Title Coming! Ready or Not! - the Land Titles Bill; 業權草案: 如箭在弦!一切就緒?

Author(s) Sihombing, JE

Citation Hong Kong Lawyer, 1999, v. May, p. 50-56; 香港律師, 1999, v.May, p. 50-56

Issued Date 1999

URL http://hdl.handle.net/10722/44894

Rights This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Cover Story

IntroductionIn 1989 the Registrar General, now theLand Registrar, set up a working partyto consider the conversion of the deedssystem prevailing under the LandRegistration Ordinance (Cap 128) intoa system of title registration.Thereafter, the Law Society and otherinterested bodies studied theseproposals and a series of draft bills. Abill was presented to LegCo in 1994but later withdrawn. It is nowpresumed that another draft of a LandTitles Bill will be presented to LegCoduring the current 1998-1999 session.The comments below are made on the14th draft, dated 18 November 1998.

The Existing SystemThe existing system of land dealingsis that of a deeds system under whichlegal title to land, or to an interest inland, is derived not f rom theregistration of a dealing, but from theexecu t ion of the appropr ia teinstrument. Subject to the terms of theOrdinance, registration of instrumentsprovides priority, notice and a recordof transactions with land.

Section 4 of the Ordinanceabrogates the doctrine of notice so that

al though reg is t ra t ion is notmandatory, in practice is has becomeso. Until 1991, conflicting unwritteninterests could be ignored by a partydealing with land; but after Wong ChimYing v Cheng Kam Wing [1991] 2 HKLR253, priority for such interests weregoverned by common law principles.

The Torrens SystemThe 'registration of titles system' soughtto be introduced by the Land Titles Billis probably synonymous with 'theTorrens system', a scheme for theregistration of titles introduced in SouthAustralia in 1857. The aim of that systemwas to provide for certainty andsimplicity in land dealings and to avoidthe complex, cumbersome, expensiveand uncertain aspects of the deedssystem. The Torrens scheme wasquickly adopted in the other AustralianStates, Fiji, New Zealand, earlyMalaysian States, as well as by AfricanStates. While there are other hybridschemes under which registrationeffects title, the Torrens system providesthe most extensive regulation of landdealings and would seem to be themodel for us in Hong Kong (althoughearly attempts to introduce Torrens into

the New Territories in 1902, andgenerally through Hong Kong in 1920,did not come to fruition).

If the Bill does not seek to providefor Torrens, but is some hybrid formof registration of title system, then agreat chance has been lost to introducea clear, workable system that gives anindefeasible and certain title.

Characteristics of theTorrens SystemThere are probably nine characteristicsthat define the Torrens system anddistinguish it from the deeds system.These are title, indefeasibility, thecaveat system, the noting of interests,the position of trusts, the role of'conscientious obligations', thecompensation scheme, antagonism toequity and paramount interests.

Under the Torrens system, title to,or to an interest in, land comes fromthe registration of an instrument instatutory form. Thus registration of astatutory transfer will vest the legal orstatutory title to the land in the newregistered proprietor.

Pending perfection, a registrableinterest can be caveated for priorityand protection; in common law termsthe interest would be considered to beequitable.

On registration this title becomesindefeasible, and is guaranteed by theState. Indefeasibility is the cornerstoneof Torrens and makes ti t le'unimpeachable or unexaminable','conclusive', and one which has'immunity from attack.' Assets Co vMere Roihi [1905] AC 176; TemenggongSecurities Ltd v Registrar of Titles[1974] 2 MLJ 45. There are twoforms of indefeasibility: immediateindefeas ib i l i ty , under whichregistration cures any defect in theinstrument and makes title immunefrom attack other than for theregistered proprietor's fraud; or thatof deferred indefeasibility, where thetitle is subject to attack from a variety-of interests and really only becomesindefeasible when title is passed onto'. j

50 HONG KONG LAWYER MAY 1999

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a bona fide purchaser for value. Anegative aspect of indefeasibility is thatfraud can render a title defeasible andit is subject to specific, statutoryinterests. Despite this, the indefeasibletitle is the most sound of titles,especially because it is usually backedby the State so that compensation canbe paid through an Assurance Fund.

Some unregistrable interests maybe caveated, whilst others may benoted on title. Equity has no place inthe Torrens scheme and the registercannot be used to create a trust.However, a trust created outside theregistrar can be acknowledged inseveral ways, such as enabling thebeneficiary to caveat.

Some rights usually contractual,referred to as 'conscientious' or 'inpersonam' obligations, created by orotherwise binding on the registeredproprietor, can affect his indefeasibletitle by making him liable to variousremedies, including specificperformance. Barry v Heider (1914)19 CLR 197; Hon Ho Wah v UMBC[1994] 2 MLJ 385.

