Экзамен зачет учебный год 2023 / SLC, Report on land registration. Vol 1

as to allow straddling possession, ie that the possession of the acquirer could supplement that of the granter.56 For example, if the granter had possessed for nine months, a further three months of possession by the grantee would bring about indefeasible title. That remains our position.

21.34We recommend:

80.A bona fide disponee should acquire good title free of Register error provided that the requirement of one year's possession is satisfied.

(Draft Bill, Part 6)

21.35 This in itself is only an outline recommendation. Further details are considered below and also in Part 23.

The mud should be real mud

21.36One of the technical problems with the way that the 1979 Act handles inaccuracy is that in those cases where it gives the registered grantee the mud, it does so merely by suspending the rectifiability of the Register. The rights of the parties are thus a tangle: (i) the registered grantee is owner (the Midas touch) but (ii) as against that, the register is inaccurate and therefore is rectifiable, but (iii) as against that, the rectifiability is suspended so long as possession lasts and (iv) it may or may not be that the suspension becomes permanent once indemnity is paid. It is not surprising that even conveyancers find all this hard to grasp. The mud is only quasi-mud. One consequence of the new scheme is that where the grantee takes the mud, it will be real mud. Suppose that Honoria is wrongly registered as owner. Under the 1979 Act she is owner but should not be: the Register is bijurally inaccurate. She then dispones to Aeneas. Under the 1979 Act the position after the Honoria/Aeneas disposition is even more complex. Under the new scheme the position would be fairly straightforward. Assuming that the requirements as to good faith and possession had been satisfied, the Register would be, not "inaccurate but unrectifiable for the time being" but simply accurate. What would have happened would be that the rights of the parties would have been realigned so as to conform with what the Register said that they were. Aeneas would be the proprietor and the Register, in identifying him as such, would not be inaccurate.

21.37Thus in the new scheme, if an entry is inaccurate, then either (a) it must be changed by the Keeper so as to make the Register conform to the actual rights of the parties, or (b) the rights of the parties are changed to make them conform to what the Register says that they are. But in either case what is happening is clear. The almost impenetrable complexities of (i) bijural inaccuracy and (ii) suspended rectifiability will disappear.

Protecting the grantee: the curtain principle

21.38 If, as we recommend, the balance should be adjusted in the direction of security of title, this can be done only at the expense of facility of transfer. Property that is harder to lose is also property that is harder to acquire. Yet the acquirer's burden should not be increased by more than a modest amount. Facility of transfer is an important aspect of registration of

56 DP 128, para 5.30 (proposal 18(3)(a)).

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title, and the so-called "curtain principle"57 is, for many, a non-negotiable feature of the system. No model is tenable, therefore, that necessitates going behind the Register and inspecting prior conveyances. The new scheme preserves the curtain principle. Title is guaranteed, and whilst the guarantee will sometimes take the form of money rather than mud, that is already true of the current law.58 To confirm the curtain principle the draft Bill contains a provision – not to be found in the 1979 Act – that there is to be no constructive knowledge of anything in the Archive Record.59

Discretion?

21.39 As mentioned earlier, some legal systems have an element of judicial discretion in the mud/money decision. As mentioned above, a form of discretion was included in the Land Registration (Scotland) Bill but was removed as a result of representations from the Law Society of Scotland. No suggestion has been made to us that discretion should now be introduced, and we would not support the idea. Judicial discretion within private law is a common theme of English law but the tradition of Scots law has generally been against such discretion, though admittedly some exceptions exist.60 We recommend:

81.The mud/money decision should be a matter for fixed rules rather than for discretion.

