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

impersonates owner Oliver and sells to buyer Brenda, and the Register is subsequently rectified by removing Brenda's name and reinstating that of Oliver, Brenda can claim immediately from the Keeper. (Who, having paid Brenda, has the right to recover from Fred.72) She does not have to show that she has already tried without success to recover from Fred. In DP 128 we proposed that this should remain the position and most respondents agreed.73 We recommend:

97.There should continue to be no requirement that a person exhausts other remedies before making a claim to the Keeper for indemnity.

(Draft Bill, s 42(2))

Non-patrimonial loss

22.58 The Keeper's practice is to refuse claims for non-patrimonial (non-pecuniary) loss, such as emotional distress, though occasionally an ex gratia payment is made. Whether this is a correct interpretation of the current law is unclear. Some guidance may perhaps be obtained from Palmer v Beck,74 a case on warrandice. There the buyer's claim in respect of a defective title included, not only patrimonial losses, but also £10,000 of solatium. As a result of the defect the buyer had moved out of the house and was said to have suffered considerable anxiety and stress over a long period of time and to have required medical treatment. Her claim was rejected. According to the Lord Ordinary (Kirkwood):75

"[A]s the pursuer's claim would be for indemnification, she is not entitled to an award of damages for solatium for the anxiety and distress which she allegedly suffered as a result of the breach of warrandice. While Lord Morison appeared to express the view in Watson76 that a claim for damages for breach of warrandice could include a claim for solatium, I was not referred to any case in which an award of solatium had been made to a pursuer in an action for breach of warrandice. In my opinion, a breach of warrandice only entitles the pursuer to be indemnified in respect of the financial loss which has been sustained in consequence of the breach."

22.59 We think that this approach should apply equally to warranty (indemnity). Warranty, like warrandice, does not depend on fault, and in the absence of fault it seems reasonable to restrict the Keeper's liability to losses of a patrimonial nature. This is what we proposed and respondents agreed.77 We recommend:

98.The Keeper's warranty should not extend to non-patrimonial (non­ pecuniary) loss.

(Draft Bill, s 40(f))

Failure to mitigate

22.60 It is a general principle of the law of damages that a claimant cannot claim for losses that were reasonably avoidable. That is to say, a failure to "mitigate", to use the technical

72See Part 24.

73DP 128, para 8.25.

741993 SLT 485.

751993 SLT 485 at 492D.

76Watson v Swift & Co's Judicial Factor 1986 SC 55.

77DP 128, para 9.38 (proposal 40).

245

term, is something that the claimant must accept responsibility for: the person liable cannot be expected to foot the bill for reasonably avoidable losses. The 1979 Act does not spell this out in relation to claims against the Keeper, though probably it is implied. In DP 128 we proposed that this should be the rule and respondents agreed. We think it would be desirable for it to be set forth expressly in the legislation. We recommend:

99.The Keeper should not be liable for reasonably avoidable losses.

(Draft Bill, s 40(d))

Remoteness

22.61 A loss cannot be recovered if it is too remote. Arguably this is implicit in section 12. Ruoff and Roper78 comment on the parallel provision in England and Wales that:

"The Act does not specifically provide any rules of remoteness which govern the outer limits of the registrar's responsibility for the losses resulting from the initial mistake or failure. It would seem appropriate, however, that the registrar should only be liable to indemnify the claimant for those kinds of loss which were reasonably foreseeable as following from the initial mistake or failure. This should be the case even though the ground of indemnity need not depend on proof that the registrar has been negligent."

22.62 The effect of the Scottish provision is, we think, the same. As Ruoff and Roper imply, the obvious parallel is with remoteness of damage in the law of reparation, remoteness being determined by a test of reasonable foreseeability. If that is a correct analysis of the current provision, we would not propose any change; but in DP 128 we suggested that there would be value in giving expression to the rule in the legislation.79 We recommend:

100.The Keeper should not be liable for unduly remote losses.

