82

Singapore Journal of Legal Studies Singapore Journal of Legal Studies [1999]

[1999] 82 – 112

THE DUEL BETWEEN IMMEDIATE

AND DEFERRED INDEFEASIBILITY

The aim of this article is to explore the re-emergence of the theory of deferred in-
defeasibility in the state of Victoria in Australia and then determine which of the two
theories makes more sense economically.

PART 1

NONE of the jurisdictions in Australia have Torrens land legislation that

provides for deferred indefeasibility like that provided for in section 340(2)
of the Malaysia National Land Code 1965.1 Indefeasibility of title is a term
widely used by the Courts to describe the immunity obtained by the registered
proprietor.2 It is the tussle between the two competing theories – immediate
and deferred – that has of late once again occupied the minds of the judiciary
in Australia.
For some considerable time in Australia the theory of immediate inde-
feasibility has been widely accepted but when the bubbling of a heated
property market puts strains on the law and fraud intervenes, the competing
theory of deferred indefeasibility surfaces once more. This article will explore
this trend but will be confined to examining the re-emergence of the doctrine
of deferred indefeasibility in the state of Victoria in Australia.

I. BACKGROUND

Before the case of Frazer v Walker3 in the 1960s there was considerable
support for the notion of deferred indefeasibility. The Privy Council in Gibbs
v Messer4 a decision on appeal from the Supreme Court of Victoria supported
the idea of deferred indefeasibility. Lord Watson said:

1
See Teo, “Deferred Indefeasibity of Title and Interests” (1997) 1 SJICL 140.
2
See, eg, the Privy Council in Frazer v Walker [1967] 1 AC 569; [1967] 1 All ER 649.
3
Supra, note 2.
4
Gibbs v Messer [1891] AC 248.
SJLS The Duel between Immediate and Deferred Indefeasibility 83

those who deal, not with the registered proprietor, but with a forger
who uses his name, do not transact on the faith of the register; and
they cannot by registration of a forged deed acquire a valid title in
their own person, although the fact of their being registered will enable
them to pass a valid right to third parties who purchase from them
in good faith and for onerous consideration.5

Although the decision is capable of being interpreted in a number of

different ways, it does seem to say that a purchaser cannot acquire an
indefeasible title unless he or she has dealt with the registered proprietor.
Thus, in the case of forgery, one does not deal with the registered proprietor.
Therefore one cannot obtain a good title through a forgery.
The issue of the relationship between the notice provisions and the
indefeasibility provisions raised its head once again in Victoria in the
landmark case of Ellis v Clements.6 The facts of the case are as follows:
Mrs Holmes was the registered proprietor of land which was subject to
a mortgage to Ellis; she sold the land to Clements on the basis of giving
a clear title. The estate agent upon receipt of the purchase price retained
an amount sufficient to discharge the mortgage and gave the balance to
Mrs Holmes. Instead of paying off the mortgage the estate agent kept the
money and forged a discharge. Subsequently the duplicate certificate of
title (valid), the transfer (valid) and the discharge of the mortgage (invalid)
were lodged at the Titles Office for registration. After discovery of the
fraud, Ellis brought an action against Clements and the Registrar of Titles
seeking, amongst other things, the cancellation of the discharge of the
mortgage. Lowe J of the Supreme Court of Victoria decided that the registration
of Clements was not indefeasible since Clements had not relied upon the
register – he merely expected that it would be altered in a certain way.
The matter went on appeal to the High Court of Australia7 but it was
equally divided on the issue and thus the decision of Lowe J stood.
The decision of Dixon J of the High Court was particularly influential
and for thirty years or so established the idea of deferred indefeasibility,
that is to say, that registration pursuant to a void instrument does not confer
indefeasibility. Dixon J took the view that the notice section in the Victorian
Torrens legislation (now section 43 Transfer of Land Act 1958 (Vic) )
prevailed over the indefeasibility section (now section 42). For a person

5
Ibid, at 255.
6
Ellis v Clements [1934] VLR 54.
7
Clements v Ellis (1934) 51 CLR; 23 ALR 62.
84 Singapore Journal of Legal Studies [1999]

to gain an indefeasible title that person must have dealt with the previous
owner on the basis of the register. Clements dealt with Holmes before the
discharge was registered. Dixon J said

the justification for destroying an existing legal estate or interest, which

has already been duly established upon the register is found only in
the necessity of protecting those who subsequently deal in good faith
and for value in a manner which, upon its face, the register appears
to authorise, and who then obtains registration.8

Such was the prestige of Sir Owen Dixon that his judgment was widely
regarded as establishing the doctrine that a void instrument cannot confer
indefeasibility.9
However the case of Frazer v Walker and Radomski10 decided by the
Privy Council put this asunder and established without much doubt the
principle of immediate indefeasibility. The idea of immediate indefeasibility
was further confirmed by the High Court of Australia in Breskvar v Wall.11
Thus in Victoria for nearly three decades the principle of immediate
indefeasibility was regarded as being the order of the day.

8
Ibid, at 237 (CLR); at 235 (ALR).
9
Cases that followed the idea of deferred indefeasibility include Coras v Webb [1942] QSR
66; Davies v Ryan [1951] VLR 283; Caldwell v Rural Bank of New South Wales (1951)
53 SR(NSW) 415.
10
Frazer v Walker and Radomski [1967] 1 AC 569; [1967] 1 All ER 649. It is interesting
to note that in the state of New South Wales in Australia the act dealing with Torrens title
land, the Real Property Act 1900 (NSW), was amended to give effect to the decision. S
35 provides
Nothing in this Act contained shall be so interpreted as to leave subject to action for
recovery of damages [under s 126], or to ...proceedings or action for the recovery of
land, or to deprivation of the estate or interest in respect to which he is registered as
proprietor, any purchaser or mortgagee bona fide for valuable consideration of land under
the provisions of this Act on the plea that his vendor or mortgagor may have been
registered as proprietor, or procured the registration of the transfer to such purchaser
or mortgagee through fraud or error, or under any void or voidable instrument, or may
have derived from or through a person registered as proprietor through fraud or error,
or under any void or voidable instrument.
The italicised words were introduced by an amending act in 1970 to remove any ambiguity
and to more clearly reflect the decision of the Privy Council in Frazer v Walker.
11
Breskvar v Wall (1971) 126 CLR 376; [1972] ALR 205.
SJLS The Duel between Immediate and Deferred Indefeasibility 85

II. THE CHALLENGE TO IMMEDIATE INDEFEASIBILITY

The case in the state of Victoria that challenged the supremacy of the doctrine
of immediate indefeasibility was the case of Chasfield Pty Ltd v Taranto.12
In the Chasfield case a rogue tricked Mr and Mrs Taranto into giving
up their certificate of title by telling them he could raise a loan on the
security of title to invest the money on their behalf at thirty per cent. The
rogue and a solicitor, having obtained the duplicate certificate of title, forged
the Taranto’s signature on a mortgage to the plaintiff (the mortgagee) and
used the ill gotten money for their own use. The mortgagee, the plaintiff,
was completely ignorant of the fraud and lodged the mortgage for registration.
When the mortgagee attempted to enforce the mortgage the Tarantos applied
to the court for the mortgage to be removed and were successful.
It is apposite to set out the relevant sections of the Transfer of Land
Act 1958 (Vic)
(bold added by the author) that have been the subject of litigation

42 (1) Notwithstanding the existence in any other person of any estate

or interest (whether derived by grant from Her Majesty or otherwise)
which but for this Act might be held to be paramount or to have priority,
the registered proprietor of land shall, except in case of fraud, hold
such land subject to such encumbrances as are recorded on the relevant
folio of the Register but absolutely free from all other encumbrances
whatsoever, except –

(a) the estate or interest of a proprietor claiming the same land under
a prior folio of the Register;

(b) as regards any portion of the land that by wrong description of

parcels or boundaries is included in the folio of the Register or instrument
evidencing the title of such proprietor not being a purchaser for valuable
consideration or deriving from or through such a purchaser.

