United Kingdom House of Lords Decisions

The cause was heard in the House of Lords before Lord Keith of Kinkel, Lord Jauncey of Tullichettle, Lord Mustill, Lord Woolf and Lord Nicholls of Birkenhead on 17 and 18 October 1995.

At delivering judgment—

LORD KEITH OF KINKEL—My Lords, this appeal raises a difficult and interesting point upon the construction of certain provisions of the Land Registration (Scotland) Act 1979.

The form of the proceedings is an application by the permanent trustee on the sequestrated estates of Alexander Short, the present appellant, for judicial review of a decision by the Keeper of the Registers of Scotland, the first respondent, whereby he refused to register in the Land Register a decree of reduction of certain dispositions of two flats in a Glasgow tenement.

The circumstances of the case are set out in the opinion of the Lord President, Lord Hope, as follows: ‘The debtor Alexander Short, who was the heritable proprietor of two flats in a tenement block in Glasgow, sold them towards the end of 1986, within two years of the date of his sequestration, to Shek Chung at prices which were below that which they would have fetched in the open market at that time. In May 1987 Mr Chung conveyed the flats to his wife Tai Lee Chung for ‘love, favour and affection’ and she became the proprietor of them. The four dispositions relative to the two flats were duly registered in the Land Register of Scotland under the title numbers GLA 13339 and 13328 respectively. On 3 June 1987 the debtor's estates were sequestrated, and the petitioner was appointed as permanent trustee on 4 August 1987. Mr Chung died on 25 January 1988, and on 8 April 1988 his wife was confirmed as his sole personal representative. The petitioner decided to challenge the dispositions granted by the debtor to Mr Chung on the ground that they were gratuitous alienations in terms of sec 34 of the Bankruptcy (Scotland) Act 1985. Under reference to subsec (4) of that section he sought reduction of the four dispositions or such restoration of property to the debtor's estate or other redress as might be appropriate. On 13 July 1990 the Lord Ordinary granted decree of reduction, and on 15 March 1991 the Second Division refused a reclaiming motion which had been taken against his interlocutor on the ground that a remedy other than reduction was appropriate: see Short's Tr v Chung. The petitioner then applied to the keeper for effect to be given to the decree of reduction by making an entry in the respective title sheets of the registered titles of the two properties showing the name and designation of the debtor as the person entitled to the interest in land as heritable proprietor. The petitioner maintains that he made this application under and in terms of sec 2(4)(c) of the 1979 Act. But the keeper refused to give effect to it on the ground that an application under that provision was inappropriate. He maintains that the appropriate procedure was for the petitioner to apply for rectification of the register under sec 9(1) of the Act. No application for rectification of the register has been made and Mrs Chung, who is the second respondent to the application, remains on the register as the proprietor in possession of the two flats.’

Section 2 of the 1979 Act prescribes what may be entered in the Land Register. Under subsec (1) unregistered interests in land are registrable upon the first grant or upon any transfer after the commencement of the Act. Subsection (4) provides:[his Lordship quoted the terms of sec 2(4) and continued:]

The short argument for the appellant is that the decree of reduction of the four dispositions is an event falling within the terms of sec 2(4)(c). The argument for the respondent is that the decree of reduction does not fall within sec 2(4)(c) because, upon a consideration of the whole scheme of the Act, the legislative intention was that any decree of reduction of a disposition could receive effect only by way of rectification of the register under sec 9. That section, as amended by sec 59 of, and para 21 of Sched 2 to, the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985, provides: [his Lordship quoted the terms of sec 9 set out supra and continued:]

Sections 8 and 9 of the Act of 1985, referred to in subsecs (3)(b) and (3A), deal with the power of the court to rectify a document which fails to express accurately the common intention of the parties to it.

