Bahr v Nicolay (No 2) [1988] HCA 16; (1988) 164 CLR 604 (15 June 1988)

HIGH COURT OF AUSTRALIA

BAHR v. NICOLAY (No. 2) [1988] HCA 16; (1988) 164 CLR 604
F.C. 88/013

Real Property (W.A.) - Vendor and Purchaser

High Court of Australia
Mason C.J.(1), Wilson(2), Brennan(3), Dawson(1) and Toohey(2) JJ.

CATCHWORDS

Real Property (W.A.) - Torrens system - Indefeasibility of title - Exceptions - Fraud - Whether confined to fraud committed in act of acquiring registration - Right in personam against registered proprietor - Transfer of Land Act 1893 (W.A.), ss. 68, 134.

Vendor and Purchaser - Contract of sale of land - Specific performance - Purchaser's readiness and willingness to perform - Relevant time - Need to plead.

HEARING

Perth, 1987, September 15, 16.
Canberra, 1988, April 15. 15:4:1988
APPEAL from the Supreme Court of Western Australia.

DECISION

MASON C.J. AND DAWSON J: The facts of this appeal have been set out in the reasons for judgment prepared by Wilson and Toohey JJ. and we need not repeat them.

2. Clause 6 of the undated contract, stamped 25 June 1980, between the appellants and the first respondent created in the appellants an equitable estate or interest in Lot 340, enforceable against the first respondent and, in the events that happened, against the second respondents, provided that relief by way of specific performance was available at the relevant time. Although cl.6 does not impose an express obligation on the first respondent to sell, the parties have conducted the case throughout on the basis that by necessary implication the clause imposed an obligation to sell. The clause constituted a binding contract between the parties to bring into existence the contemplated formal contract and carry it to completion: Masters v. Cameron [1954] HCA 72; (1954) 91 CLR 353, at p 360. The contract constituted by cl.6 was not conditional upon the execution of the contemplated formal contract.

3. However, the terms of the clause, though not entirely clear, are such as to make the appellants' obligation to pay the purchase money conditional upon the making of a formal contract. The clause provides:

"The Vendors ... agree that upon the expiration of
the lease ... they will enter into a contract with
the Purchaser for the purchase by the Vendors of
the land for ... $45,000 ... payable by way of ...
10% ... deposit with the balance of the purchase
moneys to be paid at settlement. Settlement is to
be effected thirty (30) days after payment of the
deposit."
is to be paid under and by reference to the contract and as such to be paid on the signing of the contract, if not paid before. The appellants came under no liability to pay the deposit or the balance of the purchase price unless and until the formal contract was entered into.

4. Niesmann v. Collingridge [1921] HCA 19; (1921) 29 CLR 177 makes the point. There the purchaser's obligation, under the informal binding contract, was to pay the purchase moneys "at or within certain times from the date of signing a contract" (at p 184). Rich and Starke JJ. held this to be "a 'term of the bargain'" (at p 185). So the purchaser could not be compelled to pay the purchase money unless the contract was signed, the signing of the contract being a condition of the obligation to pay. In Masters v. Cameron Dixon C.J., McTiernan and Kitto JJ. described Niesmann v. Collingridge as a case of the second class (at p 361), being one in which the parties have agreed upon all the terms of their bargain but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document (at p 360). After referring to the judgment of Rich and Starke JJ. with apparent approval, their Honours went on to say (at p 361) that the provision in Niesmann v. Collingridge "carried a necessary implication that each party would sign a contract in accordance with the terms of agreement". The same comment holds true here.

5. Their Honours then noted that Rich and Starke JJ., agreeing with Knox C.J., decreed specific performance of the agreement, thereby "compelling the performance of a stipulation of the agreement necessary to its carrying out and due completion": Niesmann v. Collingridge, at p 185. However, in cases of this kind the court will not only order that proper steps be taken by the defendant in accordance with his promise to secure fulfilment of the condition but will also order specific performance generally, subject to the fulfilment of the condition: see Kennedy v. Vercoe [1960] HCA 64; (1960) 105 CLR 521, at pp 529-531; Brown v. Heffer [1967] HCA 40; (1967) 116 CLR 344, at pp 349-350; Perri v. Coolangatta Investments Pty Ltd [1982] HCA 29; (1982) 149 CLR 537, at p 566.

6. The existence and extent of the purchaser's equitable estate or interest in the property the subject of a contract of sale is commensurate with his ability to specifically enforce the contract. If the vendor's obligation to transfer title is subject to a contingency then, as stated above, any order for specific performance will be expressed to be subject to that contingency. In that event, the purchaser, though entitled to specific performance, has a contingent equitable estate or interest in the land until the contingency is fulfilled. Whether the making of the formal contract in the present case is such a contingency as to make the appellants' equitable interest, if any, in Lot 340, arising under cl.6, a contingent interest is a question which we need not pursue.

7. The outcome of the present case does not turn on the precise nature of the appellants' equitable interest. The outcome turns initially on the question whether ss.68 and 134 of the Transfer of Land Act 1893 (W.A.) ("the Act") defeat that interest by reason of the second respondents having become registered proprietors of the land. And if this question be answered in the negative, there is the question whether the courts below were correct in holding that the appellants were not entitled to an order for specific performance against the second respondents, specific performance being unobtainable as against the first respondent.

8. By cl.4 of the agreement between the first respondent and the second respondents, the second respondents "acknowledge() that an agreement exists" between the appellants and the first respondent, that agreement being the undated 1980 agreement. The clause does not purport to create in favour of the appellants new rights over and above those previously existing. In terms it acknowledges the existence of the earlier agreement. Although the precise effect of the clause must be left for later consideration, it necessarily involves an acknowledgment of such rights as the appellants may have had under the earlier agreement.

9. This characterization of cl.4 lies at the heart of the second respondents' case: namely that mere notice of a prior unregistered interest does not amount to fraud within the meaning of s.68. That section provides that, except in the case of fraud, the registered proprietor holds the land subject only to encumbrances notified on the certificate of title, save for exceptions not material to this case. Section 134 provides that, except in the case of fraud, no person taking a transfer of land shall be affected by actual or constructive notice of any trust or unregistered interest and that knowledge of any trust or unregistered interest "shall not of itself be imputed as fraud".

10. Sections 68 and 134 give expression to, and at the same time qualify, the principle of indefeasibility of title which is the foundation of the Torrens system of title. As the Judicial Committee observed in Gibbs v. Messer (1891) AC 248, at p 254:

"The object is to save persons dealing with
registered proprietors from the trouble and expense
of going behind the register, in order to
investigate the history of their author's title,
and to satisfy themselves of its validity."

Neither the two sections nor the principle of indefeasibility preclude a claim to an estate or interest in land against a registered proprietor arising out of the acts of the registered proprietor himself: Breskvar v. Wall [1971] HCA 70; (1971) 126 CLR 376, at pp 384-385. Thus, an equity against a registered proprietor arising out of a transaction taking place after he became registered as proprietor may be enforced against him: Barry v. Heider (1914) 19 CLR 197. So also with an equity arising from conduct of the registered proprietor before registration (Logue v. Shoalhaven Shire Council (1979) 1 NSWLR 537, at p 563), so long as the recognition and enforcement of that equity involves no conflict with ss.68 and 134. Provided that this qualification is observed, the recognition and enforcement of such an equity is consistent with the principle of indefeasibility and the protection which it gives to those who deal with the registered proprietor on the faith of the register.

11. There is no fraud on the part of a registered proprietor in merely acquiring title with notice of an existing unregistered interest or in taking a transfer with knowledge that its registration will defeat such an interest: Mills v. Stokman [1967] HCA 15; (1967) 116 CLR 61, at p 78; Waimiha Sawmilling Co v. Waione Timber Co (1926) AC 101. The decision in Waimiha Sawmilling merely gives effect to s.134 by excluding from the statutory concept of fraud an acquisition of title with notice of any trust or unregistered interest. However, Lord Buckmaster in expressing the reasons for the decision went rather further when he reproduced (at p 106) the following passage of the remarks of Lord Lindley in the earlier decision (Assets Co v. Mere Roihi (1905) AC 176, at p 210):

"Fraud ... means actual fraud, dishonesty of some
sort, not what is called constructive or equitable
fraud ..."

Lord Buckmaster went on (at pp 106-107) to instance, as examples of fraud, the transfer whose object is to cheat a man of a known existing right and a deliberate and dishonest trick causing an interest not to be registered.

12. These comments do not mean all species of equitable fraud stand outside the statutory concept of fraud. Far from it. In Latec Investments Ltd v. Hotel Terrigal Pty Ltd (In Liquidation) [1965] HCA 17; (1965) 113 CLR 265, Kitto J. (at pp 273-274) held that a collusive and colourable sale by a mortgage company to its subsidiary was a plain case of fraud. According to his Honour (at p 274), "(t)here was pretence and collusion in the conscious misuse of a power", this being a "dishonest course". Likewise, in Loke Yew v. Port Swettenham Rubber Co, Ltd (1913) AC 491, Lord Moulton (at p 504) instanced the case of an agent who has purchased land on behalf of his principal but has taken the conveyance in his own name, and in virtue thereof claims to be the owner of the land, though he is in law a trustee for his principal. It seems that his Lordship did not intend to make this illustration as an example of the statutory concept of fraud. His Lordship had earlier dealt with the issue of fraud and indefeasibility and was, when instancing the acquisition of title by an agent, propounding another answer based on the power and duty of the court to rectify the register. See the analysis of Loke Yew by Starke J. in Stuart v. Kingston (1923) 32 CLR 309, at pp 360-361. Despite this, the example given by Lord Moulton is in our view an instance of fraud within the meaning of s.68.

13. According to the decisions of this Court actual fraud, personal dishonesty or moral turpitude lie at the heart of the two sections and their counterparts: see Butler v. Fairclough [1917] HCA 9; (1917) 23 CLR 78, at pp 90, 97; Stuart v. Kingston, at pp 329, 356. However, from the appellants' point of view the examples may not travel quite far enough because the dishonesty which they exhibit is dishonesty on the part of the registered proprietor in securing his registration as proprietor.

14. This point, on which the second respondents heavily relied, emerges from the comments made by Lord Moulton for the Judicial Committee in Loke Yew. The appellant was the equitable owner of 58 acres of a parcel of 322 acres of land, his interest being unregistered. The registered proprietor of the entire parcel, who was the beneficial owner of 264 acres, transferred the entire parcel to the respondents who became registered as proprietors on their undertaking that they would purchase the appellant's interest. Their Lordships described (at p 502) a contemporaneous document, which was designed to record the undertaking, as "false and fraudulently made for the purpose of inducing" the transferor to execute a conveyance of the entire parcel. Lord Moulton expressed the Judicial Committee's conclusion on the fraud issue by saying (at p 504) that, as the transfer had been obtained by fraud, the case fell within the statutory exception to the principle of indefeasibility.

15. For our part we do not see the illustrations given and the statements made in the cases as amounting to definitive pronouncements that fraud is confined to fraud in the obtaining of a transfer or in securing registration? The statements, viewed in their context, merely express the reasons why particular circumstances fall within the statutory exception. Nor do we see anything in the language or the purpose of s.68 which warrants such a restrictive interpretation. Indeed, we agree with Higgins J. in Stuart v. Kingston when his Honour said (at p 345) that there was much to be said for the view, expressed by Stawell C.J. on the equivalent Victorian provision, that the section should be "construed strictly" and the exception "liberally". The section restricts, in the interests of indefeasibility of title, rights which would exist otherwise at law or in equity. And granted that an exception is to be made for fraud why should the exception not embrace fraudulent conduct arising from the dishonest repudiation of a prior interest which the registered proprietor has acknowledged or has agreed to recognize as a basis for obtaining title, as well as fraudulent conduct which enables him to obtain title or registration. In the context of s.68 there is no difference between the false undertaking which induced the execution of the transfer 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 prior interest. The repudiation is fraudulent because it has as its object the destruction of the unregistered interest notwithstanding that the preservation of the unregistered interest was the foundation or assumption underlying the execution of the transfer. For the same reason the subsequent repudiation by a transferee of property of a limited beneficial interest in that property is fraudulent, when the transferee took the property on terms that the limited beneficial interest would be retained by the transferor. It is immaterial that the transferee "may have been innocent of any fraudulent intent in taking the conveyance in absolute form": Bannister v. Bannister (1948) 2 All ER 133, at p 136.

16. What then was the purpose and effect of cl.4 of the agreement between the first and the second respondents? The matrix of circumstances in which the agreement was made throws up three significant factors. First, the making of an agreement between the first and second respondents which would result in the destruction of the appellants' existing rights, or allow the destruction of those rights, by registration of a transfer in favour of the second respondents in circumstances whereby the rights became unenforceable would expose the first respondent to liability for breach of contract: see the discussion by Jordan C.J. in Queensland Insurance v. A.M.F. Insurance (1941) 41 SR (NSW) 195, at pp 200-201. Secondly, as we have seen, upon registration of such a transfer, the combined effect of ss.68 and 134 would, in the absence of fraud, bring about the destruction of the appellants' rights. Thirdly, at least until registration of such a transfer, the appellants' equitable interest under the 1980 agreement, being first in time, had priority over the interest of the second respondents as purchasers under their agreement with the first respondent.

17. Viewed in this setting, cl.4 of the later agreement was designed to do more than merely evidence the fact that the second respondents had notice of the appellants' rights. If that were the only purpose to be served by the acknowledgment it would achieve nothing. It would enable the second respondents to destroy the appellants' interest and would leave the first respondent exposed to potential liability for breach of contract at the suit of the appellants. In the circumstances outlined it is evident that the purpose of cl.4 was to provide that the transfer of title to Lot 340 was to be subject to the appellants' rights under cl.6 of the 1980 agreement in the sense that those rights were to be enforceable against the second respondents.

