Real Property 4

1. Real Property 4 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Fraudulent against a bona fide purchaser for value • 1825 – Registration Act – substantially amended over time and then repealed in 1984 and sections transferred into the Conveyancing Act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. Conveyancing Act and the Register of Deeds • Section 184C – general register of deeds • Open to public inspection – s 199 • Deliver original and copy to the Registrar – registered with a number – copy kept on file • Any instrument affecting land or not can be registered – not necessarily a “deed” as such

4. The effect of registration? • Validity of the document – some instruments must be registered to have legal force eg short form of mortgage discharge, appointment of new trustee, powers of attorney • Registration for priority – s 184G – instruments affecting land, executed bona fide and for valuable consideration take priority over earlier instruments • Effect – earlier legal interest will be defeated by later legal interest upon registration of later interest and so on • However it only affects priority – will not perfect a fraudulent transaction, mistake or forgery

5. Important factors to consider: (a) Competing instruments – must have an instrument to register and then it only concerns instruments in writing – if no instrument then the normal priority rules apply eg a short term lease without writing, competing with a legal registered interest eg a sale to a third party – the registration won’t give the later legal interest priority

6. Important factors to consider: • (a) Competing instruments – Another eg - equitable mortgage by deposit of title deeds created without writing not defeated by a later registered instrument • Section 184 confers priority only in cases of “competition” – that is if the interests are compatible no priority is afforded

7. Important factors to consider: • Registration can make effective instruments which may not have had any legal effect under priority rules – eg A sells land to B but then sells land to C • Under the nemo dat principle C would take no interest – however if C registers before B, C will be given “priority” – eg defeats B’s interest

8. Important factors to consider: Bona fides – on the part of the person taking the interest – notice is enough for there to be an absence of bona fides – actual, constructive or implied • Eg if a purchaser takes interest with notice that someone other than the vendor is in possession of the property and fails to make proper enquiries is said to be notified and will not gain priority in registration

9. Important factors to consider: When does notice have to have occurred? Before execution of the instrument and not the registration S 164 CA – actual constructive and imputed Constructive notice if an interest is registered

10. Important factors to consider: (d) Valuable consideration – must not be nominal but may be inadequate (eg much lower than market value) – S 184G(1) includes marriage

11. 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

12. 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

13. The introduction of the Torrens system • 1858 – SA passed the Real Property Act – Torrens as R-G • Legal profession in uproar – one judge 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 the USA • First introduced into NSW 1862 – later amendments consolidated into the Real Property Act 1900

14. 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

15. 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

16. 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)

17. Title by registration • Cardinal principle – register is the source of title as opposed to a system where title can be registered – it is a system where title is granted by registration • 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

18. 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)

19. Example • 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)

20. 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) - Gibbs v Messer [1891] AC 248

21. Immediate or deferred? • Never strictly overruled • Frazer v Walker • Immediate indefeasibility allows title in cases of fraud, forgery, breach of statutory prohibition and many more examples!!

22. Unregistered interests in the Torrens system • Section 41(1) – unregistered instruments not effective to pass any estate or interest in land until registered • RPA does recognize unregistered interests but not the instruments: Barry v Heider(1914) 19 CLR 197 – the instrument does not create an interest in land but the agreement between the parties brings into being an equitable interest which is then enforceable • Hence unregistered interests are said to be in the nature of equitable interests in the Torrens system, even if they are in writing (remember the Statute of Frauds!!)

23. Priorities between registered and unregistered interests • Unregistered interests are extinguished by registered interests (unless caveats or exceptions to indefeasibility: see below)

24. Priorities between unregistered interests • Priority is determined by general common law principles: however some unregistered interests never have to be registered and hence are “legal” eg short term leases and adverse possession, mortgage by deposit of title deeds

25. Priorities between unregistered interests • So generally we got back to the principles – where the broad idea is “First in time has the better equity” but the main principle is “Who has the better equity?” • Look to conduct: inaction or postponing conduct, failure to lodge a caveat to protect the interest

26. Exceptions to indefeasibility- Fraud • A person who acquires a registered interest through fraud has a defeasible interest: RPA ss 42, 43, 124 • Eg their interest can be set aside. • The requirements for setting aside such an interest are: • the registered proprietor’s interest must have been acquired through implication in the fraud; and • the implication may be personal or through the acts of an agent.

27. Exceptions to indefeasibility- Fraud • General principle: unless the fraud can be brought home to the registered proprietor, registration will confer indefeasibility. • Definition of fraud: actual dishonesty, which can be attached to the registered proprietor’s title (Assets Co Ltd v Mere Roihi [1905] AC 176) • Sometimes said to be “moral turpitude”

28. Exceptions to indefeasibility- Fraud • Hence includes actual fraud and some forms of constructive or equitable fraud (but not all) • The fraud may not necessarily have been practiced against another interest holder but may have been practiced against the RG 9 see Butt [2058]

29. Exceptions to indefeasibility- Fraud • What about notice of an earlier interest? Under old system that would be enough for actual or constructive fraud if you then attempted to register and interest. • Under RPA s 43(1) – notice does not have this effect and is taken to be outside the definition of “fraud” for the RPA – section takes effect on registration, not before

30. Exceptions to indefeasibility- Fraud • What then is the dividing line between cases of mere notice of earlier interest (which will not give rise to fraud on registration) and cases where notice is coupled with other factors (which do give rise to a finding of fraud)? • See Butt [2060]

31. Exceptions to indefeasibility- Fraud • Fraud where: • Registered proprietor has been given notice of unregistered interest and then assures that the interest will be protected and then registers seeking indefeasibility; • Registered proprietor receives notice and lulls unregistered interest holder into not registered, then seeks to claim indefeasibility;

32. Exceptions to indefeasibility- Fraud • Fraud where: • Notice and deliberate frustration of prior interest holder’s registration; • Any attempt to deprive a beneficiary of interest in trust property via indefeasibility provisions; • Actual knowledge of a fraud and then an attempt to register to defeat the defrauded party (NOT Constructive knowledge).