Certain provisions of sec 12 of the Act, which are relied on by the respondents in support of their argument, also require to be cited. Section 12 deals with indemnity in respect of loss. Subsection (1) provides: [his Lordship quoted the terms of sec 12(1) and continued:]

Subsection (2) has no relevance for present purposes. Subsection (3)(b), as amended by sec 46(1) of, and para 28 of Sched 1 to, the Matrimonial and Family Proceedings Act 1984, sec 28(1) of, and para 10 of Sched 1 to, the Family Law (Scotland) Act 1985 and sec 75(1) of, and para 15 of Sched 7 to, the Bankruptcy (Scotland) Act 1985, provides: [his Lordship quoted the terms of sec 12(3)(b) and continued:]

Paragraph (c) is also of some relevance: [his Lordship quoted its terms and continued:]

The application came before the Lord Ordinary, Lord Coulsfield, and on 18 December 1992 he pronounced an interlocutor dismissing it. In his opinion of that date the Lord Ordinary adverted to the report of the Reid committee in 1963 (Registration of Title to Land in Scotland (July 1963) (Cmnd 2032) and that of the committee under the chairmanship of Professor G L F Henry in 1969 (Scheme for the Introduction and Operation of Registration of Title to Land in Scotland (October 1969) (Cmnd 4137), which led up to the passing of the Act of 1979. He considered that some assistance towards the construction of the relevant provisions of the Act could be obtained from these, particularly from the circumstance that certain proposals of the Henry report (to which I shall refer later) had not been given effect to in the Act. His principal ground of decision, however, was that if any reduction of a deed transferring a registered interest in land were to be registrable, this would significantly prejudice the system of registration of title. The reduction would be registrable without any limitation of time, and the law of positive prescription would not be available to fortify a title derived from the deed that had been reduced. Further, sec 12(3)(b) envisaged that a reduction under the Bankruptcy (Scotland) Act 1985, as well as certain other reductions, might receive effect by way of rectification of the register, albeit subject to sec 9(3)(a)(iii), whereby rectification was not available if it would prejudice the proprietor in possession and the inaccuracy in the register was not caused wholly or substantially by the fraud or carelessness of that proprietor. He therefore concluded that the reduction of a previous writ relating to the property was not an event ‘capable of affecting the title’ to a registered interest within the intendment of sec 2(4)(c).

The appellant reclaimed and on 5 November 1993 the First Division (the Lord President, (Lord Hope), Lord Allanbridge and Lord Mayfield) refused the reclaiming motion and affirmed the interlocutor of the Lord Ordinary (1994 SC 122). The only opinion delivered was that of the Lord President. He accepted that the terms of sec 2(4)(c) of the Act of 1979 were sufficiently wide to include an event such as the reduction of a deed on the basis of which an interest in land had been registered. However, he took the view that secs 9 and 12, particularly sec 12(3), were inconsistent with such a construction of sec 2(4)(c), as indeed was the whole scheme of the Act, which was directed to giving a real right by the mere force of registration of the relevant interest, without the need for any search of earlier titles or for reliance on the positive prescription. The Lord President then proceeded to survey the legislative background to the Act, in particular the Reid report and the Henry report, and the proceedings in Parliament which led to its passage. He concluded that the relevant material, while of limited assistance, tended to support the argument for the respondents, and to be consistent with the view that, in the context of the scheme of the Act as a whole, rectification under sec 9 was the only method by which effect could be given to the decree of reduction, and that it was not an event registrable under sec 2(4)(c).

The trustee now appeals to your Lordships' House.

It is at once apparent that the provisions about rectification of the register contained in secs 9 and 12 of the Act are in some respects extremely obscure and difficult to understand. Leaving aside for the moment subparas (i), (ii) and (iv) of sec 9(3)(a), the effect of subpara (iii) is that the keeper cannot rectify an inaccuracy in the register in any case where the proprietor in possession would be prejudiced, nor can the court order him to do so, unless the inaccuracy has been caused wholly or substantially by the fraud or carelessness of the proprietor in possession. There is an exception, immaterial for present purposes, where rectification is consequential on an order under sec 8 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985. Section 12(1) gives a right to indemnity to a person who has suffered loss inter alia through rectification of the register or the keeper's refusal to make a rectification. Section 12(3) sets out 15 situations where the right to indemnity is excluded. These include, under para (b), various situations where the loss results from a title having been reduced or varied by order of the court under a number of enactments. These include sec 34 of the Bankruptcy (Scotland) Act 1985, with which the present case is concerned, and also sec 6(2) of the Divorce (Scotland) Act 1976, sec 29 of the Matrimonial and Family Proceedings Act 1984 and sec 18(2) of the Family Law (Scotland) Act 1985. Orders under the latter group of enactments may have the effect of divesting one person of heritable property and vesting it in another. Further, under para (c) of sec 12(3), certain orders under sec 5(2) of the Presumption of Death (Scotland) Act 1977, may have similar effect.