18. At first glance it might seem that the words of cl.4 are inadequate to achieve this purpose. But an acknowledgment of an antecedent agreement in an appropriate context may amount to an agreement or undertaking to recognize rights arising under that antecedent agreement. And here the inferences to be drawn from the matrix of circumstances are so strong that they necessarily influence the interpretation of cl.4. These inferences provide a secure foundation for imputing an intention to the parties and reading cl.4 as a reflection of that intention: see Hope v. R.C.A. Photophone of Australia Pty Ltd [1937] HCA 90; (1937) 59 CLR 348, at p 362; Thomas National Transport (Melbourne) Pty Ltd v. May & Baker (Australia) Pty Ltd [1966] HCA 46; (1966) 115 CLR 353, at p 376; Reardon Smith Line v. Hansen-Tangen (1976) 3 All ER 570, at pp 574-575; Khoury v. G.I.O. (N.S.W.) [1984] HCA 55; (1984) 58 ALJR 502, at p 507; [1984] HCA 55; 54 ALR 639, at p 648.

19. In Munro v. Stuart (1924) 41 SR (NSW) 203, at p 204, Harvey J. declined to interpret a clause in a contract in the way in which we have interpreted cl.4. The clause was in these terms:

"The Property is sold subject to existing tenancies
or occupancies and to the conditions and
reservations contained in every relative Crown
Grant under which it is held."

Harvey J., having asked whether the clause could be treated as an agreement between vendor and purchaser that the purchaser would give effect to the existing tenancies and that he would comply with the existing conditions and reservations in the Crown Grant, said (at p 204) "that is not the most natural construction of the clause". His Honour read the clause as providing that the purchaser was to take the property subject to any existing tenancies for what they may be worth. His Honour seems to have thought that the result would have been otherwise if the purchaser had undertaken "to recognise" the leases, this being the construction we place on cl.4. In Munro v. Stuart no account was taken of the matrix of circumstances, perhaps because the influence which it may have on the construction of a contract was not fully recognized at the time.

20. Brennan J. in his reasons for judgment has reviewed the evidence in detail in the course of reaching the conclusion that the parties, including the second respondents, made a collateral contract having an effect similar to the purpose that we have attributed to cl.4. Although we agree that this is the effect of the evidence, it is impermissible to have regard to the negotiations leading up to the agreement for the purpose of interpreting it: see Codelfa Construction Pty Ltd v. State Rail Authority of N.S.W. [1982] HCA 24; (1982) 149 CLR 337, at pp 352-353. The evidence was admissible on the issue of fraud and on the issue of rectification, matters no longer in issue in this appeal. Whether the oral evidence was admissible to set up a contract collateral to a written agreement for the sale of an interest in land is a question which we do not need to consider. We prefer to base our conclusion on the construction of cl.4 ascertained in the light of inferences drawn from the matrix of circumstances.

21. Granted that the purpose of cl.4 is as we have explained it, what is its legal effect? Is it simply an undertaking to perform the 1980 agreement if called upon so to do by the appellants? Contract scarcely seems to give sufficient effect to what the parties had in mind. A trust relationship is a more accurate and appropriate reflection of the parties' intention.

22. The appellants submitted that cl.4 creates a trust in favour of them as third parties, in accordance with the principles enunciated in cases such as In re Schebsman; The Official Receiver v. Cargo Superintendents (London), Ltd and Schebsman (1944) Ch 83 and Green v. Russell. McCarthy (Third Party) (1959) 2 QB 226. However, in the absence of the manifestation of a clear intention to create a trust, the courts have been reluctant to hold that a trust exists. Du Parcq L.J. elegantly expressed the traditional attitude when he said:

"It is true that, by the use possibly of unguarded
language, a person may create a trust, as Monsieur
Jourdain talked prose, without knowing it, but
unless an intention to create a trust is clearly to
be collected from the language used and the
circumstances of the case, I think that the court
ought not to be astute to discover indications of
such an intention."

(In re Schebsman, at p 104). This reluctance to accept that the parties have created an express trust has induced the English courts to impose what has been described as a constructive trust in order to protect a prior interest from destruction on the registration of a later interest: see Bannister; Binions v. Evans (1972) Ch 359; Lyus v. Prowsa Ltd (1982) 1 WLR 1044; 2 All ER 953. Bannister itself was not a third party trust. It was simply a case in which a transferee, who took a transfer as trustee, repudiated his trust and asserted a beneficial title in himself.

23. On the other hand Fullagar J. stated a contrary view in Wilson v. Darling Island Stevedoring & Lighterage Co. Ltd [1956] HCA 8; (1956) 95 CLR 43, at p 67:

"It is difficult to understand the reluctance which
courts have sometimes shown to infer a trust in
such cases."

His Honour was referring to contracts whereby a benefit is promised to a third party. We agree with his Honour's comment. If the inference to be drawn is that the parties intended to create or protect an interest in a third party and the trust relationship is the appropriate means of creating or protecting that interest or of giving effect to the intention, then there is no reason why in a given case an intention to create a trust should not be inferred. The present is just such a case. The trust is an express, not a constructive, trust. The effect of the trust is that the second respondents hold Lot 340 subject to such rights as were created in favour of the appellants by the 1980 agreement.

24. Even if we had not reached this conclusion, we would not have regarded the registration of the transfer in favour of the second respondents as destroying the appellants' rights. Having regard to the intention of the parties expressed in cl.4 of the later agreement, the subsequent repudiation of cl.6 of the 1980 agreement constituted fraud. The case therefore fell within the statutory exception with the result that the appellants' prior equitable interest prevails over the second respondents' title, the second respondents taking with notice of that interest.

25. This brings us to the question whether the courts below were correct in holding that the appellants failed to establish that they were ready and willing to perform the contract contained in cl.6 of the 1980 agreement. It is said that, in general, the plaintiff in an action for specific performance must establish that he has performed the contractual obligations to be performed on his part before the commencement of the action and that he is ready and willing to perform his future obligations under the contract: see Jones & Goodhart, Specific Performance (1986) p 49; Fry on Specific Performance 6th ed. (1921) p 435. This requirement is not peculiar to actions for specific performance; subject to one possible qualification, it applies generally to actions for damages for breach of contract, including contracts for the sale of goods: see, for example, Peter Turnbull & Co Pty Ltd v. Mundus Trading Co (Australasia) Pty Ltd [1954] HCA 25; (1954) 90 CLR 235, at p 253. The possible qualification is that it may be unnecessary for a plaintiff to prove readiness and willingness in an action for repudiation before the time for performance has arrived: cf. Y.P. Barley Producers Ltd v. E.C. Robertson Pty Ltd (1927) VLR 194, at p 209.

26. But the plaintiff is not required to show that he has complied strictly with all his obligations under the contract (Fullers' Theatres Ltd v. Musgrove [1923] HCA 12; (1923) 31 CLR 524, at p 550) or that he is ready and willing to comply strictly with his future obligations. As Barwick C.J. pointed out in Mehmet v. Benson [1965] HCA 18; (1965) 113 CLR 295, at p 307:

"The question as to whether or not the plaintiff
has been and is ready and willing to perform the
contract is one of substance not to be resolved in
any technical or narrow sense. It is important to
bear in mind what is the substantial thing for
which the parties contract and what on the part of
the plaintiff ... are his essential obligations."

See also the comment of Windeyer J. (at p 314) that readiness and willingness "relates only to essential terms". In that case the purchaser obtained specific performance despite his failure to pay an instalment of the purchase price in time, a failure which would have entitled the vendor, had he chosen, to terminate the contract. Specific performance secured to the vendor the consideration promised to him by the purchaser, namely the purchase price, compensation being awarded for the purchaser's delay in making payment. See as well the remarks of Lord Radcliffe in Australian Hardwoods v. Railways Comr (1961) 1 All ER 737, at p 742, which may state the position too adversely to a plaintiff in so far as they may be taken to suggest that a plaintiff who is in breach of an interdependent obligation cannot obtain specific performance.

27. According to the cases, subject to any statutory provision or rule of court to the contrary, it is for the plaintiff to aver and prove readiness and willingness: King v. Poggioli [1923] HCA 11; (1923) 32 CLR 222, at pp 243, 247-248; Mehmet v. Benson, at p 314; Sydney Consumers' Milk & Ice Co Ltd v. Hawkesbury Dairy & Ice Society Ltd (1931) 31 SR (NSW) 458. However, in Baird v. Magripilis [1925] HCA 49; (1925) 37 CLR 321 Higgins J. considered (at pp 330-331) that under O.XXII, r.12 of the Rules of the Supreme Court of Queensland it was unnecessary for the plaintiff to aver readiness and willingness because the rule provided that an averment of the performance or occurrence of all conditions precedent necessary was implied in the statement of claim. In such a case the rules provided that a defendant denying compliance with the condition must specify it in his defence. In King v. Poggioli Higgins J. (at p 243) said that there must be a proper allegation of readiness and willingness as New South Wales had not then adopted the English Judicature Rules. Order 19, r.14 of the Rules of the Supreme Court (Eng.) of 1883 made "readiness and willingness" an implied averment.

28. Order 20, r.8(4) of the Supreme Court Rules of Western Australia provides:

"A statement that a thing has been done or that an
event has occurred, being a thing or event the
doing or occurrence of which, as the case may be,
constitutes a condition precedent necessary for the
case of a party is to be implied in his pleading."

We have some difficulty in seeing how a plaintiff's readiness and willingness to perform his future obligations under a contract is a thing that has been done or an event that has occurred within the meaning of the O.20, r.8(4). However, we need not pursue this point. Although the appellants did not aver that they were ready and willing, issue was joined on the first respondent's denial that they were ready and willing and the primary judge dealt with the issue, finding against the appellants.

29. The statement that the plaintiff bears the onus of proof of readiness and willingness may need some qualification in so far as it relates to the plaintiff's ability to perform by paying the purchase price at some indefinite time in the future. In Mehmet v. Benson Windeyer J. (at p 315) was prepared to participate in ordering specific performance, although he was not convinced that the plaintiff was then ready and willing to complete the contract. His Honour thought that the order should contain a proviso to meet the situation if he should prove unready to complete by payment in full.

30. In the present case the primary judge held that the appellants could not at the relevant time, the expiry of the lease on 14 August 1983, or at any time, pay the purchase price of $45,000. The primary judge also concluded that cl.9 of the undated contract, making time of the essence of "this contract" did not make time of the essence in relation to the contract created by cl.6. We agree with Wilson and Toohey JJ. that his Honour was correct in so finding.

31. The availability of specific performance therefore turns on the ability of the appellants to pay the purchase price. On this issue of fact the primary judge said:

"I find that the plaintiffs on the 14th August 1983
and certainly for some months afterwards were not
in a position to perform their obligations under
the agreement to purchase relied on by them and
that they have failed, so far as it may be
relevant, to demonstrate that at any time since the
14th August 1983 they have been in such a
position."

32. This finding, although challenged in the Full Court of the Supreme Court, was affirmed. Burt C.J. (with whom Brinsden J. agreed) observed that it "is a finding of fact which is fully supported by the evidence and it should not be disturbed". Pidgeon J., the third member of the Full Court, likewise rejected the challenge, concluding that the appellants had not discharged the onus of proof which rested on them. The appellants are therefore confronted with the task of persuading this Court that it should overrule concurrent findings of fact made unanimously by the judges in the courts below on an issue where, according to the authorities, the appellants bear the onus of proof.

33. It is common ground that the appellants were unable to provide the purchase price from their own funds. They were at all relevant times in financial difficulties. On 23 June 1983, they had sent, through their solicitors, a cheque for the deposit of $4,500 to the second respondents but the cheque had been returned. On 10 August 1983, just before the expiry of the lease, they signed an authority under Pt X of the Bankruptcy Act 1966 (Cth), authorizing an accountant, Mr Douglas-Brown, to call a meeting of their creditors and to take control of their property. Thereafter the appellants' property remained subject to control under Div.2 of Pt X until one of the events in s.189(1) occurred. However, nothing was done by Mr Douglas-Brown or the creditors to preclude the appellants from exercising such rights as they had in relation to Lot 340. But, as Mr Douglas-Brown said in evidence, "They were insolvent", that is in August 1983 and thereafter.

34. The only evidence that the appellants had access to finance which would enable them to complete the purchase was that Mr R.H. Stowe was willing to advance them $40,000. That evidence consisted of Mr Bahr's testimony relating to conversations with Mr Stowe's son and a letter dated 19 April 1983 from Mr Stowe. This letter stated:

"This is to confirm my son's conversation with
you that I would be prepared to find $40,000 to
take up your option over the land in Cadiz Street,
Cervantes subject to a supporting sworn valuation,
interest payable monthly at 16% per annum on the
$40,000. The land to be purchased in my name, and
on demand from you to be handed over for $50,000.

In the meantime thought to be given to the
procuring of land opposite, and the building of a
tavern and the transfer of your present license
thereto. I could be prepared to finance this if we
can come to some mutually acceptable arrangement."

The primary judge observed:

"No evidence was adduced from either Beecher
Stowe (the son) or R.H. Stowe and it was conceded
by the plaintiffs that there had been no attempt to
comply with the conditions set out in the said
letter nor to discuss the same with R.H. Stowe."

Mr Stowe's willingness to provide finance in the face of the appellants' financial difficulties, particularly in the light of the Pt X arrangements which ensued four months after his letter, and in the face of the respondents' refusal to recognize the appellants' rights, were not explored in evidence.

35. We are by no means sure that we would have been prepared to reverse the finding made by the courts below on the facts as we have recounted them. However, there are three additional elements which must be taken into account. The primary judge considered, incorrectly, that time was of the essence of the contract between the appellants and the first respondent. The members of the Full Court did not appreciate that entry into a formal contract by the appellants and the second respondents, standing in the shoes of the first respondent, was an essential step in the carrying into execution of the informal contract constituted by cl.6. It is not suggested that the appellants were unwilling to enter into a formal contract. Indeed, in the events that happened, it was the second respondents who repudiated the informal agreement. In the result it became extremely difficult to identify the time as at which the appellants might be expected to complete by paying the purchase price.

