Introduction to Torrens System: Indefeasibility

1. Introduction to Torrens System: Indefeasibility Assoc Prof Cameron Stewart

2. Registration Systems • Problems with fraudulent transactions in the early colony • 1800 – order of Governor King that all agreements concerning land be in writing or entered into books kept at Sydney, Parramatta and Hawkesbury • 1802 – Judge Advocate’s office • 1817- Gov Macquarie – Fraudulent against a bona fide purchaser for value • 1825 – Registration Act – substantially amended over time and then repealed in 1984 and sections transferred into the Conveyancing Act

3. Problems with the deed registration system • Improved level of knowledge • Offered greater degree of protection But • Did not grant a total security of interest • Purchasers took subject to unregistered interests which have not been documented • Purchasers take subject to unregistered instruments which they ought to have discovered • Purchasers title is still dependant on the chain of title and the risk that a prior interest may be invalidated breaking the chain of title and destroying the purchaser’s interest

4. The introduction of the Torrens system • 1840 – RR Torrens took up post in SA as Collector of Customs • Torrens personality – Hanseatic towns – merchant shipping system – Ulrich’s influence • Rip up the old system and start anew – destroy the dependent nature of titles – title needed independence – title should be “indefeasible” • One document – CT

5. The introduction of the Torrens system • 1858 – SA passed the Real Property Act – Torrens as R-G • Legal profession in uproar – one judge (Boothby J) actually removed from office in relation to his treatment of the Torrens system (1867) • Now in NZ, Canada, Malaysia, Singapore, Hong Kong, Israel – didn’t make it in most of the USA (is in Iowa) • First introduced into NSW 1862 – later amendments consolidated into the Real Property Act 1900

6. The introduction of the Torrens system • In 1993, 3% (between 60K and 80K) held in old system – conversions occuring at around 4,000 a year – at that rate old system will be phased out in NSW around 2013 • Torrens system was computerized in 1983 – in 1993 90% computerized

7. NECS • The Council of Australian Governments • The Council of Australian Governments (COAG) has confirmed the commitment of the Australian governments to implementing the National Electronic Conveyancing System (NECS), a single electronic system for completing real property transactions and lodging land title dealings in Australia. The commitment is part of the National Partnership Agreement to deliver a Seamless National Economy • February 2009, the National Partnership (NP) Agreement to Deliver a Seamless National Economy • 2011 – new e-conveyancing system

8. The Register • Section 31B(1) – folios dealings, prescribed instruments and records which the regulations may require • Manual or computerized folios • Record information – description of land, estates and interests in land, descriptions of the proprietors of those interests and any other particulars which affect the land • Distinct folio reference

11. The Register • Certificate of title – a copy of the folio – you normally have to produce the CT if you want to register a “dealing” • “dealings” – any instrument (other than a Crown grant or caveat) that is registrable or can be made registrable – s 3 • Approved forms – see the Conveyancing Law and Practice Reporter or LPI website • Upon registration takes effect as a deed between the parties - s 36(11) • “The cardinal principle is that the Register is everything” Felsv Knowles (1906) 26 NSWLR 604 at 620

12. Title by registration • Breskvar v Wall (1971) 126 CLR 376, at 381, Barwick CJ said that the 'the Torrens system ... is not a system of registration of title but a system of title by registration'. This statement confirms that, in the context of Torrens title land, the question of priorities is properly couched in the terminology of ‘registered’ and ‘unregistered interests’. • Priority between competing registered interests determined by time of registration not by date of execution (s 36(9)) – priority attaches to the interest created under the dealing but also the terms and conditions of the instrument

13. Title by registration • The practical significance of registration is ‘to provide third parties with the information necessary to comprehend the extent or state of the registered title to the land in question’: Westfield Management Ltd v Perpetual Trustee Co Ltd (2007) 233 CLR 528, at 531; 239 ALR 75, at 77