Paragraphs (b) and (c) of sec 12(3) appear to contemplate that a rectification of the register causing loss may have occurred as a result of an order of the court made under one or other of the specified enactments. But under sec 9(3)(a)(iii) no rectification can be made if it would prejudice the proprietor in possession, unless that proprietor has caused the inaccuracy through his fraud or carelessness. If that proprietor has suffered loss he must be prejudiced. If he would be prejudiced he would be unlikely to consent to a rectification under sec 9(3)(a)(ii), though that subparagraph certainly contemplates the possibility. In the great majority of cases where an order might be made under any of the enactments specified in sec 12(3)(b) or (c), particularly the matrimonial enactments and the Presumption of Death (Scotland) Act 1977, the prospect of the proprietor in possession having caused the so called inaccuracy by his fraud or carelessness must be extremely remote. On any view it follows that many orders of the court under these enactments would apparently be incapable of receiving effect by way of rectification of the Land Register. No doubt it is reasonable that a person who has caused an inaccuracy by his fraud or carelessness should not be entitled to an indemnity on rectification of it, but para (n) of sec 12(3) specifically excludes indemnity where ‘the claimant has by his fraudulent or careless act or omission caused the loss’. The need for paras (b) and (c), so far as the proprietor in possession is concerned, is therefore not apparent, though possibly para (n) is intended to be a catch all provision covering a variety of situations. It may be that the draftsman had in mind possible cases where the proprietor in possession consented to rectification following an order for reduction or rectification, notwithstanding that he would be prejudiced and suffer loss.

However, indemnity may also be available where the keeper has refused or omitted to make a rectification (sec 12(1)(b)). Here a question arises whether the right arises where the keeper has refused to rectify because he has no power to do so under sec 9(3)(a) or only where he has such power but has failed to exercise it. Presumably the former is the correct view, because in the latter case the court could and would on application to it order him to rectify under sec 9(3)(b). It is, however, somewhat strange to speak of a person who has obtained the reduction or variation of a title under any of the enactments specified in sec 12(3)(b) but has failed to secure rectification of the register as having suffered loss which has arisen ‘in respect of a title’. Although these enactments, other than the Divorce (Scotland) Act 1976, did not appear in the subparagraph, as originally enacted, but were added by amendment, the point remained good on its original form. It is even stranger to speak of a person in whose favour an order under sec 5(2) of the Presumption of Death (Scotland) Act 1977 has been made as having suffered loss ‘in consequence of the making’ of the order (sec 12(3)(c)). The correct conclusion, in my opinion, is that the person in whose favour an order of the nature referred to in paras (b) and (c) has been made, is not, upon a proper construction of these paragraphs, a person who has suffered a loss of the nature thereby contemplated in the event of the keeper refusing to rectify the register so as to give effect to the order. Such a person has, however, undoubtedly suffered a loss through the keeper's refusal to rectify the register and is therefore entitled to an indemnity from him for it.

It is to be noted that in para 154 of the Henry report, which led to the introduction of the Bill which became the Act of 1979, it is stated: ‘On the other hand, under registration of title, which we advocate, all registered interests become indefeasible except in the rare case in which rectification of the register is allowed (see paragraphs 114 and 115); even in that case the state guarantee will ensure full compensation to the owner, and any other person who suffers loss by reason of any rectification, and any person who suffers loss because the register is not rectified will also be entitled to compensation.’

The Act of 1979 gives full effect to these principles. Rectification of the register is available only in a limited number of circumstances, and it is only just that a person clearly entitled to valuable rights who cannot bring himself within any of that limited number should receive compensation, unless there is good reason for denying it. It is also to be observed that para 47(4) of the draft Bill annexed to the Henry report was in these terms: ‘Except for the purpose of giving effect to an overriding interest, the register shall not be rectified unless with the consent of all parties interested, including the Keeper, so as to affect the title of the proprietor who is in possession: (a) unless such proprietor shall be a party or privy or shall have caused or substantially contributed by his act, neglect or default to the fraud, mistake or omission in consequence of which such rectification is sought; or (b) unless the immediate title by which he shall have acquired right is void or has been reduced or the title in favour of any person through whom he shall claim otherwise than for valuable consideration is void or has been reduced; or (c) unless, in any particular case, it shall be unjust not to rectify the register against such proprietor—but notwithstanding the foregoing provisions of this subparagraph the register shall not be rectified against any person whose title has been fortified by prescriptive possession.’