36. With respect to the appellants' ability to provide the purchase price the critical fact was that, on the evidence, the purchase price was significantly less than the true value of Lot 340. In this situation there can be little reason for doubting the appellants' capacity to borrow the money needed to complete the purchase. Although we are reluctant to disturb concurrent findings of fact the circumstances of this case justify the Court in taking that course. Accordingly we are of opinion that the Court should order specific performance.

37. For these reasons we would allow the appeal.

WILSON AND TOOHEY JJ: In 1979 the appellants, Mr. and Mrs. Bahr, acquired Cervantes Lot 221 and the business of a general store conducted on it, together with a licence from the Crown to occupy Cervantes Lot 340. That licence carried with it the right to call for a Crown Grant of Lot 340 on the erection of commercial premises on the land by 14 August 1980. Cervantes is a seaside town in Western Australia.

2. The appellants needed finance in order to build the premises on Lot 340. After unsuccessful approaches to financial institutions and others, they approached the third respondents who carried on business as real estate agents. They did so at the suggestion of Lloyd Moris Callard who was employed by the third respondents as the manager of one of the sections of their business. Mr. Callard suggested a plan by which the appellants sell Lot 340 under an arrangement which would permit them to occupy the land as lessees and thereafter to buy it back. This would provide them with cash and, it was thought, enable them to re-acquire the land when they were in a financial position to do so.

3. The first respondent was a client of the third respondents who for some years had acted as his agent in the investments of moneys. At all material times the first respondent lived in Canada. Mr. Callard and Ian Langdon Shellabear, one of the third respondents, spoke to C.A.M. Robertson, a solicitor who held power of attorney for the first respondent. Mr. Shellabear then got in touch with the first respondent who agreed to buy Lot 340 under a lease and buy-back arrangement.

4. By an undated contract, stamped 25 June 1980, the appellants agreed to sell Lot 340 to the first respondent for the sum of $32,000, payable as to $16,000 on execution and as to $10,000 when construction of the premises reached plate height, with the balance of $6,000 to be paid within three days of receipt by the first respondent of a certificate of compliance from the building surveyor of the relevant shire. The appellants undertook to complete the building by 14 August 1980, thereafter to apply for the issue of a Crown Grant and then to take all necessary steps to transfer the land into the name of the first respondent. The first respondent in turn agreed to lease the land to the appellants for a term of three years from 14 August 1980 for an annual rental of $4,000. Clause 6 of the agreement read:

"6. The Vendors hereby further agree that upon
the expiration of the lease contained in clause 5
hereof they will enter into a contract with the
Purchaser for the purchase by the Vendors of the
land for a sum of FORTY FIVE THOUSAND DOLLARS
($45,000) payable by way of TEN (10%) per cent
deposit with the balance of the purchase moneys
to be paid at settlement. Settlement is to be
effected thirty (30) days after the payment of
the deposit."

By cl.9, time was expressed to be of the essence "of this contract". Clause 10 incorporated the Real Estate Institute of Western Australia (Inc.) 1980 General Conditions for the Sale of Land into the contract.

5. Burt C.J., in the Full Court, said of cl.6:

" That clause does not in terms impose any
obligation upon the first respondent to sell but
in so far as it imposes an obligation upon the
appellants to 'enter into a contract with (the
first respondent) for the purchase' by them of
the land I think by necessary implication the
clause placed upon the first respondent an
obligation to agree to sell back. And that was
certainly the understanding of the parties. The
trial Judge so held and I think that he was
right. Counsel for the first respondent conceded
the point in his argument before us. If it had
been necessary to do so, the trial Judge would
have rectified the agreement to make the position
clear but in my view it was not necessary to do
so."

In this Court none of the parties sought to depart from the position described by Burt C.J. and we must deal with the appeal accordingly.

6. The effect of the arrangement made between the parties was that the first respondent outlaid $32,000 for which he was to receive at the end of three years an amount of $45,000 together with rent over that period amounting to $12,000.

7. By letter dated 20 October 1980 the Lands Department informed the appellants that a Crown Grant for Lot 340, registered in their names, had that day issued to the Land Titles Office. On 5 March 1981 the appellants transferred the land to the first respondent. They did not then lodge a caveat to protect their interest arising from cl.6 of their agreement with the first respondent.

8. The building on Lot 340 was completed by 14 August 1980 and the appellants began to operate the business of a general store, post office and newsagency business, together with a liquor store on Lot 221. In December 1980 they sold the post office and newsagency business to F.J. and M. Hesford. During 1981 they made attempts to sell the business of general store conducted on Lot 340 and the liquor store on Lot 221. Those attempts did not come to anything. The second respondents were among those interested. They lived at Green Island, some 50 kilometres south of Cervantes, and were known to Mr. Callard both personally and as a client of the third respondents. It is unnecessary to trace the rather tangled chain of negotiations that took place, involving to different degrees all the parties to this appeal; but it eventuated in the second respondents making the first respondent an offer to buy Lot 340. There is no doubt that the second respondents were aware of the agreement between the appellants and the first respondent. Indeed Mr. Robertson, as attorney and solicitor for the first respondent, refused to enter into any contract with the second respondents unless that contract contained express reference to the earlier agreement.

9. By an agreement dated 26 December 1981 the first respondent sold Lot 340 to the second respondents for the sum of $40,000. The agreement is on a standard form of offer and acceptance which incorporates the Real Estate Institute's General Conditions for Sale. Added to the standard conditions in the offer and acceptance is a further "condition" in these terms:

"4. That the Purchaser acknowledges that an
agreement exists between Walter Bahr & Joanna
Maria Bahr and Marcus Grenville Nicolay as
stamped and signed on the 5th March 1980."

The reference to 5 March 1980 is an error but nothing turns on that. It was common ground that the agreement referred to was that made between the appellants and the first respondent, stamped 25 June 1980.

10. Under the agreement between the first respondent and the second respondents settlement was due on 4 January 1982. In fact it took place on 31 December 1981 and the second respondents thereupon became the registered proprietors of Lot 340. On 3 January 1982 Mr. Callard told the appellants that Lot 340 had been bought by the second respondents. The evidence suggests that this was the first time the appellants had been told. The appellants did not lodge a caveat to protect their interest under cl.6 until 14 January 1982, that is after the second respondents had been registered as the proprietors of Lot 340. On or about 6 January 1982 the second respondents sent to the appellants' solicitors, Northmore Hale Davy & Leake, a letter, the operative part of which read:

"As requested to (sic) Mr. Callard of
Shellabear & Son we are writing to confirm as
pointed out by Shellabear & Son the clause
relating to the purchase of Lot 340 by W. &
J.M. Bahr is reconised (sic) by us and providing
3 months notice of their intention to purchase is
given on July 1st 1983 with 10% of the purchase
money then we will agree to sign an offer for
$45,000 plus any improvement at cost from this
date."

11. It will be recalled that, under the agreement between the appellants and the first respondent, the former held Lot 340 as lessees for a term of three years from 14 August 1980. Why the appellants should be required to give three months' notice of "intention to purchase" is obscure. Why they should pay for improvements presumably effected by them is even harder to understand.

12. On 17 February 1982 the appellants' new solicitors wrote to the second respondents a letter which concluded:

"We confirm that at the expiration of the lease
our clients will enter into a contract with you
to purchase Lot 340, Cervantes for the sum of
$45,000.00 in terms of their agreement with
Mr. Nicolay and your recent letter to
Messrs Northmore Hale Davy & Leake."

On 23 June 1983, that is before the lease had expired, the appellants' solicitors wrote to the second respondents with a cheque for $4,500 by way of deposit and an offer and acceptance form relating to the sale of Lot 340 from the second respondents to the appellants. The letter also contained a "Notice of Exercise of Option", with the comment:

"It is our view that on the basis of the agreement
entered into between yourselves and Mr. Nicolay
and subsequent correspondence from yourselves to
the then solicitors representing Mr. and
Mrs. Bahr that a binding option agreement exists
between you and the Bahrs."

The reference to an option is not entirely clear. It may be that the appellants' solicitors were treating the letter of 6 January 1982 as an option. But it seems more likely that they regarded cl.6 as conferring an option on the appellants. Whatever their view of their clients' position, the claim made by the appellants in this litigation is based on the original contract between them and the first respondent and it was in terms of the contract that the litigation was fought.

13. By letter dated 29 June 1983 the second respondents' solicitors returned the cheque for $4,500 and the other enclosures with the letter of 23 June, making it clear that their clients did not intend to sell Lot 340 to the appellants. On 19 August 1983 the appellants' solicitors wrote to Mr. Robertson with the statement:

"Our clients now require the property to be
re-conveyed ...".

On the same day Mr. Robertson replied that:

" ... my client is not able to dispose of the
subject property being Lot 340 Cervantes as it
has already been disposed of to a client
negotiated by Shellabear & Son."

14. On 1 September 1983 the appellants issued a writ against the first respondent and the second respondents. They joined the third respondents as defendants some time later. As finally amended, the statement of claim sought various heads of relief including an order that Lot 340 vest in them on payment of $45,000, alternatively specific performance of the agreement made between the appellants and the first respondent, and damages against all respondents.

15. The trial judge dismissed the appellants' claim against all respondents. The Full Court rejected the appellants' appeal against the dismissal of their claim against the first respondent and the second respondents. The Full Court upheld the appellants' appeal against the dismissal of their claim against the third respondents and ordered that the latter pay to the former "damages to be assessed". The appellants' claim against the third respondents is not the subject of an appeal to this Court; it is enough to note that, in the view of the Full Court, there had been a breach of duty owed by the third respondents to the appellants. The third respondents appeared on the appeal to this Court and were heard in respect of a notice of contention filed by them. The issue before this Court is whether the appellants are entitled to succeed in their claim against the first respondent and in their claim against the second respondents. The issues presented by the appeal are substantially whether the registered title of the second respondents may now be disturbed and whether, in any event, the appellants are entitled to the remedy of specific performance against the first respondent, the second respondents or all of them.

16. Something should be said as to the nature of the interest created by cl.6 of the agreement between the appellants and the first respondent. The appellants sought rectification of the clause to make it clear that the obligation of the first respondent to sell the land to the appellants was not dependent upon the execution of a further agreement. In part, the rectification they sought was in terms that upon the expiration of the lease the first respondent would sell and the appellants would buy the land for $45,000, payable by way of a deposit of ten per cent upon the expiration of the lease and the balance on settlement, with settlement to take place within thirty days of payment of the deposit. The trial judge thought it unnecessary to rectify the agreement, as did the Full Court. There has been no challenge to that view.

17. The trial judge rejected an argument that the agreement between the appellants and the first respondent was in truth a mortgage. Cf. Gurfinkel v. Bentley Pty. Ltd. [1966] HCA 75; (1966) 116 CLR 98. His Honour said of the agreement:

"It was a transaction entered into after the
plaintiffs had decided they could not obtain
funds secured by way of mortgage on the land and
was a device to enable them to obtain finance to
effect the required improvement of the land so as
to permit the freehold title to issue, involving
a sale of the land coupled with a lease back to
them and a right to re-purchase at a re-purchase
price unrelated to the amount of finance
obtained, the lease rental having no relationship
to any rate of interest calculated in respect of
such finance."

Having regard to the way in which the argument was presented to the Full Court and to this Court, the appeal must be decided on the basis that the transaction between the appellants and the first respondent was not one of mortgage. Of course the question remains - what interests were created by the agreement?

18. On the proper construction of the agreement, cl.6 constituted an executory contract for the sale of Lot 340 by the first respondent to the appellants on the terms contained in that clause. In the words of the Court in Masters v. Cameron [1954] HCA 72; (1954) 91 CLR 353, at p 360, there was "a contract binding the parties to join in bringing the formal contract into existence and then to carry it into execution". Implications of the Torrens System aside, on execution of the original contract the first respondent held the legal estate in Lot 340 and the appellants held an equitable estate or interest, "measured by what a court of equity would decree in an action for specific performance" (Commissioner of Taxes (Q.) v. Camphin [1937] HCA 30; (1937) 57 CLR 127, at p 134). As the holder of the legal estate in the land, the first respondent was free to dispose of his interest. But he could not relieve himself of his obligation to transfer the land to the appellants in accordance with cl.6 and (the Torrens System and questions of priorities aside) the equitable estate held by the appellants was not affected by a disposition by the first respondent of his legal estate.

19. The agreement between the appellants and the first respondent in no way sought to restrain the latter from disposing of or dealing with the interest which he had acquired. He did not require the consent of the appellants to do such a thing. There was in truth no "bond or covenant or contract purporting to impose a total contractual restraint upon alienation", to use the language of Dixon C.J. in Hall v. Busst [1960] HCA 84; (1960) 104 CLR 206, at p 217. As Pidgeon J. pointed out in the Full Court, the first respondent was free to assign his interest in the land but "he could not discharge himself from liability on the covenant to enter into the contract with the appellants". "If, however", his Honour continued, "he assigned the land in a manner where he could compel the assignees to give title then I would consider he would have performed his obligations." Equally, if the first respondent failed to ensure that he could compel the second respondents to give title, he was in breach of his contract with the appellants.

