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

investigate the title behind the curtain, it would not disclose off-register events anyway, so there is no disturbance to the curtain principle.

23.29As for (i) the following four points can be made. In the first place, whilst the grantee of

an invalid deed will generally prefer to receive the property itself rather than compensation,23 the grantee does still have the protection of the Keeper's warranty. In the second place, in

short leases (leases of 20 years or under) a prospective lessee would not obtain the protection of the realignment principle under any scheme, and so for most new leases the curtain principle cannot operate in any event, most new leases being short leases. The conveyancer who acts for a prospective new lessee will in most cases have to go behind the curtain anyway if the client wants to make absolutely sure of getting the property. So a decision that realignment of rights should not apply to grants of new leases would not in fact have a large impact on conveyancing practice. In the third place, to extend the realignment principle to case (i) would give rise to difficult technical problems. A contract of lease would come into being. Who is the contractual counterparty? Is it Adam? If so, Adam would be

entitled to the rents and Zak, the owner, would not. And Adam would be bound to perform the landlord's obligations even though he would be unable to do so. Or is it Zak who is the

contractual counterparty? In that case a contract has been imposed on him nonconsensually - a bold step to take in a statute about land registration. And would that mean that Adam would not be bound by the contract he had signed? That would be unsatisfactory. In theory a scheme could be developed to cope with such problems, but at the cost of considerable complexity in exchange for a very doubtful benefit. In the fourth place, to apply the realignment principle to case (i) would raise difficult issues in relation to interposed leases.

23.30Bearing in mind that cases (i) and (ii) will still have the benefit of the Keeper's warranty, we recommend that:

109.(a) Realignment of rights should happen in the case of an invalid assignation of an existing lease.

(b)But it should not happen in the case of an assignation of a non­ existent lease.

(c)Nor should it happen in the case of an invalid grant of a new

lease.

(Draft Bill, s 48)

23.31 Apart from that, the assignation of a lease should, in relation to the realignment principle, be treated in the same way as a disposition.24

23This argument is most acute in respect of residential property which is to be the grantee's home. Such property can no longer be the subject of a new long lease. Grantees of future void commercial leases may be more content with monetary compensation.

24Draft Bill, s 48 and s 49.

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SERVITUDES

23.32 Above we considered the extinction of a servitude by reason of its omission from the servient title sheet. In this section we consider the validation of servitudes. In DP 130 we proposed:25

"11. (1) The integrity principle26 should apply in relation to –

(a)the creation of servitudes by registration, and

(b)the transmission, as pertinents, of servitudes entered in the title sheet of a benefited property (other than servitudes noted as unregistered real rights).

(2)But neither the integrity principle nor the Keeper's warranty as to title should apply where –

(a)the right is not capable of being a servitude; or

(b)the servitude has been extinguished."

23.33Those who responded agreed. Our thinking has subsequently changed in relation to proposal 11(1)(b). Suppose that Edwin owns Greymains. The title sheet states, incorrectly,

that the property benefits from a servitude over neighbouring Redmains, owned by Rufus. Edwin now sells Greymains to Fiona. In DP 130 we said that "[a] person buying the benefited property does so in reliance on the servitudes set out in the title sheet."27 But in

fact this cannot be true in an unqualified way. For the second part of the proposal itself recognises that if a servitude has been extinguished off-register, typically by negative prescription, it should not be revived by the transfer of the property that was formerly the benefited (dominant) property. Hence a buyer such as Fiona knows that servitudes that appear in the A Section (Property Section) as pertinents benefiting the property may in fact not exist. That fact seems to us now to remove the rationale for applying the integrity principle (realignment of rights) to cases where an ostensibly dominant property, such as Greymains, is disponed. Moreover, the rule that we originally proposed would have resulted in the non-consensual imposition of a servitude over Redmains, and it is not apparent that the benefit to Fiona ought to outweigh the detriment to Rufus.

23.34It is worth mentioning that a similar issue is subject to conflicting authority in current

law.28 (It cannot be regarded as precisely the same issue because under current law the issue turns on the concept of "proprietor in possession" and moreover is potentially

applicable both to transactional error and to Register error.)

23.35The requirements of good faith and possession would apply. But we see no reason why there should be a requirement for the dominant (benefited) owner to be in possession of

25DP 130, para 4.26.

26That is to say, deferred indefeasibility – the realignment of rights.

27DP 130, para 4.18.

28See Yaxley v Glen 2007 SLT 756 and cases cited therein. For discussion of Yaxley, see Kenneth G C Reid and George L Gretton, Conveyancing 2007 (2008), pp 121 ff.

