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New Zealand Law Students' Journal |
Last Updated: 30 August 2012
THE TORRENS SYSTEM AND THE IN PERSONAM
CLAIM
REBECCA ARDAGH[*]
Introduction
“Life, liberty, and
property do not exist because men have made laws. On the contrary, it was
the fact that life, liberty,
and property existed beforehand that caused men to
make laws in the first
place.”[1]
This quote
from Frederic Bastiat identifies a concept that is not often addressed when
commenting on the application of property law;
the idea that to have property is
an inherent, natural right, in the same league as liberty and life itself. The
ability of individuals
to own separate property, and to be able to identify this
property, is essential for the cohesion of society as a whole, over and
above
the intrinsic importance of property ownership to the everyday lives of
individuals. The importance of this notion arguably
is reflected in the
significance of ‘security’ of title demonstrated in land statutes,
case law and commentary. Giving
a title holder security allows them to
confidently exercise their right to enjoy the land they own without
interference. However,
in giving the legal owner of property too much security
one runs the risk of allowing them to hide behind this, while depriving someone
else of their own legitimate interests. Finding this balance between superiority
of title and potential competing interests has become
a controversial issue in
land law, the limits of which are still undefined.
With the introduction
to New Zealand law, of the initially strict Torrens system of registration, the
registered title became absolutely
paramount and competing interests could not
affect this. However, through time, this concept has become more flexible and
avenues
around this security of title (‘indefeasibility’), other
than those outlined in Torrens statutes, are being debated in
both courts and
commentary. One such avenue, known as claims in personam, is still being defined
through continuing cases. In assessing
the place of such a claim in a Torrens
system this paper will discuss the Torrens system itself and the concept of
indefeasibility
as it is incorporated into this system. The in personam claim
will also be examined, along with the way it is applied alongside
Torrens
principles to determine whether it effectively works with them or undermines
them in its current form. In addition, there
are suggestions for reform or
improvement that will be addressed in order to gain an understanding of the
future of this claim in
the New Zealand Torrens system.
A. New Zealand’s Torrens System
Previously, New Zealand’s system of registration operated as a Deeds
system. However, this system was fraught with problems
as to the acquisition of
the title, the validity of previous titles and the lack of
security.[2] In South Australia, Sir
Robert Torrens introduced a new system of title and registration into the Real
Property Act of 1858.[3] New Zealand
then followed suit by implementing the system in the Land Transfer Act 1870.
After four consolidations of this Act, New
Zealand has the same system under a
new Act; the Land Transfer Act 1952. Torrens’ aim in developing this
system was to introduce
a “cheap, simple, expeditious and accurate system
of transfer of land”, restoring “to its intrinsic value a large
amount of property depreciated or unmarketable through defective evidence or
technical imperfection in
title”.[4] This has often been
cited as the aim of many Torrens
statutes.[5] In a review of the New
Zealand Land Transfer Act made by the Law Commission in 2008 the aims of New
Zealand’s Torrens statutes
were to “create a register of land titles
reflecting the estates in land throughout New Zealand and their encumbrances; an
“indefeasible title” in the absence of fraud, with specific
exceptions; as well as a public record of land transfers;
a simpler, less costly
system of conveyancing than the deeds system, and a means whereby compensation
for loss of title due to the
system could be granted by the
state.”[6] It can be concluded
that many of the aims of these statutes are practical; to create efficiency and
reliability in an area where
the system has previously been inadequate to cope
with demand.
In order to meet these aims there are some cardinal
principles of the Act that must be upheld to allow the system to be as efficient
as possible. These principles have come to be characterised as the
‘curtain and the mirror’ principles of land
registration.[7] More specifically;
the ‘mirror’ principle, ensuring that the register reflects the
complete state of the title - in
other words, ‘what you see is what you
get’; the ‘curtain principle’, that the register creates a
curtain
between the title and other interests lying behind the register, and any
purchaser is not required to investigate any interests behind
that curtain; and
finally the ‘insurance principle’, where as mentioned, if the
register does not accurately reflect
the title to the detriment of a person then
compensation can be made by a State assurance
fund.[8] Despite these being the
principles behind the working of the system, it is commonly expressed that the
fundamental principle of any
Torrens system is indefeasibility of
title[9] as this contributes to the
operation of these three mentioned overarching principles.
B. Indefeasibility of Title
In Frazer v Walker[10]
Lord Wilberforce describes indefeasibility as “a convenient description of
immunity from attack by adverse claim to the land
or interest in respect of
which he is registered, which a registered proprietor enjoys. This conception is
central in the system
of registration”. The importance of this concept is
also highlighted in the well cited dictum of Edwards
J;[11] “The cardinal principle
of the statute is that the register is everything, and that, except in cases of
actual fraud on the
part of the person dealing with the registered proprietor,
such person, upon registration of the title under which he takes from
the
registered proprietor, has an indefeasible title against all the
world”.[12] While only
mentioned in two sections of the
statute,[13] despite statements in
Frazer v Walker that it does not appear at
all,[14] this concept has a firm
grounding in case law to do with registration. The indefeasibility focussed
sections of the Act are ss 62,
63, 64, 182 and 183. In order to understand the
potential exceptions to immediate indefeasibility it is necessary to examine
these
sections.
Section 62 states that the registered title will be
paramount unless one of the four described situations exists; the title is
obtained
by fraud, an earlier title
exists[15], there is an omission of
an easement on the title,[16] or
there is a misdescription of
boundaries.[17] The most
controversial of these exceptions is the fraud exception as the interpretation
of this is varied between cases. However,
it is accepted, since the case of
Assets Co Ltd v Mere Roihi, that to constitute fraud under the statute
then there must have been actual
fraud,[18] leaving equitable fraud
available as a basis for a claim in personam, as will be discussed later.