Parliament did not, in what is sec 9 of the Act of 1979, give effect in terms either to para (b) or to para (c) of this proposal. The inference is that Parliament did not intend that reduction of a deed constituting a title or midcouple should in general be an occasion for rectification of the register. The possibility of such a reduction was, however, within the contemplation of Parliament, as sec 12(3)(b) shows. The intention must therefore have been that the reduction should only lead to rectification of the register if the case fell within the limited parameters of sec 9(3)(a), particularly subpara (iii). It would be unjust if, in a case not falling within those parameters, the person in whose favour the reduction had been granted would have no right to indemnity following a necessary refusal to rectify the register. Nothing in paras (b) or (c) of sec 12(3) leads properly to the conclusion that he is intended to be excluded from the right.

There is a certain artificiality about describing as an ‘inaccuracy in the register’ the state of affairs which exists when a person has obtained the reduction of a deed which has formed the basis of a particular entry in the register. However, sec 12(3) contemplates that such a reduction may lead to rectification of the register, albeit only in limited circumstances. So in my opinion the correct interpretation of the relevant provisions of secs 9 and 12 is that the remedy intended to be available to a person who has obtained the reduction of such a deed is either rectification of the register, if sec 9(3)(a)(ii) or (iii) applies, or if they do not then indemnity under sec 12(1)(b). That being so, it follows that Parliament cannot have intended that the reduction should be an ‘event which…is capable…of affecting the title to a registered interest in land’ within the meaning of sec 2(4)(c), so as to be registrable.

The argument for the appellant laid considerable stress on the differences which would arise, if the respondents' arguments were correct, between the treatment of a decree of reduction by the land registration system and by the system of recording in the Register of Sasines. The latter system still applies to a very large part of the land area of Scotland, including all the major towns other than Glasgow. Section 46 of the Conveyancing (Scotland) Act 1924, as amended by sec 59 of, and para 7 of Sched 2 to, the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985, provides: [his Lordship quoted the terms of sec 46 and continued:]

The argument is that Parliament cannot have intended to create a situation where a decree of reduction of a deed forming part of the title to unregistered land is capable, by recording in the Register of Sasines, of vesting the title to the land in the holder of the decree, but no corresponding remedy is available in the case of registered land. The short answer is that the two systems rest upon entirely different principles, so that this particular difference is not at all surprising. The land registration system involves a guaranteed title with limited scope for rectification and a right of indemnity in suitable cases where rectification is not available. With the Register of Sasines there is no room for rectification and only the recording of further deeds or instruments can affect title. It is to be observed that under subsec (2) of sec 46 the amended recording in the Register of Sasines is the appropriate course where a document has been rectified by order under sec 8 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985 in the case of unregistered land. In the case of registered land, by contrast, the appropriate course is rectification under sec 9(3)(b) of the Act of 1979.

My Lords, for these reasons I would dismiss the appeal.

LORD JAUNCEY OF TULLICHETTLE—My Lords, this appeal raises questions relating to the Land Registration (Scotland) Act 1979 (‘the Act’). The facts are simple but the law is not. In 1986 Alexander Short sold two flats in Glasgow to Shek Chung for £2,500 each. Chung's interests under the two dispositions were duly registered in the Land Register. In 1987 Chung conveyed to his wife, the second respondent, the two flats, ‘for love, favour and affection’. Her interest was duly registered in the Land Register. Shortly thereafter Short's estates were sequestrated and the appellant, who was appointed as permanent trustee, raised an action of reduction of the four dispositions under sec 34 of the Bankruptcy (Scotland) Act 1985. Decree was granted in his favour by the Lord Ordinary, Lord Weir, whose interlocutor was affirmed by the Second Division, the Lord Justice-Clerk, (Lord Ross), Lord McCluskey and Lord Sutherland (Short's Tr v Chung). The appellant then applied to register the decree of reduction in the Land Register, but the Keeper of the Registers, the first respondent, refused to register it on the ground that it was not registrable under sec 2(4)(c) of the Act. The appellant then sought judicial review of the keeper's decision but his petition was dismissed by the Lord Ordinary, Lord Coulsfield, whose interlocutor was affirmed by the First Division, the Lord President, (Lord Hope), Lord Allanbridge and Lord Mayfield. The appellant now appeals to your Lordships' House.

