Lincu v Registrar-General

Indefeasibility of title by registration is fundamental to the Torrens title system which applies in New South Wales pursuant to the Real Property Act 1900 (NSW) (“RPA”). Sometimes indefeasibility has harsh consequences for innocent parties. The Torrens Assurance Fund (the “Fund”) exists to pay compensation where loss and damage has been suffered in specified circumstances as a result of the operation of the RPA.

One of those circumstances is, in general terms, where there has been fraud. This case is about the exemption from eligibility for compensation in RPA s 129(2)(f)(i) (the “Exemption”), which provides that compensation is not payable from the Fund where “the loss or damage arises from the breach by a registered proprietor of any trust (whether express, implied or constructive)”. The constructional choice posed for the Court is whether the Exemption applies to loss and damage which arose from what the parties agree was a fraud and a breach of trust.

Property used for religious worship is often held by trustees under a charitable trust for the advancement of religion. One example of this is the Apostolic Church of Nazarene – Sydney (the “Church”), whose church is located at Arncliffe (the “Church Property”) on land originally held by five trustees.

Two of the original trustees died. One of the surviving trustees (Mr Laza Krnjulac (“Mr Krnjulac”)) tricked the other two surviving trustees (Mr Matthew Lincu and Mr Zivadin Kovacevic) into signing documents which enabled Mr Krnjulac to transfer the Church Property to himself and his two sons. Mr Krnjulac borrowed a large amount of money from Community First Credit Union Ltd (the “Credit Union”) secured by a mortgage over the Church Property.

Mr Krnjulac was unable to repay the Credit Union and is now a bankrupt. To preserve the Church Property from being sold by the Credit Union, Mr Lincu and others borrowed money. They paid out the Credit Union and took an assignment of the Credit Union’s mortgage. They now seek to recover the amount they borrowed, and other incidental costs from the Fund.

The parties have agreed that, if the Exemption does not apply, compensation is payable. They have also agreed on the amount that should be paid.

Mr Lincu and the other trustees (represented by Mr D D Knoll AM of Counsel) made three arguments why the Exemption did not apply. As a matter of construction they submitted that the Exemption only applied where fraud was not a material cause such that the sole cause of the loss and damage was a breach of trust. This required the Exemption to be read in one of two, alternative ways (each shown in italics): “the loss or damage (1) solely arises from the (2) non-fraudulent breach by a registered proprietor of any trust (whether express, implied or constructive)”. They relied on the decision of the NSW Court of Appeal in Parker v Registrar-General [1977] 1 NSWLR 22 (“Parker”).

The third argument was that the expression “arises from” requires the Court to determine the “true cause” of the loss or damage. In this case that true cause was the fraudulent design of Mr Krnjulac, of which a mere incident was the fact that he breached a trust in implementing that design.

The Registrar-General (the “RG”) (represented by Ms A B Douglas-Baker of Counsel) submitted that changes in the legislation governing the Fund since Parker meant that decision was no longer applicable and the natural and ordinary meaning of the Exemption was that no compensation was payable if the loss and damage had been caused by a breach of trust even if another cause was fraud.

The Court has concluded that the Exemption applies in the present case for four reasons:

This judgment determines a cross-claim seeking compensation from the RG and the Fund, pursuant to RPA s 129(1)(e). The cross-claim forms part of proceedings with a complicated history, which it is not necessary to set out fully here.

Mr Matthew Lincu and Ms Zuzana Veres, in their capacities as trustees of the Church (the “Cross-Claimants”), and the RG remain the only active parties in the proceedings. For present purposes, it is sufficient to note that the Cross-Claimants have settled the claims as between themselves and the Credit Union, which was the plaintiff in the primary proceedings.

The Second Cross-Claimant, Mr Zivadin Kovacevic, has taken no active part in the proceedings and an aspect of the relief sought in the most recent iteration of the statement of cross-claim is that he be removed as a party to the proceedings. References to the Cross-Claimants are therefore references only to Mr Lincu and Ms Veres.

The parties have prepared a Schedule of Agreed Facts (the “Schedule”) and Chronology to assist resolution of the issues which arise for determination in these proceedings, drawing upon evidence filed both in these proceedings and in earlier proceedings in this Court (being proceedings no. 2011/406044 – the “2011 Proceedings”). On 20 March 2018, Darke J made orders by consent pursuant to r 31.9 of the Uniform Civil Procedure Rules 2005 (NSW) granting leave to the parties to adduce evidence from the 2011 Proceedings.

Unless otherwise stated, the facts below are drawn from the Schedule.

On or about 1 December 1978, five members of the Sydney congregation of the Church purchased the Church Property for use as a place of worship.

On 16 January 1979, a transfer was registered whereby Mr Lincu, Mr Djura Liptak, Mr Zivadin Kovacevic, Mr Joca Krnjulac (“Mr J Krnjulac”), and Mr Krnjulac (to whom I will refer, collectively, as the “original trustees”), became registered proprietors of the Church Property in their capacity as trustees of the Church. Mr Krnjulac knew that the Church Property was purchased in the names of those trustees, for the Church.

Of the original trustees, Mr J Krnjulac died in 1989, and Mr Liptak in 2001.

In May 2004, Mr Krnjulac procured Mr Lincu’s signatures on three separate pages by saying to Mr Lincu words to the effect of, “you need to sign these for a notice of death”. Mr Lincu signed the three pages on the street outside his (Mr Lincu’s) home in Sydney.

When Mr Lincu signed the pages, he thought that he was signing to remove the two deceased trustees from the list of trustees. None of the three documents signed by Mr Lincu had the heading “Transfer” and they were not attached to any printed form. The Schedule notes that Mr Krnjulac was the only person present when Mr Lincu signed the three pages and that Kevin John Perram was not present at the time of signature (Mr Perram’s name and signature appear on each of the relevant pages as the purported witness of Mr Lincu’s signature).

Prior to 4 June 2004, in either late May or early June of that year, Mr Krnjulac also procured Mr Kovacevic’s signatures on three separate pages by saying to Mr Kovacevic words to the effect of, “you need to sign these for a notice of death”. When Mr Kovacevic signed these pages he, like Mr Lincu, thought that he was signing to remove the two deceased trustees from the list of trustees. Again, none of the three pages had the heading “Transfer”; the pages were not attached to any printed form; Mr Krnjulac was the only person present when Mr Kovacevic signed the pages, and Mr Perram (likewise the purported witness of Mr Kovacevic’s signatures) was not present.

On 4 June 2004, Transfer AAXXXX (the “Transfer”) was registered and Mr Krnjulac and his two sons, Steve and Simon Krnjulac, became the registered proprietors of the Church Property. It is agreed between the parties that Mr Krnjulac “tricked” Mr Lincu and Mr Kovacevic “into signing documents the effect of which was to transfer title to the Church’s land out of the names of the surviving, original trustees” and that Mr Krnjulac did so in order to transfer the Church Property into his name and the names of his sons for personal, business purposes. Those purposes – and the fact that Mr Krnjulac would transfer the title to the Church Property into the names of himself and his sons – were not disclosed to either Mr Lincu or Mr Kovacevic, who never intended to transfer the Church Property away from the Church.