Certain unregistered and unnotedInterests automatically affect title, suchas easements, regardless of theregistered proprietor's knowledge ofthem or involvement in their creation.These paramount interests in generallaw terms are those which 'run withthe land'. In the Bill these are called'overriding interests'.

What are the Main Features ofthe Land Titles Bill?Does the Land Titles Bill function as aTorrens system? The answer to this isyes, although with some hesitancybecause several features of the Bill donot mirror general Torrens principles.It must be said that the Bill, in itspresent form, is not easy to read andcomprehend. Some of the problemsrelate to definitions but there are alsoincons i s tenc ies tha t hinderinterpretation. To analyse the Bill, thenine characteristics of Torrens will beused as a guideline.

The question of the date ofconversion will not be discussed. Thatis more a matter of policy than ofsubstance. However, in light of theexperience in another jurisdiction,namely Penang, where conversion hasbeen delayed due to local problems, thewriter must indicate a bias in favour ofimmediate or midnight conversion.

Title and the Bill: Clause 2(1)definitions, and Clause 19(1)In most Torrens jurisdictions,registration vests an indefeasible titlein the registered proprietor which is'good against the world' subject to anystatutory exceptions, but withoutexpress mention of 'ownership' of theland or interest.

. However, in providing for theeffect of registration, Clause 19(1)refers to ownership rather than title.Further, in its current form, whilst itprovides that 'immediately upon aperson becoming the owner ofregistered land there shall vest in thatperson' various rights, there is noindication how this ownership hasbeen obtained. The definition of'owner' in Clause 2(1) 'means theperson named in the Land Registrar',so presumably registration, whichcomplies with Clause 4, is necessaryto make one an owner. But there is nodefinitive statement linking the rightsgiven by Clause 19(1) with the need toregister to procure these rights.

The owner will hold subject toClauses 20 and 77, and to variousrestrictions including covenants in theGovernment lease, the inherent benefitsand burdens of ownership of a unit in amulti-storey building, and overridinginterests. Again the emphasis here is onownership rather than on restrictionsto which the registered title is subject. Itremains to be seen whether thisdistinction means that the Bill is alteringthe basic structure of Torrens.

Throughout the Bill, 'ownership'is used in lieu of the more traditional'title' with some strange results; thusfor example a 'chargee' is defined as

'the owner of a charge'. More usually,the term, were definition needed,would refer to the chargee as theregistered proprietor of a charge. Stresson ownership as the source of rights,rather than title given by registration,is equivocal and echoes the deedssystem. Hopefully this is merely asemantic problem!

Indefeasibility and the Bill:Clause 19(1) and Clause 78There is no reference to indefeasibilityin the Bill, although Clause 27 refers topossible defeasibility in certaincircumstances. Clause 19(1), in vestingcertain rights in the owner, does notmake a definitive statement about theowner's title being indefeasible. But thatinterpretation can be derivedfrom an understanding of Torrensprinciples, assuming that theframework of the Bill is to provide forTorrens rather than a hybrid system.The indefeasibility formula also enablesclassification of the title^ or as here'ownership', as immediate or deferred.

Fraud will affect 'ownership', butin the context of either rectification bythe court (Clause 77) or the indemnityprovisions (Clause 78). Clause 77enables the court to order rectificationwhere registration was obtained byfraud or use of a void or voidableinstrument. If there is indefeasibilityunder the Bill, then this Clauselooks like providing for deferredindefeasibility. Fraser v Walker [1967] 1All ER 169. Clause 77(2) does refer tothe factors that will affect 'the title ofthe owner of registered land'; this isprobably the closest the Bill gets totreating title, rather than ownership,as the fulcrum of Torrens.

Clause 78 also provides that fraudcan be a matter for payment ofcompensation where a person suffersloss in various cases.

Cautions and Definitions:Clauses 2, 30, and 66 to 75The Bill provides for two forms ofcautions as the equivalent to the

HONG KONG LAWYER MAY 1999

Torrens caveat. Briefly, Clause 66(1)and (2) refer to the right of certainparties dealing with land to register aconsent caution, with the consent ofthe other party to the transaction, andClause 66(3) enables a non-consentcaution to be registered by a claimantto an interest. The non-consent cautionwould seem to apply where the ownerdisputes the rights of the cautioner. Itis not clear whether the caution processwill function as the Torrens caveat,which does inhibit registration ofadverse t ransact ions wi thoutconsultation of the caveator. It remainsto be seen how the system will functionin practice.

The terminology is again a matterof concern. A caution is 'registered'.The inherent meaning of 'registration'in a Torrens system is that it 'vestsand divests title'; a caveat should thusbe entered on title as it creates nothingand merely acts to protect for prioritypurposes. By reference to thedefinitions in Clause 2(1) of 'entry' and'register', it seems that there is nodistinction between them. This seemsto continue the form of registrationunder the current Land RegistrationOrdinance , which does notdiscriminate between claims tointerests in land and a record of title.

