Burmeister v Registrar-General of Land
[2014] NZHC 631
•1 April 2014
-
IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY
CIV-2008-470-000912 [2014] NZHC 631
IN THE MATTER of the Land Transfer Act 1952 AND IN THE MATTER
of a claim for compensation pursuant to s 172 of the Land Transfer Act 1952
BETWEEN
KENNETH SIDNEY BURMEISTER AND VALERIE JOAN BURMEISTER Plaintiffs
AND
REGISTRAR-GENERAL OF LAND Defendant
Hearing: 3 - 5 December 2013 Counsel:
D Chesterman for Plaintiffs
JR Burns for DefendantJudgment:
1 April 2014
JUDGMENT OF ASHER J
This judgment was delivered by me on Tuesday, 1 April 2014 at 4 pm pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitor/Counsel:
Sharp Tudhope, Tauranga. D Chesterman, Auckland.
Crown Law, Wellington.
BURMEISTER v REGISTRAR-GENERAL OF LAND [2014] NZHC 631 [1 April 2014]
Preliminary
[1] Kenneth and Valerie Burmeister are a retired couple who live in Mt Maunganui. In 2001 they owned their own modest debt-free home in Lotus Avenue. Today, after having entered into a series of transactions in which they were defrauded, they no longer own their own home and it is encumbered by a debt of over $640,000 to the ASB Bank, which is more than its value. They continue to occupy their house because the ASB Bank has chosen not to take possession of it or sell it down at the present time, and has allowed them to stay on.
[2] Following the transactions in which they lost their home, the Burmeisters brought proceedings against a number of parties whom they had dealt with including John and Gillian O’Brien and a Geoffrey Clayton. The O’Briens had obtained a transfer of the property from the Burmeisters into their name, and then mortgaged the property to the ASB Bank. The money advanced had been used for purposes that did not benefit the Burmeisters.
[3] The ASB Bank applied to strike out the part of the claim that related to it. It was successful, and that part of the claim was struck out in the High Court1 in a decision that was then affirmed after an application for review.2 It was struck out because the Court held that the mortgage was not a security interest for the purposes of the Credit Contracts and Consumer Finance Act 2003, and because the ASB
Bank, as a result of holding a registered mortgage under the Land Transfer Act 1952,
had an indefeasible interest in the property.3
It was not shown that there could be
any attribution to the ASB Bank of knowledge of the transaction through the solicitor who had acted on behalf of the O’Briens and the Bank.
[4] Although the Burmeisters ultimately succeeded in their fraud claims against the O’Briens and Mr Clayton,4 they have not proceeded to a damages hearing against the fraudsters, and, as is often the situation in fraud cases of this type, it may well be
that this would be a fruitless exercise. As at 11 November 2013, the amount owed
1 Burmeister v O’Brien (2006) 7 NZCPR 440 (HC) [the Associate Judge Abbott decision].
2 Burmeister v O’Brien [2008] 3 NZLR 842 (HC) [the Stevens J decision].
3 The Associate Judge Abbott decision, above n 1, at [50] and the Stevens J decision, above n 2, at
[42].
4 Burmeister v O’Brien [2010] 2 NZLR 395 (HC) [the O’Brien judgment].
by the Burmeisters to the ASB Bank was $640,722.91. The current market value of
Lotus Avenue is said to be $420,000.
[5] In this proceeding the Burmeisters seek compensation for their loss as a consequence of the fraud from the Registrar-General of Land relying on the compensation provision in s 172(b) of the Land Transfer Act 1952. They argue that under that section they have been deprived of land in that they have lost all legal title and equity in their property, and that they are barred by the Land Transfer Act 1952 from bringing an action for possession or other action for recovery of the land, estate or interest from the ASB Bank.
[6] The Registrar-General defends the claim and submits that s 172(b) does not apply, and that the Burmeisters are the author of their own misfortune through their negligence in allowing themselves to be duped into signing documents and providing the certificate of title to their land. There was initially a strike out application brought by the Registrar-General on the basis that the claims were time barred. This was unsuccessful.5
[7] The Burmeisters and the Registrar-General accept all of the findings made in the judgment in their claim against the fraudsters and others.6 That judgment, which will be referred to as the O’Brien judgment, sets out the circumstances of the transfer by the Burmeisters, and found the O’Briens and Mr Clayton acted fraudulently in different ways.7
Liability issues
[8] Mr Burns for the Registrar-General stated that there was only one question for the Court. He put it this way:
Is it Parliament’s intention and has Parliament provided that, in the circumstances of this case, compensation is to be paid pursuant to s 172(b) of the [Land Transfer Act 1952]?
5 Burmeister v Registrar-General of Land [2011] 2 NZLR 678 (HC), affirmed on appeal
Registrar-General of Land v Burmeister [2012] NZCA 340, (2012) 13 NZCPR 504.
6 Minute of 31 October 2013.
7 The O’Brien judgment, above n 4, at [8]–[47], [88]–[99] and [164].
[9] Mr Chesterman, for the Burmeisters, observed generally that the question was whether, on the basis of the findings of fact in the O’Brien judgment, the claim fulfilled the elements of the statutory cause of action within s 172(b) of the Land Transfer Act 1952. He suggested that the question involved three issues: were the Burmeisters “deprived” of an interest in land, if so what was the “interest” of which they were deprived, and were the Burmeisters barred by the Act from taking any action for recovery? Mr Chesterman observed that there was a further issue, whether there was any legal or factual basis for the Registrar-General’s defence that the Burmeisters could not prove that they were “barred by the Act from recovery” because they were careless in the course of events that led to the ASB obtaining its mortgage.
[10] Both counsel approached the case on the basis that there was at the heart of the claim, an issue of statutory interpretation. What did Parliament intend in enacting s 172(b)? Any such question must be interpreted by examining the text of the section in the light of the purpose of the Act.8
[11] It was a particular theme of the submissions for the Registrar-General that the Burmeisters had been at the very least careless in their actions which led to them signing a document in blank and handing over the certificate of title, and that this would dis-entitle them to any common law or equitable claim for the recovery of their land from the ASB Bank, and this was a reason why s 172(b) could not apply.
