Felicity Cassegrain v Gerard Cassegrain & Co Pty Ltd [2015] HCA 2: Whether Title Defeasible on Account of Fraud

Wednesday 4 February 2015 @ 11.21 a.m. | Corporate & Regulatory | Legal Research | Trade & Commerce

In a majority decision, the High Court of Australia has in Felicity Cassegrain v Gerard Cassegrain & Co Pty Ltd [2015] HCA 2 (4 February 2015) allowed in part an appeal from a decision of the NSW Court of Appeal holding that:

". . . the appellant's title to land as joint tenant was not defeasible on account of the fraud of her husband, who was also a joint tenant, but that the interest as tenant in common as to half which the appellant subsequently derived from her husband was defeasible and could be recovered by the respondent company."

Background

The matter involves a statutorily derived action under the Real Property Act 1900 (NSW) (the RPA) brought by Gerard Cassegrain & Co Pty Ltd (GC&Co) against Mr Claude Cassegrain (Claude) and his wife, Mrs Felicity Cassegrain (Felicity).

GC&Co's action was in relation to $4.25 million credited to Claude's company loan account on 31 October 1993, purportedly owed to Claude as part of an overall settlement of proceedings with the Commonwealth Scientific and Industrial Research Organisation (CSIRO) for $9.5 million. A payment of $4.25 million was a condition precedent to a Deed of Settlement entered into on 27 September 1993.

GC&Co alleged Claude (a director of GC&Co) fraudulently debited that amount to the loan account in breach of his fiduciary duty to the company and further, alleged Claude then drew on that account for personal and other expenses. It was also claimed that Claude utilised GC&Co's credit balance in satisfaction for the purchase price of a Dairy Farm, a property GC&Co transferred to both Claude and Felicity as joint tenants (the first transfer) in 1997. On 24 March 2000, Claude executed a transfer of his interest in the Dairy Farm in favour of Felicity for the nominal consideration of $1 (the second transfer).

At trial in Gerard Cassegrain & Co Pty Limited v Cassegrain [2011] NSWSC 1156 (29 September 2011), Justice Barrett upheld GC&Co's claim against Claude and found that Claude had dishonestly breached his fiduciary duty as a director of  GC&Co. However, Justice Barrett dismissed GC&Co's claim against Felicity by finding that her title to the Dairy Farm was indefeasible.

In NSW Court of Appeal

Claude and GC&Co subsequently appealed to the NSW Court of Appeal in Gerard Cassegrain & Co Pty Limited v Felicity Cassegrain [2013] NSWCA 453 (18 December 2013). The Court of Appeal (Beazley P, Basten & Macfarlan JJA) dismissed Claude’s appeal with costs, however, they allowed GC&Co’s appeal.

The three key issues raised by GC&Co’s appeal were:

  • Whether Felicity's title was defeasible pursuant to the fraud exception in section 42 of the RPA because Claude was acting as her agent;
  • Whether Felicity's title was defeasible pursuant to the fraud exception in the RPA, because Claude and Felicity were joint tenants; and
  • Whether proceedings could be brought for the recovery of the Dairy Farm from Felicity pursuant to Section 118(1)(d) of the RPA.

The majority of the Court of Appeal found that GC&Co raised sufficient evidence from which an inference could be drawn that Claude was Felicity's agent for the first and second transfers of the Dairy Farm. Justice Basten, however, held that there was insufficient evidence to establish agency and the preferable inference was that Felicity acted on her own behalf. President Beazley and Justice Macfarlan both found Felicity’s title in the Dairy Farm was affected by Claude’s fraud as both were registered as joint tenants while Justice Basten found that Felicity’s interest was indefeasible because it was unaffected by Claude's fraud.

President Beazley and Justice Macfarlan further held that, pursuant to s 118(1)(d) of the RPA, GC&Co were entitled to bring proceedings for recovery of the Dairy Farm. Justice Basten however found that, pursuant to s 118(1)(d)(ii) of the RPA, GC&Co was only entitled to obtain an order that Felicity transfer a half share in the Dairy Farm to GC&Co, namely, the share she obtained from Claude in the second transfer.

Grounds for Appeal to the High Court

The key grounds for appeal were:

  • that the NSW Court of Appeal had erred in holding that Claude was Felicity’s agent in relation to giving instructions for:
    • the execution of RPA the first transfer on behalf of Felicity; and
    • the lodgement for registration of the second transfer.

It should be noted it was not alleged in any of the courts that Felicity was a participant in, or had notice of, Claude's fraud at the time the land passed to them as joint tenants.

In the High Court

Felicity appealed to the High Court by way of special leave. The High Court allowed Felicity's appeal in part, holding that:

  • Felicity's title as joint tenant was not defeasible on account of Claude's fraud, because Claude was not her "agent" in any relevant sense. Claude's fraud was not within the scope of any authority Felicity had, or appeared to have, given to him. Nor did registration as joint tenant mean that Felicity's title was defeasible: s 100(1) of the RPA does not require that the fraud of one of the persons registered as joint proprietors denies all persons registered as joint proprietors the protection otherwise given by s 42(1) of the RPA; 
  • The fraud must be brought home to the person whose title is impeached, and Claude's fraud was not brought home to Felicity; and
  • The Court also held that because Felicity was not a bona fide purchaser for value of Claude's interest in the land, s 118(1)(d)(ii) of the RPA was engaged so that the company could recover the interest which Felicity derived from or through Claude (an interest as tenant in common as to half).

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