I. THE REFERENCE

1.1 On 20 January 1988 the New South Wales Law Reform Commission received a reference to examine the extent of the State’s guarantee of title under the Torrens system and the manner in which it is provided.¹ Recent trends in judicial decisions and the size of compensation claims have been the major impetus for the reference.

1.2 The Victorian Law Reform Commission is undertaking a similar reference as part of a major review of land law which was announced by the then Attorney General of Victoria the Honourable J H Kennan MLC on 1 May 1986.²

1.3 The New South Wales reference has been made under the Commission’s standing reference on co-operative law reform projects with the Victorian reference in mind. The Commissions plan to produce a joint Report to their Attorneys General. A joint discussion paper was issued on this reference in June 1989. This Issues Paper is intended to supplement and expand on the discussion in NSW.

II. BACKGROUND TO THE REFERENCE

A. The Torrens system and compensation for loss

1.4 A fundamental principle of the Torrens system when introduced into South Australia between 1858-1861 was that title to land was made to depend upon registration and not upon the execution of documents. The execution of the title deeds (eg transfers, leases, mortgages) was to be merely the means of obtaining registration and was not intended to affect the land or pass any estate or interest in it until registration. The concept was summed up succinctly by Barwick CJ in Breskvar v Wall³ when he described the Torrens system as a system of “title by registration” rather than a system of “registration of title”.

1.5 Once registered under the Torrens system, a bona fide purchaser for value has an “indefeasible title” which means that the title cannot be set aside because of some defect which existed prior to the land being brought under the Act. However, “indefeasibility of title” also had the obverse effect that any interest which was not registered on the title was liable to extinction.

1.6 The introduction of the Torrens system made land owners liable to two types of loss:

• Loss flowing from the mistakes of Government officials in the registry office in failing to enter interests and estates on the register correctly.
• Loss flowing from the deprivation of an estate or interest in land through the operation of the indefeasibility provisions of the Torrens statutes.⁴

1. Mistakes

1.7 Under Old System conveyancing the parties themselves are responsible for the preparation of the deeds and therefore for their validity. Upon execution and delivery these documents convey the legal estate in the land, although registration of copies of the documents may affect priorities. Whilst the parties remain responsible for the preparation of documents under the Torrens system, it is the act of an officer in the Land Titles Office which effects the transfer of title to any registered legal estate or interest. The powers and responsibilities vested in State officials thus give rise to the possibility of loss through mistakes occurring in the Land Titles Office.

2. Deprivation of an estate or interest in land

1.8 Under the Torrens system a purchaser who becomes registered as proprietor by means of a forged or invalid transfer acquires (generally speaking) an indefeasible title, while under the old system the forged or invalid conveyance remained a nullity both before and after registration. Because the operation of the Torrens system makes it possible for the holder of an estate or interest in land to be deprived of that estate or interest by registration of an otherwise invalid instrument, the system has provided a guarantee of monetary compensation for loss in these circumstances.⁵

1.9 The first Torrens title compensation scheme (incorporated in the 1858-61 South Australian legislation) gave a person who had been deprived of land through the operation of the system a right to seek monetary compensation from the person who was responsible for the deprivation in the first instance. Only if the person was unsuccessful in this action was there a right to seek compensation from the Assurance Fund. The Fund was also to be the source of compensation for loss sustained through a Land Titles Office error. The Fund was maintained by a levy on applications made to convert Old System land to the Torrens system and transfers of land following the death of a registered proprietor.

B. Compensation schemes in New South Wales and Victoria

1.10 The 1861 South Australian compensation scheme was the basis of the schemes incorporated into the Torrens legislation enacted by both New South Wales and Victoria respectively in 1862. However, since early 1988 neither State has maintained a separate Assurance Fund and compensation payments have been made from consolidated revenue. Compulsory contributions to the New South Wales Fund ceased in 1940, although specific payments continue to be levied for certain types of transactions in Victoria. Apart from these changes, little amendment has been made to the New South Wales scheme since its enactment. The Victorian scheme was changed substantially in 1954, when amendments were made to exclude compensation for loss arising from fraud or the negligence of a claimant’s solicitor or agent.

