Christopher Mel Chamberlain trading in his capacity as liquidator of Gerard Cassegrain & Co Pty Ltd (in liq) (ACN 000342174) v Felicity Cassegrain

1. [1]

   This matter concerns competing claims pursuant to Div 6 of Part 4 of the Conveyancing Act 1919 (NSW) by the co-owners of the land described in Folio Identifiers 4/792413, 117/754434, 118/755434, 124/754434, 174/754434, 1/798316, 115/754434 and 2/720827 (the Property). This property is known as “the Dairy Farm”.

2. [2]

   The proceedings were commenced by summons filed by the liquidator (Liquidator) of Gerard Cassegrain & Co Pty Ltd (the Company) on 19 April 2015. The defendant filed an amended cross-claim in the proceedings on 5 June 2015.

3. [3]

   On 24 July 2015 consent orders were made appointing trustees for sale to the portion of the Property described in Folio Identifiers 4/792413, 117/754434, 118/755434 and 124/754434 (the Farm lots).

4. [4]

   On Friday 13 November 2015 the defendant put on a motion that she and her expert, Mr Andrew Hood, be cross examined by audiolink because neither could make themselves available in Sydney. I should note that videolink was not available from the particular location. This application was rejected. In the course of the discussion it was left open to the defendant to request an adjournment of the proceeding at the hearing, which was to commence on 16 November 2015.

5. [5]

   Later on 13 November 2015 the defendant indicated through her counsel that an adjournment application would not be made, and that she would not press the cross-claim for improvements or seek to read any of her affidavit evidence.

6. [6]

   As a consequence, the issues that remain between the parties are:

   1. (1)

      Whether trustees for sale should also be appointed for the sale of the remaining portion of the Property (the House lots);

   2. (2)

      Whether, instead of ordering a sale of the remaining House lots, the defendant’s cross-claim for partition should be upheld;

   3. (3)

      If the defendant’s cross-claim for partition is upheld, whether she is entitled to equality money “in an amount equal to any difference in the value between each portion of the Property as it is partitioned between the parties”;

   4. (4)

      Whether the trustees should pay amounts required to discharge registered mortgage AC489222 (from the defendant to the Commonwealth Bank) and registered mortgage AB54426 (from the defendant to Westpac Banking Corporation (Westpac)) from the defendant’s share of the proceeds of the sale of the Property; and

   5. (5)

      Whether in the circumstances the Liquidator should be prevented from further pursuing the defendant.

7. [7]

   On 16 November 2015 the representatives of the Commonwealth Bank wrote to the solicitors for the defendant indicating that, on the understanding that the order for partition sought by the defendant would not affect the security of the Commonwealth Bank, they did not object to the proposed orders to partition the Property. This will have relevance because of s 66G(4) of the Conveyancing Act 1919 (NSW).

Background facts

1. [8]

   The parties to these proceedings were recently the subject of a judgment of the High Court of Australia in Cassegrain v Gerard Cassegrain & Co Pty Ltd [2015] HCA 2 (Cassegrain). The following facts are not in dispute between the parties.

2. [9]

   The Property is a residential and farm property located near Port Macquarie in New South Wales with frontage on the Hasting River. The House lots comprise the defendant’s home and a small guest house, a closed road, and a fenced, vacant lot of land. The House lots have been appraised as having a sale value of between $1.3 and $1.7 million. The improvements made to the House lots are valued at $825,000.

3. [10]

   The Farm lots comprise around 29 hectares of undulating grass land, a small weatherboard cottage on around 17 hectares of land, 15 hectares with frontage on the Hastings River and mature pecan trees, and around 7 hectares also fronting the Hasting River and also with mature pecan trees.

4. [11]

   The Farm lots were passed in at auction on 17 October 2015. The fixtures on the Farm lots have been valued at a total of $210,000, and the total value of the improvements to the Farm lots at $350,000.

5. [12]

   The Company was the sole registered proprietor of the Property prior to around March 1997. In about March 1997 the defendant and her husband, Mr Claude Cassegrain, became registered proprietors of the Property as joint tenants pursuant to a transfer under the Real Property Act 1900 (NSW) from the Company (first transfer).