Statutory background
[12] Both counsel in pressing their differing interpretations of s 172(b) of the Land Transfer Act 1952 looked back to the purposes and principles behind the introduction of the Torrens system into Australia and New Zealand, the history of the relevant provisions since its introduction, and the relevant caselaw. They were unable to refer to any case on point, and observed that in 144 years since the first land act of 1870,
no claims involving fraud have been decided in New Zealand under s 172(b) or its
8 Interpretation Act 1999, s 5(1).
predecessors. Professor Toomey has observed in her article, “State Guarantee of
Title – An Unguided Path”:9
However, the effect of s 172(b) – claims for deprivation of an estate or interest in land – has, in New Zealand, long remained undebated. The lack of litigation may suggest prior settlement of claims. It may also suggest a failure to recognise this essential provision.
[13] Given the dearth of authority it is helpful to refer briefly to the principles that underlie the Land Transfer Act 1952.
[14] The main object of the introduction of the Torrens System to New Zealand by the enactment of the Land Transfer Act 1870 was to ensure that a person dealing with land subject to the system would not be adversely affected by any weaknesses in the title of the registered proprietor that was transferring the land. This would save the difficulty and expense, inherent in the then-English deeds system, of investigating the chain of title. This object was achieved by making the title of a registered proprietor that had obtained title without fraud immune from attack by other persons claiming an adverse interest, including earlier registered proprietors. This indefeasibility of title was described in this way by the Privy Council in Gibbs v
Messer:10
The main object of the Act, and the legislative scheme for the attainment of that object, appear to them to be equally plain. The object is to save persons dealing with registered proprietors from the trouble and expense of going behind the register, in order to investigate the history of their author’s title, and to satisfy themselves of its validity. That end is accomplished by providing that every one who purchases, in bona fide and for value, from a registered proprietor, and enters his deed of transfer or mortgage on the register, shall thereby acquire an indefeasible right, notwithstanding the infirmity of his author’s title.
[15] Indefeasibility of title is now provided for in s 63(1) of the Land Transfer Act
1952:
63 Registered proprietor protected against ejectment
(1) No action for possession, or other action for the recovery of any land,
shall lie or be sustained against the registered proprietor under the
9 Elizabeth Toomey “State Guarantee of Title – An Unguided Path” (1995) 6 Canta LR 149 at 158.
10 Gibbs v Messer [1891] AC 248 (PC) at 254.
provisions of this Act for the estate or interest in respect of which he is so registered, except in any of the following cases, that is to say:
(a) The case of a mortgagee as against a mortgagor in default: (b) The case of a lessor as against a lessee in default:
(c) The case of a person deprived of any land by fraud, as against the person registered as proprietor of that land through fraud, or as against a person deriving otherwise than as a transferee bona fide for value from or through a person so registered through fraud:
(d) The case of a person deprived of or claiming any land included in any grant or certificate of title of other land by misdescription of that other land, or of its boundaries, as against the registered proprietor of the other land, not being a transferee or deriving from or through a transferee thereof bona fide for value:
(e) The case of a registered proprietor claiming under the instrument of title prior in date of registration, under the provisions of this Act, in any case in which 2 or more grants or 2 or more certificates of title, or a grant and a certificate of title, may be registered under the provisions of this Act in respect to the same land.
(emphasis added)
There is no protection therefore for the fraudster who has become a registered proprietor, but indefeasibility of title extends to a bona fide transferee for value from such a fraudster.
[16] The other core provision in relation to indefeasibility is s 183(1) which provides:
183 No liability on bona fide purchaser or mortgagee
(1) Nothing in this Act shall be so interpreted as to render subject to action for recovery of damages, or for possession, or to deprivation of the estate or interest in respect of which he is registered as proprietor, any purchaser or mortgagee bona fide for valuable consideration of land under the provisions of this Act on the ground that his vendor or mortgagor may have been registered as proprietor through fraud or error, or under any void or voidable instrument, or may have derived from or through a person registered as proprietor through fraud or error, or under any void or voidable instrument, and this whether the fraud or error consists in wrong description of the boundaries or of the parcels of any land, or otherwise howsoever.
(emphasis added)
[17] As a quid pro quo for the provision of an indefeasible title, provision was made for compensation to be payable to registered proprietors who suffered loss as a consequence of the promulgation of the new regime. The Member of Parliament, Mr Fox, who moved the second reading of the Land Transfer Act 1870 observed:11
If good, the title is placed upon the registry, and after that you have a good parliamentary title which never afterwards can be shaken; and in the few cases where any defect arises from the fault of the Government, or those connected with the office, or such as may arise from forgeries, then it will be incumbent on the Government to make compensation to the registered owner.
[18] Section 133 of the 1870 Act reflected this and contained provisions similar to the present s 172. The provisions were consolidated in 1885, and s 178 of the Land Transfer Act 1885, the predecessor to s 172(b) of the Land Transfer Act 1952, was enacted. Section 182 of the Land Transfer Act 1885, the predecessor to s 179 of the Land Transfer Act 1952, contemplated that where the Registrar General had paid a sum of money “as compensation for any loss occasioned … by fraud on the part of any person causing or procuring himself to be registered as a proprietor under the said Act … by virtue of any dealing with … a registered proprietor, the amount of such compensation … shall be deemed a debt due to the Crown.”
[19] Section 172(b) of the Land Transfer Act 1952 provides:
172 Compensation for mistake or misfeasance of Registrar
Any person—
...
(b) Who is deprived of any land, or of any estate or interest in land, through the bringing of the land under the Land Transfer Acts, or by the registration of any other person as proprietor of that land, or by any error, omission, or misdescription in any certificate of title, or in any entry or memorial in the register, or has sustained any loss or damage by the wrongful inclusion of land in any certificate as aforesaid, and who by this Act is barred from bringing an action for possession or other action for the recovery of that land, estate, or interest—
may bring an action against the Crown for recovery of damages.