1.11 Both the Transfer of Land Act 1958 (Vic) and the Real Property Act 1900 (NSW) adopt the principle that compensation by the State should provide for:

• losses caused by the registration of another person’s interest; and
• losses resulting from mistakes within the Registry or Office.

The main differences between the two enactments lie in their treatment of fraud and in the steps which must be taken before a claim can be brought against the Fund. These issues are discussed in Chapters 3 and 4. While the New South Wales scheme provides compensation for persons sustaining loss by reason of fraud, the procedural requirements imposed by the legislation are restrictive.⁶

1.12 One of the features of an effective insurance scheme is that, subject to suitable verification, claimants have their claims met with a minimum of delay and formality. The procedures laid down in ss126 and 127 of the Real Property Act 1900 (NSW) do not accord with this principle.⁷ Not only must legal proceedings be commenced in order to recover, great care must be taken to select the correct provision under which to make a claim. As demonstrated in the1974 case, Armour v Penrith Projects Pty Ltd,⁸ failure to comply with the correct statutory procedure may result in compensation being withheld.

1.13 The indemnity provisions of the Transfer of Land Act 1958 (Vic) (in particular s110) are superior to those of the Real Property Act 1900 (NSW) and access to the Fund is considerably easier, since the application for compensation is made directly to the Registrar without previous legal proceedings. Nevertheless the Victorian legislation is subject to important restrictions.

1.14 Both the New South Wales and Victorian Acts exclude compensation for loss caused by:

• a registered proprietor’s breach of trust, whether the trust is express, implied or constructive;
• the inclusion of the same land in two or more Crown grants; or
• any land being included in the same folio of the Register or certificate of title with other land through the misdescription of boundaries or land parcels, unless the person liable has absconded or is dead, bankrupt, insolvent or unable to pay the full amount awarded as compensation.

In addition, the Victorian Act excludes compensation where claimants, their solicitors or agents caused or substantially contributed to the loss by “fraud, neglect or wilful default”. Claimants who derive title without payment of valuable consideration (eg under a will or by gift) are also excluded if the transferor or the transferor’s solicitor or agent was guilty of fraud, neglect or wilful default. The onus lies on the claimant to prove that the loss was not caused or substantially contributed to by such fraud or negligence.

1.15 Consequently, claims may be made in New South Wales, particularly where contributory negligence is involved, that cannot be made in Victoria. While the Victorian provisions deprive a claimant of compensation if the claimant or an agent caused or substantially contributed to the loss, there is nothing to indicate precisely what is meant by “substantially contributed to the loss”. Presumably, it would cover a case where the claimant negligently lost or gave up possession of the duplicate certificate of title. The Victorian provisions also exclude compensation for fraud or error by solicitors. That type of loss is met separately through the Solicitors’ Guarantee Fund and compulsory professional indemnity insurance.

1.16 The Victorian Act also excludes compensation:

• for costs which the claimant has incurred in taking or defending legal proceedings without the consent of the Registrar, except for costs awarded against the Registrar in proceedings in which the Registrar is a party; and
• where the Registrar has not enquired whether a power of attorney was in force at the time something was purportedly done under the power.

C. Claims for compensation

1. New South Wales

1.17 During the 12 year period from 1977-1988 there were 28 claims for compensation against the Assurance Fund. Of these, 17 (61%) were for loss resulting from fraud, while the remainder concerned Departmental error and in one case, a surveyor’s error.

Table 1.1: Claims against the Assurance Fund

New South Wales 1977-88

Status of Claim	Basis of Claim
	Fraud	Departmental Error	Surveyor's Error
Settled	7	2	0
Outstanding	10	8	1
TOTAL	17	10	1

[Link to text only version of table]

Source: Land Titles Office (NSW)

1.18 Nine of the 28 claims have been paid, including seven involving fraud and two instances of Departmental error, with a total payout of $211,460. A review of the 19 claims outstanding reveals both an increase in the amounts claimed in individual cases and potential for a total payout which far exceeds that of any preceding period. It has been estimated that the value of these outstanding claims is $1,500,000. The value of damages in compensation claims is usually (but not invariably) based upon the value of the property at the date of trial. The general escalation of property values in recent times may mean that no reliable assessment can be made of the compensation likely to be awarded to successful claimants.

