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Essays in Conveyancing and Property Law

 | 
Frankie McCarthy
, 
James Chalmers
, 
Stephen Bogle

Defects in Acquisition and How to Fix Them

9. Bona Fide Acquisition: New in Scottish Land Law?

David Carey Miller

Note de l’auteur

Thanks to 2014 Aberdeen LLB Hons graduate Katriona Dunn for her invaluable contribution as a research assistant. I am also grateful to Dr Craig Anderson, Mr Malcolm Combe, Dr Simon Cooper, Professor Roderick Paisley, Professor Kenneth Reid, Dr Andrew Simpson and Dr Andrew Steven for commenting on my drafts or discussing the paper’s subject with me; but the flaws and failings are mine alone.

Texte intégral

A. Introduction

1It is a privilege and a pleasure to write in recognition of the outstanding contribution of Professor Robert Rennie. The law and legal education of Scotland has traditionally recognized the subject of conveyancing as one demanding acute legal skills directed to matters of obvious social utility. Robert Rennie has been a standard-bearer in the field.

  • 2 R Rennie, S Brymer, “A Bold Step Forward” (2012) 57 (3) The Journal of the Law Society of Scotland (...)
  • 3 Registers of Scotland, Consultation on Implementation of the Land Registration etc. (Scotland) Act (...)

2The Land Registration etc. (Scotland) Act 2012 (“2012 Act”) has been described as a “bold step forward” by Scottish conveyancing specialists Professors Robert Rennie and Stewart Brymer.2 The primary purpose of the 2012 Act is to provide a new legislative base for the Land Register and reform and restate the law on the registration of rights to land.3 The limited focus of this paper is on a provision making possible acquisition by a good faith party from a disponer (i.e. transferor) who does not have a valid title.

  • 4 Short ’s Trustee v Keeper of the Registers of Scotland 1996 SC (HL) 14 at 26.
  • 5 Scottish Law Commission, Report on Land Registration (Scot Law Com No 222, 2010) recommendation 62( (...)

3The 2012 Act will replace much of the Land Registration (Scotland) Act 1979 (“1979 Act”) and the Land Registration (Scotland) Rules 2006 (“2006 Rules”). The 1979 Act has come under considerable criticism. It was some twenty years old when Lord Jauncey of Tullichettle said: “Nobody could accuse the [1979] Act of being well drafted.”4 The context of this paper is the 2012 Act’s policy departure from the “registration of title” system under the 1979 Act which provided a comprehensive guarantee of title linked to possible compensation. The Scottish Law Commission Report (“SLC Report”), from which the 2012 Act derives, recommended a departure from the Keeper’s ‘Midas touch’ under the 1979 Act with, instead, the effect of registration “determined by the relevant legislation and the general principles of property law.”5 This short paper cannot deal with the differences between the 1979 and 2012 statutes in any detail; after a brief overview comment on the apparent change of direction, the focus will be on a provision – section 86, in Part 9 of the 2012 Act – dealing with invalid titles including the situation of what might be called a “registered fraud” – i.e. the situation of a transaction void on account of fraud – therefore invalid – which gets on to the register. Under this section, provided there has been a total period of one year’s possession, a good faith party registered as proprietor acquires ownership) through a process of ‘realignment’ even though his or her transferor’s title was invalid – and may have been obtained by fraud.

4In permitting bona fide acquisition, section 86 is notable in a number of respects and the provision also raises certain questions. It appears to be a novel form of acquisition in Scottish land law. But is it positive or negative prescription, or, rather, is it simply a statutory form of original acquisition? It is necessary to examine the role and functioning of section 86, as well as the context from which it arose and that in which it applies, in order to reach a conclusion as to its novelty and nature. This contribution will also seek to comment on the form of acquisition the provision represents and, perhaps more importantly, its policy position.

B. Context of Section 86

  • 6 In the Abolition of Feudal Tenure etc (Scotland) Act 2000, s 1.
  • 7 Scottish Law Commission, Report on Abolition of the Feudal System (Scot Law Com No 168, 1999).
  • 8 On this and other major legislative developments in land law see R Rennie, Land Tenure in Scotland (...)
  • 9 See A J M Steven “Scottish Land Law in a State of Reform” 2002 Journal of Business Law 177, 193.
  • 10 See SLC Discussion Paper on Land Registration: Void and Voidable Titles (DP No 125, 2004) para 1.22 (...)
  • 11 Steven (n 8) 179.