11 (23 August 1870) 9 NZPD 197.
[20] The question that arises is whether, where a person has suffered loss by the registration of another person as proprietor of that land as a consequence of a fraud, the Registrar-General is obliged under s 172(b) to pay compensation.
[21] There are four relevant components of a s 172(b) claim:
(a) There must be a person (in this case the Burmeisters);
(b) That person (the Burmeisters) must be deprived of any land or of any estate or interest in land;
(c) It must be the registration of any other person as proprietor of that land that has brought about the deprivation; and
(d) The person (the Burmeisters) must by the Act be barred from bringing an action for possession or other action for the recovery of the land, estate or interest.
[22] Mr Burns for the Registrar-General focused on two particular elements. He argued:
(a) That the Burmeisters were not deprived “of their estate in Lotus
Avenue”; and
(b) That they were not persons who by the Act were barred from bringing an action for possession or other action for the recovery of that land.
Were the Burmeisters “deprived” under s 172(b)?
[23] Mr Burns argued that Parliament did not intend to provide compensation for registered proprietors who do not “… bother to take care in dealing with their land because they are guaranteed compensation from public funds regardless of whether they act with reasonable care.” He submitted that Parliament cannot have intended “deprived” to have its ordinary meaning in s 172(b), and that a person was only “deprived” if they had taken all reasonable care in relation to their land and despite
that had ceased to possess or own it by the occurrence of one of the three events specified by s 172(b).
[24] There are no words constraining or qualifying the way in which a person can be deprived of land under s 172(b). The word “deprived” is not defined. Although fraud is not specified in s 172(b), in my view it is clearly contemplated as a method
of deprivation. “Deprived” carries the dictionary meaning of “dispossess” or
“strip”12
and would not include an intentional transfer to the new registered
proprietor. It would, however, include the taking of land or an interest by fraud. Such a taking by fraud has that element of dispossession of that which is lawfully owned. Section 175(1)(b), which relates to the Crown recovering compensation it has paid, contemplates a loss of an interest by fraud giving rise to compensation. It
provides:
175 Recovery of compensation paid and costs in case of fraud
(1) Where any sum of money has been lawfully paid out of the Crown Bank
Account as compensation for any loss occasioned—
(a) By fraud, or by fraudulent omission, misdescription, or misrepresentation of any kind on the part of any proprietor in bringing land under any of the Land Transfer Acts; or
(b) By fraud on the part of any person causing or procuring himself to be registered as a proprietor under any of the Land Transfer Acts by virtue of any dealing with or transmission from a registered proprietor—
the amount of that compensation, together with all costs incurred in testing or defending any claim or action in relation thereto, shall be deemed a debt due to the Crown from the person legally responsible for that fraud, fraudulent omission, misdescription, or misrepresentation, as the case may be, and may be recovered from him, or from his personal representatives, by action at law, in the name of the Registrar-General, or, in case of bankruptcy, may be proved as a debt due from his estate.
(emphasis added)
[25] This shows an explicit intention of the legislature to create a regime that allows a defrauded person who is faced with a registered proprietor who is on the title as a bona fide transferee for value, to obtain compensation. This is what might
be expected. Where the operation of the Act precludes a defrauded person from
12 Tony Deverson and Graeme Kennedy (eds) The New Zealand Oxford Dictionary (Oxford
University Press, Melbourne, 2005) at 291.
bringing a claim, it is natural that provision will be made for the defrauded person to recover by other means.
[26] This is the position in Australian jurisdictions that adopted the Torrens system. In New South Wales in Diemasters Pty Ltd v Meadowcorp Pty Ltd the vendor/mortgagor had obtained a discharge of mortgage by fraud so that when title was transferred the mortgage remained on the property.13 Windeyer J held that the defrauded plaintiff had been “deprived” of his interest. He observed:14
In principle I can see no reason to restrict access to the Fund to persons claiming that their interest has been lost through the registration of some subsequent dealing as a result of fraud. There is no particular logical reason why compensation should not be available to persons suffering damage as a result of fraud which has enabled the proprietor of a registered interest to maintain an indefeasible title to such interest based upon its continued registration. Such damage seems to me to arise out of the operation of the Act.
[27] It can be seen that in relation to the words “as a result of the operation of the Act” the Court could see no reason why compensation should not be available to those suffering damage as a result of fraud. The same conclusion was reached in Behn v Registrar-General where it was observed:15
Upon the footing that, upon the evidence, it should be found that the plaintiff knowingly signed the memorandum of transfer and voluntarily handed it over to Bodiam at a time when he already held the certificate of title, another contention was advanced on behalf of the Registrar-General which had been submitted to, and rejected by, the Court of Appeal in Parker v Registrar- General.16 The contention was that a person could not be said to have been deprived of land, if the deprivation resulted from voluntary acts by the owner of the land, this submission being based upon Fawkes v Attorney-General
for Ontario.17
I would have rejected this submission in any event, but I am
relieved from the necessity of giving reasons because I am bound by the decision of the Court of Appeal on the same point.
[28] The wording of the Australian compensation provisions vary from state to
state and from New Zealand, however the rationale behind the provisions is the
13 Diemasters Pty Ltd v Meadowcorp Pty Ltd [2001] 52 NSWLR 572 (NSWSC).
14 At 585.
15 Behn v Registrar-General [1979] 2 NSWLR 496 (NSWSC) at 511.
16 Parker v Registrar-General [1977] 1 NSWLR 22 (NSWCA) at 24 and 26.
17 Fawkes v Attorney-General for Ontario (1903) 6 OLR 490 at 494.
same. The Australian position was addressed in a leading Australian property text in this way:18
... in all jurisdictions except Victoria, a person who has been deprived of an estate or interest in land in consequence of fraud may make a claim for compensation.