(Draft Bill, s 40(e))

Inaccuracy caused by breach of duty of care

22.63 In the new scheme when there is an application for registration the applicant and the applicant's solicitor would owe a duty of care to the Keeper.80 The duty would be to take reasonable care not to cause the Keeper to make the Register inaccurate. Were there to be a failure in that duty of care and as a result the Register became inaccurate, the applicant should not be allowed to lay the resulting loss at the Keeper's door. We recommend:

101.The Keeper should not be liable to the extent that the loss is attributable to a breach of the duty of care.

(Draft Bill, s 40(c))

78R B Roper, C West, M Dixon, D Fox, S R Coveney, S Wheeler and P Milne, Ruoff & Roper on the Law and Practice of Registered Conveyancing (looseleaf), para 47.018.

79DP 128, para 9.31.

80See Part 12.

246

Bad faith

22.64 Bad faith should exclude a claim. In most cases such a rule merely duplicates the rule just mentioned. But there could be cases without such duplication. For example, suppose that the Register is inaccurate in including a boundary area, which in truth belongs to the neighbour. The property is sold. The buyer knows that the boundary area should not have been included in the title sheet. Later the Register is rectified, by the transfer of the boundary area from the title sheet in question into the neighbour's title sheet. Can the buyer claim compensation? In such a case the buyer has not been in breach of the duty of care, which is a duty to take reasonable care to prevent the Keeper making the Register inaccurate. In this case the Register was already inaccurate. Under current law the buyer does have a claim against the Keeper.81 In the discussion papers we criticised that result and proposed that there should be a good faith test. Respondents agreed. Accordingly we recommend:

102.The Keeper should not be liable for an inaccuracy in the Register immediately before the registration, if it was, or ought to have been, known to the applicant.

(Draft Bill, s 40(b))

Inaccuracy due to fault in base map

22.65Section 12(3)(d) of the 1979 Act says that the Keeper is not liable if:

"the loss arises as a result of any inaccuracy in the delineation of any boundaries shown in a title sheet, being an inaccuracy which could not have been rectified by reference to the Ordnance Map, unless the Keeper has expressly assumed responsibility for the accuracy of that delineation."

This sensible rule is retained in the draft Bill, albeit expressed rather differently.82

103.The Keeper should not be liable for an inaccuracy consequent upon an inexactitude in the Cadastral Map if that error was made in reasonable reliance upon the base map.

(Draft Bill, s 40(a))

81Dougbar Properties Ltd v Keeper of the Registers of Scotland 1999 SC 513.

82Draft Bill, s 40(a).

247

Part 23 The guarantee of title:

(E) indefeasibility (realignment of rights)

23.

INTRODUCTION

Background

23.1 In Part 21 we make recommendations as to when the title guarantee should take the form of "mud" and when it should take the form of monetary compensation. In the present part we consider the details of the first of these cases. In other words, this part considers the realignment of rights so as to conform with what the Register says they are.

Indefeasibility deferred, not immediate

23.2 Under current law, a title may be indefeasible both in the case of transactional error and in the case of Register error. As explained in the previous part, in the new scheme the title guarantee in relation to transactional error would take the form of money, not mud. So if Alastair is the owner, and there is a void disposition to Penelope, her title is void, and so she has in principle a right to be compensated on the basis of the Keeper's warranty. In other words, in the new scheme immediate indefeasibility would disappear. The system we recommend would be one of deferred indefeasibility, subject to certain exceptions, coupled with a compensation scheme.

The issues: an overview

23.3 The main case to consider is the disposition, ie the transfer of the right of ownership of land or buildings. Deferred indefeasibility has two aspects. One is the validation of a defective title. The other is the extinction of omitted encumbrances. We consider dispositions first, and later consider other cases where the doctrine of deferred indefeasibility should operate.