The parties also agree that Mr Krnjulac and his sons took title to the Church Property as constructive trustees for the charitable purposes of the Church.

On 23 July 2004, Mr Krnjulac and his sons granted a mortgage over the Church Property in favour the Credit Union, which mortgage was registered on 3 August 2004 (the “Mortgage”). The parties agree that the Mortgage was signed by Mr Krnjulac and his sons; that it was for private, business purposes; and that its registration was a breach by Mr Krnjulac and his sons of their obligations as trustees.

In about April or May 2010, Mr Lincu was informed that Mr Krnjulac had registered a transfer of the Church Property, transferring the Church Property away from the original trustees as trustees of the Church to himself and his sons.

On 3 May 2010, Mr Lincu sought advice from Land and Property Information and as a result caused Caveat AFXXXX (the “Caveat”) to be lodged over the Church Property.

In the period from April or May 2010 to December 2011, Mr Lincu (and other members of the Church) attempted to resolve the matter with Mr Krnjulac and his sons without recourse to litigation. Mr Lincu first instructed solicitors on 15 December 2011 after he had been served (on 29 November 2011) with a Notice to Caveator of Proposed Lapsing of Caveat with respect to the Caveat.

On 16 December 2011, Mr Lincu commenced the 2011 Proceedings by Summons, and then filed a Statement of Claim on 22 December 2011 (which was subsequently amended on 24 October 2012).

The 2011 Proceedings were heard before Lindsay J on 26-29 August 2013 and on 28 May 2014 orders were made and reasons for judgment given, in Lincu v Krnjulac [2014] NSWSC 532.

By deeds dated 16 October 2014 and 17 December 2014, Ms Veres replaced Mr Kovacevic as a trustee.

On 7 May 2015, the Credit Union (as mortgagee) sent Notices of Default to Mr Krnjulac and his sons.

On 25 June 2015, the Credit Union commenced the present proceedings (proceedings no. 2015/186766) by filing a Statement of Claim for possession of the Church Property and naming Mr Krnjulac and his sons as defendants.

On 11 September 2015, the Credit Union obtained judgment for possession of the Church Property.

On 29 September 2015, a Writ of Possession – Notice to Vacate was issued, and it was served at the Church on or about 20 October 2015.

On 22 October 2015, the Cross-Claimants’ solicitors wrote to the Credit Union’s solicitors, requesting the Credit Union’s consent to the judgment being set aside and the Cross-Claimants being allowed to defend it. They also requested that the Credit Union instruct the Sheriff to hold off taking any further action. The Cross-Claimants also requested production of the certificate of title to permit registration of a transfer from Mr Krnjulac and his sons to the Credit Union.

Following an exchange of correspondence in the period 27 October 2015 to 9 November 2015, the Cross-Claimants approached the Court for relief and, on 13 November 2015, White J (as his Honour then was) made orders on their application, including an order setting aside the order for possession.

On 2 December 2015, the Court of Appeal upheld an appeal from Lindsay J’s judgment in the 2011 Proceedings by Steve and Simon Krnjulac: Krnjulac v Lincu [2015] NSWCA 367. The Court of Appeal ordered, inter alia, that:

It was common ground between the parties before me, consistently with the findings in the Court of Appeal proceedings, that both the Transfer and the Mortgage were procured by a fraudulent breach of trust. That is, the parties agreed that it would be artificial to characterise the fraud by which the signatures were procured solely as a fraud and not also acknowledge or characterise it as a matter of fact as a breach of trust.

On 17 December 2015, a transfer without monetary consideration was registered and the Cross-Claimants again became the registered proprietors of the Church Property.

On 13 January 2016, the Credit Union filed an Amended Statement of Claim naming Mr Lincu, Mr Kovacevic, and Ms Veres as Fourth, Fifth, and Sixth Defendants (pursuant to orders made by Darke J by consent on 4 December 2015).

On 25 February 2016, the Cross-Claimants filed their defence to the Credit Union’s Amended Statement of Claim.

On 26 February 2016, Darke J granted leave to the Cross-Claimants to file a cross-claim against the Credit Union and, pursuant to RPA s 132(2)(b), joined the RG to the proceedings. Pursuant to that leave, on 15 March 2016, the Cross-Claimants filed the First Cross-Claim against the Credit Union and the RG.

Inquiries made by the solicitor for the Cross-Claimants during April and May 2016 led to the conclusion that the cross-claim against the Credit Union was bound to fail, because there was no evidence suggesting that the Credit Union was on notice of the Krnjulacs’ fraud. The Credit Union, by Notice of Motion, pressed for an order for possession and an order striking out the cross-claim against it.

In the period 21 April 2016 to 16 June 2016, the solicitors for Mr Lincu and Ms Veres received into their trust account funds from Mr Paul Pentsa, Mr Cedimir Bekic, Mr Lincu, and Mr Joseph Ruzeu totalling $654,292.22, as a loan to the Church to pay out the Credit Union to prevent the Credit Union from taking possession of the Church Property. The funds were a loan to the Church and security was required in the form of a transfer of the Mortgage to Messrs Pentsa, Bekic, Lincu and Ruzeu.

On 27 April 2016, Mr Krnjulac was made bankrupt.

On or about 24 June 2016, the Credit Union and the Cross-Claimants executed a Deed of Settlement and Release. The Cross-Claimants paid to the Credit Union the sum of $648,950.43, and the Credit Union gave the certificate of title for the Church Property, and a transfer of the Mortgage – executed by the Credit Union – to Messrs Pentsa, Bekic, Lincu and Ruzeu, and a deed of assignment to those same persons, also executed by the Credit Union.

On 8 July 2016, consent orders were filed as between the Cross-Claimants and the Credit Union, which included that the Credit Union’s Amended Statement of Claim be dismissed as against Mr Lincu, Mr Kovacevic, and Ms Veres; and that the First Cross-Claim, as against the First Cross-Defendant only (the Credit Union) be dismissed.

On 15 July 2016, the RG filed a Defence to the First Cross-Claim which had been filed on 15 March 2016 (see paragraph [42] above).

On 9 August 2016, the transfer of mortgage referred to in paragraph [46] above was registered and Messrs Pentsa, Bekic, Lincu, and Ruzeu became the mortgagees of the Church Property.

On 24 October 2016, the Cross-Claimants filed an Amended Defence to the Amended Statement of Claim and on 3 February 2017, they filed a Further Amended Defence to the Amended Statement of Claim together with an Amended Statement of Cross-Claim which, the parties agree, complied with UCPR r 19.5.

On 18 August 2017, the RG filed a Defence to the Amended Cross-Claim filed 3 February 2017.

On 9 April 2018 at the hearing before me, the Cross-Claimants filed a Further Amended Statement of Cross-Claim clarifying the heads of loss and damage (including interest) in respect of which they sought compensation.