[29] Mr Burns argued for a meaning of “deprived” that did not extend to the Burmeisters who had been careless in signing a blank transfer and handing over their certificate of title. He placed particular weight in his submissions on dicta and statements that he submitted indicated that there should be no compensation for
those who are careless. He referred to the statement by Professor Sim that:19
If losses occur in circumstances which no reasonable care on the part of any of the parties concerned could have guarded against, and the compensation provisions, as they are at present understood, cover the case, it seems in conformity with the general intention of the Act that no person should suffer.
(emphasis added)
[30] Mr Burns emphasised the statement of Richmond J in Miller v Davy in relation to a mistake made in the issuing of a certificate of title by the Registrar:20
I must add that this claim being upon a public fund it is proper to insist upon the observance by purchasers and their agents of the duties imposed upon them by the Act. The purpose of the statute, which is a very clumsy expression of an admirable principle, is to do away with the necessity of a retrospective deduction of title to land; but I do not understand that it guarantees a purchaser against the negligence of his own agent in preparing a conveyance. The purchaser must be responsible for the tender to the Registrar of a proper transfer from the registered owner. To hold otherwise would be to offer an indemnity to carelessness and an invitation to fraud.
(emphasis added)
Mr Burns quoted the last sentence on a number of occasions in his written and oral submissions.
[31] However, the statement must be seen in the context of the facts. In Miller v
Davy there had been a negligent act by the purchaser’s agent in preparing a
18 Adrienne Bradbrook, Susan V MacCallum and Anthony P Moore Australian Real Property Law
(3rd ed, Lawbook Co, Pyrmont, 2002) at [4.125].
19 PBA Sim “The Compensation Provisions of the Act” in GW Hinde (ed) The New Zealand
Torrens System Centennial Essays (Butterworths, Wellington, 1971) at 160.
20 Miller v Davy (1889) 7 NZLR 515 (CA) at 524.
document for the issue of the certificate of title. It did not relate to the fraudulent obtaining of a transfer. It is to be expected that in this context, when the Registrar has been negligent and made a mistake, the plaintiff’s negligence in the same transaction can be taken into account applying the doctrine of contributory negligence.21
[32] While accepting that contributory negligence may prevent a plaintiff receiving compensation, the Court of Appeal drew a distinction between negligent actions that are direct causes of the loss and those that are indirect causes or where the chain of causation has been broken.22 The Court of Appeal considered that the doctrine of contributory negligence meant that negligence that directly causes the claimed loss prevents a plaintiff claiming compensation. However, negligence that is only the indirect cause or where the chain of causation is broken does not prevent a plaintiff claiming compensation.23 The Court of Appeal relied on two earlier cases for the proposition that where “the negligence of the plaintiff was passive, and though it furnished a necessary condition of the event did not constitute, or form part of the real and efficient cause” then this was only an indirect cause and so the doctrine of contributory negligence would not apply.24
[33] More importantly to this case, the Court of Appeal also cited the English decision Swan v North British Australasian Company25 for the proposition that where “the proximate cause of damage was the criminal act of a third person” or
where the plaintiff ’s “negligence was not negligence in or connected with the
transfer itself”, the plaintiff would be allowed to recover.26
In Swan, the plaintiff had
carelessly signed blank share transfers which provided the opportunity for the fraud and given them to the broker. The broker then used two of these transfers to fraudulently sell the shares. The Court in Swan held that the plaintiff could recover for two reasons: first, the negligence of the plaintiff in signing the blank transfers
was not negligence in or connected with the transfer of the property itself, and,
21 Miller v Davy, above n 20, at 521.
22 At 521–522.
23 At 521.
24 At 521–522, citing Davies v Mann 10 M & W 546, 12 LJ Ex 10; and Tuff v Warman 2 CBNS
740, 26 LJ Ex 263.
25 Swan v North British Australasian Company (1863) 2 H&C 175, 159 ER 73 (Exch Ch).
26 At 522.
second, the direct cause of the loss was a third party’s actions and not the plaintiff’s
own actions.27
While accepting the reasoning in Swan, the Court of Appeal in Miller
v Davy, distinguished Swan on its facts.
[34] The facts in Swan are similar to the facts in this case. The Burmeisters had signed a form and then provided the certificate of title. Mr Geoffrey Clayton and the O’Briens then used these forms to fraudulently transfer the ownership of the property and then mortgage the property. In Miller v Davy, the Court of Appeal indicated that in such a situation the plaintiffs could be able to recover and the
doctrine of contributory negligence would not apply to prevent recovery.
[35] Mr Burns also relied on a statement of Professor Sim:28
Similarly, a transferor perusing a memorandum of transfer or other document may be expected just as much as the transferee who prepared it, to take proper steps to ensure that it is in order. Care in those circumstances is, of course, relative. In so far as the actual performance falls upon legal advisers, the duty is simply that of the reasonably competent professional man. In this type of case, too, it is suggested, the exercise of a proper degree of care, as judged by current conveyancing practices, is all that can reasonably be required to justify the application of the compensation provisions. The introduction of the concept of compensation indicates the intention that the Act is to provide a form of insurance against loss. Granted the recognition of a need for this, and remembering that losses, though rare, may be disastrous or ruinous when they occur, it is enough to satisfy the insurance principle that the party affected took all reasonable care. In other insurance contexts no more is asked.
(emphasis added and references omitted)
[36] This statement must be read in the light of the introductory sentence to the paragraph where Professor Sim commented that the key to having sensible limits on compensation payments lay in the “… the doctrine, in this context undeveloped, of contributory negligence”. He was considering the Miller v Davy type of situation.
[37] Professor Sim’s view that a loss as a consequence of fraud, as in this case, constitutes “deprivation” is indicated by his comment:29
27 At 522.
28 PBA Sim, above n 19, at 160.
29 PBA Sim, above n 19, at 143–144.
One aspect of the indefeasibility provisions of the Land Transfer Act is the barring of … rights of action [for recovery of land] against registered proprietors except in the case as specifically allowed by s 63(1). Section
172(b) is, therefore, directly linked with the operation of the indefeasibility provisions and requires in all cases it envisages a ‘deprivation’ by the
operation of these provisions.