Terminology: the integrity principle and realignment of rights

21.40 In the discussion papers we used the term "integrity principle", defining it thus: "the principle that an acquirer in good faith can rely on the integrity of the Land Register. As a result, such an acquirer takes the property free of Register error." We have now come to think that the term "integrity principle" can be improved upon. After all, it is the policy that a grantee should be able to rely on the Register even where the result will be money not mud. For example, suppose that a standard security is assigned by Edwina to Fred but the assignation is invalid. Fred then assigns to Geri. Under both the current law and under the new scheme, Geri, on taking the assignation, was entitled to rely on the Register, and is protected by the guarantee of title, but under both current law and the new scheme the form of the title guarantee is money not mud, ie when it turns out that the Edwina/Fred assignation was invalid, the Register is rectified against Geri. So this is not an example of "integrity" as we defined it, yet it is in the broader sense an example of the principle of the integrity of the Register. Accordingly we have come to the conclusion that it would be better to say that when the title guarantee takes the form of mud, the rights of the parties are realigned, meaning that they are made to conform with what the Register says they are. Hence what in the discussion papers we called the integrity principle we now call the realignment of rights.

57The "curtain principle" is the principle that the Register can be taken at face value, and that there is no need to look at the deeds which lie behind it. See DP 125, para 1.14.

58In those cases where the "proprietor in possession" rule does not apply.

59Draft Bill, s 12(6). See further Part 4.

60See Niall R Whitty "From Rules to Discretion: Changes in the Fabric of Scots Private Law" (2003) 7 EdinLR

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Subordinate real rights

21.41 The discussion thus far has considered only the case where the wrong person is registered as owner, with a subsequent disposition to a bona fide disponee. But there can also be cases involving subordinate real rights. For example: (i) The wrong person is registered as owner and that person then grants a subordinate real right, the grantee being in good faith. (ii) The wrong person is registered as the holder of a subordinate real right and that person then assigns that right, the grantee being in good faith. (ii) The right person is registered as owner, and that person grants a disposition, the grantee being in good faith, and it turns out that an encumbrance was omitted from the title sheet.61 All these are cases of Register error, but are different from the standard case.62 We consider such cases further in Part 23. Here we will merely say two things. The first is (to anticipate) that in Part 23 we recommend that in such cases sometimes the bona fide grantee should receive the mud but that in other cases the title guarantee should be monetary. The second is to note that in these cases involving subordinate real rights the requirement for one year's possession does not always make sense.63 For example, X owns a house and borrows money from Y on the security of the house. Later X, without having repaid the loan, forges a deed of discharge, registers it, and promptly sells to Z, who is in good faith. Possession is not a sensible criterion in such a case. (Though the registration of the fake discharge is a public one, so some element of notice is necessarily involved.)

Transactional error

21.42 Under current law transactional error in some cases results in immediate indefeasibility (it does so in favour of a proprietor in possession) and in other cases results in monetary compensation. In DP 125 we proposed that in the new scheme it should never result in immediate indefeasibility, but should (subject to certain qualifications) lead to monetary compensation. In short we proposed that in the case of transactional error the form the title guarantee should take should be money, not mud.64 Most respondents agreed. In transactional error the grantee has not been misled by any inaccuracy in the Register. There are two main reasons for saying that transactional error should not be protected by "mud". In the first place, the error is in the transaction to which the grantee is a party and so the grantee is in the best position to determine whether a problem exists. In the second place, one of the main objectives of a title registration system is to facilitate transactions by saying to those thinking of dealing in land "you can rely on what the Register says". Transactional error does not fall within that justification, and it is not surprising that for that reason many title registration systems give no protection against transactional error. Although we think that protection against transactional error should continue, we see no reason to accord to it the stronger of the two forms of title guarantee. Accordingly we recommend:

61For example, X owns a house and borrows money from Y on the security of the house. Later X, without having repaid the loan, forges a deed of discharge, registers it, and promptly sells to Z, who is in good faith. Here the law reform options are either (i) that the security survives, to Z's detriment, or (ii) the security perishes, to Y's detriment.

62That is to say, where the wrong person is registered as owner and that person then disponees to a bona fide grantee.

63See also paras 21.22 above.

64DP 125, paras 4.45 and 4.52 (proposal 7).

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82.In cases of transactional error, the form of title guarantee available to the grantee should be monetary compensation. The Register should be rectifiable.

(Draft Bill, Part 5)

21.43 Further details of the scheme of monetary compensation for cases where it turns out that the Register is inaccurate can be found in Part 22.

Is the money/mud choice neutral from the standpoint of the Keeper's purse?