In Scotland at present there are two distinct systems for registration of heritable rights. The General Register of Sasines (‘GRS’) covers the greater land area of Scotland whereas the Land Register, set up under the Act, covers Glasgow, Lanarkshire, Dunbartonshire, Stirlingshire, West Lothian and Fife. The GRS is a register of deeds where the Land Register is one of title. Recording of a disposition in the GRS creates a real right in the disponee but in no way guarantees its validity. A purchaser must search the register to verify from the prescriptive progress of titles that the seller is in a position to give a good title. Such a search, however, is unlikely to disclose other latent grounds on which the seller's title may subsequently be impugned, such as fraud, insolvency, nonage or incapacity. Anyone obtaining a reduction of a recorded disposition is likely to record the decree quam primum so that any possible purchaser from the disponee would immediately discover that the purported seller had no title to sell. Had the two flats sold by Short been in Edinburgh instead of Glasgow the present proceedings would never have taken place.

The historical background to the Act lies in two reports. The first was that of a committee under the chairmanship of Lord Reid which was appointed to consider the desirability of reform of the system of land titles in Scotland. This committee, which reported in 1963 (Cmnd 2032) recommended inter alia that substantial savings in cost and burden to the legal profession would be achieved if a system of registration of title were to be introduced. Thereafter Professor Henry, who had been a member of the Reid committee, was appointed to chair a committee charged with the preparation of a detailed scheme for the introduction and operation of registration of title in Scotland. This committee reported in October 1969 (Cmnd 4137) and its recommendations formed the basis of the Bill which preceded the Act. At this stage I say no more about the reports but turn to the provisions of the Act which are relevant to this appeal.

The long title of the Act starts as follows: ‘An Act to provide a system of registration of interests in land in Scotland in place of the recording of deeds in the Register of Sasines; and for indemnification in respect of registered interests in land; to simplify certain deeds relating to land and to provide as to the effect of certain other such deeds.’

Section 1 constitutes the Land Register and sec 2 deals with registration. Section 2(1) deals with registration of interests in the register for the first time. Section 2(4) is, however, the subsection relevant to this appeal and is in the following terms: [his Lordship quoted the terms of sec 2(4) and continued:]

Counsel for the appellant argued that a decree of reduction was a transaction or event which was capable of affecting the title to a registered interest in land and was therefore registrable under sec 2(4)(c). On the other hand counsel for the keeper maintained that when sec 2(4)(c) was construed in the context of the Act as a whole it was clear that a decree of reduction was not such a transaction or event as was contemplated by the subsection. Neither party disputed that it was proper to look at the subsection in the context of the Act as a whole, but the starting point must, in my view, be the subsection. What does it mean construed in isolation and is this meaning qualified or altered by the other provisions in the Act? The Lord President concluded: ‘There can be no doubt, I think, that if a decree of reduction were capable of being registered it would affect the title to which it referred. In my opinion sec (4)(c) is expressed in sufficiently wide terms to include an event such as the reduction, on whatever grounds, of a deed on the basis of which an interest in land has been registered.’

My Lords, I have absolutely no doubt that the Lord President correctly stated the position. Section 2(4)(c) refers to ‘any other transaction or event which…is capable under any enactment or rule of law’ (the emphasis is mine) ‘of affecting the title to a registered interest’, not, it must be noted, a registered title. It is difficult to conceive of any event having a more dramatic effect at common law upon the title to a proprietary interest in land than a decree of reduction of the very deed upon which the title depends—a decree which has the effect of revesting the interest in the original disponer or his representative. I am therefore in entire agreement with the Lord President that a decree of reduction of a disposition is an event which is capable of affecting the title of the disponee to a registered interest deriving therefrom. The question however remains whether, when sec 2(4)(c) is read in the context of the Act as a whole, its prima facie meaning must be displaced.

Section 3 provides inter alia: [his Lordship quoted the terms of sec 3(1) and (5) and continued:]

Registration of a relevant interest has accordingly the same effect of creating a real right as does recording of a disposition or other deed in the GRS (Infeftment Act 1845; Gibson v Hunter Home Designs Ltd at p 27 per the Lord President, Lord Emslie). An overriding interest is defined in sec 28 but has no relevance to this appeal.