6. [13]

   The registration of this transfer was preceded by a resolution of the directors of the Company (in September 1996), who included Mr Cassegrain, to sell the Property and some other associated assets to Mr Cassegrain and the defendant as joint tenants. The directors further resolved, on the same date in 1996, that the Company should:

7. [14]

   In the High Court it was accepted that Mr Cassegrain’s actions in acquiring the Property were fraudulent because the Company never, in fact, owed him the amount recorded in the loan account created in the company’s books: Cassegrain [5]-[7].

8. [15]

   Following the resolution of the directors, but prior to the registration of the transfer, the defendant and Mr Cassegrain made various improvements to the Property, including installing a swimming pool and an extension to the main house.

9. [16]

   On the face of the March 1997 transfer a value of $1 million was attributed to the Property. However, by reason of the matters outlined above, nothing of value ever passed to the Company as a result of the transfer.

10. [17]

    On 24 March 2000 Mr Cassegrain transferred his registered interest in the Property to the defendant for consideration of $1 (second transfer). This severed the joint tenancy and left the defendant as the sole registered proprietor of the Property.

11. [18]

    On 15 October 2004 Westpac registered a mortgage over one of the Farm lots (Folio Identifier 117/754434).

12. [19]

    On 29 December 2005 the Commonwealth Bank registered a mortgage over two of the House lots (Folio Identifiers 1/798316 and 115/754434) (Commonwealth Bank mortgage). The Commonwealth Bank mortgage is presently at about $985,110.52.

13. [20]

    On 11 May 2007 the Westpac Mortgage became a “Westpac Equity Access Loan” (Westpac loan). The amount owing is currently $347,147.99.

14. [21]

    In September 2008 leave was granted to Mr Denis Cassegrain (one of the minority shareholders of the Company) to bring a statutory derivative action in the Supreme Court of New South Wales on behalf of the Company against Mr Cassegrain and the Company. This action sought orders requiring the defendant to transfer the Property to the Company and orders against Mr Cassegrain including equitable compensation for alleged breaches of his duties as a director.

15. [22]

    In Gerard Cassegrain & Co Pty Ltd v Cassegrain [2011] NSWSC 1156 Barrett J upheld the claims against Mr Cassegrain and dismissed the claims against the defendant. He found that there was no basis for any allegation that Mr Cassegrain had acted with the defendant’s actual or implied authority, and thus decided that the defendant held her interest in the Property free from fraud.

16. [23]

    The Company appealed against the order dismissing the claim against the defendant.

17. [24]

    The Court of Appeal allowed the appeal and declared that the defendant held the Property on trust for the Company. Orders were made requiring the defendant to execute a transfer of the land to the Company: Gerard Cassegrain & Co Pty Ltd v Cassegrain (2013) 87 NSWLR 284.

18. [25]

    The defendant appealed to the High Court. By majority, the High Court ruled that the defendant’s 1997 registered title as joint tenant was not defeasible on account of Mr Cassegrain’s fraud. However, the interest the defendant later acquired through Mr Cassegrain was found to be recoverable by the Company.

19. [26]

    The High Court declared that the defendant held a half interest in the Property on trust for the Company absolutely and ordered that she execute a transfer of a one-half interest in the Property to the Company: Cassegrain at [67].

20. [27]

    The defendant subsequently executed transfers of a one-half interest in the Property to the Company as a tenant in common in equal shares. The NSW Office of State Revenue has stamped the transfers. The transfers have not been registered.

Legal principles

1. [28]

   The following sections of the Real Property Act) are relevant to the issues in dispute between the parties:

2. [29]

   Section 66G of the Conveyancing Act provides as follows:

3. [30]

   In Segal v Barel (2013) 84 NSWLR 193 (Segal v Barel) the following remarks were made by Barrett JA:

4. [31]

   In Barel v Segal (No 2) [2012] NSWSC 1054 (Barel v Segal (No 2)) at [30]-[34] Pembroke J made the following observations:

5. [32]

   In Coshott v Prentice (2014) 221 FCR 450 (Coshott) the Full Court of the Federal Court of Australia (Siopsis, Katzmann and Perry JJ) made the following comments:

6. [33]

   In Kelly v Kelly [2007] NSWSC 1076 at [23] Austin J considered that:

7. [34]

   In Arrow Custodians Pty Ltd v Pine Forests of Australia Pty Ltd [2008] NSWSC 839 Bryson AJ made the following remarks at [34]:

8. [35]

   The defendant seeks to rely on the following passages from Harpur v Levy [2013] VSCA 209 (footnotes omitted):

9. [36]

   In Ryan v Dries [2002] NSWCA 3 it was said by Hodgson JA (with whom Sheller and Giles JJA agreed) that:

10. [37]

    The defendant seeks to rely upon the well-known principles outlined in Port of Melbourne Authority v Anshun Pty Ltd (No 2) (1981) 147 CLR 589 at 603-4 (footnotes omitted):

11. [38]

    The Liquidator makes reference to the remarks of Gibbs CJ, Mason an Aicken JJ at 601-2 (footnotes omitted):

12. [39]

    In Tanning Research Laboratories Inc v O’Brien (1990) 169 CLR 332 Brennan and Dawson JJ held that (footnotes omitted):

Contentions of the parties

1. [40]

   The Liquidator submits, correctly in my view, that, in cases like this where there are competing claims, the claim for partition will not succeed unless the person pressing that claim satisfies the Court that partition is “more beneficial”. The Liquidator says, again correctly, that the person who advances the competing claim, by contrast, is not required to show that the remedy is “more beneficial” than partition.

2. [41]

   Relying appropriately on Segal v Barel the Liquidator submits that this claim is confined to financial considerations. The Liquidator says that the disparate values of the lots comprising the Property supports the conclusion that the best course in this case is a “clean break” achieved by the sale of everything. The Liquidator recognises that it will be open to the trustees to market the Property in what is determined by them to be a financially beneficial combination of the existing titles.

3. [42]

   The defendant has been unable to produce any admissible evidence that would have gone to the question of what might have been more beneficial. The Liquidator says she has not, therefore, discharged her onus in that regard. That has inevitable consequences to which I will return.

4. [43]

   The Liquidator characterises this case as one of adjustment between co-owners. The Liquidator says this is consistent with s 66F(2)(a) of the Conveyancing Act which provides that property held under statutory trust for sale “shall be held upon trust to sell the same and to stand possessed of the net proceeds of sale…subject to such powers and provisions as may be requisite for giving effect to the rights of the co-owners”. Here, of course, there is no doubt, in my view, that the Liquidator is relevantly a co-owner: Coshott at [128].

5. [44]

   However, the defendant, on the other hand, says that this case is not an “adjustment” between co-owners. She says the Liquidator’s claim with respect to the mortgages is, in reality, a money claim for a debt it alleges is owed to it. She submits that the Liquidator does not adequately acknowledge that the trustees for sale of the Property may only give effect to the legal or equitable interests that the parties actually hold as co-owners of the Property – it is not for the trustees to make adjustments for claims the parties hold against each other.

6. [45]

   The defendant submits that Div 6 of Part 4 of the Conveyancing Act does not confer on the Court a broad discretion to make alterations to the proprietary interests of the parties. The defendant relies upon the remarks of Bryson AJ in Arrow Custodians, cited above, and says that the relief sought concerning the mortgages does not fall into the first category identified by Bryson AJ because the mortgages were not taken out over the existing interests of the Company. The Company’s legal or equitable interest in the Property, it is said, is subject to the register, and therefore the Liquidator’s case falls into the second category of case identified – a claim for a contribution to a shared obligation. The defendant therefore submits that Segal v Barel is not relevant to the mortgage issue. In that case, the defendant points out, the applicant and the respondent purchased land together as co-owners and, it appears, took out a mortgage over the property together.

7. [46]

   The defendant says it is incumbent on the Liquidator to prove how and why there is an entitlement to the “adjustment”, and that they have not done so. I do not agree.