While I intend to give primacy to the text of the Exception in the context of the RPA, in order to understand the parties’ submissions about the Exception it is convenient at this point to set out the legislative history of the relevant parts of the RPA and the authorities and other developments in chronological order.

To appreciate the purpose of, and policy basis for, the inclusion of the Exemption in its current form, one must have regard to the Real Property Act 1857 (SA) (the “SA 1857 Act”), the Real Property Law Amendment Act 1858 (SA) (the “SA 1858 Act”), the Real Property Act 1860 (SA) (the “SA 1860 Act”) and the Real Property Act 1861 (SA) (the “SA 1861 Act”), as well as the South Australian Real Property Law Commission Report in 1861. First, this focus on the South Australian material is necessary because little reference is made to the exception of trusts in any second reading speeches made in respect of the RPA and its amending acts. For example, the second reading speech delivered with respect to the Real Property Amendment (Compensation) Act 2000 (NSW), which enacted Pt 14 of the RPA in substantially its present form (see paragraph [93] below), only made limited reference to s 129(2)(f): “The exceptions provided in proposed sections 129(2)(b), (2)(f) and 2(g) are already made by the existing legislation” ((Mr Yeadon, NSW Legislative Assembly, Hansard, 3 May 2000, p 5188). Moreover, there was no explanation as to whether Parliament had in mind previous interpretations of s 133 (the predecessor to s 129(2)(f)) when drafting this section, nor were any policy justifications offered for its inclusion.

Second, as is apparent from the Sydney Morning Herald report of the Parliamentary debate regarding the Real Property Act 1862 (NSW) (dated 17 September 1862), New South Wales simply adopted the 1861 SA Act because the Torrens “system had been in successful operation in the surrounding colonies” and there was “little doubt that it would give public satisfaction, having the advantage of being a much cheaper system than that [which was] in operation” (Mr Plunkett). There was no further elaboration on the reasons for introducing the RPA or adopting the South Australian legislation, nor was there any explanation as to how the RPA was intended to operate. Therefore, it is necessary to turn to the South Australian Acts to examine the original policy justifications for their approach to trusts, and presumably NSW’s adoption of the same provision.

The Torrens Assurance Fund was first established under s 35 of the SA 1857 Act. Section 35 provided that the Assurance Fund could be used,

Section 92 of the SA 1857 Act provided:

Unlike the RPA, s 92 of the SA 1857 Act made no reference to anything like the Exception. The language of “fraud” and “deprivation”, however, is used. Moreover, whilst the Assurance Fund was not defined as the source of the compensation payable to the defrauded (former) registered proprietor, damages could be recovered from it where the fraudulent person failed to pay the damages awarded “within reasonable time”: s 96.

The SA 1857 Act did make some reference to trusts, including a form of specified registrable instrument called a “Bill of Trust”. There were other provisions in relation to trusts and trustees, including (in s 70) a covenant to be implied where an instrument was executed by a trustee solely in that capacity. None of these provisions survived the amendments worked by the SA 1858 Act.

The SA 1858 Act introduced sections that dealt expressly with trusts and trust instruments. Sections 46 and 47 provided for declarations of trusts and that trust instruments should be deposited with the RG, but not entered into the register-book:

Importantly, s 48 introduced the concept that where the words “no survivorship” were inserted into a trust instrument, those words operated to prevent a lesser number of trustees than named in the instrument from dealing with the land. Moreover, s 48 established that any changes to the nominated trustees must be noted in the register-book. Section 49 provided that:

The SA 1858 Act also contained provisions that dealt expressly with situations where a person has been defrauded by a fraudulent proprietor, and for suit to be brought against the Registrar-General if the fraudulent proprietor was dead or insolvent:

The SA 1860 Act was intended to “consolidate and amend” the law of real property and repealed the SA 1857 Act and the SA 1858 Act.

The SA 1860 Act included in s 41 what is now the familiar provision establishing that, except in the case of fraud, the estate of the registered proprietor is paramount:

Sections 72 to 76 of the SA 1860 Act were in almost identical terms to ss 46 to 48 of the SA 1858 Act, which dealt with the declaration of trusts, the exclusion of trusts from the register-book and the importance of the inclusion of the words “no survivorship” in a trust instrument (see paragraphs [60] and [61] above).

The provisions for suit in the SA 1858 Act were replicated, but not in exactly the same terms, by ss 120 to 122 of the SA 1860 Act:

In February 1861 a commission was appointed by the Governor of South Australia “to inquire into and report upon the measures (if any) that may be necessary to perfect the Act known as the “Real Property Act”.” The Commission included the Chief Justice, Sir Charles Cooper, and the Registrar-General, Mr Robert Richard Torrens, remembered today as the architect of Torrens title.

The Report of the South Australian Real Property Law Commission (the “SA 1861 Report”) includes a transcript of the evidence taken by the commissioners and records exchanges between Mr Torrens (as a member of the commission) and witnesses in respect of the protections afforded to trustees under the SA 1860 Act (see paragraphs [1783]-[1787], pp 95-96). One such exchange referred to the practice of the Bank of England not to take notice of trusts:

In the SA 1861 Report, the Commission commented explicitly on the protections (or lack thereof) afforded to trustees under the SA 1860 Act:

Based on the SA 1861 Report, the reasons why no additional notice was to be given in the legislation to trusts and trustees were that it was thought it would be complicated to administer (given that trusts could be altered from time to time) and that there was confidence that the existing measures of entering “no survivorship” (which prohibited the Registrar-General from giving effect to dealings with the property by a lesser number of Trustees than were originally nominated) and for caveats to be lodged by beneficiaries against dealings with the trust property (without their approval) were sufficient. That confidence appears in Mr Torrens’ second circular to users of the Real Property Act (reproduced on p 111 and following of the SA 1861 Report), which includes:

The relevant part of the SA 1861 Report is:

In his second circular to users of the SA 1860 Act Mr Torrens wrote:

In response to the SA 1861 Report, the South Australian government enacted the SA 1861 Act, which repealed the SA 1860 Act. The SA 1861 Act included provisions that no notice of trusts was to be entered in the register (s 66); a transfer to transferees could be marked “no survivorship” which words were to be entered in the register and on any subsequent certificate of title to be issued to those trustees (s 67); any settlor or beneficiary of a trust could lodge a caveat against land subject to the trust (s 81); a party deprived of land “in consequence of fraud” could bring an action for compensation (s 125); and if the defendant was dead or insolvent, the action could be brought against the Registrar-General as nominal defendant with damages to be paid from the assurance fund.