20. Although the second respondents take their stand on the provisions of the Transfer of Land Act 1893 (W.A.) ("the T.L.A."), it is useful to note the position of the parties divorced from those provisions. The second respondents were certainly purchasers with notice of the appellants' equitable interest in the land and, as such, they took their legal estate subject to that interest. The authorities relating to unregistered estates are noted in Voumard, The Sale of Land in Victoria, 4th ed. (1986), pp 423-424, n.44. However the real question is - having registered their interest under the provisions of the T.L.A., did the second respondents acquire a title which was indefeasible in the sense that it was no longer open to attack by the appellants? The question may be further refined by asking - having regard to ss.68 and 134 of the T.L.A., was there in any relevant sense fraud on the part of the second respondents? Unless there was such fraud, the second respondents hold their title free of any interest the appellants have by reason of cl.6, subject to any claim in personam that may lie against the second respondents. That is a matter to which we shall turn later in these reasons.

21. Section 68 of the T.L.A. asserts the principle that, except in the case of fraud, the registered proprietor of land holds the land subject only to such encumbrances as may be notified on the certificate of title save for certain exceptions, none of which is relevant here. Section 134 spells out the notion of fraud to some extent by providing that (again except in the case of fraud) no person taking a transfer of land "... shall be affected by notice actual or constructive of any trust or unregistered interest any rule of law or equity to the contrary notwithstanding; and the knowledge that any such trust or unregistered interest is in existence shall not of itself be imputed as fraud".

22. The cases on ss.68 and 134 and their counterparts are legion. They are noted in the standard texts on the Torrens System and in periodical literature. There has been a divergence of approach by the Australian courts on the one hand and the New Zealand courts on the other: see Butt, "Notice and Fraud in the Torrens System: A Comparative Analysis", University of Western Australia Law Review, vol.13 (1977-1978), p 354; also Whalan, "The Meaning of Fraud under the Torrens System", New Zealand Universities Law Review, vol.6 (1975), p 207. Nevertheless, the basic elements are clear enough. The fraud referred to in ss.68 and 134 is actual fraud, involving some act of dishonesty on the part of the person whose title is sought to be impeached: Assets Company, Limited v. Mere Roihi (1905) AC 176; Waimiha Sawmilling Co. v. Waione Timber Co. (1926) AC 101; Butler v. Fairclough (1917) 23 CLR 78; Wicks v. Bennett [1921] HCA 57; (1921) 30 CLR 80; Stuart v. Kingston [1923] HCA 17; (1923) 32 CLR 309, decision reversed by the Privy Council on another point - see [1924] UKPCHCA 3; (1924) 34 CLR 394.

23. It is equally clear that to acquire land with notice of an unregistered interest such as a lease, to become the registered proprietor and then to refuse to acknowledge the existence of the interest is not of itself fraud: Oertel v. Hordern (1902) 2 SR (NSW) (Eq.) 37; Wicks v. Bennett; Friedman v. Barrett; Ex parte Friedman (1962) QdR 498; R.M. Hosking Properties v. Barnes (1971) SASR 100; Achatz v. De Reuver (1971) SASR 240. The point is made by Kitto J. in Mills v. Stokman [1967] HCA 15; (1967) 116 CLR 61, at p 78, where his Honour said "... but merely to take a transfer with notice or even actual knowledge that its registration will defeat an existing unregistered interest is not fraud".

24. What then constitutes fraud for the purposes of ss.68 and 134? A convenient starting point is a passage in the judgment of the Privy Council in Waimiha Sawmilling Co. v. Waione Timber Co., at pp 106-107:

"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 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."

25. The most often cited case in which fraud was held to have occurred is Loke Yew v. Port Swettenham Rubber Company, Limited (1913) AC 491. There a purchaser, with knowledge of the existence of an unregistered interest, represented to the transferor that it would make its own arrangements with the holder of the unregistered interest. It failed to do so, in circumstances where it was held to have been the purchaser's intention to destroy the outstanding interest by registration of its own title. It was the purchaser's fraudulent misrepresentation that persuaded the previous registered proprietor to transfer the land to it.

26. With this decision may be contrasted Waimiha Sawmilling Co. v. Waione Timber Co. The registered proprietor of land, Howe, granted timber rights to the appellant which protected its agreement by caveat. Howe purported to determine the appellant's interest for breach of covenant. The appellant appealed against a judgment upholding Howe's re-entry. While the appeal was pending, Howe sold the land to Wilson who was acting as agent for a company to be formed, the respondent. Howe obtained an order for removal of the caveat (against which the appellant did not appeal) and transferred the land to Wilson. Wilson later transferred the land to the respondent. The appellant's appeal against the judgment upholding Howe's re-entry was itself upheld. Notwithstanding that Wilson knew of the appellant's claim and of the litigation between it and Howe, the Privy Council held that there had been no fraud on the part of the respondent.

27. Consistently with these authorities, evidence going no further than to show that when the second respondents took a transfer of Lot 340 from the first respondent and became the registered proprietors of the land they were aware of the contents of cl.6, cannot amount to fraud within the meaning of ss.68 and 134. More is needed before the appellants can disturb the second respondents' registered title on that ground.

28. The emphasis in the authorities is on actual fraud on the part of the registered proprietor. Such fraud may be found even though the registered proprietor has not himself made any representation. In Latec Investments Ltd. v. Hotel Terrigal Pty. Ltd. (In Liquidation) [1965] HCA 17; (1965) 113 CLR 265, Kitto J. commented at pp 273-274:

"... we were invited to hold that nothing is fraud
in the sense which is relevant under the Real
Property Act unless it includes a fraudulent
misrepresentation. The whole course of authority
on this branch of the law is to the contrary.
Moral turpitude there must be; but a designed
cheating of a registered proprietor out of his
rights by means of a collusive and colourable
sale by a mortgagee company to a subsidiary is as
clearly a fraud, as clearly a defrauding of the
mortgagor, as a cheating by any other means."

29. In the present case the trial judge made these findings:

"I am satisfied that the second defendants
purchased Lot 340 with the knowledge that they
were bound by the terms of the Agreement Ex. 11
and with the belief that the plaintiffs had a
right pursuant to the terms of the agreement
ex. 11 to re-purchase the land for $45,000, and
that their purchase was subject to the
plaintiff's (sic) right to re-purchase Lot 340
from them."

30. To a degree the findings tend to beg the question to which they are directed. What is meant by saying that the second respondents bought Lot 340 "with the knowledge that they were bound by the terms of the Agreement"? The second respondents may have thought that they were so bound, but were they? The second respondents may have thought that their purchase was "subject to" the appellants' right to buy Lot 340 from them. But was it subject to such a right? What does the expression "subject to" mean in this context? Nevertheless the findings are important for the light they throw on the second respondents' understanding at the time they contracted with the first respondent and on any obligation they may have assumed.

31. The matter can perhaps be tested this way. Had the appellants lodged a caveat to protect their interest under cl.6 of the agreement with the first respondent, could the second respondents have applied successfully for the removal of the caveat from the register? Certainly, had the appellants lodged a caveat before the sale from the first respondent to the second respondents, the latter would have taken their interest under their contract of sale subject to the appellants' interest under cl.6. This would follow from the law relating to competing estates in land. Failure to lodge a caveat may in some circumstances lead to the loss of what would otherwise be a prior interest. In Butler v. Fairclough, at p 92 Griffith C.J. commented:

" If a man having a registrable instrument neither
lodges it for registration nor lodges a caveat
to protect it, it is clear that a registrable
instrument later in date, but lodged before his,
will have precedence, notwithstanding notice of
the earlier instrument received before lodging
his own. That is by reason of the express
provisions of the Statute. But why should not
the same principle apply in the case of equitable
interests?"

Although this passage from the judgment of Griffith C.J. was criticized by Dixon J. in Lapin v. Abigail [1930] HCA 6; (1930) 44 CLR 166, at p 205, the decision in Butler v. Fairclough was approved by the Privy Council in Abigail v. Lapin [1934] UKPCHCA 1; (1934) 51 CLR 58; (1934) AC 491. However the breadth of dicta in Abigail v. Lapin must now be read in the light of J. & H. Just (Holdings) Pty. Ltd. v. Bank of New South Wales [1971] HCA 57; (1971) 125 CLR 546 from which it is apparent that failure to lodge a caveat to protect an unregistered interest will not always lead to a loss of priority.

32. In any event Abigail v. Lapin does not assist the registered proprietor who becomes registered by fraud. Had the second respondents acquired their interest in Lot 340 without knowledge of the existence of the appellants' interest under cl.6 of the earlier agreement, they would, as a matter of priorities, have taken free of that interest. Section 134 would protect them if thereafter they acquired knowledge of the appellants' interest. The position is that they took with knowledge of the contents of cl.6. Again s.134 operates to protect them if they did no more than take with notice. Did they do more?

33. The second respondents did do more by writing their letter of 6 January 1982. Of course by then they were the registered proprietors of Lot 340; the fraud to which ss.68 and 134 refer is fraud committed in the act of acquiring a registered title: see Loke Yew v. Port Swettenham Rubber Company, Limited, at pp 503-504; Stuart v. Kingston, at p 329; Breskvar v. Wall [1971] HCA 70; (1971) 126 CLR 376, at p 384; and note s.199 of the T.L.A. which protects a registered proprietor against ejectment except in certain cases, one of which is:

" (iv) The case of a person deprived of any land
by fraud as against the person registered as
proprietor of such land through fraud or as
against a person deriving otherwise than as
a transferee bona fide for value from or
through a person so registered through
fraud."

Nevertheless the trial judge found the letter of 6 January 1982 to have been written "in recognition of the second defendants' acceptance of the right of the plaintiff (sic) to re-purchase Lot 340 for the price of $45,000 at the expiration of the term of the lease from the first defendant, but on the advice of Callard, in terms calculated to vary that right". Certainly the letter was written within a week or so of the second respondents becoming the registered proprietors of Lot 340. It is a recognition of an obligation to sell Lot 340 to the appellants though, as his Honour pointed out and as mentioned earlier in these reasons, there was an attempt to alter the terms of sale in cl.6.

34. And, importantly, on 8 January 1982 the second respondents made two offers to the appellants. The first was an offer to buy Lot 221:

"Subject to vendors relinquishing all rights of
repurchase of the land and buildings known as
Lot 340."

The second was an offer to buy the businesses conducted on Lots 221 and 340:

"Subject to the vendors relinquishing all rights
to repurchase the freehold of Lot 340."

There can be only one explanation for each of the conditions attached to the offers, namely that the second respondents accepted an obligation to the appellants in terms of cl.6 and were seeking to extinguish it.

35. The appellants point to the inclusion in the contract of sale from the first respondent to the second respondents of an express acknowledgement by the latter that an agreement existed between the appellants and the first respondent. But is that any more than evidence of what is not denied in any event, that the second respondents knew of the arrangement between the appellants and the first respondent? The acknowledgement was included at the insistence of Mr. Robertson. His evidence makes it clear that he insisted upon its inclusion to protect his client, the first respondent. It was, he said, "to protect Mr Nicolay obviously, because I was aware of the need of it". He also said that when Mr. Callard presented him with a draft offer and acceptance form between the first respondent and the second respondents, he said to Callard:

"... you should mention in the contract a
reference to the purchaser being aware of this
agreement and knowing its contents."

Later he said in cross-examination "In the circumstances I believe the purchaser (a reference to the second respondents), being aware of the terms of the agreement, took subject to it." He was then asked "May I take it from that answer that it was your opinion that clause 4 protected Mr Nicolay?" To which he answered "Yes".

36. But there was evidence of a conversation between Mr. Callard and the second respondent David George Thompson about the inclusion of cl.4. Callard was the agent of the second respondents in connection with the purchase from the first respondent, and agent for the first respondent as well. Referring to the conversation, Callard said:

"I think he (Mr. Thompson) asked me what I
thought, and I said 'Well, I don't think they
have got a chance of ever raising the money,
number 1; and if it ever came to a point where
our legal advice was wrong --' and he agreed with
me that, even so, he would be $5000 in front; so
it was, to use the word, a calculated risk."

The "legal advice" was identified as that given by Mr. Robertson, though it is doubtful that the passage truly reflects the advice itself.

37. Further evidence of Mr. Callard is relevant on this issue:

" It is true, is it not, that when the question of
the Nicolay sale was raised with Robertson, you
knew that he was looking for the assurance that
the Thompsons would agree to abide by both those
two components of the agreement. Is that
right?---That's correct.

You knew that it was for that purpose that he was
saying 'Well, there has to be that clause 4 in
the agreement'?---That's right.

It would be quite true that you knew Robertson
simply would not sign a contract unless he
received an assurance and was satisfied that that
is what the position would be, that Thompson
would be --?---Yes, that is correct. They were
my instructions. Put it that way."

That matter was discussed with Thompson. Callard's evidence included the following:

" Did you understand after the discussion was over
that, in effect, you had obtained from Thompson
the kind of assurance that Robertson was looking
for?---I think so."

38. Counsel for the second respondents submitted that the finding by the trial judge that his clients' purchase was "subject to the plaintiff's right to re-purchase Lot 340 from them" meant no more than that the first respondent had fulfilled his obligation to make proper disclosure to the second respondents. He referred to Lyus v. Prowsa Developments Ltd. (1982) 1 WLR 1044; 2 All ER 953 where Dillon J. said at p 1051; All ER at p 960:

"By contrast, there are many cases in which
land is expressly conveyed subject to possible
incumbrances when there is no thought at all of
conferring any fresh rights on third parties who
may be entitled to the benefit of the
incumbrances. The land is expressed to be sold
subject to incumbrances to satisfy the vendor's
duty to disclose all possible incumbrances known
to him, and to protect the vendor against any
possible claim by the purchaser if a third party
establishes an overriding right to the benefit of
the incumbrances against the purchaser."

39. However the trial judge's findings went further than the situation contemplated by Dillon J., for he said in a passage which we have already cited but which bears repetition:

"I am satisfied that the second defendants
purchased Lot 340 with the knowledge that they
were bound by the terms of the Agreement Ex. 11
and with the belief that the plaintiffs had a
right pursuant to the terms of the agreement
ex.11 to re-purchase the land for $45,000, and
that their purchase was subject to the
plaintiff's (sic) right to re-purchase Lot 340
from them."