5The Registration Act 1617 introduced land registration into Scotland by establishing the Register of Sasines, a register of deeds subservient to ruling property law. A full and viable land law and conveyancing developed albeit on a model initially overtly feudal. Over time, the feudal factor came to be more relevant in terms of form than substance. Its final demise6 – following a Scottish Law Commission reform project with Edinburgh University property specialist Professor Kenneth Reid as lead Commissioner7 – was the immediate predecessor, in terms of land law development milestones,8 of the reform of the 1979 registration system, the focus of this paper. Unrelated to the feudal factor, the Register of Sasines was beginning to show its age by the latter half of the twentieth century.9 The 1979 Act introduced the Land Register to Scotland, which became operational on a limited area basis in 1981 and gradually extended to the entire country as a register controlling the state of title in respect of all new property transactions. The 1979 Act, largely reflecting an English model10, came to be subject to criticism, not least for its curative effect which put the emphasis on compensation from public funds rather than rectification of the register. One commentator described the 1979 Act as “both badly drafted and conceptually lacking."11

  • 12 (1) Discussion Paper on Land Registration: Void and Voidable Titles (DP No 125, 2004); (2) Discussi (...)
  • 13 Report on Land Registration (n 4).
  • 14 Land Registration etc. (Scotland) Act 2012 (Designated Day) Order, 2014/127, art 2.
  • 15 Rennie and Brymer, “A Bold Step” (n 1), 32.

6In 2002 the SLC commenced an examination of the law. Three extensive Discussion Papers were issued12 and the SLC Report with a draft new Act was published in February 2010.13 The Bill received Royal Assent on 10 July 2012 and a designated day of 8 December 2014 was later announced.14 Professors Rennie and Brymer commented positively, stating that “[t]he Registers of Scotland and the Scottish Law Commission are to be congratulated for undertaking such a much-needed and comprehensive review of our land registration system.”15

  • 16 1979 Act, s 9(3)(a)(iii).
  • 17 See this discussion in Part C below.
  • 18 See DP on LR: Void and Voidable (n 9), para 1.9. See also E Cooke “Land Registration: Void and Void (...)

7Under section 3(1) of the 1979 Act the registered proprietor is owner of the land. Upon the registration of an invalid transaction, the register may be rectified but not to the prejudice of the registered proprietor in possession unless that party caused the inaccuracy by fraud or carelessness.16 If, by B’s act of fraud, the land of registered proprietor A is transferred to C as proprietor, under the 1979 system, C is owner.17 Of course, according to the ordinary rule of property law, A ought to remain owner regardless because he did not intend any transfer of his property and, quite obviously, the right of disposal is key to ownership. That said, the 1979 Act represents the position of a positive system of registration of title in which a conveyance “forged or granted a non domino confers ownership in just the same way as registration of a conveyance which was granted by the true owner and properly executed.”18 The extent to which this position changes under the 2012 Act is the essential subject of this paper.

  • 19 K G C Reid, “Property," in The Laws of Scotland: Stair Memorial Encyclopaedia vol 18 (1993) para 60 (...)

8Section 86 being concerned with acquisition from one without a valid title is pertinent to the situation of a title deed void on the basis of fraud. Of course, the case of a void (i.e. invalid) title is distinguishable from that of a voidable title (i.e. “a subsistent title subject to the possibility of future challenge”19). A measure of the position of a system of registration is, arguably, its treatment of the fraud situation. It is submitted that the extent to which the registration factor has priority over the defect of a fraudulent act is a telling one in assessing the position of the system on the scale between, on the one hand, the position of the principles of property law being controlling and, on the other, that of the overriding primacy of registration.

C. Outline of Section 86

  • 20 s 86 subheading.
  • 21 Under ss 88 and 89.

9Part 9 of the 2012 Act is headed “Rights of persons acquiring etc in good faith." The “etc” refers to provisions relevant to servitudes and encumbrances, not concerned with acquisition as such. This paper is concerned only with acquisition of ownership from a “disponer without valid title”20 in terms of section 86. Part 9 also deals with the good faith acquisition of leases.21

  • 22 s 50(3).
  • 23 s 50(4).
  • 24 See D Johnston, Prescription and Limitation of Actions, 2nd edn (2012) para 17.18.

10The role of section 86 is provided for in section 50 concerned with transfer by disposition; the requirement that ownership of land is transferred by a valid disposition is stated in section 50 (2) in the form of a rule, i.e. that “[r]egistration of a valid disposition transfers ownership.” This positive proposition is fortified by being stated in the negative in the following subsection: “[a]n unregistered disposition does not transfer ownership.”22 The prerequisite of registration provided for in section 50 is stated to be subject to the provisions of “(a) sections 43 and 86 and (b) any other enactment or rule of law by or under which ownership of land may pass.”23 Section 43, concerned with “prescriptive claimants," provides for a provisional form of registration by the Keeper which remains provisional until the normal ten year prescription is completed.24 It may be noted that sections 43 and 86 are complimentary in providing for a non domino transfers in the respective situations of, on the one hand, that fact being known to the Keeper and, on the other hand, it being unknown. Section 43 represents a new application of positive prescription in its familiar role providing for the obtaining of title to land through the passage of time on the basis of an ex facie valid deed; no more will be said of it.

  • 25 Report on Land Registration (n 4), para 23.4.