Section 63 protects the registered
proprietor from ejectment unless, as before,
there is fraud,[19] misdescription
of boundaries,[20] or a prior title.
However, there are additional exceptions to indefeasibility in this section
including the right to a legitimate
mortgagee sale of the
property,[21] or the registered
proprietor is a tenant under a lease and the landlord has legitimate reason to
eject him,[22] where the registered
proprietor will not be protected from ejectment. Section 64 guarantees to uphold
the title of the registered
proprietor, preventing any right that may be held
over the same title to be used in a way that undermines the registered
proprietor’s
title.[23]
Section 182 is effectively the ‘curtain’ section, alleviating the
new registered proprietor of any responsibility, unless
in the case of fraud, to
inquire as to previous registrations of title for that property, how the
purchase money was used. It also
guarantees that any notice of interests such as
trusts or unregistered mortgages will not affect his
title.[24] Section 183 protects a
bona fide purchaser or mortgagee for value from any adverse claims arising from
the fact that they derived
their title from a person who was “registered
as proprietor through fraud or error, or under any void or voidable
instrument”.[25]
These
sections combine to give a registered proprietor the security of title more
commonly referred to as ‘indefeasibility’,
however, interpreting
them together has been difficult. As described by Salmond J the legislation was
“so badly drafted...
that it is difficult so to harmonize these
sections”[26]. Although the
exceptions to indefeasibility that were originally anticipated were named in the
statutes, no other direction was given
in addition to this. Because of this
vague nature there is difficulty in knowing whether these exceptions should be
widely or narrowly
interpreted and applied. The centrality of the concept of
indefeasibility to the Torrens system has been used to suggest that a strict
interpretation and application is what must have been intended. J. E. Hogg made
the statement that “indefeasible title means
a complete answer to all
adverse claims on mere production of the
register”.[27] However, an
argument that indefeasibility is a principle is that easy to apply, that it is a
direct and ready-made answer to any
adverse claim is, in this author’s
opinion, hard to believe. In fact, it is arguable that indefeasibility was never
meant to
be absolute,[28] even in
drafting Torrens legislation exceptions to the principle are outlined. These
exceptions have been interpreted very strictly
by the courts. The exception of
‘fraud’ contained in these sections has been interpreted to include
only actual fraud,
and no other (arguably more easily proved) accepted
definition.[29] This strict
interpretation of statutory exceptions to indefeasibility is just another
example of the judicial respect for the principal
and their unwillingness to
undermine it. However, the courts do have an inherent jurisdiction in equity and
have not endorsed any
attempt of indefeasibility to limit that
jurisdiction;[30]“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”.[31] The tension that
can be seen to exist between these two principles leads to the crux of this
paper; how can indefeasibility and the
courts equitable jurisdiction, namely
when acting in personam, co-exist within a Torrens system?
C. Claims In Personam
1. What is the in
personam claim?
According to Snell there are many different uses of the term
“equity” depending on its
context.[32] An equitable interest
in property is a form of ownership that equity would endorse but that is not
endorsed by other legal means;
statute or at common
law.[33] However, these equitable
interests do have to arise out of some sort of obligation in order to be
recognised; most commonly this
is in the form of a contractual relationship,
such as the equitable interest of the unregistered
mortgagee.[34] When acting in
personam someone has the right to go to the court, acting in equity, for a
remedy or relief.[35]
Robert
Torrens never anticipated the role that equity could play in his system and so
any guidance or direction for applying such
a claim is inherently lacking in
original statutes. Some cases can attract compensation under s172 of the Land
Transfer Act 152,
upholding the original aim mentioned; that the state would be
responsible for loss suffered under the system. With named exceptions
to the
concept of indefeasibility, and compensation for situations that are not one of
these named exceptions, it was not seen that
equity could be needed. Therefore,
in interpreting the application of a claim, the courts focus on maintaining the
aim of the statutes
and therefore indefeasibility, the debate centres on the
extent to which this should be upheld against all other interests. The in
personam claim itself has been described as “inherently
vague”[36] and that because of
this its application based on a right to property would undermine
indefeasibility and so the Torrens system in
general.[37] However, equity plays
a large role in modern society and in addition to this there are a lot of
interrelated interests that can
be attributed to properties, which makes the
system a lot more complicated than it originally was or foreseen to be. Because
of this
the Torrens system has had to be flexible to react and change with
society.[38]
2. How has the application of the in personam claim
evolved?
There are, generally speaking, two schools of thought on how far this
‘flexibility’ should be able to extend concerning
the potential
application of claims in personam; that it should be interpreted narrowly to
avoid posing a threat to the Torrens system,
or that it should be interpreted
more widely.[39] There is concern
that a narrow approach to equitable claims can constrain the development of the
law.[40] Of course law according to
property operates around rights so central to society that changes in social
values will readily affect
the public’s expectations from the law in this
area. This does create an expectation that the law be able to change and develop
with society. Although the statute states that a registered proprietor’s
title cannot be affected by notice of another
interest,[41] Robert Chambers thinks
that this should not be the case. “A defendant who acquires a registered
interest in Torrens land from
the plaintiff, with notice of the facts giving
rise to the plaintiff’s claim for restitution of that interest (i.e.