8. [47]

   The Liquidator says that support for the orders sought concerning the mortgage can be found in the reasoning of Segal v Barel, where the Court of Appeal did not interfere with the primary judge’s declarations concerning the responsibility of one co-owner for the balance outstanding under a loan from the Commonwealth Bank. By analogy, the Liquidator submits, the defendant alone granted the mortgages and received all the benefit of the monies advanced under them, and alone owes the debts secured by the mortgages. I agree with this proposition. It is clear on a fair reading of the judgment of Barrett JA.

9. [48]

   However, the defendant makes two further points regarding the mortgage issue. First, the defendant says that as a result of the statutory derivative proceedings it appears that the Company’s interest in the Property, prior to the registration of the transfers, is that of a beneficiary of a constructive trust.

10. [49]

    The defendant also says that it is important to contextualise the issues between the parties with regard to the timing of the mortgages and the parties’ positions at the time.

11. [50]

    The defendant points out that she encumbered the Property well before the commencement of the statutory derivative proceedings. Importantly, the defendant says, she was not a co-owner with the Company at the time, she was not co-owner with Mr Cassegrain, and Mr Cassegrain’s fraud was not imputed to her. The defendant says she innocently incurred the mortgage debts in reliance on a state of affairs that was later shown to be false.

12. [51]

    The defendant also says that after the first transfer and prior to the determination of the statutory derivative proceedings, the Company held only an equitable interest in the form of a chose in action. It was not until the Court of Appeal made orders on 18 December 2013 that the Company had any equitable interest in possession of the Property within the meaning of s 66F of the Conveyancing Act.

13. [52]

    This is not, the defendant says, a case where a mortgage was taken out by one co-owner over her undivided share. This is a case, the defendant submits, where a sole proprietor took out the mortgage and subsequently transferred half of the Property to a new co-owner. The Company takes the property under the transfer and not by survivorship or through rectification of the register.

14. [53]

    The defendant further submits that there is no question that the mortgagee’s registered legal interests in the Property take priority over any equitable interest the Company might have because they were taken bona fide for value without notice: RPA s 45.

15. [54]

    The defendant also submits that the estate of a registered proprietor is subject to the estates and interests recorded in the folio of the register: RPA s 42.

16. [55]

    The defendant says the nemo dat quod non habet rule must apply; the defendant could not convey to the Company an interest that she did not have. The bundle of rights, the defendant says, that constitute the parties’ interests in the Property, were diminished on the dates of registration of each mortgage to the extent of those interests on the register.

17. [56]

    The defendant submits that the general law also provides that a mortgagor’s interest is capable of assignment. The defendant says that if a mortgagee is not party to the assignment, there is an implied covenant on the part of the assignee to the assignor to pay the principal and interest under the mortgage, to perform any other covenants in the mortgage, and to indemnify the mortgagor: Re Burton; Ex parte Union Bank of Australia (1901) 27 VLR 437; Simpson v Forrester (1975) 132 CLR 499, 515; Harpur v Levy [2013] VSCA 209.

18. [57]

    As a consequence, the defendant submits that the Company as an assignee of property subject to mortgage is required to indemnify the defendant in respect of a half-share of the mortgage debt.

19. [58]

    In response, the Liquidator says that the argument put by the defendant concerning the operation of s 76 of the RPA is misconceived because it is based on the premise that the defendant has, in fact, transferred a half-interest in the property to the Liquidator. I agree with that proposition. In fact, the Liquidator says, the Liquidator has chosen not to register this transfer but instead to rely on the declaration of trust made by the High Court to establish its interest in the property for the purpose of these proceedings. It seems to me the Liquidator is perfectly entitled to do just that.

20. [59]

    The Liquidator argues that an entitlement to bring proceedings under s 66G applied to “equitable ownership”, which includes the right of a party to claim the transfer of the property without having to have had the property transferred to it. “Co-ownership” within the meaning of s 66G, the Liquidator says, means “at law or equity” provided there is “specific property capable of constituting the subject property of any trust in favour of the beneficiary”. Again, in my view that is clearly correct.