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the servitude. The only requirement would be that the servient owner should be in possession of the servient (burdened) property.29

23.36Accordingly we now recommend:

110.(a) Realignment of rights should happen where a person registered as owner, but who is not the owner, grants a new servitude.

(b)But it should not apply where an invalid servitude is an ostensible pertinent of property that is disponed. (Regardless of whether the invalidity is original or supervening.)

(Draft Bill, s 50)

COMPENSATION

The right to compensation for those who suffer from realignment

23.37 The 1979 Act provides for the Keeper to pay compensation to those who suffer if an inaccuracy in the Register is not rectified.30 In DP 125 we proposed that the substance of this rule should continue to be the case, and those who responded agreed.31 Such a rule is not a necessary part of a title registration system: most European title registration systems impose on the registration department an obligation of compensation only where the loss has been caused by the department's fault. By contrast, under the 1979 Act the Keeper's liability is strict - albeit subject to certain defences. Support for the existing rule is strong and it is clear that it should be retained.

When the right emerges

23.38 Under the current law, the right to compensation is triggered when the Keeper declines to rectify an inaccuracy.32 The possibility of an unrectifiable inaccuracy will disappear in the new scheme. Instead, compensation becomes payable when rights are realigned to the prejudice of the person to be compensated.33

Quantum and defences

23.39The subject of quantum of compensation, and defences available to the Keeper, is discussed in Part 22 in relation to claims against the Keeper for breach of the warranty of title. We take the substantially same approach to compensation for those who suffer from realignment. Re-imbursement of expenses is discussed in Part 27 and what we say there is also applicable in this context.

23.40Nothing further needs to be said, though one example may be helpful to illustrate a particular type of case. Susie holds a servitude over Blackmains. The owner, Oliver, forges a

29DP 130, para 4.21.

301979 Act, s 12(1)(b).

31DP 125, para 4.52 (proposal 7). We say "the substance" because in the new scheme the conceptual approach is different.

321979 Act, s 12(1)(b). Since such a refusal can later be overridden by the court or Lands Tribunal the odd consequence seems to be that compensation must be paid before it can be known whether it is payable.

33Draft Bill, s 51.

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discharge and has it registered. Later Oliver sells to Petra, who buys in good faith. As a result the servitude is extinguished. Susie can claim against the Keeper without first claiming against Oliver. However, suppose that Susie had been aware of the forgery but had done nothing, and the sale to Petra took place a year after she learnt of the forgery. There might be good reasons for such inaction – perhaps Susie was seriously ill during this period – but in the absence of such an explanation the fact of her inaction would found a defence for the Keeper. (Such a defence would not, of course, prevent Susie from claiming against Oliver.)

23.41 This approach is substantially in accordance with the current law and it generally met with the approval of those who responded to DP 128. Accordingly we recommend:

111.(a) The Keeper should compensate those who suffer from the realignment of rights. The claimant should not be obliged to exhaust remedies against other parties.

(b)But the Keeper should not be liable to the extent:

•That the loss is too remote;

•That the loss is non-patrimonial;

•That the claimant has not taken reasonable steps in mitigation.

(Draft Bill, s 51 and s 52)

Heritable security

23.42 If a heritable security is extinguished, the heritable creditor is entitled to compensation from the Keeper for any loss suffered as a result of the non-consensual extinction of the security right. But this may be zero, because the extinction of the security does not affect the debt, and in most cases the creditor will still recover the debt from the debtor.

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Part 24 The guarantee of title: (F) Keeper's rights of recovery

24.

Introduction

24.1 If the Keeper has to pay compensation, should that sum be recoverable from someone else? Or should the loss lie with the Keeper? That question has both a theoretical and a practical side. Even if as a matter of theory the Keeper has the right to recover, that right may in practice be worthless, for example where the person in question is a nowvanished fraudster whose true identity is unknown, or where a person can be identified but is unable to meet any decree for payment. The practical problems of recovering debt are universal. In this part we look only at whether as a matter of law the Keeper is entitled to recover.

The current law

24.2 If an insurance company pays up on a policy to cover loss culpably caused by a third party, it normally has the right to recover from that third party. For example if a motorist has comprehensive insurance, and the vehicle is damaged by a third party's negligence, and the insurer pays the insured motorist for the repair of the vehicle, the insurer succeeds to the insured motorist's reparation rights against the wrongdoer. The Keeper's role in land registration is comparable to that of an insurer, and the 1979 Act adopts a similar approach. Section 13 provides:

"(2) On settlement of any claim to indemnity under … section 12, the Keeper shall be subrogated to all rights which would have been available to the claimant to recover the loss indemnified.