11The sphere of application of section 86 is defined in subsection 1: a nonowner (“A”) registered as proprietor and in possession of the land purports to dispone the land to a good faith party (“B”). This follows the SLC Report which states that “[t]he first condition for the realignment of rights is that the granter of the disposition in question is not the owner but is registered as owner.”25 The following conditions – continuing the usage of “A” as non-owner registered as proprietor and “B” as good faith acquirer – set out in section 86(3) must be met:

(i) the land has been in the possession, openly, peaceably and without judicial interruption –

  1. of A for a continuous period of at least 1 year, or

  2. of A and then of B for periods which together constitute such a period,

(ii) at no time during that period did the Keeper become aware that the register was inaccurate as a result of A (or B) not being the proprietor,

(iii) B is in good faith,

(iv) the disposition would have conferred ownership on B had A been proprietor when the land was disponed,

(v) at no time during the period mentioned in paragraph (a) –

  1. was the title sheet subject, by virtue of section 67, to a caveat relevant to the acquisition by B,

  2. did the title sheet contain a statement under section 30 (5), and

(vi) the Keeper warrants (or is to be taken to warrant) A’s title.

  • 26 The label “realignment principle” seems more appropriate than “integrity principle” which features (...)
  • 27 RoS, Post Consultation Report (n 2), part 9, para 9.3.

12Section 86 is the most important part of Part 9 of the 2012 Act dealing with the “realignment” of rights.26 In the Consultation on Implementation of the 2012 Act, Professor George Gretton comments as follows on realignment:27

The basic rule in the 2012 Act is that where an entry in the LR is not justified by the deeds, the LR is inaccurate and ought to be rectified. But the Act specifies an exception, in certain types of case where the rule is that the LR is not to be rectified, but instead, the parties should have the rights (or lack thereof) that the LR says they have (or that they lack). This is realignment. It is the converse of rectification. Where there is realignment, the effect is that the entries in the LR are deemed accurate. Accordingly, where there is realignment, no question of rectification can arise.

  • 28 Registers of Scotland, Consultation on Implementation of the Land Registration etc. (Scotland) Act (...)

13The reference to realignment as the converse of rectification is, it would appear, on the basis that realignment provided for in the 2012 Act represent an opposite policy to the general one insofar as, in realignment, the incorrect position prevails and is not open to rectification. It may be noted that the Registers of Scotland describe Part 9 as “an exception to the rule that if there is an inaccuracy in the Land Register it is to be rectified.”28

  • 29 But may do so on a “provisional” basis; see, below, n 32.
  • 30 Prepared by the Scottish Government to assist the reader of the 2012 Act but not forming part of th (...)
  • 31 Explanatory Notes (n 29), para 201.

14Under section 86(3)(b), the fact that the person named as proprietor in the register is not actually the true proprietor must not be known to the Keeper or the acquirer. The acquirer will be in bad faith if he or she knows. The Keeper, knowing that the grantee cannot acquire because the party purporting to be grantor in fact has no right to the property, should obviously not register on a final basis.29 Consistent with recognition of this is the prerequisite of section 86(3)(b) that at no time during the one year period did the Keeper become aware of the ownership issue. The Explanatory Notes30 state that: “[i]n the absence of evidence to the contrary, the awareness of the Keeper referred to in subsection (3)(b) can be deduced from the information on the register.”31 In other words, the Keeper’s state of knowledge is assumed to be consistent with what appears to be the position as reflected on the register and any contrary allegation must be established by reference to the actual knowledge of the Keeper.

  • 32 Johnston, Prescription (n 23), para 17.21.
  • 33 Set out in Land Registration (Scotland) Act 2012, s 43.

15David Johnston QC, in the second (2012) edition of his definitive work on prescription in Scots law, distinguishes the section 86 scenario as “entirely distinct”32 from the provisions that apply to “normal” prescriptive claimants under the 2012 Act’s revised position,33 where the Keeper marks the entry provisional because he or she knows that the applicant named on the register is not the owner. The question whether acquisition in terms of section 86 is a form of prescription will be considered in a subsequent section of this paper.

  • 34 Explanatory Notes (n 29), para 201.

16Turning to the Explanatory Notes, the effect of section 86(1)-(3) is stated to be that:34

if the register shows someone as proprietor, but that person’s title is in fact void, then when that person dispones the title to another (and that second person is duly registered as owner), if the requirements in subsection (3) (including regarding good faith and possession for one year) are met, then that second person acquires ownership.

17This highlights the importance of the good faith and possession requirements, both of which are examined in more detail below.

  • 35 Email message of 20 March 2014 from Kenneth Reid to David Carey Miller. I am grateful to Professor (...)

18Responding to an invitation by the writer to comment on section 86 and its application to a problem scenario – drafted for teaching purposes and presented later in this paper – Professor Kenneth Reid noted that the section’s solution was less radical than the “Midas touch” of the 1979 Act and provided the following example:35

Suppose that land belongs to A. Forging A’s signature, B dispones the land to C, whose title is registered in the Land Register. Under the 1979 Act, C becomes owner on registration and, if C is in possession, A cannot get the land back but must make do with indemnity from the Keeper. Under the 2012 Act, C’s registration has no effect and A remains owner throughout. C then has a claim for indemnity against the Keeper.