12
Chasfield Pty Ltd v Taranto (1991) 1 VR 225. There have been challenges in other states
in Australia to the doctrine of immediate indefeasibility: see, for example, in regard to South
Australia Wicklow Enterprises Pty Ltd v Doysal Pty Ltd 45 SASR 247, Rogers v Resi-
Statewide Corp Ltd (1991) 101 ALR 377 (1986); and Moore, “Interpretation of the Real
Property Act” (1988) 11 Adelaide Law Review 405; in regard to New South Wales see
Mercantile Mutual Life Insurance Co Ltd v Gosper (1991) 25 NSWLR 32 (arguably more
about the in personam exception to indefeasibility – see also Butt, “Indefeasibility and
Sleights of Hand” (1992) 66 ALJ 596).
86 Singapore Journal of Legal Studies [1999]

43 Except in the case of fraud no person contracting or dealing with

or taking or proposing to take a transfer from the registered proprietor
of any land shall be required or in any manner concerned to inquire
or ascertain the circumstances under or the consideration for which
such proprietor or any previous proprietor thereof was registered, or
to see to the application of any purchase or consideration money, or
shall be affected by notice actual or constructive of any trust or unregistered
interest, any rule of law or equity to the contrary notwithstanding;
and the knowledge that any such trust or unregistered interest is in
existence shall not of itself be imputed as fraud.

44 (1) Any folio of the register or amendment to the Register procured

or made by fraud shall be void as against any person defrauded or
sought to be defrauded thereby and no party or privy to the fraud
shall take any benefit therefrom
(2) But nothing in this Act shall be so interpreted as to leave subject
to an action of ejectment or for recovery of damages or for deprivation
of the estate or interest in respect of which he is registered as proprietor
any bona fide purchaser for valuable consideration of land on the ground
that the proprietor through or under whom he claims was registered
as proprietor through fraud or error or has derived from or through
a person registered as proprietor through fraud or error; and this whether
such fraud or error consists in wrong description of the boundaries
or of the parcels of any land or otherwise howsoever.

Gray J boldly decided not to follow Frazer v Walker since it was based
upon New Zealand decisions and declined to follow the High Court decision
in Breskvar v Wall since it was based on Queensland legislation. He based
his decision mainly on the terms of section 44. He argued that this section
was introduced to give effect to Dixon J’s views in Clements v Ellis which
supported the concept of deferred indefeasibility and that there was no exact
counterpart elsewhere in Australia. Gray J said:

In my opinion the effect of the present Victorian provisions is that

‘fraud’ in section 44(1) means fraud associated with the registration
and that a proprietor who becomes registered in such circumstances,
even if innocent of the fraud, may be divested at the suit of a defrauded
previous proprietor or until there is a sale to a bona fide purchaser
who becomes registered. In this connection fraud includes forgery.13

13
Ibid, at 235.
SJLS The Duel between Immediate and Deferred Indefeasibility 87

This case was widely criticised in terms of its own logic.14

His decision not to follow Breskvar v Wall would appear to be dubious
since the High Court of Australia viewed the different states’ Torrens
legislation as being fundamentally similar. Indeed Barwick CJ of the High
Court in Breskvar v Wall stated:

I have thus referred under the description, the Torrens system, to the
various Acts of the States of the Commonwealth which provide for
comparable systems of title by registration though these Acts are all
not in identical terms and some do contain significant variations ...
If follows, in my opinion, from the provisions of the Victorian Act
which are counterpart to those of the Act to which I have referred
and from the decisions of the Privy Council in Frazer v Walker and
in Assets Co Ltd v Mere Roihi on comparable sections of the New
Zealand Act that the appeal of the registered proprietor in the case
of Clements v Ellis ought to have been allowed.15

This suggests that in terms of the indefeasibility concept his Honour

did not see much difference between the Queensland legislation and the
Victorian legislation (assuming he was looking at the post 1954 Victorian
provisions).
Secondly Gray J in the Chasfield case took the view that section 44(1)
qualified section 42(1) rather than merely restating it. His concept of fraud
in section 44(1) is wider than the concept of fraud in section 42(1)16 if
one accepts the Privy Council view of fraud in Frazer v Walker and the
High Court’s decision in Breskvar v Wall (which, of course, Gray J did
not regard as being binding). He argued that ‘fraud’ in section 44(1) warranted
a different interpretation than ‘fraud’ in section 42(1) because otherwise
it was ‘merely a pointless repetition’.
However, it could be argued that section 44(1) complements section 42(1).
Section 42(1), so it could be argued, establishes ‘fraud’ in a narrow sense
of the fraud exception to immediate indefeasibility whereas section 44(1)
‘fraud’ is referring to the rights between the defrauded person and the

14
See, eg, Teh, “The Deferred Indefeasibility of Title in Victoria?” (1991) 17 Mon ULR 77;
Butt, “Shaking the Foundations”(1991) 65 ALJ 611; MacCallum, “Return to Immediate
Indefeasibility of Title”(1992) 66 Law Institute Journal 970; Wikrama-Nayake, “Immediate
and Deferred Indefeasibility”(1993) 67 Law Institute Journal 393.
15
Supra, note 11, at 386 (CLR).
16
Supra, note 12, at 234.
88 Singapore Journal of Legal Studies [1999]

fraudulent registered proprietor. It spells out the remedy for the defrauded
party. In this sense it could be argued that section 44(1) is not otiose or
‘pointless repetition’.
Thirdly, he seems to argue that the introduction of section 44(1) brought
about some change to the fundamental concept of indefeasibility at the time.
In his view the section 44(1) ‘fraud’ was referring to deferred indefeasibility,
but that was the accepted notion at the time! It is also doubtful whether
section 44(1) is unique – other states have similar provisions.17
In short this was a decision of a single judge of the Supreme Court of
Victoria but was widely criticised.

III. REBUTTALS OF THE CHASFIELD CASE (DEFERRED INDEFEASIBILITY)

BY SINGLE JUDGES OF THE SUPREME COURT OF VICTORIA

Shortly afterwards in 1992, Smith J of the Supreme Court of Victoria had

the opportunity of choosing between immediate and deferred indefeasibility
in the case of Eade v Vogiazopoulos & Ors.18
In this case Eade had lent money to Mr and Mrs Vogiazopoulos in return
obtaining a mortgage over the latter’s family home as security. There was
a default in repayments and Eade, the mortgagee, sought possession. Mrs
Vogiazopoulos defended the action on the basis that she had not signed
the mortgage and a subsequent variation; nor had she authorised her husband
to do so on her behalf. The court found that on the facts her version of
events was true.