DISPOSITIONS: (1) VALIDATION OF A DEFECTIVE TITLE

The granter

23.4 The first condition for the realignment of rights1 is that the granter of the disposition in question is not the owner but is registered as owner. We think that deferred indefeasibility should also be capable of operating where the disposition is signed by someone who has power to act for the person registered as owner. For example, suppose that Lorna is registered as owner, but is not owner. She appoints Menelaus as her mandatory and he signs a disposition for her. Such a case should be covered just as much as the case where the deed is signed by Lorna herself. Again, suppose that she grants a standard security to a

1 Or, in the language of the discussion papers, the "integrity principle".

248

bank, and defaults, and the bank sells. We think that a disposition granted by the bank should be covered just as much as if the disposition had been granted by Lorna herself. Other examples would be where she dies and the disposition is by her executor, or she is sequestrated and the disposition is by her trustee in sequestration. So our first recommendation is that:

104.The realignment principle should be capable of applying not only to dispositions granted by the person registered as owner but also by persons who, had that person been the true owner, would have had power to dispone.

(Draft Bill, s 45(1))

Disposition to be valid in other respects

23.5 To be eligible for the operation of the realignment principle, the disposition in question should be valid in other respects, ie in respects other than the defect in the granter's title. In other words, the disposition should be such that, were it not for that defect, the disponee would acquire a good title. The draft Bill so provides.2

Possession

23.6 As we said in an earlier part of the Report,3 we consider that possession should be a necessary element. The granter or grantee, or both together, should have possession for at least one year. That ensures that the true owner has enough time to act. Here are two examples. (i) Philip is owner. There is an invalid disposition to Quintus, duly registered. Quintus possesses for two years and then dispones to Rosamund. She is in good faith and is registered. On the day of her registration, ownership passes to her from Philip. (ii) Peter is owner. There is an invalid disposition to Quentin, duly registered. Quentin possesses for nine months and then dispones to Ruth who is in good faith and is registered. She takes possession. Three months after Ruth's registration, ownership passes to her from Peter.4 We recommend:

105.(a) The realignment principle should require possession for a year.

(b)Straddling possession should be recognised for this purpose.

(Draft Bill, s 45(4))

23.7 As for the nature of the possession, the draft Bill has two relevant provisions. The first is that the possession must be had "openly, peaceably and without judicial interruption".5 That ties in with the concept of possession in the prescription legislation.6 The second is that possession is defined as including civil possession; here again there is a tie-in with the concept of possession in the prescription legislation.7

2 Draft Bill, s 45(3)(b).

3 Part 21.

4 This may be described as a case of straddling possession. 5 Draft Bill, s 45(4).

6 Prescription and Limitation (Scotland) Act 1973, s 1.

7 Draft Bill, s 92(1); Prescription and Limitation (Scotland) Act 1973, s 1.

249

"Fraud or carelessness" or bad faith?

23.8 Another condition should be, in broad terms, that the disponee should not have been aware of the title problem. The aim is to protect the innocent, but only the innocent. Under current law, the test is "fraud or carelessness". Experience has exposed the shortcomings of this test. There is uncertainty as to the meaning of "carelessness" which, as the Law Commission in England and Wales once noted, is not "a technical expression familiar to conveyancers."8 More importantly, the test is an unexplained and unexpected departure from the common law, under which the protection of acquirers turns on questions of good faith. In 1987 the Law Commission in England went so far as to recommend that the general law be reinstated:9

"We consider that it would make for greater consistency with the general… principles of property law and conveyancing if the apparent protection against rectification conferred by section 82(3) were to be redrafted so as to benefit registered proprietors who were prudent purchasers for value in good faith …"

23.9But in England and Wales, as in jurisdictions which operate the Torrens system, a good faith test would reawaken the doctrine of notice and so risk subjecting acquirers to those equitable proprietary interests that it was one of the objects of registration of title to defeat. In its most recent review, therefore, the Law Commission recommended the retention of the criterion of fraud and carelessness, and the Land Registration Act 2002 so provides.10 In Scotland the position is different. On the one hand, good faith is the traditional and wellunderstood test; and on the other hand, equitable proprietary interests are unknown. Here, as in some other places in the 1979 Act, the departure from the ordinary law seems more a result of accident than of any special requirement of registration of title.