Section 132 was a new provision and stands as the original ancestor of the Exemption:

In the South Australian Parliamentary Hansard (5 November 1861, p1107-1108), introducing the SA 1861 Act, no reference was made to s 132. Moreover, the Assurance Fund, and the policy supporting it, was only mentioned in the debate very briefly:

The 1862 NSW Act was in almost identical terms to the 1861 SA Act and included:

The 1862 NSW Act was, with one exception, not relevantly amended before 1900. The exception is s 12 of the Real Property Further Amendment Act 1877 (NSW):

The RPA was a consolidation act and there was no debate on it at the time. In the Legislative Council it was noted of it and the other consolidation bills introduced at the same time that they were "certified by Mr C G Heydon as being absolutely in accordance with the present law, except that they are in a consolidated form" (Legislative Council, Hansard, 29 August 1900, p 2362). Charles Gilbert Heydon, sometime Attorney-General and later District and Supreme Court judge, oversaw the consolidation of hundreds of pieces of NSW legislation between 1896 and 1902.

In its original form, the RPA continued to provide that “The Registrar-General shall not make any entry in the register-book of any notice of trusts, whether expressed, implied, or constructive” (s 82(1)). It maintained the capacity for a beneficiary of a trust to lodge a caveat (notwithstanding the deletion of the word “beneficiary” from s 72) and the “no survivorship” provision (s 84). Notably for present purposes, it included:

Baalman’s The Torrens System in New South Wales (Law Book Co of Australasia Pty Ltd, 1951) offers an extensive consideration of what has become the Exception (at pp 412-414; citations omitted):

Baalman’s commentary reveals similar policy concerns as those propounded in favour of the trust exemption in the SA 1861 Report. Again, the inclusion of the trust exemption reflected the policy that it was not for the RG to provide a further protection for breaches of trust and that trusts were already afforded sufficient protections.

Section 84 of the RPA as originally enacted contained the provision permitting the “no survivorship” entry. This was repealed by the Real Property Amendment Act 1970 (NSW), which deleted the "no survivorship" provisions in s 84, but preserved those already entered on the register by introducing what is the current s 84:

That amending legislation was the product of a substantial review of the law. The Minister of Justice, in moving the bill, explained the purpose of the amendment of s 84 (NSW Legislative Assembly, Hansard, 26 Feb 1970, p 3661):

In 1977, s 133 and its related provisions were considered by the Court of Appeal in Parker. Glass JA and Mahoney JA each delivered a judgment, while Street CJ agreed with both of them (which adds a complication insofar as the two judgments are not completely consistent in their analysis of causation).

The Cross-Claimants rely heavily on this passage from Glass JA (at 27) :

The also rely on these passages from Mahoney JA (at 30-33):

Although the Real Property (Torrens Assurance Fund) Amendment Act 1992 (NSW) made no amendment to s 133, the Cross-Claimants pointed to the second reading speech as evidence for the argument that there is no support for the proposition that some victims of fraud deserve compensation while others do not, and that this proposition does not sit easily with the policy basis of the Assurance Fund.

In the debate of the bill, Mr Martin (Member for Port Stephens) emphasised that:

What emerges from this excerpt from the second reading speech is that the only circumstance in which the Parliament has provided for fraudulent conduct not to be compensable by the RG is to the extent that the conduct is compensable from other sources. This is not however inconsistent with the policy, or legislative purpose, that emerges from an examination of the legislative history of the provision, in particular with respect to its South Australian forebears. This was that beneficiaries were adequately protected by what was in the legislation and otherwise had sufficient rights, external to the RPA, which would allow them to be compensated without recourse to the RPA.

In 1988 the NSW Law Reform Commission was given the task of reviewing the compensation scheme under the RPA. It published its report in 1996 (NSW Law Reform Commission Report 76 (1996) – Torrens Title: Compensation for Loss) (the “1996 NSW Report”). I shall quote from various parts of the 1996 NSW Report in considering the parties’ submissions below. However, it is convenient at this point to note that the 1996 NSW Report does not expressly deal with the Exemption or the question of trusts at all.

However, its first four recommendations are significant for present purposes (emphases added) :

The 1996 NSW Report was also very critical of the drafting of then ss 126 and 127 (references omitted; emphases added):

The current form of the legislation with which these reasons are concerned (see paragraph [101] below) was substantially introduced by the Real Property Amendment (Compensation) Act 2000 (NSW) in response to the 1996 NSW Report. It involved the complete redrafting of Parts 13 and 14 of the RPA. The second reading speech included (Mr Yeadon, NSW Legislative Assembly, Hansard, 3 May 2000, pp 5187-5192) (emphases added):

The Cross-Claimants relied on the underlined passage from the second reading speech set out in the preceding paragraph to support their argument that the legislation and legislative history provide evidence of a Parliamentary intention that the purpose of the Fund (and its enacting legislation) was to provide insurance, and assurance, for all people affected by fraud.

As submitted, in my view correctly, by the RG, the reference to claims being made “easier” must be understood in context. That is, the two key reforms contained in Pt 14 were, first, to introduce an administrative compensation scheme and, second, recast the compensation provisions in unambiguous language in a clearer legislative framework. “Easier” refers to administrative ease and improved ability to understand the provisions, not an easing of whatever may have been past restrictions on actually obtaining compensation from the Fund.

There has been one further relevant piece of legislative reform since the complete redrafting in 2000. Parts 13 and 14 were amended by the Real Property and Conveyancing Legislation Amendment Act 2009 (NSW). Of particular importance for present purposes was that paragraphs RPA 129(2)(e)-(i) (i.e. including the Exemption) were amended by deleting “the extent to which” and inserting “where”. The new paragraphs added by the amendment (RPA 129(2)(j)-(o)) all also commence with “where”.

These changes were part of a series of amendments which, the second reading speech makes clear, were intended to “tighten up” or limit the circumstances in which the Fund would respond to claims (Mr B Collier, NSW Legislative Assembly, Hansard, 25 March 2009, pp 13769-13772) (emphases added):

The approach I respectfully propose to adopt is that set out by the plurality in Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355:

I also have borne in mind this observation of the plurality in Lacey v Attorney-General (Qld) [2011] HCA 10; (2011) 242 CLR 573 (citations omitted):

Finally, I have applied these provisions of the Interpretation Act 1987 (NSW) (the “IA”):

These are relevant provisions of the RPA in their current form and which are the subject of these reasons:

Before turning to consider the particular arguments of the parties, and given the length of these reasons, it is convenient at this point to set out the Court's essential conclusions.

The parties agree that the facts of this case satisfy RPA s 120(1)(a). The Cross-Claimants have suffered loss and damage as a result of the operation of the RPA, by the registration of the Transfer and the Mortgage, in respect of land, and that loss or damage arose from the fraud of Mr Krnjulac who procured Mr Lincu's signature on the transfer documents. There is no doubt that this was a fraud worked by a registered proprietor of the subject land.

It follows that the Cross-Claimants are entitled to a payment of compensation from the Fund under RPA s 129(1) unless that entitlement to compensation is negatived by s 129(2). I accept the RG's basal submission that giving effect to the clear structure of s 129 in the context of Parts 13 and 14, and when the words in s 129 are given their natural and ordinary meaning in that context, the Cross-Claimants’ entitlement under s 129(1) is negatived by s 129(2)(f)(i). The recourse to extrinsic materials and legislative history in these reasons is really an application of s 34(1)(a) of the IA.