17
Thus s 125 of Tasmania’s Real Property Act 1862 contains the following relevant provisions:
‘(1) Any person deprived of land, or of any estate or interest in and –
in consequence of fraud; ... may bring and prosecute an action for the recovery of
damages.
(2) Such action shall – ... be brought and prosecuted against the person –
(iii) who acquired title to the estate or interest in question through such fraud ...’
In South Australia, s 69 of the Real Property Act 1886 – 1975 says
‘(I) in the case of fraud, in which case any person defrauded shall have all rights and
remedies that he would have had if the land were not under the provisions of this Act:’
Identically worded provisions are also to be found in s 69 of the Real Property Act 1886
in the Northern Territory.
In New South Wales s 124(1) of the Real Property Act 1900 in effect says proceedings
may be brought against a person registered as proprietor in:
‘(d) the case of a person deprived of any land by fraud as against the person registered
as proprietor of such land through fraud, or as against a person deriving otherwise than
as a transferee bona fide for value from or through a person so registered through fraud.’
18
Eade v Vogiazopoulos & Ors (1993) V Conv R 64, 357.
SJLS The Duel between Immediate and Deferred Indefeasibility 89

The mortgagee sought to rely on Breskvar v Wall where the High Court
rejected Dixon’s views in Clements v Ellis which favoured deferred in-
defeasibility. Although the legislation in the Breskvar case was that of
Queensland, the Victorian legislation of 1928 was almost identical. Therefore
Smith J as a single judge of the Supreme Court of Victoria felt constrained
to apply the reasoning of the High Court in Breskvar v Wall. In his view
whether the mortgage could remain on the register depended on the meaning
of ‘fraud’ in section 42 of the Transfer of Land Act 1958 (Vic).
Smith J decided that ‘fraud’ in section 42 is referring to fraud by or
on behalf of the person obtaining registration. The reference to ‘fraud’ in
section 43 should also be limited to fraud by or on behalf of the purchaser
or transferee whose title it is sought to impeach. In a similar vein, he decided
that ‘fraud’ in section 44(1) and (2) should be limited to fraud on the part
of the registered proprietor. Although admitting that the High Court in
Breskvar v Wall did not expressly deal with the question of ‘fraud’ it was
implicit in the judgment that ‘the references to the fraudulent signature
provisions did not themselves introduce deferred indefeasibility unless fraud
could be brought home to the registered proprietor whose title it is sought
to impeach.’19
Since Mrs Vogiazopoulos was not able to prove fraud by Mr Eade, the
mortgagee, or his agents, the mortgage could not be successfully challenged
on that basis. Mrs Vogiazopoulos also attempted to argue that she had rights
in personam that entitled her to have the mortgage redeemed, her signature
having been forged. Smith J rejected this argument.
Thus this was a decision by a single judge of the Supreme Court of
Victoria that firmly rejected the notion of deferred indefeasibility that had
been resurrected by Gray J in the Chasfield case.
Another case by a single judge of the Supreme Court of Victoria that
challenged the correctness of the applicability of deferred indefeasibility
as raised in Chasfield’s case was the decision of Hayne J in Vassos and
Another v State Bank of South Australia and Another.20
Peter Vassos and his daughter, Anne, and his son Tommy were the
registered proprietors as tenants in common of land in Melbourne over which
there was a registered mortgage to Sandhurst Trustees Ltd to secure a loan
of $130,000. Peter told his son he wanted to refinance the property and
wanted to borrow $130,000 to repay Sandhurst Trustees. Tommy obtained
a loan from the State Bank of South Australia and a substitute mortgage
in favour of the bank and guarantee in its favour of $500,000. The signatures

19
Ibid, at para 65, 379.
20
Vassos and Another v State Bank of South Australia and Another [1993] 2 VR 316.
90 Singapore Journal of Legal Studies [1999]

of Peter Vassos and his daughter were forged on both of the documents.
They therefore sought a declaration under section 44(1) of the Transfer
of Land Act 1958 that the bank’s title was defective because of the forgery.
The bank was not a party to the fraud nor did it have any knowledge of
it when it registered its mortgage.
The plaintiff sought to rely on the Chasfield case where it was held that
‘fraud’ in section 44(1) means fraud associated with the registration and
that a proprietor’s interest even if innocent may be removed at the behest
of the defrauded prior owner, unless there is a subsequent sale to a bona
fide purchaser who becomes registered. Hayne J rejected the view that ‘fraud’
referred to in section 44(1) could be the fraud of someone other than the
person whose title has been registered. He was of the view that section
44(1) is referring to fraud by or on behalf of the person who has obtained
registration. In his view section 42(1) establishes a general rule of inde-
feasibility subject to an exception where fraud has been by the person (or
agent) who has become registered.
In his opinion section 44(1) does not qualify section 42(1) and Gray
J in the Chasfield case was wrong in interpreting section 44(1) as extending
fraud beyond the exception envisaged by section 42 to resurrect the discarded
principle of deferred indefeasibility.
On the use of the expressions ‘immediate indefeasibility’ and ‘deferred
indefeasibility’ he said:

those are no more than convenient shorthand expressions generally

describing the effect of provisions of Torrens title legislation; they
are not in any relevant sense principles from which conclusions can
be drawn about the proper construction of the legislation. Further, I
consider it equally important to recall that none of the Torrens title
legislation to which I have been referred provides for absolute inde-
feasibility of title. Each of the statutes provides for circumstances in
which a registered title may be defeated or qualified. Accordingly,
although a policy in favour of immediate indefeasibility is to be discerned
in the legislation, that policy is not absolute.21

The plaintiffs also tried to argue that they had a right in equity enforceable
by in personam action to have the transaction reversed. However Hayne
J found that the mere fact that the plaintiffs had not signed the mortgage
did not confer upon them a right in personam to have the transaction reversed.