The procedure for application for, and completion of, registration is provided in secs 4 and 5, and sec 6 deals with the title sheet which the keeper is required to maintain. Subsections (1) and (5) of that section are in the following terms: [his Lordship quoted the terms of sec 6(1) and (5) and continued:]

Having completed registration the keeper is required to issue to the applicant for registration an authorised copy of the title sheet to be known as a land certificate.

I now turn to the two sections around which much of the argument before your Lordships has revolved. Section 9, which provides for rectification of the register, is in inter alia the following terms: [his Lordship quoted the terms of sec 9(1), (2) and (3) and continued:]

Section 12 makes provision for indemnity in respect of loss sustained in certain circumstances. Subsections (1) and (2) are in the following terms: [his Lordship quoted their terms and continued:]

Subsection (3), as amended by sec 46(1) of, and para 28 of Sched 1 to, the Matrimonial and Family Proceedings Act 1984, sec 28(1) of, and para 10 of Sched 1 to, the Family Law (Scotland) Act 1985 and sec 75(1) of, and para 15 of Sched 7 to, the Bankruptcy (Scotland) Act 1985, provides that there shall be no entitlement to indemnity in some 15 different situations of which it is necessary to set out only three, namely: [his Lordship quoted the terms of sec 12(3)(b), (c) and (n) and continued:]

Finally it is important to note that the positive prescription of 10 years introduced by sec 1 of the Prescription and Limitation (Scotland) Act 1973 is only available to the proprietor of an interest registered under the Act of 1979 where the keeper has excluded indemnity under sec 12(2) thereof (sec 10). The negative prescription is still available against a person seeking to challenge a title after 20 years.

The Lord President considered it to be of importance that the only references to a title being reduced occurred in the context of a loss consequent upon rectification and opined that sec 12(3)(b) supported the argument that a decree of reduction created an ‘inaccuracy’ in the register in terms of sec 9(3)(a)(iii) which could only be given effect to by rectification. His Lordship also considered that there were two features of the scheme for registration which pointed against the registrability of a decree of reduction, namely, (1) the absence of any provision for the search of the deeds from which the registered title derived, and (2) the limited circumstances in which prescriptive possession was available to the proprietor of a registered interest. I agree that the second factor is of significance but I do not attribute to the first factor the importance attached to it by the Lord President.

A search of deeds in the GRS will disclose to the searcher defects in the titles forming part of the progress. It is implicit in the scheme of registration of title that before registration of an interest or transfer thereof, the keeper satisfies himself that the interest is validly constituted by an appropriate progress of title. In short, the keeper is expected to do what a searcher of the GRS would do and if he makes a mistake which requires subsequent rectification he may be required to indemnify against any loss suffered thereby. Accordingly a potential purchaser or secured lender now relies on the appropriate certificate issued by the keeper rather than on a personal search of deeds in the GRS. He is, of course, also entitled to obtain from the keeper under sec 6(5) a copy of the title sheet or any document referred to therein. However, the keeper is in no better position than is a searcher of the GRS to discover latent defects in the progress of titles and the deed which is the genesis of the registered interest remains vulnerable to attack.

Counsel for the appellant posed the question whether secs 12(3)(b) and 9 when read together should be taken to exclude the registrability of a decree of reduction under sec 2(4)(c). He argued that there was no specific provision in the Act to achieve this result and that it would be surprising if Parliament had intended to effect radical alterations to rights in land by implication rather than by express provision, particularly in an Act which purported to deal with registration rather than with alteration to, or modification of, heritable rights. He pointed out that if the decision of the First Division were correct, the rights of creditors in their debtors' heritable estates would vary according to the part of Scotland in which the debtor lived until such time as the system of land registration was adopted throughout Scotland.

Counsel for the keeper argued that the Act of 1979 introduced an entirely new scheme which was intended to alter quite radically the system of land holding and the law relating to security of title in Scotland. He referred to para 154 of the Reid committee report (July 1963) (Cmnd 2032) which is in the following terms: ‘On the other hand, under registration of title, which we advocate, all registered interests become indefeasible except in the rare case in which rectification of the register is allowed (see para 114 and 115); even in that case the state guarantee will ensure full compensation to the owner, and any other person who suffers loss by reason of any rectification, and any person who suffers loss because the register is not rectified will also be entitled to compensation’, and then to para 47(4) of the Scheme annexed to the Henry committee report (October 1969) (Cmnd 4137) which provided: ‘(4) Except for the purpose of giving effect to an overriding interest, the register shall not be rectified unless with the consent of all parties interested, including the Keeper, so as to affect the title of the proprietor who is in possession:…(b) unless the immediate title by which he shall have acquired right is void or has been reduced or the title in favour of any person through whom he shall claim otherwise than for valuable consideration is void or has been reduced.’

