(2) Good Faith Requirement
E. Possible Section 86 Application Scenario
This possible working example of the application of section 86 was drafted for the Aberdeen University Conveyancing (Honours) class of 2013/2014.81
Mr and Mrs Grabbie have looked after their aged neighbour John Kindness at Kinmuck in Aberdeenshire, for almost ten years. Mr Kindness’s only relation is his son Bruce who lives in Australia. In addition to his house property Mr Kindness owns, under a separate title, a three acre field where he keeps a pair of Shetland ponies. The Grabbies have a Welsh cob which shares the field with the Shetland ponies. Mrs Grabbie looks after the land and the three ponies. In January 2014, in declining health, going blind and showing signs of dementia, Mr Kindness gave Mr Grabbie a full power of attorney. At the same time he says that he wants to talk to his son about the Grabbies getting a liferent over the pony field when he dies. Kindness’s solicitor, who drew up the power of attorney, is present at the signing and hears his client’s statement about the field. In October Mr Grabbie gets Mr Kindness to sign a paper telling him, untruthfully, that it is a council tax exemption document. In fact, it is a letter from Kindness to his solicitor stating that he has decided that the Grabbie’s should get the field outright and instructing that it be transferred to Mrs Grabbie as soon as possible, with all necessary formalities dealt with by Mr Grabbie in terms of the power of attorney he holds. This deception is only possible because of Mr Kindness’s eyesight and there is no question of his lacking capacity. Mr Grabbie takes the letter to Kindness’s solicitor who draws up missives and a disposition transferring the field to Mrs Grabbie. The disposition is signed by Grabbie acting on the basis of his authority under the power of attorney.
In January 2015 the field property is registered in Mrs Grabbie’s name in terms of the Land Registration (Scotland) Act 2012. She informs the Council that she is owner and arranges for payment of the council tax from her bank account. Mrs Grabbie continues to attend to the ponies in the field on a daily basis but also has the property re-fenced. In February 2016, after moving the ponies to her daughter’s farm, she sells the field to property developer Phil Marbles who knows nothing of the circumstances of Mrs Grabbie’s
81 For further examples of the working of the 2012 Act, see Report on Land Registration (n 4), Part 25.
acquisition. The field is sold for £9,000. Mr Marbles obtains possession of the field and commences a market gardening operation pending his intended application for a change of use for development. In March 2016 the field is registered in Mr Marbles’ name. In August he obtains planning permission to erect fifteen houses and the field is now valued at £180,000. Prior to that, in May 2016, John Kindness died. After the funeral his son from Australia goes drinking with the Grabbies and tells them that he has inherited the entire estate of his father who died intestate. At the end of a long evening Mr Grabbie tells Bruce Kindness what he did with the field. In the sober light of day Kindness reports the transgression to his dad’s solicitor and asks if the transfer to Mrs Grabbie and the subsequent one to Phil Marbles can be reduced because of Mr Grabbie’s fraud.
An Edinburgh QC gives the Kindness solicitor an opinion to the effect that:
(i) in terms of section 86 Marbles got a good title to the field on registration in his name in March 2016, and; (ii) that the John Kindness estate is entitled to compensation from the Keeper on the basis of sections 94 and 95. The opinion adds that, applying section 95(1), the increase in value is not a consequential loss which the Kindness Estate can recover because it was solely due to Mr Marbles’ efforts and, for this reason, the compensation payable will be quantified on the basis of value of the field at the time the right was lost – i.e. £9000.
F. Conclusion
The SLC Report, progenitor of the 2012 Act, in a part on the “[e]ffect of registration," says that there are two types of inaccuracy under the 1979 Act “which we call in the discussion papers ‘actual’ inaccuracy and ‘bijural’
inaccuracy." The Report goes on to explain:82
An inaccuracy is actual if what the Register says in simply untrue. An inaccuracy is ‘bijural’ if what the Register says is false in terms of general law, but true for the purposes of the Act.
In a subsequent part on “[i]naccuracy in the register” the Report says that “as a result of the new scheme bijural inaccuracies83 will disappear”
for which “there will be few mourners.”84 One takes this to mean that the
82 Report on Land Registration (n 4), para 13.7.
83 On this see P O’Connor “Deferred and immediate indefeasibility: bijural ambiguity in registered land title systems” (2009) 13 Edin LR 194-223.
