HEINONLINE Citation: 2010 NIZ/LNREV!151 2010" my Content downloaded/printed from HeinOnline (http:/einonline.org) Sun Oct 19 12:23:24 2014 -- Your use of this HeinOnline PDF indicates your acceptance of HeinOnline's Terms and Conditions of the license agreement available at http:/Ineinonline.org/HOL/License - The search text of this PDF is generated from uncorrected OCR text. ~- To obtain permission to use this article beyond the scope ‘of your HeinOnline license, please use: https:/www.copyright. com/ecc/basicSearch.do? &operation=go&searchType=0 &lastSearch=simple&all=on&titleOrStdNo=1 173-5864151 The “Mirror” Principle and the Position of Unregistered Interests in the Torrens System Janer Novemper* anp Juuia RENDELLT The mirror principle, namely that the land title register should accurately reflect all interests in a plot of land, is a key principle in the Torrens system. However, interests in land continue to exist outside the register. This article considers the position of unregis- tered interests in Torrens land, and the problems regarding their protection and their reflection on the “mirror of title”. In particular, the position of unregistered interests can be reconsidered in the light of obiter dicta in the New Zealand Supreme Court decision in Regal Castings Ltd v Lightbody /2008] NZSC 87, [2009] 2 NZLR 433. Some other jurisdictions have adopted an interest-recording system in addition to registration. Interest-recording systems confer Priority and may allow interests to “run with the land”, but do not confer indefeasible title to the interest. They can offer certain benefits, such as consistency with the mirror principle, greater Protection for owners of unregistered interests and enhanced facility of transfer. New Zealand has a limited example of such a system in its notification of restrictive and positive covenants on the land title register. This article concludes, however, that developing such 4a system is not necessarily a solution for New Zealand, especially LLB (Melbourne); LLM (VUW). This article is based on research forthe New Zealand Law ‘Commission; sce New Zealand Law Commission, in conjunction with Land information New ‘Zealand ("LINZ") Review of the Land Transfer Act 1952 (NZLC 1P10, 2008); A New Land Transfer dct (NZLC R116, 2010). It is « modified version of a paper presented at a Torrens Title Workshop (Bond University, December 2008). The authors thank the participants ofthat ‘workshop for their comments on this amticle, The views expressed are those of the authors, ‘ot of the Law Commission or LINZ, LLB(Hons) (VUW).192 [2010] New Zealand Law Review as Regal Castings can lead the way towards an improved situation for unregistered interests. I Principles and Aims of the Torrens System In the 21st century, there seems to be no real question about the main prin- ciples of the Torrens system. There appears to be a consensus that, o protect the integrity of the register, title should be as far as possible indefeasible; the purchaser should not need to go behind the register to investigate the “root” of title; there should be adequate compensation where an innocent ‘owner has suffered loss due to the system; and the register should reflect as. accurately as possible the true state of title to land with all encumbrances, so that “persons who propose to deal with land can discover all the facts relating to the title”." In 1870, introducing the Torrens system by way of the Real Property Bill to the New Zealand Parliament, the Hon Henry Sewell MP listed six “leading principles” of the system. Regarding the second, he said:? ‘The second leading principle is, that it establishes a public record of all ‘transactions affecting registered land ... so that everyone dealing with the land may know exactly what he is dealing with; and not only that, but by which the rights of incumbrancers, and other persons holding derivative interests in land — trustees, mortgagees, and others — may have a guarantee for the security of their incumbrances. ‘This principle has been confirmed by 20th-century commentators. Professor ‘Whalan has suggested that the ultimate aim of a system of land title registration should be “to organise land records so that it will be possible to discover in the one register every detail of proprietorship and every benefit 1 GW Hinde “The Future of the Torrens Sysiem in New Zealand” in JF Northey (ed) The AG Davis Essays in Law (Butterworths, London, 1965) at 77-78, See also New ‘Zealand Law Commission Review of the Land Transfer Act 1982 (NZLC IP10, 2008) at 1.29} {1 30]. Compare GW Hinde, DW McMorland, NR Campbell, DP Grinlinton ‘and KC Buchanan Hinde, McMarland & Sim, Land Law in New Zealand (looseleaf ed, LexisNexis) at [8.005]-[8.006). 2 (27 July 1870) 8 NZPD 93. 3 GW Hinde “Preface” in GW Hinde (ed) The New Zealand Torrens System Centennial Exsays (Butterworths, Wellington, 1971) vii at vii. See also Douglas J Whalen “The ‘Torrens System in New Zealand — Present Problems and Future Possibilities” in GW Hinde (ed) The New Zealand Torrens System Centennial Essays (Butterworths, Wellington, 1971) 258 at 293The “Mirror” Principle and the Position of Unregistered Interests 153 or liability accruing or adhering to every parcel of land”.* The principle that the register should be a complete reflection of all the interests relating to a particular piece of land is sometimes known as the “mirror principle”. An English commentator stated that the “mirror principle” is a funda- ‘mental principle of the Torrens system, but that this principle is qualified by the “curtain principle”, as “{nlothing that is incapable of registration and nothing that is not actually registered appears in the picture but the information that is shown is deemed to be both complete and accurate” > Given the existence of interests outside the registration system — “behind the curtain” — the register will not always accurately reflect reality. However, interests can be noted on the register. If the “mirror principle” is so fundamental and an ultimate aim of the system, it may be a corollary that ‘as many as possible unregistered interests in a plot of land should be noted on the register (although not actually registered as such). This article explores both interests that are unregistered, but registrable, and those that are unregistrable. It considers how they are currently protected under the Torrens system, and the cases supporting and clarifying their protection, in particular Regal Castings Ltd v Lightbody.‘ The article then considers the position of unregistered interests in other jurisdictions and whether the New Zealand system could or should be modified to allow a ‘more accurate register — a better “mirror” that gives greater protection to unregistered interests. II What are Unregistered Interests? A. The relevant sections of the Land Transfer Act 1952 A fundamental tenet of the land transfer system is that no instrument can pass a legal interest in land without registration.’ Several sections of the Land Transfer Act 1952 (LTA), however, support the existence of equitable interests that are not registered under the LTA.* Sections 62 and 182 of the 44 Whalan, aboven 3, at 293. 5 Theodore BF Ruoff “An Englishman Looks at the Torrens System: Part 1: The Mirror Principle” (1952) 26 ALF 118 at 118. 6 Regal Castings Lid v Lightbody [2008] NZSC 87, [2008] 2 NZLR 433, 7 Land Transfer Act 1952, s 41. Short-term leases under 5s 207 and 209 of the Property Lavi Act 2007 are an exception to this, 8 See, forexample, the caveat and trust provisions inthe Land Transfer Act 1952, 8 136~ 148B and ss 128-135.154 [2010] New Zealand Law Review LTA are relevant to the limited position of unregistered interests.? Section (62 provides that, unless there is fraud or specified exceptions apply, the registered proprietor will hold land “subject to such encumbrances, liens, ‘states, or interests as may be notified on the folium of the register ... but absolutely free from all other encumbrances, liens, estates, or interests whatsoever”. Section 182 provides that, except in the case of fraud, no purchaser “shall be affected by notice, direct or constructive, of any trust or Unregistered interest ... and the knowledge that any such trust or unregistered interest is in existence shall not of itself be imputed as fraud”, B Different kinds of unregistered interests Generally, all interests that have not been registered are equitable interests."