THE REFERENCE
1.1 On 20 January 1988 the Commission received the following terms of reference:
To inquire into and report on:
(i) the extent to which all or some entries in the Torrens System Register should be subject to a State guarantee, and the extent of this guarantee;
(ii) the operation of the Assurance Fund, established under the Real Property Act 1900 (NSW) to assess whether it is working as intended and as efficiently as possible; and
(iii) any related matter.
1.2 The reference was received as a joint inquiry with the Law Reform Commission of Victoria under the Commission’s standing reference on co-operative law reform projects, made on 15 October 1987.
Co-operation with Victoria
1.3 The Law Reform Commission of Victoria was 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. The two Commissions had undertaken this reference on a co-operative basis. This co-operative basis ceased when the Law Reform Commission of Victoria was abolished in 1992.
Publications and consultations
1.4 Discussion Paper 191 was issued jointly with the Law Reform Commission of Victoria in June 1989. Issues Paper 62 was published by this Commission in December 1989. The Discussion Paper outlined the Torrens system compensation schemes operating in New South Wales and Victoria, and set out the arguments for and against the retention of the compensation schemes. It also suggested proposals to reform the compensation scheme if it were to be retained. The Issues Paper supplemented and expanded the discussion of the State’s guarantee of title in New South Wales and in Victoria.
1.5 Submissions were invited and received in respect of both papers. A list of persons who made submissions is contained in Appendix A to this Report. The Commission has also consulted representatives from the Land Titles Office of New South Wales on a regular basis in relation to the preparation of this Report.
1.6 Unfortunately there has been a significant lapse of time between publication of the consultation papers, receipt of the submissions and preparation of the final report. The Commission undertook additional research in 1991 but thereafter deferred further work because of requests by successive Attorneys General to give priority to other projects. The project was revived in the latter half of 1995.
OUTLINE OF THE TORRENS TITLE SYSTEM
The introduction of the Torrens system
1.7 The Torrens system of title by registration was created by Sir Robert Richard Torrens, who introduced it into South Australia in 1857. The “old” system, which operated before the introduction of the Torrens system throughout Australia (and continues to operate with respect to some land), was a system of conveyancing by deeds, whereby “title to land was established by the production of deeds tracing the chain of title to the person who wished to pass on his interest in the land.”3 The fundamental principle underlying the deeds system is that it depends on the execution and preservation of original valid instruments, so that in the event of a deed being invalid, for example, through forgery or by operation of statute, no transfer is effected.4
1.8 There were few trained lawyers in the colonies in the first 50 years of settlement. Fraud and corruption were rife, property rights were insecure and title transfer confusing.5 Prior to the passage of the first Real Property (Torrens) Act, there had been many calls for amendment of the conveyancing laws in South Australia. The Torrens system responded to those calls by making title to land depend upon registration and not upon the execution of documents. The execution of title deeds (for example, transfers, leases and mortgages) was to be merely the means of obtaining registration and was not intended to affect the land or pass any estate or interest until registration. The Torrens system has thus been described as a system of “title by registration” rather than “registration of title”.6
1.9 The Torrens system was introduced into New South Wales in 1862, following its successful implementation in South Australia. In New South Wales the “old” system is still important, but conversion of Old System title to the Torrens system is actively pursued.7
The purpose of the compensation provisions
1.10 Sir Robert Torrens explained the purpose of compensation as a complement to the “indefeasibility of title” created by his new system.8 Under this principle, the person whose name is recorded on the Register as proprietor is assured of a good title free from unregistered encumbrances. To provide for the possibility (which did eventuate) that the system might sometimes operate to deprive proprietors of their interests, an assurance fund was established with the aim of providing financial compensation to such proprietors.9
[T]he principle of compensation as enacted can perhaps be based on solid theoretical grounds as an integral part of a system of registration of title. A study of the present provisions in the statutes perhaps yields two reasons for their enactment. ... First, the provisions were designed to compensate any person sustaining loss through omission, mistake or misfeasance of the Registrar or any of his officers. Secondly, and perhaps this is more important, the provisions are a “corresponding counterpart to the indefeasible title which the Act sets out to confer on the registered proprietor”.10
1.11 This view accords with the submission of the Land Titles Office:
The administration of the Torrens system is in the hands of State officials. The State is therefore obliged to compensate persons who suffer any loss through an error of those officials. ... In that a person can, without any fault on his or her part, be deprived of an estate or interest in land by the operation of the Torrens system, compensation must be available. In other words, the indefeasibility and compensation provisions of the Real Property Act have a logical and inseparable connection.11
1.12 However, some writers argue that the institution of the compensation fund resulted from the need to overcome the hostilities of lawyers opposed to the Torrens system,12 and “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.”13 As a result, “access to the Fund is often difficult, if not impossible to achieve upon the application of any principle of insurance.”14 The virtual inaccessibility of the Fund can perhaps be explained on the basis that it was created primarily to allay the fears of hostile lawyers, rather than with any insurance principle in mind.