Even without the benefit of the 1996 NSW Report and the consequential amending legislation in 2000, it is obvious that Parts 13 and 14 have been completely rewritten and a new structure has been adopted. The 1996 NSW Report and the second reading speech for the 2000 legislation support that conclusion. In my respectful opinion Part 14 must be read uninfluenced by what has gone before. Looking at the structure and words of s 129, I accept the RG's submission that it clearly and unambiguously contains two parts which operate concurrently and invite a two stage inquiry.

The first stage of the inquiry is: does the claimant satisfy some part of s 129(1)? Section 129(1) may be referred to as the entitlement gateway. If, as here, one of the circumstances in that section is satisfied, then the claimant "is entitled to payment of compensation" from the Fund.

The second stage of the inquiry is: notwithstanding having established an entitlement under s 129(1), is the amount of compensation which would otherwise be payable, not payable (in whole or in part) by reason of any of the provisions in s 129(2)? Section 129(2) may be referred to as a negativing or disentitling provision. In this case that question must be answered "yes". Compensation is not payable to the Cross-Claimants because their loss or damage arises from the breach by a registered proprietor (Mr Krnjulac) of a trust (or, in this case, two different trusts - the charitable religious trust pursuant to which he originally held the Church Property and a constructive trust pursuant to which he held it after he had wrongfully transferred it to himself and his sons).

Because of the entirely sensible way in which the parties approached this aspect of the litigation, namely the acceptance that if the Exemption did not apply then the Cross-Claimants were entitled to compensation from the Fund, the argument was primarily directed to whether the Cross-Claimants’ construction of the Exemption was correct. If the Cross-Claimants’ were wrong, then (subject to the Cross-Claimants’ third argument – see paragraph [118] below) it was accepted that the causal relationship specified by “arises from” had been satisfied. Because of this approach the precise content of “arises from” was not the centre of attention.

Nevertheless, it seems to me that in dealing with the parties’ arguments, including the Cross-Claimants’ third argument, it is necessary for the Court to come to a view not only about what “arises from” does not mean, but also what it does mean. In my respectful view, the proper construction of the words "arises from" in the Exemption is their natural and ordinary meaning in their context: the words mean a causal connection between two or more events or circumstances which is more than de minimis, but not necessarily direct or proximate, and not too remote. See, for example, the cases referred to in paragraph [157] below. They are words of a wide import, not of direct or proximate causation. Furthermore, in the context of the Exemption, they do not connote exclusivity of the causal connection: there may be more than one cause of a relevant event or circumstance which "arises from" an anterior event or circumstance.

I have taken into account, and consider what I have said in the preceding paragraph to be consistent with, the summary of the law in relation to s 129(1) by Austin J in Kirkland v Quinross Pty Limited [2008] NSWSC 286; (2008) 14 BPR 26,979:

The Cross-Claimants relied on the judgment of Glass JA in Parker for the proposition that the chapeau in s 129(2)(f) should be read as meaning "where the loss or damage solely arises from". There are three reasons why I do not regard that part of the decision in Parker as relevant or binding in relation to Part 14 as it now stands:

The RG's construction is also supported by the fundamental and historical position of the Torrens legislation that trusts are not recorded on the register and are accorded quite specific but minimal recognition. The Torrens scheme is based on indefeasibility by registration. It would be illogical and ahistorical to construe s 129 as permitting compensation where a cause of loss and damage is breach by a registered proprietor of something which the RPA expressly provides is not to be included in the register in relation to that registered proprietor.

The conclusion I have reached also gives effect to the purpose of the new statutory scheme. It is intended to be an administrative scheme, clearer than the old legislation, able to be administered directly by the RG and designed to minimise recourse to the Court. The administrative scheme is established by RPA s 131 and its primacy as the preferred course over proceedings in the Court is made clear by s 132. In my respectful view, this means that s 129 must be construed to facilitate that object by giving the words of the section the meaning they have on their face and, in particular, avoiding a construction which leaves open complex factual and legal arguments in the notoriously difficult area of causation.

Finally, while the parties focused on “arises from”, I am also fortified in this conclusion by the 2009 amendment of the legislation which changed the opening words of the Exemption from “to the extent to which” to “where”. “Where” as a matter of ordinary English suggests an absolute bar if the specified circumstance exists, and I construe it in that way. That construction is confirmed by the change itself and the express intention set out in the seconding reading speech (see paragraph [97] above) that the purpose of the amendments was to limit possible claims on the Fund, not to expand them.

This amendment points decisively against the case made by the Cross-Claimants. Under the previous language of “to the extent to which”, it would have been open to them to argue that where both fraud and breach of trust were causes of the loss and damage, some apportionment was possible (including to the extent of saying, as they do in their third argument (see paragraph [118] below), that the breach of trust was merely incidental rather than causative) so that their recovery might only be minimally reduced by s 129(2), if at all.

To uphold the construction of “solely arising from” now contended for by the Cross-Claimants would be to circumvent the effect of the 2009 amendment, which was to remove the possibility of multiple causes being taken into account. In my opinion the introduction of “where” in lieu of “to the extent to which” confirms that the Exemption is intended to operate in any circumstance where there has been a breach of trust irrespective of the role of another cause such as fraud. By way of contrast, the 2009 amendment left untouched “to the extent to which” prefacing RPA paragraphs 129(2)(a)-(d), which is completely explained by the fact that each of those relate to circumstances which logically lend themselves to dissection of responsibility.

The considerations I have referred to in paragraphs [112] to [116] above are also why I reject the Cross-Claimants' alternative interpretation, being that s 129(2)(f)(i) be understood to mean "the non-fraudulent breach by a registered proprietor of any trust". Again, neither the natural and ordinary meaning of the words, the context in which they appear, nor any other consideration supports a construction to that effect. “Breach of trust” means breach of trust of any kind.

Finally, notwithstanding the agreement of the parties that fraud and breach of trust were both causes of the Cross-Claimants' loss and damage, it is necessary to deal with the Cross-Claimants' argument that, as a matter of fact, the “true cause” of their loss and damage was Mr Krnjulac’s fraud and that his breach of trust was merely incidental. I disagree. It is clear from the Schedule that the critical steps which led to the Cross-Claimants' loss and damage were as much breaches of trust as acts of fraud. That conclusion is consistent with, and fortified by, the descriptions in the Court of Appeal in this litigation in Krnjulac v Lincu [2015] NSWCA 367 of "fraudulent breach of trust" (per Bathurst CJ at [2], Leeming JA agreeing at [26]; and per Emmett AJA at [28]).

Although the parties agreed that s 129(1) was satisfied in this case, some submissions were addressed to it because, as I accept, s 129 must be construed as a whole in its context. Perhaps somewhat regrettably given the stated purposes of simplicity and clarity, it is notable that s 129(1) contains not one, but three statutory expressions of causal relationship, what French CJ has referred to as "ambulatory words" where "the nature and breadth of the relationship they cover will depend upon their statutory context and purpose" (R v Khazaal [2012] HCA 26; (2012) 246 CLR 601 at [31]). Those expressions are "as a result of", "arises from" and "as a consequence of". To add to this cornucopia, s 129(2) also introduces "in relation to".