14. Section 40 (1)  A manual folio shall be received by all Courts or persons having by law or consent of parties authority to hear, receive and examine evidence as evidence of the particulars therein recorded and shall be conclusive evidence that any person recorded in the folio as the registered proprietor of an estate or interest in the land comprised in the folio is the registered proprietor of that estate or interest and that the land comprised in that folio has been duly brought under the provisions of this Act. (1A)  Where a computer folio certificate is issued in respect of a folio of the Register: (a)  the certificate is evidence of the particulars recorded in that folio, and (b)  it shall be conclusively presumed that: (i)  the certificate contains all the information that was recorded in that folio at the time specified in the certificate, (ii)  the land to which the certificate relates was, at that time, under the provisions of this Act, and (iii)  a person recorded in the certificate as the registered proprietor of an estate or interest in the land to which the certificate relates was, at that time, the registered proprietor of that estate or interest. (1B)  Where, in a manual folio or computer folio certificate, the estate or interest of a registered proprietor is expressed to be subject to: (a)  an estate or interest evidenced by an instrument, (b)  a provision of an instrument, or (c)  an enumerated provision of an Act or of an Act of the Parliament of the Commonwealth,      the whole of the contents of the instrument, provision or enumerated provision, as the case may be, shall be deemed to be set forth at length in the folio or certificate

15. Unregistered interests? • As we shall see some interests can exists without being registered – they are equitable • Halloran v Minister Administering National Parks and Wildlife Act 1974 (2006) 229 CLR 545, at 559-60; 224 ALR 79, at 88, Gleeson CJ, Gummow, Kirby and Hayne JJ, made the following apt observation: With respect to the land registered under the provisions of [the Torrens system], references to vesting at law and vesting in equity are apt to mislead. The Torrens system is one of title by registration, not of registered title. The assimilation of the registered title to a legal title may be convenient so long as it is appreciated what is involved. It is likewise with respect to the use of the term ‘equitable’ to describe interests recognised in accordance with the principles of equity but not found on the Register.

16. Indefeasibility of title • What is meant by indefeasibility? – once an interest is registered it cannot be set aside because of some defect existing in the tile prior to registration • Not specifically mentioned in the RPA - - s 42 (1) confers free ownership on a registered owner (with exceptions for fraud etc)

17. Section 42 • 42Estate of registered proprietor paramount • (1) Notwithstanding the existence in any other person of any estate or interest which but for this Act might be held to be paramount or to have priority, the registered proprietor for the time being of any estate or interest in land recorded in a folio of the Register shall, except in case of fraud, hold the same, subject to such other estates and interests and such entries, if any, as are recorded in that folio, but absolutely free from all other estates and interests that are not so recorded except: .....

18. Things to note • The first thing this section does is establish the indefeasibility principle, and it is expressed in the section in the following ways: • notwithstanding that someone else may have an estate or interest that would have priority under the old system • the registered proprietor of land recorded in a folio shall • hold their interest ‘absolutely free from all other estates and interests that are not recorded’

19. Things to note • If someone else has an interest in land that under general land would take priority, it will not affect the title of a registered proprietor in Torrens Title system. That registered proprietor will hold their interest absolutely free from any such claim. So you can see how that section operates to overcome the general law system of chain of deeds and being held subject to any faults in the earlier chain of deeds. In Torrens, any faults are irrelevant. You are registered, your estate and your interest have priority over previous claims

20. Things to note • The second point to make is that the principle of indefeasibility is subject to fraud. The person listed as the registered proprietor will hold that interest free from all other claims unless it can be shown that the registered proprietor has committed a fraud. So this provides some protection for a person against the fraud of the person registered in the folio.

21. Things to note • The third point to make is that the registered proprietor takes the land holding free from anything except other interests listed on the register. So registration on Torrens Title system means that you take your land free from everything but claims already listed on the register. So people that want to protect their interests under Torrens need to register that interest on the folio. This ensures that people taking or buying land under Torrens Title will take subject to the interest. Equally as purchaser of land under Torrens you have an opportunity to check the register before you buy and become aware of the interests that you will be buying that land subject to.

22. Things to note • The fourth point to make is that section 42 contains internal specific exceptions to the principle of indefeasible title. So this means that the registered proprietor will take the land free of all of interest except any listed on the register and any contained within the internal exceptions within section 42 itself. For example, the particular exceptions listed in section 42 relate to a persons estate as listed in the register under a prior folio a portion of the land that has been wrongly described in the folio, or section 42(a)-(d) which sets out other specific exceptions. This means that you have indefeasible title unless you committed fraud and your indefeasible title is subject to anything that is contained on the register and anything within those listed exceptions.

