Indefeasibility Doctrine, in Personam Exception and the Torrens System - Essay Example

INDEFEASIBILITY DOCTRINE, IN PERSONAM EXCEPTION AND THE TORRENS SYSTEM I INTRODUCTION Indefeasibility aims to safeguard a registered proprietor from claims that are founded upon prior title. Although, such claims can be made directly, it is possible to protect prior title via the law of wrongs or unjust enrichment. Claims that are based upon prior title, per se, are contrary to the principle of indefeasibility. Consequently, such claims cannot be brought against the registered proprietor.1 The situation remains unaltered, regardless of whether the remedy sought from the court is proprietary or personal. Furthermore, a claim that is not based upon prior title, is regarded as being external to the indefeasibility principle and falls within the ambit of the inter se rule. As such, these claims can be made against the registered proprietor, even in the event of the latter seeking a divestment of title. Whilst determining whether the claim can be heard under the indefeasibility principle or the inter se rule, the courts have to be aware of the demarcation of the boundary of prior title and the doctrine of notice. The notion of notice has been utilised in several situations, with some of these relating to prior title.2 In addition, there have been overlying areas that have been dealt with under this concept. II TORRENS SYSTEM The principal feature of the Torrens system of land registration is the principle that the registered proprietor obtains an indefeasible title. In other words, the title of the registered proprietor is supreme.3 Such title cannot be overridden by a previous registered interest, except under certain categories. This situation has been aptly described by Edwards J in Fels v Knowles,4 in the following manner. The register is comprehensive, and conferral of an indefeasible right to the land upon the registered user, has the beneficial effect of not having to search the register for the history of the title.5 There are certain exceptions to the Torrens dictum that the register is supreme. First, there are statutory exceptions to indefeasibility. Second, there are several non-statutory exceptions, which are termed as the in personam or personal equities exception. The in personam class of exceptions had been described by Wilberforce LJ in Frazer v Walker.6 This Law Lord declared that the principle of indefeasibility of title did not preclude a plaintiff from making an in personam claim against a registered proprietor. Such claim being based on law or equity, and for the relief to be granted by the court acting in personam.7 Moreover, in Breskvar v Wall,8 Barwick CJ noted that proceedings could be initiated by individuals against the registered proprietor, on the basis of the acts of the registered proprietor. Such proceedings could result in orders that would bind the registered proprietor to surrender, either in part or whole, the estate or interest derived by him due to registration and endorsement of the certificate of title.9 Thus, indefeasibility has the objective of safeguarding a registered proprietor from claims that are founded upon a prior title. Although, such claims can be made directly, prior title could be indirectly safeguarded via the law of unjust enrichment or wrongs. Nevertheless, a claim that is founded upon prior title breaches the principle of indefeasibility. Hence, it cannot be brought against the registered proprietor.10 This applies regardless of whether the remedy sought is proprietary or personal. III IN PERSONAM EXCEPTION In addition to the statutory exception, indefeasibility admits of several non-statutory exceptions. These collectively constitute the personal equities or in personam exception. The presence of in personam exception was established by Wilberforce LJ in Frazer v Walker.11 His Lordship had stated that the principle of indefeasibility of title did not deprive the plaintiff of the right to bring an in personam claim against a registered proprietor that is founded in equity or in law.12 In Bahr v Nicolay, the court held that equity would compel a registered proprietor, who purchased on terms, to be bound to an interest. In addition, the court noted that the indefeasibility provisions were aimed at protecting a transferee from the defects in the title of the transferor.13 Moreover, the case law and academic literature pertaining to the in personam exception admits of two differing views. The first of these states that the in personam exception should be interpreted in a restrictive manner, as it can compromise the principle of indefeasibility. As claimed by some scholars, such as Griggs and Crown, widening the scope of applicability of the in personam exception to indefeasibility, so as to include claims in knowing receipts, would render the Torrens system ambiguous and unstable.14 The other view, which is a much wider perspective of the in personam exception, does not recognise any incongruity between the concept of indefeasibility and personal claims against the registered proprietor. This was illustrated in CN & NA Davies Ltd v Laughton,15 wherein Thomas J opined that the in personam exception was fundamentally of a non-proprietary character. The crucial element was knowledge of or involvement in of the registered proprietor in the illegal or unconscionable act or omission under consideration.16 Significantly, in Oh Hiam v Tham Kong,17 the Privy Council noted that indefeasibility does not preclude the court from resorting to its jurisdiction in personam. As such, the principal preoccupation of the rule of immediate indefeasibility is to maximise certainty regarding the allocation of property in instances of forgery. Significantly, the prevention of loss is not the primary concern of this rule. This purpose is achieved by vesting the disponee with a valid title, regardless of whether that person had verified the identity of the disponor. In this manner, the Privy Council, whilst delivering its ruling in Frazier v Walker, had placed considerable emphasis upon