notice
that the interest is an unjust enrichment at the plaintiff’s
expense), should not be protected from that claim by the principle
of
indefeasibility”.[42]
Respectfully, it is this author’s opinion that although the in personam
claim should be interpreted widely in order to recognise
the various interests
that can be vested in a common title, seeking a remedy of restitution is taking
the application of this claim
too far. It is necessary to find a balance between
indefeasibility of title and the right to bring equitable claims against the
registered
proprietor. As indefeasibility is qualified by provisions within
Torrens statutes themselves it seems logical that some encroachment
by equitable
claims is also not only viable, but in some ways to be expected. However, it is
the author’s opinion that the
most important aspect of a claim in
personam, arguably what makes it acceptable in a Torrens system at all, is that
a claim in personam
is not a claim against the title, but a claim against the
registered proprietor him or herself, arising out of
conduct.[43] In a remedy of specific
performance or constructive trust the courts are merely ensuring that the
registered proprietor’s conduct
is corrected. Sometimes this can have an
effect on the title, but is still granted to remedy the conduct of the
registered proprietor.
A remedy of restitution, however, is a remedy focussed
solely on the title itself, as opposed to the behaviour leading to the claim.
Because if this, it is harder to see the application of this equitable remedy
being able to coexist with the Torrens system without
posing too large of a
threat to indefeasibility of title and the system itself.
As mentioned
previously, Frazer v
Walker[44] is authority for the
accepted notion that claims in personam are acceptable. However, there is still
much debate as to whether these
claims are an exception to indefeasibility or
not. In CN & NA Davies v
Laughton,[45] Thomas J noted
that in personam “sits comfortably with the concept of indefeasibility...
It is essentially non-proprietary
in nature. The key element is the involvement
in or knowledge of the registered proprietor in the unconscionable or illegal
act or
omission in issue”.[46]
Chambers also argues that calling the in personam claim an exception to
indefeasibility is a misnomer as it does not prevent indefeasibility
operating
legitimately.[47] It is still
commonly referred to as an ‘exception’ to indefeasibility, whether
it technically is one or not. If it is
an exception to the principle, it is
still regarded as a necessary one in order to ensure that the Torrens system is
fair and maintains
justice, though it must always be applied in a way that
limits any threat to the system.[48]
Therefore, it is seen as necessary that the registered proprietor is not
given such an elevated priority over every other interest
that the registered
title becomes a shield from any unconscionable conduct or illegal act they may
have done in acquiring the title.
Protecting the registered proprietor to this
extent was never Torrens’
aim.[49] However, whilst attempting
to uphold this justice the courts must also act so as not to undermine the
principle of indefeasibility
itself. This concept of balance between the
priority of competing rights is extremely fragile and due to lack of guidance in
statute
many different ways of approaching different types of claims have been
explored, in particular reference to claims for restitution.
Chambers argues
that this has lead to inconsistencies between cases and a remaining question of
how to approach these claims in a
satisfactory
manner.[50] It is widely recognised
by the courts that these claims are limited, though these limits are largely
undefined.[51]
Originally
its application was more strictly confined to situations where a contractual
relationship existed or a trust. One reason
for this, in terms of contract, is
that it provides a tangible basis from which the plaintiffs can prove their
rights.[52] It was also mentioned in
dictum by Prendergast CJ in Paoro Torotoro v
Sutton[53] that “there is
nothing in the Land Transfer Act which, as between the trustee and the cestui
que trust, puts an end to the
trust. The trust is not noticed in the Register;
but the cestui que trust may always in this Court enforce his rights against the
trustee, although the trustee may have acquired a certificate of
title”.[54]
A
constructive trust was created by the Courts in Taitapu Gold Estates Ltd v
Prouse[55] where the plaintiffs
and defendants had a contractual relationship for the transfer of property. The
rights to minerals under the
land being transferred was contained in the
contract but not included in the transfer, due to a simple mistake. The court
held that
from the moment of the transfer the defendants held the minerals on
constructive trust for the plaintiffs. The plaintiffs had a contractual
right to
the property which created an equitable interest in the minerals; however, the
equitable right to the minerals was not turned
into a legal right through
registration. The reasoning of the judge in this case, seems to align itself
with the argument, that an
equitable interest in the property created through
contract is made into a legal title through registration, the part of that
interest
that was not recognised through registration still exists in equity
with the intention that it transfer into a legal title eventually.
This is
similar to Tipping J’s interpretation of the act of registration. He
stated that registration is “a system of
creating legal title through the
process of registration. Prior to registration an equitable title may exist, but
only the act of
registration can create a paramount legal
title”.[56] When granting the
remedy of a constructive trust in this case, Hosking J mentioned that it was not
conflicting with the Land Transfer
Act and that the courts often enforce
obligations under contract and in concern of
trust.[57] This principle has been
followed in a succession of
cases.[58] However, when these cases
were analysed by Stevens, he also noted that these principles, though accepted
in the case would not be
applied where the plaintiffs themselves did not follow
equitable maxims. Therefore, the equitable maxim that one must ‘do
equity’
to receive equity still applies in cases concerning equitable
interests in land and the in personam claim.