40. It is in the conduct of the second respondents that fraud must be found. The evidence is far from precise. In cross-examination the second respondent David George Thompson said that when he offered $40,000 for Lot 340 he believed from Mr. Callard that the appellants were in financial trouble: "In other words, they weren't going to survive." The tenor of his evidence was that he knew of the "buy-back" arrangement between the appellants and the first respondent but thought that the appellants' financial position made it unlikely that they would be able to repurchase Lot 340. There is no doubt that the second respondents took a calculated risk that the appellants would be unable to find the $45,000 required by cl.6.

41. As early as February 1982 differences had arisen between the appellants and the second respondents, though it was in relation to the purchase by the latter of the business being conducted by Mr. and Mrs. Hesford on Lot 340. On 17 February 1982 the appellants' solicitors wrote to the second respondents regarding occupancy of Lot 340. That letter concluded in terms that are set out earlier in these reasons.

42. On 3 March 1982 the second respondents' solicitors replied:

"... our clients have no intention of entering
into a contract with your clients to sell the
property for $45,000 and maintain that they are
not bound by any terms of the agreement between
your clients and Mr. Nicolay. We refer you to
Section 68 of the Transfer of Land Act, 1893 as
amended and the authorities on this subject."

43. Can it be said, using the language of Waimiha Sawmilling Co. v. Waione Timber Co., at p 106, that the designed object of the transfer to the second respondents was to cheat the appellants of a known existing right? Notwithstanding the various matters to which we have referred, we think the evidence falls short of establishing that case. The second respondents agreed to buy Lot 340 in the hope, even the expectation, that the appellants would not be able to buy back Lot 340. But the evidence does not justify a finding that it was their intention to ensure that the appellants did not do so. However it does establish that the second respondents took a transfer of Lot 340, knowing of cl.6, accepting an obligation to resell to the appellants and communicating that acceptance to Callard, but banking on the appellants' inability to find the $45,000 necessary to implement the clause. What are the consequences of that finding?

44. It is nearly a century since, in Gibbs v. Messer (1891) AC 248, at p 254, the Privy Council described the Torrens System in these terms:

"The object is to save persons dealing with
registered proprietors from the trouble and
expense of going behind the register, in order to
investigate the history of their author's title,
and to satisfy themselves of its validity. That
end is accomplished by providing that every one
who purchases, in bona fide and for value, from a
registered proprietor, and enters his deed of
transfer or mortgage on the register, shall
thereby acquire an indefeasible right,
notwithstanding the infirmity of his author's
title."

45. That statement still stands as an exposition of the nature and purpose of the Torrens System, though "bona fide" must be equated with "in the absence of fraud", and "indefeasibility" is a word that does not appear in all the Torrens statutes of this country.

46. Nevertheless, in accepting the general principle of indefeasibility of title, the Privy Council in Frazer v. Walker (1967) 1 AC 569, at p 585 made it clear that:

"... this principle in no way denies the right of
a plaintiff to bring against a registered
proprietor a claim in personam, founded in law or
in equity, for such relief as a court acting in
personam may grant."

47. Sir Garfield Barwick, who was a member of the Privy Council in Frazer v. Walker, commented in Breskvar v. Wall, at pp 384-385:

"Proceedings may of course be brought against the
registered proprietor by the persons and for the
causes described in the quoted sections of the
Act or by persons setting up matters depending
upon the acts of the registered proprietor
himself. These may have as their terminal point
orders binding the registered proprietor to
divest himself wholly or partly of the estate or
interest vested in him by registration and
endorsement of the certificate of title".

This vulnerability on the part of the registered proprietor is not inconsistent with the concept of indefeasibility. The certificate of title is conclusive. If amended by order of a court it is, as Barwick C.J. pointed out at p 385, "conclusive of the new particulars it contains".

48. Returning to Frazer v. Walker, the Privy Council said, at p 585, of claims in personam:

" The principle must always remain paramount that
those actions which fall within the prohibition
of sections 62 and 63 may not be maintained."

The reference to ss.62 and 63 is a reference to the Land Transfer Act 1952 (N.Z.), roughly corresponding with ss.68 and 199 of the T.L.A. The point being made by the Privy Council is that the indefeasibility provisions of the Act may not be circumvented. But, equally, they do not protect a registered proprietor from the consequences of his own actions where those actions give rise to a personal equity in another. Such an equity may arise from conduct of the registered proprietor after registration: Barry v. Heider (1914) 19 CLR 197. And we agree with Mahoney J.A. in Logue v. Shoalhaven Shire Council (1979) 1 NSWLR 537, at p 563 that it may arise from conduct of the registered proprietor before registration.

49. The evidence leads irresistibly to the following conclusions. The second respondents understood through their agent Callard that the first respondent would not sell Lot 340 unless they agreed to be bound by the obligation in cl.6 which required the first respondent to resell to the appellants. The second respondents bought Lot 340 on the understanding common to vendor and purchasers that they were so bound and cl.4 was included to give effect to that understanding. Clause 4 may have been, of itself, insufficient for that purpose but the second respondents' letter of 6 January 1982 and their two offers of 8 January 1982 put beyond doubt their acknowledgement of their obligation to the appellants.

50. By taking a transfer of Lot 340 on that basis, and the appellants' interest under cl.6 constituting an equitable interest in the land, the second respondents became subject to a constructive trust in favour of the appellants: Lyus v. Prowsa Developments Ltd.; Binions v. Evans (1972) Ch 359, at p 368. If it be the position that the appellants' interest under cl.6 fell short of an equitable estate, they nonetheless had a personal equity enforceable 1 against the second respondents. In either case ss.68 and 134 of the T.L.A. would not preclude the enforcement of the estate or equity because both arise, not by virtue of notice of them by the second respondents, but because of their acceptance of a transfer on terms that they would be bound by the interest the appellants had in the land by reason of their contract with the first respondent.

51. In light of the conclusion that the appellants had, by reason of their contract with the first respondent, an equitable estate in Lot 340 and that, as against the second respondents, they have such an estate or in any event a personal equity, the question arises whether the appellants may now enforce their rights in regard to Lot 340.

52. As to the first respondent, the trial judge's findings were in these terms:

"I find that the first defendant was under an
obligation pursuant to the terms of that
agreement (the agreement stamped 25 June 1980) to
sell to the plaintiffs Lot 340 at the expiration
of the term of the lease for the price of $45,000
payable by a deposit of 10% and the balance
within 30 days payment of such deposit, and that
were it not for the fact that the first defendant
had parted with possession of such land, the
plaintiffs, subject to being ready willing and
able to perform their obligation under the
agreement, would be entitled to an order for
specific performance. I find however that the
plaintiffs were not ready willing and able to so
perform, the result of which is that not only are
they not entitled to specific performance against
the plaintiff (sic), but they are also not
entitled to damages ...."

53. Later his Honour said:

"I further find that the plaintiffs, not having
established that they were ready willing and able
to complete in accordance with the provisions for
completion in that they failed to establish their
ability to pay the purchase price, are not in any
event entitled to an order for specific
performance against either the first or second
defendants."

54. It will be necessary to look more closely at these findings as reproduced and as amplified in his Honour's reasons for judgment. In the Full Court, Burt C.J. held the plaintiffs' statement of claim to be defective in that it did not "allege that the appellants were ready willing and able to perform the contract, that is to say it does not allege that they were in the position to pay the purchase price". Burt C.J. regarded the absence of such a plea as fatal to the appellants' claim against the first and second respondents, upholding generally the trial judge's finding that the appellants were not in fact ready willing and able to perform their part of the contract.

55. Pidgeon J., while considering that the authorities made it clear "that the party seeking specific performance ought to plead and prove his readiness and willingness to perform", did not regard the pleading element as absolute. His Honour said:

"I would therefore not see it as being fatal that
it had not been pleaded if evidence that was
admitted to the trial would establish it."

But his Honour was of the view that the appellants had failed to establish that, at the time payment was due under the contract, they were able to pay the purchase price.

56. Although the appellants did not plead that they were ready and willing to perform their obligations under their agreement with the first respondent, the latter expressly asserted in his defence that the appellants were at no material time ready, willing and able. In their reply the appellants denied the relevant paragraph of the defence and pleaded that, by letter from their solicitors to the first respondent's agent dated 19 August 1983, "the Plaintiffs confirmed that they were willing and able to perform their part of the Agreement stamped the 25th June 1980". The second respondents did not advert to the matter in their defence.

57. In our view the absence of a plea of readiness and willingness to perform is not inevitably fatal to a plaintiff's claim for specific performance. It is true that in Mehmet v. Benson [1965] HCA 18; (1965) 113 CLR 295, at p 314 Windeyer J. said:

" It is necessary that the plaintiff in an action
for specific performance should allege in his
pleading and prove at the hearing his readiness
and willingness to perform the contract on his
part: and readiness involves an ability to
perform it."

When that passage is read in context, together with the authorities to which Windeyer J. referred, it is apparent that his Honour was speaking of pleading and proof as part of a composite requirement and that he was not suggesting that, absent an appropriate plea, a plaintiff who proved his readiness and willingness to perform his obligations under a contract of which specific performance was sought would nevertheless fail. A reading of the judgment of Barwick C.J. in Mehmet v. Benson, a judgment with which McTiernan J. agreed, shows that the Chief Justice placed emphasis on what was established by evidence rather than on what had been pleaded. And in that regard, his Honour commented, at p 307:

"The question as to whether or not the
plaintiff has been and is ready and willing to
perform the contract is one of substance not to
be resolved in any technical or narrow sense. It
is important to bear in mind what is the
substantial thing for which the parties contract
and what on the part of the plaintiff in a suit
for specific performance are his essential
obligations."

It is significant that in Mehmet v. Benson the plaintiff pleaded in the statement of claim that he "is and always has been ready and willing and hereby offers to carry out the said agreement on his part so far as the same remains to be performed by him". Thus Windeyer J.'s comment was not made in a situation in which there was an absence of a plea and consequently a contention by the defendant that the plaintiff should thereby fail in his claim. Cf. Sydney Consumers' Milk and Ice Co. Ltd. v. Hawkesbury Dairy and Ice Society Ltd. (1931) 31 SR (NSW) 458.

58. In the matter now before the Court, the first respondent (as already noted) expressly asserted that the appellants were not ready, willing and able to perform their obligations under their contract with him. The financial position of the appellants and their capacity to pay $45,000 for Lot 340 was extensively canvassed in evidence. In those circumstances the absence of an appropriate plea by the appellants should not have been fatal to their claim against either the first respondent or the second respondents.

59. This conclusion makes it unnecessary to consider the precise scope and operation of O.20 r.8(4) of the Supreme Court Rules of Western Australia. That sub-rule reads:

"(4) A statement that a thing has been done or
that an event has occurred, being a thing or
event the doing or occurrence of which, as the
case may be, constitutes a condition precedent
necessary for the case of a party is to be
implied in his pleading."

60. In Baird v. Magripilis [1925] HCA 49; (1925) 37 CLR 321 Higgins J. considered that under O.XXII rr.12 and 14 of the Rules of the Supreme Court (Q.), where in an action for specific performance of a contract the defendant did not by his defence deny the readiness and willingness of the plaintiff to perform the contract, there was no issue as to such readiness and willingness, and therefore the fact that the jury had not found that the plaintiff was so ready and willing did not prevent the plaintiff from succeeding in the action. But those rules were couched in rather different terms to O.20 r.8(4). And, of course, in the present case the first respondent expressly put in issue the readiness, willingness and ability of the appellants to perform their obligations under the contract.

61. In any event the first respondent cannot now perform his obligations under his contract with the appellants except by joining with them in proceedings against the second respondents or pursuing his third party claim against those respondents. The second respondents remain the registered proprietors of Lot 340 and can, if required to do so, transfer that land to the appellants. The question to be answered is whether, at trial, the appellants did establish their readiness and willingness to perform their obligations under the contract made with the first respondent.

62. The trial judge took, as the appropriate time at which the appellants must prove their ability to perform the contract, the expiration of the lease. For he said:

"I am not satisfied on the evidence that either
at the relevant time upon the expiry of the lease
or at any time since, the plaintiffs were or even
now are, ready and able to purchase Lot 340 for
$45,000, in that I am not satisfied that they
could then, or at any time since, perform their
obligation to pay that sum."

63. However cl.6 of the agreement between the appellants and the first respondent required payment of a deposit pursuant to a contract to be entered into upon the expiration of the lease and payment of the balance of purchase price thirty days after payment of the deposit. The trial judge appears, at one part of his judgment, to have regarded time as being of the essence of the obligations under cl.6. Referring to the claim for specific performance and to the agreement, his Honour said:

"By the express terms of that agreement time was
made of the essence of the contract and I find
that completion in accordance with the times
fixed therefor was intended to be an essential
term."

64. Earlier in his judgment, in the context of the appellants' claim for rectification of their agreement with the first respondent, his Honour said:

"I make it clear that I do not accept the first
defendant's contention that, in construing the
contract to re-purchase, the R.E.I.W.A. General
Conditions apply thereto, it being the clear
intent of cl.10 of the Agreement Ex.11, having
regard particularly to the words 'apply to this
sale' used therein, that such conditions apply
only to the sale from the plaintiffs to the first
defendant."

65. In our view the trial judge was correct in finding that cl.9 of the original agreement, expressing time to be of the essence "of this contract", did not operate so as to make time of the essence of the obligations imposed on the parties by cl.6.