THE MAIN FEATURES OF THE CURRENT COMPENSATION SCHEME
The problem of inaccessibility
1.13 The original compensation provisions made access to compensation depend on litigation, whether against the person responsible for the loss, such as a fraudster, or against the Registrar-General.
In the cases where suit remains as the sole method we have the spectre, unknown to the generality of insurance: not only must the arsonist be found but he or she must be proceeded against, for the loss occasioned by the destruction of the house, without receiving payment, before recourse may be had to the policy. This defeats the whole purpose of insurance if the Fund was established to provide compensation where loss arises through the operation of title by registration. But, we have suggested that the reason or reasons for the Fund were otherwise and our conclusion suggests also that our assessment and that of others is correct.15
1.14 These comments were made prior to an amendment to the compensation provisions which now makes access to compensation marginally easier. The recent changes allow the Registrar-General to settle claims of up to the amount of $100,000, (unless the relevant Minister approves a higher amount) without the person suffering loss having to commence an action.16
Grounds for recovery of damages and compensation
1.15 The compensation provisions (which are discussed in detail in Chapter 2) permit the recovery of loss by a damages action against a wrongdoer, including loss resulting from the deprivation of land on the grounds of:
- fraud;
- land having been brought under the provisions of the RPA by Crown grants or private applications;
- the registration of another person; and
- loss resulting from an error, omission or misdescription in the Register.
1.16 The provisions also generally enable an action to be brought against the Registrar-General as nominal defendant, where the above grounds of recovery are inapplicable or where loss has resulted from an error in the Land Titles Office. No recourse may be had to the Fund where land may be recovered under s 124 of the Act, which contains a list of exceptions to indefeasibility of title.
1.17 An indefeasible title is one which cannot be set aside due to a defect which existed before a person became a registered proprietor. For example, if the land is Old System title and A’s solicitor forges A’s name on a conveyance of A’s land to B, no interest passes to B even if B registers the deed, because the deed is void as a result of the forgery.17 However, under the Torrens system, if B is not guilty of fraud, he or she obtains a title which cannot be upset, or in other words is “indefeasible” whilst A would have lost his or her land. The concept of indefeasibility of title is explored in more detail later in this Report.
1.18 The Torrens Assurance Fund is maintained as a Special Deposit Account administered by the Registrar-General. This Fund came into operation in December 1992 pursuant to s 133A of the RPA.18 Compensation payments prior to the introduction of the amendment came from Consolidated Revenue.19
OPTIONS FOR REFORM IN THE CONSULTATION PAPERS
1.19 Chapters 3 and 4 of the Discussion Paper and Chapter 6 of the Issues Paper set out the following options for reform of the State guarantee of title:20
- abolition of the State guarantee of Torrens title;
- continuation of the State’s role as insurer of Torrens titles, but with the insurance provided by private insurance companies;
- acceptance by registered proprietors of responsibility for insurance of Torrens titles (either in addition to or in substitution for the present State guarantee); and
- retention of State guarantee, but with improvements to the current compensation scheme.