However, one noticeable
development of this area of claim was when it was extended to claims by third
parties to the contract. One
example of this, also given by Stevens, was the
case of Shepherds v Graham, where the claimant was a subsequent
transferee. Whilst there was no privity of contract between the two parties, the
original registered
proprietor had still not performed their obligations as they
were outlined in the original contract. A property was to be transferred
to the
original transferee, agreed upon by both parties. However, due to a genuine
mistake a portion of the property was left off
the register, though this went
unnoticed by both parties. The new registered proprietor inhabited the property
completely, as if
it had been transferred in the stipulated manner. It was the
subsequent transferee who noticed the mistake in the register and sought
to get
it rectified. However, the title of the original registered proprietor was in
control of the executor of her estate. The court
held that because the executor
had inherited the property he did not fall into the ‘bona fide purchaser
for value’ category
of the Act. Because of this a decision to allow the
claim would not be contrary to the Act. Although there was no privity of
contract
between the two parties this would not disallow rectification of the
mistake. It was held, once again, that at the time of transfer
the equitable
interest that still remained after the legal title had been established was held
as part of a constructive trust for
the claimant by the executor of the original
registered proprietor’s estate. In the author’s opinion this also
highlights
the idea that claims in personam are granted with the interest of
remedying behaviour of the registered proprietor. The obligations
that the
registered proprietor committed to are more important than the evidence of a
relationship between the two parties.
In trustee cases a trust can be
implied from a relationship, such as in Congregational Church of Samoa
Henderson Trust board v Broadlands Finance
Ltd[59] and Tataurangi
Tairaukena v Mua Carr[60]. In
the first case it was held that there must be something from which the court
could form a constructive trust; either an express
trust or a contractual
relationship between parties, or an implied fiduciary relationship. In the case
of Tataurangi a member of a committee gained a lease with the approval of
the committee. The lease was to land the committee held as tenants in
common.
This lease was held not to gain indefeasibility as the member held the lease in
a “fiduciary capacity as a member of
the
committee”.[61] From this it
can be concluded that originally the in personam claim was applied in cases
where it could be proved that the defendant
had obligations that had not been
fulfilled, and could be remedied through specific performance of these
obligations. However, the
claims need a basis from which the equitable interest
or rights of the plaintiff to the land in question can be proved, hence a
contractual
relationship being the usual starting point for this type of claim,
though privity of contract between the plaintiff and defendant
is not expressly
required. A claim can also originate from a trust. These can be implied through
the relationship between plaintiff
and the defendant, or awarded for an express
trust, as in the case of Kissick v
Black.[62] One common ground
between these two claims is that both a contract and fiduciary or trustee
relationships imply a sense of obligation.
However, while there were these
principles there were no direct rules as to how the in personam claim was to be
approached.[63] This led to the
claim being applied in a broad spectrum of cases, without much consensus on
guidelines for its application[64]
and increased tension between the ‘narrow’ and ‘wide’
approaches to application of claims in personam.
In Oh Hiam v Tham
Kong[65] Lord Russel of Killowen
stated that courts can exercise their equitable jurisdiction in this area on
grounds of conscience, and that they have the ability
to exercise “its
jurisdiction in personam to insist upon proper conduct in accordance with the
conscience in which all men
should
obey”.[66] This seems to
invoke a sense of ‘fairness’ as being a determinant in both when and
how the in personam claim should be
applied. In this sense it is almost as if
directions that are too strict are counter-productive when it comes to the
operation of
a court acting in personam. More specifically, that the application
of this claim should be on a case by case basis, in a way that
relies more on a
sense of justice than a strict adherence to rules that are determined for the
sole purpose of aiding compliance
with the principle of indefeasibility. Lyn
Stevens and Kerry O’Donnell believe that flexibility is necessary in a
system of
indefeasibility, as without it the principle of indefeasibility itself
would allow injustices to occur.[67]
This supports the view that the in personam claim should at least be capable of
being applied widely, but specifies that the reason
for this is to prevent
indefeasibility being used as a tool of injustice. This is much less broad than
having jurisdiction to accept
the claim in any case where conscience would allow
it, as seemingly suggested by Killowen. Therefore, there are even arguments
about
jurisdiction within the generalised theories themselves. To the other
extreme it has been stated that these remedies have “extended
beyond old
boundaries into new territory where no Lord Chancellor’s foot has
previously left its
imprint”.[68]
3. Current Guidelines for the Application of Claims in
personam
In the recent case of Regal Castings Ltd v
Lightbody[69] some guidelines
were established for the application of the in personam claim in an attempt to
regain the balance between legal and
equitable rights. The first thing that was
deemed necessary by the Supreme Court was that the plaintiff show that they had
a cause
of action, the basis of which was either legal or
equitable.[70] Tipping J then goes
on to the second criteria for a successful in personam claim; that it must be
unconscionable for the defendant
to rely on indefeasibility gained from their
title to defeat the plaintiff’s
interest.[71] It is important to
note that here he does define ‘unconscionable’ as ‘being
against good conscience’. Unconscionability
has often been a controversial
point, especially for those who do not support a wide application of the in
personam claim. Though
the vague notion of using conscience as a deciding factor
in when the claim should be applied can very possibly lead to a wide
application,
it is important to remember that this claim itself is an operation
of equity. Its basis is focussed on the conduct of a registered
proprietor and
unlike statutory limitations on conduct, its operation is to prevent
exploitation of privileges granted by these statutes
and using them in an
improper manner. Jonathan P Moore made the comment that “a vague and
amorphous concept such as unconscionability
would, if sufficient on its own to
defeat a registered interest in land, drive a horse and buggy through the
Torrens system.”[72] However,
he also noted that this is why it is so important that unconscionability
isn’t sufficient on its own. As implemented
by Tipping J in Regal
Castings Ltd v Lightbody, it is qualified by two other criteria and
importantly the first criteria is one of law, as mentioned. The third criteria
that limits
the possible exploitation of the term ‘unconscionable’
is that allowing the claim must not be contrary to or undermine
the Torrens
system.[73] It is easy to see how
these three guidelines draw on principles of previous cases, especially when it
comes to the traditional contract/trust
basis for a claim, the focus on the
causes of action themselves and the responsibility of a registered proprietor to
act responsibly
in respect to the rights of and obligations they undertake in
relation to others.