66. The lease expired on 14 August 1983 and that date provides a convenient starting point for a consideration of the appellants' entitlement to specific performance. As mentioned earlier in these reasons, the appellants' solicitors wrote to the second respondents on 23 June 1983, with a cheque for $4,500 by way of deposit and an offer and acceptance form relating to the sale of Lot 340 from the second respondents to the appellants. That letter was written before the lease had expired and it was written to the second respondents, no doubt because the appellants were then aware that Lot 340 had been transferred from the first respondent to the second respondents. By letter dated 29 June 1983 the second respondents' solicitors returned the cheque, notice of exercise of option and offer and acceptance form, with a clear statement that the second respondents did not intend to sell to the appellants. And, again as mentioned earlier in these reasons, on 19 August 1983 the appellants' solicitors wrote to Mr. Robertson requiring Lot 340 to be reconveyed to their clients. Mr. Robertson replied that a reconveyance was no longer possible from the first respondent.

67. There can be no doubt then that the appellants made clear to the first respondent and to the second respondents their wish to obtain a re-transfer of Lot 340. The question is - notwithstanding that expression of willingness, were the appellants in fact able to provide the purchase price?

68. On 10 August 1983, after the appellants had sent a cheque by way of deposit and an offer and acceptance form to the second respondents but before they wrote to the first respondent requiring a reconveyance, they signed an authority under Pt X of the Bankruptcy Act 1966 (Cth). That authority authorized an accountant, Mr. Douglas-Brown, to call a meeting of creditors and to take control of their property. By notice dated 11 August 1983 Mr. Douglas-Brown called a meeting for 22 August.

69. Mr. Douglas-Brown gave evidence that at the meeting there was some discussion by the creditors about the appellants' affairs and "it was pointed out to them that it would be difficult to enter into arrangement under Part X of the Bankruptcy Act without further knowledge of the debtors' affairs being known specifically in respect of actions they may or may not have in respect of a property at Cervantes that they were attempting to obtain - I think that might be the best word".

70. Mr. Douglas-Brown was of opinion that, if the appellants could enforce whatever agreement they had, they should be allowed to do so providing they had the necessary funds. As to payment of the purchase price, he had been told by the appellants that Mr. Stowe, a friend of the appellants, had agreed to lend them $40,000. The evidence is far from clear but it seems that there was no resolution of creditors at the meeting; the meeting was adjourned until 13 December 1983 and apparently adjourned thereafter. An authority having been signed under s.188 of the Bankruptcy Act, the appellants' property remained subject to control under Div.2 of Pt X until one of the events referred to in s.189(1) occurred. But this much is clear - the appellants were left free by the creditors and by Mr. Douglas-Brown to pursue action to obtain Lot 340. Whether they could find the money is another matter but there was no legal impediment arising from the authority they had given to Mr. Douglas-Brown.

71. As to funding the repurchase of Lot 340, the appellant Mr. Bahr gave evidence that Mr. Stowe had agreed to provide $40,000. A letter to that effect from Mr. Stowe was tendered without objection. It is true that the letter was written in April 1983 and that there had been no formal communication between the appellants and Mr. Stowe since that time. Nevertheless there was nothing to suggest that Mr. Stowe had changed his mind in the meantime.

72. There is no doubt that the appellants were in financial difficulties in the second half of 1983. Mr. Douglas-Brown said of their position in mid-1983: "They were insolvent, yes". It is clear that the appellants could not finance the purchase of Lot 340 without help. Equally there was evidence of Mr. Stowe's willingness to provide $40,000. In those circumstances, the trial judge's finding that the appellants were unable to complete the purchase was not justified.

73. The second respondents, it must be remembered, had made it clear at an early stage that they did not intend to transfer Lot 340 to the appellants even if the purchase price was forthcoming. They were relying upon the strength of their title. And the first respondent had, by transferring the land to the second respondents, made it impossible for him (directly at any rate) to meet his obligations under cl.6 of the original agreement. In those circumstances the trial judge ought, if there was no other obstacle to specific performance, to have made a decree such as was made in Mehmet v. Benson. In this way his Honour could have ensured that, so long as the appellants were still in a position to perform their obligations, they would be entitled to specific performance.

74. After the Full Court had delivered reasons for judgment but before the formal order was extracted, an affidavit was filed on behalf of the appellants in which one Felix Pinczuk deposed that he would lend the appellants $45,000 on the security of Lot 340 and that he was able to provide that money within seven days.

75. The appellants are entitled to a decree for specific performance that permits them, within a reasonable time, to furnish to the second respondents the purchase price of $45,000 in return for which the second respondents must transfer Lot 340 to them. Since all parties are before the Court, there is no need to make orders for specific performance directed to the first respondent: see Cheshire and Fifoot, Law of Contract, 5th Aust. ed. (1988), par.1523. And, since cl.6 of the original agreement contemplates a cash transaction, there seems little point in requiring the appellants and the second respondents to enter into a contract at this stage. It may be that an inquiry is necessary in respect of occupation of the land and as to rates, taxes and other outgoings. If these matters cannot be agreed between the parties, the Court should hear submissions as to the orders appropriate in the circumstances. In the light of these conclusions, it is unnecessary to take up any questions raised by the first respondent's cross appeal or the notices of contention filed by the first respondent and the third respondents.

76. The appeal to this Court should be allowed. The judgment of the Full Court should be set aside so far as it relates to the matters the subject of this appeal and in lieu the appellants' appeal to that Court should be allowed.

BRENNAN J: The somewhat complicated facts of this case are set out in the judgment of Wilson and Toohey JJ. I am thereby relieved from the task of stating them but, at the risk of repetition, I must identify the particular facts on which, in my opinion, the solution of this case depends. The starting point is the contract of sale of lot 340 from the appellants ("the Bahrs") to the first respondent ("Nicolay"). Clause 6 of that contract ("the Bahrs' contract") reads:

"6. The Vendors hereby further agree that upon
the expiration of the lease contained in clause 5
hereof they will enter into a contract with the
Purchaser for the purchase by the Vendors of the
land for a sum of FORTY FIVE THOUSAND DOLLARS
($45,000) payable by way of TEN (10%) per cent
deposit with the balance of the purchase moneys
to be paid at settlement. Settlement is to be
effected thirty (30) days after the payment of
the deposit."

That clause is not a mere agreement to reach an agreement in the future; from its inception it has been "a contract binding the parties to join in bringing (a) formal contract into existence and then to carry it into execution": Masters v. Cameron (1954) 91 CLR 353, at p 360. Clause 6 is not itself a contract of sale of lot 340 from Nicolay to the Bahrs: it is a contract to bring a contract of sale into existence. Where a primary contract requires the parties to bring a formal contract of sale of land into existence, specific performance may be decreed - not a decree of specific performance of the formal contract of sale, but a single decree moulded to compel entry into the formal contract of sale and, subject to the party seeking the decree being ready willing and able to perform that contract when it is brought into existence, to compel specific performance of it: Niesmann v. Collingridge [1921] HCA 19; (1921) 29 CLR 177; Godecke v. Kirwan [1973] HCA 38; (1973) 129 CLR 629. As the prospective purchaser under such a contract is able to compel a transfer of the land to himself without further agreement on the part of the prospective vendor, the primary contract - like an option - confers on the prospective purchaser an equitable interest in the land: see London and South Western Railway Co. v. Gomm (1882) 20 ChD 562, at p 581; Morland v. Hales and Somerville (1910) 30 NZLR 201; Trustees Executors and Agency Co. Ltd. v. Federal Commissioner of Taxation [1944] HCA 20; (1944) 69 CLR 270, at p 285; Sharp v. The Union Trustee Co. of Australia Ltd. [1944] HCA 35; (1944) 69 CLR 539, at p 558. As the interest acquired under the primary contract is commensurate only with what a court of equity would decree, it is not accurate to describe a prospective purchaser as an equitable owner of the land before the formal contract of sale is made: Commissioner of Taxes (Q.) v. Camphin [1937] HCA 30; (1937) 57 CLR 127 and cf. Brown v. Heffer [1967] HCA 40; (1967) 116 CLR 344, at p 350.

2. The case has proceeded on the footing that cl.6 of the Bahrs' contract did not preclude Nicolay from disposing of or dealing with the fee simple which he had acquired and that he did not require the consent of the appellants to dispose of or deal with it. On that footing, cl.6 was not construed as a "bond or covenant or contract purporting to impose a total contractual restraint upon alienation", to use the language of Dixon C.J. in Hall v. Busst [1960] HCA 84; (1960) 104 CLR 206, at p 217. But the consequence of treating Nicolay as free to sell lot 340 while remaining bound by cl.6 is that Nicolay was bound to do what was necessary to protect the Bahrs' interest under cl.6 for, as Pidgeon J. pointed out in the Full Court, Nicolay "could not discharge himself from liability on the covenant to enter into the contract with the appellants". He was bound not to put it outside his power to perform his obligation under cl.6: Stirling v. Maitland [1864] EngR 752; (1864) 5 B & S 840, at p 852 [1864] EngR 752; (122 ER 1043, at p 1047); Southern Foundries (1926) Ld. v. Shirlaw (1940) AC 701, per Lord Atkin at p 717.

3. If Nicolay wished to sell lot 340 to a third party without putting it outside his power to perform his obligation under cl.6, he was constrained to adopt either of two ways of protecting the Bahrs' interest: first, he would have had to secure from his purchaser an enforceable undertaking to enter into a contract with the Bahrs to sell lot 340 to them on the terms mentioned in cl.6 and, if need be, he would have had to enforce that undertaking; alternatively, he would have to have entered into a contract with his purchaser for the repurchase of lot 340 in the event of the Bahrs becoming entitled to a transfer of lot 340 pursuant to a contract of sale entered into in performance of Nicolay's obligation under cl.6. Unless Nicolay protected the Bahrs' interest in either of these ways, the sale of lot 340 by Nicolay would have been in breach of his obligation under cl.6: cf. Queensland Insurance v. A.M.F. Insurance (1941) 41 SR (NSW) 195, at p 201.

4. Nicolay resold to the second respondents. I shall call them "the Thompsons", although the marriage of the second respondents took place after the contract of sale from Nicolay to them. Clause 4 of the Thompsons' contract (as I shall call the contract of sale from Nicolay to the Thompsons) reads as follows:

"4. That the Purchaser acknowledges that an
agreement exists between Walter Bahr & Joanna
Maria Bahr and Marcus Grenville Nicolay as
stamped and signed on the 5th March 1980" (the
Bahrs' contract).

As the Bahrs' contract conferred on the Bahrs an equitable interest in lot 340, not a mere contractual right, and as the Thompsons knew of that interest at all material times, the interest which the Thompsons acquired when they entered into their contract to buy lot 340 was subject to the interest of the Bahrs: see per Lord Upjohn in National Provincial Bank Ltd. v. Hastings Car Mart Ltd. [1965] UKHL 1; (1965) AC 1175, at pp 1237-1238. The Thompsons could not have compelled Nicolay to complete the sale to them except on terms that the Bahrs' interest under cl.6 should be protected, for completion of the sale without that protection would have involved a breach on the part of Nicolay of a prior contract affecting the land: Willmott v. Barber (1880) 15 ChD 96, at p 107; Morland v. Hales and Somerville, at pp 209-210. The consequence of inserting cl.4 into the Thompsons' contract was that the Thompsons acknowledged not only the fact that the Bahrs' contract existed but also that the interest which they were purchasing was subject to the interest which the Bahrs' had under cl.6 of the Bahrs' contract. But cl.4 is more than an acknowledgment of a fact; in its context it appears to be a contractual stipulation. It is one of a number of "Conditions" in the Thompsons' offer to purchase lot 340 which Nicolay, by his attorney Robertson, accepted, and the offer was expressed to be "subject to the Conditions". By reference to the Bahrs' contract (to which cl.4 refers), it would have been apparent to the parties to the Thompsons' contract - or, more realistically, it ought to have been apparent to their legal advisers - that Nicolay would be in breach of cl.6 of the Bahrs' contract unless cl.4 of the Thompsons' contract is a contractual stipulation that the Thompsons' title on completion was to be subject to the Bahrs' interest. Having regard to the context in which cl.4 is found in the Thompsons' contract and the relationship between the vendor Nicolay and the Bahrs which appears on the face of the Bahrs' contract, I construe cl.4 not as a mere acknowledgment of a fact but as a term of the contract limiting the purchasers' interest by defining the interest to which the purchasers' title should be subject.

5. If cl.4 were to be construed as a mere acknowledgment by the Thompsons of the fact that the Bahrs' contract existed, the extrinsic evidence would show that the intention of both Nicolay and the Thompsons went further: both vendor and purchasers intended that, upon acquiring lot 340, the Thompsons were to be bound by cl.6 of the Bahrs' contract. Robertson, who was Nicolay's solicitor and attorney, made it clear to Callard (who was acting as agent both for Nicolay and for the Thompsons) that Nicolay wanted an undertaking from the Thompsons that they would perform Nicolay's obligation under cl.6 of the Bahrs' contract and Callard obtained that undertaking from the Thompsons.

6. Callard also knew of Nicolay's intention from a letter written by Nicolay to Callard's employer, Shellabear & Son. Shellabear had written to Nicolay on 9 September 1981 to enquire what he would be prepared to accept for lot 340 if he was paid out before the Bahrs' lease expired in August 1983. Nicolay did not reply until 5 December 1981 when he nominated the amount of $39,500 but stipulated (for tax reasons) that the sale should not take place before 4 January 1982. In some respects Nicolay's letter of instruction is not clear, but Nicolay's intention with respect to his obligation under cl.6 is clear enough:

"If the principals are not willing to pay this
price, I presume they are also bound by the terms
of the Bahr contract for a $45,000.00 buy back
after approx two more years."

7. On 26 December 1981 Callard, aware of Nicolay's instructions, obtained the Thompsons' signatures to an offer to purchase lot 340 for $40,000. The offer was submitted to Robertson for acceptance by exercise of his power of attorney for Nicolay. Robertson then told Callard:

" ... you should mention in the contract a
reference to the purchaser being aware of this
agreement and knowing its contents."