(references omitted)
[38] The compensation provisions of the Land Transfer Act 1952 were considered by the Law Commission in its 2008 review of the Land Transfer Act 1952.30 In dealing with partial deprivation under s 172(b) the Law Commission noted:31
An example of a partial deprivation is the wrongful registration of a mortgage against the title. In such a case, the registered proprietor is entitled to compensation to discharge the mortgage. The deprivation can be conceptualised as the subtraction of the lesser estate (the mortgage) from the fee simple estate of the registered proprietor.
[39] While “deprived” may infer an element of unlawfulness in the loss, it does not in itself imply a lack of carelessness on the part of a claimant. There is nothing in the Land Transfer Act 1952 that indicates that “deprivation” should be given a special and unusual meaning, and nothing in the authorities or commentaries to support the proposition. Indeed, the Court of Appeal’s decision in Miller v Davy supports the opposite proposition that carelessness in itself will not prevent recovery unless it was a direct cause of the loss. I therefore do not accept Mr Burns invitation to infer a “reasonable care test” in assessing deprivation. In ordinary parlance, the Burmeisters have been deprived of their interest in their land by transferring it to the fraudulent O’Briens who then gave a mortgage to the ASB Bank. They were originally the registered proprietors of their property and because of fraud they are no longer the registered proprietors. They have been deprived of their title.
Were the Burmeisters barred by the Act?
[40] The next issue under s 172(b) is whether the Burmeisters are “barred by the Act from bringing an action for recovery”. Mr Burns submitted that these words require a person claiming under s 172(b) of the Land Transfer Act 1952 to prove that if the Land Transfer Act 1952 did not exist they would have succeeded before the
courts on a specified action for “the recovery of that land, estate or interest”. He submitted that this question must be determined without having any regard to the provisions of the Land Transfer Act 1952. Consideration of whether plaintiffs are “barred” must proceed on the basis of the common law as it applied when the plaintiff signed the document that led to the loss of their property in September 2001.
He relied on the specific facts as found in the O’Brien judgment,32 and responses he
obtained in cross-examination of Mr Burmeister before me. The Burmeisters were naïve and foolish in signing a blank transfer and handing over the title, and he submitted would not succeed on a non est factum plea. They were therefore not
barred by the Act from bringing an action for recovery.
[41] In considering this issue, the starting point is the words in s 172(b) which are: “... who by this Act is barred from bring an action ...”. There is no requirement that a successful claim could be brought against the party currently holding the land, estate or interest. The inquiry is rather whether there is something in the Act that bars the
bringing of the action.
[42] There is something in the Act that bars the bringing of an action. It is s 63(1) and s 183(1). Section 63(1) provides that no action for possession or other action for the recovery of land shall lie against the registered proprietor for the estate or interest in respect of which that registered proprietor is registered. The bar protects a mortgagee, and indeed the protection in s 183(1) is specifically extended to a mortgage. A mortgagee is a “proprietor” in terms of the definition in the Act, which includes any person seized or possessed of “any estate or interest in land, at law or in equity ...”. Mortgages were expressly contemplated by the Privy Council in Gibbs v
Messer:33
[The paramount nature of the register] is accomplished by providing that every one who purchases, in bona fide and for value, from a registered proprietor, and enters his deed of transfer or mortgage on the register, shall thereby acquire an indefeasible right, notwithstanding the infirmity of his author’s title.
(emphasis added)
[43] This was a bar that radically changed the common law. As Salmon J
commented in Boyd v Mayor of Wellington, after referring to Gibbs v Messer:34
The effect of registration, therefore, is to validate the purchaser’s title notwithstanding defects in the vendor’s registered title. The common-law rule of non dat qui non habet is wholly abolished in favour of purchasers of registered titles in good faith.
[44] Mr Burns claimed support from Professor Sim’s article for the proposition that the bar to recovery had to be a bar to the proven ability of the Burmeisters to recover at common law. However, I do not see the article as standing for this proposition. To the contrary, in discussing claims for loss arising from fraud as distinct from registration, Professor Sim commented:35
In the second class of case the claimant would at common law have had a remedy against the present holder of an interest but that remedy is barred by the Act. This is the test applied as long ago as 1882 by Williams J in Anderson v Davy. As we have seen, a registered proprietor is protected against actions for possession or recovery of land under s 63 (with certain specified exceptions) and also under s 183. Claims for compensation, it is submitted, will lie in any case in which these provisions operate to prevent recovery, by a person who has been deprived of land, from a person who has become registered as proprietor.
(emphasis added)
[45] Further, in Hinde, McMorland & Sim Land Law in New Zealand it is noted that partial deprivation of an estate or interest in land will give rise to a right of action against the Crown for recovery of damages under s 172(b).36 The example is given of a registered proprietor’s title becoming improperly burdened with a registered mortgage which is protected by the indefeasibility provisions of the Land Transfer Act 1952. It is observed “... the registered proprietor is deprived pro tanto and may claim a sum sufficient to discharge the mortgage”.37
[46] In my view s 63 and the other relevant sections constitute a bar to the
Burmeisters’ claim. That is how it is put in s 172(b) which refers to a bar in “the
34 Boyd v Mayor of Wellington [1924] NZLR 1174 at 1202.
35 PBA Sim, above n 19, at p 151.
36 George Hinde and others Hinde McMorland & Sim Land Law in New Zealand (looseleaf ed, LexisNexis) at [9.091].
37 At [9.091].
Act” not at common law. That is how it was put in the judgments denying the
Burmeisters a claim against the ASB Bank.38
[47] I conclude that the reference in s 172(b) to “barred by the Act” includes potential claims by defrauded persons against purchasers for value without notice, which are barred by the indefeasibility provisions of s 63. For reasons which I develop in the next section,39 a calculation as to whether the claim would have succeeded at common law or equity is not required. This should not open the floodgates. It will be a rare case where fraud has deprived a registered proprietor of
title. Australian jurisdictions provide compensation in such circumstances. Given that this is an unwelcome development for the Registrar-General, I note Professor Toomey’s comment:40
Within the past five years, there have been several reported cases in New Zealand on s 62, s 182 and s 183 of the Land Transfer Act 1952. In all, the principle of immediate indefeasibility has been reviewed, and without exception, confirmed. This paper raises the possibility that some of these victims, unaware of their rights, have been left to “lick their wounds” and ponder the justice of our system. It is not known if deprived parties have followed up decisions by claiming payments from the compensation fund. Information on possible settlements cannot be obtained, on the basis that its provisions may breach the Privacy Act. If, however, settlements have not been made, our practice of pure Torrens law is flawed.
