It may come to a surprise to many readers that there still remains circumstances where a prior owner of a property can attempt to regain title from the current registered owners, even after a sale is complete. This was highlighted in the recent Queensland Supreme Court Decision of Issa v Owens & Ors  QSC 4.
In 2018, Jess and Jackie Morecroft undertook the onerous yet exciting task of buying a property in the Gold Coast area. Upon completing the purchase of the property, the couple assumed the difficulty was over. Little did they know the comfort of their own home would be upturned by the Court.
The dispute around the ownership of the property arose from the former owner, Ms Issa, whose house was used as security for a fraudulent mortgage. The mortgagees exercised their non-existent rights to sell the property. As a result of the fraud, the transfer of title to the Morecrofts was not valid, even after their $1.265 million purchase of the house. Instead, it was determined by the Queensland Supreme Court that the property was still legally in the name of Ms Issa.
The Court found that Ms Issa was the true registered proprietor of the land. The Morecrofts argued that she should not win simply because of this. However, the Court further found that a legal interest in land will always have a stronger claim than an equitable interest, and the Morecrofts were only found to have an equitable interest.
How did the Morecrofts not have a legal interest in the property if they had registered title through the Registrar?
The title the Morecrofts received was tainted by the fraud of the original mortgagees, prohibiting the proper registration to create a legal interest. Consequently, the Morecrofts registration was never valid, and the indefeasible title was never transferred to the couple. Following this, the Morecrofts established an equitable interest in the property, granted from the imperfect legal interest created. Their equitable title to the property was prevented by the principle of indefeasibility attached to Ms Issa’s property title registered.
Morecrofts’ eligibility for compensation
The Morecrofts lodged a claim for damages against the original mortgagees for their fraudulent behavior resulting in a breach of contract and a tangible and substantial loss for the couple. The Court found that the original mortgagees were liable for the sum of the purchase contract, the cost of property improvements undertaken by the Morecrofts, the stamp duty and fees associated with the conveyancing, and the legal costs of the current proceedings.
An additional claim was made against State Government, seeking compensation for deprivation of an interest because of fraud or an error in the creation or enforcement of title indefeasibility and/or registration. While the principle judgment did not give a conclusive decision on the matter, a second judgment of the Court ordered that the Morecfrofts were entitled to compensation from the State. The decision was made based on a finding that the deprivation of the Morecrofts’ interest was a result of the operation of the title registration system.
While both causes of action were judged in favour of the Morecrofts, compensation from both parties is limited by the principle of ‘double satisfaction’. This limits a plaintiff’s ability to recover more than the loss or damage they have suffered. The Morecrofts now have the onus of pursuing the original mortgagees to obtain payment by enforcing the judgement. Anything obtained from the original mortgages will reduce the the compensation owed by the State.
The conundrum faced by Jess and Jackie Morecroft rests on the principle of indefeasibility, granted to those holding a legal interest in a property and subject to no other interest, including equitable interests. Had the transfer of title not been fraudulent, the Morecrofts’ would have had a legitimate transfer of title, and the subsequent legal implications would have been avoided.
The author acknowledges the contribution of law student, Dana Costigan, in the drafting of this article.