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Where am I now? Lawlink > Law Reform Commission > Publications > IV. If the Compensation Scheme is Retained, How Should it be Improved?
Discussion Paper 19 (1989) - Torrens Title: Compensation for Loss
IV. If the Compensation Scheme is Retained, How Should it be Improved?
What are the principles of compensation?
41. If it is accepted that the State should provide compensation for losses arising from the operation of the Torrens system, the principles governing payment of compensation need to be identified. There are two conflicting principles -
- the scheme should compensate anybody suffering loss as a result of their reliance on the register and reinforce the concept of the register of title as a ‘mirror’ which reflects accurately and completely all facts and matters relevant to the title to a parcel of land.
- the State should compensate those persons who find themselves wrongfully deprived of a registered interest, for example, by the fraud of a third party.
42. Even the earliest Torrens system in South Australia did not fulfil these ideals. Certain interests, such as equitable rights, have been excluded from the register and no compensation was ever payable in respect of them. Similarly, there is an ever increasing number and variety of statutory rights which exist quite independently of the Torrens system. Even though they override registered interests and do not require registration or notification, no compensation is payable for losses resulting from ignorance of their existence.
Reliance on the Register
43. Should compensation be paid to a person who sustains loss by reliance on the register when it proves to be inaccurate? This question divides into two subsidiary questions. First, should the State be responsible for loss caused by errors of its officers? (For example, when an easement is omitted from a title or a dealing is recorded on an unaffected title through error.) Second, should State responsibility extend to losses caused by statutory interests created independently of the Torrens register?
44. It is now accepted that the State should be responsible for the actions of its employees. It is by no means clear, however, that loss caused by error in the Land Titles Office should be compensated through a specialised compensation system. This type of loss could easily be dealt with under ordinary tort principles. There would, however, be difficulties in grafting such principles onto a purely statutory system. Unless the questions of duty and standard of care owed by the State were left completely to the courts to develop (which, considering the relative rarity of compensation claims, might take a long time), they would have to be specified by statute. A purely statutory remedy for compensation, such as presently exists, at least provides security by guaranteeing compensation in specified cases.
45. The second question is essentially concerned with those interests and proposals of government departments and authorities which, whilst not amounting to proprietary interests in land, may affect the value, use or enjoyment of land. Some commentators argue that these interests should be recorded in the register and compensation paid if loss occurs because they exist but are not recorded. However, the more usual view is that interests of this type are not appropriate for recording since they amount to neither legal nor equitable interests and would clutter the register. It is accepted conveyancing practice that buyers and sellers of land should make numerous enquiries (apart from title) to ascertain the existence of statutory interests affecting the subject property. Aside from the argument of ‘completeness of the register’, there is little reason why this practice should change and the State be made liable if this information is not recorded on title but available from other sources.
Deprivation of interests in land
46. Should compensation be paid to individuals wrongfully deprived of their land? The primary source of such loss is the fraud or negligence of a third party. For example, a certificate of title is stolen from a private residence; the registered proprietor’s signature is forged on a transfer to a bona fide purchase for value and the transfer is registered. The innocent purchaser obtains an immediately indefeasible title when the transfer is registered, even though it is a forgery. The effect of a forgery in the Torrens system is therefore prejudicial to the title holder. In contrast, under the deeds conveyancing system an innocent third party acquiring land through a forgery gains nothing and the owner’s title is not affected. As the Torrens system gives the State power to control use of the public register and all titles recorded on it, it can be strongly argued that the State has a duty to compensate.1
47. Where a registered proprietor voluntarily signs a transfer under the influence of fraud, there is not such a strong case for compensation. In such cases, the victim must be assumed to have control over what is occurring. Otherwise the State might be required to compensate a proprietor who has exercised poor judgment or made an unfavourable bargain.
Proposal
Compensation should be available for loss resulting from mistakes made by the Land Titles Office and for loss by forgery of an interest in land resulting from the registration of another interest.