° Unregistered interests have been distinguished as those that are capable of registration, but not yet registered; are contained in unregistrable instruments; or are currently incapable of being registered (unregistrable interests). Statutory interests that override the LTA may also exist outside the register, but are outside the ambit of this article."" Interests capable of registration include fee simple estates, mortgages, many leases, easements and profits-d-prendre. The category of interests that are registrable, but contained in an unregistrable form, covers deeds of lease or mortgage. Currently, unregistrable interests include trusts and restrictive and positive covenants.”? Other interests in this category may include periodic and monthly tenancies; licences that create a proprietary interest; options to purchase; equitable charges; or equitable liens."* They Pose a particular problem because their position cannot be protected by registration. The rationale for not allowing certain types of interest to be registered is unclear. One rationale is perhaps to maintain the traditional 9 The Australian jurisdictions have equivalent sections; see, for example, Real Property ‘Act 1900 (NSW), ss 42-43; Transfer of Land Act 1893 (WA), a 68 and 134. 10 See Duncan v MeDonald [1997] 3 NZLR 669 (CA) at 681; Chan v Cresdom Pry Lad (1989) 168 CLR 242 at 257. 11 Fora discussion ofthe position of statutory interests, see New Zealand Law Commission, above n I, at ch 9; New Zealand Law Commission A New Land Transfer Act (NZLC R116, 2010) at eb 5. 12. Restrictive and positive covenants are equitable interests that ean be noted onthe title of the burdened or benefited land or both under § 307 of the Property Law Act 2007, but they cannot be registered. Interestingly, fencing covenants are registrable under the Fencing Act 1978, 55, 13 See GW Hinde, DW MeMorland, NR Campbell, DP Grinlinton and KC Buchanan, above mI, at [10.009}-[10.010}.The “Mirror” Principle and the Position of Unregistered Interests 188 distinction between equitable interests, such as trusts and restrictive and positive covenants, and legal interests. This distinction is confused, however, due to the fact that some trusts can appear on the register and some interests that resemble restrictive and positive covenants, such as consent notices under the Resource Management Act 1991, can be registered and gain the benefits of indefeasiblity. Distinctions between the different types of unregistered interest have been drawn because of the differing treatment of these interests. A line of authority has suggested that unregistrable interests can override the LTA, Past cases have also held that interests contained in unregistrable instruments and unregistrable interests cannot be protected by caveats. III Protection of Unregistered Interests A Caveats ‘The caveat system affords some protection to unregistered interests. A caveat does not create rights, but is a means of protecting existing rights by notice ‘on the register pertaining to the relevant land. For the purposes of this. article, the most relevant type of caveat is a caveat against dealings with the land under the LTA. Section 137(1) of the LTA provides that a person can lodge a caveat against dealings if the person: (@) claims to be entitled to, or to be beneficially interested in, the land or estate or interest by virtue of any unregistered agreement or other instrument or transmission, or of any trust expressed or implied, or otherwise; or (©) is transferring the land or estate or interest to any other person to be held in trust. The entry of a caveat by a beneficiary or trustee provides a main mechanism for protecting the rights of beneficiaries undera trust of land. Such protection ‘would not assist a beneficiary without knowledge of a trust in their favour, such as a constructive trust beneficiary or an infant. The Registrar may caveat on behalf of an infant beneficiary, or a person of unsound mind or a person absent from New Zealand, or for the prevention of fraud or improper dealings."° 14 Resource Management Act 1991, 221 15 Land Transfer Act 1952, s 211(@). In contrast, « Registrar's caveat under s 12(1)(f) of the Real Property Act 1900 (NSW) can more generally protect 2 person interested inland.156 [2010] New Zealand Law Review Although caveats can give some protection to unregistered interests, and to trusts, there has been disagreement as to their purpose.'* Caveats are generally “designed to provide temporary protection in anticipation of legal proceedings. They do not provide a means whereby estates and interests in land can be permanently protected” They are not designed to allow the register to more accurately reflect the unregistered interests “carved out” of the registered proprietor’ title. In addition, the relationship between caveating and prioritising unregistered interests is not simple. ‘The LTA does not contain any provision that determines which competing equitable interests take priority."* Rather, the courts have used the rules of equity to determine priority. It is not possible to set out a comprehensive overview of the rules of equitable priority in this article. Where priority disputes occur, the starting point is generally that, where all other matters are equal, the interest goes to the person who acquired the equitable estate first. But the rules have changed over time and are complicated to apply.” ‘The order of lodgement of caveats does not determine priority between interests, but it may have some effect on the determination of priority. The New Zealand Court of Appeal has held that “[flailure to register the caveat promptly can, but not necessarily will, be conduct that may justify a reversal of priorities of equitable charges over land”. Dr MeMorland has said that “t]he lodgement of a caveat can never improve the priority of the holder of an unregistered interest, but, by giving notice of the interest, it can preserve 16 Mary-Anne Hughson, Marcia Neave and Pamela O'Connor “Reflections oa the Mirror of Tie: Resolving the Confit berween Purchases and Prior Interest Holders” (1997) 21 MULR 460 a 464-466. 17 Les A MeCrimmon “Protection of Equitable Interests Under the Torrens System: Polishing the Mirror of Title” (1994)20 Mon LR 300 at 310. 18 This is also the position in Torens legislation in Australia 19 In Rice v Rice (1853) 2 Drew 73, 61 ER 646 (Ch), Kindersley VC expressed the rule 2s follows: “As between persons having only equitable interests, if their equities are Inall other respects equal, peocty of time gives the beter equity "(emphasis ia the orginal). Tis rule gave priority to the beter equity, but if neither was bemer than the other, te ist in time prevailed, In the 20th century, however, this “merits” tet became a “prima face first in time” merits test, that is, @ presumption in favour of the equitable interest created frst, but this could be rebutted by some “postponing conduct”; see Butler v Fairclough (1917) 23 CLR 78 at 91; Abigail v Lapin (1934) AC 491 (PC) st 504, Fora discussion of the “merits” tests, see Sharon Rodrick “Resolving priority disputes between competing equitable interests in Torrens System land — which es” (2001) 9 APL 172. Sc also DW MeMorland “Notice, Knowledge and Fraud” in David Ginlinton (ed) Torrens inthe Twenty-first Century (LexisNexis, Wellington, 2003) 67 at 81-83; Lynden Griggs “Torres Title — Arise the Registered and Unregistered, Befall ‘the Legal and Equitable” (1997-1998) 4 Deakin LR 35. 20 Australian Guarantee Corporation (NZ) Lid v CFC Commercial Finance Lid {1995} | NZLR 129 (CA) at 138The “Mirror” Principle and the Position of Unregistered Interests 157 that person's existing priority”. Recently, in Black v Garnock? Callinan J in the High Court of Australia has suggested that greater significance should be given to failure to lodge a caveat promptly to protect a prior interest. If this suggestion is followed, there would be more encouragement to caveat unregistered interests, so providing a clearer mirror of title. B “No survivorship” Beneficiaries of a trust can to some extent be protected by the transferor applying to enter the words “no survivorship” on the title. Such an entry indicates that the land is trust property. A ter such an entry has been made, it is not lawful for any lesser number of joint proprietors than the number registered to transfer or deal with the land without the sanction of the court25 Apparently, this provision is hardly used. Professor Whalan has said that the provision gives only limited protection because, if there is a full quota of joint proprietors, they can deal with the land contrary to the trust deed without the consent of the court, and transfer the Iand to a bona fide purchaser putting an end to the trust so far as it affected the land. The beneficiaries of a trust ‘would, however, retain in personam rights against the trustees. C Covering the “registration gap” Much discussion about unregistered interests has centred on the issue of the “registration gap”, that is the gap between settlement and registration.” Concern has been expressed that the unregistered interest of the purchaser 21 McMorland, above n 19, at 82, See also Peter Stubb Failure to Caveat” (1989) 6 Auckland U L Rev 199. 