[48] The floodgates issue does not appear to have deterred the Law Commission in its recommendation for compensation for deprivation of an interest through fraud41 (although with a contribution to loss provision).42
Alleged fault on the part of the Burmeisters
[49] Mr Burns developed an extensive argument that applying the principles of non est factum the Burmeisters would have no claim against the ASB Bank. Given the Registrar-General’s focus on the alleged carelessness of the Burmeisters, I consider the issue of their “fault” more broadly, and whether it can be taken into
account in making an order under s 172(b).
38 Stevens J decision, above n 2, at [39].
39 See [54].
40 Elizabeth Toomey, above n 9, at 160.
41 Law Commission A New Land Transfer Act (NZLC R116, 2010) at 5.
42 At 5.
[50] The fraud on the Burmeisters was initiated by Mr Geoffrey Clayton. In early September 2001 the Burmeisters had been persuaded to participate in an “investment scheme” run in part by him. They attended a meeting where they signed a one-page document that appeared to be a blank piece of paper. They did not read the document. They thought when they signed the blank document that they were signing up to a scheme. They only had a very general understanding as to how it might work. The scheme involved their property at Lotus Avenue being held on their behalf in a secure family trust which would enable those who ran the scheme to then
send them regular payments.43
[51] Soon after they had done this, at the request of the perpetrators of the fraud, they obtained a copy of their certificate of title and handed it over to Mr O’Brien, another person who was participating in the fraud.44 I found that the Burmeisters
were naïve and had placed their trust in Mr Geoffrey Clayton. I observed:45
While a commercially wise person might have queried how money could have been made by the Burmeisters just handing over their title deeds, I accept that the Burmeisters believed this was possible.
[52] The Burmeisters, in terms of ordinary commercial dealing with land, were unwise to sign a blank document and hand over their title. Like many who are defrauded, they did this because of their trust of another; in this case Mr Geoffrey Clayton’s father, John Clayton, (whom I found to be innocent of any fraud and who indeed was himself a victim of Mr Geoffrey Clayton’s fraud).46
[53] Mr Burns submitted strongly that the Burmeisters could not have succeeded at common law in any claim against the ASB Bank because of their carelessness. He relied on a number of leading English and New Zealand non est factum decisions to support that proposition. However, those who are victims of fraud are often unwise or careless in their trust of the fraudster. It is an established principle that
carelessness in the form of contributory negligence is no defence against a claim for
43 The O’Brien judgment, above n 4, at [12].
44 At [140].
45 At [75].
46 At [116]–[117].
fraud.47
The Registrar-General has expressly eschewed any reliance on contributory
negligence as an answer to this claim.
[54] I accept that there is a body of authority which stands for the proposition that the plea of non est factum is not available to a person who does not take the time and
trouble to read and understand a document, particularly when they are relying on the
advice of someone else.48
However, the Registrar-General’s reliance on the
unavailability at common law of non est factum ignores the focus of the Land Transfer Act 1952 which is on bars within the Act to recovery. Section 63 is such a bar. Whether in fact the Burmeisters would have ultimately succeeded against the ASB in a New Zealand court without the ASB being able to rely on indefeasibility can only be a matter of speculation. This is because there are no legal principles that can be applied with any certainty as this would involve the fiction of assuming the development of the law of non dat qui non habet and non est factum over the last
144 years without the intervention of the Torrens system. It would require the Court to guess as to how the law would have developed, and invent its own legal landscape and then apply it to the facts. This would be a speculative exercise and inconsistent with the orderly and predictable administration of justice. It cannot have been the case that those who drafted s 172(b) would have contemplated that a Court would be
required to carry out such an artificial exercise whenever there was a claim.
[55] Such an approach is entirely unsupported by authority. Where the doctrine of contributory negligence has been held to apply to compensation claims under s 172(a) of the Act,49 these were not cases of fraud of this type. It is the essence of fraud that if the person had been dishonestly deceived and cheated, the rules of contributory negligence can have no application against the person who suffered loss
by the fraud committed on them by a third party. This is what the Court of Appeal in
Miller v Davy held.50
In the case of the Burmeisters, the carelessness was induced
47 See Maruha Corporation v Amaltal Corporation Ltd [2007] NZSC 40, [2007] 3 NZLR 192 referring to Standard Chartered Bank v Pakistan National Shipping Corporation (No 2) [2003] 1
AC 959 (HL).
48 Saunders v Anglia Building Society [1971] AC 1004 (HL); and Osborne v Wells HC New
Plymouth CP6/00, 8 December 2000.
49 Miller v Davy, above n 20, at 521; and Russell v Registrar of Land (1907) 26 NZLR 1223 (CA)
at 1229.
50 Miller v Davy, above n 20, at 521.
by the trust and confidence which the Burmeisters had in the Claytons, and the deceit that was practised on them.
[56] It is significant that the issue of contributory negligence has been addressed in the context of the Torrens system and compensation for deprivation of an interest by fraud in Australia. The Australian provisions are different from those in New
Zealand, and vary from state to state. In some Australian states there is specific
provision in the relevant Act for deductions for contributory negligence.51
no such specific reference in the New Zealand legislation.
