"But my name is on title!": The "in personam exception" to Indefeasibility of Title for Real Property revisited

• Indefeasibility of Title

In the Torrens Title system, having your name on title is ordinarily everything. The system purports to give you conclusive title by virtue of the registration process.

As Barwick CJ famously said in Breskvar v Wall (1971) 126 CLR 376, at 381, 'the Torrens system ... is not a system of registration of title but a system of title by registration'. And Section 42 (see further ss 45 and 118) of the Real Property Act 1900 further famously provides:

"Notwithstanding the existence in any other person of any estate or interest which but for this Act might be held to be paramount or to have priority, the registered proprietor … shall, except in case of fraud, hold the same, subject to such other estates and interests and such entries, if any, as are recorded in that folio, but absolutely free from all other estates and interests that are not so recorded…"

Fraud is an express exception there, and a limited list of exceptions follows in that sub-section.

One exception not listed in that section is the in personam exception (an order against the particular person, rather than an "in rem" against the property.

• the in personam exception to indefeasibility

Because the majority of these in personam exceptions are equitable (trusts, equitable estoppel and so on) it is sometimes referred to the "personal equities" exception. But this is a misnomer, as some in personam claims against the particular person are legal rather than equitable (such as an action for the tort of deceit). (see Peter Butt, Land Law, at [20-102].

The in personam exception works by being a claim on the registered proprietor themselves, and binding the registered proprietor to transfer the title (or part thereof if the claim is for only part) to the claimant. Being that the claim is against a particular person, it can only be claimed against that person – i.e. if the property is transferred to bona fide purchaser, the claimant will not have a claim against the purchaser. If the purchaser has "mere notice" the claimant has an equitable claim against the vendor, that will not be enough for the claimant: there must be 'additional factors' such as an implied or actual understanding the purchaser would respect the claimant's equitable interest [see Bahr v Nicolay (No 2) (1988) 164 CLR 604].

A rule of thumb for whether the claimant has a claim against the registered proprietor is whether the registered proprietor is impeached with "unconscionability", but this test is not technically universally applicable. Rather, most in personam claims will have an element of unconscionability by the registered proprietor.

A contemporary example of an "equitable estoppel" branch of the in personam example is seen in the case below.

• Huang v Zheng; Zheng v Huang [2017] NSWSC 471

o Soon to be reported in the New South Wales Conveyancing Law & Practice as (2017) NSW ConvR ¶56-379.

The three protagonists of this case are: Joseph Huang (older brother), David Zheng (younger brother) and Zhe Zheng (father).

Of the three, Joseph moved to Australia first, arriving in 1988. Zhe, the father, emigrated to Australia in 1996.

Joseph was not a first home buyer. He already owned property. But he wanted to purchase a property at 4 Short Street, Lidcombe (“the Short Street property”) and (dishonestly) claim the benefit of the First Home Owner’s Grant & Boost ($14,000 at the time) as well as avoid the payment of Stamp Duty ($17,730).

To do so, the Short Street property was purchased in 2009 in the name of the father, Zhe. Importantly, it was rather Joseph, the older brother, who provided the entirety of funds for this purchase.

Joseph's position then was that Zhe held the property on trust for Joseph, by virtue of a "resulting trust" (a presumed trust arising out of the nature of the transaction).

In 2010, the younger brother David wished to move from the US to Australia.

Joseph sponsored David's immigration application.

In order to assist the prospects of David's immigration approval, the three formulated a plan whereby the Short Street property would be left to David in Zhe's will (which would be viewed as favourable by the Department of Immigration) and then transferred back to Joseph once David's immigration had been approved. David disputed this version, but the court accepted Joseph's assertion and held that such a plan was indeed formulated between the three.

Zhe passed away in March 2010.

The two brothers then had a falling out.

Joseph wanted the Short Street property to be transferred back to him. David refused, and argued:

1. Joseph should not be entitled to the property as he himself had committed a fraud on OSR in order to obtain the first home buyer benefits.

2. There was no written record of the trust, so Joseph should be barred by s 23C(2) of the Conveyancing Act 1919 (NSW).

3. There was no 'fraud' in acquiring the title itself on the part of David, so he should have indefeasibility of title.

With respect to [1], as most lawyers know, equitable remedies are discretionary, and are governed by the maxim of "clean hands". In order for Joseph to assert his hands were indeed clean, Joseph arranged before the hearing for the repayment of the First Home Owner’s Grant & Boost as well as the payment of the owed Stamp Duty, with interest. The court was satisfied his hands were then duly washed.

With respect to [2], s 23C(2) of the Conveyancing Act 1919 (NSW) will not bar resulting trusts for an absence of writing.

With respect to [3], whilst Joseph acclaimed David had "fraudulently" obtained the title, and the fraud exception should apply, His Honour White J "preferred" the view that the in personam exception of equitable estoppel applied, rather than fraud per se.

White J held, at para [67], that the reliance required for equitable estoppel was established because "but for the assurances given by David, Joseph would have asserted his beneficial interest in the Lidcombe property and not arranged for it to be transferred to David. (Priestley v Priestley at [119]-[137]; A Silink, “Causation in Equitable Estoppel” (2016) 43 (3) Aust Bar Rev 320). And His Honour went on to say:

"Zhe Zheng acknowledged that Joseph was the true owner of the property, just as I accept Joseph… [and] David made the same acknowledgment …. [and it] is unconscionable for David to deny the assumptions he induced Joseph to adopt and no lesser relief then holding David to the assumptions he induced Joseph to adopt is required to ensure his conscientious conduct (Giumelli v Giumelli (1999) 196 CLR 101 at [42], [50]; [1999] HCA 10). Joseph’s personal equity outflanks David’s reliance on s 42 of the Real Property Act."

His Honour accordingly declared David held the property on trust for his older brother, and was ordered to transfer the property to his older brother within 28 days.

The case deals with other issues such as gifted payments of money from Joseph to David, but these are not relevant to the matter of the Short Street property.

Real Property law is a complex and ever developing area. Contact Maclarens Lawyers on 9682 3777 for expert legal advice.