I. ORIGINAL BASIS FOR COMPENSATION
A. Indefeasibility
2.1 Sir Robert Torrens explained the significance of compensation as an element in his system of title by registration:
Indefeasibility of the title created by registration follows of necessity as a corollary to the principle of “independent title”, and out of this again arises the necessity of providing a fund from which rightful heirs and others may be compensated for the value of land which they are debarred from reclaiming against persons who have acquired title by registration as purchasers, mortgagees, or otherwise through the operation of the law.1
2.2 This view of the role of the Assurance Fund is confirmed by a number of commentators. Baalman asserted that:
[T]he act of the State in declaring titles to be indefeasible has its concomitant in the provision of State remedies for persons who thereby suffer loss.2
2.3 The right to seek compensation did not appear in the initial drafts of the Torrens legislation in South Australia. It first appeared in the 1857-1858 draft which became law in January 1858. A number of commentators have suggested that the compensation provisions were included following the receipt of a report of the English Commissioners on Registration of Title.3 This Report arrived in South Australia on the eve of the second reading of the legislation in the House of Assembly on 11 November 1857. Torrens denied the influence of this Report, but the first evidence of his interest in the matter appears in a letter dated 14 November 1857 to Anthony Forster, the person who took charge of the Bill in the Legislative Council. In the letter Torrens sought advice on three issues. In the second he queried the need for an assurance scheme:
Shall rightful Users or Owners be assured against loss that may occur to them through Certificate of Title being granted in error or by fraud or misrepresentation, by the public funds being drawn upon to make good any balance that may not be recovered from the person wrongfully or in error registered as owner? ... Should this be affirmed I would propose an assurance fund to be raised by a quarter or an eighth percent to be levied on the value of all land on the first bringing of the same under the Act.4
Subsequently, during the Committee stage of the Bill, Torrens produced the clauses which guaranteed individuals either their land or compensation for its loss. The provisions of the Act as first enacted were therefore designed to compensate any person deprived of land or an interest in land by operation of the indefeasibility provisions contained in it.5 The provisions were also intended to compensate any person sustaining loss through omission, mistake or misfeasance of the Registrar General or any officers employed in the Land Titles Office.
B. Opposition of legal profession to Torrens system
2.4 Baalman suggests two more reasons for the inclusion of compensation provisions in the 1858 South Australian Act. He suggests, first, that the Fund was created to allay fears which “hostile lawyers had engendered in the public” and, secondly, it was intended
to afford to the administration such a measure of latitude in its approach to conveyancing problems as was considered essential to the smooth and economic flow of business.6
The possibility of confiscation of land without redress was one of the chief grounds on which the legal profession opposed the Act.7 The inclusion of the compensation provisions in the legislation was therefore intended to give confidence in the new system of title and to overcome some of the opposition to its introduction. In fact, the establishment of the Fund did not change the attitude of the legal profession; nor apparently did it have an impact on the approach adopted to implementation of the Act.8
2.5 Torrens also suggested that part of the legal profession’s concern lay in self interest. They saw the new system as a threat to their livelihood having acquired great influence and power in the colony by virtue of their ability to manage the complexities of English property law. The other reason Torrens ascribed to lawyers for their opposition to reform was expressed in a quotation he used from Lord Brougham:
They love and revere the mysteries which they have spent so much time in learning, and cannot bear the rude hand which would wipe away the cobwebs, in spinning which they have spent their zeal and their days for perhaps half a century.9
The legal profession opposed Torrens’ legislation both before its enactment in South Australia in 1858 and afterwards. However, Torrens refused to accede to their attempts to boycott the new titles or to charge enhanced fees for dealing with them.10 In 1860 he sponsored legislation to create a class of non-lawyer “land brokers” authorised to prepare conveyancing documents for reward. To this day South Australian lawyers, alone among their colleagues elsewhere in Australia, have no monopoly in conveyancing transactions.
II. INDEFEASIBILITY OR STATE-GUARANTEED TITLE?
2.6 The principal feature of the Torrens System is indefeasibility of title. Under this principle, the person whose name is recorded in the Register as proprietor is assured of good title free from unregistered encumbrances. In the remote event that loss is suffered through reliance on the integrity of the Register, the registered proprietor can look to the assurance fund for compensation.11
2.7 The promise of complete immunity from loss for the registered owner has not been fulfilled. Thomas W Mapp points out that use of the term “indefeasible title” is deceptive.12 As used by Torrens, to describe the curative effect of registration on defects in derived titles, the term has meaning. However, as Mapp suggests, a registered title cannot provide complete protection against errors occurring both before and after its creation. No legislature can work this miracle. Accordingly, Torrens’ title is an elusive ideal, subject to errors inherent in any human system. In addition, of course, it is necessary to take account of the exceptions to indefeasibility created by the legislation itself, the scope of which has tended to expand by judicial interpretation over time.13
2.8 Indefeasibility of title was described by the Privy Council in Frazer v Walker14 as:
a convenient description of the 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. It does not involve that the registered proprietor is protected against any claim whatsoever; ... there are provisions by which the entry on which he relies may be cancelled or corrected, or he may be exposed to claims in personam. These are matters not to be overlooked when a total description of his rights is required.15
Thus, Whalan is probably correct in suggesting that the term “indefeasible” is a misnomer, for strictly speaking an indefeasible title would be one which would protect the holder against any claim whatsoever.16
2.9 Baalman has suggested that:
The greatest threat to certainty of title today comes from the direction of concealed statutory obligations and compulsory acquisitions.17
An ever-increasing number and variety of statutes derogate from the protection given by registration.18 The statutory exceptions themselves, particularly those relating to omitted and misdescribed easements, may make the title of registered proprietors more precarious than the register would suggest.