19Taking the same situation, but adding that C has disponed the land to D, under the 1979 Act he or she would, of course, be in the same protected position as C. D’s position, like C’s would be secure provided possession was retained. The Register would be inaccurate in showing C or D as owner and could, in principle, be rectified in the event of a loss of possession by the registered owner. Under section 86 of the 2012 Act, provided D’s acquisition was in good faith and the other requirements of the section are complied with, he or she will be owner. In this situation there would be no question of an inaccuracy in the register.

  • 36 Or, perhaps strictly correctly in terms of the sources of Scots law: “nemo plus juris ad alienum tr (...)
  • 37 Johnston, Prescription (n 23), para 17.21.
  • 38 See Report on Land Registration (n 4), para 21.21.
  • 39 Johnston, Prescription (n 23), para 17.21.

20Section 86 appears to be an exception to the principle of nemo dat quod non habet.36 Indeed, Johnston notes that section 86-89 are exceptions to the nemo dat principle.37 Of course, the notion of registration as a guarantee of title necessarily involves some compromise in terms of adherence to nemo dat.38 For Johnston the justification is the importance that the public should be able to place reliance on the register, and it is essential to the land registration system that a registered title is guaranteed.39

  • 40 ss 86(4), (5).
  • 41 ss 86(4), (6).

21Before examining the possession and good faith aspects of section 86 in more detail, the position regarding the date of acquiring ownership may be noted. This is provided for in section 86 (4) - (6). Where the land has been in the possession openly, peaceably and without judicial interruption of A for a continuous period of at least one year or of A and then of B – the good faith disponee – and their possession together constitutes a period of at least one year, ownership is acquired on the date on which the disposition in favour of B is registered.40 Alternatively, where a continuous period of the requisite possession commences before registration in B’s name, but does not expire until a date later than the date of registration, ownership is acquired on the date on which the period of possession is completed.41

D. Section 86(3) Conditions

(1) Possessory Requirement

  • 42 Report on Land Registration (n 4), para 23.7.
  • 43 s 1(1)(a).
  • 44 Johnston, Prescription (n 23), para 17.21.
  • 45 s 1(2)(b). See Johnston, Prescription (n 23), para 17.19. See also n 10, DP No 125, 2004, paras 3.4 (...)
  • 46 Hence s 1(2)(a) ruling out prescription based on possession founded on the recording in the General (...)

22Under section 86(3)(a), there must have been a period of at least one year of continuous possession, “openly, peaceably and without judicial interruption.” The SLC Report notes that this definition “ties in with the concept of possession in the prescription legislation.”42 This is a reference to the Prescription and Limitation (Scotland) Act 197343 which gives title on the basis of an ex facie valid deed where there is possession for “a continuous period of ten years openly, peaceably and without any judicial interruption." But does this affinity mean that section 86 is a form of prescription? The role of positive prescription in the context of Scottish land law and conveyancing practice is a most significant one and one might be forgiven for identifying section 86 as another form of prescription. As already mentioned, David Johnston covers the provision in a chapter dealing with the positive prescription of interests in land.44 But, of course, that could be said to be justified on the basis that section 86 provides for a form of acquisition involving possession for a stipulated period of time. The passage of time factor in the required period of one year’s possession is, of course, the reason why the provision is thought, by some, to be prescription. But a one year prescription of heritable property? Turning back to the Prescription Act 1594, the original period in Scotland was 40 years. This was reduced by the Conveyancing (Scotland) Act 1874, s 34 to 20 years and then to ten in the 1973 Prescription and Limitation (Scotland) Act. The requirement of only one year’s possession would be exceptional but is a comparison appropriate? Section 86 requires registration in good faith whereas positive prescription is about possession animus domini – possession on the basis of an intention to hold as owner evidenced by an ex facie valid deed in favour of the possessor. The 1973 Prescription and Limitation (Scotland) Act does not allow prescription where possession is on the basis of a registered forged deed where the party appearing as grantee was aware of the forgery at the time of registration in his or her favour.45 The starting point here is the position of the common law that forgery cannot be a basis for acquisition.46

  • 47 See Scottish Law Commission, Report on Prescription and Title to Moveable Property (Scot Law Com n (...)
  • 48 C M Campbell “Prescription and Title to Moveables” (2012) 16 Edin L R 426-430.

23In commenting on the Draft Prescription and Title to Moveable Property (Scotland) Bill,47 one writer notes that “[t]he fact that the entire period of possession would have to be completed in good faith is a major distinction when viewed in comparison to positive prescription of land.”48 The better view, it is submitted, is that the established form of prescription in land law reflects an approach incompatible with, or at least distinct from, acquisition in terms of section 86 on the basis of a passage of time factor subject to a controlling good faith requirement. The important good faith requirement will be looked at in more detail in the next section.

  • 49 In my continuing interchange with Professor Kenneth Reid (n 34), on 24 March 2014, he rejected the (...)
  • 50 In terms of s 67.
  • 51 In terms of s 30(5).
  • 52 Report on Land Registration (n 4), para 23.5.

