The Perpetual Trustee Co Ltd v Smith Priority Paradox: Just How Paramount Are Paramount Interests?

The purpose of this article is to explain and critique how courts have interpreted the paramount interest provisions in Torrens system legislation. The discussion pivots around Perpetual Trustee Co Ltd v Smith (‘Perpetual’), which concerned ‘the interest of a tenant in possession’ in the Transfer of Land Act 1958 (Vic) section 42(2)(e), an exception to indefeasibility recognised in all Australian jurisdictions to varying extents. We analyse the two High Court cases upon which the Court in Perpetual relied and critically compare the ‘two step manner’ in which the Court analysed priority under section 42(2)(e) with the ‘one step manner’ in which priority is dealt with in other exceptions to indefeasibility. Proceeding on the assumption that the interpretation of section 42(2)(e) adopted in Perpetual is correct, we consider whether the judges characterised the parties’ interests correctly and whether Perpetual’s approach to section 42(2)(e) could, and should, be taken to other paramount interests.