Bahr v Nicolay (No. 2)

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

LAND LAW – AUSTRALIA – INDEFEASIBILITY

Facts

The appellant agreed to sell their land to the first respondent, with an option to buy it back later. The first respondent later sold the land to the second respondent, and a clause in the contract required the second respondent to acknowledge and agree to be bound by the appellant’s buy-back option. However, when the appellant attempted to buy back the property, the second respondent refused to co-operate.

Issues

Australian law has a principle of ‘indefeasibility of title’, which states that registration confers an absolute title which is not encumbered by any adverse claims or interest not contained on the register. A similar principle applies in UK law.

The issue was whether the ‘fraud’ exception to the indefeasibility principle applied here.

Decision/Outcome

The Court held that the appellant had an equitable right to exercise the option by way of trust which was enforceable against the second respondent.

The Court stated that mere notice of an interest is not sufficient to ground fraud. However, reading the two agreements in their contexts indicated that the clause obliging the second respondent to recognise the option clause was more than mere notice: it showed the parties intended a trust relationship between the second respondent and the appellant.

They argued that the principle of indefeasibility is designed to protect purchasers of land from being blindsided by unknown defects in the seller’s title, and therefore bound by interests they had no way of knowing about or would be excessive to verify. This justification does not apply in cases where the respondent has agreed to recognise an interest: as such the buyer cannot rely on their status as the registered proprietor of the estate to avoid their own contractual and trust obligations.