23.10The choice would not matter if each test were in substance the same. And certainly there is much common ground between the act or omission required for fraud or carelessness and the knowledge which is the basis of bad faith. Thus a title defect caused by a fraudulent or careless act of the acquirer must be known to – that is, be within the actual knowledge of – the acquirer who perpetrated the act. Similarly, a title defect caused

by careless omission – typically an omission to attend to normal conveyancing procedures – is likely to be within at least the acquirer's constructive knowledge. The position, however, is

different in respect of defects caused by the act or omission of a third party. Here the

acquirer might, or might not, know of the defect, but in any event it did not arise as a result of the acquirer's fraud or carelessness.

23.11The leading illustration is Dougbar Properties Ltd v Keeper of the Registers of Scotland.11 By mistake a right was included as a pertinent in the title sheet. Thereafter the pursuers bought the property, in the full knowledge of the mistake. As it happened the buyer did not have possession so the Keeper could and did rectify the Register by deleting the right from the title sheet. The pursuer claimed indemnity. The court held that indemnity was payable.12 Mere knowledge, it was said, was not carelessness; and the knowledge in this

8 Law Commission, Property Law: Third Report on Land Registration (Law Com No 158, 1987), para 3.14. 9 Law Commission, Property Law: Third Report on Land Registration (Law Com No 158, 1987), para 3.15.

10Land Registration Act 2002, Sch 4, paras 3(2)(a) and 6(2)(a), and Sch 8, para 5.

111999 SC 513.

12The report deals only with the principle, not with the amount. The claim against the Keeper was for £1.39 million.

250

case was not accompanied by an act or omission which could itself be characterised as careless. In the absence of carelessness (or fraud), therefore, the Keeper was bound to indemnify the pursuer for its loss. As a matter of policy, the result seems unsatisfactory. The pursuer was not misled by the Register. It had read the entry and it knew it to be wrong. Nonetheless it was held entitled to compensation for the loss of a right to which, as it knew, there was no true entitlement. A simple good faith test would have avoided the difficulty. It is instructive to compare Dougbar with a German case decided a few years earlier.13 A restrictive title condition which had been registered previously was, by human error, deleted from the title sheet. A subsequent acquirer knew of the title condition, and that it had been omitted from the title sheet by mistake. Under German law the land register is deemed conclusively correct in favour of an acquirer in good faith.14 It was held that an acquirer who knows that the register is wrong is not in good faith, and hence the statutory guarantee of title did not apply.

23.12Dougbar was a case of "money" not "mud". But had the pursuer been in possession, it would have kept the mud, because the "fraud or carelessness" test applies across the

board. We cite it here because of what would have been held if the case had been a mud case. The question of compensation for breach of the Keeper's warranty is discussed in Part

22 of this Report.

23.13It may be added that the "fraud or carelessness test" is rather messier than a good faith test. First, the legislation must select the event to which the fraud or carelessness is supposed to lead, and second, there is a requirement of a causative link. Both points can cause difficulties. The events selected by the 1979 Act are the inaccuracy on the Register, in the case of rectification, and the loss itself, in the case of indemnity. Almost certainly the fit is not perfect, because a loss may be attributable to factors other than those which cause the inaccuracy on the Register. More serious is the problem of causation. Even where the fraud or careless act or omission was by the acquirer, as opposed to a third party, it may be open to question whether the act or omission caused the inaccuracy or, as the case may be, the loss. Take, for example, the case of a defective conveyance leading to an inaccurate entry on the Register. Even if the acquirer, through carelessness, caused the defect in the conveyance, that does not necessarily mean that the carelessness caused the inaccuracy in

the Register. The Keeper has the opportunity to examine deeds, and the decision to register is the Keeper's. Arguably the resulting inaccuracy could be regarded as caused by the

Keeper and not the acquirer. This line of reasoning was advanced in McCoach v Keeper of the Registers of Scotland.15 It failed, but only on the specific facts of the case.