The surprising thing is that the evolution of the
application of this claim can be generalised as having gone from a more
‘strict’
application; needing either a direct involvement in trust,
or a contract where the parties gained privity of contract for a claim
to be
based, to a slightly wider application through the employment of the rationale
outlined in Regal Castings. Since this development the law seems to have
turned back to attempting to constrain the application of the claim in New
Zealand.
The matter of jurisdiction of courts to grant claims in personam was
contested in Ludgater Holdings Ltd v Gerling Australia Insurance Company Pty
Ltd.[74] The Supreme Court and
Court of Appeal both agreed that the High Court did have jurisdiction to hear
these claims, however the subject
matter must be one for which they have
jurisdiction. However, in terms of the application one criteria or measure of
unconscionability
has recently returned to employment in New Zealand courts.
Cashmere Capital Ltd v Crossdale Properties
Ltd[75] was a Court of Appeal
case that recently limited the in personam claim to “positive affirmative
act such as written or oral
acceptance or ... an implied acceptance by
conduct” that “truly engages the conscience of the party whose
registered
priority is
challenged”.[76] This means
that rather than the defendant’s reliance on the register, it is their
previous behaviour that is drawn into question
and rather than simply being
found to be against good conscience, they must have participated in some
positive action. This was a
rule first established in Bell v Alfred Franks
& Bartlett Co Ltd
[1980],[77] accepted by Regional
Securities Ltd v Christensen Potato Co Ltd
(1991)[78] and NZ Fisheries Ltd v
Napier City Council.[79] The
latter of these cases was applied in Harman & co Solicitor Nominee
Company v Secureland Mortgage Investments Nominees
Ltd,[80] which was also in the
Court of Appeal. A recent application of this rule in the High Court was Bobs
Cove Developments Limited v Strategic Nominees
Limited,[81] in April 2010. A
Mortgagee tried to exercise its power of sale over property. However, another
party had a caveat on that title arising
out of an Agreement for Sale and
Purchase for a portion of that property and tried to stop it from lapsing in
light of the mortgagee
sale. The mortgagee did have notice of this prior
interest and acknowledged this before they were registered. A point this author
finds worth considering in this case is that the mortgagee admits that the
portion of land that is contained in the Agreement is
not actually listed under
the security for the mortgage. Their argument is that as part of the
company’s title their registered
interest still extends to it, despite
their knowledge of the agreement for sale and purchase, this portion of the land
is not officially
excluded. The judge accepted this argument. A similar case,
Centillion Investments Ltd v Hillpine Investments
Ltd[82] was decided on the basis
of supervening fraud according to the knowledge of the interest. However, the
judge in Bobs Cove preferred to decide on the grounds of the in personam
claim, which he stated had overtaken this area of
law.[83] It was held that the in
personam claim could not be relied on as they did not reasonably argue that the
interest was enough to undo
the mortgagee’s registered interest. According
to the high threshold put forward in the Cashmere, SNL just stood by and
therefore
was not guilty of any affirmative conduct. Although it is arguable
that accepting the existence of a previous interest in land before
becoming
registered and then using the register to deny the other party of that interest
to the land would fall under the ‘unconscionable’
limb in Regal
Castings this was not enough in Bobs Cove. Although the rationale
behind employing the aforementioned rule was discussed in the Court of Appeal
case of Cashmere this case
was in fact appealed to the Supreme Court. The court
did not go into any in depth discussion of the principles of the case it did
mention its support for all aspects of the decision and the reasoning therein.
Because of this, Bobs Cove applied the principle contained in the Court
of Appeal case but referred to it as a Supreme Court
authority.[84] However, it is
respectfully the opinion of this author that the application of this rule in
Cashmere is inherently flawed. In this case Cashmere Capital loaned money
to property managers Crossdale for residential units. These were
being used for
the purpose of a retirement home and the residents had leases for life that were
consented to by Cashmere when giving
the loan. However, when the director of
Crossdale became bankrupt they sought to reclaim their investment through a
mortgagee sale
of the units. On page 10 of the judgment the court recognises
that Cashmere has consented to the leases however, the level of knowledge
they
had as to the terms of the leases was not recorded. The court concluded that
because of this it was ‘reasonable’
for Cashmere to infer that the
leases were short term. Therefore there was no action positive enough to warrant
an application of
the in personam claim. In spite of this it seems given these
particular circumstances this is not a well reasoned conclusion to draw.