the third demand of utility.18 The importance of the in personam exception stems from the fact that it ensures that registered interest holders continue to be bound by the legal rights derived from their conduct, regardless of their holding an indefeasible title. Thus, registered interest holders will not cease to be responsible for the legal obligations and contracts that they enter with regard to registered land, and the registration does not invalidate these obligations. As such, this principle constitutes a confirmation of the effect and scope of registration under the Torrens system.19 The more common in personam rights that can be enforced against a registered proprietor include; first, rights arising from a contract formed by the registered proprietor. Second, rights arising from a fiduciary relationship created or entered into by the registered proprietor.20 Furthermore, in Felicity Cassegrain v Gerard Cassegrain & Co Pty Ltd, the High Court of Australia permitted, in part, an appeal from a decision by the Court of Appeal of NSW. This Court ruled that the title to land of the appellant as joint tenant was indefeasible, due to the fraud of her husband, who was a joint tenant. However, the interest as tenant in common, with regard to half that the appellant derived from her husband subsequently, was defeasible.21 Consequently, the interest as tenant in common could be recovered by the respondent. In addition, in the above case, the High Court of Australia had held that the wife was not a bona fide purchaser of her husband’s share in the property, which had been transferred to her for a nominal amount. This resulted in the Court permitting the respondent to recover a half-interest in the land.22 Moreover, in Macquarie Bank Ltd v Sixty Fourth Throne Pty Ltd,23 the court held that a registered mortgage would remain in force. Such mortgage would be annulled only when the mortgagee, who had obtained its registration, had committed fraud in relation to the registered proprietor. Constructive notice, in isolation, that the property offered as security was trust property would not prevent the acquisition of an indefeasible interest by the registered mortgagee.24 Furthermore, dishonest and fraudulent breaches of fiduciary duty or trust attract the second limb of Barnes v Addy.25 This widens the range of individuals, to include third parties to the trust or fiduciary relationship. The purpose of this is to effect recovery against such third parties. Action under this second limb requires the occurrence of a fraudulent and dishonest breach of duty by the individual who is a fiduciary or trustee.26 Thus, action under the second limb entails the making of a grave allegation against an individual who is not the defendant in the cause of action. Unlike the situation with the actual defendant to the action, it is essential to prove a conduct element and a mental element. The latter has to be at least knowledge of circumstances that would point out the facts to a person who is reasonable and honest. Apparently, the conduct element could be satisfied by an action that promotes the fiduciary’s or trustee’s fraudulent and dishonest intention.27 As a consequence, references to unconscionability had been opposed as being of meagre help or for being totally deceptive. Thus, in Presbyterian Church (NSW) Property Trust v Scots Church Development Ltd,28 Young CJ opined that the matter alleged to be unconscionable could be an erroneous declaration, as the practice was to discuss such issues from the point of view of personal equities. He further stated that the ruling of the Privy Council in Frazer v Walker,29 did not restrict the principle of indefeasibility. IV CONCLUSION Prima facie, personal claims known in equity or law can be brought against the registered proprietor, as long as such claims do not undermine the principle of indefeasibility. Such personal claims have to result from the conduct of the registered proprietor, and should be tantamount to something that is more than becoming the new registered proprietor. In addition, these claims can have a proprietary or personal outcome. Moreover, in a few cases, involving strong policy reasons, a personal claim is to be permitted even when it detracts from the principle of indefeasibility. As such, with regard to claims that are not based upon prior title, it has to be realised that these are beyond the purview of the indefeasibility principle, and fall under the ambit of the inter se rule. These claims can be made against the registered proprietor, and apply even when the latter seeks a divestment of title. Whilst determining whether a claim comes under the indefeasibility principle or the inter se rule, courts have to be on their guard to abstain from confusing the doctrine of notice with prior title. BIBLIOGRAPHY A Articles/Books/Reports Harding, M & Hickey, R, 'Bijural Ambiguity and Values in Land Registration Systems' in Susan Bright (ed.), Modern Studies in Property Law-Volume 6, Bloomsbury Publishing, Oxford, UK, 2011, pp. 285-310 Hepburn, S, Australian Principles of Property Law (Routledge, 2013) Low, Kelvin FK, ‘The Nature of Torrens Indefeasibility: Understanding the Limits of Personal Equities’ (2009) 33(1) Melbourne University Law Review 205 O’Donovan, J, Lender Liability (Sweet & Maxwell, 2005) Wu, Tang Hang, ‘Beyond the Torrens Mirror: A Framework of the In Personam Exception to Indefeasibility’ (2008) 32(1) Melbourne University Law Review 672 B Cases Bahr v Nicolay (No 2) (1988) 164 CLR 604 Barnes v Addy (1874) LR 9 CH App 244 Breskvar v Wall (1971) 126 CLR 376 Felicity Cassegrain v Gerard Cassegrain & Co Pty Ltd [2015] HCA 2 Fels v Knowles (1906) 26 NZLR 672 Macquarie Bank Ltd v Sixty Fourth Throne Pty Ltd [1998] 3 VR 133 Frazer v Walker (1967) 1 AC 569 N & NA Davies Ltd v Laughton [1997] 3 NZLR 705 Oh Hiam & Ors v Tham Kong [1980] 2 MLJ 159 The Presbyterian Church (NSW) Property Trust v Scots Church Development Ltd (No 2) [2007] NSWSC 797 C Others Price, Y & Lusk, O, The Second Limb of Barnes v Addy, 2009, retrieved 3 September 2015, Read More