Vendor and Purchaser 1 Final Exam

Judgment Summary

https://cdn.hcourt.gov.au/assets/publications/judgment-summaries/2020/hca-39-2020-11-04.pdf

Background

This case concerned the owners of land that was burdened by a restrictive covenant that, it was argued, derived from a building scheme, thereby preventing them from subdividing their land and building 2 townhouses.

Facts In this case, the appellants were the owners of a suburban block of land in Fulham South Australia.  For the purpose of this case, the land in dispute is known as “Lot 3”.   The appellants bought Lot 3 in 2008.  The certificate of title to Lot 3 had endorsed upon it a memorandum of encumbrance as follows:

“Schedule of Dealings”

 Dealing Number2675722                 

Description

Encumberance to keith oli ayton and betty joan font joint tenants

 The encumbrance is as follows:

 2.That the Encumbrancer will not at any time erect or permit or suffer to be erected upon the said land or any part thereof any building or buildings other than:

 (a) a dwellinghouse for private residential purposes; and

(b) outbuilding or outbuildings suitable for use in conjunction with a dwelling house used for private residential purposes

3.That the Encumbrancer will not at any time erect or permit or suffer to be erected upon the said land or part thereof any block or blocks of flats home units or other multiple dwellings.

Other than for a notation that said, “This encumbrance forms portion of a common Building Scheme”, nothing else was written on the Memorandum of Encumbrance.  There were no details of what the building scheme was about, when it was created, or who the beneficiaries of this so-called scheme were.  In other words, no beneficiaries could be discerned from the information on the current certificate of title to Lot 3.

Sometime after purchasing Lot 3, the appellants made an application to subdivide Lot 3 and build 2 townhouses on it.  

The respondents (as referred to in the High Court case being two living descendants of the owners of the larger parcel of land from which Lot 3 derived, and one being an owner of two lots that allegedly derived from that larger parcel of land that benefit from the restrictive covenant) contended that the building of two dwellings on the Lot 3 would infringe this restrictive covenant and they lodged a caveat over Lot 3 to protect their interests.  From this planning application came several cases dealing with this matter before it was finally determined in the High Court

“What is ‘notified’ to a prospective purchaser by the vendor’s certificate of title is everything that would have come to his or her knowledge if a prudent conveyancer had made such searches as ought reasonably to have been made by him [or her] as a result of what appears on that certificate of title”.

In essence, the Court of Appeal were of the opinion that based on these comments (and others made throughout the Bursill judgement) that this meant that searches can be made more broadly than those particularly notified on the title.  The appellants appealed this decision to the High Court.

 Issue

In light of section 69 of the Real Property Act 1886 (SA) should a person dealing with a registered proprietor of land need to look further than the registered title and the interests notified on it in order to ensure their dealing does not “miscarry” ([2020] HCA 39 [2].[1]In the Full Court of the Supreme Court of South Australia[2]the majority (Peek and Hughes JJ with Kourakis CJ dissenting) upheld the decisions of the Judge below.  Peek J said that the appellants were sufficiently notified of the restrictive covenants and relied upon the decision of Windeyer J in Bursill Enterprises Pty Ltd v Berger Bros Trading Co Pty Ltd[3]On appeal the High Court in a unanimous joint judgement (Kiefel CJ, Gageler, Keane, Gordon, and Edelman JJ) upheld the first argument of the appellants and the dissenting Judgement of Kourakis CJ. The court further considered the decisions in Bursill and Westfield Management Ltd v Perpetual Trustee Co Ltd[4]. 

In response to the first argument the joint judgment stated:

“The appellant’s principal contention should be accepted.  The text of s 69 of the Act, the statutory context in which it is to be construed, and the authoritative judicial exposition of the purpose of the Act, combine to support the conclusion that a person dealing with a registered proprietor of land is not to be regarded as having been notified of an encumbrance or qualification upon the title of the registered proprietor that cannot be ascertained from a search of the certificate of title or from a registered instrument referred to in a memorial entered in the Register Book by the Registrar-General.” [9]

 In other words, the reference to a notation that ‘…this encumbrance forms part of a building scheme’ on the certificate of title for Lot 3 without identifying the who the beneficiaries are and without other specific identification of the covenant does not bind a registered proprietor to a restrictive covenant only referenced in a vague and unspecific way. The appellants should not have to go beyond the Memorandum of Encumbrance referred to on their title or to seek out prior cancelled titles or other documents to determine who the beneficiaries are to a covenant if none are listed.  In determining this the High Court essentially followed the reasoning in Westfield which held that ‘it is contrary to the purpose of the Torrens system to seek to establish the intention or contemplation of the parties to an instrument registered under the NSW Act by reference to material extrinsic to the instrument’ [66].

In response to the South Australian Supreme Court’s interpretation of Bursill, and in light of the approach followed by Barrett JA in the NSW Court of Appeal in Registrar‑General v Cihan[5].the joint judgment stated:

“With all respect, the Court of Appeal’s expansive view [in Cihan] of what is “recorded in a folio of the Register” is not supported by a close reading of the reasons of Barwick CJ in Bursill.  In addition, it may be said that the reasons of Windeyer J in Bursill do not provide unequivocal support for the expansive view that a purchaser is bound to make an open-ended “inquiry by resort to readily available records”.  However, that may be, there is little to be gained by further consideration of what Windeyer J meant to convey in Bursill.  Even if it be accepted that Windeyer J did have in contemplation prudent searches, possibly extending to such as might have been required of a purchaser to avoid being fixed with constructive notice of a defect in title in relation to pre-Torrens land, such an expansive view is inconsistent with the scheme of the Act as expounded in Westfield.” [65]

Significance

This unanimous decision reconfirms that the intended benefits of the Torrens system is predicated on it being a system of title by registration. It further confirmed, as set out in Westfield, that “information extraneous to the certificate of title was immaterial to the indefeasibility of the purchaser’s title” ([2020] HCA 39 [4] In other words, a purchaser should not have to go beyond what is reflected on the certificate of title or identifiable from the title to find information that may or may not affect  the quality of title and thus the protection afforded by indefeasibility through registration.

How this case will play out in the law of restrictive covenants is yet unknown. One of the foremost principles for ensuring that a restrictive covenant binds successors in titles to the covenantor is not just notice, but that the beneficiaries to that covenant should be able to be discerned within the four corners of the covenant itself.  This does not mean that registered proprietors need to be specifically named, but the land benefiting from the covenant must be ascertainable from the instrument itself.  This decision does not change that position.