The opening words of s 129(1) "any person who suffers loss or damage as a result of the operation of this Act in respect of any land…" require identification of the "loss or damage" and the "loss or damage" must have been "a result of the operation of this Act". As noted by Bryson J in Challenger Managed Investments Ltd v Direct Money Group Pty Ltd [2003] NSWSC 1072; (2003) 59 NSWLR 452; ("Challenger") at [74]:

In interpreting the meaning of "as a result of this Act", it was held in Diemasters Pty Ltd v Meadowcorp Pty Ltd [2001] NSWSC 495; (2001) 52 NSWLR 572 at [31] and [34], that an unregistered interest in property was still capable of being characterised as "loss or damage as a result of the operation of the Act" as "[i]t is quite unlikely that [Parliament] intended to make access to the Assurance Fund more restrictive than under the old s 126, which it replaced" and where the reference to a person being "deprived of …any interest in the land" included deprivation of an unregistered interest (see also Robinson v Registrar-General (1982) 2 BPR 97154; (1983) NSW ConvR 55-138 (57,002)).

The present case however deals exclusively with registered interests in land and therefore comes directly under RPA s 129(1). Despite transfer documents being fraudulently obtained, Mr Krnjulac and his sons were able to register a transfer of title, become the registered proprietors of the Church Property and in their capacity as such, grant the Mortgage over the Church Property, later defaulting in making the required mortgage repayments. The loss or damage arising from the operation of the RPA is the liability acquired by Mr Lincu and the other original trustees upon Mr Krnjulac and his sons' default in repaying the Mortgage.

Section 129(1) then sets out that the "loss or damage" must arise out of one of the listed circumstances set out in sub-section (1). In this case, the relevant circumstance is that described in s 129(1)(e), being that the loss or damage arose from "the person having been deprived of the land, or any estate or interest in the land, as a consequence of fraud". As summarised by Bryson J in Challenger at [75]:

In address, the RG submitted that the words "arises from" and also the language of "as a consequence of fraud" supported the proposition that the causation test applied in s 129(1) was that the fraud must be "a material operating cause" of the person suffering loss or damage as a result of the operation of the RPA.

The statutory meaning of the words "arises from" is considered below in the context of the Exemption.

In Parker (at 26), Glass JA (Street CJ agreeing) set about interpreting the meaning of the word "deprived" as it was then referred to in s 126(1)(a). He held that it was not limited to an involuntary disposition, but rather that a person may be deprived of their land, notwithstanding that they have voluntarily parted with it under the influence of fraud (see also Registrar-General v Behn [1980] 1 NSWLR 589). Moreover, Mahoney JA in Parker found that it was enough that the plaintiffs in that case were "deprived of the land" as a result of the transfer, procured by fraud, in favour of a company and by the registration of that company as registered proprietor of the property in issue (at 28).

It was submitted by the RG in the present case that one of the components of s 129(1)(e) that had to be considered was that the relevant deprivation of the land must be "a consequence of fraud". It was argued that the use of the indefinite article "a" rather than the definite article "the" meant that "there may be other factors that have been at play in terms of depriving a person of land or an interest, but one need only be able to say that a material or operating cause of the loss included fraud, and it's 'a' consequence, not 'the' consequence of fraud" (Transcript, p 46).

In s 126(1), the section which the present s 129 of the RPA replaced, the words "in consequence" were used rather than "a consequence". In Parker, Mahoney JA at 30 made the following comments regarding the meaning of "in consequence":

In my view, the use of the phrase "a consequence", rather than "the consequence", should be given the meaning proposed by the RG because that is the natural and ordinary meaning in this context of the indefinite article. That is, any person who is deprived of an interest in land because of the fraud of another person who takes a registered interest, irrespective of whether deprivation was just one of many consequences of that fraud, is entitled to compensation. This interpretation of the phrase is not inconsistent with that of Mahoney JA in Parker, but also reflects the change of language from s 126 to the present s 129 of the RPA. I also accept the RG’s language of “material or operating cause”, because “consequence” denotes a more direct or proximate causal relationship than “arises from”.

Fraud has been interpreted broadly for the purposes of s 129(1). In Parker at 25 (Street CJ agreeing), Glass JA provided the following explanation of "fraud" in respect of s 126(1) (the predecessor to s 129 of the RPA):

Upon the claimant establishing that they have an entitlement to compensation under s 129(1), the claimant is confronted with the limitations and exclusions that apply under s 129(2). Section 129(2) provides that compensation is not payable "in relation to any loss or damage" suffered by any person where one or more of the listed circumstances are applicable. There was no argument in this case about the scope of the words of connection "in relation to", being "a phrase that can be used in a variety of contexts, in which the degree of connection that must be shown between the two subject matters joined by the expression may differ": Travelex Ltd v Federal Commissioner of Taxation [2010] HCA 33; (2010) 241 CLR 510 per French CJ and Hayne J at [25]. It is therefore not necessary for me to say any more about it.

In this case, the argument turned on the applicability of the Exemption, with the critical issue being the constructional choice said to be posed by the words "arising from". I note in passing that no party suggested the constructional choice was affected by the fact that "arises from" in the Exemption relates to both sub-paragraphs of s 129(2)(f).

The Cross-Claimants argued that the chapeau contained in s 129(2)(f) - "where the loss arises from" - should be construed as if the word "solely" was inserted so that it reads "where the loss arises solely from the breach by a registered proprietor of any trust…", or should be read as having the same meaning as the words "occasioned by". The decision in Parker, as well as parts of the 1996 NSW Report, were relied on as supporting this interpretation. Moreover, it was said to be clear from the structure of the legislation and the legislative history that the Fund was intended to provide insurance, and assurance, for people who have been affected by fraud.

In contrast, the RG submitted, and I accept, that the interpretation proposed by the Cross-Claimants is too narrow and does not reflect the natural, ordinary and unambiguous meaning of the words "arises from" in the context in which they appear. The words "arises from" imply a wider pool of causation that covers multiple causes, making it difficult to imply into the section the word "solely". Moreover, it was submitted the difference between the wording of s 129(2)(f)(i) in its current form and s 133, as it was at the time of the decision in Parker, is sufficient for the Court to conclude that it is not bound by Parker. It was also submitted that those parts of the 1996 NSW Report that were identified by the Cross-Claimants as supporting their interpretation of s 129(2)(f)(i) are directed to the broad definition of "fraud" adopted in Parker, rather than preserving the application of the Parker decision, in its entirety, to the section in its current form.

In the alternative, the Cross-Claimants argued that the RG’s literal interpretation of the section could be overcome if the "breach" referred to in s 129(2)(f)(i) was read as a "non-fraudulent" breach.

Finally, the Cross-Claimants submitted that on the facts of this case, it was mere happenstance that Mr Krnjulac was a trustee and that the “true cause” of their loss and damage was his fraud.