22 Black v Garnock [2007] HCA 31, (2007) 230 CLR 438 at [80]}{85}, 23 See, for example, Land Transfer Act 1952, « 130; Real Property Act 1886 (SA), s 163, ‘See also Re Bayly (1985) 2 NZCPR 363 (HC); Atkinson v Registrar-General of Land HC Whangarei CIV-2003-488.90, 4 September 2003; Re Bunton HC Auckland CIV- 2008-404-3649, 4 July 2008. 24 See Re “The Tararua Club" (1908)27 NZLR 928 (SC); Main v District Land Registrar [1939] NZLR 220 (SC), relied on by Roper Jin Re Robertson (1943) 44 SR (NSW) 103, (nswsc), 25 Re Denniston and Hudson [1940] NZLR 255 (SC). 26 Douglas J Whalan The Torrens System in Auatralia (Law Book Company Lid, Sydney, 1982) at 127, See also Re Bayly, above n23, at 367. 27 See, forexample, Pamela O° Connor “information, Automation andthe Conclusive Land Register” in David Grinlinton (ed) Torrens in che Twenty-first Century (LexisNexis, ‘Wellington, 2003) at 249. “Bquitable Priorities and the158 [2010] New Zealand Law Review is not adequately protected during this time and could be subject to other interests that arise later in time. Although s 182 of the LTA states that the person “contracting or dealing with or taking or proposing to take a transfer from the registered proprietor” is not guilty of fraud simply because of knowledge of an adverse interest, it is well established that a person will not be entitled to the benefits of s 182 until registration. This has been recently reaffirmed by the New Zealand ‘Court of Appeal.* Purchasers may claim compensation for loss due to registration by a third party occurring after a final “guaranteed search”, in some circumstances, under s 172A of the LTA. Some Australian jurisdictions have provided more ‘adequate protection for purchasers who have completed dealings that are not yet registered. In New South Wales, s 43A(1) of the Real Property Act 1900 (NSW) is an example of an attempt to protect purchasers after settlement, but before registration, by deeming their interest to be a legal estate for the purpose of notice.” Other jurisdictions have adopted settlement notices ‘or priority notices to prevent registration of other instruments during the registration gap, discussed further below. This issue may be of less importance with the computerisation of the register, as settlement and registration are generally virtually simultaneous. Some contracts are belatedly settled, however, and some settlements are not registered even though a purchaser may have gone into possession. So there may still be a gap before registration. D_ Notification Restrictive and positive covenants are examples of an unregistrable interest. Section 307 of the Property Law Act 2007 allows the Registrar to enter notification of such covenants on the title of the burdened or benefited land, or on both titles. This section provides that the covenant is treated 28 Perkins v Purea [2009] NZCA 541, (2009) 10NZCPR 851 at [68}-{65], Seealso Mercury Geotherm Led (in rec) v McLachlan [2006] 1 NZLR 258 (HC). This interpretation has also prevailed in Australia; see Templeton v Leviathan Pty Lid (1921) 30 CLR 34 at 54-85; Lapin v Abigail (1930) 44 CLR 166; JAC (Finance) Pty Lid v Courtenay (1963) LO CLR 550 at $72, 29 This provision has produced some conflicting case law; see Peter But Land Law (Sthed, LLawbook Co, Sydney, 2006) at 760-761 and 764-765. The settled view is that it gives such purchasers the common law protection of bone fide purchasers for value without notice; see JAC (Finance) Pry Lid v Courtenay, above 0 28, st $72. 30 This is 2 continuation of the process contained in s 126A(1) of the Property Law Act 1952, As the covenant must benefit other land (Property Law Act 2007, s 307(1Xe)),‘The “Mirror” Principle and the Position of Unregistered Interests 159 as an “interest” within the meaning of s 62 of the LTA." Notification does “not in any other way give the covenant any greater operation than it would otherwise have”,” and the interest continues to be an equitable interest. The effect of s 307 of the Property Law Act 2007 is that where the covenant is notified on the burdened land, the registered proprietor and successors in title hold the land subject to that interest; and where the covenant is not notified, the registered proprietor is not bound by it, except in cases of fraud.” This mechanism of protecting restrictive and positive covenants is also used in some Australian jurisdictions. Similarly, under s 121C of the LTA, licences to occupy issued by flat and office owning companies can be “registered” under the LTA.” Registration “does not give the licence any greater operation or effect than it would have without registration”.* Though recorded on the title a licence does not grant an indefeasible title. Commentators have suggested that this process could be used as a model to protect other unregistered interests.” This would ensure they run with the and, unless challenged. E Encumbrances A conveyancing practice has developed to protect unregistered interests through encumbrances containing collateral covenants.»* Under s 203 of the Property Law Act 2007, encumbrances bind purchasers of the land subject to the encumbrance. This mechanism is designed to secure an annuity, rentcharge or fixed amount. There is evidence, however, that encumbrances have been used for many years to register rentcharges, containing de facto ‘covenants in gross, on the register despite the fact that covenants in gross are not interests in land. There are apparently thousands of them on the register.® covenants in gross cannot be noted on the register, see Property Law and Equity Reform ‘Committee Positive Covenants Affecting Land (1985) at 41-82 and 63-65, 31 Property Law Act 2007, s 3074), 32 Ibid ats 30715). 33 Town & Country Marketing Ltd v McCallum (1997) 8 NZCPR 223 (HC) at (30}-(33). 34 See, for example, Transfer of Land Act 1958 (Vic), 588, 35 Flat- and office-owning companies were an early solution for shared ownership of land, ‘under which the owner of each par ofa building owned a parcel of shares that carried ‘ith it the benefit of a licence conferring exclusive occupancy of the relevant part of the land. 36 Land Transfer Act 1952, 8 121F(I). 37 See, for example, O'Connor, above n 27, at 260 38 Land Transfer Act 1952, s 101(4), 39. Sce EM Brookfield “Restrictive Covenants in Gross" [1970] NZLJ 67. See also Menere160 [2010] New Zealand Law Review IV Unregistered Interests: The Issues A. The incomplete mirror ‘The absence of any evidence of an unregistered interest on the register challenges the “mirror principle”, whereby the register should reflect everything (or as much as possible) that is material to the title. Anyone searching the register will not get a complete picture of the title due to the possible existence of interests that have not yet been registered, or interests that are currently incapable of registration, such as trusts. Robert Stein has argued for the registration of trusts on the basis that the title should be ascertainable, together with encumbrances, from an examination of the register.” . if the system of title by registration is to keep up with modern developments in the growth and complexity of society it must reveal interests and privileges which relate to property upon the Register. A purchaser should be entitled to have full knowledge of any equitable interests on first searching the title, rather than perhaps finding out after settlement, but before registration, when proceeding with such knowledge might amount to fraud. B Insufficiency of protection for unregistered interests Unregistered interests are often in a vulnerable position. The caveat system is designed to give temporary protection. Further, there is evidence that caveats are infrequently lodged to protect interests during the gap before an interest is registered." Caveats do not give priority to interests, although failure to lodge a caveat may affect an interest’s priority. This reduces the incentive Jackson Mews Management Lid (2009) NECA 563, (2009) 10NZCPR 703, discussed in Rod Thomas “Encumbrance Instruments” [2010] NZLJ 10. We understand tht South Australian conveyancers also use this method of securing covenants in gross; see Clem ‘Smith Nominees Pry Lad v Farrelly (1978) 20 SASR 227; City of Mitchem v Clothier (1994) 62 SASR 394. The Law Commission has recently recommended that this use of | ‘encurmbrances be discontinued in favour of allowing covenants in gross to be notified ‘on the register under the Property Law Act 2007; see New Zealand Law Commission, above n 11, ateb 7. 