21.44 One issue that has not so far been mentioned is the effect of the mud/money choice on the Keeper's purse. If there were to be a differential effect, that would be significant for the formation of policy. But it seems that the choice is a neutral one. Either way, the Keeper is liable. (Albeit that there may be a right to recoup the loss from another party.) For example if there is a disposition by X to Y and it turns out that the land belongs to Z, then either (i) the property goes to Y and the Keeper compensates Z or (ii) the property goes to Z and the Keeper compensates Y. Either way the Keeper is liable for the property's value.

Retrospective

21.45Some difficult terrain has been traversed in this part of the Report and it may be helpful to look back and sum up a few selected points.

21.46"Immediate indefeasibility" means that the position of a grantee is necessarily what the Register says it is. Most Torrens jurisdictions adopt this approach across the board. There is no requirement as to possession and there is no limitation as to type of transaction. The rule applies as much to transactional error as it does to Register error. In Torrens jurisdictions indefeasibility is excluded by the grantee's fraud but not by carelessness. Compensation is payable to victims of indefeasibility. A minority of Torrens jurisdictions take a less absolute approach. The European title registration systems generally adopt "deferred indefeasibility" whereby the mud guarantee applies only to Register error. In the latter systems the title guarantee does not apply to transactional error. Moreover where the mud guarantee applies, the victim receives no state compensation unless the problem was caused by the fault of the registration department.

21.47The English and Scottish systems have a modified form of immediate indefeasibility, and have it both for transactional error and for Register error. Compensation is payable to victims. But titles are indefeasible only if there is possession. Moreover, indefeasibility is excluded not only by fraud but also by carelessness on the part of the grantee. Where immediate indefeasibility does not operate (which is to say in some cases of transactional error and also in some cases of Register error) the grantee receives compensation. In English law, but not Scots law, there is an element of judicial discretion about indefeasibility. In Scots law the legal nature of indefeasibility, involving bijuralism and suspended rectifiability, is complex and to some extent obscure.

21.48The new scheme retains the two forms of title guarantee, and also retains compensation for the victims of realignment. But it changes the balance between the two forms of guarantee. Transactional error is protected only by money, not by mud. As for Register error, some cases that under current law attract mud protection would under the scheme attract money protection. Thus there would be no "immediate indefeasibility" but in

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some cases (not all) there would be "deferred indefeasibility". The current tangle of bijural inaccuracy and suspended rectifiability would be swept away and the result would be simpler and more in harmony with general property law. Voidable titles would cease to be guaranteed. But the ultimate outcome of Short's case showed that the guarantee against voidability is in any case illusory even under current law.65

65 Short's Tr v Chung (No 2) 1999 SC 471. See para 20.3.

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Part 22 The guarantee of title: (D) the Keeper's warranty of title

22.

Introduction

22.1 The two aspects of the guarantee of title are "mud" and "money".1 In this part we look at the latter, ie cases where an inaccuracy is rectified and as a result compensation is to be paid. In current law this comes under the heading of "indemnity" though that term is used in a broad sense to cover not only (a) cases where the Register is rectified and those who suffer thereby are compensated but also (b) cases where the Register is not rectified and those who suffer by the fact of non-rectification are compensated.2 The present part corresponds roughly with the first of these.3

Current law and its drawbacks

22.2Section 12(1) of the 1979 Act says: "… A person who suffers loss as a result of (a) a rectification of the register … shall be entitled to be indemnified by the Keeper in respect of that loss." Those who responded to DP 125 supported the retention of monetary indemnity in respect of both Register error and transactional error. But the current law is defective in a number of respects and would in any event require some adjustment in order to fit with our other recommendations. We discussed the shortcomings of section 12 in DP 128, and we will not repeat everything we said there. The core of the problem is that section 12 says that compensation is payable to anyone who suffers loss because of rectification. The formula is too broad, and its excessive breadth is the main reason for the long list – running to a couple of densely printed pages – of exceptions.4 What is given with one hand is thus often removed with the other. Some of these exceptions are complex and even obscure. Indeed, in Short's Trustee v Keeper of the Regisers of Scotland5 the House of Lords struggled with the exception relating to gratuitous alienations. It may be added that some of the exceptions may be unnecessary, because they do not deal with potential inaccuracy. (The issue of rectification comes into question only if the Register is or becomes inaccurate.) A more efficient, and transparent, approach would be to limit the guarantee at the outset; in other words, instead of a guarantee against any future rectification, to have a guarantee by the Keeper that the Register is accurate at the time of registration. In DP 128 we developed a "Keeper warranty" scheme6 and respondents generally supported it.