1.19 The estimates of potential claims are less significant when viewed against the total numbers of dealings lodged for registration and the revenue obtained from them. For the period 1977-88 approximately 6,359,000 dealings were lodged for registration. Revenue from these dealings was about $249.5 million. The total expenditure of the Land Titles Office for the same period was $199.5 million, leaving a gross profit of $50 million.

1.20 In considering the total number of claims for compensation for the period 1977-88 the number of ex gratia claims paid by the Land Titles Office in clear-cut cases of Office error should not be excluded. There were approximately 50 of these claims of which 25 were paid, but the total payout figure did not exceed $1,500. Because of their minor nature and the fact that the Real Property Act 1900 (NSW) requires a court order before a payment can be made from the Assurance Fund these claims were paid from general Office funds on an informal basis.

2. Victoria

1.21 A total of 582 claims for compensation were made against the Assurance Fund during the period 1981-87. Unlike New South Wales, the Registrar is specifically authorised by the Transfer of Land Act 1958 (Vic) to receive and assess claims. This specific authority may account for the large numbers of claims made in respect of Office errors. Most of these claims relate to lost documents but others concern errors, delays and computer failure. They have resulted in a total payment of $292,190.

Table 1.2: Claims against the Assurance Fund

Victoria 1981-87

Status of Claim	Basis of Claim
	Fraud	Departmental Error	Surveyor's Error
TOTAL	3	579	0

Source: Land Titles Office (Vic)

1.22 The number of fraud claims (including one claim in which $58,000 was paid) is small in comparison to New South Wales, because loss incurred in consequence of fraud is not a of specific ground for compensation in Victoria and all claims resulting from the fraud or negligence of a claimant’s solicitor or agent are excluded.

1.23 As in New South Wales, the number and size of potential claims are less significant when viewed against the total number of dealings lodged for registration and the revenue obtained from them. For the period 1981-87, 3,151,519 dealings were lodged for registration. Revenue from these dealings was $296 million approximately. The total expenditure of the Land Titles Office for the same period was $106.5 million (including the functions of the Registrar General) leaving a gross profit of $189.5 million.

III. OUTLINE OF THIS PAPER

1.24 This Paper, together with the joint Discussion Paper (June 1989) issued by the two Commissions,⁹ examines the Torrens title compensation schemes in New South Wales and Victoria. The principal purpose of this Paper is to explore some of the key issues in more detail. In particular this Paper examines the historical rationale of the compensation system and considers whether there is a case for abolishing the compensation system in either Victoria or New South Wales. This option was not fully explored in the joint Discussion Paper.

1.25 A brief study of the rationale of Government compensation schemes is presented in Chapter 2. An assessment is made of the need for State insurance in historical terms. Detailed accounts of the operation of the compensation schemes in New South Wales and Victoria follow in Chapters 3 and 4. Chapter 5 considers the question of how far the principles of insurance which lie behind the schemes have been applied in the two States. Chapter 6 presents the four possibilities which this Commission believes are the available options for reform of the law and practice in the area.

1.26 This Paper and the Discussion Paper published in June are designed to promote discussion of the issues raised. The Commission is seeking views on both Papers.

1. See page viii for terms of reference.

2. Clyde Croft, “Land Law Horizons” (1986) 60 Law Institute Journal 542.

3. (1971) 126 CLR 376 at 381.

4. G W Hinde, D W McMorland and P B A Sim Land Law (Volume 1, Butterworths, Wellington, 1978) 206-207.

5. Id at 208.

6. Sections 126 and 127 of the Real Property Act 1900.

7. M A Neave, C J Rossiter, and M A Stone Sackville & Neave, Property Law: Cases and Materials (4th ed, Butterworths, Sydney, 1988) 400.

8. [1979] 1 NSWLR 98.

9. Law Reform Commission of New South Wales and Law Reform Commission of Victoria Torrens Title: Compensation for Loss (VLRC Discussion Paper 16, 1989; NSWLRC Discussion Paper 19, 1989).