40. Robert Stein “Torrens Title — A case forthe Registration of Trusts in New South Wales” (1982) 9 Syd LR 605 at 614. 41 O'Connor, above n 27, at 264, n 98.The “Mirror” Principle and the Position of Unregistered Interests 161 to caveat and means that the equitable rules of priority must be applied. Professor Sackville has criticised this position:*? ‘The failure to develop precise criteria for the resolution of contests between unregistered interests has produced considerable uncertainty and very litle ‘encouragement to the holder of an unregistered interest to note his interest on the register by way of a caveat, C Trusts ‘Trusts generally cannot be registered and s 182 of the LTA states specifically that a purchaser is not affected by notice of trusts, except in the case of fraud. Section 128(1) of the LTA provides that, with some exceptions, “... no entry shall be made in the register of any notice of trusts, and no such entry, if made, shali have any effect”. However, s 128(2) of the LTA provides ‘that “[tJrusts affecting land under this Act may be declared by any deed or instrument; and that deed or instrument ... may be deposited with the Registrar for safe custody and reference, but shall not be registered”. This subsection is apparently no longer used. There are exceptions to the non- registration of trusts for public trusts and charities, and registered Maori frechold land.“ In general, Australian legislation does not permit a person to be registered ‘as a trustee, with the important exceptions of the legislation in Queensland and the Northern Territories, as considered below, and with some specific exceptions such as charitable and statutory trusts. But (as in New Zealand) trust deeds may generally be deposited with Registrars for safe keeping and reference. 42 Ronald Sackville “The Torrens System — Some Thoughts on Indefeasibility and Priorities” (1973) 47 ALJ 526 st 541. See also Hughson, Neave and O'Connor, above 1 16, 2 479; Griggs, above n 19, 43. Specific provision was made for trusts in the fist Torens legislation — the Real Property ‘Act 1858 (SA), 88 6-57. See also Douglas J Whalan “Partial Restoration of the Integrity ofthe Torrens System Register: Notation of Trusts and Land Use Planning and Control” (1970) 4 NZULR 1 at 13. However, in much Torrens legislation trusts are kept “off the register”, For detailed discussion of whether trusts should be “on the register’, see New Zealand Law Commission, above n 1, atch 8, 44 See, for example, Friendly Societies and Credit Unions Act 1982, ss 32-33; Charitable ‘Trusts Act 1957, ss 3-5 and 13-14; Te Ture Whenua Maori Act/Maori Land Act 1993, 88217 and 220A, providing that trustees of a trust may direct that land under the Land ‘Transfer Act 1952 be registered in the name of the trust or tipuna. 45. Sex also Real Property Act 1900 (NSW), s 82(2); Transfer of Land Act 1893 (WA), '5$5(2). The position is the same in some Canadian jurisdictions; see, for example, Alberta Land Titles Act RSA 2000 ¢ L-4, «47.162 [2010] New Zealand Law Review ‘A bona fide purchaser will take registered title to land in trust, unless there is a viable in personam claim. In 1970, Professor Whalan proposed “notation” of trusts on the register.” His arguments were that present ways of protecting beneficiaries’ interests are inadequate, and do not assist 2 purchaser in finding out the true position either. The entering of the words “no survivorship” on the register is some sort of notification that land is trust property, but it is unclear and limited. D Can unregistrable interests override the LTA? Sections 62 and 182 of the LTA suggest that a purchaser will take land free ‘of unregistered instruments, unless there is fraud. The position has been less clear, however, regarding interests that are incapable of being registered. In Carpet Import Co Ltd v Beath & Co Lid, the full Supreme Court held “that {5 182 of the LTA] does not apply to any interest which is not capable of being registered under the provisions of the Act”.® In other words, such interests may override the register. The interest was an equitable easement by prescription. The Court followed Gray v Urguhart,® where Williams J said that s 59 of the Land Transfer Act 1908 — now s 62 of the LTA — ‘would not have applied to a valid licence for a water-race, so a registered Proprietor would take the land subject to this right. Taken together, these two cases suggest that neither s 62 nor s 182 of the LTA apply to unregistrable interests.** 46 Ifthe trustees have a power of sale, the beneficiaries” interests will be in the purchase price. 47 Whalan, above n 43, at 15-17. 48 Carpet Import Co Lid v Beath & Co Lid {1927} NZLR 31 (SC). 49 Tbid, at 59. The easement in question may also have fallen under the “omitted easement” exception in ¢ 62 of the Land Transfer Act 1952, See also Webb v Hooper (1953) NZLR. 111 (SC) at 113, where Stanton J expressed the obiter opinion that 182 of the Land ‘Transfer Act 1952 may not apply to unregistrable interests. 50 Gray v Urquhart (1910) 30 NZLR 303 (SC) at 308. The licence in question was not, however, valid. 51 See Town & Country Marketing Ltd v MeCallum, above n 33, at (29), which concerned restrictive covenant not noted on the register. In contrast, in Ruapekapeka Sawmill Co Lud v Yeats {1958} NZLR 265 (SC) at 271, Haslam J expressed a contrary view in an biter dictum about a mere licence to occupy that could not be made registrable.The “Mirror” Principle and the Position of Unregistered Interests 163 The issue was revisited in Town & Country Marketing Lid v McCallum ® Referring to Carpet Import Co Ltd v Beath & Co Ltd, the ‘High Court said that ss 62 and 182 of the LTA:* «+ fefer to legal estates or interests and not to equitable interests which cannot be registered, Thus, an equitable interest if it cannot be registered, ‘may still have priority over a legal interest ... A majority of the New Zealand Supreme Court in Regal Castings Ltd v Lightbody’ has, however, recently considered the position of unregistrable interests under the LTA. The Court held that a transfer by the Lightbodys of their family home to a family trust was in part voidable under s 60 of the Property Law Act 1952,* as an alienation with intent to defraud creditors. ‘The majority, in a strong obiter dictum, considered that if the creditor had had ‘an unregistrable interest in the land, that interest would not have prevailed against the registered proprietor’ title. In Tipping J's view, the effect of s 62 of the LTA was as follows:” Exceptin the case of fraud, the registered proprietor takes free of all interests that are not notified. The certainty and simplicity of that proposition should not be watered down by reference to whether the interest qualifies for registration. Itis the fact of non-notification which is crucial... fyou have an interest, whether registrable or not, of which you wish to give notice, ‘you should, ifpossible, protect it by caveat. I can find nothing in either the text of the [LTA] or in its underlying purpose to support the view that the paramountey afforded by s 62 does not apply against unregistrabe interests, 52 Town & Country Marketing Lid v MoCallum, above n 53 Carpet import Co Led v Beath & Co Ltd, above n 48. 54 Town & Country Marketing Lid v McCallum, above n 33, at (29). Paterson J also noted that restrictive covenants must be treated differently from other unregistrable interests ‘and that Carpet Import Co Lid v Beath & Co Lid, above n 48, would no longer apply to them because they could now be notified on the register. 55 Regal Castings Lid v Lightbody, above n 6, at (149}-{153], Agreeing with Tipping J, ‘Blanchard and Wilson J] supported these perticular paragraphs. Elias CJ and McGrath ‘did not consider the issue. ‘56 This has now been replaced by s 350 of the Property Lav Act 2007, which expressly ‘overrides the Land Transfer Act 1952. 37 Regal Castings Lid v Lightbody, above n 6, at (150) (supported by Blanchard and Wilson J).164 [2010] New Zealand Law Review ‘His Honour acknowledged the Carpet Import line of authority, but was of the opinion that Williams J in Urquart was stating what he considered to be the effect of the Mining Act 1908, rather than any general principle.