Court rulings on Bahr v Nicolay make it a unique case law.

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

Case Analysis

I   CASE BRIEF

– Background

Bahr v Nicolay was a case that the appellate jurisdiction of the High Court of Australia heard. The appellant, the Bahrs (‘Bahrs’), sued the first respondent, Nicolay (‘Nicolay’). Thompsons (‘Thompsons’) was the second respondent. This is a complicated case that explores the conflict between legal interest and equitable interest, etc.

– Material Facts and Procedural History

Bahrs sold the property to Nicolay by embedding the buy-back option in clause 6 of the conveyancing contract stamped on 25 June 1980, Thompsons acknowledged the existence of clause 6 of the previous agreement when signing the conveyance with Nicolay on 31 December 1981 but repudiated Bahrs’ buy-back rights after registering the Torrens title. Bahrs issued a writ against the relevant respondents and sought relief, including an order that the property vest in Bahrs upon said payment, or specific performance between Bahrs and Nicolay, and damages against all respondents. [1]

The relevant procedural history includes the trial judge overruling Bahrs’ claim against all respondents and the Full Court also refuted Bahrs’ appeal against the rejection of the claim against both Nicolay and Thompsons.

– Issues Considered by the Court

The key issue before the High Court was:

“Whether sections 68 and 134 of the Transfer of Land Act 1893 (W.A.) (‘’the T.L.A’’) defeat Bahrs’ equitable interest because Thompsons have lawfully registered the title in Torrens System? If not, was Bahrs entitled to order an enforceable specific performance against Thompsons?”

– Decision and Order and Remedy

The major decisions are as follows: Bahrs’ appeal against Nicolay and Thompsons shall be allowed with costs; Thompsons are bound specifically to perform the contractual obligation in clause 6 of the contract between Bahrs and Nicolay; Thompsons must consign the registrable transfer of the relevant property to Bahrs, along with the agreed sum and other derived fees paid by Bahrs to Thompsons; the assessment to the damages against the relevant respondents should be relisted before the Supreme Court for hearing. [2]

II  ANALYSIS

– Analysis of Legal Reasoning for Judgment

The primary law this case relied on is sections 68 and 134 of the T.L.A. Both clauses stipulate that only fraud can be the Statutory exception to revoke the indefeasible rights.

Fraud

the principle used to identify fraud is that ‘’the designed object of a transfer is for cheating”, or ‘’a deliberate and dishonest trick,’’ [3] or ‘’moral turpitude’’, [4] but fraud is not ‘’taking a transfer with notice or even actual knowledge…’’. [5]

Mason C.J. and Dawson J. followed the rule of the Court of Equity to base the reasoning more on the overall circumstances. They deduced that clause 4 would gear ‘’three significant factors to destruct the appellants’ existing rights”, which may also “expose the first respondent to liability for breach of contract’’. [6]

Sections 68 and 134 also rule that the fraud shall only be confined to the process prior to registration. But Mason used the analogy that the false undertaking inducing the transfer is the same as the honest undertaking inducing the transfer but repudiated afterwards to defeat the prior interest. [7] Such fraud is related to the purchaser’s intention manifested in Loke Yew v Port.[8]

Brennan J. adopted another equitable principle in Bannister that written evidence of the real bargain defined beneficial interest tests whether the conveyance is ‘’set up for the purpose of defeating the beneficial interest’’. [9] He expounded that the second respondents’ obligation ‘’remains bound by his undertaking after registration” because to rely on legal rights is no fraud but forsaking a positive stipulation is fraud.[10]

Wilson and Toohey JJ, employed the principle of the Court of Law that no evidence justified that Thompsons had the intention ‘’to ensure the appellants not to do so’’ (in favour of their own interest). [11] That the intention leading to final repudiation is evidenced only after registering the title, makes it unqualified to be fraud under sections 68 and 134.