It
would seem that one would naturally assume that leases to residences in a
retirement home would not be short term. In looking
back to Regal
Castings and the concept of unconscionability it would seem that these are
the exact circumstances that equitable claims such as those in
personam exist to
remedy. When one has knowledge of and consents to upholding agreements between
parties and then uses their position
on the register to renege on these
agreements, then that is unconscionable action. In addition to this, when one
has knowledge of
existing leases, especially when that knowledge is constructed
around the basis of a mortgage agreement, it seems that the reasonable
thing to
infer is not limited knowledge, but considerable knowledge. Things like the
value of agreed payments, the frequency of these
and any limits to the term the
payment would be received for must arguably all be things that a finance company
could be assumed
to take into consideration when guaranteeing the security of
their investment. There is no mention of the Regal Castings case as a
guide for application of the claim, simply as authority for allowing the claim
to be heard. This means that the rationale
that Regal Castings gave was neither
accepted nor overruled. The Regal Castings three criteria were intended
to be more of a guiding rationale than a strict test, and maintain the room for
flexibility within judicial
reasoning of the law. On the other hand
Cashmere seems to create a criteria or measurable standard when it comes
to assessing the behaviour of the registered proprietor and Bobs Cove is
a recent case addressing the in personam claim in New Zealand courts, suggesting
that the judiciary is leaning towards the limited
application of the claim
itself. An interesting point to note is that before Bobs Cove this rule
had only been applied in cases addressing the actions of mortgagees. However,
Bobs Cove discusses the principle as being a rule for applying the in
personam claim in general, in this case surrounding agreements for sale
and
purchase.[85] These two lines of
thought can be seen as co-existing; the new criteria simply building upon the
initial level of unconscionability.
However, this author would argue that by
setting a measureable standard the flexibility intended by the court in Regal
Castings becomes more rigid. Which method of assessment will be more
commonly used, and whether strict criteria for this inhibits or aids
the
development of this area of law in the future remains to be seen.
4. Other Possible Solutions
The courts will always be bound to interpretation of the Land Transfer Act
1952 as it exists, and as mentioned the vague nature of
the drafting of these
sections can lead to many different interpretations. Therefore, the ability of
the courts to create their own
system of guidance will always be limited to
adherence to notions ‘indefeasibility’ that are mentioned, but not
adequately
defined in the Act.[86]
There are various options for reform suggested in the 2008 review of the Act.
One of these is to attempt to define indefeasibility
within the
Act,[87] as done in s 40 of the Land
Titles Act 1980 (Tasmania, Australia). This seems very logical. Often concerned
about the boundaries of the in personam claim one forgets to acknowledge
that
boundaries by definition are between two things. Potentially, a way to figure
out where the in personam claim stops is by ascertaining
where indefeasibility
begins. By determining the boundaries of indefeasibility it can help bring
definition to the current shadow
boundaries of the in personam claim.
In
Singapore the Torrens system was introduced almost 100 years later than in New
Zealand and Australia.[88] This gave
the drafter of their Torrens statute, Baalman, the advantage of knowing the
potential of equity to arise in the Torrens
system, and the problems this was
creating overseas. In reaction to this he attempted to remain as close to having
complete indefeasibility
of title as possible in his Torrens system by including
an exhaustive list of strictly defined exceptions in the
statute.[89] This seems to be close
to what would need to happen if one were to attempt to define the operation of
indefeasibility within a statute
- provide an exhaustive list of when it were
not to apply. However, it was soon seen in this system that even an exhaustive
list
of exceptions was not enough to intrude on the court’s jurisdiction
to operate in equity within a Torrens system. This was
shown in the case of
Ho Kon Kim v Lim Gek Kim
Betsy,[90] where the Singapore
Court of Appeal adopted personal equities as applied in other Torrens
jurisdictions as a general exception to
indefeasibility outside of those
specific exceptions named in the statute. Where a Torrens system, or any system,
is seen to be too
harsh or strict in its recognition of competing rights, equity
has often been seen to step in and soften the application in order
to provide a
sense of justice under the law.[91]
Another option for reform given in the 2008 review of the Land Transfer
Act 2008 was the introduction of a conclusive
register.[92] This would mean that
the title would include a list of all interests, equitable and legal, when it
was registered so that all had
equal ability to be recognised and protected by
indefeasibility. It could be argued that the caveat system allows persons with
an
equitable interest in land to do this now. However, it is a necessary
component of the caveat system that the equitable interest
be capable of
eventual registration to be able to be noted on the title. This would provide
protection in most cases but still leave
some interests without protection. In
order for a conclusive register to operate properly, the types of interests that
are capable
of registration in the reviewed system would need to be specified to
prevent potential abuse by those with equitable interests. The
review of the Act
itself mentions that although this would be an ideal solution, like
indefeasibility itself it could never be
absolute.[93] It could also be seen
as diminishing the effect of indefeasibility by allowing too many other interest
holders to have affect over
the title of the registered proprietor. Once again
this is an issue of careful balance between interests and also between abilities
of those being advantaged to use their benefit given under the system in a way
that detriments the rights of another. In addition
to this, there is an issue of
practicality in defining the types of interests that can be registered and
establishing an effective
system to allow this to take place.
Although
it seems easy to say that consolidation of the system should be attempted
through legislative means, it is actually very
difficult to ascertain a way in
which this could be done without requiring very strict definitions of statutory
terms or an exhaustive
list of named exceptions to the indefeasibility
principles. These present problems both of conclusiveness and adherence. It is
hard
to both define terms within the Act and create a list of exceptions that is
complete. There will still always be a need for the court
to interpret terms in
their own way and also exceptions to the principle not foreseen in the drafting
of the legislation. This author
shares the opinion that to create an exhaustive
list of exceptions to indefeasibility would likely lessen the exceptions to
indefeasibility
that currently operate but also create a strict application of
the law in an area that is so deeply enrooted in the livelihood of
individuals.
