Waimiha Sawmilling Co v Waione Timber Co

The judgment of their Lordships was delivered by

Lorp Buckmaster. The respondents, the Waione Timber
Company, Ld., are the registered proprietors of a piece of
land situate at Waimiha known as Rangitoto Tuhua No. 80
B.1I.C. and the appellants claim that this title is subject to
whatever rights they possess by virtue of an agreement in
writing dated December 23, 1916. The action was heard
by Herdman J., and he, after taking the evidence, removed
the case for argument into the Court of Appeal, who decided
(Stout C.J. dissenting) that the respondents had acquired a
good title to the land, freed from any claims on the part of
the appellants. From that decision this appeal has been
brought. The question of what rights the appellants originally
possessed in the land has been the subject of consideration
in several Courts and with varying consequences. For the
determination of this appeal it is desirable to narrate in some
detail how those rights arose and how they have been dealt
with. On December 23, 1926, a man called Howe was the
registered owner of the land in question, and by the agreement
of that date he granted to the appellants the right to cut
timber on and to carry it away from the said land, he also,
for the better exercise of such rights, granted them further
rights of building sawmills, laying tramways along roads,
etc. Such instrument could not be registered under the
Land Transfer Act, but the appellants, on August 23, 1917,
lodged a caveat against the title to protect their rights. In
July, 1919, Howe, alleging that there had been breaches

A. C. AND PRIVY COUNCIL.

of covenant, purported to determine the agreement and
re-entered on the land. The appellants thereupon brought
an action for a declaration that the agreement was still
on foot, and in the alternative applied for relief against the
forfeiture. J

This latter question was put down for argument as a
preliminary point of law and, on January 13, 1920, the
Supreme Court decided that the appellants' rights under the
agreement constituted a lease, and that they were entitled
to relief. From this decision Howe appealed. The action
came on for trial before this appeal was heard, and on May 13,
1920, Sim J. decided that Howe had validly determined the
rights of the appellants, but withheld the entry of judgment
until the decision of the Court of Appeal on the preliminary
question of law. This judgment was given on July 28, 1920,
and the Court of Appeal then decided that the agreement
did not constitute a lease and that no relief could be given
against the alleged forfeiture. Meanwhile Howe, who appears
to have been heavily overdrawn at his bank and badly in
need of money, had entered into an agreement with one Wilson
to buy the land, and, on August 2, 1920, Howe applied to
the appellants for the removal of the caveat. This request
was declined, and Howe was informed that an appeal against
the judgment of May 13, 1920, was under consideration.
Upon this refusal proceedings were commenced by Howe to
obtain an order of the Court for removing the caveat, and,
on September 20, 1920, this order was made by Sim J. A
further agreement was then made on September 25, 1920,
with Wilson, and a transfer of the freehold portion of the land
was executed and registered in his name on September 30,
1920, and sub-leases of the leasehold portion on October 5,
1920, and May 27, 1921. It is admitted throughout that
in these negotiations Wilson acted with the intention of
forming a company to whom the land should be transferred,
and the respondent company having been formed in pursuance
of this intention on June 8, 1921, the land was transferred to
them and registration effected in their name.

No step was taken to appeal against the order of Sim J.

103

J. ©.
1925

Ww
WaAIMIHA
Saw-
MILLING
Co.

Vv.
WAIONE
TIMBER
Co.

104

J.C.
1925

Ww
WAIMIBA
Saw-
MILLING
Co.

v.
WAIONE
TIMBER

Co.

HOUSE OF LORDS [1926]

removing the caveat, but, on September 9, 1920, the appellants
appealed against the decision of May 13, 1920, lodged the
necessary security, and before the judgment of September 20,
1920, notified both Sim J. and Howe's solicitors that an appeal
had been commenced. This appeal came on for hearing on
July 18, 1921, when the Court of Appeal declared that there
was no valid ground for determination of the rights granted
to the appellants by the agreement of December 23, 1916,
and they referred the case back for the assessment of damages.

