Spousal Fraud – this article discusses a case note regarding spousal fraud related to property in a Family Law proceeding.
The Court was posed with a questions as to whether a spouse could keep a property obtained by the other spouse through fraud. Case Note – Cassegrain v Gerard Cassegrain & Co Pty Ltd  HCA 2
Short answer: “It depends.”
The recent High Court decision of Cassegrain v Gerard Cassegrain & Co Pty Ltd  HCA 2 was concerned with the fraud exception to indefeasibility contained in the Real Property Act 1900 (NSW) (“the Act”).
The decision considered whether a joint tenant’s title to a property was “defeasible” (i.e. liable to being annulled or declared void) as a result of the other joint tenant’s fraud.
Brief Relevant Facts
The respondent company had previously owned a dairy farm situated in NSW.
The dairy farm was fraudulently transferred to a director of a company and his wife (i.e. the appellant in these proceedings) as joint tenants.
The director later transferred the property to his wife for consideration of “$1.00.”
The company sought to recover the dairy farm from the wife.
The company did not allege that the wife was a participant in, or had notice of, the husband’s fraud at the time the property passed to them as joint tenants. Rather, the company argued that the husband was “the wife’s agent” for the purpose of registering her as joint tenant of the land.
Reference was made to the following sections of the Act:
- Section 42 of the Act provides that the estate or interest of a registered proprietor under the Act is indefeasible, “except in case of fraud;” and
- Section 118 of the Act provides for the working out of the operation of the fraud exception established by section 42 as follows:
“(1) Proceedings for the possession or recovery of land do not lie against the registered proprietor of the land, except as follows:
(d) proceedings brought by a person deprived of land by fraud against:
(i) a person who has been registered as proprietor of the land through fraud; or
(ii) a person deriving (otherwise than as transferee bona fide for valuable consideration) from or through a person registered as proprietor of the land through fraud.”
Primary judge’s decision
The primary judge held that the wife’s title as sole registered proprietor was “indefeasible” (i.e. not liable to being annulled or declared void).
The primary judge found that there was a lack of evidence to conclude that the husband exercised actual or implied authority on behalf of his wife in relation to either the first or second transfer of the property so as to “sheet home” his fraud to her.
Court of Appeal’s decision
The NSW Court of Appeal (by majority) held that the husband could be regarded as his wife’s “agent” so as to “taint” her with his fraud in respect of either the first or second transfer.
Additionally, the fact that she was a joint tenant meant that her title could be “defeated” as a result of the husband’s fraud.
The NSW Court of Appeal declared that the wife held the dairy farm on trust for the company absolutely and ordered the wife to execute a transfer of the land to the company.
By special leave, the wife appealed to the High Court against these orders.
High Court’s decision
The High Court held that the wife’s title as joint tenant was indefeasible on account of the husband’s fraud as the husband was not “her agent” in any relevant sense. Nor did it follow from the wife’s registration as joint tenant that her title was defeasible.
Fundamentally, the High Court held that the fraud must be “brought home” to the person whose title is impeached. In these proceedings, the husband’s fraud was not brought home to the wife.
However, the High Court held because the wife was not a bona fide purchaser for value of the husband’s interest in the land (i.e. the husband transferred the property to his wife for consideration of “$1.00”), section 118(1)(d)(ii) of the Act was triggered and the company was entitled to a one half interest in the property.
The wife’s appeal was dismissed with costs.