* E Can interests contained in unregistrable instruments and unregistrable interests be protected by a caveat? A caveat can be lodged under s 137 of the LTA to protect an unregistered interest or trust. There is a view that interests contained in instruments that are in an unregistrable form or incapable of registration (with the exception of trusts) cannot be protected by a caveat because the only function of a caveat is to protect an interest before its registration. Lord Guest in Miller v Minister of Mines said: ‘The caveat procedure is an interim procedure designed to freeze the position until an opportunity has been given to a person claiming right under an unregistered instrument to regularise the position by registering the instrument. This dictum has been followed in some subsequent cases in New Zealand and Australia. This narrow view has, however, been criticised by judges and commentators in Australasia. The narrow approach could lead to serious inconvenience and lack of protection for interests that could not be registered, like equitable liens and interests under contracts of sale where the vendor has not been paid." There has also been a suggestion that the narrow of caveatability is contrary to the practicalities of conveyancing. ‘58 bid, a (151-153). 59 Miller v Minister of Mines [1963] NZLR $60 (PC) at 569. 60 For example, Smellie J has favoured the restrictive interpretation; see Browm v Healy HC Auckland A 147-84, 25 July 1988 at 13. See also Classic Heights Poy Lid v Black Hole Enterprises Pty Lad (1994) V ConvR 54-506 (VSC), discussed in Nimal Wikrama “Do Caveats Need Supporting by Registrable Instruments?” (1995) LIF 101; Hughson, "Neave and O'Connor, above n 16, at 467-469. See also George » Biztole Corporation Pry Ltd (in lig) (1995) V ConvR 54-519 (VSC) 61 GW Hinde, DW MeMorlang, NR Campbell, DP Grinlinton and KC Buchanan, above 1, at [10.006]. For a list of interests that could not be caveated in Australia, see Hughson, Neave and O’Comnor, above n 16, a 469. {62 Sex, for example, Chilwell J's commeats in Equiticorp Finance Group Lid v Smart HC ‘Auckland M 2025-88, 17 February 1989 st 16.The “Mirror” Principle and the Position of Unregistered Interests 165 A wider view of caveatability has been developed — that any equitable interest in land, even where it is in an unregistrable form, can supporta caveat. Most Australasian authorities favour the broad approach. In Australia, Peter Butt has said that “[the narrow approach] is clearly inconsistent with Jong-settled judicial opinion in this country permitting caveats to protect Proprietary interests irrespective of the existence of an instrument, present or prospective, registrable or otherwise. Dr MeMorland has said that, as a matter of policy, all equitable interests should be able to be protected as:* ‘An owner of an equitable interest not ultimately capable of registration under the system leads a precarious existence, having few avenues available for the protection of the interest either against the creation of subsequent interests which could take priority in equity, possibly for failure to lodge a caveat, or against the creation by registration of later legal interests, which a caveat might have prevented. A provisional view in favour of permitting caveats for interests in an unregistrable form (endorsing the wide view of the function of a caveat) was expressed in 1998 by the New Zealand Court of Appeal in Waitikiri Links Lid v Windsor Golf Club Inc.® The majority of the New Zealand Supreme Court in Regal Castings Lid v Lightbody has now approved Waitikiri and the view “that an interest can be the subject of a caveat even if it is not (63 For a discussion ofthe debate in Australia, see Hughson, Neave and O'Connor, above 116, at 463-476, Adrian Bradbrook, Susan V MacCallum and Anthony P Moore Australian Real Property Law (3rd ed, Law Book Co, Sydney, 2002) at 160-162; Peter But, above 2 29, at 740. 64 For New Zealand, see Whiteleigh Holdings (New Zealand) Ltd (in rec) v Whitelelgh Pacific Resources Lid (1987) 8 NZCPR $98 (HC) at [31}134]; Eguiticorp Finance Group Ltd» Smart, above n62, st 10 and 16; Superannuation Investments Lid Camelot Licensed Steak House (Manners Street) Lid HC Wellington M 695/87, 10 March 1988, at 4-5, Haitkiri Links Ltd v Windsor Golf Club Ine (1998) 8 NECPR 527 (CA); Regal Castings Lad v Lightbody, above 16, at [151]. For Australia, see Crampton v French (1995) V ConvR $4-529 (VSC); Composite Buyers Lid» Soong (1995) 38 NSWLR 286 (NSWSC) at 288. Fora list of eases supporting the wider view, see But, above n 29, at 740, n 206. 65 Butt, above n 29, a 740 (66 Don MeMorland "Can an unregistered interest support a caveat?” (1996) 7 BCB 185 at 187. The author has also noted (ibid, at 186) that its consistent with the natural meaning fs 137 ofthe LTA. See also Superannuation Invesements Lid v Camelot Licensed Steak House (Manners Siret) Lid, above n 64, at 4-5. See further Shannon Lindsay Caveats Against Dealings in Australia and New Zealand (The Federation Press, Sydney, 1995) at 58-60. 67 Wasikri Links Lady Windsor Golf Club Inc, above 1 64, a [4].166 [2010] New Zealand Law Review registrable”, This dictum has most likely settled the law in New Zealand. ‘The wide approach supports the “mirror principle” and the integrity of the register, enabling everyone dealing with the land to know what interests might affect it, Regal Castings is persuasive authority for the proposition that the different kinds of unregistered interests should be treated in the same way regardless of whether they are in unregistrable instruments, or are otherwise unregistrable. If as it now seems, unregistered interests are all caveatable and do not override the register, there no longer seems any point in considering these interests separately. F Should Regal Castings lead the way for unregistered interests? Regal Castings appears to be persuasive authority for overtuming the Carpet Import line of authority and supporting the view that all unregistered interests in land should be able to be protected by a caveat. However, should this be the case? These two issues are closely related as the decision regarding caveatability has a significant impact on whether there is any way to protect, interests that cannot be registered under the LTA. If unregistrable interests cannot be caveated, these interests are wholly outside the system and the argument that they should override, as there is no other way to provide for them, may be more persuasive There are a number of disadvantages to allowing unregistrable interests to override the register. Firstly, itis contrary to indefeasibility; title should not be overridden by interests that are off the register. As Tipping J said, this would significantly “water down” the principles of the Torrens system and indefeasibility. Secondly, it is against the “mirror principle”. A purchaser should not be bound by an interest of which they had no notice. Lastly, this is against the equitable principle that equitable interests bind all but a bona fide purchaser for value. It is also unclear whether there are a lange number of interests of this nature that cannot be transformed into registrable interest. Tipping J's obiter dicta that all interests in land are caveatable and that unregistrable interests should not override the register overturns authority that created significant uncertainty and potentially wide exceptions to indefeasibility, without notice. As explored later in this article, another option may be to reform the system to allow for more protection of unregistered interests. (68 Regal Castings Lid v Lightbody, above n 6, a [151], where Tipping J was supported by Blanchard and Wilsoa JJ. Elias CJ and McGrath J did not consider the issue.The “Mirror” Principle and the Position of Unregistered Interests 167 V Approaches in other Jurisdictions ‘The question of how unregistered interests could be reflected on the register has been considered in other jurisdictions and some have adopted systems that allow unregistered interests to be noted on the register in a way that confers priority over subsequent interests, whether through the use of the ‘caveat system or through an interest-recording system. This article considers the following methods of recognising unregistered interests: a caveat system that records priorities; an interest-recording system (as suggested by the Canadian Model Titles Act); the English and Welsh recording system for “minor interests”; the possibility of restrictions or registration for some presently unregistrable interests, such as trusts; and settlement notices. The first three examples are all essentially interest- recording systems combined with title registration; the distinctions lie mainly in their format and terminology. In an interest-recording system, interests are noted or recorded on the land title register, but are not registered. Recording an interest cannot validate a void instrument; however, it can grant Priority as it does for the New Zealand restrictive and positive covenants. An interest-recording system combined with a title registration system has been described by Professor Elizabeth Cooke as ‘a compromise between comprehensiveness and practicability”. A. Caveats and priorities Other jurisdictions have effectively adapted the caveat system to record priorities. This is the position in several Canadian jurisdictions and in Singapore.” For example, the Manitoba Real Property Act provides:”” ‘The filing of a caveat by the district registrar or by a caveator gives the same effect, as to priority, to the instrument or subject matter on which the caveat is based, as the registration of an instrument under this Act. In 1989, the Victorian Law Reform Commission recommended similar ‘changes to their caveat system (although they have not been adopted),”’ Such (69 Sce Patt III D above. 