23. Section 43 • 43 Purchaser from registered proprietor not to be affected by notice • (1) Except in the case of fraud no person contracting or dealing with or taking or proposing to take a transfer from the registered proprietor of any registered estate or interest shall be required or in any manner concerned to inquire or ascertain the circumstances in or the consideration for which such registered owner or any previous registered owner of the estate or interest in question is or was registered, or to see to the application of the purchase money or any part thereof, or shall be affected by notice direct 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.

24. Section 45 (2) Despite any other provision of this Act, proceedings for the recovery of damages, or for the possession or recovery of land, do not lie against a purchaser or mortgagee bona fide for valuable consideration of land under the provisions of this Act merely because the vendor or mortgagor of the land: (a)  may have been registered as proprietor through fraud or error, or by means of a void or voidable instrument, or (b)  may have procured the registration of the relevant transfer or mortgage to the purchaser or mortgagee through fraud or error, or by means of a void or voidable instrument, or (c)  may have derived his or her right to registration as proprietor from or through a person who has been registered as proprietor through fraud or error, or by means of a void or voidable instrument. (3) Subsection (2) applies whether the fraud or error consists of a misdescription of the land or its boundaries or otherwise.

25. Example of indeafeasibility • Barb steals Able’s CT and uses it to enter into a contract for sale with Clarence (who know nothing of the theft). Barb forges Able’s signature and Clarence resgiters the conveyance – once registered Able’s interest in the property is defeated • Compare that with the deeds registration system where the registration would not perfect a fraud • A can sue B and might also have a right to compensation under the RPA’s assurance fund (see later)

26. Immediate or deferred? • The effects of this immediate title by registration is often called “immediate indefeasibility” – • In the past some courts stated that the RPA did not act in this fashion – they subscribed to a theory of “deferred findefeasibility” – where in our example could have claimed a better title to the property up until the point that C sold his interest onto a fourth party (bona fide for value)

27. Gibbs v Messer [1891] AC 248 • Mrs Messer went on holidays and left her CT with her solicitor for safekeeping • He forged her signature to a transfer to Hugh Cameron (a fictitious person) • Creswell acting as Hugh, signed and registered a mortgage to Gibbs • Deferred indefeasibility applied – not from the registered proprietor, BFVWN • Clements v Ellis [1934] 51 CLR 217, High Court favoured the doctrine of deferred indefeasibility

28. Frazer v Walker [1967] 1 AC 569 • Mr and Mrs Frazer registered proprietors of a farm in Auckland. • Mrs Frazer who purported to be acting for both Mr Frazer and herself, negotiated a loan from a couple - the Radomski’s of 3000 pounds. In order to secure the loan Mrs Frazer gave the Radomski’s a mortgage over the farm, however instead of seeking Mr Frazer’s consent for the mortgage she forged his signature. She took the form to her solicitors office where she signed her own signature and the clerk witnessed both Mr Frazer and Mrs Frazer’s signatures, despite not having seen Mr Frazer sign the document. • The mortgage to the Radomski’s was registered with the land title office such that the mortgage appeared as a registered interest on the relevant folio. • Mrs Frazer made no payment of either principle or interest under the mortgage. Eventually after receiving no payments, the Radomski’s exercised their power of sale as mortgagees of the property and sold the property to Mr Walker.

29. Frazer v Walker [1967] 1 AC 569 • As a consequence of the Radomski’s sale of the property under their mortgage, Mr Walker was registered as the proprietor on the folio. It was shown in court that neither the Radomski’s or Walker had any knowledge of the forgery. Once Walker was registered as the registered proprietor he brought action against Mr Frazer for possession of the land. • Mr Walker claimed that until that time he had not know of what his wife had been up to. Mr Frazer counter claimed against Mr Walker seeking a declaration that because his signature was forged on the mortgage form that the mortgage was null and void and ordered that he be restored to the folio as the registered proprietor. • Nothing in s 42 equivalent to suggest that indefeasibility deferred

30. Breskvar v Wall (1971) 126 CLR 376. Breskvar v Wall (1971) 126 CLR 376 - Mr and Mrs Breskvar executed a transfer to Petrie as security for a loan. Petrie fraudulently used the transfer and sold to his grandson Wall, who became registered owner. Wall sold to Alban Pty Ltd but before they could register their interest the Breskvars lodged a caveat which injuncted the sale. The conflict was therefore between the interest of Breskvars and the interests of Alban Pty Ltd Barwick : 'title by registration'. What sort of interest did Wall have? What sort of interest does Alban have? What interest do the Breskvars have?