The proceedings subsequent to this are not really material
for the present purpose. They are not fully set out in the
record and it is not easy to understand exactly what occurred.
It does appear, however, that, the inquiry as to damages
proving abortive, the Court of Appeal on April 24, 1922,
amended the judgment of July 18, 1921, by deleting there-
from the direction as to assessment of damages and substi-
tuting the words 'In order that the Supreme Court shall
enter judgment for such relief as the appellant company
may be entitled to under its statement of claim." It must
be remembered that this could not, however, be based upon
the view that the agreement of December 23, 1916, constituted
a lease, as the Court of Appeal had themselves definitely
decided that it did not. Apart from this the only possible
remedy would have been a remedy by way of an injunction,
as in the case of James Jones & Sons v. Earl of Tankerville (1),
but such a remedy depends upon very special circumstances ;
in the result of events such an order as against Howe would
have been inoperative, and the question whether, if such
relief were to be granted, it could be granted against the
present respondents really depends upon the point that
arises for decision in this appeal, and that is whether, in the
circumstances, notwithstanding the removal of the caveat,
the purchasers of the property were affected by the rights
created under the agreement of December 23, 1916.

The appellants support their case by two independent
arguments: (1.) That there was actual fraud committed in
obtaining the registration of Wilson as the absolute owner.

(1) [1909] 2 Ch. 440.

A. C. AND PRIVY COUNCIL.

(2.) That as at the date of this registration litigation was
pending affecting the property, the title was necessarily
subject to whatever rights the appellants would be held to
possess if this litigation resulted in their favour.

The first of these questions depends upon the construction
of two important sections of the Land Transfer Act, 1915—
namely, s. 58 and s. 197, which are in the following terms :—

"58. Notwithstanding the existence in any other person
of any estate or interest, whether derived by grant from the
Crown or otherwise, which but for this Act might be held to
be paramount or to have priority, the registered proprietor
of land or of any estate or interest in land under the provisions
of this Act shall, except in the case of fraud, hold the same
subject to such incumbrances, liens, estates, or interests as
may be notified on the folium of Register constituted by the
grant or certificate of title of such land, but absolutely free
from all other incumbrances, liens, estates, or interests
whatsoever—(a) Except the estate or interest of a proprietor
claiming the same land under a prior certificate of title or
under a prior grant registered under the provisions of this
Act; and (6) Except so far as regards the omission or mis-
description of any right of way or other easement created in
or existing upon any land; and (c) Except so far as regards
any portion of land that may be erroneously included in the
grant, certificate of title, lease, or other instrument evidencing
the title of such registered proprietor by wrong description
of parcels or of boundaries."

'197, Except in the case of fraud, no person contracting
or dealing with or taking or proposing to take a transfer
from the registered proprietor of any registered estate or
interest shall be required or in any manner concerned to
inquire into or ascertain the circumstances in or the considera-
tion for which such registered owner or any previous registered
owner of the estate or interest in question is or was registered,
or to see to the application of the purchase money or of any
part thereof, or shall be affected by notice, direct or construc-
tive, of any trust or unregistered interest, any rule of law or
equity to the contrary notwithstanding, and the knowledge

HOUSE OF LORDS [1926]

that any such trust or unregistered interest is in existence
shall not of itself be imputed as fraud."

The first of these sections provides in plain language that,
except in the case of fraud, the registered proprietor of land
holds it freed from everything except what is notified on the
register, subject to the three exceptions, not one of which is
relevant for the present purpose; while s. 197 expressly
declares that knowledge of the existence of an unregistered
interest shall not of itself be imputed as fraud. Upon the
first point, therefore, it is plain that unless conduct coming
within the meaning of the word ''fraud'' as used in these
sections can be imputed to the respondents their title succeeds.