24Against identification as prescription, acquisition can only be by B who does not necessarily have to have possessed but must always take transfer by registration in good faith. This, it may be argued, points to a form of original acquisition distinct from positive prescription.49 Indeed, title could be said to arise by registration. Certainly, in acquiring a title under section 86, more than just the possessory requirements have to be fulfilled. In terms of section 86(3) six separate requirements must be met. In essence, in addition to the possession and good faith requirements, derivative acquisition must be competent in terms of the system of the 2012 Act with the Keeper unaware of the invalidity and, of course, no caveat50 or statement of uncertainty regarding registration.51 As the SLC Report puts it, “the disposition should be such that, were it not for that defect, the disponee would acquire a good title."52

  • 53 SOGA, s 25 provides: “Where a person having bought or agreed to buy goods obtains, with the consent (...)
  • 54 Report on Land Registration (n 4), para 19.3; see also para 13.21: “Assuming good faith… a third pa (...)

25A counter to any suggestion that a form of prescription was intended by the drafters of section 86 is the fact that their thinking appears to have been influenced by section 25 of the Sale of Goods Act 1979 (SOGA).53 With regard to the general issue of a choice between the protection of an owner’s interest and recognition of the interest of an innocent good faith acquirer, the SLC Report notes that there are exceptions to the general position that an acquirer’s good faith is irrelevant to the problem of a void title.54

The general law says that good faith does not protect … against such nullities. But there are exceptions. One of these is section 25 of the Sale of Goods Act 1979 which in some cases enables a good faith buyer to acquire a valid title from a non-owning seller. We mention this particular exception because, as will be seen, it has had an influence on our thinking about land registration.

26While a mutual feature of section 86 and section 25 of the SOGA is the priority accorded to a good faith purchaser, it does seem that the notion of a SOGA provision pointing the way for a land registry property issue needs to be justified in view of the policy distinction between, on the one hand, title to corporeal moveable property and, on the other, title to land.

  • 55 See message of 20 March 2014 (n 34).
  • 56 See s 54 inserting a new provision (s 46A) in the Conveyancing (Scotland) Act 1924.
  • 57 s 65(4)(a).
  • 58 Explanatory Notes (n 29), para 170.

27The affinity between section 86 of the 2012 Act and section 25 of the SOGA is referred to by Professor Reid in his email correspondence with the writer. Noting that “there are comparable provisions to protect bona fide acquirers … in other countries” he observes that the provisions concerned have “no effect on voidable titles, because a bona fide acquirer already gets … title under the common law; so [the] purpose is to give protection where the registered title of the transferor is void.”55 The void/voidable distinction is, indeed, an important one in terms of defining section 86 with reference to the principles of the common law. On the basis that control over disposal is fundamental to the right of ownership, there is an important difference between, on the one hand, a complete absence of the owner’s intention to transfer property in the circumstances of an act of fraud and, on the other hand, the owner’s sufficient consent obtained in a way which makes it challengeable as an act of intention. Section 86 – applying to “acquisition from disponer without valid title” – is, of course, concerned only with the former situation. It may be noted that in the case of a voidable deed which is reduced by court decree, the decree is registered to reflect the correct position.56 In a subsequent section defining ‘inaccuracy’ it is stated that a voidable deed reduced does not produce an inaccuracy.57 Observing that this is not the rectification of an inaccuracy but “simply a later registration that changes the register” the Explanatory Notes go on to note that “[t]his applies only to voidable deeds” because where an entry proceeds from a void deed the register is “inaccurate from the outset, and should be rectified.”58

  • 59 Why “at least”? Whether acquisition in favour of B obtaining registration in good faith is on the b (...)
  • 60 Report on Land Registration (n 4), para 23.6; Recommendation 105.

28Moving from characterisation to substance, as regards the period of “at least”59 one year of possession, it suffices that there is “straddling possession,” that is possession of A and then of B for periods which together constitute at least one year, or indeed that A possesses for such a continuous period.60

  • 61 Economy, Energy and Tourism Committee, Stage 1 Report on the Land Registration etc. Scotland Bill ( (...)
  • 62 Stage 1 Report (n 61), 213.
  • 63 See DP on LR: Void and Voidable (n 9), para 4.52 (proposal 7(e)) – as to whether one year, two or s (...)
  • 64 Report on Land Registration (n 4), para 21.32.

29If the section 86 one year passage of time requirement is not in direct support of B’s acquisition why is it there? Primarily, it seems, as an appropriate window within which the party potentially affected by the invalid register entry may intervene and assert his or her position in terms of the principles of property law. This is accepted in relevant comments on section 86. In the Annotations provided to the Bill, the Committee note that “in the majority of circumstances, one year’s possession is sufficient.”61 Yet this does not cover every single circumstance, and the Committee go on to further note that “we feel that it may not be long enough in all circumstances, especially where large amounts of land or pieces of land spread out across the country are owned, for example by utility companies..."62 However, in the SLC Report, it is noted that no clear view was held as to what the length of the period should be,63 however one year is “enough time for a person to become aware of the problem, seek legal advice and, if necessary, raise an action in court.”64 Does this suggest that the provision is in fact a form of negative prescription? One way of looking at the device is in terms of its protection of the affected party in requiring a period of “at least one year” in which it is open to him or her to challenge the position as reflected in the Register and apparently confirmed by the circumstances of possession. But, that said, the true owner is not deprived by the lapse of time but remains owner until conveyance to an innocent third party or, if that does not happen, until the normal ten year prescription has effect.