70 Elizabeth Cooke The New Law of Land Registration (Hart Publishing, Oxford, 2003) at 8. See also O'Connor, hove n 27, a 266, 7 Land Title Act RSBC 1996 c 250, s 31; Land Titles Act RSA 2000 ¢ L-4, $5 135 and 147; Real Property Act CCSM 1988 c R30, s 155; Land Titles Act 1993 (Sing), s 49. 72. Real Property Act CCSM 1988 ¢ R30, 8 155, 73 Law Reform Commission of Vietoria Priorities (Report 22, 1989) at 1-12,168 [2010] New Zealand Law Review 8 proposal has been suggested for the New Zealand system.” It has received support from Dr McMorland because of the present confusing application of the doctrine of notice and the rules regarding fraud:”> With the advent of electronic registration, it could be possible to use the caveat system to determine the priority of interests using the time of lodgement of a valid caveat. This could apply both to the priority between ‘equitable interests inter se and the priority between equitable interests and later legal interests. Under such a system, priority would be determined by ‘the time of lodgement of the caveat in exactly the same way that priority between registered interests is determined by the time of registration. ‘As Sharon Roderick has said, “[cJaveats are relatively cheap and straight- forward to lodge and provide an easy means of giving notice to the world that an interest in the land is being claimed”. Lodging a caveat is reason- ably straightforward as the Registrar “is not required to be satisfied that the caveator is in fact or at law entitled to the estate or interest claimed in the caveat”.” ‘Changes to the caveat system could only operate fairly if the broad view of the caveatability of unregistered interests was adopted as advocated in Regal Castings. It may be necessary to create certain exceptions in situations where itis unfair to determine priority by order of caveats, such as where the prior interest holder was unaware of the interest, as is often the case with a constructive trust.” ‘The consequence of caveats recording priority would be that where there are two or more unregistered interests in a piece of land, the interest first protected by a caveat would take priority over all others. This would be a powerful incentive to record unregistered or unregistrable interests. Also, “{iJtis likely to be cheaper to require an earlier equitable interest holder to ‘caveat, than to require all persons purchasing interests in land to ensure that no prior interest has been created”. Permitting caveats to record priority could provide a disincentive to register registrable interests. Caveats are liable to be challenged, however, and no indefeasible interest would be granted except by registration, ‘14 See Douglas } Whalan “The Position of Purchasers Pending Regisirtion” in GW Hinde (ed) The New Zealand Torrens System Centennial Essays (Butterworths, Wellington, 1971) 120 at 133-134 75 McMorland, above n 19, a 99. 76 Sharon Rodrick, above n 19, st 198, 77 Land Transfer Act 1952, s 148A. 78 Hughson, Neave and O'Connor, above n 16, a 488-489. 79 Tid, at 488,The “Mirror” Principle and the Position of Unregistered Interests 169 B_ Interest-reconding system — Canadian Model Act An alternative to the modification of the caveat system is to combine a title registration system expressly with an interest-recording system. Under such a system, certain interests would continue to be registered, while other interests that are currently unregistered would be recorded on the register. An interest-recording system working in tandem with a ttle registration system was recommended in 1990 by the Canadian Joint Land Titles Committee.® Although the Committee’s proposals have never been fully adopted," these particular recommendations correspond to the caveat- priority system that was already in place in a number of provinces, and the Committee's recommendations were merely designed to rationalise these systems and make their consequences explicit. Interest recording ‘would confer priority, but would not in itself confer ownership, while title registration confirms priority and ownership. The Committee recommended combining the two systems as ttle registration cannot extend to all interests, and interests can be recorded immediately without following the procedures necessary for registration.” Under the Canadian Model Act, any interest land could be recorded. In contrast, only certain interests could be registered. The result of such a system would be similar to a caveat-based recording system, The interest that was recorded first in time would take priority over interests that arose subsequently. This would prevent the recording 80 Joint Land Titles Committee (Alberta, British Columbia, Manitoba, The Council of Maritime Premiers, Northwest Territories, Ontario, Saskatchewan and Yukon) Renovating the Foundation: Proposals for a Model Land Recording and Registration ‘Act for the Provinces and Territories of Canada (1990), 81 A type of interest recording appears to have been adopted by Saskatchewan's Land Titles Act S$ 2000 c L-S.1. Title to land can be registered and is conclusive proof of ‘ownership (ibid, at ¢13(1)), except where specified exceptions apply (ibid, at s 15). [Lesser interests inland that are either recognised in law (for example, leases, easements ‘and mortgages) or regisirable according to any statute or under the regulations (iid, at +s 50(1)) are teated differently. While these interests can be registered under the Land Titles Act, this “registration” is “only effective according to the terms of the instrument ‘raw on which the interes is based and is not deemed 1 be valid through registration” ibid, a s 5403). In other words, the interest is not indefeasible. 82 Joint Land Titles Commitee, above n 80, at 13-14, 83 Ibid, at 14. 84 Ibid. See also Model Land Recording and Registration Act, $ 4.1. An interest in land includes all interests recognised by the general law (ibid, ats 1.1(@). 85 Ibid, at 21. These interests are fee simple interests, and a “limited number of estates and interests which are sufficiently well understood and recognised by the general law that registration will be efficient and useful”; see Model Land Recording and Registration Aet,s5.1170 [2010] New Zealand Law Review or registration of interests that were incompatible with that interest. If unrecorded, interests would be defeated by subsequent recorded interests. A recorded interest would not prevent any dealings with the land, but subsequent purchasers would take land subject to recorded interests. This would improve facility of transfer.® English and Welsh system: notices ‘The system in England and Wales is also effectively a ttle-registration system combined with an interest-recording system. This system has three tiers of interests: registrable interests, overriding interests and those previously known as “minor” interests. Minor interests are protected either by notices or restrictions, Annotice is described as “an entry in the register in respect of the burden of an interest affecting a registered estate or charge” *” Notices can be entered by agreement or unilaterally.* Previously, interests could be protected by notice only with the consent of a registered proprietor. Ifthe claimed interest was disputed, it could only be protected by a caution that functioned as a caveat does in Australasian Torrens systems. Since the coming into force of the Land Registration Act 2002 (UK), cautions have gone and most interests affecting a registered estate may be recorded by a notice on the register.” The purchaser takes title subject to all interests protected by notice insofar as they are valid, The existence of a notice “does not necessarily mean that the interest is valid, but does mean that the priority of the interest, if valid, is protected for the purposes of ss 29 and 30 [of the Land Registration Act 2002 (UK)]”.” The general rule regarding priority of interests under the Land Registration Act 2002 (UK) is that priority is determined by their date of creation, regardless of when they are recorded on the register." However, ss 29 and 30 provide that, where a registrable disposition of an estate or charge is made, unless another interest is protected by a notice, the disposition will take priority. 