As stated above, with respect to the words "where the loss arises from", the Cross-Claimants argued that the word "solely" should be inserted so that it reads "where the loss arises solely from the breach by a registered proprietor of any trust…" Alternatively, it was submitted that the phrase should be read as having the same meaning as the words "occasioned by".

The Cross-Claimants argued that Parker supported this proposed interpretation of s 129(2)(f). Parker was a decision made in respect of s 133(a), the predecessor of the present s 129(2)(f). Relevantly, s 133(a) did not contain the phrase "arises from", rather it used "occasioned by". It will be recalled that in Parker, Glass JA held (at 27) (Street CJ agreeing):

Moreover, the Cross-Claimants submitted that the re-enactment of the Exemption in s 129(2)(f) did not change the test of causation expounded by Parker. Mr Knoll referred to paragraphs [2.13] and [4.27] of the 1996 NSW Report, together with Recommendations 3 and 4, for the proposition that not only was Parker correct, but that Parliament intended that "it ought be preserved" (Transcript, pp 39-40) as s 129 was introduced in response to the 1996 NSW Report.

In paragraph [2.13] of the 1996 NSW Report, Parker is referred to:

In paragraph [4.27], Parker is referred to:

Recommendation 3 and 4 are set out in paragraph [91] above. Each of the recommendations found expression in s 129. Recommendation 3 was reflected in s 129(1) and the first part of recommendation 4 in s 129(2)(a).

In particular, the Cross-Claimants argued that paragraph [2.13] and Recommendation 3 referred to the "generous meaning" to Parker and that this "generosity" of meaning suggested that the Parliament did not intend for Parker to be cut down in any way (Transcript, p 40).

In my view, however, the RG's submissions correctly identified why the Cross-Claimants' submissions should be rejected.

First, the treatment of Parker in paragraphs [2.13] and [4.27] of the 1996 NSW Report is confined to the interpretation of "fraud" for the purposes of the compensation provisions of the RPA in the predecessor provisions to Pt 14 of the RPA, rather than examining or accepting the causation test applied Parker.

Second, RPA s 129(1)(e) contains no definition of "fraud" so it is likely that the references to the Parker decision merely reflected Parliament accepting the judicial interpretation of "fraud", as articulated by Mahoney JA in Parker, for the purposes of compensation claims.

Third, the recommendations relied upon by the Cross-Claimants do not directly interact with Parker, or the causation test applied in Parker. For what it may be worth, the language of "arising out of" rather than "occasioned by" is used in Recommendation 2.

Fourth, the reference to "generosity" in paragraph [2.13] appears to be referring to the generosity in the interpretation of "fraud", as the quoted passage from Parker pertains to this issue, rather than engaging with, or preserving, the causation test applied in Parker.

Next, the Cross-Claimants submitted, with references to the treatment by Parliament of the "mischief" in Voudouris v Registrar-General (1993) 30 NSWLR 195 (“Voudouris”), that if Parliament "thought there was a mischief in the ratio of Parker, they could have done that with Parker as well. They didn't" (Transcript, p 40). In the course of making its recommendations, the Law Reform Commission made it clear that it sought to overcome the decision in Voudouris, in which it was held that the former s 127 applied in case of error, omission or misdescription where the plaintiff suffered damage as a result of purchasing property in reliance on an erroneous statement of the dimensions of the property, rather than on a misdescription that appeared on the title itself. Thus, the Cross-Claimants argued, having identified a particular mischief in the decided case, the Commissioners, and as a result Parliament, overcame the mischief by specifically legislating on that issue.

In response, the RG argued that, first, it was a "stretch" of the "legal imagination" to assume "close scrutiny [by the Parliament] of all judicial decisions" and that it should not necessarily be accepted that the courts should "infer from [a] later amendment or re-enactment of statutory provisions that Parliament had accepted the construction placed on such provisions by the courts" (Fish v Solution 6 Holdings Limited [2006] HCA 22; (2006) 225 CLR 180 at [125]).

Second, it was submitted that, in Parker, the trust exception failed on the facts as the original default was not that of a registered proprietor at the relevant time and therefore "no occasion sensibly arose to amend that aspect of the legislative provision".

Third, it was suggested that, given the divergent reasoning in Parker, including Glass JA's focus on what his Honour considered to be the mutually exclusive operation of ss 126(5) and 133(a) (which his Honour resolved by reading "occasioned by" to mean "solely occasioned by") and Mahoney JA's consideration of "occasioned by" as it applied to the factual context, care must be taken when discerning the ratio and applying the decision in Parker. In my view, in light of the following reasons, the RG's submissions summarised in this and the two preceding paragraphs should be accepted.

There is longstanding authority which supports the proposition that where the Parliament repeats words which have been judicially construed, it is taken to have intended the words to bear the meaning already "judicially attributed to them" (Re Alcan Australia Limited; Ex parte Federation of Industrial, Manufacturing & Engineering Employees Union [1994] HCA 34; (1994) 181 CLR 96 at [106] (“Re Alcan”). This authority however has been questioned, and it has been held that the re-enactment of identical or similar statutory words should be just one of many factors considered in any statutory interpretation exercise (ibid). In the present case, and contrary to Re Alcan, there is nothing in the legislative history of the RPA, or in the 1996 NSW Report preceding the amending legislation in 2000 which introduced s 129(2)(f), that indicates an intention on the part of Parliament that the language of s 129(2)(f), and in particular the phrase "arises from", should be interpreted consistently with the decision in Parker.

The 1996 NSW Report makes no reference to trusts. As I have already noted, references made to Parker in the 1996 NSW Report were limited to Mahoney JA's interpretation of "fraud". The legislative scheme in the current Part 14 is different to that considered in Parker, different words of causal connection are used and former s 126(5), which was at the centre of Glass JA's reasoning, is no longer part of the RPA. The legislative history which I have earlier set out in these reasons and the consistent policy since the inception of the Torrens scheme not to recognise trusts, all support "arises from" being given their natural and ordinary meaning which does not include the sense of "solely". In short, for these reasons in my respectful view, Parker no longer represents the law on this point of causation and is neither binding nor persuasive.