In operating around something as important as land and the ownership of property
it is necessary that the system is
flexible so as to allow individuals to feel
satisfactorily protected by the law and have confidence in the ability of the
law to
recognise their rights. Because of this, the author believes that the
best option for consolidation of the in personam claim as it
operates in a
Torrens system is through the
courts.[94]
Conclusion
It can be concluded that the aim of a Torrens system in any jurisdiction is to provide accuracy, affordability and simplicity in a transfer system but also to provide the registered proprietor with security of title, giving them priority over any adverse claims. However, due to the strict nature of drafting, equitable claims, claims in personam in particular, had to be included in the system to soften this and also provide security to other types of rights that might not be registered. However, with this came competing thoughts as to whether such claims had a place within a Torrens system or not, as it potentially undermined the central principle. Through examination of the subsequent cases and commentary on the issue it is this author’s opinion that the in personam claim has not only an acceptable, but a necessary place in any Torrens system. However, it is essential that competing rights are balanced; the registered proprietor attracts indefeasibility, but it should not be to the extreme that he or she is able to use this principle to undermine the legitimate rights of others. One must still be able to feel secure in their title so in applying the in personam claim in a Torrens system the courts established guidelines to ensure a balance was obtained. Although the in personam claim has a place in a modern Torrens system it is not without doubt and attack from commentators and even courts. However, with guidelines and consistency in its application there is no argument against it enough to show that it is not worth applying in such a system. When Regal Castings was first decided it seemed that there was an identifiable rationale that was to be employed that would give consistency between cases whilst still allowing judicial flexibility in the application of the claim. However, since Bobs Cove it seems that the courts are favouring more a definitive test or measure for the application of this claim. With both avenues coexisting currently it is important to watch the future cases in this area to see which line of thought is favoured judicially. However, one thing that can be concluded from this analysis is that this is an area that is most definitely for the courts to develop, as opposed to requiring legislative reform.
[*] Rebecca Ardagh, University of
Canterbury.
[1] Frederic Bastiat,
The Law, (The Foundation for Economic Education: Irvington, New York,
1987) at 6.
[2] Bennion, Brown,
Thomas, and Toomey, New Zealand Land Law, (2nd ed, Wellington,
2009) at 38.
[3]
Ibid.
[4] Robert Torrens, A
Handy Book on the Real Property Act of South Australia (1862) 11 cited by
Lynden Griggs, “In Personam, Garcia v NAB and the Torrens System
– Are they Reconcilable?”, (2001) 1:1 QUT Law & Justice
Journal 76 at 77.
[5] For
example, opening statement in the Report of the Real Property Law Commission in
November 1861 (SA): Parl Paper No 192
(1861).
[6] Review of the Land
Transfer Act 1952, Law Commission October 2008, Wellington, NZ, Issues Paper 10
at 19.
[7] Griggs, above n 4; Tang
Hang Wu, “Beyond the Torrens Mirror: A Framework of The In Personam
Exception to Indefeasibility”[2008] MelbULawRw 20; , (2008) 32 MULR 672 at
673.
[8] Bennion, Brown, Thomas,
and Toomey, above n 2 at 39
[9]
Wu, above n 7 at 672.
[10]
Frazer v Walker [1967] AC 569, at
580.
[11] Fels v Knowles
[1906] NZGazLawRp 66; (1906) 26 NZLR 604, at 620.
[12]
Ibid.
[13] The Land Transfer Act
1952 ss 54 and 199.
[14]
Frazer v Walker, above n
10.
[15] The Land Transfer Act
1952 s 62(a).
[16] Ibid, s
62(b).
[17] Ibid, s
62(c).
[18] Assets Co Ltd v
Mere Roihi [1905] UKLawRpAC 11; [1905] AC 176, 210
(PC).
[19] The Land Transfer Act
1952 s 63(1)(c).
[20] Ibid, s
63(1)(d).
[21] Ibid, s
63(1)(a).
[22] The Land Transfer
Act 1952, s 63(1)(b).
[23] Ibid,
s 64.
[24] Ibid, s
182.
[25] Ibid, s
183.
[26] Boyd v Mayor of
Wellington[1924] NZGazLawRp 58; [1924] NZLR 1174, 1211; Rt Hon Justice Peter Blanchard,
“Indefeasibility under the Torrens System in New Zealand” in
Grinlinton (ed) Torrens in the Twenty-first Century, (LexisNexis,
Wellington:2003), at 31.
[27]
J.E. Hogg, Registration of Title to Land Throughout the Empire, (1920) at
94 cited by L. L. Stevens, “The In personam Exceptions to the Principle of
Indefeasibility,” [1969] AukULawRw 4; (1969) 1 (2) Auckland University Law Review 29 at
29.
[28] Lynden Griggs, The
Tectonic Plate of Equity – establishing a fault line in our Torrens
Landscape, (2003) 10 APLJ 21 at
21.
[29] Assets Co Ltd v Mere
Roihi, above n 18.
[30]
Stevens, above n 27 at 30.
[31]
Frazer v Walker, above n 10. at 585 per Lord
Wilberforce.
[32] Edmund Henry
Turner Snell, Principles of Equity, (London: Sweet and Maxwell, 1990), at
23.
[33] Diane Skapinker,
“Equitable interests, mere equities, “personal” equities and
“personal equities” –
distinctions with a difference”,
(1994) 68 Australian Law Journal 593 at
593.
[34]
Ibid.
[35] Ibid; Meagher, Gummow
and Lehane, Equity: Doctrines & Remedies (Butterworths: Adelaide,
1992) at 118-120, [428].
[36]
Barry C Crown, “Equity Trumps the Torrens System: Ho Kon Kim v Lim Gek
Kim Betsy” [2002] Singapore Journal of Legal Studies 409 at
415.
[37] Ibid; Wu, above n 7 at
674.
[38] Griggs, above n7 at 78;
Barry v Heider [1914] HCA 79; (1914) 19 CLR
197.