21. [60]

    The Liquidator says that to the extent the defendant relies on Harpur, this case is distinguishable because in that case there was a declaration of trust with a consequential transfer of the property in question. The transfer would therefore, the Liquidator says, enliven the statutory covenant (or common law obligation) on the transferee (in this case the trustee) if the Court held that this was the intention of the settlor. With a declaration of constructive trust, the Liquidator says, there is no transfer of property. A constructive trust, the Liquidator says, is in effect not a “trust” at all, but rather an equitable remedy whereby the owner of the property is restrained from asserting their own beneficial interest in the property. Again that is a correct analysis, in my view.

22. [61]

    In relation to the argument made that the Liquidator is attempting to prosecute “an equitable or legal claim for money” against the defendant, the Liquidator again submits that this argument appears to proceed on the misunderstanding that the Liquidator is the transferee of the subject properties and thus liable for half of the mortgage debts. The Liquidator submits that that is not correct. Again, I agree. The Liquidator says, in my view appropriately, that the judicial order for sale is sought as an “equitable co-owner” who shares no liability with the defendant to the claims on the property made by the mortgagees.

23. [62]

    The Liquidator, again appropriately, submits that the defendant is wrong to contend that the principle in Segal v Barel is applicable only in situations where a “mortgage is taken out together”. The Liquidator submits, again correctly in my view, that Arrow Custodians at [34] does not support the defendant. Properly understood, the defendant says, in that case Bryson AJ was referring to the principle that adjustments made in partition suits (and therefore under s 66G of the Conveyancing Act) are “concerned with the position of the parties as co-owners”. In essence, a party cannot claim in a partition suit for an adjustment that is based on some other form of legal or equitable claim unconnected with the parties’ respective rights in the subject property.

24. [63]

    In Arrow Custodians, the Liquidator submits, correctly, Bryson AJ was considering disparate claims from investors in an agricultural plantation, many of which were rights in personam rather than interests in the subject property. What his Honour was explaining in that decision, it seems to me, was that it was not appropriate in the suit he was considering to consider such claims (but he noted at [35] that it may be appropriate in less complicated s 66G applications).

25. [64]

    The Liquidator submits that none of the cases relied upon by the defendant is authority for the proposition for which the defendant is contending – that unless the relevant adjustment is in respect of a “shared obligation” then it cannot be brought to account in a s 66G application. The Liquidator says this contention is simply a misunderstanding of the statements made by Bryson AJ. What is necessary, the Liquidator says, is that the claimed adjustment must relate to the parties’ respective interest(s) in the subject property, not that the adjustment in itself is a “shared interest” in that property. There is no principle of equity of law, the Liquidator says, that would support such a contention. In my view those propositions should be accepted.

26. [65]

    The defendant submits that the Liquidator must be deemed to have had notice of the mortgages once they were on the register. The defendant says that the Court should not use its discretion to allow the Liquidator to litigate matters concerning the mortgages because those matters could and should have been raised in the statutory derivative proceedings. It was unreasonable, the defendant says, for the Liquidator not to have joined the mortgagees to those proceedings and to now “seek in these proceedings to circumvent the practical effect of the High Court’s orders and avoid the consequences of the Torrens system of priority of title”.

27. [66]

    The defendant says that had it been asserted in the statutory derivative proceedings that the defendant should effect a re-conveyance of the property unencumbered, or that Mr Cassegrain should pay compensation for the amounts owing on the mortgages, then very different questions would have arisen in relation to the orders to be made against both the defendant and Mr Cassegrain. For example, the defendant says, the Court may have determined issues arising under s 120(1)(a) of the RPA.

28. [67]

    If the Company had sought such orders, the defendant says, it is likely that a proportionate amount owing under the mortgage would have been included in the quantum of equitable compensation payable by Mr Cassegrain. Alternatively, the defendant could have sought exoneration from Mr Cassegrain for the debt incurred. The opportunity to raise such a defence, the defendant says, has now passed.

29. [68]

    Instead, the defendant says, the High Court adjusted the interests of the Company and the defendants. They both now have the benefit of a one-half share in the Property, subject to encumbrances. Both parties, the defendant says, now have an equity to redeem the property from the mortgages and both must contribute in proportions commensurate with that equity of redemption. In addition to the receipt of a one-half interest in the Property, the defendant submits, the Company also obtained the benefit of orders for equitable compensation from Mr Cassegrain for the full value of the Property in addition to the full value of certain improvements made to the Property which were apparently paid using the loan account. As a consequence, the defendant says the question of whether the defendant received any benefit from the mortgages is ultimately of little relevance.

