The 4 options put forward
- Abolition of the State guarantee of Torrens title.
- Retention of State guarantee but improvement of the current compensation schemes.
- Acceptance by registered proprietors of responsibility for insurance of Torrens titles (either in addition to or in substitution for the present State guarantee).
- Continuation of the State’s role as insurer of Torrens titles, but with the insurance provided by private insurance companies.
The following is the extract on the options for reform
OPTION 1: ABOLITION OF STATE GUARANTEE
A. The case for abolition
6.4 The New South Wales Law Reform Commission is of the view that there is a case for abolishing State compensation for losses sustained during the title registration process. The original rationale for the Fund may no longer be sufficient to justify its retention.
6.5 In 1862, provision of a right to seek compensation for loss of title to land was considered an essential part of the Torrens scheme, because it complemented the new concept of statutory indefeasibility and because it was necessary to placate the legal profession which was strongly opposed to the Torrens system.1 The possibility of confiscation of land without redress was one of the chief grounds on which the legal profession based its opposition to the scheme. However there is no evidence that the concept of indefeasibility has caused significant loss. Even after the acceptance of immediate indefeasibility in 1967 when more claims could have been expected, there has been no significant increase in claims for loss resulting from fraud. The one area where State compensation for loss may be justified concerns losses resulting from staff errors in the Land Titles Office. Even in this area the ordinary common law principles of tort law should provide adequate remedies to the person deprived.
B. The Issue
6.6 To what extent should registration confer the right to compensation on an innocent person who suffers loss in a land transaction? The State does not pay compensation if a title is unregistered, however diligent an innocent purchaser may have been. Similarly the State does not compensate the innocent victim of wrongdoing or mischance in other fields of registration of property eg motor vehicle registration. Why should it do so when the loss is title to land?
OPTION 2: RETENTION OF STATE GUARANTEE: ELIMINATION OF LEGISLATIVE DEFICIENCIES
A. Introduction
6.7 Arguments in favour of some form of compensation by the State rest on the changes that the Torrens system has made to the position of those dealing in land. Firstly, compensation is provided for losses which could not have occurred under the common law system of conveyancing but which the Torrens system makes possible, principally through the ease of effecting transactions. Thus, by the introduction of a system in which the Register is crucial and title may be transferred by a relatively simple process, frauds and forgeries are more easily perpetrated. Secondly, an essential aspect of the Torrens system, indefeasibility, means that the effects of forgery, fraud and Land Titles Office errors are far greater than under Old System conveyancing. At common law remedies such as ejectment have been designed to uphold the title of a plaintiff against someone claiming title through a forged or fraudulent transaction. These remedies have been curtailed in the interest of ensuring certainty of title as recorded on the Register. Compensation by the State thus fills a vacuum created by the Torrens system and protects against the potential harshness of the system in operation.
B. What types of claims for compensation should be allowed?
6.8 If it is accepted that the Government should provide compensation for losses arising from the operation of the Torrens system, the circumstances in which compensation is paid need to be identified. It is necessary to consider whether the following ideals of a Torrens system should be pursued, namely:
* that the Register of title be likened to a “mirror” in that it should reflect accurately and completely all facts and matters relevant to the title to a parcel of land, and that the State should compensate anybody suffering loss as a result of their reliance on the Register; and
* that the State should compensate those persons who find themselves wrongfully deprived of a registered interest (eg by the fraud of a third party)?
6.9 Even from the time of the earliest Torrens legislation in South Australia these ideals have not been fulfilled. Certain interests such as equitable rights have been excluded from the Register and no compensation has been payable in respect of them. Similarly there is an ever increasing number and variety of statutory rights which exist quite independently of the Torrens legislation. 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.
6.10 As is clear from the discussion in earlier chapters of this Paper, there are several deficiencies in the existing State guarantee system. The major deficiencies which have been the subject of comment are set out below and tentative proposals are put forward to remedy them.
