Beyond the Torrens mirror: a framework of the in personam exception to indefeasibility.

• Jurisdiction: Australia
• Author: Wu, Tang Hang
• Date: 01 August 2008

[One of the central tenets of the Torrens system is that the registered proprietor is conferred indefeasible title. Indefeasibility of title is subject to an in personam exception. The content of the in personam exception to indefeasibility has been a source of debate in many Torrens jurisdictions. The purpose of this article is to map out a theoretical structure to analyse the ambit of the in personam exception so as to provide a principled development of the law in this area. This article will also attempt to explain how this proposed theoretical structure of the in personam exception deals with constructive trust claims, knowing receipt, undue influence, unconscionable dealing, duress and certain restitutionary claims.]

CONTENTS I Introduction II Two Views on the In Personam Exception A The Narrow and Wide View of the In Personam Exception B Reviewing the Narrow Approach to the In Personam Exception C Reviewing the Wide Approach to the In Personam Exception III A Framework of the In Personam Exception IV Constructive Trust V Knowing Receipt A The Authorities B Arguments from Principle VI Undue Influence, Unconscionable Conduct and Duress VII Restitutionary Claims Based on Mistake, Failure of Basis and Ignorance VIII Conclusion INTRODUCTION

The central feature of the Torrens system of land registration is the principle that the registered proprietor has 'indefeasible title'. (1) Every land lawyer knows that 'indefeasible title' is shorthand for the notion that a registered proprietor's title is paramount--it cannot be defeated by a prior unregistered interest (except in certain categories prescribed by statute). (2) In the memorable words of Edwards J in Fels v Knowles: 'The cardinal principle ... is that the register is everything'. (3) By conferring on the registered proprietor an indefeasible right to the land, the Torrens land regime 'save[s] persons dealing with [the] registered proprietor from the trouble and expense of going behind the register, in order to investigate the history of their author's title'. (4) As such, the Torrens system is said to enshrine the 'mirror principle'--the register effectively reflects all interests affecting the land. (5)

However, the Torrens philosophy that the 'register is everything' (6) is inevitably subject to certain qualifications. Apart from the statutory exceptions to indefeasibility, there are also non-statutory exceptions which are collectively known as the 'in personam' or 'personal equities' exception. (7) The existence of the in personam exception was clearly enunciated by Lord Wilberforce in the Privy Council (on appeal from the New Zealand Court of Appeal) in the case of Frazer v Walker, where his Lordship said 'that [the] principle [of indefeasibility of title] in no way denies the right of a plaintiff to bring against a registered proprietor a claim in personam, founded in law or in equity, for such relief as a court acting in personam may grant.' (8) Similarly, Barwick CJ observed in Breskvar v Wall:

Proceedings may of course be brought against the registered proprietor by the persons ... setting up matters depending upon the acts of the registered proprietor himself. These may have as their terminal point orders binding the registered proprietor to divest himself wholly or partly of the estate or interest vested in him by registration and endorsement of the certificate of title ... (9) While the existence of an in personam exception is uncontroversial, what is unclear and has been a source of fertile debate is the precise content of the in personam exception. (10) Besides a valid contractual obligation freely entered into by the registered proprietor, what other personal claims may be brought against them? The purpose of this article is to map out a theoretical structure to analyse the ambit of the in personam exception that is consistent with the Torrens system of land registration. (11) This article will also attempt to explain how this proposed theoretical structure of the in personam exception deals with constructive trust claims, knowing receipt, undue influence, unconscionable dealing, duress and certain restitutionary claims. (12)