Constructive trust

Judges recognized that the second respondents were so bound by contractual obligation as clause 4 was not merely a notice. This is based on the principle that the second respondents ‘shall be subject to a constructive trust in favor of the appellants whose equitable interest was created in the previous contract’’.[12] Brennan J. emphasized that clause 4 construed as a ‘’condition’’ means the purchaser ‘’cannot repudiate the contract because of their existence’’.[13]

Exception of in personam

Judges also clarify that indefeasibility does not deny “…the right in personam, founded in law or in equity…’’[14]

Enforceability

When the time is not the essence of the specific clause, assessing readiness and willingness to perform obligation shall not prevent a decree from being made for specific performance.[15]

– Critical Analysis and Evaluation

I disagree with Wilson’s adjudication that no fraud was found in Thompsons’ conduct. In fact, Thompsons completed every lawful step to facilitate this setup. Thompsons didn’t have to take any ‘’extra’’ actions to prevent Bahrs from taking any positive steps; instead, Thompsons relied on two ‘’impossibilities’’:

  • Factual impossibility: Assuming Bahrs could not find sufficient money to buy back.
  • Legal impossibility: After registering Torrens Title, Thompsons’ interest would be lawfully free from any attack.

Bahrs’ case exposes a problem wherein “a statute enacted to prevent fraud could be raised by a purchaser as a cloak for unconscionable conduct… for which it was not intended’’.[16] Torrens System suffers from a few defects:

Confusion between the administrative system and legal system

Torrens System suggests ‘’it is not a system of registration of title, but a system of title by registration,’’[17] the former being administrative, the latter legal. The original purpose of Torrens system was “to do away with dual ownership of land’’, [18] which is still raised as a question in our case.

The clash between Legal Interest and Equitable Interest

Judges acknowledged Bahrs’ Equitable Interest created by Constructive Trust. You can use Constructive Trust in both proprietary and personal claims. The latter addresses dishonest wrongdoing, such as fraud, which can defeat indefeasibility. However, proprietary claims “undermine the indefeasibility” as they may proclaim the registered proprietor as the trustee. [19]

In our case, the court did not identify any fraud; instead, they based the constructive trust more on the proprietary claims. However, “the constructive notice to Torrens land would severely undermine the principle of indefeasibility”, [20] as the Torrens system intended to give indefeasibility the absolute legal power unless fraud occurs.

The Interplay

Kenyon, C.J. explained such contradiction, “Our courts of law only consider legal rights; our courts of equity have other rules, by which they sometimes supersede those legal rules, and in so doing they act most beneficially for the subject.’’[21] It is a case where the Court of Equity weakens the Court of Law through Constructive Trust. 

But the best reasoning behind this case was that ‘’the preservation of the boundaries of the jurisdiction of the separate courts of law and equity was, …, necessary to preserve the free and the harmonious development of both law and equity’’.[22]

[1] Bahr v. Nicolay (No.2) (1988) 164 CLR 604.

[2] Bahr v. Nicolay (No.2) (1988) 164 CLR 604.

[3] Waimiha Sawmilling Co v. Waione Timber Co., pp 106-107.

[4] Late Investments Ltd. v. Hotel Terrigal Pty.Ltd. (1965) 113 CLR 265, pp 273-274.

[5] Mills v. Stokman (1967) 116 CLR 61, at p78.

[6] Ibid.

[7] Bahr v. Nicolay (No.2) (1988) 164 CLR 604.

[8] Loke Yew v. Port Swettenham Rubber Co., (1913) AC 491.

[9] Bannister v. Bannister (1948) 2 All Erf 133, p 136.

[10] Lyus v. Prowsa Ltd. [1982] 1 WLR 1044.

[11] Bahr v. Nicolay (No.2) (1988) 164 CLR 604.

[12] Binions v. Evans (1972) Ch 359, p 368.

[13] Munro v. Stuart (1924) 41 SR (NSW) 203.

[14] Frazer v. Walker (1967) 1 AC 569, p 585.

[15] Mehmet v. Benson (1965) 113 CLR 295.

[16] Bahr v. Nicolay (No.2) (1988) 164 CLR 604.

[17] Breskvar v Wall (1971) 46 ALJR 68  (Barwick CJ).

[18] Wong Siong Yong, ‘Equitable Interests and the Malaysian Torrens System’ (1967) 9(1)

Malaya Law Review 20, 21.

[19] Tang Hang Wu, ‘Beyond the Torrens Mirror: A Framework of The in Personam Exception to Indefeasibility’ (2008) 32(2) Melbourne University Law Review 672, pp 684-685.

[20] Ibid.

[21] W.S. Holdsworth, ‘Blackstone’s Treatment of Equity’ (1929) 43(1) Harvard Law Review 1, 17.

[22] Ibid 19.