Provision is also made forregistration of a judicial inhibition,which prevents registration ofinconsistent dealings (Clauses 70 to 72)and for a registrar's caution, althoughcalled a restriction (Clauses 73 to 75).

Conscientious Obligations:Equity and Trusts —Clauses 26, 65 and 77Clauses 26 and 65 have the effectof restricting the role of Equity.Clause 26(1) provides that 'dealings',ie those transactions in land effectedby the owner and another, are noteffective until registered and that anunregistered dealing will operate onlyas a contract. Dealings include charges(Clause 31ff), transfers (Clause 38ff)and leases (Clause 43). However

Clause 26(4) proscribes the right tospecific performance for such acontract. Thus no equitable relief isavailable for the owner's breach ofcontract and common law damagesonly would be available. Thisrepresents a major change in the lawby removing one of the most valuableaspects of relief for land contracts.

Further, the proscription againstspecific performance tends to classifyindefeasibility as being immediate, butas noted, Clause 77 seems to providefor deferred indefeasibility. This isanother example of the ambivalencefound in many of the clauses in theBill.

Equity is fur ther limited byproscribing the use of the register tocreate a trust. Where a trust has beencreated off the register, then Clause 65permits the trustee to be described 'astrustee', but details of the trust cannotbe registered.

Compensation:Clauses 78 to 83In general the Bill provides for alimited (Clause 78) indemnity to bepaid where a person suffers loss byreason of 'an entry in or omission from'the Land Register, title records, orapplications record due to certaininstances of fraud or mistake ofanother (Clause 77). Generally if theindemnity is paid, then the rights ofthe recipient against the defaultingparty must be subrogated to theGovernment (Clause 82). Errors insurvey are not the subject of possibleindemnity (Clause 83).

Overriding Interests:Clauses 19(2) and 21Overriding interests are those interestswhich are not registered, entered ornoted on the title but to which theowner takes subject (Clause 19(2)).They are varied and include customaryrights over land subject to Part II ofthe New Territories Ordinance(Cap 97), certain easements, certainfirst charges such as those unders 18(1) of the Estate Duty Ordinance

(Cap 111), certain leases for terms notexceeding 3 years and certain publicrights. In other words these rightsautomatically run with the land,regardless of whether they areidentified at the time of the dealingand without the need for theirregistration. Clause 21(2), (3) and (9)do provide for their registration andsubsequent removal from the register.

Overriding interests do not detractfrom an indefeasible title. All Torrenssystems acknowledge the existenceand enforceability of these interests.

Some Additional Features:Clauses 2(2), 23 to 25, 41and 91Clause 2(2) requires a solicitor to verifythe application for registration of anymatter. This casts a heavy burden onthe solicitor because Clause 91(7)provides for criminal sanctions wherethe statement is made 'falsely orrecklessly' (see Davison, supra).

No document of title will issue inrespect of registered titles. Instead, theowner of land can apply to theRegistrar for the issuance of a 'state oftitle certificate' to show all currententries in the Land Register, subject tooverriding interests and subsequententries (Clause 23).

On the sale of land, the vendor isrequired to provide the purchaser witha copy of the state of the title as well asdetails of dealings which have beenentered or registered on that title.Details of overriding interests mustalso be provided (Clause 41). WhileClause 24 allows the purchaser tosearch the register, Clause 23 ismandatory against the vendor.

ConclusionThe writer is looking forward to theimplementation of a Torrens systemin Hong Kong. Hopefully anyproblems with the Bill will be 'ironedout' in its passage through LegCo.

Judith SihombingUniversity of Hong Kong

Faculty of Law

HONG KONG LAWYER MAY 1999 53

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54 HONG KONG LAWYER MAY 1999

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Clause 91(7) of the LandTitles Bill

Solicitors with a sense of history willwonder whether the Government

is reaching back into its earliesthistorical memories in the heavycriminal sanctions imposed onsolicitors in Clause 91(7) of the LandTitles Bill.

The penalty in the Van Diemen'sLand Act (the grandfather of our

original Land Registration Ordinance)for wilfully destroying, embezzling,secreting, or forging, etc any memorialwith intent to defraud was deathwithout benefit of clergy (see articleby W K Thomson in (1974) 4 HKLJ 242at 245). Our ordinance (originally s 24of Ordinance No 1 of 1844) had apenalty of up to 14 years imprisonment

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for this.The punishment for solicitors who

transgress Clause 91(7) of the Bill isnot as physically abhorrent but theeffect is equivalent to professionaldeath.

Clause 91 is a greatly expandedversion of s 24 of the present LandRegistration Ordinance (Cap 128) withsome new offences added. The greaterpart of Clause 91 is unobjectionable.

The present s 24 refers todestruction and tampering, etc ofmemorials, deeds, etc deposited in theLand Registry and registers, books, etc

56 HONG KONG LAWYER MAY 1999