84 Report on Land Registration (n 4), para 17.33.
revised registration system of the 2012 Act will square more with general property law than the 1979 Act’s system did. As the Explanatory Notes state: “[t]he Act seeks to re-align registration law with property law by, for example, adjusting the circumstances in which a person can recover their property rather than only receive compensation under the state guarantee of title from the Keeper.”85 But all that said, section 86 represents a compromise – involving the ‘integrity’ or ‘realignment’ principle – in terms of which “in certain cases the registration of an invalid deed will confer on the good faith grantee an unchallengeable right.”86
Without acknowledging the utility of the bijural analysis, section 86 does seem to be a departure from the general position of the 2012 Act insofar as this seeks to bring the registration system closer to the general law. The section imports a corporeal moveables exception to nemo dat in the justification for recognising the entitlement of a good faith acquirer in circumstances in which there is nothing to suggest that the disponer does not have a right of disposal. The position of section 86 is seen to be analogous to that of section 25 of the Sale of Goods Act 1979 and, to that extent – as the SLC position seems to be – this is not an alternative regime but, rather, a realignment providing a new statutory answer to a particular question, if not deriving from, at least with some relationship to existing law.
An alternative perspective is that the 2012 Act’s treatment of fraud gives a reduction window to the defrauded party and, to that extent, eases the extreme position of the 1979 legislation. This, combined with the justification for benefitting an honest acquirer in circumstances which raise no doubt, is part of a new registration law system. To that extent, if there is any utility in the bijural analysis, one might say that this is a replacement of the bijural content rather than a departure from the bifurcated approach implicit in bijuralism.
What may be seen as the extreme – but, of course, widely subscribed to – idea of registration wiping the fraud slate clean is replaced but the statute, nonetheless, retains a system allowing what amounts to relatively easy condoning of the wronging of an owner of land deprived by fraud.
The scenario produced for the 2013/14 Aberdeen Conveyancing Honours class seems to me to demonstrate that.
Seeing the one year period of the 2012 Act as a form of negative prescription could be contrasted with the twenty year period applying to
85 Explanatory Notes (n 29), para 3.
86 Report on Land Registration (n 4), para 13.36.
an owner’s right to recover stolen moveables from a party innocent of the theft.87 But, of course, the real right of ownership in land is imprescriptible88 and, on that basis, we probably cannot see section 86 as a form of negative prescription. That would, in any event, be problematic because it is not an external challenge to the registration system89 but integral to it.
This rather leads to the conclusion that section 86 is consistent with the SLC’s conceptual system in the 2012 Act. The section provides for a “realignment” of general property law in bringing recognition of the good faith purchaser’s interest into the equation. The radical extent of this
“realignment” is demonstrated by the policy borrowing from moveable property. Whoever would have thought of “mobilia non habent sequelam”
applying to land?
Conceptual structure and system apart, is the policy position of section 86 a good one? That, it is suggested, comes down to the question how far the security of a registered deed, in giving priority to the property, should go. Of course, one needs to address the effects of policy to be in a position to make an informed choice. In a recent contribution focussing on registered land titles in English law Dr Simon Cooper, referring to the solution route of “correction power… controlled by a clearly defined and hard edged rule," observes that:90
[t]he quality of predictability inherent in such a rule would avert potential costs of policing and enforcing property claims, it would allow better forecasting of the occasions for correction and ensure improved information about risk, thus removing a potential deterrent to entering the land market.
Prima facie, it seems that section 86 scores relatively well on these criteria.
While section 86 is an innovative solution which much to commend it this writer is not convinced that the position of good faith should give priority over an act of fraud after only one year. From the point of view of the common law of Scotland that would be a radical concession and it is difficult to see why such a position should be adopted in the context of a shift from positive registration to a system intended to be generally closer to the common law.
87 Prescription and Limitation (Scotland) Act 1973, Schedule 3 (g).
88 Ibid, Schedule 3 (a).
89 See Johnston, Prescription (n 23), para 3.02, arguing that if negative prescription were allowed to extinguish rights “the standing of the property registers would soon become very dubious.”
90 Simon Cooper “Regulating Fallibility in Registered Land Titles” (2013) 72 CLJ 341-68, 346.