[39] Wu, above n 7 at
673.
[40] Ibid, at
676.
[41] Land Transfer Act 1952,
s 182.
[42] Robert Chambers,
‘Indefeasible Title as a Bar to a Claim for Restitution’,
Restitution Law Review 6 (1998) 126 at
134.
[43] Right Honourable
Justice Andrew Tipping, ‘Commentary on Sir Anthony Mason’s
Address’ in Grinlinton (ed) Torrens in the Twenty-first Century,
(LexiNexis, Wellington:2003), 23; S Robinson, Claims in Personam in the
Torrens System: Some General Principles, (1993) 67 Australian Law Journal
355 at 355.
[44] Frazer v
Walker, above n 10 at
585.
[45] [1997] 3 NZLR 705,
712.
[46]
Ibid.
[47] Chambers, above n 42
at 128.
[48] Sir Anthony Mason,
‘Indefeasibility – Logic or Legend?’ in Grinlinton (ed)
Torrens in the Twenty-first Century, (LexisNexis: Wellington, 2003) at
16.
[49] Mason, above n
48.
[50] Chambers, above n 42 at
126.
[51] Boyd v Mayor of
Wellington (1913) 32 NZLR 1149; Tataurangi Tairuakena v Mua Carr
[1927] NZGazLawRp 73; [1927] NZLR 688.
[52] Paoro
Torotoro v Sutton 1 NZ Jur (NS) SC 57; Jonas v Jones (1882) NZLR 2 SC
15.
[53]
Ibid.
[54] Sutton, above n
52 at 65.
[55] [1916] NZGazLawRp 161; [1916] NZLR
825.
[56] Right Honourable
Justice Andrew Tipping, ‘Commentary on Sir Anthony Mason’s
Address’ in Grinlinton (ed) Torrens in the Twenty-first Century,
(LexiNexis, Wellington:2003) at
21.
[57] Mason, above n 48 at
833; Hogg, above n 27 at 34.
[58] Stevens, above n 27 at 34
gives the examples of: Mereana Perepe v Anderson [1935] NZGazLawRp 205; [1936] NZLR 47;
Shepherd v Graham [1947] NZGazLawRp 69; [1947] NZLR
654.
[59] [1984] 2 NZLR
704.
[60] [1927] NZGazLawRp 73; [1927] NZLR
688.
[61] Hogg, above n 27 at
37.
[62] (1892) 10 NZLR
519.
[63] Bennion, Brown, Thomas,
and Toomey, above n 2 at 99.
[64]
Chambers, above n 42 at 126.
[65]
(1980) 2 BPR 9451 (PC).
[66]
Mua Carr, above n 60 at 9453 and
9454.
[67] Lyn Stevens QC, Kerry
O’Donnel, ‘Indefeasibility in decline: the in personam
remedies’, in Grinlinton (ed) Torrens in the Twenty-first Century,
(LexiNexis, Wellington:2003) at
152.
[68] Mary-Anne Hughson,
Marcia Neave and Pamela O’Connor, ‘Reflections on the Mirror of
Title: Resolving the Conflict Between
Purchasers and Prior Interest
Holders’[1997] MelbULawRw 16; , (1997) 21 Melbourne University Law Review 460 at 462
citing Sir Anthony Mason, ‘The Place of Equity and Equitable Remedies in
the Contemporary Common Law World’ (1994) 110 Law Quarterly Review
238 at 238.
[69] [2008] NZSC
87.
[70] Regal Castings Ltd v
Lightbody [2008] NZSC 87; [2009] NZLR 433,
[157].
[71] Ibid, at
[158].
[72] Jonathan P Moore,
‘Equity, Restitution and In Personam Claims under the Torrens
System’ (Pt 1) (1998) 72 Australian Law Journal 258 at
260.
[73] Regal Castings Ltd v
Lightbody, above n 70 at
[160].
[74] [2010] NZSC
49.
[75] [2009] NZCA
185.
[76] Cashmere Capital
Ltd, above n 75 at 18.
[77] 1
All ER 356.
[78] ANZ ConvR
57.
[79] CA 173/88 24 November
1989.
[80] [1992] 2 NZLR
416.
[81] CIV-2010-485-61, 26
April 2010.
[82] HC Auckland
CIV-2006-404-695, 6 December
2006.
[83] Also suggested in
Elizabeth Toomey, Why Revisit Sutton v O’Kane? The Tricky Trio:
Supervening Fraud; the in personam claim and Landlocked Land, (2007) 13 CLR
263 at 276.
[84] CIV-2010-485-61,
26 April 2010, at [35].
[85]
CIV-2010-485-61, 26 April 2010, at [33] and
[35].
[86] Review of the Land
Transfer Act 1952, Law Commission October 2008, Wellington, NZ, Issues Paper 10
at 21.
[87] This was suggested
again in Law Commission, A New Land Transfer Act, (NZLC R 116, June 2010)
19 at 19.
[88] Barry C Crown,
‘Indefeasibility of Title: Developments in Singapore’, (2007) 15
Australian Property Law Journal 91 at
92.
[89] Ibid, at
94-95.
[90] [2001] 4 SLR
340.
[91] Margaret White,
‘Equity: a general principle of law recognised by civilised
nations?’ 4 2004 (1) QUTLJJ 103 at
105.
[92] Cashmere Capital
Ltd, above n 75 at 20.
[93]
Cashmere Capital Ltd, above n 75 at
21.
[94] Also an argument put
forward in Law Commission, A New Land Transfer Act, (NZLC R 116, June
2010), at 23-24.
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