22.3One difference is that the 1979 Act approach is remedy-based, whereas the new approach is right-based. In other words, the 1979 Act says7 "if the Register is rectified then

1 See Part 19.

2 1979 Act, s 12(1).

3 The second is considered in Part 23.

4 1979 Act, s 12(3).

5 1996 SC (HL) 14.

6 DP 128, Parts 8 and 9. Those parts also dealt with other grounds of liability for the Keeper. The present part of this Report is narrower in that it deals only with the Keeper's warranty that the Register is accurate on the day of registration.

7 We paraphrase.

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the Keeper must compensate…" whereas the new scheme says "the Keeper guarantees to the registered applicant that the Register is accurate…". Another difference (which flows from the one just mentioned) is that in the new scheme the guarantee is given to a specified person. A third difference is that the guarantee is a single event that happens at a particular date (registration).

22.4 Another benefit from the warranty-based approach as opposed to the indemnitybased approach can be seen in the case of Frank Houlgate Investment Co Ltd v Biggart Baillie LLP.8 Here a fraudster, pretending to be the owner of certain property in Fife, granted a standard security, in exchange for a large loan. The security was duly registered in the Land Register. Later the fraudster forged a deed of discharge and this in turn was duly registered. The case does not indicate whether an attempt was made by the creditor to claim indemnity from the Keeper, but any such claim would seem to face considerable difficulty. Suppose that the creditor had sought rectification of the Register so as to reinstate the security, on the basis that the discharge was a forgery. Such an application would presumably have been refused on the ground that the Register, in showing no security in the C Section, was accurate.9 And if it was accurate, it would follow that there could be no rectification under s 9 and no indemnity under s 12(1)(b). That the creditor should be deprived of its protection by a forged deed seems an unsatisfactory result.10 If the approach just suggested is correct,11 the new scheme would, on these facts, produce a different outcome. The Keeper on registering the security, would have granted warranty, the content of the warranty being that the security was validly constituted, and the later forged discharge could not take away that warranty.

The warranty's two prongs

22.5A title sheet may be inaccurate because of what it says or because of what it does not say – its wrongful utterances and its wrongful silences. An example of the former would be where the title sheet says that the property is encumbered by a standard security when it is not. An example of the latter would be a blank C Section, when in fact there does exist a standard security.12

22.6Accordingly the warranty of title needs two prongs, positive and negative.13 The positive is that the rights as shown on the Register are correctly stated: what you see is what you get. The negative is that no rights14 have been omitted that should have been included: what you don't see you don't get. The positive prong concerns the A Section (Property Section). The warranty includes incorporeal pertinents, such as the benefit of servitudes and

8 [2009] CSOH 165.

9 Following the registration of the standard security the Register was bijurally inaccurate. Following the subsequent registration of the forged discharge, the Register was not actually inaccurate. Nor, we think, was it bijurally inaccurate. If that is right, it was not inaccurate in either manner, from which it would follow that it was accurate, from which it would follow that neither s 9 nor s 12 would be engaged.

10Had the true owner, immediately after the registration of the security, applied for the Register to be rectified by deletion, the creditor would presumptively have been entitled to indemnity under s 12(1)(a) of the 1979 Act.

11We stress the word "if" at the beginning of this sentence. This aspect of the story was not dealt with in the case itself (which was about whether the fraudster's law firm was liable to the creditor). The issues are complex and what is said here is no doubt not the last word.

12See paras 17.40-17.42 above.

13DP 128, paras 7.28 and 7.29 (proposal 29).

