A mother agreed to transfer a farm to herself and one son as joint tenants on the basis that he would manage the farm and care for her. The mother transferred title to the farm into her name and her son as joint tenants but the registration was later reversed because it did not take place within the prescribed period.
The daughter in law then claimed against them and the only claim that went to trial was the son’s cross claim against the mother. The court found that the lack of a written contract or part performance meant there was no basis for estoppel and the son appealed. In the meantime, the mother died and the farm was sold and later re-sold to the daughter-in-law.
The son sought to restrain the sale to his sister in law. His claim was dismissed. He appealed and won and sought leave to amend his claim to plead fraud and add a claim for equitable compensation based upon knowing receipt. These changes were refused on the basis that fraud was not properly pleaded and is not made out if a person merely acquires land with notice of a prior unregistered interest. The son appealed again.
The Appeal Court took the opportunity to say this about the fraud exception to indefeasibility:
- The fraud exception to indefeasibility imports something in the nature of personal dishonesty or moral turpitude. It is for this reason that merely to take a transfer with notice, or even actual knowledge, that its registration will defeat an existing unregistered interest is not, without more, fraud.
- Actual fraud is required but the High Court is divided upon whether the fraud exception extends beyond fraud in obtaining a transfer and extends to fraud in later repudiating an unregistered interest that the registered proprietor agreed to recognise.
- In personam claims or personal equities can be brought against the registered proprietor. These claims do not fall within the fraud exception to indefeasibility. However these claims require an additional ingredient involving some form of acknowledgement of the unregistered interest or agreement to act in accordance with it, not merely notice of it and might provide relief by way of a constructive trust over the property or equitable compensation.
- A claim on the basis of knowing receipt of trust property or knowing assistance in a fraudulent design do not fall within the fraud exception to indefeasibility or the in personam exception and cannot prevail against indefeasible title. However such claims can sustain equitable compensation and the court found this claim should have been considered by the court below.
The Court of Appeal found the son’s claims did not fall within the fraud exception or the in personam exception (because it was not pleaded that the sister agreed to recognise the son’s unregistered rights) and his claims for knowing receipt and knowing assistance against his sister in law were not properly pleaded and . The Court of Appeal dismissed his case against his sister and said that the son had been given ample opportunity to replead. However he was given the opportunity to replead his claim for knowing assistance against the Commissioner.
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