II TWO VIEWS ON THE IN PERSONAM EXCEPTION

A The Narrow and Wide View of the In Personam Exception

Before setting out my framework of the in personam exception, it is helpful to sketch out the differing opinions in this area. There are basically two differing views found in the case law and academic literature on the in personam exception. One view, which I term as the 'narrow view', is that the in personam exception ought to be interpreted restrictively because it has the potential to undermine the principle of indefeasibility. Such an approach is exemplified by Lynden Griggs' (13) and Barry Crown's work. (14) For example, Griggs argues that to widen the in personam exception to indefeasibility to include claims in knowing receipt is to introduce the 'tectonic plate of equity' which will create a fault line that makes the 'foundation of [the] Torrens [system] unstable and unclear. (15) Such a restrictive view of the in personam exception is also found in the case law and academic literature in Singapore, which adopts a Torrens system of land registration. (16) Crown argues that '[t]he notion of an "[in personam] claim" or "a personal equity" is inherently vague, Its general adoption ... would pose a threat to one of the central planks of the Torrens system.' (17) This narrow approach has recently found judicial favour in the Singapore Court of Appeal in United Overseas Bank Ltd v Bebe bte Mohammad ('Bebe'). (18) Chan Sek Keong C J, after a careful examination of the legislative history and provisions of the Torrens system in Singapore, (19) held that the courts should be slow to engraft the concept of personal equities on the Singapore Torrens system. (20) In Chan Sek Keong CJ's view, the various statutory exceptions to indefeasibility found in the Singapore Torrens statute, (21) such as fraud, forgery and contract, were more than capable of dealing with most in personam actions in common law and in equity. (22)

In contrast, the wide view of the in personam exception does not perceive any contradiction between the concept of indefeasibility and the pursuit of personal claims against the registered proprietor. An example of the wide approach is evident in the New Zealand Court of Appeal decision of C N & N A Davies Ltd v Laughton ('Laughton'). (23) In that case, Thomas J, writing for the Court, was of the opinion that the in personam exception 'sits comfortably with the concept of indefeasibility.... It is essentially non-proprietary in nature. The key element is the involvement in or knowledge of the registered proprietor in the unconscionable or illegal act or omission in issue.' (24) In a similar vein, Professor Robert Chambers also argues for a wider view of the in personam exception to include unjust enrichment claims--that is, claims in duress, undue influence, mistake and the like. (25) According to Chambers, such an approach does not conflict with the overarching objective of the Torrens system. (26) Chambers draws a distinction between three-party cases and two-party situations. (27) In the former, the defendant becomes the registered proprietor by the fraud or forgery of a third party, whereas in two-party cases the property is transferred directly from the plaintiff to the defendant. (28) Chambers argues that in three-party cases the defendant obtains indefeasible title, whereas in two-party cases the plaintiff ought to be able to bring a restitutionary claim against the defendant. (29) He makes a distinction between two inquiries: (1) investigation into the quality of the vendor's title; and (2) an investigation into the validity of the transaction through which title was obtained. (30) Chambers contends that it is only the former inquiry that the Torrens system was designed to simplify. (31) If a defendant knew or ought to have known that the plaintiff transferred the property while operating under mistake, duress or undue influence, then the plaintiff's interest in obtaining restitution should prevail over the defendant's security of receipt. (32) Thus, Chambers proposes a rule whereby:

A defendant who acquires a registered interest in Torrens land from a plaintiff, with notice of the facts giving rise to the plaintiff's claim for restitution of that interest ([that is,] notice that the interest is an unjust enrichment at the plaintiff's expense), should not be protected from that claim by the principle of indefeasibility. (33) B Reviewing the Narrow Approach to the In Personam Exception

It is suggested that an extremely narrow approach is undesirable for a number of reasons. First, such an approach straitjackets the development of the law in many areas, especially in the context of remedies. For example, under this narrow approach to the in personam exception, a proprietary response--the declaration of a constructive trust--is not possible as a potential remedy to a claim for breach of confidence (34) or as a response to a situation where a Pallant v Morgan (35) equity is said to arise. To develop this argument further, it is necessary to consider the following hypothetical facts. Suppose the plaintiff and the defendant enter into confidential negotiations to acquire and jointly develop a piece of land. In breach of confidence, the defendant purchases the land concerned in their own personal capacity and becomes the registered proprietor. The plaintiff sues the defendant for breach of confidence and/or alleges that a Pallant v Morgan equity has arisen, and prays for a declaration of a constructive trust over that piece of land. (36) In this context, is a plea of indefeasibility of title a complete defence to a claim for a constructive trust? Under the narrow approach, a defendant who becomes a registered proprietor would be able to rely on the assertion of indefeasibility of title to...