14Throughout this Report "right" includes encumbrance. For example a standard security is a right, and it is an encumbrance, from the owner's perspective. The same is true for all potential entries in the C Section (Securities Section) and D Section (Burdens Section).

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real burdens. So for example if a title sheet says that the property has the benefit of a servitude of way over a neighbouring property, the existence of the servitude is warranted, though as will be seen below there are certain qualifications. The negative prong concerns the C Section (Securities Section) and D Section (Burdens Section). Here the warranty is that nothing that should have been mentioned in those sections has been omitted. (The warranty is not against all encumbrances, but only against those that should have been entered. For example a short lease is an encumbrance, but because short leases do not enter the Register there is no warranty against their existence.)

22.7 In Part 23 we recommend that a disponee should normally have "mud" protection against omitted encumbrances, ie that if an encumbrance that should have been on the title sheet is omitted, a good faith disponee should take free of it. That being so, the question may be asked whether there is any need for the Keeper's warranty to apply to such cases, for there is no need for the Keeper to compensate someone who does not suffer. (And the disponee does not suffer because the encumbrances have been extinguished.) The answer is that the "mud" protection does not apply in all cases. In particular it applies only to disponees and not to other grantees.

Limitations on the Keeper's warranty

22.8 Below we go through the exceptions and limitations to the Keeper's warranty. The list looks long and the false impression may be given that the warranty is so hedged about with exceptions and qualifications that it is of little value. That would be a mistake. The Keeper's warranty remains, as it is under current law, an extensive one. Inevitably there has to be some small print, and there is under existing law, but the small print is actually relatively minor.

Warranty only on registration

22.9The warranty should be granted on registration. It should guarantee the accuracy of the Register as it stands in consequence of the registration. What it should not cover is entries made other than by registration. Such non-registration entries under current law fall into three main categories: (i) rights entering by rectification; (ii) rights entering by noting; and (iii) rights constituted by deeds recorded in the Register of Sasines and which are entered on the Land Register on first registration. In the new scheme the second category is also regarded as rectification.

22.10Under the current law, the rectification of a bijural inaccuracy has the same effect as registration, that is to say, it results in the creation, transfer, variation or extinction of real rights. The rectification of an actual inaccuracy is wholly different: it merely brings a title sheet into line with what is already the case. Under the new scheme the category of bijural inaccuracy would disappear. Hence all inaccuracies would be actual, and therefore rectification would have no substantive proprietary effect. The right would already have been created, transferred, varied or extinguished as a matter of the general law. That is why in the new scheme rectification can be allowed without restriction. Its purpose is merely to bring the Register into line with the actual legal position. But if no right is being transferred, varied or extinguished, there is no place for a warranty by the Keeper. The same may be said of the noting of overriding interests. A real right falling into this category exists independently of registration. The purpose of noting is merely to publicise a right that was created previously by other means. A warranty to its holder would be out of place. The present law is the same:

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no indemnity is payable under the 1979 Act in respect of overriding interests.15 (In the new scheme there would no longer be a category labelled "overriding interests" but the kinds of rights currently so labelled would still exist.16)

22.11On first registration the Keeper must make up a title sheet in which subsisting rights (considered as encumbrances) that affect the property are included.17 Such rights might include title conditions (D Section) or, less commonly, heritable securities (C Section).18 By entering such rights (encumbrances) in the title sheet, the Keeper is entering them in the Register but is not registering them within the meaning of section 2 of the 1979 Act or Part 3 of the draft Bill. No application for registration is made by the beneficiary of the encumbrance, such as the holder of a real burden or the creditor in a standard security. The fact that they have been created other than by registration in the Land Register means that pre-existing Sasine-created rights resemble overriding interests. And like overriding interests, they are, in effect, excluded from the indemnity system under the current law. We propose no change. If a creditor registers a standard security in the Land Register and the security turns out to be void, it is proper that indemnity (compensation) should be paid if loss results.19 But if the security was originally recorded in the Register of Sasines but is now in the Land Register, indemnity would be difficult to justify. A right previously created by the registration of a deed in the Register of Sasines is not created again merely by being entered in a title sheet on first registration of the land to which it relates.20

22.12Another argument for excluding from the Keeper's warranty such rights that enter the Register other than by registration21 is that no fee is paid. In registration a fee is paid, and an element of that fee goes towards meeting the Keeper's liabilities. This element in the fee has often been compared to an insurance premium, and the analogy, though not perfect, is a good one. Those who do not pay cannot expect cover.