There is
[57] The Law Commission in its review referred to the application of contributory negligence to certain claims,52 and how it is on occasions ignored.53 After noting the LINZ policy of not paying a claimant who has signed a blank transfer or mortgage document it referred to the Victorian Court of Appeal decision of Registrar of Titles v Fairless where the case involved an elderly man who had been defrauded over
several years by a friend whom he trusted, culminating in a transfer of both of his
properties.54
The Court quoted the trial Judge:
Whether Mr Fairless failed to take reasonable care must be judged in the context of the facts as I have found them to be. The failure to read the documents, or take them away, or obtain advice, may in themselves be regarded as indicating a lack of care, or as a cause of the loss. But the wider context explains why such things occurred … Mr Fairless’ knowledge was that which had been represented or induced by Mr Doran. He was led by fraud into a false sense of understanding and accordingly signed the relevant documents without exercising that degree of scrutiny and care which may otherwise have been the case. The false sense of understanding was brought about by a complex of factors including what was said, his sense of trust and the manner of presentation of the documents to him.
The same could be said of the Burmeisters. They accepted the false statements of
Mr Geoffrey Clayton and his associates, and had a false sense of understanding of what they were committing themselves to.
51 Land Title Act 1994 (Qld), s 189(1)(b).
52 Law Commission Review of the Land Transfer Act 1952, above n 30, at [11.57].
53 At [11.58].
54 Registrar of Titles v Fairless [1997] 1 VR 404 (VCA).
[58] Following its review paper, in 2010 Law Commission released its report,
A New Land Transfer Act.55 The Law Commission noted that the Land Transfer Act
1952 does not refer to the impact of contributory fault, but that contributory negligence can apply under s 172(a).56 It was noted that there was the option of reducing or barring compensation where a person had contributed to their own loss or indeed to exclude contributory negligence as a ground for reducing loss.57 The Commission favoured an approach where compensation was reduced but not necessarily barred altogether where a party had contributed to its own loss. It also noted that the balance of authority favoured an interpretation that contributory negligence should be available where it is available under the common law and:58
This means that it does not apply where a person has committed an intentional tort but only where there is a breach of statutory duty or negligence.
[59] It was also noted:59
Under the Contributory Negligence Act there would be no ability to reduce compensation where, for example, the complainant had facilitated the fraud by signing a blank transfer document. For this reason, we do not support applying the Contributory Negligence Act to compensation claims under the bill. Rather, clause 20 of the Bill deals directly with the matter and provides that compensation can be reduced where the complainant has contributed to the loss.
[60] No doubt the Registrar-General had these considerations in mind in not pursuing a contributory negligence defence in this case. In addition to his interpretation arguments, what Mr Burns is really arguing for is a reduction in compensation to take into account the Burmeisters’ actions in signing over a blank document and handing over title deeds on the basis of trust. The Law Commission’s proposed bill would accommodate such a consideration. But the Land Transfer Act
1952 in its present form does not, and I cannot read it in.
[61] Mr Burns’ assertion that the “carelessness” of the Burmeisters should disentitle them to a claim, ignores the complexities that arise when there is fraud. Is
55 Law Commission A New Land Transfer Act, above n 41.
56 At [4.20].
57 At [4.23].
58 At [4.27].
59 At [4.28].
it careless to rely on a person who is trusted because of a long association? Here the Burmeisters had good reason to trust Mr John Clayton, but unfortunately on his honest recommendation they extended that trust to his son, Mr Geoffrey Clayton. Mr Burns would argue that no person who signs a blank document has a moral right to claim full compensation. But there are policy issues here which would be best determined by the legislature, or by a Court exercising a statutory discretion, as proposed by the Law Commission. Under the present legislation there is no discretion to reduce compensation for fault, and no basis for reading in such a condition, or straining the natural meaning of “deprived” and “… by this Act is barred” by implying some qualifying words.
[62] I conclude that the Burmeisters may claim compensation under s 172(b).
Amount of compensation
[63] Section 179 of the Land Transfer Act 1952 provides:
179 Measure of damages
No person shall, as against the Crown, be entitled to recover any greater amount for compensation in respect of the loss or deprivation of any land, or of any estate or interest therein, than the value of that land, estate, or interest at the time of that deprivation, together with the value of the messuages and tenements erected thereon and improvements made thereto (if any) prior to the time of that deprivation, with interest at the rate of 5 percent per annum to the date of judgment recovered.
[64] It has been held that this section only applies to claims under s 172(b).60 In McNicholl v Attorney-General, Tompkins J held that s 179 does apply to claims under s 172(a).61 In that case because it was a claim under s 172(a), and s 179 did not apply, Tompkins J felt able to calculate damages to put the plaintiff “in the same
position, so far as money can do it, as if the wrongful act complained of had not been
done”.62
However, where the claim is under s 172(b), s 179 applies and so
Tompkins J’s approach cannot be applied. When s 179 does apply, the method of
60 McNicholl v Attorney-General (1996) 3 NZ ConvC 192,453 (HC) at 192,456.
61 At 192,456.
62 At 192,456 citing Registrar of Titles v Spencer (1909) 9 CLR 641 at 645.
calculation was set out in Russell v Registrar-General of Land where the Court of
Appeal stated, in relation to the predecessor section:63
It is contended that the value of the land lost is not the limit of the compensation. In my opinion that is the limit of the damages – that is, they are entitled to the value of the interest in the land (and the buildings on it) of which they have been deprived – the value relative to the other part of the land leased to them.
[65] When Mr Chesterman submitted that the Burmeisters should be awarded the full amount needed to discharge the ASB mortgage, he was effectively arguing for a gloss on the section whereby despite its plain words the Court has an overall discretion to go beyond the value of the land at the time of deprivation, together with interest at five per cent per annum. Although the cut-off at the value of the land is arbitrary and will have the consequence that the Burmeisters, unless the ASB continues to be merciful, will lose their land because of the extent of the indebtedness to the bank, I do not feel able to contort the language in the way proposed. The meaning of the section is entirely clear. There is nothing to indicate a statutory intention to extend the provision of compensation beyond the “value of the land” at the time of deprivation. This is the approach adopted in Russell v Registrar- General of Land.