(2) Good Faith Requirement

  • 65 Ibid, para 23.8.
  • 66 Land Registration (Scotland) Act 1979, s 9(3).
  • 67 Report on Land Registration (n 4), para 23.8.
  • 68 See DP on LR: Void and Voidable (n 9); for a succinct review see Cooke, Void and Voidable (n 18).

30The SLC Report notes that the aim of the good faith requirement is “to protect the innocent, but only the innocent,”65 something the Report feels that the 1979 Act falls short on in its “fraud or carelessness” test66 – “[e]xperience has exposed the shortcomings of this test.”67 It may be noted that the SLC’s preference for a good faith control over the problem of title from a void basis was first presented in a 2004 Discussion Paper.68

  • 69 1999 SC 180.
  • 70 Report on Land Registration (n 4) is critical of the uncertainty of a wronged party’s right to rect (...)

31From the point of view of the position of the 1979 Act vis-à-vis an act of fraud it is significant that only the proprietor’s “fraud or carelessness” gives an exception to the central rule that the Register cannot be rectified if this would prejudice a proprietor in possession. The possibility of this formulation leading to an undesirable outcome is shown in the case of Kaur v Singh69 where an estranged husband forged his wife’s signature and disposed of their flat; the innocent purchaser in possession was protected against rectification until the defrauded wife was able to retake possession. Under section 86 the innocent – i.e. good faith – registering purchaser would be protected, regardless of the present circumstances of possession, provided there had been one year’s possession by the fraudulent seller or one year made up by that party’s possession combined with that of the innocent purchaser. Both the 1979 and 2012 approaches give title despite a basis invalid for fraud. Whereas under the 1979 Act the critical factor is the innocent party’s maintenance of possession70, under the new legislation it is the factor of good faith at the time of registration – if necessary continuing until the required one year period is complete.

  • 71 See “Bona Fide Possession” in Reid, Property (n 18), paras 131-37; see also my “Good Faith in Scots (...)
  • 72 Report on Land Registration (n 4), para 23.9.
  • 73 Mitchells v Ferguson (1781) Ross’s Leading Cases 120 at 127, per Lord Braxfield.
  • 74 Perhaps most significantly, as part of the Sale of Goods Act 1979 (first passed in 1893); See Carey (...)

32The concept of bona fides has a well-established general role in Scottish property law.71 The SLC Report indeed notes that in Scots law, “good faith is the traditional and well-understood test."72 Certainly Scots law has a long history of penalising bad faith; in a case in 1781, Lord Braxfield noted that “[a]s to bona fides, although male fides may cut down a right, bona fides cannot establish a right.”73 But while bona fides has a long-standing general role in Scottish property law, until the 2012 Act it does appear to have been used as a control device in the law regulating the acquisition of land. In contrast, in the Victorian statutory development of commercial law applying to moveable property good faith came to have an important role.74

  • 75 Reid, Property (n 18), para 134.
  • 76 See Craig Anderson, “The Protection of Possession in Scots Law” in E Descheemaeker (ed) The Consequ (...)
  • 77 Reid, Property (n 18), para 146.

33In land law bona fide possession gives entitlement to the fruits and benefits of property but the good faith factor does not have a key role – perhaps no role – in any translation of possession into title. This has been noted above in respect of positive prescription. Historically, in the context of a basic system of registration, possession supported by a colourable title had a certain role but this declined with the development of registration.75 The common law possessory judgment protecting seven years possession on the basis of a written title76 is of limited relevance in modern law and, in any event, the better view is that it did not require good faith.77 From the point of view of the novelty of section 86, the position of the common law was clear, in principle – regardless of the grantee’s good faith in being innocent of any defect – there could not be acquisition on the basis of an invalid deed. In modern law the controlling limit – and the clear indication of applicable policy – is the ten year period of possession on the basis of an ex facie valid deed required for positive prescription.

  • 78 See message of 20 March 2014 (n 34).
  • 79 See Report on Land Registration (n 4), para 23.8-14 concluding that a good faith test would be pref (...)
  • 80 See DP on LR: Void and Voidable (n 9), para 7.11.

34This generalized background survey suggests that good faith did not play any significant part in the process of acquisition of ownership of land. The paramount nemo plus (or nemo dat)78 principle ruled. But for present purposes the main point is that although “fraud or carelessness” could be relevant in the case of a bad faith acquirer, good faith has no role under the 1979 Act but has an important one in the new system. As already noted, the 1979 Act does not apply the good faith factor in determining the priority issue which may arise as a consequence of the register being guaranteed.79 For the purposes of section 86 the registering grantee’s good faith must be subjective in the sense of actual belief in the Register. The SLC Discussion Paper explains the position:80

It seems self-evident that only subjective good faith can be relevant for Register error. To lose the statutory protection the acquirer must know, as a positive fact, that the Register is wrong… If mere suspicion were enough, an acquirer, alerted to the possible error, would have no choice but to go behind the Register and inspect the prior deeds, in disregard of the curtain principle and consequently of one of the main purposes of registration of title.