31. The Coverage of Indefeasibility • Sometimes an instrument will be registered but the folio may not properly or fully describe all the interests registered - the interest described in the folio is said to be subject to the actual import of the instrument (s 42(1)) – Hence in a case where the folio had not fully described the transfer of an interest subsequent interest holders took their interests subject to the original import of the document and not the register • Bursill Enterprises Pty Ltd v Berger Bros Trading Co Pty Ltd (1971) 124 CLR 73

32. Provident Capital Ltd v Printy [2008] NSWCA 131 • Printybought a property in ‘Canoelands’ Sydney in 1986. • Afterwards he moved to the US where he lived for many years. • A ‘rogue’ managed to fraudulently obtain a duplicate CT from the Registrar General. • The rogue then used the CT to enter into two loans, offering the property as security for the loans. Two loans were made and two mortgages were filled in and registered on the folio. • The mortgages were not paid. The applicant in this case exercised the right to sell the property due to default on the mortgage and used the proceeds of sale to pay off the two mortgages owing on the land.

33. Provident Capital Ltd v Printy [2008] NSWCA 131 • Printy tried to get the money that the bank had taken to pay off the loans back from the bank but he could not challenge the new registered ownership.

34. Provident Capital Ltd v Printy [2008] NSWCA 131 • Importantly - • Mortgage One stated that it secured payment for everything in a memorandum. The memorandum stated that the mortgagor must pay the money secured in any related agreement. Another forged agreement set out the mortgage liability • Mortgage two stated that it secured payment for everything in a memorandum. The memorandum stated that the mortgagor had received $X amount of money and was obligated to repay $X with interest.

35. Provident Capital Ltd v Printy [2008] NSWCA 131 • Did indefeasibility cover the personal covenant to repay? • Mortgages can only be enforced under ss 57-58 • Under s 57(2) a mortgagee may exercise the power of sale where a mortgagor has defaulted on a mortgage if: • default has been made in the observance of any covenant, agreement or condition expressed or implied in the mortgage; or • default has been made in the payment, in accordance with the terms of the mortgage … of [money] the payment of which is secured by the mortgage;

36. Provident Capital Ltd v Printy [2008] NSWCA 131 • So the right to the charge was indefeasible but was the right exercised properly? • Mortgage 2: It stated that it secured everything in the memorandum. The memorandum said that the mortgagor had received $X and owed $X. The right of the mortgagee to exercise the power of sale for this mortgage was not challenged. If you look at the first limb of s 57(2), there had been a ‘default in the observation of a covenant express or implied in the mortgage’ – the obligation to pay was express in the covenant which was expressly incorporated into the mortgage

37. Provident Capital Ltd v Printy [2008] NSWCA 131 • BUT Mortgage 1: secured the obligations in a memorandum. That memorandum referred to another loan document in which the mortgagor had guaranteed ‘all outstanding sums as and when borrowed’. Mortgage one obligation to pay was not ‘express or implied’ into the mortgage doc. The mortgage doc referred to a memorandum which did not, itself, contain the obligation to repay. So, the right to sell couldn’t come from the first limb of s 57(2). What about the second – ‘default has been made in the payment, in accordance with the terms of the mortgage .. of money the payment of which is secured by the mortgage’. This says that you can sell the land if there has been a default under the mortgage with respect to the payment of moneys secured by the mortgage. Did this give the bank the power to sell?

38. Provident Capital Ltd v Printy [2008] NSWCA 131 • No! - what was secured was the right to demand payment of what was received by Printy, agreed to in the other document. • As he hadn’t received anything he didn’t have an obligation to repay: no obligation, no breach , no right to s 57 power of sale.