It was also argued by the Cross-Claimants that there is no material difference between the phrases "occasioned by" and "arises from". In support of their submissions, the Cross-Claimants referred to the following authorities:

In address, Mr Knoll also referred to Kavanagh v Commonwealth [1960] HCA 25; (1960) 103 CLR 547 at 583-584:

However, I do not agree that there is no material difference between the two phrases. There are other authorities that support the proposition that "arises from" can encompass multiple causes and which, in my respectful view, are examples of the meaning to be given “arises from” in this case. These include, for example:

The diverging definitions adopted in different cases and statutory contexts in respect of the words "arises from" or “arising out of” reveals the often problematic process of applying decisions about a particular word or phrase in differing statutory or contractual contexts. Leeming JA, after noting that a judge's construction of a provision began with references to dictionary definitions and constructions given to the word "unlikely" in a range of statutory contexts, observed, in a passage which I respectfully adopt, in TAL Life Ltd v Shuetrim [2016] NSWCA 68; (2016) 91 NSWLR 439 at [80]:

In the present case, in my view, the RG's proposed interpretation of the section is supported by the text and the purpose of the legislative provision as revealed by its legislative history. As the cases referred to in paragraph [157] above indicate, it is open to the Court to find that the phrase "arises from" encompasses a greater number of causes than the words "occasioned by". Moreover, the history of the provision indicates that the Fund was never intended to provide protection in instances of breach of trust. Thus, it is also open to the Court, in taking, as it must, a purposive approach to the statutory interpretation exercise, to find that, consistent with the identified policy basis for the Exemption, the words "arises from" should be given a broad meaning that prevents recovery from the Fund where one cause of the loss and damage sought to be claimed from the Fund is a breach of trust by a registered proprietor, notwithstanding that another cause of the same loss and damage is fraud by that registered proprietor.

There were three other arguments raised by the Cross-Claimants.

First, the Cross-Claimants relied on the New Zealand decision of Brewer J in Schmidt v Registrar-General of Land [2015] NZHC 2015; [2016] 2 NZLR 121. I do not think this assists the Cross-Claimants for three reasons. First, the provision his Honour was considering was in terms based on the former s 133 (“under any circumstances…occasioned by”) which is no longer the case here. Second, it is clear from his Honour’s judgment at [29]-[30] that in reaching a conclusion which supports the Cross-Claimant’s construction, the main reason for that conclusion was his Honour’s reliance on s 175 of the legislation he was considering, which has no equivalent in RPA Parts 13 and 14. Third, his Honour’s decision was made in the context of a strike out application rather than a final determination of the issues between the parties.

Second, they submitted that the reference in RPA s 129(2)(b)(i) to the “fraudulent, wilful or negligent” conduct of a “solicitor, licensed conveyancer, real estate agent or information broker” showed that if Parliament wanted to exclude fraudulent conduct, it could say so explicitly. I do not think that assists in resolving the construction of the Exemption for at least two reasons. First, the Exemption is directed to the conduct of registered proprietors; s 129(2)(b)(i) is directed to the conduct of professional intermediaries. Second, when read with s 129(2)(b)(ii), it is clear that the reference to “fraudulent, wilful or negligent” conduct has been drawn advisedly to refer to matters which are commonly the subject of professional indemnity insurance, with the intention of ensuring the Fund is not required to pay out to the extent that recovery is available from an insurer. Collaterally, s 133(1) protects the fund from subrogated claims by insurers.

Third, the Cross-Claimants submitted that the RPA has been judicially accepted as "beneficial legislation" and that the RG's approach to the present statutory construction exercise was a return to literalism and inconsistent with a beneficial construction of s 129. In particular, the Cross-Claimants referred to Saade v Registrar-General (NSW) [1993] HCA 73; (1993) 179 CLR 58 at 68 ("Saade"), in which the High Court had to decide on competing construction of ss 126(2)(b) and 126(3) (the predecessors to s 129(1)). In that case, the High Court chose to adopt the construction which preserved the "essential protection to persons who are defrauded" (ibid). Moreover, the Cross-Claimants referred to Registrar-General v Harris (1998) 45 NSWLR 404 at 416 ("Harris"), in which Mason P referred to s 126 in the following terms:

As the RG, in my view correctly, submitted both the abovementioned cases only dealt with provisions directed to remedies available for persons affected by fraud and mistake within the Torrens system, specifically "the category of persons against whom the statutory cause of action will lie" (Saade at 67), without dealing with provisions expressly limiting or excluding the payment of compensation in respect of an otherwise established entitlement. Moreover, although Mason P said in Harris that that compensation principle was "one of the key planks of the Torrens System", what is revealed from an examination of the legislative history is that the compensation scheme has been subject to limitations, including to the effect of the Exemption, from its earliest days.

An alternative argument put by the Cross-Claimants was that the words "breach of trust" in s 129(2)(f)(i) should be read as referring to only "non-fraudulent" breaches of trust.

In my respectful view, however, there is no ambiguity in the statutory language that would expose the statutory text to the meaning proposed by the Cross-Claimants and the considerations which I have set out in relation to “arises from” apply equally against this argument. Section 129(2)(f) is not confined in its terms or operation to unauthorised conduct which is fraudulent. Rather, compensation is excluded for any loss or damage arising from any relevantly unauthorised conduct falling within the provision (breach of trust of a registered proprietor), whether innocent, negligent or fraudulent. If there is a limitation on the kinds of breaches of trust that are encapsulated by s 129(2)(f)(i), it is only that a breach of trust must have been committed by a registered proprietor. Moreover, there is nothing in the legislative history of the provision, or the revealed policy basis for the Exemption, which would indicate that the "breach of trust" referred to in the provision should be limited to "non-fraudulent breaches of trust".

This was the third way in which the Cross-Claimants put their case. For the reasons set out in paragraph [118] above, this argument is rejected.

The RG has made out its case that the Exemption affords the RG a complete defence against the Cross-Claimants. The cross-claim will be dismissed and the Court will hear the parties as to costs.

In conclusion, I wish to make clear that I have not overlooked the fact, having regard to the history which I have set out at length above, that it could be said that the two main methods said to be protective of trusts in the scheme of the RPA have no application in this case. The possibility of a "no survivorship" entry no longer exists. Insofar as a caveat is concerned, ordinary members of the Church would not have been able to lodge a caveat because they did not have an interest in the Church Property. A charitable trust for the advancement of religion is a trust for purposes and not persons. The other trustees could have lodged a caveat as registered proprietors, but it is difficult to see why they should have done so. Insofar as there was a breach of constructive trust, the beneficiaries of such a trust often become aware of their interest only after the proverbial horse has bolted. That is what happened in this case.

It could also be observed that the use of trusts in society generally has grown far beyond what might have been imagined by R R Torrens and his contemporaries, including the Mr Freshfield of an earlier generation referred to in paragraph [70] above. Some of the modern problems posed by the use of trusts have been the subject of the recent NSW Law Reform Commission Report 144 - Laws Relating to Beneficiaries of Trusts.

Finally, to some observers the outcome of this case may seem harsh or unfair.

Nevertheless, it remains fundamental to the RPA that there is no notice of trusts and the Exemption is carefully drawn to be limited to the conduct of registered proprietors. Whether that should be revisited, as a result of the view I have taken in this case, or because of the matters identified in the preceding three paragraphs, is not something which is relevant to the construction of the Exemption. Those matters may be sufficient to invite the attention of law reform authorities when the operation of the RPA is again considered, as history suggests it inevitably will be. However, in my respectful opinion, especially given the involvement of a charitable trust, those matters are sufficient to invite consideration by the RG as to whether he should make a recommendation to the Minister that the Minister should direct that an ex gratia payment of compensation should be made to the Cross-Claimants from the Fund pursuant to RPA s 130(1).