The note to this paragraph stated that (b) (supra) was modelled on sec 82(3)(b) of the English Land Registration Act 1925. The note also stated that rectification and indemnity for loss were complementary remedies. This paragraph, if it had been given effect to, would have admitted rectification in the present case. However Parliament, counsel for the keeper submitted, had rejected the recommendation and chosen to restrict severely the powers of the court and the keeper in sec 9(3)(b). Since reduction of title was referred to only in sec 12(3) it followed that rectification was the only logical consequence thereof and this could only take place in the limited circumstances permitted. Counsel accepted that there would therefore be many situations in which a decree of reduction would be worthless so far as the Act was concerned. He also accepted that defeasance or forfeiture of an interest would be registrable under sec 2(4)(c) although he was unable to advance any reason in principle why there should be a distinction between these events and reduction.

My Lords, to deny effect to a decree of reduction or other order pronounced by a competent court in Scotland is to effect a significant alteration to rights deriving from the common law and from other statutes. The successful pursuer in an action of reduction of a deed registered in the GRS is protected against a disposal for value by the defender, by registration of the extract decree which gives notice to the world of the true position. If a decree of reduction is registrable in the Land Register it would have similar effect. If, on the other hand, it is not registrable the decree may prove worthless, as counsel for the keeper accepts, and the defender is free to dispose of the land for value until such time as the pursuer can enforce some other remedy if there be such available to him. Furthermore it is implicit in counsel's argument that not only will the decree be worthless but that sec 12(3)(b) and (c) will exclude any indemnification in the circumstances therein referred to. Such a result would come very near to confiscation and it is therefore necessary to look long and hard at the relevant statutory provisions to see whether they achieve this startling result.

Where rectification would prejudice a proprietor in possession, the keeper's powers are severely restricted by sec 9(3). Section 12(1) provides for indemnification in four different situations of which only two could have relevance in this appeal, namely, a rectification in terms of para (a) or a refusal to make a rectification in terms of para (b). My first impression was that the latter paragraph should be construed as referring only to a situation where the keeper had the power to rectify under sec 9 but had for some reason failed so to do. Thus in no circumstances could a loss resulting from the keeper's lack of power to rectify be indemnified. However, on further reflection I think that is too narrow a construction. Although ‘refusal or omission’ is not the most apposite way to describe an inability to act through lack of power, I think that Parliament must have intended to cover such a situation as well as one of failure to exercise the power, because the court could order rectification under sec 9(3)(b) where the keeper had wrongfully withheld it. That however only takes the matter so far.

Nobody could accuse the Act of being well drafted but the more I look at secs 9 and 12 the more difficult do I find it to determine what was intended to be achieved by sec 12(3)(b) and (c). How can you suffer a loss without being prejudiced? Take a decree of reduction of a disposition under sec 34(4) of the Bankruptcy (Scotland) Act 1985. It is inevitable that the defender/proprietor in possession claiming right under the reduced disposition would be prejudiced by dispossession. If the inaccuracy requiring rectification had been caused by his fraud or carelessness the keeper would be entitled to rectify but any loss sustained by him would be excluded from indemnification by sec 12(3)(n). If, on the other hand, the inaccuracy had not been caused substantially by his fraud or carelessness there would, apart from the very unlikely event of his giving his consent, be no circumstances in which the keeper could rectify under sec 9(3)(a) or (b). In neither event could there arise a loss to which sec 12(3)(b) would apply. The position would be the same in relation to the type of loss referred to in sec 12(3)(c). It is therefore difficult to see what practical effect these two paragraphs of sec 12(3) have in the context of rectification by the keeper.