PRIMARY RECOMMENDATION
1.20 The Commission’s investigations have led it to conclude that the existing provisions of the RPA containing the State’s guarantee of title could be further improved to fulfil the insurance principles underlying the Fund.21 This Report recommends the adoption of the fourth option, that State guarantee of title be retained with improvements to the compensation provisions.22
OUTLINE OF REPORT
1.21 Chapter 2 discusses the law in relation to the compensation provisions in New South Wales as it stood at the time of publication of the Issues Paper. Chapter 3 discusses the 1992 statutory changes and the recent case law on the compensation system. Chapter 4 assesses the submissions received on the four options for reform. Chapter 5 contains the recommendations of the Commission.
1.22 Appendix A contains a list of persons who made submissions. Appendix B contains statistical information on the nature of claims made against the Registrar-General of New South Wales. The Commission is very grateful for the assistance provided by the Land Titles Offices of New South Wales.23
FOOTNOTES
1. New South Wales Law Reform Commission, Torrens Title: Compensation for Loss (Discussion Paper 19, June 1989).
2. New South Wales Law Reform Commission, Torrens Title: Compensation for Loss (Issues Paper 6, December 1989).
3. D J Whalan, The Torrens System in Australia (Law Book Company, Sydney, 1982) at 13.
4. R T J Stein and M A Stone, Torrens Title (Butterworths, Sydney, 1991) at 4.
5. See R T J Stein and M A Stone, Torrens Title (Butterworths, Sydney, 1991) at 20.
6. Breskvar v Wall (1971) 126 CLR 376 at 385-386 per Barwick CJ.
7. Mr Noel Benham, a senior administrative officer at the Land Titles Office estimated that as at 19 April 1993, 40,000 Old System parcels remained to be converted to Torrens title. In the year 1993-4, 3,821 land parcels were converted to Torrens, while 3,650 were converted in 1994-5: New South Wales, Department of Conservation and Land Management, Annual Report 1993-94 at 35; and New South Wales, Department of Land and Water Conservation, Annual Report 1994-95 at 28.
8. R R Torrens, The South Australian System of Conveyancing by Registration of Title (Register and Observer General Printing Offices, Adelaide, 1859) at 9.
9. Stein and Stone at 349.
10. Whalan at 345.
11. Registrar-General, Submission (6 April 1990) at 9, para 28(a) and (b).
12. Stein and Stone at 349-350. Most authors agree that this was a compelling reason: R A Woodman and P J Grimes, Baalman on The Torrens System in New South Wales (2nd edition, Law Book Company, Sydney, 1974) at 389.
13. R A Woodman and P J Grimes, Baalman on The Torrens System in New South Wales (2nd edition, Law Book Company, Sydney, 1974) at 389.
14. Stein and Stone at 349.
15. Stein and Stone at 350.
16. These and related provisions are discussed in more detail in Chapter 2 of this Report.
17. A J Bradbrook, S V MacCallum and A P Moore, Australian Real Property Law (Law Book Company, Sydney, 1991) at para 4.03; Stein and Stone at 4-6.
18. See statements for Land Titles Office in New South Wales, Department of Land and Water Conservation, Annual Report 1994-5: Financial Statements.
19. A brief history of the funding of the Assurance Fund is contained in NSWLRC IP 6 at paras 3.1-3.2.
20. NSWLRC IP 6 at para 6.3.
21. NSWLRC IP 6 at paras 5.6-5.11.
22. See Recommendation 1, at x, below.
23. For a detailed discussion of:
- the background to the reference;
- the historical aspects of the compensation scheme and the rationale for compensation;
- the current compensation scheme in New South Wales and Victoria including the bases for making claims; and
- the principles of the Torrens system,
- readers are referred to NSWLRC DP 19 and NSWLRC IP 6.