21
Ibid, at 322.
SJLS The Duel between Immediate and Deferred Indefeasibility 91

Yet another case that came before a single judge of the Supreme Court
of Victoria that touched on the issue of indefeasibility was Australia Bank
v Maher.22
National Australia Bank (NAB) had a registered first mortgage over three
separate properties of which Mr Maher was the sole registered proprietor
– a property in Clayton (a suburb of Melbourne) and another two properties
at Buchan (a provincial town in Victoria). Upon default by Mr Maher in
repayments, the mortgagee, NAB, obtained possession of the properties and
sought to exercise its power of sale. The registered proprietor’s wife obtained
an injunction to stop the sale, claiming that the properties were held in
trust for her.
At first instance, one of the arguments raised by Mrs Maher was that
the bank manager had added the title particulars of the two Buchan properties
after the mortgage had been signed by Mr Maher. Mrs Maher argued that
this amounted to fraud under section 44(1) of the Transfer of Land Act
1958 (Vic) and the trial judge, after finding that a resulting trust arose in
favour of Mrs Maher, upheld her contention. The bank appealed to the Full
Court of the Supreme Court of Victoria.
The Full Court held that the mortgage was procured by fraud within
the meaning of section 44(1) of the Transfer of Land Act 1958. The Court
rejected the notion that the bank was not bound by the actions of its employee.
Fullager J said:

It is to be noticed that section 44 describes the register by reference

to what has happened to the register, and it does not refer to the fraud
of any particular person; all that is required is that the fraud shall have
caused or brought about the state of the register.23

This sentence is somewhat strange since it seems to suggest that if someone

unconnected with the bank forged the signature then the registered mortgage
could have been avoided. If this is what Fullager J meant then this supports
the theory of deferred indefeasibility; that is, the defrauded proprietor can
have the registration set aside, no matter who is responsible for the forgery.
It is improbable that this is what his Honour meant. It is more likely that
he was merely rejecting the bank’s argument that it did not know about
its employee’s fraud. The judge’s comments are strictly obiter since the
judge found that the bank was bound by the actions of its employees.

22
Australia Bank v Maher [1995] 1 VR 318.
23
Ibid, at 333.
92 Singapore Journal of Legal Studies [1999]

The next important case regarding indefeasibility was a judgment by

Nathan J of the Supreme Court of Victoria in Pyramid Building Society
(in liq) v Scorpion Hotels Pty Ltd.24
The facts of the case were that four colleagues bought a guest house
in Queenscliff in 1986. A company, Scorpion Hotels Pty Ltd, bought the
building and owned it as trustee pursuant to a unit trust. A majority of
the shares in the company and the units in the unit trust were owned by
Lewis. Lewis appears to have been the moving force in the venture and
his wife eventually became the manageress of the business. A mortgage
for bridging purposes to buy the property was executed in favour of the
National Australia Bank. There were no problems with this mortgage. The
other colleagues were to then contribute $50,000 – the understanding was
that when this happened the mortgage would be discharged. The others
were disgruntled with Lewis and in 1989 they were experiencing financial
difficulties and wanted to sell the guest house. Around this time it was
discovered that the mortgage to National Australia Bank (NAB) had not
been discharged. Lewis, for his part, wanted to buy out the interests of
the others. With this in mind Lewis unilaterally appointed his wife as a
director of Scorpion Hotels Pty Ltd (the other directors were not at the
company meeting and there was not a quorum) and caused a mortgage to
be sealed by the company in favour of Pyramid Building Society (Pyramid).
Lewis’ wife purported to attest the company seal on the mortgage document
as a director. Pyramid’s solicitor, prior to settlement, had executed a company
search to see if there were any relevant company charges. He did not search
to determine who the directors were. Had he done so, he would have
discovered that Lewis’ wife was not a director. Moreover, Pyramid’s solicitor
did not examine the fax which transmitted the charge/encumbrance search
to see who were named as the directors.
The ‘dilemma’ that Nathan J in the Scorpion case faced was this. Having
found that the lender (Pyramid) could not rely on the statutory curative
assumptions of company law in regard to company signatures and that
therefore the mortgage was invalidly signed, did registration of the mortgage
and the concept of immediate indefeasibility mean that Pyramid still had
an enforceable mortgage?
In an earlier important New South Wales Court of Appeal decision in
regard to the meaning of the statutory curative assumptions in regard to
company signatures, Bank of New Zealand v Fiberi Pty Ltd,25 relief in respect
of the mortgage was not sought, both sides apparently accepting indefea-

24
Pyramid Building Society (in liquidation) v Scorpion Hotels Pty Ltd (1996) 136 ALR 166.
25
Bank of New Zealand v Fiberi Pty Ltd (1994) 12 ACLC 48.
SJLS The Duel between Immediate and Deferred Indefeasibility 93

sibility. The matter seems to have been fought out on the basis that if the
guarantees were not binding on Fiberi then nothing became payable and
there was therefore no default under the mortgage.
Nathan J’s approach to the issue was to say that the fraud exception
to indefeasibility in section 42 of the Transfer of Land Act 1958 (Vic) applied
and that therefore the lender did not obtain the benefits of immediate
indefeasibility. The fraud he found consisted of the wilful blindness or
reckless indifference by Pyramid’s solicitor (the agent of Pyramid and
therefore of Pyramid itself) to the truth of the instrument which it had
registered at the Titles Office.
Such a dubious interpretation of fraud had at least a certain symmetry
about it: why should a lender still be able to obtain benefits under a mortgage
that was invalidly signed, especially if, as Nathan J found, the lender should
have known that it was invalidly signed?
The matter went to the Court of Appeal, Supreme Court of Victoria
Pyramid Building Society (in liquidation) v Scorpion Hotels Pty Ltd.26
The Court of Appeal established a number of important points.
The Court of Appeal took the opportunity to bury the decision in Chasfield
Pty Ltd v Taranto which had sought to revive the notion of deferred
indefeasibility. The Court of Appeal rejected the notion of deferred inde-
feasibility and reaffirmed the primacy of the doctrine of immediate inde-
feasibility. Hayne JA said:

In Vassos v State Bank of South Australia [1993] 2 VR 3161 I held

that the title obtained by a mortgagee on registration under the Transfer
of Land Act of a forged instrument of mortgage cannot be defeated
on grounds of fraud if the mortgagee was not party or privy to the
fraud. In so doing, I declined to follow the contrary decision of Gray
J in Chasfield Pty Ltd v Taranto [1991] 1 VR 225....I said in Vassos,
and I remain of the view, that Chasfield departed from a clear stream
of authority of ultimate appellate courts and, therefore, should not be
followed.27

The other judges agreed with this view.

The Court of Appeal also reaffirmed a long line of cases that ‘fraud’
in section 42 means actual dishonesty or moral turpitude. The court said
registering an instrument which the registering party knows to be forged
amounts to fraud. But the ‘fraud’ of Pyramid, so it was contended and

26
Pyramid Building Society (in liquidation) v Scorpion Hotels Pty Ltd [1998] 1 VR 188.
27
Ibid, at 191.
94 Singapore Journal of Legal Studies [1999]

accepted by Nathan J, was a reckless ‘indifference to the truth of the document

which is tendered for registration’.28 But this did not amount to fraud in
the Court of Appeal’s opinion. The fact that Pyramid’s solicitor might have
found out the fraud if he had enquired further did not in itself establish
fraud. The Court of Appeal pointed out the enquiry for fraud is an enquiry
‘for actual dishonesty not for want of due care’.29
This case is important since immediate indefeasibility was confirmed
by the Court of Appeal.

