to protect the covenant, or an injunction may lie to enforce the covenant at any time prior to the purchaser registering their title (Ryan v Brain).


Topic Fourteen: On Jurisdiction to Relieve Against Forfeiture

Historically, only a proprietary interest would attract equity’s intercission.

Subsequently however, a possessory interest has also attracted the protection of the doctrine. The doctrine generally operates more easily in a real property environment than a purely commerical one.

The precise relationship between the general prohibition against penalties to prevent unconscionable behaviour and relief from forfeiture is unclear.

General principles

“Where it is possible to state that the object of the transaction and of the insertion of the right to forfeit is essentially to secure the payment of money, equity has been willing to relieve on terms that the payment is made with interest, and if appropraite, costs” – Lord Wilberforce, in Shiloh Spinners v Harding.

In such cases, the court may override the express words of forfeiture in the mortgage instrument or lease contract (per Viscount Haldane LC In Kreglinger v New Patagonia Meat Cold Storage).

Celestial Aviation Trading 71 Pty .

Facts: Whether or not a lessee company was entitled to relief against forefeiture of the operating leases over 3 aircraft when it defaulted on the payment of rent.

Q: Did the court have jursidcition to releive against forfeiture, given that a lessee under a lease has mere possessory, not a proprietary right?

Held by Hamblen J that there was no interest in respecct of which equity would grant relief against forfeiture. His Honour approved to The Scraptrade where the House of Lords declined to grant relief in respect to a contract for services such as arose under a time charter.

There is authority that relief agaist forfeiture can apply to moveable property, but all such cases involved “not merely a possessory right, but also a proprietory or expected proprietary right” (Celestial Aviation, per Hamblen J).

Rationale for distinction: The reason for the distinction between moveable chattels and real property lies in the fact that in cases of land, a lessor will suffer no significant financial loss if arrears are paid with costs. The land is still there to repossess if a further default occurs. By contrast, in cases of chattels such as cars, the scurity is much less dependable as it can be spirited away, depreciate speedily and require maintenance (Goker v NSW Bank, per Nicholls LJ). Less likely to grant were the object of the property is a wasting interest.


Transag v Leyland DAF Finance: involved a hire purchase agreemtn for 3 vehicles with an option to buy them after 3 years. The court granated relief.

On Demand Information v Michael Gerson: Rights in a hire purchase agreement were held to be more than “purely contractual rights”.

Ergo, the real question these days is not whether aproprietary or possessory interest is created by the agreement. Rather, it is what is the ultimate economic effect of the contractual situation, giving effect to substance and not form?

E.g. in Celestial, Hamblen J held that an 8 year lease for aircraft with a life of 20/30 years meant that there was a significant residual value in the lessor’s interest. As such, it did not amount to a transfer of ownership, and such a transfer was never contemplated.

Thus:

On Demand: concerned a finanance lease. Relief.

Celestial: Operating Leases. No relief.

In toto, courts are still very wary to extend relief from forfeiture past real poperty, for policy reasons surroundin gusing litigation for forfeiture as a negotiatng tool in commercial contracts (Lord Hoffman in Eagle v Golden Achievement).

ALWAYS A DISCRETION OF THE COURT:

“If the right of forfeiture is given to secure achievement of a contractual promise, and if the effective benefit of the promise can be assured to the promisee without forfeiture, then eequity may intervene. But it is not required to do so.” – McDougall J.