Robertson believed "(i)n the circumstances (that) the purchaser being aware of the terms of the agreement, took subject to it". His understanding of the effect of cl.4 was that the Thompsons would become liable to perform Nicolay's obligation under cl.6. (This was the undertaking he wanted - "to protect Mr. Nicolay obviously, because I was aware of the need of it".) Callard appreciated that this was the purpose of inserting cl.4. In evidence, Callard said:

"It is true, is it not, that when the question of
the Nicolay sale was raised with Robertson, you
knew that he was looking for the assurance that
the Thompsons would agree to abide by both those
two components of the agreement. Is that
right?--- That's correct.

You knew that it was for that purpose that he was
saying 'Well, there has to be that clause 4 in
the agreement'?---That's right.

It would be quite true that you knew Robertson
simply would not sign a contract unless he
received an assurance and was satisfied that that
is what the position would be, that Thompson
would be - -?---Yes, that is correct. They were
my instructions. Put it that way."

Callard then discussed Robertson's requirement with Mr Thompson. In evidence Callard stated the result of that discussion:

"Did you understand after the discussion was over
that, in effect, you had obtained from Thompson
the kind of assurance that Robertson was looking
for?---I think so."

It appears that the reason why the Thompsons were prepared to give the kind of assurance that Robertson was looking for was their expectation that the Bahrs, being in financial difficulties, would be unable to pay the repurchase price and, even if the Bahrs were able to pay the price of $45,000 mentioned in cl.6, the Thompsons would make a profit on the resale if they bought from Nicolay for $40,000. Callard gave this evidence:

"How did that arise?---It was in there. I think
he asked me what I thought, and I said 'Well, I
don't think they have got a chance of ever
raising the money, number 1; and if it ever came
to a point where our legal advice was wrong - -'
and he agreed with me that, even so, he would be
$5000 in front; so it was, to use the word, a
calculated risk.

FRANKLYN J: When you said 'our legal advice', I
take it that is advice from somebody other than
Mr Robertson who was insisting on this clause
being inserted?---No. The only advice we ever
had was from Mr Robertson."

8. Callard, in his haste to effect a sale to the Thompsons, breached Nicolay's instructions and completed the sale to them on 31 December 1981. On 3 January 1982 Callard told the Bahrs that the Thompsons had bought lot 340. Callard presented the Bahrs with a draft lease agreement - expiring in September 1983 - on terms different from those contemplated by the Bahrs' contract. The Bahrs got in touch with Shellabear who told them that the arrangements in that contract still applied. On 6 January 1982, the Thompsons wrote to the Bahrs' solicitors this letter:

"As requested to Mr Callard of Shellabear & Son
we are writing to confirm as pointed out by
Shellabear & Son the clause relating to the
purchase of Lot 340 by W. & J.M. Bahr is reconised
(sic) by us and providing 3 months notice of
their intention to purchase is given on July 1st
1983 with 10% of the purchase money then we will
agree to sign an offer for $45,000 plus any
improvement at cost from this date.
(signed) T.C. Hooper
D.G. Thompson"

Mr Thompson gave evidence that he understood that he had given the Bahrs "a right of repurchase". Franklyn J. found:

"I find this letter to be written in recognition
of the second defendants' acceptance of the right
of the plaintiff to re-purchase Lot 340 for the
price of $45,000 at the expiration of the term of
the lease from the first defendant, but on the
advice of Callard, in terms calculated to vary
that right."

9. The understanding of the Thompsons that the Bahrs continued to enjoy a right to repurchase lot 340 appears also from offers which they made in writing on 8 January 1982 to purchase lot 221 and the businesses conducted on lots 221 and 340. The offers contained a term (or a term to this effect):

"Subject to the vendors relinquishing all rights
to repurchase the freehold of Lot 340."

These offers were not accepted. Callard continued his efforts to have the Bahrs enter into a fresh agreement with the Thompsons, but in a letter to the Bahrs' solicitors dated 13 January 1982 he wrote, inter alia,

"(The Thompsons) have stated that their letter to
you giving Bahrs right to repurchase, is
sufficient and complies with the conditions
contained in the original agreement" (that is,
the Bahrs' contract).

In the light of all the evidence, Franklyn J. found:

"I am satisfied that the (Thompsons) purchased Lot
340 with the knowledge that they were bound by
the terms of the Agreement Ex.11 (the Bahrs'
contract) and with the belief that the (Bahrs)
had a right pursuant to the terms of the
agreement ex.11 to re-purchase the land for
$45,000, and that their purchase was subject to
the (Bahrs') right to re-purchase Lot 340 from
them."

10. It is clear that the parties to the Thompsons' contract intended that the title to lot 340 which the Thompsons acquired pursuant to their contract should be subject to the Bahrs' interest under cl.6 of the Bahrs' contract. In other words, their intention was not only that the Thompsons should have notice of the Bahrs' interest, but that the Thompsons, upon acquiring lot 340, should be bound by cl.6 of the Bahrs' contract. Robertson would not have signed the contract of sale on Nicolay's behalf if the Thompsons had not agreed to be so bound. In Munro v. Stuart (1924) 41 SR (NSW) 203, a contract of sale contained a provision that the property was sold subject to existing tenancies or occupancies. Harvey J. construed that provision (at p 204) simply as a condition "that the purchaser is to take the property over subject to any existing tenancies for what they may be worth and cannot repudiate the contract because of their existence". However, his Honour thought that such a provision might -

"have to be given a wider construction than this
had there been during negotiations for the
contract any agreement between the parties ...
that the purchaser would recognise those leases,
and that this clause had by mutual agreement been
put into the contract for the purpose of giving
effect to such an agreement."

Though his Honour's tentative approach would lead to the conclusion that cl.4 should be construed to accord with the parties' actual intention, that approach seems to me to involve an impermissible reference to evidence of intention as an aid to interpretation. Although it is permissible to refer to the factual matrix in which the parties were at the time of the contract in order to construe the terms of a contract (see Codelfa Construction Pty. Ltd. v. State Rail Authority of N.S.W. [1982] HCA 24; (1982) 149 CLR 337, at p 401), it is not permissible to expand the meaning of the terms of the contract so construed so as to accord with the actual intention of the parties. I am unable therefore to embrace the tentative approach suggested by Harvey J. However, the extrinsic evidence is admissible to show that there is an independent and collateral unwritten contract which, together with the written contract, constitute the arrangements made by the parties: De Lassalle v. Guildford (1901) 2 KB 215, and see J.J. Savage & Sons Pty. Ltd. v. Blakney (1970) 119 CLR 435, at pp 441-442. A collateral agreement that, in consideration of the vendor agreeing to sell, the purchaser will hold the land upon completion subject to the interest of a third party does not add to, vary or contradict the language of the contract of sale unless that contract contains a stipulation as to the terms on which the land should be held. As we shall see, such a collateral agreement though unwritten is effective to subject the title acquired by the purchaser on completion to the interest of the third party. It follows that I would hold the Thompsons to have given Nicolay an undertaking to hold their title subject to the Bahrs' interest. In my opinion such an undertaking is to be found in cl.4 on its true construction but, if not in cl.4, the undertaking was given by a collateral agreement.

11. The Thompsons, having acquired a registered title to lot 340 pursuant to their contract, shortly afterwards rejected any obligation to the Bahrs. The Bahrs' solicitors wrote to the Thompsons on 17 February 1982 insisting on their clients' right to repurchase, but the Thompsons' solicitors replied on 3 March 1982:

"As to the last paragraph of your letter, our
clients have no intention of entering into a
contract with your clients to sell the property
for $45,000 and maintain that they are not bound
by any terms of the agreement between your
clients and Mr. Nicolay. We refer you to Section
68 of the Transfer of Land Act, 1893 as amended
and the authorities on this subject."

The attitude of each party has been persisted in since that time. The Thompsons take their stand on the provisions of ss.68 and 134 of the Transfer of Land Act 1893 (W.A.) ("the T.L.A."). Section 68 of the T.L.A. provides that, except in case of fraud, the registered proprietor of land holds the land subject only to such encumbrances as may be notified on the certificate of title save for certain exceptions, none of which is relevant here. Section 134 provides, inter alia, that, except in the case of fraud, no person taking a transfer of land

"... shall be affected by notice actual or
constructive of any trust or unregistered
interest any rule of law or equity to the
contrary notwithstanding; and the knowledge that
any such trust or unregistered interest is in
existence shall not of itself be imputed as
fraud."

These provisions are designed to achieve the main object of the Torrens system of registration of interests in land which the Privy Council in Gibbs v. Messer (1891) AC 248, at p 254, perceived to be -

" to save persons dealing with registered
proprietors from the trouble and expense of going
behind the register, in order to investigate the
history of their author's title, and to satisfy
themselves of its validity. That end is
accomplished by providing that every one who
purchases, in bona fide and for value, from a
registered proprietor, and enters his deed of
transfer or mortgage on the register, shall
thereby acquire an indefeasible right,
notwithstanding the infirmity of his author's
title."

The consequence is that, whereas equity would subject the interest of a purchaser of land to an antecedent unregistered interest of which the purchaser has notice, a purchaser who takes with notice of an antecedent interest but who becomes registered under the T.L.A. without fraud takes free of that interest: Oertel v. Hordern (1902) 2 SR (NSW) (Eq.) 37; Munro v. Stuart; Friedman v. Barrett, Ex parte Friedman (1962) QdR 498, at pp 511-512. Registration of the transfer is not fraudulent merely because the transferee knows that an antecedent interest of which he has notice will be defeated thereby. As Kitto J. said in Mills v. Stokman (1967) [1967] HCA 15; 116 CLR 61, at p 78:

"merely to take a transfer with notice or even
actual knowledge that its registration will
defeat an existing unregistered interest is not
fraud".

12. However, the title of a purchaser who not only has notice of an antecedent unregistered interest but who purchases on terms that he will be bound by the unregistered interest is subject to that interest. Equity will compel him to perform his obligation. In Barry v. Heider [1914] HCA 79; (1914) 19 CLR 197, Isaacs J. said of the Land Transfer Acts (at p 213):

"They have long, and in every State, been regarded
as in the main conveyancing enactments, and as
giving greater certainty to titles of registered
proprietors, but not in any way destroying the
fundamental doctrines by which Courts of Equity
have enforced, as against registered proprietors,
conscientious obligations entered into by them."

In Frazer v. Walker (1967) 1 AC 569, at p 585, the Privy Council said that the principle of indefeasibility -

"in no way denies the right of a plaintiff to
bring against a registered proprietor a claim in
personam, founded in law or in equity, for such
relief as a court acting in personam may grant."

13. Barwick C.J., who was a member of the Judicial Committee in Frazer v. Walker, commented in Breskvar v. Wall [1971] HCA 70; (1971) 126 CLR 376, at pp 384-385:

"Proceedings may of course be brought against the
registered proprietor by the persons and for the
causes described in the quoted sections of the
Act or by persons setting up matters depending
upon the acts of the registered proprietor
himself. These may have as their terminal point
orders binding the registered proprietor to
divest himself wholly or partly of the estate or
interest vested in him by registration and
endorsement of the certificate of title".

Orders of that kind do not infringe the indefeasibility provisions of the T.L.A. Those provisions are designed to protect a transferee from defects in the title of the transferor, not to free him from interests with which he has burdened his own title. In Loke Yew v. Port Swettenham Rubber Company, Limited (1913) AC 491 Lord Moulton gave an example of a case where equity would enforce the terms on which a transfer was taken. He said (at pp 504-505):

"Take for example the simple case of an agent who
has purchased land on behalf of his principal but
has taken the conveyance in his own name, and in
virtue thereof claims to be the owner of the land
whereas in truth he is a bare trustee for his
principal. The Court can order him to do his
duty just as much in a country where registration
is compulsory as in any other country, and if
that duty includes fresh entries in the register
or the correction of existing entries it can
order the necessary acts to be done accordingly."

By contrast, Waimiha Sawmilling Co. v. Waione Timber Co. (1926) AC 101 was a case where the purchaser had notice of a claim to an unregistered interest but had given no undertaking to be bound by it. That case illustrates the proposition that where a transferee has purchased with mere notice of an unregistered interest, registration of the transfer to him does defeat the unregistered interest, but Waimiha Sawmilling Co. v. Waione Timber Co. does not suggest that a registered proprietor who has purchased on terms that his title will be subject to an unregistered interest is able to defeat that interest upon the registration of his transfer.

14. A registered proprietor who has undertaken that his transfer should be subject to an unregistered interest and who repudiates the unregistered interest when his transfer is registered is, in equity's eye, acting fraudulently and he may be compelled to honour the unregistered interest. A means by which equity prevents the fraud is by imposing a constructive trust on the purchaser when he repudiates the unregistered interest. That is not to say that the registration of the transfer to such a proprietor is affected by such fraud as may defeat the registered title: the fraud which attracts the intervention of equity consists in the unconscionable attempt by the registered proprietor to deny the unregistered interest to which he has undertaken to subject his registered title. The principles are stated in Bannister v. Bannister (1948) 2 All ER 133 and Lyus v. Prowsa Ltd. (1982) 1 WLR 1044; (1982) 2 All ER 953. In Bannister, Scott L.J. said (at p 136):

"It is, we think, clearly a mistake to suppose
that the equitable principle on which a
constructive trust is raised against a person who
insists on the absolute character of a conveyance
to himself for the purpose of defeating a
beneficial interest, which, according to the true
bargain, was to belong to another, is confined to
cases in which the conveyance itself was
fraudulently obtained. The fraud which brings
the principle into play arises as soon as the
absolute character of the conveyance is set up
for the purpose of defeating the beneficial
interest, and that is the fraud to cover which
the Statute of Frauds or the corresponding
provisions of the Law of Property Act, 1925,
cannot be called in aid in cases in which no
written evidence of the real bargain is
available. Nor is it, in our opinion, necessary
that the bargain on which the absolute conveyance
is made should include any express stipulation
that the grantee is in so many words to hold as
trustee. It is enough that the bargain should
have included a stipulation under which some
sufficiently defined beneficial interest in the
property was to be taken by another."