1. Reliance on the Register
6.11 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. Firstly, should the Government be responsible for loss caused by the errors of its officers (for example, when through error an easement is omitted from a title or a dealing recorded on an unaffected title)? Secondly, should Government responsibility extend to the losses caused by statutory interests created independently of the Torrens Register?
6.12 It is now accepted that the Government 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 to 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.
6.13 The second question is essentially concerned with those decisions and proposals of government departments and authorities which, whilst not amounting to proprietary interests in land, may affect the value, use or enjoyment of a parcel of land.
Some commentators argue that such decisions and proposals affecting land should be recorded in the Register and compensation paid for loss occurring if they exist but are not recorded. However, the more usual view is that interests of this type are not appropriate for recording in the Register since they amount to neither legal nor equitable interests and would clutter the Register. It is accepted conveyancing practice that a purchaser should conduct 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 Government be made liable if this information is not recorded on title but available from other sources.
2. Wrongful deprivation
6.14 Should compensation be paid to individuals wrongfully deprived of their land or an interest in land? The primary source of such loss is the fraud or negligence of a third party. This may occur, for example, where a Certificate of Title is stolen from a private residence and the registered proprietor’s signature is forged on a transfer (to a bona fide purchaser for value) and the transfer is registered. The innocent purchaser obtains an immediately indefeasible title pursuant to the forged transfer. The effect of a forgery in the Torrens system is therefore prejudicial to the title holder whereas under Old System, an innocent third party acquiring land through a forgery would gain nothing and the owners title would not be affected. As the Torrens system gives the State power to control use of the public Register and all titles recorded on it, it could be strongly argued that the State has a duty to compensate.
6.15 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. However it would appear reasonable that 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.
3. Negligence of claimant’s solicitor or agent
6.16 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 officers having full rights of subrogation against the claimant’s solicitor or agent including their guarantee funds. 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. The tentative proposal is therefore that 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. Furthermore, apportionment of damages should be available in those cases where a solicitor or agent has been partially responsible.
4. Contributory negligence of claimant
6.17 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 seems no reason in principle why the Registrar 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 by the claimant. Hence it is proposed that there should be an exception from the night to compensation in the case of loss totally attributable to the negligence of the claimant. As with the proposal relating to the situation where a solicitor or agent has been partially responsible, apportionment of damages should occur where both the claimant and the Registrar or Registrar General have been partially responsible.
5. Exhaustion of other remedies
6.18 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. It is therefore suggested that there should be no requirement that other remedies must be exhausted before compensation is payable. Furthermore, in these cases it would be better to adopt a rule of direct liability, allowing the Registrar or Registrar General to join the person or persons primarily responsible or to bring a separate action against such persons by way of subrogation.
6. Administrative procedures
6.19 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 a waste of 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 for those cases presenting some difficulty to the Registrar or Registrar General to be dealt with by the Supreme Court. It would also be preferable if there were a prescribed period within which the Registar or Registar General must make a decision.
7. Assessment of compensation
6.20 A further issue is the basis on which damages should be assessed. The flexibility of the New South Wales test (determined judicially) appears 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, if there has been a significant decrease in property values between the date of the actual loss and the date on which the damages are to be assessed, a claimant should not suffer accordingly. Thus the appropriate date for determining loss will depend on the facts of each case. The principle should be that compensation is for the actual loss suffered.
8. Time for making claims
6.21 The final issue concerns the time within which a claim should be made. It is currently unclear whether a 6 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. It is therefore proposed that 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 the right to make a claim.
9. Contribution to the fund on lodgment of dealings
6.22 If the State is to continue in its role as insurer of Torrens titles, consideration should be given to reintroducing contributions to the Fund by a levy on dealings. Before this scheme was abolished in 1940, the Assurance Fund was supported by a levy of 1/2d in the pound (0.2083%) for all transmission applications and primary applications. The contribution would in effect be similar to an insurance premium.