Negligence of claimant’s solicitor or agent
48. Should there be an exception to the right to compensation in the case of negligence or fraud by the claimant’s solicitor or agent? The aim of that exception in Victoria is to provide an incentive to the claimant to exercise care in relation to his or her choice of an agent. The exception gives rise to some anomalies. If the case involves the fraud or negligence of the claimant’s solicitor or estate agent, the claimant who fails against the Registrar (or Registrar General) may ultimately recover from the Solicitors’ Guarantee Fund or the Estate Agents Guarantee Fund; or from the solicitor’s or real estate agent’s professional indemnity insurance. There is no alternative source of recovery in the case of other agents. Moreover, arguments can arise in relation to which fund should provide the compensation. It might be simpler to allow recovery against the Registrar or Registrar General, with these individuals having full rights of subrogation against the claimant’s solicitor or agent including a guarantee fund. However, having regard to principles of agency law, the negligence of a solicitor or agent may be imputed to the claimant. There is no good reason for making the State responsible where a claimant’s loss is totally attributable to his or her own negligence, nor is there any reason why the State should be responsible for the negligence of a solicitor or agent.
Proposal
There should be an exception from the right to compensation in the case of loss totally attributable to the fraud or negligence of a solicitor or agent of the claimant. Apportionment of damages should occur in those cases where a solicitor or agent has been partially responsible.
Contributory negligence of claimant
49. A further issue is whether there should be an exception in the case of contributory negligence by the claimant. A claimant may cause or contribute to a loss in a variety of ways. For example, a vendor may have signed a transfer without first obtaining payment, or may have been negligent in safeguarding the duplicate title. There is no reason in principle why the Registrar or Registrar General should be required to compensate people who have caused or contributed to their own loss. It would be anomalous to deprive a person of a claim because of an agent’s negligence, but to allow a claim where the negligence was that of the claimant.
Proposal
There should be an exception from the right to compensation in the case of loss totally attributable to the negligence of the claimant. Apportionment of damages should occur where both the claimant and the Registrar or Registrar General have been partially responsible.
Exhaustion of other remedies
50. Should compensation be payable only after remedies have been exhausted against the person primarily responsible? Litigation is time consuming and expensive. A person who had an action against a third party might be unable to afford the risks associated with litigation. This problem would exist only in cases of forgeries by a stranger if the proposal for excluding or reducing claims involving forgery by a claimant’s solicitor or agent were accepted. In these cases, it would be better to adopt a rule of direct liability, allowing the Registrar or Registrar General to join the person primarily responsible or to bring action against that person by way of subrogation.
Proposal
There should be no requirement that other remedies be exhausted before compensation is payable. The Registrar or Registrar General should be able to join other persons as co-defendants or bring a separate action by way of subrogation.
Administrative procedures
51. Should compensation be payable administratively or only in the context of litigation? The New South Wales requirement that an action be brought in the courts against the Registrar General is time consuming and wastes resources. Like the exhaustion of remedies requirement, it poses a barrier to obtaining compensation. The Victorian method, involving an application to the Registrar, is preferable. This would enable the majority of claims to be dealt with relatively quickly and permit those cases which present difficulty to the Registrar or Registrar General to be dealt with by the Supreme Court.
Proposal
Compensation should be payable on application to the Registrar or Registrar General. A decision should be required within a prescribed period.
Assessment of compensation
52. A further issue is the basis on which damages should be assessed. The flexibility of the New South Wales test (determined judicially) is clearly preferable to that of the stringent statutory test adopted in Victoria. A claimant should be entitled to recover for actual loss. The amount of damages should therefore be assessed at an appropriate date. In times of rapid inflation, the date of payment would be the appropriate date for valuation. On the other hand, a claimant should not suffer if there has been a significant decrease in property values between the date of the actual loss and the date which the damages are to be assessed.
Proposal
Compensation should be for actual loss and it should be the value of the land at the date of the loss or at the date of the claim, whichever is the greater.
Time for making claims
53. The final issue concerns the time within which a claim should be made. It is currently unclear whether a six-year limitation period applies in New South Wales and Victoria by virtue of the general limitation statutes. In any event, in this area it is undesirable that time limitations be framed by reference to the date of the cause of action. There is a significant possibility of latent claims arising from errors and misconduct long in the past. In Victoria, the Land Titles Office has a policy of not using the limitation period as a defence to a claim. This supports the case for reform of the limitation period.
Proposal
The period of limitation should be six years from the date on which the claimant became aware or, but for his or her own default would have become aware, of the existence of his or her right to make a claim.
FOOTNOTES
1. In Report No 12, The Torrens Register Book, the Law Reform Commission of Victoria recommended that the deregistered victim of a forgery should be returned to the title and the purchaser should be compensated for loss. Either way, there should be compensation available to the party who loses the land.
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