In Lyus v. Prowsa Ltd. land was sold by a bank, as mortgagee exercising a power of sale, subject to, but with the benefit of, a prior agreement to sell made between the mortgagor and the plaintiffs. The bank had consented to but was not bound by the plaintiffs' contract. The purchaser from the bank (and a sub-purchaser who was subject to the same obligation) was held to take its interest subject to a constructive trust for the plaintiffs. Though a statutory provision similar to s.68 of the T.L.A. was relied on, Dillon J. found (at p 1054; p 962) that although there is no fraud merely in relying on legal rights conferred by statute, there was fraud in a purchaser's "reneging on a positive stipulation in favour of the plaintiffs in the bargain under which the (purchaser) acquired the land".

15. Therefore, although a purchaser who secures registration of a transfer of the fee simple merely with notice of a third party's right to purchase acquires on registration of his transfer a title freed of any obligation to the third party which equity would otherwise impose, a purchaser who has undertaken - whether by contract or by collateral undertaking - to hold his title subject to a third party's right to purchase remains bound by his undertaking after registration of his transfer. If he should repudiate the third party's right to purchase, equity imposes a constructive trust so that the registered proprietor holds his title on trust for the third party to the extent of the third party's interest. It might be thought that, if the undertaking from which the constructive trust originates is found in an oral collateral agreement, s.34 of the Property Law Act 1969 (W.A.) or the Statute of Frauds would preclude its enforcement. But an undertaking that a title to be acquired on registration of a transfer shall be held subject to the unregistered interest of a third party is not itself a disposition of the third party's interest; and s.34 of the Property Law Act requires only an instrument disposing of an interest in land to be in writing: Adamson v. Hayes [1973] HCA 6; (1973) 130 CLR 276, at p 306. As to the Statute of Frauds, Scott L.J. held in Bannister v. Bannister that it presents no obstacle to the imposition of a constructive trust in cases where the constructive trust has its origin in an oral agreement. If a statute enacted to prevent fraud could be raised by a purchaser as a cloak for unconscionable conduct, the statute would be put to a purpose for which it was not intended: Rochefoucauld v. Boustead (1897) 1 Ch 196; Cadd v. Cadd [1909] HCA 59; (1909) 9 CLR 171, at p 187. Perhaps the theory which supports equity's willingness to modify the effect of the Statute of Frauds has not been convincingly expounded. Nevertheless it is a doctrine of long standing that the Statute does not preclude the imposition of a constructive trust when a transferee relies on the absolute character of the transfer to defeat a beneficial interest which, according to the true bargain between transferee and transferor, is to belong to another, and there is no reason why that doctrine should be doubted: Organ v. Sandwell (1921) VLR 622, at p 630.

16. As the Thompsons not only had notice of the Bahrs' interest but had undertaken that their title would be subject to the Bahrs' interest, they cannot rely on the Property Law Act, the Statute of Frauds or the T.L.A. to avoid honouring their undertaking. As a contractual undertaking, it can be enforced by Nicolay to whom it was given. As the Bahrs' interest was created by an antecedent agreement pursuant to which Nicolay was bound to enforce the Thompsons' undertaking to honour the Bahrs' interest, there can be no reason for denying the Bahrs' standing to enforce the undertaking against the Thompsons directly in a suit in which Nicolay is a party: Snelling v. John G. Snelling Ltd. (1973) QB 87, at p 99. Moreover, the constructive trust on which the Thompsons hold their title is a trust to give effect to the Bahrs' interest. As beneficiaries of that trust, the Bahrs may enforce their interest against their trustee directly: Neale v. Willis (1968) 19 P & CR 836, and cf. Hersey v. Giblett [1854] EngR 145; (1854) 18 Beav 174 (52 ER 69). The Bahrs are therefore entitled to enforce their right of purchase directly against the Thompsons. They do not thereby impeach the registration of the transfer to the Thompsons. Nor does the T.L.A. present a bar to the enforcement of the undertaking, though (to adopt what Barwick C.J. said in Breskvar v. Wall, at p 385) the terminal point of a decree enforcing the undertaking might be an order directing the Thompsons to divest themselves wholly of the estate vested in them by that registration.

17. The Bahrs did not rescind their contract with Nicolay when Nicolay sold to the Thompsons. They retained their rights under cl.6. If, when their lease expired, the Bahrs were unable to enforce their interest in lot 340 because Nicolay had sold to the Thompsons without obtaining an undertaking to hold the title subject to the Bahrs' interest and the Thompsons were unwilling to sell to the Bahrs, the Bahrs were entitled to damages against Nicolay for breach of his contractual obligation under cl.6: Queensland Insurance v. A.M.F. Insurance, at p 202. His liability would have sounded in damages, assessed by reference to any loss which the Bahrs might have been found to suffer in consequence of losing the right of repurchase under cl.6. In the courts below, it was held that the Bahrs had suffered no loss because they were not ready willing and able to perform their obligation under cl.6. Franklyn J. found:

" the first defendant was under an obligation
pursuant to the terms of that agreement to sell
to the plaintiffs Lot 340 at the expiration of
the term of the lease for the price of $45,000
payable by a deposit of 10% and the balance
within 30 days payment of such deposit, and that
were it not for the fact that the first defendant
had parted with possession of such land, the
plaintiffs, subject to being ready willing and
able to perform their obligation under the
agreement, would be entitled to an order for
specific performance. I find however that the
plaintiffs were not ready willing and able to so
perform, the result of which is that not only are
they not entitled to specific performance against
the plaintiff (sic), but they are also not
entitled to damages".

For reasons presently to be stated, I think that finding is mistaken. But, as the Bahrs were and are entitled to enforce their rights under cl.6 of the Bahrs' contract as against the Thompsons in the stead of Nicolay, it is unnecessary now to make an assessment of damages for breach of cl.6 by Nicolay. As Nicolay secured an undertaking from the Thompsons to perform his obligation under cl.6, his only breach consists in his failure to enforce the undertaking. That breach might sound in damages but it is unnecessary to consider that question now.

18. Of course, if the finding that the Bahrs were not ready willing and able to perform their obligation under cl.6 stands, their entitlement to enforce their rights under cl.6 against the Thompsons would be a Pyrrhic victory. If that finding stands they cannot obtain a decree of specific performance against the Thompsons. This was one of the grounds on which the Bahrs failed before Franklyn J., who found:

"I further find that the plaintiffs, not having
established that they were ready willing and able
to complete in accordance with the provisions for
completion in that they failed to establish their
ability to pay the purchase price, are not in any
event entitled to an order for specific
performance against either the first or second
defendants."

19. In my opinion, this finding proceeds on a false construction of cl.6. Clause 6, it will be remembered, required the parties to enter into a formal contract for the repurchase of lot 340. The purchase price of $45,000 was the price to be paid under the formal contract and the 10% deposit was the deposit to be paid under the formal contract. Until the formal contract was entered into, the Bahrs were not obliged to pay anything. Franklyn J. made a finding which elided consideration of the formal contract. His Honour said:

"I am not satisfied on the evidence that either
at the relevant time upon the expiry of the lease
or at any time since, the plaintiffs were or even
now are, ready and able to purchase Lot 340 for
$45,000, in that I am not satisfied that they
could then, or at any time since, perform their
obligation to pay that sum."

The Bahrs were not bound at the expiry of the lease nor have they been bound at any time since to pay the whole of the purchase price. The whole of the purchase price will not become payable until 30 days after the formal contract of sale is entered into and the Thompsons have thus far refused to enter into a formal contract of sale. The lease expired on 14 August 1983. On 23 June 1983, the Bahrs' solicitors had written to the Thompsons forwarding a notice of exercise of option, a contract document in the form of an offer and acceptance and a cheque for $4,500 by way of deposit. On 29 June 1983, the Thompsons' solicitors returned the cheque, notice of exercise of option and offer and acceptance form, and they stated that the Thompsons did not intend to sell to the Bahrs. When the lease expired, the Bahrs had done everything they were bound to do under cl.6. They had clearly indicated their readiness, willingness and ability to proceed. They had done more. The Bahrs were under no obligation to pay or tender a deposit until the Thompsons entered into a formal contract of sale of lot 340 to the Bahrs. The Bahrs had tendered a cheque for the deposit, and they were certainly not obliged to tender the balance except in exchange for a registrable transfer and the relevant certificate of title. The time for payment of the deposit has not yet arrived; a fortiori neither has the time arrived for payment of the balance purchase price.

20. In Mehmet v. Benson [1965] HCA 18; (1965) 113 CLR 295, at p 314, Windeyer J. said:

"At the date when the suit is commenced the
plaintiff must then be in a position to say that
he is ready and willing to do at the proper time
in the future whatever in the events that have
happened the contract requires that he do: see
Fullers' Theatres Ltd. v. Musgrove ((1923) [1923] HCA 12; 31
CLR 524, at p 549). And he must show too that
he has performed or been ready and willing to
perform the terms of the contract on his part:
see Fry on Specific Performance, 6th ed. (1921)
p 435." (Emphasis added.)

21. The evidence showed conclusively that the Bahrs had performed the terms of cl.6 when the suit was commenced. The evidence further showed not only that the Bahrs were anxious to complete the repurchase but also that they had some arrangements in hand to finance it. The adverse finding that they could not raise the balance purchase price seems not to have taken account of the fact that it is payable only in exchange for the instruments necessary to secure registration of a clear title, and that lot 340 would thus be available on settlement as security to a mortgagee. There is no foundation for a finding that the Bahrs - or any nominee of the Bahrs if they chose to assign their interest as purchasers - would be unable to complete. The decree to which the Bahrs are entitled on a finding that they are ready, willing and able to perform their obligations does not expose the Thompsons to the risk of loss. The decree would not require the Thompsons to transfer lot 340 to the Bahrs except in exchange for the purchase price.

22. I agree with Wilson and Toohey JJ. that the proceedings taken pursuant to an authority signed by the Bahrs under Pt X of the Bankruptcy Act 1966 (Cth) as it then stood placed no restriction on the enforcing of their right to repurchase lot 340.

23. It was submitted that the pleadings as between the Bahrs and the Thompsons did not raise an issue of readiness, willingness and ability and that, unless the Bahrs discharged the burden of proving that issue, they had not made their case for a decree of specific performance. The issue was nevertheless fully ventilated at the trial, having been put in issue expressly by Nicolay's pleading. It may be that the Rules of the Supreme Court of Western Australia as to the pleading of conditions precedent are narrower than the Rules of the Supreme Court of Queensland considered in Baird v. Magripilis [1925] HCA 49; (1925) 37 CLR 321 but, if the pleadings needed to be amended to bring them into conformity with the issues in fact raised at the trial, there is no obstacle to amendment even at this stage: Dare v. Pulham [1982] HCA 70; (1982) 148 CLR 658, at p 664.

24. The Bahrs' appeal against the dismissal of their claim against the Thompsons should be allowed and unless supervening circumstances make it inappropriate a decree of specific performance should be made against the Thompsons. The consequence of that order is that it is unnecessary to consider the issues which the first and third respondents would raise if judgment were to be entered against them. However, as some time has elapsed since the last order was made in this case, an opportunity should be given to the parties to submit a draft order and to speak to it. For the moment, I would allow the appeal against the second respondents, set aside the whole of the judgment of the Full Court and in lieu thereof allow the appeal to that Court and set aside the judgment of Franklyn J. Pending further order the second respondents should be restrained from ejecting the appellants from lot 340.

ORDER

In lieu of the orders made on 15 April 1988 when delivering judgment, the Court orders as follows:

1. The appeal against the first and second respondents be

allowed with costs, the second respondents to indemnify
the first respondent for the amount which the first
respondent pays to the appellants up to a maximum of
two-thirds of the appellants' costs of the appeal.

2. The application of the first respondent for special

leave to cross-appeal against the second and third
respondents be refused with costs.

3. The orders of the Full Court of the Supreme Court of

Western Australia dated 25 May 1987 be set aside, save
in so far as par.3 orders that the appellants' claim
against the third respondents be allowed and orders that
the third respondents pay to the appellants damages to
be assessed and save as to par.7.

4. In lieu of the orders set aside, order that the

appellants' appeal to the Full Court against the first
and second respondents be allowed with costs, that the
judgment of the Supreme Court of Western Australia dated
12 June 1986 (Franklyn J.) be set aside and that in lieu
thereof:

(a) declare that the second respondents are bound
specifically to perform as vendors the agreement
contained in cl.6 of the contract between the
appellants and the first respondent dated 25 June
1980;

(b) order that the second respondents deliver to the
appellants a registrable transfer of Lot 340 Cadiz
Street, Cervantes, on payment by the appellants to
the second respondents of the sum of $45,000.00
together with such sum as the second respondents
have paid in local government and State government
rates and taxes since 14 August 1983 with liberty
to the parties to apply.

5. Order that the matter be re-listed before the Supreme

Court for hearing and determination of the question
whether the first and second respondents (or either of
them) are liable to pay damages to the appellants as
claimed by them and the assessment of the amount of the
damages (if any).

6. Order all other questions of costs of the trial,

including reserved costs, be remitted for determination
by the trial judge consistently with the judgment of
this Court.

7. All moneys paid into the Supreme Court of Western

Australia by the appellants by way of security for the
undertaking given by the appellants for the purposes of
the injunctions granted during the trial and as a
condition of the stays of execution of judgment pending
the appeal to the Full Court of the Supreme Court of
Western Australia and to this Court, be paid out of
Court to the appellants.

8. Order that pending further order of the Supreme Court of

Western Australia the second respondents be restrained
from ejecting the appellants from Lot 340.