IV. REAFFIRMATION OF IMMEDIATE INDEFEASIBILITY:

SIXTY-FOURTH THRONE PTY LTD AND HORVATH

The case of Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd30 essentially
involved a mortgage to Macquarie Bank upon which the signatures on the
alteration to a company seal were apparently forged by the son-in-law of
a Dr Pincus and his wife, who were the directors of Sixty-Fourth Throne
Pty Ltd. The plaintiff company was a trustee of Torrens title land and Dr
Pincus and his wife were the sole beneficiaries of the trust. In what has
been described by one of the judges when the case went on appeal as ‘a
disgraceful tale of mismanagement by Macquarie’31 and its agents, the
solicitors, none of this was noticed despite company searches which revealed
the true situation. Hedigan J, the trial judge declined to find fraud on the
part of the bank and reaffirmed the principle of immediate indefeasibility
as exemplified in the Vassos case. However, Hedigan J was of the view
that the plaintiff company had a claim in personam that would entitle it
to have the mortgage set aside, the in personam claim being based upon
the unconscionable conduct of the bank and that it was in ‘knowing receipt’
of trust property and therefore became a constructive trustee.
On appeal to the Court of Appeal of the Supreme Court the majority
(Winneke P and Tadgell JA) rejected the claim in personam based upon
Barclay’s Bank Plc v O’Brien32and the second basis for such a claim, namely,
that the bank had become a constructive trustee based on Barnes v Addy.33
Ashley AJA, in the minority, saw no reason to restrict the in personam
exception in order to preserve the principle of indefeasibility.34 He thus

28
Ibid, at 193.
29
Ibid, at 194.
30
Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd [1998] 3 VR 133.
31
Ibid, at 170 per Ashley A J A.
32
Barclay’s Bank Plc v O’Brien [1994] 1 AC 180.
33
Barnes v Addy (1874) LR 9 Ch App 244.
34
Supra, note 30, at 162.
SJLS The Duel between Immediate and Deferred Indefeasibility 95

found that there was an in personam claim based upon the Barclays Bank
principle. He was therefore of the view in regard to the constructive trustee
argument that “...(Macquaries) officers and agent, did not heed the clearest
possible indications that it might very well be that trust property was being
dealt with to the detriment of the trust.”35
Despite these differences, all three judges of the Court of Appeal accepted
the idea of immediate indefeasibility.
In Commonwealth Bank of Australia v Horvath36 the lender was given
a mortgage over a property by a minor and his parents. The minor argued
that he was not liable under the mortgage because section 49 of the Supreme
Court Act 1986 (Vic) – based upon the English Infants Relief Act 1874
– makes loans to minors void ab initio; and that, therefore the mortgage
securing the loan was void. At first instance O’Bryan J held that although
the loan contract was not capable of being enforced against the minor it
was not devoid of all legal effect. He held that in the absence of fraud
and in personam rights, the mortgagee obtained an indefeasible interest.
In arriving at this conclusion he relied upon Frazer v Walker and he also
cited and approved Vassos v State Bank of South Australia which upheld
the principle “that an indefeasible title can be acquired by virtue of a void
transfer”37 in the absence of fraud or some other statutory ground of exception.
O’Bryan J also favoured an alternative argument that the mortgagee could
be subrogated to a lien in favour of the vendor.38 This is rather curious
since, having accepted that the mortgage was indefeasible, it would not
seem to have been necessary for him to have entertained this alternative
claim for relief.
The case went on appeal to the Court of Appeal, Supreme Court of Victoria,
Gabor Horvath Junior v Commonwealth Bank of Australia39 where Tadgell
JA was of the view that the doctrine of deferred indefeasibility had been
buried. He said:

35
Supra, note 30, at 170.
36
Commonwealth Bank of Australia v Horvath (1996) ANZ Conv R 501.
37
Supra, note 20, at 324.
38
The alternative argument about the unpaid vendor’s lien to which the mortgagee could have
been subrogated is beyond the scope of this article but on this point see Chong, “Resurrecting
the Vendor’s lien: Commonwealth Bank of Australia v Horvath” (1998) 6 Australian Property
Law Journal 61.
39
Gabor Horvath Junior v Commonwealth Bank of Australia no 9168 of 1994 judgment
30/9/98 unreported decision of the Court of Appeal, Supreme Court of Victoria available
on the internet at http://www.austlii.edu.au .
96 Singapore Journal of Legal Studies [1999]

As is well-known, the so-called doctrine of deferred indefeasibility

was rendered at least moribund by the decision of the Judicial Committee
in Frazer v Walker [1967] 1 AC 569. It has since been dealt its quietus
in this country by decisions of the High Court. In Breskvar v Wall
(1971) 126 CLR 376, the opinion of Dixon J in Clements v Ellis that
the dissenting judgment of Salmond J in Boyd v Mayor of Wellington
was to be preferred to those of the majority was repudiated by Barwick
CJ at 386, by Walsh, J at 406 and by Gibbs J at 412-3. That view
was confirmed in Bahr v Nicolay [No 2] (1987) 164 CLR 604. These
decisions have been repeatedly applied in recent years by intermediate
courts of appeal, the most recent (so far as I know) being Macquarie
Bank Ltd v Sixty-Fourth Throne Pty Ltd, unreported, CA (Vic) 28
October 1997, where the other recent decisions are mentioned; and
the High Court has lately re-inforced Bahr v Nicolay [No 2] in Bank
of South Australia Ltd v Ferguson (1998) 151 ALR 729; 72 ALJR
551. Accordingly the judgment in Coras, illuminating in many respects
though it is, must be regarded as having been overtaken to the extent
that it accepted the view of Dixon J in Clements v Ellis.40

Further on he concluded that:

A contract to sell an estate or interest in Torrens title land, made by

the registered proprietor who is a minor, will have immediate effect;
and, fraud aside, registration of a transfer of the estate or interest sold
will confer on the transferee, as against the minor, an indefeasible
title unless the minor can resist the effect of registration by reference
to some claim at law or in equity which binds the transferee.41

Ormiston JA likewise reaffirmed immediate indefeasibility when he said:

Whatever may have been the position before such registration, the
legislature must be treated, subject to the presently irrelevant exceptions
as to fraud and the like, as having given an immediately indefeasible
title in the land to the respondent bank as mortgagee unless the relief
provision should prevail as being relevantly inconsistent.42

40
Ibid, at para 13.
41
Ibid, at para 16.
42
Ibid, at para 34.
SJLS The Duel between Immediate and Deferred Indefeasibility 97

Further on he said:

Once registered, however, the mortgage took on the characteristics

and had the effect of a duly executed mortgage, not because of its
original contractual effects, but because as a matter of policy the Act
created an immediately indefeasible interest in the land by way of
mortgage in favour of the respondent.43

Phillips JA acknowledged the supremacy of immediate indefeasibility:44

For a time it was considered that a registered proprietor taking title

by virtue of an instrument which was void might not himself take
advantage of the indefeasibility provisions of the statute (and the
decision of Philp J in Coras v Webb and Hoare owes much to that
point of view). But that view no longer prevails.45

However, Phillips JA expressed some regret for the passing of the doctrine
of deferred indefeasibility and said:

In Mercantile Mutual Life Ins Co Ltd v Gosper (1991) 25 NSWLR

32 at 44-46 Mahoney JA offered, I think, some resistance to the passing
of the doctrine of deferred indefeasibility, in a passage to which his
Honour later referred in Story v Advance Bank of Australia Ltd (1993)
31 NSWLR 722 at 739-40. If Mahoney JA was in truth regretting
the passing of that doctrine, it is a view with which, if I may say
so, I have some sympathy; for the doctrine of immediate indefeasibility
appears to me to cast a heavy burden upon a registered proprietor to
protect the title against the possibility of fraud without always according
him or her a sufficient means for doing so. After all, the ways of the
fraudster are infinite and varied and are the more likely to be effective
the less they can reasonably be anticipated. In contrast, the means of
protecting the title are necessarily limited and the most usual, that of
personally keeping the duplicate certificate in safe custody, may not
even be available if that document must for the time being be kept
by another. The doctrine of deferred indefeasibility might be thought
to have been well-suited for a case under section 49; for upon attaining
adulthood an infant could then assert the claim to defeat a title registered

43
Ibid, at para 37.
44
Ibid, at para 65.
45
Ibid, at para 37.
98 Singapore Journal of Legal Studies [1999]

adversely during infancy, subject only to the rights of any third parties
which have intervened in the meantime. But the doctrine of immediate
indefeasibility is now so firmly entrenched that the question what effect
section 49 might have after registration of the mortgage in this case
must be determined in the context of that doctrine.46

PART 2

WHICH IS BETTER: IMMEDIATE OR DEFERRED INDEFEASIBILITY?

There is now no doubt that in the state of Victoria that the doctrine of
immediate indefeasibility is once again firmly entrenched. Nevertheless,
it is worthwhile recalling that the doctrine of immediate indefeasibility is
one of relatively recent origin and that the doctrine of deferred indefeasibility
received support from some of the most eminent jurists.47

I. ARGUMENTS AGAINST IMMEDIATE INDEFEASIBILITY

Some of the arguments against the doctrine of immediate indefeasibility

(and therefore in favour of deferred indefeasibility) are as follows:48

1. The extensive provisions of the law relating to signatures are put to nought
by the doctrine of immediate indefeasibility

Most of the cases relating to immediate indefeasibility involve forgeries

on the written document (mortgage, discharge, transfer). Where forgeries
are concerned the general stance of the law is to say that they are ineffective.
Even a holder in due course of a negotiable instrument cannot obtain a
good title to a negotiable instrument if there has been a forgery on the
instrument unless there is an issue of estoppel against the person whose
signature has been forged or unless that person has ratified the forgery.49
Similarly a forgery on a bill of lading (one of the few documents of
title to goods) will mean that the taker, albeit innocent, takes subject to
defects in title. In other words, where transfer of title depends on written

46
Ibid, at para 85.
47
See, eg, Salmond J, the dissenting judge of the New Zealand Supreme Court in Boyd v
Mayor, etc, of Wellington [1924] NZLR 1124 and Dixon J in Clements v Ellis (1934) 51
CLR 376.
48
See, eg, Warrington Taylor, “Scotching Frazer v Walker” (1970) 44 ALJ 248.
49
See s 29 Bills of Exchange Act 1909 (Cth) and s 32 Cheques Act 1986 (Cth).
SJLS The Duel between Immediate and Deferred Indefeasibility 99

instrument, title will not pass even though the situation may involve an
exception to the nemo dat rule. The principle of immediate indefeasibility
would seem to be at odds with the general legal principle that forgeries
are ineffectual. Under the principle of immediate indefeasibility the innocent
mortgagee or purchaser if registered does obtain a good title and defeats
the original owner, even though signature on the mortgage or transfer is
forged.

2. The threat to the registered proprietor posed by immediate indefeasibility

The holder of a certificate of title is always subject to the possibility

that it may be stolen or lost and that an innocent successor in title will
prevail even though the signature is forged. Thus it is argued the doctrine
of immediate indefeasibility puts all title holders at risk since they can be
defeated by a purchaser or encumbrancer who becomes registered.
The principle of immediate indefeasibility means that the registered
proprietor must safeguard the duplicate certificate of title with utmost care.
The registered proprietor’s situation is perhaps vulnerable enough to warrant
lodging a caveat to safeguard his or her ownership.50 The fact that a registered
proprietor should have to even contemplate this demonstrates the vulner-
ability of Torrens title ownership with the doctrine of immediate indefea-
sibility. Thus it is argued that the protection of the bona fide purchaser
for value or encumbrancer goes too far with the principle of immediate
indefeasibility.
If the registered proprietor loses out because of the operation of immediate
indefeasibility and makes a claim against the Consolidated Fund, could it
be suggested that a registered proprietor who fails to register a caveat as
protection against the effects of the principle of immediate indefeasibility
is negligent? Probably not. In Addicott v Williams51 a single judge of the
Supreme Court ruled that the action of the registered proprietor who gave
the duplicate certificate of title to her daughter in-law which allowed her
son to adversely affect her title under the doctrine of immediate indefeasibility
was not in itself negligence.

50
See J & H Just (Holdings) Pty Ltd v Bank of NSW (1971) 125 CLR 546. Here it was held
that a registered proprietor can lodge a caveat without further proof of claims to the land.
In Sinclair v Hope Investments Pty Ltd [1982] 2 NSWLR 870, in contrast, it was suggested
that registered ownership in itself would not support a caveat.
51
Addicott v Williams (1963) V ConvR 54-054.
100 Singapore Journal of Legal Studies [1999]

3. The doctrine favours the careless searcher

Even judges seem to feel uncomfortable with the fact that the doctrine
of immediate indefeasibility seems to favour the careless searcher. The trial
judge, Nathan J, in Pyramid Building Society (in liq) v Scorpion Hotels
obviously had difficulty with the fact that the mortgagee via its agent, the
solicitor, had been careless in the extreme; and, was prepared to hold
(erroneously as the Court of Appeal subsequently found) that this negligence
fell within the fraud exception to indefeasibility.
All three judges in Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd52
were, however, prepared to find that wilful blindness could fall within the
fraud exception and was something different from negligence and even
recklessness. Tadgell JA said:

The appellant’s case was that, at most, its solicitors were careless,
and that mere carelessness cannot amount to fraud. As a general or
sweeping statement this may be true enough, but it is too general and
too sweeping to be of much utility. A negligently made false repre-
sentation, if made with reckless indifference to its truth or falsity may
very well be fraudulent. Similarly, to abstain deliberately from rea-
sonable enquiry for fear of what the enquiry will reveal, to choose
to shut one’s eyes to the obvious – to assume a state of “wilful blindness”
– or otherwise to generate a state of contrived ignorance, may of course
be dishonest. It has been well said that wilful blindness – deliberately
turning a blind eye to obvious or obviously ascertainable facts – is
akin to fraud: eg, Lego Aust Ltd v Paraggio (1993) 44 FCR 151,
171.......... Lodgment of the mortgage for registration by the appellant
with actual knowledge by its servants or agents of the forgery, or
lodgment for registration in ignorance of the forgery that was attrib-
utable only to wilful blindness or wilful and reckless failure to enquire,
in the sense I have mentioned, would be fraud or akin to it.53

Ashley AJA said:

It was contended for Sixty Fourth Throne that Macquarie’s conduct

was sufficiently reckless to amount to fraud or dishonesty. But insofar
as recklessness could amount to statutory fraud it must mean, I think,
a reckless indifference to consideration of a relevant matter – this again

52
Supra, note 30.
53
Supra, note 30, at 143/4.
SJLS The Duel between Immediate and Deferred Indefeasibility 101

importing something with a flavour of dishonesty rather than mere

negligence.54

In short before someone is denied the benefit of immediate indefeasibility

it must be demonstrated that dishonesty or something close to it is involved.
Therefore with the immediate indefeasibility theory carelessness bears no
sanction since the careless searcher can gain a good title.