86 Sce MeCrimmon, above n 17, 313. 87 Land Registration Act 2002 (UK), 8 32(1), 88 In the case of a unilateral notice, the Registrar must give notice of it to the registered Proprietor ofthe estate to which it relates (who can apply to remove it) and the notice must identify the beneficiary ofthe notice; see Land Registration Act 2002 (UK), #35. 89 See Cooke, above 170, at 72-74. The Land Registration Act 2002 (UK) ensures that ¢ "ght of pre-emption functions asa proprictary interest (ibid ts 115) 28 does an equity by estoppel (Ibid, at $116). 90 Land Repistration Act 2002 (UK), 83263) 91 Tid, ar 28,The “Mirror” Principle and the Position of Unregistered Interests 171 The Land Registration Act 2002 (UK) sets out interests that cannot be Protected by a notice.” Trusts are excluded because of the nature of notices:® A notice protects an interest in registered land when it is intended to bind any person who acquires the land. It is therefore apposite in relation (for ‘example) to the burden ofa restrictive covenant or an easement. Itis not the appropriate means of protecting beneficial interests under trusts. ‘The Land Registration Act 2002 (UK) also contains a list of interests that override registered dispositions in schedule 3. From the point of view of the purchaser in England, Professor Cooke has said: “[o}verriding interests have ‘been described as the crack in the mirror of title; they are the main reason why the perfect register can only ever be a myth" * ‘The Land Registration Act 2002 (UK) was drafted to anticipate the implementation of an electronic system, under which the only way to create or transfer interests is by registration or the entry of a notice on the register. Although the Land Registration Act 2002 (UK) provided for priority to be determined by date of creation, once such an electronic system was in operation the date of registration, or of the entry ofa notice, would in reality determine priority.” ‘The necessary corollary of that is that the register will in time become conclusive as to the priority of such interests because the date of the creation of an interest and its registration will be one and the same. 92 Under s 33 of the Land Registration Act 2002 (UK), these include: a tust of land or «settlement under the Settled Land Act 1925; a lease that is for less than three years and is not required to be registered; a restrictive covenant between lessor and lessee; an interest registrable under the Commons Registration Act 1965 (UK); an interest in any ‘coal, coal mine of ancillary right. 93 Law Commission for England & Wales and HM Land Registry Land Registration for the Twenty-first Century: A Conveyancing Revolution: Land Registration Bill and ‘Commentary (Laws Com No 271, 2001) at 95, 94 Cooke, above n 70, at 76 (footnotes omitted), citing Hayton Registered Land (3rd ed, ‘Sweet & Maxwell, London, 1981). 95. Section 93 ofthe Land Registration Act 2002 (UK) provides that rales may provide that certain dispositions will only take effect fthey are in electronic form and simultaneously ‘communicated to the Registrar. ‘96 Land Registration Act 2002 (UK), $ 28. 97 Law Commission for England & Wales and HM Land Registry, above n 93, at 781m [2010] New Zealand Law Review D The case for trusts: restrictions or registration? Under the Land Registration Act 2002 (UK), some interests can also be protected by restrictions. A restriction is an entry on the register “regulating the circumstances in which a disposition of a registered estate or charge may be the subject of an entry in the register”.” It is designed to prohibit the entry of any disposition or of a specified disposition indefinitely, or for a fixed period.” An application to enter a restriction can be made if the applicant is the registered proprietor, if the registered proprietor otherwise consents to the application, or if the applicant has a sufficient interest in the entry.” Restrictions enable the register to reflect the limited capacity of registered proprietors to deal with the land where appropriate, in other words they ‘endorse the “mirror principle”. They are mainly (and commonly) used for ‘trusts where there is no power of sale.'* No disposition can be registered unless in compliance with the terms of the restriction," which, in the case of trusts, clearly states the effect of a trust in relation to a disposition of the land. The restriction remains noted on the register, although there can be an application to cancel or modify it. This system prevents dealings with trust property in breach of notified restrictions. ‘Some Torrens jurisdictions allow noting of trustee registered proprictors. So, for example, ss 109-1104 of the Land Title Act 1994 (Qld) provide that a person may be registered on the freehold land register as trustee of an interest in a lot, by the registration of a transfer to the person as trustee, or by a request to vest the land in that person as a trustee." A transfer may be lodged to transfer the interest to the trustee or declare the trust.!%* A trust dealing must be accompanied by the instrument of trust. However, the details of the trust deed are deposited with the Registrar. The deposited deed, whilst it is imaged and searchable, does not form part of the register. In British Columbia, a person may be registered as a trustee endorsed with identification particulars, the words “in trust” and a reference to the trust instrument, although the particulars of the trust cannot be entered on the register. The trust instrument must be filed with the Registrar with the 98 Land Registration Act 2002 (UK), $40, 99 hid, at s 402). 100 hid, ats 43, 101 Discussion with HM Land Registry staff regarding restrictions (London, 28 July 2008), In England and Wales, where thee is a power of sale, there is also a power to overreach — that is, a power to provide a capital receipt tothe beneficiaries. 102 Land Registration Act 2002 (UK), s 1. 103 Land Title Act 1994 (Qld), s 108. 104 Ibid, at s 110.The “Mirror” Principle and the Position of Unregistered Interests 173 application for registration of title." Lawyers have said that this is a major improvement," Consideration could be given to registration of currently unregistrable interests (such as trusts) to improve the integrity of the register and to protect both interest holders and purchasers more clearly. If the preference is to keep trust instruments further “behind the curtain”, the English notification of restrictions appears to be a clear and straightforward solution to protect beneficiaries and notify purchasers. Restrictions could also be used to notify purchasers of disabilities, such as infancy or limited mental capacity. ‘The rationale for not notifying trusts on the land transfer register is to promote ease and speed of transfer for a purchaser, who should not need to be concerned with a trust deed. In the interests of facility of transfer, if trustees were to be noted as registered proprietors, it should be made clear that a purchaser would not need to check the trust deed to ensure the dealing was in compliance with the deed. The burden should be on the vendor to certify such compliance. There is also the point that trustees are very likely to have a power of sale, and that many beneficiaries are discretionary beneficiaries and so would not have a vested interest in the land for sale." Further, the notification system would need to be mandatory if a purchaser was to rely on it as a complete reflection of the title, not permissive as in Queensland and British Columbia. This would be a major change not provided for in other Torrens jurisdictions.’ E Settlement notices Certain jurisdictions have developed mechanisms to protect a purchaser during the gap between settlement and registration. For example, Part 7A of the Land Title Act 1994 (Qld) provides for a settlement-notice system to prevent registration of another instrument affecting the lot in question without the consent of the transferee." The notice lasts for two months or 105 Land Title Act RSBC 1996 ¢ 250, s 180. 106 HL Robinson “The Assurance Fund in British Columbia” (1952) 30 Can Bar Rev 445, at 446, cited in Stein, above n 40, at 626. 