33. Exceptions to indefeasibility- Fraud • Not fraud where: • You have been given express notice of unregistered interest and then register to defeat that interest; • You have been given notice and believe that unregistered interest is enforceable and discover on registration that it is not; • You register with the express aim of defeating a possible interest, which may arise from pending litigation.

34. Exceptions to indefeasibility- Fraud • What about agency? Agent’s activity is normally brought home to the principal so if actual fraud then defeasible title. • What about knowledge of fraud? Knowledge of agent is imputed to principal – so generally the principal will acquire defeasible title – H/W!! principal can rebut the presumption of communication and hence claim ignorance of the fraud to get indefeasible title.

35. Exceptions to indefeasibility- Prior folio • If the RG makes a mistake and issues two folios for the one piece of land the earlier folio is said to take priority – s 42(1)(a)

36. Exceptions to indefeasibility- Prior interests entered into the folio 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]

37. Exceptions to indefeasibility- Omitted or misdescribed easements • An easement is right attached to land which is held by someone other than the owner of the land to use the land in a particular way eg right of way • Section 42(1)(a1) – registered proprietors take subject to omitted easements • “Omitted” when simply not there on the register • Works either when old system land brought under Torrens and easement left out OR when a registered easement has been left off a reprint of a new folio

38. Exceptions to indefeasibility- Omitted or misdescribed profits a prendre • A profit is a right attached to land which is held by someone other than the owner of the land to enjoy part of the sold or the nature produce of the soil eg timber, wild animals • Section 42(1)(b) - “Omitted” if the transferred from old system and left off • OR • If always Torrens system then if all that had to be done for registration had been done but the RG failed to put it on the register

39. Exceptions to indefeasibility- Misdescription of a portion of land • Section 42(1)(c) – not indefeasible if misdescribed boundaries unless where the proprietor is a purchaser or mortgagee for value

40. Exceptions to indefeasibility- Short term tenancies • By s. 42(1)(d) of the Real Property Act, a registered interest is subject to a short-term lease if: • (i) the lease plus any option does not exceed 3 years; and • (ii) the tenant is in possession of the property or entitled to its immediate possession; and • (iii) the holder of the registered interest had notice of the tenancy before he became registered.

41. Exceptions to indefeasibility- Short term tenancies • Tenancy for less than three years do not have to be registered – hence under s 42(1)(d) a registered proprietor who takes with notice will take subject to a lease • Notice in this section includes constructive notice • Under Torrens system requires the registration of the correct instrument. Must be registered if term exceeds three years: s 53 RPA

42. Exceptions to indefeasibility- Short term tenancies • If the lease is less than three years and not registered what sort of interest does the lessee hold? Legal but subject to the registered interests. If there is competition between the unregistered but legal lease and an unregistered equitable interest eg an equitable mortgage the normal priority rules apply

43. Exceptions to indefeasibility- Short term tenancies • Snowlong Pty Ltd v Choe (1991) 23 NSWLR 198 • A contract for the sale of Torrens Title land disclosed the existence of, and annexed a copy of, an unregistered lease agreement for part of the land for a term of five years with options for renewal in favour of the lessee. Under the contract the purchaser agreed to abide by the terms and conditions of the annexed lease.

44. Exceptions to indefeasibility- Short term tenancies • Snowlong Pty Ltd v Choe (1991) 23 NSWLR 198 • The lease which had remained unregistered while six subsequently executed dealings were registered remained unregistered. The purchaser, on registration of its transfer, sought to evict the lessee as a tenant at will. • Held: Construing the contract in the light of its express terms and in the light of the fact that prior to its execution the lessee's interest was, because of lack of registration, one at will only:

45. Exceptions to indefeasibility- Short term tenancies • (a) the purchaser, having acknowledged or agreed to recognise that the lessee had a lease for five years with two options for renewal, took title subject to an express trust on those terms; • (b) alternatively, repudiation of the agreement to abide by the terms and conditions of the annexed lease constituted fraud within the exception to indefeasibility in s 42 and s 43 of the Real Property Act 1900, so that registration of the transfer free of any reference to the lease did not destroy the lessee's rights

46. Exceptions to indefeasibility- Rights in personam • While registration of an interest may extinguish other unregistered interests personal rights of action can still survive – sometimes called “personal equities” • Examples: • Right of specific performance in a sale of land contract; • Right of beneficiary to call on performance of trust; • Right to rectify a mistake in a contract which has bestowed title on the wrong party. • The personal equity must rest on a legal or equitable cause of action

47. Exceptions to indefeasibility- Rights in personam • Bahr v Nicolay (No 2) 1988) 62 ALJR 268. • The registered proprietor (R) was bound by a personal equity where R knew of an unregistered interest and had purchased the property on the basis that R would recognise and be bound by that unregistered interest.