4. The doctrine validates unlawful actions

The practical upshot of the Horvath case was that the bank was able
to exercise its rights as mortgagee against the land mortgaged to it by the
infant and his parents by dint of the doctrine of immediate indefeasibility.
True, the contract was not enforceable against the appellant due to section
49 of the Supreme Court Act 1986 (Vic). This seems on the face of it to
defeat the purpose of section 49. Phillips JA partially came to the conclusion
that section 49 did not override the effect of immediate indefeasibility because
to do otherwise would be to give effect to the doctrine of deferred inde-
feasibility. Asking rhetorically, what would the result be if section 49
overrode sectons 42 and 43 of the Transfer of Land Act 1958(Vic), he said:

How then could the bank transfer title to another; how could a transferee
from the bank justify title? As one cannot nowadays allow that the
transferee from the bank gains title when the bank does not merely
because the bank dealt directly with the infant (for that would seem
to resort to the discredited doctrine of deferred indefeasibility), it seems
necessary if the subsequent transferee is to have title to recognise that
that result flows in favour of the bank also. It cannot be concluded,
then, that section 49 prevails over either section 42 or section 43.55

Thus, the bank was able effectively to enforce payment against the
appellant.56
The cases are replete with instances of unlawful actions being effectively
validated by the doctrine of immediate indefeasibility. In the case of forgeries
the registration of a forged instrument can create obligations which did not

54
Supra, note 30, at 159.
55
Supra, note 39, at para 83.
56
Phillips JA seems to have, however, countenanced the possibility that the common law right
of an infant to repudiate a transaction in regard to land still survives registration. On the
facts he was of the view that it was too late for him to repudiate it.
102 Singapore Journal of Legal Studies [1999]

exist before: see, for example, Frazer v Walker,57 Mayer v Coe,58 PT v

Maradona Pty Ltd.59
Registration, however, of an interest by dint of a forged instrument would
not seem to mean that the person whose signature has been forged will
be liable on the personal covenants. His or her liability will be limited to
the extent of the registered interest. In Grgic v ANZ Banking Group60 an
impostor was introduced by an established customer (borrower) as his father.
The impostor had the duplicate certificate of title and other documents
relating to some Torrens land. The rogue signed a mortgage to the bank
which was duly witnessed by a bank officer and subsequently registered.
The defrauded real father then unsuccessfully sought to have the register
amended. One of the issues that arose was whether the father was liable
on the personal covenants.
On this the appeal justices (Power JA, agreed to by Meagher and Handley
JJA) said:

In the circumstances, therefore, it seems to me that there ought also

to be made a declaration, that notwithstanding that the subject property
stands charged with the moneys secured by the bank’s mortgage, Mr
Grgic Snr is not liable to the ANZ on the personal covenants contained
in that mortgage.61

Accordingly, the father’s liability was limited to the value of the mortgaged
land. In short the concept of the conclusive register does not deem the person
whose signature has been forged as having actually signed the instrument.

5. The cost argument

The argument in favour of immediate indefeasibility, namely, that it

reduces transaction costs is a weak one since the cost of satisfying oneself
as to the identity and validity of signatures is a small price to pay for the
comfort of certainty of title.
In Australia the Financial Transactions Reports Act 1988 (Cth) requires
financial institutions to satisfy themselves as to the identity of customers
when opening up new accounts or adding signatures to existing accounts.

57
Supra, note 2.
58
Mayer v Coe (1969) 89 WN (Pt 1) (NSW) 497.
59
PT v Maradona Pty Ltd (1992) 25 NSWLR 643.
60
Grgic v ANZ Banking Group (1994) 33 NSWLR 202.
61
Ibid, at 211.
SJLS The Duel between Immediate and Deferred Indefeasibility 103

A ‘verification’ procedure must be complied with by the financial institution.

It has been described in the following terms:

The verification procedure consists of certain checks on the identity

of the signatory which are intended to establish the person’s identity.
Documents produced by the intending signatory are assigned scores.
The total score must total at least 100 points in order that the proposed
signatory is taken to be properly identified.62

It would seem appropriate to apply such identification procedures to verify

the identity of the person signing mortgages and this would probably not
add a great deal to the cost. Indeed, many financial institutions now utilise
such a procedure.

II. ARGUMENTS IN FAVOUR OF IMMEDIATE INDEFEASIBILITY

Arguments in favour of immediate indefeasibility are as follows:63

1. Reduction in the cost of investigating title

One of the claims of the Torrens system was that it avoided the lengthy
searches associated with the general land law system and would therefore
reduce legal costs.64 It is also claimed that the doctrine of immediate
indefeasibility is less costly since one does not have to satisfy oneself as
to the identity of the transferor and that the signature is not a forgery. As
one learned writer put it:

Ultimately the most convincing rationale for immediate indefeasibility

lies in the proposition that no purchaser of Torrens system land should
be required to investigate the history of his vendor’s title or to make
inquiries that are burdensome or difficult. Any other view increases
the cost and complexity of all conveyancing transactions, as well as
detracting from the goal of security of title.65

62
AL Tyree, Banking Law in Australia (3rd ed, 1998) at 23.
63
See, eg, Sackville, “The Torrens System-Some thoughts on Indefeasibility and
Priorities”(1973) 47 ALJ 526.
64
R Stein, “Principles Aims & Hopes of Title By Registration” (1983) 9 Adelaide Law Rev
267 at 273.
65
Supra, note 63, at 531-2.
104 Singapore Journal of Legal Studies [1999]

2. All innocent purchasers/mortgagees are assured of obtaining a good

title

As long as a purchaser or mortgagee has not been a party to forgery

or dishonestly ignored the forgery he or she will obtain an indefeasible
title with the doctrine of immediate indefeasibility. Security of title is thus
upheld. With deferred indefeasibility the innocent purchaser or mortgagee
is always subject to his or her registration being reversed on the basis that
the instrument is void.

3. Guarding the duplicate certificate of title against rogues is less onerous

and costly than having to satisfy oneself as to the identity of and validity
of signature of a vendor or a mortgagor

Some of the cases involving forgery suggest that the registered proprietors
have been careless with the duplicate certificate of title. To safeguard a
duplicate certificate of title is not difficult or costly. Most banks offer
safeguard facilities at a modest fee. In this context one has to ask whether
having a duplicate certificate of title is really necessary? Some states in
Australia do not have a duplicate certificate of title.66 Given that many cases
involve the rogue obtaining the duplicate certificate of title and thereby
being able to perpetrate the fraud this would seem to be a sensible solution.
Other cases show that the registered proprietors have been naive or
gullible. One has to therefore ask, who should pay the cost of such care-
lessness or gullibility, the innocent party who has registered his or her interest
or the culpable party?