E. Possible Section 86 Application Scenario

  • 81 For further examples of the working of the 2012 Act, see Report on Land Registration (n 4), Part 25

35This 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 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.

36An 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

  • 82 Report on Land Registration (n 4), para 13.7.

37The 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.

  • 83 On this see P O’Connor “Deferred and immediate indefeasibility: bijural ambiguity in registered lan (...)
  • 84 Report on Land Registration (n 4), para 17.33.
  • 85 Explanatory Notes (n 29), para 3.
  • 86 Report on Land Registration (n 4), para 13.36.

38In 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 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

39Without 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.

40An 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.

41What 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.

  • 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 (...)

42Seeing the one year period of the 2012 Act as a form of negative prescription could be contrasted with the twenty year period applying to 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.

43This 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?

  • 90 Simon Cooper “Regulating Fallibility in Registered Land Titles” (2013) 72 CLJ 341-68, 346.

44Conceptual 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.

45Prima facie, it seems that section 86 scores relatively well on these criteria.

46While 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.

Notes

2 R Rennie, S Brymer, “A Bold Step Forward” (2012) 57 (3) The Journal of the Law Society of Scotland 32, available at http://www.journalonline.co.uk/Magazine/57-3/1010910.aspx

3 Registers of Scotland, Consultation on Implementation of the Land Registration etc. (Scotland) Act 2012 – Post Consultation Report (March 2014) 2.

4 Short ’s Trustee v Keeper of the Registers of Scotland 1996 SC (HL) 14 at 26.

5 Scottish Law Commission, Report on Land Registration (Scot Law Com No 222, 2010) recommendation 62(b).

6 In the Abolition of Feudal Tenure etc (Scotland) Act 2000, s 1.

7 Scottish Law Commission, Report on Abolition of the Feudal System (Scot Law Com No 168, 1999).

8 On this and other major legislative developments in land law see R Rennie, Land Tenure in Scotland (2004).

9 See A J M Steven “Scottish Land Law in a State of Reform” 2002 Journal of Business Law 177, 193.

10 See SLC Discussion Paper on Land Registration: Void and Voidable Titles (DP No 125, 2004) para 1.22, n 54: “The Reid Committee saw the English system as its main model, and in important respects the 1979 Act is a copy of the English Land Registration Act of 1925.”

11 Steven (n 8) 179.

12 (1) Discussion Paper on Land Registration: Void and Voidable Titles (DP No 125, 2004); (2) Discussion Paper on Land Registration: Registration, Rectification and Indemnity (DP No 128, 2005); (3) Discussion Paper on Land Registration: Miscellaneous Issues (DP No 130, 2005).

13 Report on Land Registration (n 4).

14 Land Registration etc. (Scotland) Act 2012 (Designated Day) Order, 2014/127, art 2.

15 Rennie and Brymer, “A Bold Step” (n 1), 32.

16 1979 Act, s 9(3)(a)(iii).

17 See this discussion in Part C below.

18 See DP on LR: Void and Voidable (n 9), para 1.9. See also E Cooke “Land Registration: Void and Voidable Titles” 2004 Edin LR 401-405, 402.

19 K G C Reid, “Property," in The Laws of Scotland: Stair Memorial Encyclopaedia vol 18 (1993) para 601.

20 s 86 subheading.

21 Under ss 88 and 89.

22 s 50(3).

23 s 50(4).

24 See D Johnston, Prescription and Limitation of Actions, 2nd edn (2012) para 17.18.

25 Report on Land Registration (n 4), para 23.4.

26 The label “realignment principle” seems more appropriate than “integrity principle” which features as an alternative in the SLC papers: see Report on Land Registration (n 4), paras 13.12 and 23.4.

27 RoS, Post Consultation Report (n 2), part 9, para 9.3.

28 Registers of Scotland, Consultation on Implementation of the Land Registration etc. (Scotland) Act 2012 (2013) para 9.01.

29 But may do so on a “provisional” basis; see, below, n 32.

30 Prepared by the Scottish Government to assist the reader of the 2012 Act but not forming part of the Act and not endorsed by Parliament.

31 Explanatory Notes (n 29), para 201.

32 Johnston, Prescription (n 23), para 17.21.

33 Set out in Land Registration (Scotland) Act 2012, s 43.

34 Explanatory Notes (n 29), para 201.

35 Email message of 20 March 2014 from Kenneth Reid to David Carey Miller. I am grateful to Professor Reid for agreeing to my reference in this paper to this and subsequent comments made by him.

