Bahr v Nicolay (No 2) (1988) 164 CLR 604

Facts: Mr and Mrs Bahr (B) couldn’t raise funds to develop their land and hence sold it to Nicolay (N) on terms giving them a lease over it and a right of repurchase (cl 6). N sold the land to Thompson (T – the SR) which included in the contract express acknowledgement of cl 6 (cl 4) and T subsequently told B that he ‘recognized’ cl 6 of their contract with N. When B attempted to repurchase and pay the deposit, T the RP refused to sell. B commenced action claiming an order that upon payment the land was vested in them:

Mason CJ and Dawson J:

There honours began by discussing the principles in Breskvar v Wall that the principle indefeasibility and corresponding sections didn’t protect an RP against equities arising out of subsequent transactions as long as that equity didn’t conflict with those sections.

They went on to discuss what constitutes fraud – noting that mere notice does not amount to fraud subsequently holding that some species of equitable fraud fall within the purview of the sections (e.g. Latec Investments - ‘pretense and collusion in the conscious misuse of power’). Following this they held that the cases didn’t advocate a strict interpretation of the indefeasibility section to the effect that there is a distinction between dishonesty subsequent to registration:

• “There is no difference between the false undertaking which induced the execution of a transfer (like in Loke Yew) and an undertaking honestly given which induces the execution of a transfer and is subsequently repudiated for the purpose of defeating the interest”

  • Both are fraudulent – the repudiation is fraudulent since its object is to destroy the unregistered interest even though it was the foundation or assumption underlying the execution of the transfer (similar to using the statute of frauds as an instrument of frauds)

They went on to discuss the effect of cl 4 in this case, paying regards to the matrix of circumstances:

• They began by holding that on its own cl 4 would amount to no more than notice of the appellant’s rights and therefore could be destroyed by subsequent registration; leaving the N (the FR) liable for breach of contract

• But the context and matrix of circumstances provides a strong inference which necessarily influences the interpretation of cl 4 and provide a foundation for imputing an intention to the parties and reading the clause as a reflection of it

• A trust relationship is an accurate reflection of the intention to be imputed to the parties

  • Their honours noted that courts seldom infer express trusts without a clear manifestation and rather impose constructive trusts – but noted that where parties intend to protect the interest of a third party and a trust relationship is an appropriate means of doing so; there is no reason why an express trust shouldn’t be inferred

• In the alternative their honours went on to hold that even if a trust shouldn’t be inferred, the subsequent repudiation of the agreement constituted fraud, falling into the statutory exception

Wilson and Toohey JJ:

Their honours were not willing to hold that the case fell into fraud – saying that the evidence falls short of establishing that the designed object of the transfer to the SR, N, was to cheat the appellants of their right (while it may have been on the hope that they wouldn’t but it wasn’t their intention to make sure it didn’t).

But their honours held that the consequence of the express acknowledgement of the right to resale and communications to them to that effect was to impose a constructive trust upon them – a personal equity which is enforceable against them.

This arose not because of notice, but because of their acceptance of a transfer on terms that they would be bound by the interest the appellant had in the land by reason of their contract with the first respondent

Brennan J:

Held that equity would compel an RP who purchases on terms that they will be bound to an interest. He noted that the idea of the indefeasibility provisions was not to protect an RP from interests that he himself burdens his title with but to protect a transferee from defects in the title of a transferor.

A means by which equity does this is to impose a constructive trust upon a purchaser when they repudiate the unregistered interest