In the words of the Court of Appeal in Fels v. Knowles (1) :
"The cardinal principle of the statute is that the register is
everything, and that except in cases of actual fraud on the
part of the person dealing with the registered proprietor such
person upon the registration of the title under which he takes
from the registered proprietor has an indefeasible title against
all the world. Nothing can be registered the registration of
which is not expressly authorized by the statute." ('By
statute' would be more correct.) '"' Everything which can
be registered gives, in the absence of fraud, an indefeasible
title to the estate or interest or in the cases in which regis-
tration of a right is authorized, as in the case of easements or
incorporeal rights, to the right registered."

Now fraud clearly implies some act of dishonesty. Lord
Lindley in Assets Co. v. Mere Rothi (2) states that: '" Fraud
in these actions"' (i.e., actions seeking to affect a registered
title) "' means actual fraud, dishonesty of some sort, not what
is called constructive or equitable fraud—an unfortunate
expression and one very apt to mislead, but often used, for
want of a better term, to denote transactions having conse-
quences in equity similar to those which flow from fraud."

If the designed object of a transfer be to cheat a man of a
known existing right, that is fraudulent, and so also fraud
may be established by a deliberate and dishonest trick
causing an interest not to be registered and thus fraudulently

(1) 26.N. Z. L. R. 604, 620. (2) [1905] A. C. 176, 210.

A. C. AND PRIVY COUNCIL.

keeping the register clear. It is not, however, necessary or
wise to give abstract illustrations of what may constitute
fraud in hypothetical conditions, for each case must depend
upon its own circumstances. The act must be dishonest,
and dishonesty must not be assumed solely by reason of
knowledge of an unregistered interest. In the present case
fraud is sought to be established by the following facts:
That Wilson knew of the appellants' claim and that they were
pursuing litigation to have that claim upheld, and also that
the solicitors of Howe immediately after the removal of the
caveat stated that they desired the utmost expedition to get
the transaction registered in favour of Wilson, because they
regarded it as possible that an application might be made
for an injunction, the documents being in fact prepared with
such haste that the boundaries had to be rectified subsequently
to the transfer. All this is true, but it is also true that Howe
knew that the judgments of the Courts were in his favour,
and that any hindrance or delay in the carrying out of the
transaction would cause him grave embarrassment, so that
having got a judgment in his favour, he wished to be secure
and protected against the delay that might ensue if further
steps were taken in the litigation; at the same time he was
also aware of this—that an original notice of appeal in the
action had not been proceeded with, and the learned judge
before whom the case had come not being satisfied as to the
bona fides of the appellants and realizing the importance of
Howe being prevented from dealing with his lands expressly
removed the caveat in order that those dealings should not
be delayed. Had that judgment been appealed against and
the order of Sim J. reversed, different considerations might
have arisen, but it was left unchallenged, and all that Howe
did was to act upon the hypothesis that it was sound and to
attempt to strengthen the position as far as possible by speedy
completion of the transaction. Even now no attempt has
been made to question the judgment of Sim J., and that cir-
cumstance, in their Lordships' opinion, alone is sufficient ;
for the learned judge, with full knowledge of the facts, held
that the hindrance to dealing with the property caused by the

108

J.C.
1925

WH
WaAIMIHA
Saw-
MILLING
Co.

v.
WAIONE
TIMBER
Co.

HOUSE OF LORDS [1926]

entry of the caveat should be removed, and even if he were
wrong in the view that he took it seems to their Lordships
impossible to say that people who acted upon the faith of
that judgment were guilty of fraud.

The second question can be dealt with briefly. In their
Lordships' opinion the judgment of Hosking J. is complete
and unassailable upon this point. Litigation is the means
by which a disputed interest in land can be established. If
knowledge of the interest itself does not affect a registered
proprietor knowledge that steps are being taken to assert
that interest can have no more serious effect.

Their Lordships will humbly advise His Majesty that this
appeal ought to be dismissed with costs.