OPTION 3: STATE GUARANTEE PROVIDED BY PRIVATE INSURER
6.23 Option 2, that the State continue in its role as insurer of Torrens titles but with substantial changes being made to the authorising legislation, might be more attractive if the private insurance sector were involved. In other words, instead of the Government acting as its own insurer, perhaps a feasible option is for the State to use the services of private insurance companies in the same way as do local councils. Claims would be processed by the private insurers which would pass the costs of the system on to the Government by way of a premium. This option would have the advantage of setting an independent agency between the claimant and the Land Titles Office. It may also encourage the Registrar General to adopt risk management more widely.
OPTION 4: TITLE INSURANCE ARRANGED BY REGISTERED PROPRIETOR
6.24 The option of individual registered proprietors being responsible for insuring against loss of their titles or interests in titles was examined in Chapter 2. The experience with private title insurance in America was also examined. In those limited areas where a Torrens system operates in the United States, finance companies generally require private title insurance in addition to the guarantee provided by the Assurance Fund. Where they co-exist, therefore, the two systems are complementary. Title insurance policies generally exempt coverage for the kinds of risks assumed by an Assurance Fund.
6.25 An option for New South Wales and Victoria is for private insurance, either optional or compulsory, to wholly replace the current State-backed insurance schemes. A variation would be for the State to continue its indemnity for some types of risks (eg Departmental error) while allowing or requiring registered proprietors to insure against loss or damage from fraud, forgeries, surveyors’ errors and the like.
Links to the Study
Introduction pdf
Rationale for Compensation pdf
The Current Position In New South Wales pdf
The Current Position in Victoria pdf
Does The Legislation In New South Wales Or Victoria Accord With The Principle Ideals Of A Torrens System? pdf
Options For Reform pdf
Crown Copyright 2002
Review of title insurance by Pamela O'Connor | 2002
DOUBLE INDEMNITY – TITLE INSURANCE AND THE TORRENS SYSTEM
Link to Pamela's paper
In 1989 the New South Wales and Victorian Law Reform Commissions issued a joint discussion paper and an issues paper for a review of ‘the extent of the State guarantee of Torrens titles and the manner in which it is provided’.2 The issues paper indicated that the two Commissions proposed jointly to consider, inter alia, ‘whether private title insurance could be substituted for the existing State guarantee of Torrens titles’,3 and also whether it could complement the existing statutory Torrens indemnity schemes.4 Public submissions were invited on these and other matters. The Victorian Commission was disbanded before it could complete its reference. The New South Wales Commission continued alone and delivered its final report in 1996.
In the end, the contribution that private insurance could make to the operation of the Torrens System received scant consideration from the Commission, which recommended instead that the State’s statutory scheme should be remodeled
Given that a title insurer is now operating in Australia and New Zealand, it is timely to reconsider how private title insurance may affect the Torrens System. Will it contribute to achieving the twin objects of the Torrens System: to provide security of title, and to facilitate transactions by making them quick, cheap and safe?11 Along with the opportunities we must also consider possible threats: will the establishment of a private title insurance industry or the marketing of its products harm our State-administered system of registration of title, or the quality of our conveyancing services?
Part of Pamela's conclusions included
This paper has focussed on the first option, and concluded that private title insurance can contribute to the attainment of the economic objects of the Torrens System. Insurance can promote the ‘security of title’ object to the extent that it enables owners, purchasers and lenders to transfer to an insurer certain risks that the Torrens System leaves with them, namely:
- loss in the pre-registration period arising from a matter that renders the interest void or unenforceable, or from loss of priority to a competing interest;
- that the insured’s title will be subject to certain types of overriding interests;
- that the insured will suffer loss through the fraud, forgery or negligence of his or her solicitor, or agent, or through a loss to which the insured has contributed through his or her own negligence, and that in some jurisdictions, indemnity will be excluded or reduced on ‘fault’ grounds.
What if the national system promoted electronic payment followed by electronic registration underwritten by a TI policy? That is payment and registration are not contemporaneus. In fact what has changed?
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