30. [69]

    The defendant says there is no reason the Company should be further permitted to prosecute her personally to profit from, or compound, her loss. The defendant says she herself is a person who has been prejudiced by Mr Cassegrain’s fraud.

31. [70]

    The defendant alleges that the relief sought concerning the mortgage effectively seeks a judgment in conflict with the orders of the High Court. The defendant says that the Liquidator has not provided any reason the matter was not raised in the statutory derivative proceedings. She says it was clearly unreasonable that the matter was not raised, and that she has been conducting her affairs on the basis that the mortgages were not in issue between the parties. The Liquidator’s claims in this regards, she submits, should be estopped.

32. [71]

    The Liquidator submits once again that the defendant’s submissions on this point are misconceived. The Liquidator says that an application under s 66G of the Conveyancing Act is only an application for the appointment of trustees and (as in this case) an accounting between the parties based on their existing respective entitlements. It is submitted that the Liquidator is not seeking to vary the orders made by the High Court, rather he is seeking to rely on the form of those orders.

33. [72]

    The Liquidator says that it is likely that the defendant’s Anshun claim is based on the mistaken assumption that the Liquidator brings these proceedings as a transferee rather than as an equitable co-owner. The Liquidator also notes that if the defendant’s submissions regarding Anshun were correct, then the defendant would be precluded from bringing her claims for improvements in these proceedings.

34. [73]

    Again, in my view the Liquidator’s submissions are correct. I fail to see how the relevant principles are engaged here. Quite simply, the Liquidator sought and obtained a declaration that the defendant held a half-interest in the Property on trust for the Company absolutely. I am not persuaded it was unreasonable on its part to stop there. Nor could that conduct be regarded as an abuse of process. The Anshun principle in my view is simply not engaged.

Discussion

1. [74]

   In my view trustees should be appointed for the sale of the remaining portion of the Property (the House lots). I note the defendant does not oppose the persons nominated for that purpose.

2. [75]

   On the question of sale or partition, therefore, I am of the view that a sale should be ordered. The defendant has not demonstrated by any admissible evidence why partition would be “more beneficial” to both co-owners in the sense referred to in s 66G(4). In particular, there was no admissible evidence as to value or any other factor which might touch the issue. The defendant has simply failed to discharge her onus in that regard.

3. [76]

   In so far as it is proposed by the defendant that the liability for the mortgage should be born 50/50 by the Company and the defendant, I do not consider she has made out her case for that consequence. I am not persuaded that the provisions of the RPA identified by the defendant are applicable in these circumstances. I see this case as an adjustment between co-owners.

4. [77]

   The defendant suggested that if s 76 was not applicable, then ss 42 and 45 would be, although she did not put precisely orally or in writing how that would be so. I do not see that ss 42 and 45 are relevant in these circumstances. I consider that the Liquidator’s argument concerning s 76 is correct, namely that the Liquidator is not a transferee in the relevant sense as the transfer has not been registered and the Liquidator instead seeks to rely on the declaration of trust made by the High Court. In addition, it seems to me that it can be fairly said the defendant alone granted the mortgages and alone received all of the benefit of the monies advanced and should appropriately bear responsibility for that. The relevant mortgages should therefore, upon a sale, be discharged from the defendant’s share of the proceeds of the sale.

5. [78]

   More particularly, in the circumstances it seems to me appropriate that upon sale the trustees should pay the amounts to secure discharge of registered mortgage AC489222 (the Commonwealth Bank mortgage) and registered mortgage AB54426 (the Westpac loan) from the defendant’s share of the proceeds of sale of the Property.

6. [79]

   Similarly, I accept the Liquidator’s submissions concerning Anshun estoppel. I do not accept that the defendant has made out a case that the Liquidator is estopped from seeking the relief claimed.

7. [80]

   I would invite the parties to bring in short minutes reflecting these reasons and if agreements on the orders or on costs cannot be reached the matter should be relisted for argument.