(3) The Keeper may require a claimant, as a condition of payment of his claim, to grant, at the Keeper's expense, a formal assignation to the Keeper of the rights mentioned in subsection (2) above."

24.3It may be that section 13(2) is using the term "subrogation" in the same sense as in insurance law. In insurance law there is a kind of deemed assignation by the insured to the insurer of the insured's claim against the third party. But, unlike an actual assignation, intimation is not necessary, and unlike an actual assignation the subrogee (the insurance company) sues the wrongdoer in the name of the insured. Subsection (3) adds an obligation to assign.

24.4As well as section 13, under the general law of delictual liability there is probably also a duty of care owed to the Keeper by at least some parties, in at least some situations.1

1 See Part 12.

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Two examples under current law

24.5(i) Adam impersonates the owner of property, Boris, and borrows money from C Bank, the money being advanced against a security that Adam grants over the property, forging Boris's signature. C Bank is unaware of the fraud. Later the facts come to light. The Register is rectified by the deletion of the security from the title sheet.2 The Keeper pays compensation to C Bank. Does the Keeper have a right to recover from Adam? Had the Keeper not compensated C Bank, the latter would have had a claim against Adam. So the Keeper can claim against Adam by virtue of section 13(2). The Keeper probably also has a direct delictual claim against Adam.

24.6If the law firm that acted for Adam was negligent in failing to check his identity, the same arguments apply. If Bank C would have had a delictual claim against the law firm, the Keeper will be subrogated to the claim. And the Keeper may well have a direct claim as well.

24.7(ii) Ada impersonates Brenda and sells her land to Cedric, who is duly registered. When the problem comes to light the Register cannot be rectified because Cedric is in possession. The Keeper compensates Brenda. Does the Keeper have a right to recover from Ada? That depends on whether Brenda had a claim against Ada. Had the Keeper not compensated Brenda, the latter would have had a claim against Ada. So the Keeper can claim against Ada by virtue of section 13(2). The Keeper may also have a direct delictual claim against Ada.

24.8If the law firm that acted for Ada was negligent in failing to check her identity, the same arguments apply. If Brenda would have had a delictual claim against the law firm, the Keeper will be subrogated to the claim. And the Keeper may well have a direct claim as well.

Evaluation: the two bases of claim

24.9Under current law the Keeper has a derivative claim (via section 13(2)) and may have a direct claim as well. Our recommendation in Part 12 would mean that the uncertainty about the direct claim would be removed, but apart from that clarification the law would remain essentially the same.

24.10The two types of claim – direct and indirect – duplicate each other to a high degree, and it might be that either could be abandoned without adverse consequences. But we are not certain that this would be so. We think it possible that there could be cases in which the Keeper could recover by means of the direct claim but not the indirect, or the other way round. Hence we think that the two types of claim should be retained. The fact that there are two types of claim does not mean that there could be double recovery; as a comparison, in general law a person may have claims founded in contract and in delict in respect of a single loss, and in such cases there is no double recovery.

24.11We recommend:

2 Both under current law and under the new scheme the Register is rectifiable in this type of case.

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112.The Keeper's right, on paying compensation, to pursue a derivative claim to recover what has been paid out, should continue, without prejudice to the right to pursue a direct claim based on the duty of care.

(Draft Bill, s 42(3), s 51(3) and s 55(3))

Might the wrong person end up suffering the loss?

24.12One issue that at one stage concerned us is the following. When the Keeper is subrogated, the claim in question may be a warrandice claim. Liability in warrandice is not fault-based. The Keeper thereby acquires a claim against a third party that is enforceable without regard to whether the latter was in any way at fault. Yet that party will often be someone who was previously protected by the Keeper's indemnity (or, in the new scheme, by warranty). Suppose that Bank X lends Jack money, secured by a standard security over property owned by Jack and Jill. Jack signs his name on the standard security and forges Jill's name. The security is registered and later Bank X assigns the loan and the security for the loan to Bank Y. The assignation contains a clause of warrandice.3 Bank Y is registered as the new holder of the security. The truth now comes to light. The Register is rectified. (On these facts it is rectifiable both under current law and under the new scheme.) Jack is now bankrupt and cannot repay the debt. Bank Y claims against the Keeper. The Keeper pays and as a result is subrogated to Bank Y's warrandice claim against Bank X. Yet if Bank X must pay the Keeper that seems wrong. After all, Bank X, while it held the security, was fully protected by the guarantee of title. Had the truth come to light while Bank X still held the security, it would have been compensated by the Keeper. The guarantee of title is supposed to protect users of the system. But if the Keeper's powers of recovery are too strong, the protection is in danger of eating itself up.

