Torrens System & Indefeasibility

CONTRACTS

PREFACE

The Torrens system was founded on the concept of indefeasibility of title. Indefeasibility makes the interest unable to be defeated by claims of prior defectiveness except in cases of fraud.

In the current case Dependable Bank (hereinafter referred to as "DB") is able to exercise its power of sale as it was not a party to Henry's Fraud and obtained indefeasible title upon registration. Although DB is able to exercise its power of sale it must do so subject to the existing tenancy. Dana may be able to seek relief from the Torrens Assurance Fund for recovery of loss under the system.

Where the DB manager attested Dana's signature, Dana is able to apply to the Court to have her name restored to the register as Henry lost the benefit of indefeasibility by registration by his fraudulent activity. DB is not able to exercise its power of sale as it only gained a defeasible title upon registration of the mortgage and must sue Henry directly for its loss.

IS DB ABLE TO EXERCISE ITS POWER OF SALE

ANALYSIS

TORRENS SYSTEM & INDEFEASIBILITY

The effect of registration of an interest in Torrens land is to give the registered proprietor an indefeasible title to that interest. S42(1) of the Real Property Act (hereinafter referred to as "RP") confirms that upon registration, the registered proprietor acquires their interest free of unregistered interests even if, prior to registration, they had notice of such unregistered interests.

FRAUD

The RP notes fraud as an exception to indefeasibility. As the RP does not define 'fraud', we are dependant on case law, which has found that what is required is 'actual fraud, that is, dishonesty of some sort, not what is called constructive or equitable fraud'.

Henry committed fraud by his dishonesty in inducing Dana to execute the Transfer without her knowledge. DB was not aware of this. Under s43 (1) DB was not required to inquire as to the circumstances in or consideration for which Henry acquired his interest in the land.

Therefore upon registration of the Transfer, DB obtained indefeasible title and Dana cannot take action against DB to have the register rectified. However, as the fraud by Henry was pre-registration Henry's conduct would be dealt with under the in personam exception to indefeasibility.

IN PERSONAM RIGHTS

The in personam exception is based upon personal claims against a registered proprietor. The personal rights enforced are not confined to those based upon equitable claims. Common law claims are also recognised. In Grigic v ANZ Banking Group Ltd the Court of Appeal in NSW ruled that in personam claims could only be based upon 'known legal causes of action or equitable causes of action'. The conduct of the registered proprietor giving rise to an in personam exception can be before or after he or she becomes registered.

An in personam claim exists where registration is obtained by breach of fiduciary duties. Henry has breached his fiduciary duty to Dana. Dana is entitled to bring home Henry's dishonest act (fraud) to Henry and may be able to seek damages under the Torrens Assurance Fund under s129 (1) (e) as compensation for the loss and damage suffered as a result of the system.

SHORT TERM TENANCIES

In this case the tenant is entitled to occupation of the premises under an unregistered 12 month lease. DB's interest is subject to that lease in accordance with s42 (1)(d) because its term does not exceed 3 years, the tenant is in possession of the premises and DB had notice of the tenancy prior to registration.

DB