23.14We recommend:

106.Good faith should be a precondition for the operation of the realignment principle.

13(1993) MittRhNotK 159, a decision of the Oberlandesgericht at Hamm.

14German Civil Code (BGB) § 892.

1519 December 2008, Lands Tribunal, discussed in Kenneth G C Reid and George L Gretton, Conveyancing 2008 (2009), pp 121-133.

251

Timing

23.15 Good faith should exist at the time of application.16 However, because we now think that the acquirer's possession should be capable of being aggregated with that of the granter, modification is needed. For example, suppose that Charles is the registered owner, but his title is in fact invalid. After being in possession for seven months he dispones to Doris. She then possesses. She possesses for five months and at the expiry of those five months ownership passes to her. In theory the rule here could be that her good faith is to be determined as at the time of application. But that would lead to the odd result that if four months after registration she discovers that Charles' title was invalid, she still acquires ownership provided that she can, cutlass in hand, repel all boarders for another month. It seems to us that where the period of one year's possession has not yet been completed by the time of her registration, the relevant date for good faith is the date when the period is completed. So in the example just given, she would not acquire ownership at all. But had she learnt of the problem with Charles' title six months after her registration, that knowledge would then be irrelevant, because her title would already have been perfected (a month before the acquisition of the information). Accordingly we recommend:

107.The date for determining good faith should be the date of application for registration or, if later, the date on which the period of one year's

possession is completed.

(Draft Bill, s 45(3)(a) and (4))

Caveats and exclusions of warranty

23.16If there is a relevant caveat, that should exclude the possibility of deferred indefeasibility. For example, two months before Charles sells to Doris, the guardian of the previous registered owner, Beata, raises an action to reduce the Beata/Charles disposition as having been granted by an incapax. On the dependence of this action a caveat is registered. A caveat does not block the registration of a deed, but it does block the operation of deferred indefeasibility. The caveat means that Doris takes such title as Charles had, but not a better title. This effect on Doris is, no doubt, covered by the rule that she must be in good faith, but the draft Bill nevertheless has a specific provision about caveats.17

23.17Likewise the operation of the realignment principle should be excluded to the extent that the title is subject to an exclusion of warranty. The point is too clear to need justification. Indeed, arguably the general requirement of good faith would automatically mean that realignment is excluded in cases of restricted warranty.

23.18We recommend:

108.The realignment principle should be subject to any relevant caveat and any limitation of warranty.

(Draft Bill, s 45(3)(c)(i) and (d))

16Which is deemed to be the date of registration. See draft Bill, s 23(1)(a).

17Draft Bill, s 45(3)(c)(i).

252

DISPOSITIONS: (2) OMISSION OF ENCUMBRANCES

Introduction

23.19Deferred indefeasibility has two prongs, positive and negative. The positive prong is that the acquirer from someone who is registered as owner (but is not owner) should acquire ownership, provided that various conditions are satisfied. The negative prong is that someone who acquires property should take free of encumbrances that should appear on the title sheet but do not. For example, Eugene is owner. There is a standard security over the property to X Bank. Eugene forges a discharge, which is registered. He then dispones to Fraser, who pays the full market value of the property, ie without any deduction to reflect the

outstanding secured debt. Fraser is in good faith. In the period between the registration of the forged discharge and Fraser's registration as the new owner, the security is not

extinguished, notwithstanding that it has disappeared from the title sheet. At this stage there is only transactional error. But after Fraser's registration as owner, the position has changed

into one of Register error. The security is extinguished on the day that Fraser is registered as owner.

23.20The positive and negative prongs could be engaged in the same transaction. Thus in the previous example, had Eugene's title to the property been bad, Fraser would have

nevertheless acquired ownership (positive prong) unencumbered by the security right (negative prong).