22.13As will be seen in Part 33, the new scheme authorises the Keeper to register unregistered land without any application to that effect. The owner takes the benefit of a registered title without having to pay. By the same token the title is not a warranted one. This is no prejudice to the owner, whose title was not warranted in the first place, having been a Sasine title.22

22.14We recommend:

151979 Act, s 12(3)(h).

16See further Part 7.

171979 Act, ss 5(1)(a)(i) and 6.

18Heritable securities are usually discharged on sale, the seller using the sale price to pay off the secured loan. The discharge of any securities that there may be is an implied term of contract for the sale of heritable property. But a transferee may be prepared to accept a title with an undischarged security over it and this occasionally happens. As a matter of property law, the existence of a security does not prevent the transfer.

19There may be no loss. Here standard securities differ from other registered rights. A standard security secures an obligation, and if that obligation is performed, as it usually is, any invalidity in the security right matters not.

20The Registration of Title Practice Book, para 5.29 says that a Sasine-recorded standard security can be registered in the Land Register once the property itself has been registered in that Register. It seems to us that this may be open to question. There is no transaction to be registered because the security has already been created. And the security already appears on the C Section. But the point does not need to be pursued.

21Using that term in its narrow sense.

22Or in very unusual cases, a title that was not even in the Register of Sasines.

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83.The Keeper's warranty should only be in respect of rights entering the Register by registration.

(Draft Bill, s 39(1)(a))

Warranty in whose favour?

22.15Section 12(1) of the 1979 Act is open-ended as to the person or persons to be indemnified. In the new scheme the idea is of a warranty to the applicant. That idea is straightforward, but as with all rights there is the question of whether there can be derivative claims. To take a simple example, the applicant after registration might die. Is the warranty enforceable by the executor? Or by the intestate applicant's relict to whom the property has passed by the law of intestate succession? What if the registered applicant is sequestrated? What if the registered applicant sells? This issue was not ventilated in the discussion papers, but we have come to the conclusion that the rule should simply be that the benefit of the Keeper's warranty should enure to anyone to whom the benefit of warrandice would enure – that is to say, warrandice in the deed in favour of the registered applicant.

22.16We recommend:

84.The warranty should be in favour of the applicant only, though it should also pass to anyone to whom the benefit of deed warrandice would pass.

(Draft Bill, s 39(1), (2) and (9))

Title warranted as at which date?

22.17Above we observed that a criticism of the current law is that the section 12 guarantee is undefined as to its extent in time. The better approach is that the title should be warranted by the Keeper to be correct as at the date of registration. In DP 128 we called this the "only for today" approach.23 The label is useful, but it is perhaps open to misunderstanding. What is "only for today" is not the warranty but what is warranted: the state of the Register. The warranty has no limit in time; it could be invoked after, say, thirty years.24 What would be warranted would be the correctness of the Register as at the day of registration.

22.18Thus there would be no guarantee that the title might not be affected by later events. If Jack were to be registered as owner of Blackmains together with the benefit of a servitude of way over neighbouring Whitemains, the servitude would be warranted. Now suppose that for the next 20 years Jack did not make use of the servitude. The result would be that at the end of that period the servitude would be extinguished by prescriptive disuse.25 At that point the Register would become inaccurate, for the Register would say that the servitude existed but that would no longer be true. Why should the Keeper compensate Jack? What the Keeper warranted was that the Register, in showing the servitude, was accurate at the date of registration. The subsequent off-register event (prescriptive disuse) should not be within the scope of the warranty. In this respect the Keeper's warranty, as we envisage it, would

23DP 128, para 7.38.

24Particular claims arising out of breach of the warranty are subject to negative prescription: see draft Bill, s 97, sch 8, para 21(10).

25Prescription and Limitation (Scotland) Act 1973, s 8.

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