2.10 A more appropriate term to describe the nature of the title conferred by registration under the Torrens legislation is “State-guaranteed” title. This term is apt in view of the important concomitant of the principle of indefeasibility of title: the right to be indemnified by the State against wrongful deprivation of a registered interest.19 The Torrens legislation in each State of Australia gives recourse to an Assurance Fund (or the Consolidated Revenue Fund) as the source of State guarantees.20
2.11 A basic principle of the State’s guarantee of title is that an Assurance Fund will provide adequate compensation for those deprived of rights and interests. This principle has been diluted in New South Wales by the enactment of provisions which require those deprived to first pursue private law remedies before suing the State. The Fund thus becomes a last resort for claimants. In Victoria, the primary action is brought against the Registrar, making the Fund in effect a first option of claimants. The principle of compensation has also been eroded by what one commentator has described as “the quite repulsive tenacity with which some jurisdictions are prepared to resist even valid claims upon the fund”.21 Some claimants become so frustrated with litigation that they decide to bear the loss themselves.
III. NEED FOR A STATE GUARANTEE OF TORRENS TITLE
A. The general Australian view
2.12 Torrens considered a State guarantee to be an integral part of a system of registration of title. The majority of commentators on the system concur in this view. For example, Sackville and Neave22 are of the view that the State guarantee of the registered proprietor’s title is the basis of the Torrens system. They put the view that:
[i]f the goals of the system are to be attained, the State should compensate all person[s] who sustain loss by reliance on the register where it proves to be inaccurate, and should also compensate those who find themselves wrongfully deprived of a registered interest.23
Nonetheless it is no longer self-evident that the original rationale for providing compensation, to compensate those who suffer loss as a result of the operation of the indefeasibility provisions, continues to apply. Is a State-backed insurance scheme essential to the satisfactory operation of the system of registration of title in the 1990s? Or has the time come for registered proprietors to take personal responsibility for insuring against the risk of loss of title?
B. Other jurisdictions
2.13 It is by no means a foregone conclusion that indemnity is essential for the proper working of a system of registered title to land. Several jurisdictions operate registration systems, apparently satisfactorily, without making provision for compensation for loss. These jurisdictions include Malaysia, the Sudan, Fiji, West Germany and Austria. Indeed, the Sudanese legislation, far from providing an Assurance Fund, expressly exempts the Government from liability and declares:
the registration of any instrument or the making of any entry in the register shall not in any case operate as a guarantee by the Government that the transaction ought to have been registered or that the entry was a proper one.24
2.14 It is, of course, very difficult to assess the success of a scheme established in a very different legal, social and economic environment from our own. Yet the legislation in other jurisdictions suggests that a State guarantee of validity of title is not a necessary component of a system of title by registration. On the other hand, in those countries where an Assurance Fund exists, the procedural hurdles for recovery are often so great that the provision of State compensation is an illusion.25
IV. TITLE INSURANCE
A. The United States experience
2.15 Another question which must be examined is whether private title insurance could be substituted for the existing State government guarantees of Torrens titles. A major development in conveyancing in the United States, for example, during the twentieth century has been the movement towards widespread adoption of title insurance. This development was basically a response to the uncertainties and difficulties of establishing title in a system of unregistered land tenure.
2.16 The unregistered system, or the system of “recordation” as it is called in the United States, involves the certification by lawyers or professional title searchers as to the state of the titles searched. In addition to obtaining such certification, a purchaser or mortgagee will usually take out private title insurance for the generally accepted reason that a “certificate of title is only worth as much as the examiner’s own pocketbook ... can bear in the event of error in the search”.26 While title insurance was introduced to cater for Old System titles, title insurance is now taken out by purchasers and mortgagees of both registered and unregistered land,27 although in the United States the Torrens systems are of relatively minor significance. Thus in the United States private title insurance complements the Torrens state insurance schemes. Private title insurance generally includes a range of risk coverage and a set of transaction-related services that are in addition to indemnification for title-related losses.