[66] Mr Chesterman relied on the High Court decision of Waller v Davey where Harrison J commented obiter that the proprietors in that case who had mortgages fraudulently registered against their titles would have a right to claim compensation
under s 172(b), and that the limits of their claims should be the amounts required to
discharge their mortgages less any sums paid by another party.64
These comments
appear to have been made without the benefit of any argument and to be an aside. It is not clear that the attention of the Judge was drawn to s 179.
[67] Mr Chesterman also referred to a number of Australian decisions, but these are of no assistance because the express provisions of those sections are different.
He also relied on Marlborough District Council v Altimarloch Joint Venture Ltd
63 Russell v Registrar-General of Land, above n 49, at 1229. At 1231, the Court again affirmed that “the difference between the two values [of the interests held before and after the deprivation] is the measure of damage.”
64 Waller v Davey [2005] 3 NZLR 814 (HC) at [167]. Reversed on appeal, but not on this point.
where the cost of correcting the position was awarded even though it far exceeded
the market value of the property.65
Again, that case is of no assistance given the
express words of s 179. The compensation provisions of any given jurisdiction must turn on the precise formula set by the legislature in that jurisdiction.
[68] It is to be noted that the Law Commission, in its draft bill,66 proposes a
similar provision to s 17967 but gives the Court a broad overall discretion as to the
quantum of the final award.68
Regrettably there is no such ameliorating provision in
the present s 179 or elsewhere in the Land Transfer Act 1952. To accept Mr Chesterman’s interpretation would be to do violence to the language of s 179. It would vary the express and unambiguous words in the Act on the grounds of
fairness. I will not do that.
[69] For the same reason I will not award compound interest. The reference in s 179 is to interest at five per cent. There is no reference to compounding interest. Given that the rate is explicit it could be anticipated that the legislature would have expressly provided for any rate of interest beyond ordinary interest. It has not done
so.
[70] There may be issues about when the Burmeisters were deprived of the property. Was it when the property was transferred from the Burmeisters in 2001 or when the mortgage was registered? It was observed in Rutu Peehi v Davy that the time of deprivation was the time of the registration of the indefeasible interest.69 If this is so it may be that the deprivation was not in 2001 as has been proposed so far, but rather the later date when the ASB registered its mortgage. In Professor Hinde’s
Principles on Real Property Law the date of deprivation is noted to be the date upon
which the right to recover possession became barred by the Land Transfer Act
1952.70
That might well be the date when the ASB got title. If that was the case
65 Marlborough District Council v Altimarloch Joint Venture Ltd [2012] NZSC 11, [2012] 2 NZLR
726.
66 The draft “Land Transfer Bill” is set out in Part 3 of the Law Commission’s report: A New Land
Transfer Act, above n 41, at 197.
67 Clause 19(1)(a).
68 Clause 19(2)(b).
69 Rutu Peehi v Davy (1890) 9 NZLR 134 (SC) at 148.
70 GW Hinde, Neil R Campbell and Peter L Twist Principles of Real Property Law (2nd ed, LexisNexis, Wellington, 2007) at 406.
there would need to be a valuation at that time. This point has not been the subject of submissions.
[71] Further, the figures establishing the quantum of the loss were not the subject of detailed submissions. In particular, I have not had submissions from the plaintiffs on the amounts they received. Thus, I seek further submissions from the parties as to the amount of damages that should be awarded, given my conclusions in this judgment.
Conclusion
[72] Section 172(b) of the Land Transfer Act 1952 provides for compensation to be paid to a former registered proprietor who was deprived of an estate or interest in the land by fraud, and who was barred by the Act from recovery. “Deprived” has the meaning of “dispossessed” or “stripped” and the concept of “without carelessness” cannot be added.
[73] “Barred” means barred by the Act, and includes the bar created by the indefeasibility provisions of the Act in ss 63(1) and 183(1) which preclude a claim against a bona fide registered proprietor (including a mortgagee) who has obtained its interest in the land from a party who has defrauded the plaintiff.
[74] The Burmeisters therefore, being deprived of their land, and being barred from claiming against the ASB by virtue of the indefeasibility provisions of the Act, can claim under s 172(b).
[75] It is unnecessary for the Court to carry out the artificial exercise of determining the extent to which, but for the indefeasibility provisions of the Act, the Burmeisters would have succeeded in a claim against the ASB at common law or equity. The Burmeisters do not have to prove they could have succeeded in a claim at common law or equity in 2001. The application of the doctrine of non est factum is irrelevant.
[76] There is no provision in the Act which permits the claim of the Burmeisters to be reduced because of their contribution to their loss.
[77] The Burmeisters are therefore entitled to compensation from the Registrar- General of Land. The amount is dictated by the upper limit imposed by the application of s 179 of the Land Transfer Act 1952, which limits their claim to the loss of the value of the land at the time of deprivation. They cannot claim for the full amount of their loss, being the amount owed to the ASB Bank of in excess of
$640,000.
[78] Section 179 makes express provision for the payment of ordinary interest at five per cent. The ability to award compound interest cannot be awarded in the face of this express provision.
[79] It can be observed that as a consequence of these conclusions neither the Burmeisters or the Registrar-General will derive a judgment that they consider just. The Registrar-General has to pay in full and is not able to claim a deduction for the Burmeisters’ own contribution to their loss, and the Burmeisters are entitled to significantly less than their actual loss because of the application of an arbitrary measure. However, that is the consequence of a regime which has been in place without significant change since 1870. The Law Commission draft bill addresses both issues.
Result
[80] Judgment is entered for the plaintiffs who are entitled to compensation from the Registrar-General of Land.
[81] The plaintiffs are to file submissions on the date of deprivation and the quantum of the amount of compensation on that date and other relevant dates, and the amount of interest owed as ordinary interest which is not compounding, within
21 days. The defendant’s are to reply within a further 14 days. I will then determine quantum on the papers.
[82] Costs are reserved. Submissions for the plaintiffs are to be filed within 21 days and by the defendant within a further 14 days.
[83] Leave is reserved to the parties to apply for a variation of the orders in
[78]-[79].
……………………………..
Asher J
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