107 Sce Paicheit v Williams HC Blenheim CIV-2008-406-82, $ October 2008. 108 For arguments for and against notification of rusts, see New Zealand Lew Commission, above n I, atch 8 109 Similarly, other Australian jurisdictions use a “stay order” (Transfer of Land Act 1893, (WA), 65 148-149), ora priority notice (Land Titles Act 1980 (Tas), s 52) once a dealing. conceming that lots settled. England and Wales have a search-with-pririty system aRer ‘exchange of contracts and before completion, which freezes the register for 30 days; sce Land Registration Rules 2003 (UK).174 (2010) New Zealand Law Review until all relevant instruments are lodged. It has been noted that this method is cheaper and easier to initiate than a caveat.'"° If a more extensive reform of the protection of unregistered interests was not considered appropriate in ‘New Zealand, this might be a useful option to consider. Except in Tasmania, however, it does not appear that these notices are used frequently in Australian jurisdictions.'" VI Alternative Methods for Protecting Unregistered Interests in New Zealand? A consideration of the methods used in other jurisdictions shows that it would be possible for New Zealand to adopt a system that provided protection for unregistered interests within the Torrens system. The advantages of an interest-recording system could be that the register would more accurately reflect the interests in land, it could better protect equitable interests and be of more assistance to purchasers, and there would be increased certainty in the application of the law. All interest-recording systems would ultimately have the same effect, — allowing certain interests to be noted on the register without being indefeasible. Adapting either the system of notification for certain interests, or the existing caveat system, has the advantage that they are both in keeping with the current New Zealand framework. The disadvantage of modifying or using a current system, with its present terminology, is that there could be confusion with the way that system operated in the past. Further, the caveat system has traditionally been used as a more temporary way to note interests, and it may need revision to allow it to be an effective interest-recording system, where the interests run with the land. For this reason, it may be preferable to consider more of a “clean sheet” approach. Both the Canadian Model Act and the English system offer examples of this. The English system is slightly more complex in that there is a difference between noting minor interests, and restrictions for interests like trusts. The Land Registration Act 2002 (UK) also provides a list of overriding interests, to which both recorded and registered interests are subject, including the interests of a person in actual occupation. ‘Any interest-recording system that is adopted would need to be fully integrated into the land transfer system. The relationship between recorded interests and other interests — for example, registered interests, unregistered Integrity of the Register?” (2009) 21 Bond LR 68 at 84. 111 Bradbrook, MacCallum and Moore, above o 63, at 181-182,The “Mirror” Principle and the Position of Unregistered Interests 75 interests (either legal or equitable) and overriding statutory interests — ‘would need to be fully considered. Before such a change is seriously considered, however, it must be clear that it would improve the current position. The policy of the Canadian Joint Land Titles Committee was that only those interests of sufficient importance ‘could be registered;'” the Land Registration Act 2002 (UK) also starts from the basis that not all interests in land can, or should, be registered and gain the benefits of registered title. In contrast, in New Zealand, a large number of interests are capable of registration and the line between what is capable of registration, and what is not, is not clearly delineated. While some interests are frequently let unregistered — for example, commercial leases — this is generally a ‘matter of choice, although it seems that the holders of commercial leases find, in practice, that the requirements for registering such leases render their registration nearly impossible. Nevertheless, it seems unnecessary to develop a system around interests that are capable of registration, but are not registered for reasons of practicality In order to ensure that interest-recording systems and settlement notices ‘operated effectively, it would be necessary for unregistered interest holders to take active steps to protect their interests. As there is presently only limited lodgement of caveats to protect unregistered interests, however, itis not clear that there would be greater use of interest-recording or settlement notices. ‘The advantages of more accurate reflection of the interests in land, better protection of equitable interests and more assistance to purchasers would depend on the extent to which the system was used. A farther concern with the use of an interest-recording system is that it is a relatively blunt way to protect unregistered interests. It requires a person to be aware of the existence of the interest in order to record it and ‘gain protection. Exceptions could be crafted to protect interests, such as constructive trusts, where the interest holder is unlikely to know that they have an interest that could be protected. None of the systems described above, however, provide for such exceptions, and it is difficult to see how they might work. Another potential practical problem with an interest-recording system is that it may be perceived as making land transfer more complex, and the distinction between recording and registration may not be fully understood by the users of the land transfer system. This is suggested by the experience 112 See O°Connor, above n 27, at 265-268. 113 Joint Land Tities Committe, above n 80, t 21. Section 5.1 ofthe Mode! Land Recording and Registration Act sets out these interests176 [2010] New Zealand Law Review in England and Wales.'"* Such perceptions would need to be addressed in the legislation, so distinctions are clearly understood and the advantages of improving the mirror for both interest holders and prospective purchasers are obvious. Even without introducing a recording system, generally under the equi- table priority rules it is important to record an interest by means of a caveat and failure to do so may postpone an earlier interest to a later one.'™ Further, the equitable priority rules are more flexible and can address situations, such as where a person does not know that he or she holds an equitable interest, such as a constructive trust. Finally, it is also worth considering consistency with the Australian Torrens legislation. At this stage, no Australian jurisdictions have an interest- recording system as such, although some use settlement notices to protect purchasers who have contracted to buy land, but do not yet have registered ‘title. Caveats are the main means of protecting unregistered interests in all Australian jurisdictions, as in New Zealand. VII Conclusion Regal Castings improves the situation for unregistered interests under the ‘Torrens system in terms of clarity and also in terms of protection, 23 it suggests that all unregistered interests can be caveated. This supports indefeasibility and the “mirror principle”. It seems very likely that the dicta will be followed by subsequent cases. This may be seen as a step towards greater coherence in the treatment of unregistered interests. Other jurisdictions offer examples of how greater protection of unregistered interests could be provided for within the Torrens system. Itis unclear, however, whether these would substantially improve the New Zealand situation. 114 See Cooke, above n 70, at 73: “The difficulty here is that many lawyers are unaware of| the difference. It is expressed on the register by the use of different forms of wording; thus a recorded, but not registered, easement may be the subject of a notice in words such as ‘the land is expressed io be subject tothe easements set out in a deed dated ste’. Accordingly, unless the reader of the register has a detailed knowledge of the implications of certain forms of words, interests that are only recorded actually appear ‘be registered. Recording thus gives a sort of mythological protection.” 11S Austratian Guarantee Corporation (NZ) Lid v CFC Commercial Finance Lid, above 1 20, at 138. See also Black v Garnock, above n 22. For discussion of equitable priority rules generally and in relation to caveats particularly, see Hinde, MeMorland, Campbell, Grinlinton and Buchanan, above n 1, at [9.005] and (10.005).