36 Or, perhaps strictly correctly in terms of the sources of Scots law: “nemo plus juris ad alienum transferre potest, quam ipse haberet”: see Reid, Property (n 18), para 669, n 1. See also Report on Land Registration (n 4), para 19.2, n 2.

37 Johnston, Prescription (n 23), para 17.21.

38 See Report on Land Registration (n 4), para 21.21.

39 Johnston, Prescription (n 23), para 17.21.

40 ss 86(4), (5).

41 ss 86(4), (6).

42 Report on Land Registration (n 4), para 23.7.

43 s 1(1)(a).

44 Johnston, Prescription (n 23), para 17.21.

45 s 1(2)(b). See Johnston, Prescription (n 23), para 17.19. See also n 10, DP No 125, 2004, paras 3.4-11.

46 Hence s 1(2)(a) ruling out prescription based on possession founded on the recording in the General Register of Sasines of a forged deed; see Johnston, Prescription (n 23), para 17.30.

47 See Scottish Law Commission, Report on Prescription and Title to Moveable Property (Scot Law Com n 228, 2012).

48 C M Campbell “Prescription and Title to Moveables” (2012) 16 Edin L R 426-430.

49 In my continuing interchange with Professor Kenneth Reid (n 34), on 24 March 2014, he rejected the “form of prescription” suggestion on the basis of the possessory aspect. Explaining that the reason for the possession requirement is to give notice to the true owner that there is a threat to his title, Professor Reid observes, “unlike true prescription, the disponee is rewarded with a good title, not because he has possession for a period… but because he relied on the Register in good faith.”

50 In terms of s 67.

51 In terms of s 30(5).

52 Report on Land Registration (n 4), para 23.5.

53 SOGA, s 25 provides: “Where a person having bought or agreed to buy goods obtains, with the consent of the seller, possession of the goods or the documents of title to the goods, the delivery or transfer by that person, or by a mercantile agent acting for him, of the goods or documents of title, under any sale, pledge, or other disposition thereof, to any person receiving the same in good faith and without notice of any lien or other right of the original seller in respect of the goods, has the same effect as if the person making the delivery or transfer were a mercantile agent in possession of the goods or documents of title with the consent of the owner.”

54 Report on Land Registration (n 4), para 19.3; see also para 13.21: “Assuming good faith… a third party… would receive a good title, rather as under section 25 (1) of the Sale of Goods Act 1979.”

55 See message of 20 March 2014 (n 34).

56 See s 54 inserting a new provision (s 46A) in the Conveyancing (Scotland) Act 1924.

57 s 65(4)(a).

58 Explanatory Notes (n 29), para 170.

59 Why “at least”? Whether acquisition in favour of B obtaining registration in good faith is on the basis of A’s possession (s.86(5)(a)) or A’s and B’s combined (s.86(5)(b)) a minimum period of one year must have passed, hence “at least.”

60 Report on Land Registration (n 4), para 23.6; Recommendation 105.

61 Economy, Energy and Tourism Committee, Stage 1 Report on the Land Registration etc. Scotland Bill (2012), 213.

62 Stage 1 Report (n 61), 213.

63 See DP on LR: Void and Voidable (n 9), para 4.52 (proposal 7(e)) – as to whether one year, two or some other period.

64 Report on Land Registration (n 4), para 21.32.

65 Ibid, para 23.8.

66 Land Registration (Scotland) Act 1979, s 9(3).

67 Report on Land Registration (n 4), para 23.8.

68 See DP on LR: Void and Voidable (n 9); for a succinct review see Cooke, Void and Voidable (n 18).

69 1999 SC 180.

70 Report on Land Registration (n 4) is critical of the uncertainty of a wronged party’s right to rectification being suspended in the circumstances of an innocent party’s possession, see para 17.23-27, noting, at para 17.27, that the notion that the law requires “the Register to remain in error” causes the public to be “incredulous and sometimes irate.”

71 See “Bona Fide Possession” in Reid, Property (n 18), paras 131-37; see also my “Good Faith in Scots Property Law” in Forte (ed) Good Faith in Contract and Property Law (1999) 103.

72 Report on Land Registration (n 4), para 23.9.

73 Mitchells v Ferguson (1781) Ross’s Leading Cases 120 at 127, per Lord Braxfield.

74 Perhaps most significantly, as part of the Sale of Goods Act 1979 (first passed in 1893); See Carey Miller, “Good Faith” (n 70) 120.

75 Reid, Property (n 18), para 134.

76 See Craig Anderson, “The Protection of Possession in Scots Law” in E Descheemaeker (ed) The Consequences of Possession (2014) 111.

77 Reid, Property (n 18), para 146.

78 See message of 20 March 2014 (n 34).

79 See Report on Land Registration (n 4), para 23.8-14 concluding that a good faith test would be preferable to the “fraud or carelessness” one of the 1979 Act.

80 See DP on LR: Void and Voidable (n 9), para 7.11.

81 For further examples of the working of the 2012 Act, see Report on Land Registration (n 4), Part 25.

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.

85 Explanatory Notes (n 29), para 3.

86 Report on Land Registration (n 4), para 13.36.

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.

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