24.13In the case just given, suppose that Bank Y, instead of claiming from the Keeper, had claimed from Bank X under the latter's warrandice. Here again it seems that the loss might fall on Bank X. Yet the logic of the title guarantee is that the loss should fall on the Keeper. (Assuming that Jack cannot be made to pay.)

24.14Under current law, the problem can probably be solved under section 12(1)(a) which provides that "a person who suffers loss as a result of a rectification of the register" can recover from the Keeper. If the Keeper, having compensated Bank Y, were to claim against Bank X (via a section 13(2) derivative claim) then Bank X could presumably argue that such a claim would be a "loss as a result of a rectification of the register" with the consequence that the Keeper's claim against Bank X would be self-defeating. Likewise, if Bank Y, instead of claiming against the Keeper, claims against Bank X, it seems likely that Bank X could in turn claim against the Keeper under section 12(1)(a).

24.15In the new scheme the same logic would apply. The fact that Bank X has transferred the security to Bank Y does not alter the fact that the Keeper warranted to Bank X that the security was good. Thus if Bank Y were, instead of claiming from the Keeper, to claim against Bank X, the latter would be entitled, under the warranty provisions, to recover from

3 Curiously, the statutory style does not contain such a clause: see Conveyancing and Feudal Reform (Scotland) Act 1970, Sch 4. But such a clause might well be used in practice, and even if it were not it is likely that the contract that is implemented by the assignation would guarantee the validity of the security to be assigned.

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the Keeper.4 Our conclusion is that when fully analysed the position is satisfactory and that accordingly it would be pointless for the draft Bill to contain any special provisions dealing with the issue.

Evaluation: the mechanics of the derivative claim

24.16 As has been seen, section 13(2) has both (a) a provision for what it calls "subrogation" and also (b) a provision for what it calls "formal assignation". As was mentioned above, what precisely is meant by "subrogation" in section 13(2) is perhaps not certain. If the word is used in the same sense as in insurance law, the result is rather complex. It would mean that the subrogated claim is transferred to the Keeper for some purposes but not for others. A cleaner solution would be to say that the claim is assigned to the Keeper by force of law and that no intimation is needed to complete the title to the claim. But that solution, though technically cleaner, runs into the objection that it is not clear why the Keeper should have a privilege that other assignees do not have, namely the privilege of not having to intimate. It is of course arguable that Scots law should adopt the approach taken in a number of other legal systems of abolishing altogether the requirement that assignations need to be intimated as a matter of completing title.5 That is an issue we are considering in our project on the assignation of, and security over, incorporeal moveable property. We express here no view on how, if at all, our law should be reformed in that respect. What we do think is that so long as Scots law does require intimation, a case has to be made out for special exemptions, and we are not aware of any reason for exempting the Keeper from the requirements of the general law. In short, we do not like the approach of section 13(2) for three reasons: it is uncertain whether "subrogation" is to be taken in the sense of insurance law; that if it is to be so taken it generates technical complications that we think undesirable; and lastly, that we see no reason to exempt the Keeper from the general law. Hence we think that the approach of section 13(3) of the 1979 Act is preferable to that of section 13(2). The draft Bill accordingly has a provision broadly based on section 13(3) of the 1979 Act.6 We recommend:

113.The Keeper's derivative claim should take the form of a right to an assignation.

(Draft Bill, s 42(3), s 51(3) and s 55(3))

4 Assuming of course that the general requirements of a warranty claim were satisfied.

5 In such systems intimation is still a sensible precaution, because a debtor who pays the original creditor in ignorance of the assignation is discharged. But in Scots law intimation is not merely a precaution, but a requirement: just as title to land does not pass without registration of the disposition, so title to a claim does not pass without intimation of the assignation.

6 One difference is that the word "formal" does not appear. We are unclear what is meant by that word in this context. An assignation is an assignation.

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Part 25 The guarantee of title: (G) some worked examples

25.

25.1In this part of the Report we give some worked examples of the guarantee of title, in each case showing how a given set of circumstances would be dealt with under current law and how it would be dealt with under the new scheme. The reasons for the various outcomes are given in the preceding parts of the Report.

25.2Of necessity, these are mere thumbnails, lacking nuances and qualifications. For example, when it is said that "compensation is payable to XYZ" that has to be taken subject to the proviso that exists (albeit in different forms) in both the current law and in the new scheme that a person who fails to act to prevent or minimise loss may partially or wholly forfeit the right to compensation.

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