Good faith and possession

23.21 Protection against omitted encumbrances presupposes good faith: here what has been said above applies equally. But there is no possession requirement. The possession requirement exists to alert the true owner. In the case of omitted encumbrances there is no true owner to be alerted.

Which encumbrances?

23.22 The encumbrances that the acquirer is protected against should be the same as those covered by the Keeper's warranty.18

Interaction with Keeper's warranty against omitted encumbrances

23.23 It might be supposed that if omitted encumbrances are extinguished on a transfer to a good faith acquirer, there could be no role for the Keeper's warranty that there are no omitted encumbrances.19 That will often be true, but not always, ie there will be cases where a grantee is protected from omitted encumbrances only by the Keeper's warranty, and not by realignment of rights. Here is one example. Charlotte owns land, over which there is a standard security in favour of X Bank. Charlotte forges a discharge and registers it. She then borrows money from Y Bank, granting a standard security. Y Bank acts in good faith. The first standard security is not extinguished, because Y Bank is not a disponee. But Y Bank still has the benefit of the Keeper's warranty against omitted encumbrances.

18See Part 22.

19For which see Part 22.

253

LEASES

23.24In DP 125, in considering invalid grants, we wrote: "Under the 1979 Act long leases are, for good reasons, treated in the same way as ownership; and, following that principle,

the question of whether the lessee retains the land or must give it up against payment of indemnity should be governed by the model discussed above."20 Further study of the issue

has revealed that the position is more complex than we had at first appreciated.

23.25In the case of the right of ownership, there is only one type of case to be considered: a deed purporting to transfer ownership, but which is in fact invalid. In the case of long leases there are three types of case:

(i)The a non domino grant of a new long lease. For example, Adam is the registered owner, but in fact he is not the owner. Zak is the owner. Adam grants a long lease to Brenda, who is in good faith. She registers.

(ii)The transfer of a long lease which exists on the face of the Register but which in fact does not exist. Example: Carla is registered as the holder of a lease. The landlord has obtained decree of irritancy, but the extract decree has not been registered,21 and Carla is still in occupation. Carla assigns to David, who is in good faith. He registers.

(iii)The transfer of a long lease, being a valid lease, but which is not vested in the granter. Example: Erasmus is the registered holder of a valid lease. In fact Fraser is the true tenant. Erasmus assigns to Grace, who is in good faith. She registers.

23.26It is the third of these that matches the ordinary case of a disposition: the transfer of an existing right. In this case we think that the same rules should apply as apply to an invalid disposition (ie a deed purporting to transfer the right of ownership).

23.27More difficult are cases (i) and (ii). It can be argued that if the realignment principle is not extended to cases (i) and (ii), then the only way that a grantee could be absolutely certain of obtaining a valid lease would be to carry out an examination of the prescriptive

progress of title, and one of the objectives of the modern system of land registration is to obviate such a need – the "curtain principle". The non-extension of the realignment principle

to cases (i) and (ii) could, it might be argued, cause concerns among conveyancers, since it could involve some degree of change of practice. Long leases are in some cases (eg a 999­ year lease) functionally similar to feu rights and so should, it could be argued, be treated in the same way. Moreover, something like the realignment principle operates under the 1979 Act, so that grantees of long leases in future would be in slightly worse a position than now.

23.28On the other hand it can be argued that the realignment principle should not apply to cases (i) and (ii). Taking (ii) first, one of the underlying policies of this project is that offregister changes in rights – in so far as such changes are allowed by law – are risks that the system cannot be expected to protect grantees against.22 Indeed, even if a grantee were to

20DP 125, para 4.54. And see also DP 128, para 5.31. The "model discussed above" was the integrity principle.

21In this example we assume that a registered lease is validly terminated for all purposes by a decree of irritancy, even if the decree is not registered. But it seems to us that in this area the law is in fact not certain: see Part 9.

22If that result is regarded as unsatisfactory, the remedy is to reduce the scope for off-register change of rights. That would be a matter for the substantive area of law in question, such as leases, servitudes etc.

254