My Lords, it is interesting to observe the effect of the keeper's argument upon orders such as made under sec 34 of the Bankruptcy (Scotland) Act 1985. A, on the eve of bankruptcy, gives heritable property to his mistress who is unaware of his financial state. His permanent trustee subsequently obtains reduction of the disposition as a gratuitous alienation but is unable to obtain rectification of the register because there was no fraud or carelessness on the part of the mistress, who is accordingly free to dispose of the property as she will. The decree of reduction is effectively valueless and it would, by the time of the keeper's refusal, be too late to obtain an alternative monetary order under sec 34(4). Furthermore, indemnification would be excluded by sec 12(3)(b). Similarly ineffective could be an order under sec 18(2) of the Family Law (Scotland) Act 1985 setting aside an earlier transfer of property.

The position under the Presumption of Death (Scotland) Act 1977 is somewhat different. A decree finding that a missing person has died may also deal with property rights consequent upon the presumed death (sec 2). Such decree may subsequently be varied, for example, by the appearance of the presumed deceased and the court may make such further order in relation to any property rights acquired as a result of the decree as it considers fair and reasonable in all the circumstances (sec 5). Under this latter section the decree would not be of reduction of the first decree but a variation thereof which would be likely to revest the property in the presumed deceased or his assignee. Such an order would thus operate as a transfer of a registered interest in land within the meaning of sec 2(4) (a), yet the keeper argues that it could only be given effect to by rectification because of the reference to the Act of 1977 in sec 12(3)(c). However, since the person holding land under the first decree would inevitably be prejudiced there would be no power in the keeper to rectify. Once again the successful applicant for variation would be left with a worthless order and no right to indemnification.

My Lords it is unnecessary to expand further on the dramatic effects which the keeper's argument would have upon the existing statutory rights of creditors, divorcing spouses and other persons. The Act contains no express provisions which produce such a result and I do not consider Parliament could have intended to extinguish these important rights by implication in statutory provisions which are not only obscure but of doubtful effectiveness for practical purposes. I therefore approach the matter upon the basis that Parliament intended either that these rights should, under the new system of registration of title, derive the same benefits as they derive by way of registration in the GRS or that they should be indemnified for loss of such benefit. Any other approach would appear to me to result in blatant expropriation. Thus approached, the point becomes very narrow and turns upon the proper construction of sec 12(3)(b) and (c).

I have already expressed doubts as to the practical effectiveness of those paragraphs of the subsection where rectification has taken place. Do they however apply to exclude indemnification where the keeper refuses to rectify? If they do then I should have little hesitation in concluding that the relevant decrees were registrable under sec 2(4)(c), but if they do not I would not wish to differ from what I understand to be the opinion of all your Lordships that registration is excluded. The words ‘the loss arises in respect of a title which has been reduced’ prima facie import that the reduction has caused a loss to somebody. This would normally be the defender who has lost the rights vested in him by the reduced deed. It is a very odd way to describe the benefit accruing to a successful pursuer in an action of reduction. Indeed it is so odd that I do not consider that even on the most flexible construction it can cover such a situation. It therefore follows that the loss which a successful pursuer, in an action of reduction under one of the statutes referred to in sec 12(3)(b) or (c), would undoubtedly suffer if rectification were refused, is not a loss which is excluded by that subsection. Accordingly such a pursuer would remain entitled to indemnification under sec 12(1)(b).

In reaching this conclusion I have been unable to envisage any situation in which sec 12(3)(b) or (c) would operate and which would not already be covered by sec 12(3)(n). However, it is to be assumed that the draftsman had in mind some situation such as I have been unable to foresee. It is certainly clear that he contemplated that decrees or orders under the statutes therein mentioned would be relevant to rectification. In that rather unsatisfactory situation I conclude that Parliament must have intended that indemnification rather than registration was the appropriate remedy under the Act for persons holding decrees or orders under the relevant statutes. I would therefore dismiss the appeal.

LORD MUSTILL —My Lords, I have had the advantage of reading in draft the speeches prepared by my noble and learned friends, Lord Keith of Kinkel and Lord Jauncey of Tullichettle. For the reasons they give I too would dismiss the appeal.

LORD WOOLF —My Lords, I have had the advantage of reading in draft the speeches prepared by my noble and learned friends, Lord Keith of Kinkel and Lord Jauncey of Tullichettle. For the reasons they give I too would dismiss the appeal.

LORD NICHOLLS OF BIRKENHEAD—My Lords, I have had the advantage of reading in advance drafts of the speeches of my noble and learned friends, Lord Keith of Kinkel and Lord Jauncey of Tullichettle. For the reasons stated by them, I too would dismiss this appeal.