2.17 In the few areas of the United States with active Torrens systems, title insurance is used for transactions in registered land as frequently as it is used for transactions in unregistered land. A single premium is paid, and the coverage under an owner’s policy lasts indefinitely so long as the owner (or his or her successors) hold the land. The insurance premiums are the same for both land types.
2.18 Mortgagees of registered land generally require title insurance.28 There is apparently a perception amongst lenders that private insurance is a more reliable and accessible guarantee than the State guarantee of title. The demand for private insurance of registered land is also attributed to:
the small amounts of money in the Torrens funds and because of certain limitations and legal uncertainties over the extent of fund coverage.29
In particular:
the Torrens statutory provisions deny compensation for expenses directly connected with defending against an attack on registered property interests. They also (except in Cook County [Illinois]) appear to require court action to perfect a claim. This discourages private settlement and increases the range of non compensable damages.30
2.19 Finally, title insurance companies provide a wide range of services related to the provision of timely and effective execution of real estate transactions. These services are an important feature of the private insurance product, which contributes to its utilisation for both registered and unregistered land.31
B. The private insurance option
2.20 The issue for New South Wales and Victoria is whether such optional private title insurance could replace or complement the existing Torrens insurance schemes. If there were to be no government-backed insurance of Torrens titles, individual registered proprietors would need to consider the option of private insurance. As in the United States, it can be assumed that mortgagees would invariably require insurance. The insurance premium would become an additional cost for the purchaser. However, if the policy were to cover only title-related losses, the level of the premium would not be significant in view of the apparently limited risks of the current government backed schemes. A substantially larger premium would apply if private insurance policies covered loss arising from non-title related matters, as is the case in the United States.
FOOTNOTES
1. Robert R Torrens The South Australian System of Conveyancing by Registration of Title (Register and Observer General Printing Offices, Adelaide, 1859) 9.
2. J Baalman The Torrens System in New South Wales (2nd ed, Law Book Co, Sydney, 1974) 392.
3. Report of English Commissioners appointed to consider the subject of the Registration of Title with Reference to the Sale and Transfer of Land (1857), command paper [2215], referred to in D J Whalan “The Origins of the Torrens System and its Introduction into New Zealand” in G W Hinde (ed) The New Zealand Torrens System Centennial Essays (Butterworths, Wellington, 1971) 9; S Robinson Transfer of Land in Victoria (Law Book Co, Sydney, 1979) 9.
4. Quoted in D J Whalan “The Origins of the Torrens System and its Introduction into New Zealand” in G W Hinde (ed) note 3, 8.
5. D J Whalan The Torrens System in Australia (Law Book Co, Sydney 1982) 346.
6. J Baalman, note 2, 389.
7. D J Whalan, note 5, 8, 14, 345.
8. Id at 355-65.
9. Robert R Torrens, note 1, 5.
10. S R Simpson Land Law and Registration (Cambridge University Press, Cambridge, 1976) 70.
11. J Baalman Report on Conversion of Land to the Torrens System (Unpublished report, Property Law Revision Committee, Sydney, 1957) 156.
12. Thomas W Mapp Torrens’ Elusive Title (University of Alberta, Faculty of Law, Edmonton, 1978) 66-67.
13. See Real Property Act 1900 (NSW) s42 (a)-(e).
14. [1967] 1 AC 569.
15. Id at 580.
16. D J Whalan, note 5, 296.
17. J Baalman, note 11, 157.
18. See D J Whalan note 5, 338 and ff.
19. Peter Butt “Land Law” in [1979] Annual Survey of Australian Law 94 at 101.
20. Real Property Act 1900 (NSW) ss126-143; Transfer of Land Act 1958 (Vic) ss109-111; Real Property Act 1861 (Qld) ss126-129; Real Property Act 1886 (SA) ss203, 205, 206, 208-219; Transfer of Land Act 1893 (WA) ss201, 205-211; Land Titles Act 1980 (Tas) ss125, 127, 129-134.
21. S R Simpson, note 10, 18.
22. M A Neave, C J Rossiter and M A Stone Sackville & Neave, Property Law: Cases and Materials (4th ed, Butterworths, Sydney, 1988) 398.
23. Ibid; see also P B A Sim “The Compensation Provisions of the Act” in G W Hinde, note 3, 138.
24. Land Settlement and Registration Ordinance 1925 (Sudan) s86, referred to in S R Simpson, note 10, 181.
25. See generally Simpson, note 10, 179-183.
26. C D Bostick “Land Title Registration: An English Solution to an American Problem” (1987) 63 Indiana Law Journal 55 at 72.
27. B C Shick and I H Plotkin Torrens in the United States (Lexington, Heath, 1978) 70-72.
28. Particularly if they are in doubt about the status of the title following a review of the Torrens Certificate or if the new building is to be erected on the land or there is a possibility of the sale of the mortgage on the secondary market.
29. B C Shick and I H Plotkin, note 27, 72.
30. Id at 73.
31. Ibid.