III. ECONOMIC ANALYSIS

Having set out the principal and often-debated arguments favouring each
of immediate and deferred indefeasibility, it is appropriate to consider the
relative merits of each doctrine by applying economic analysis.
Economic analysis of law is a relatively modern approach, with strong
roots at the University of Chicago in the 1960’s.67 The approach has a growing

66
See, eg, s 81 of the Transfer of Land Act 1893 (WA).
67
R Epstein, “Law and Economics: Its Glorious Past and Cloudy Future” (1997) 64 University
of Chicago Law Review 1167.
68
RA Posner, “Some Uses and Abuses of Economics in Law” (1979) University of Chicago
Law Review 281; RD Baird, “The Future of law and Economics: Looking Forward” (1997)
64 University of Chicago Law Review 1129.
69
See, eg, M Nussbaum, “Flawed Foundations: The Philosophical Critique of (a Particular
Type of ) Economics” (1997) 64 University of Chicago Law Review 1197.
SJLS The Duel between Immediate and Deferred Indefeasibility 105

number of followers,68 but is certainly not without critics.69 Economic analysis

allows us to look at the law from another perspective. In the words of an
American judge and academic:

Economics is the study of rational behaviour in the face of scarcity....

The legal system, too is about coping with scarcity. If there were an
abundance of every good thing, there would be no need for law... If
there is scarcity, law cannot be understood apart from economic thought.70

Certainly, the cases about indefeasibility are dealing with scarcity – a

particular interest in land that will, under the relevant type of indefeasibility,
be declared to belong to one only of the affected parties. Economic analysis
can be used in a positive way – to explain the current law along economic
lines, or in a normative sense – to prescribe the law as it should be, again
in economic terms. In trying to apply economic analysis to determine which
of deferred or immediate indefeasibility carries stronger economic justi-
fication, both a positive and a normative or prescriptive approach is required.
Economists variously examine concepts such as value, utility, and efficiency.71
It is the concept of efficiency that is most widely used in economic analysis
of law72 and that will be used in this article. To quote Jules Coleman, an
American academic:

Whether the new law and economics is restricted to model theoretical

applications or whether instead it is advanced as an explanatory or
normative discipline, its central organising idea is that of economic
efficiency.73

There are a number of economic definitions of efficiency, two key tests

being ‘Pareto superiority’ and ‘Kaldor-Hicks efficiency’.74 It is worth outlining
those tests at this point.
Pareto superiority requires that both parties are made at least as well

70
FH Easterbrook, “The Inevitability of Law and Economics” (1989) 1 Legal Education
Review 1.
71
See, eg, R Posner, Economic Analysis of Law 4th ed (1992).
72
For a broad discussion on the merits of efficiency as a fundamental criterion in economic
analysis of law, see generally, “Symposium on Efficiency as a Legal Concern” (1980) 8
Hoffstra Law Review 485.
73
J Coleman, “Efficiency, Exchange, and Auction: Philosophic Aspects of the Economic
Approach to Law” (1980) 68 California Law Review 221.
74
Ibid, at 222.
106 Singapore Journal of Legal Studies [1999]

off, in the sense that a Pareto-superior transaction is one that renders at

least one person better off and no person(s) worse off.75 Obviously, very
few rules or doctrines would really create a Pareto superior effect, as most
rules and doctrines would have some detrimental effect on some person(s),
even if it is merely a rise in prices or added costs of insurance.
As an alternative model, the Kaldor-Hicks model of efficiency examines
whether the transaction results in a net overall benefit, so that the combined
benefits to the parties involved do not exceed the resulting (net) detriment
to any third parties adversely affected by the transaction.76
Perhaps a clearer understanding of the different models can be gained
by considering them in application to the potential change caused by a
particular legal rule. The rule would be Pareto superior if, when compared
with the situation without the rule in place, the rule caused no-one any
adverse change and caused at least one party a beneficial change. This can
be contrasted to the Kaldor-Hicks model, which allows both beneficial and
adverse changes to be caused by the new rule, but requires there to be a
net beneficial change for the new rule to be efficient. Both models of
efficiency will be applied at various stages of this analysis.
As for comparing the efficiency of immediate and deferred indefeasibility,
the authors believe that the key to the problem lies in first examining the
efficiency of the indefeasibility concept in itself. This is particularly important
as many of the logical arguments ‘against immediate indefeasibility’ stated
above, are also arguments against deferred indefeasibility. For example,
the argument that ‘immediate indefeasibility wrongly overrides the existing
law of signatures’ is really an argument against indefeasibility per se, as
both immediate and deferred indefeasibility allow an innocent purchaser
in a subsequent transaction to gain better title than an earlier transferor.
Before comparing the relative efficiency of immediate and deferred inde-
feasibility, therefore, it is necessary to put the dilemma into context by
first ascertaining the economic rationale behind indefeasibility of title. With
this in mind, the remainder of this article will first analyse the indefeasibility
concept before moving to a comparison of the two theories.

IV. EFFICIENCY OF THE INDEFEASIBILITY CONCEPT

One of the clear aims of the Torrens system of land regulation was to establish
a central registry of interests in land in order to simplify the proof of rights

75
Other key tests are ‘Pareto optimisation’ and ‘wealth maximisation’. For detailed explanation
of the different notions of efficiency, see J Coleman, “Efficiency, Exchange, and Auction:
Philosophic Aspects of the Economic Approach to Law” (1980) 68 California Law Review
221.
76
Supra, note 71, at 13.
SJLS The Duel between Immediate and Deferred Indefeasibility 107

in property. Hence, interests in land are lodged for registration or noting

on the relevant title and the register is available for public search. To ensure
effective operation of the registration system, the law then recognises the
supremacy of registered interests (subject to a limited number of “paramount
interest” exceptions).77 Any parties interested in acquiring an interest in
Torrens land can search the register and rely upon the accuracy thereof.
By prescribing the indefeasibility of registered interests in Torrens land,
there is a reduction in transaction costs as the purchaser does not have to
conduct exhaustive enquiries into the vendor’s chain of title. The concept
of indefeasibility of title therefore minimises transaction costs that might
otherwise have prevented a consensual exchange of the land or at least
have led the exchange to be less efficient for the parties involved.
To apply economic analysis to the indefeasibility concept, one must look
at the entire picture, considering the effects of indefeasibility on society
as a whole. Without a rule of indefeasibility, there would be little confidence
in the Torrens registration system of interests in land. Further, there would
be dramatically increased compliance and enforcement costs to ensure
registration of transfers, without the sanction of losing priority, and an
increase in the residual harm caused by non-compliance (non-registration
of interests). The cost of registration would itself be an additional transaction
cost with no obvious benefit.
Considering the alternatives, without a system of ownership by regis-
tration, society would need to revert to a system of either proving ownership
of land by possession or by an unbroken chain of title documents as is
required for general law land. The former concept is of little use to security
interests in land, while the latter involves higher transaction costs for potential
transfers of interest and higher administration costs in maintaining the system.
The indefeasibility rule achieves certainty for transferees, and hence
eliminates the problems associated with making decisions under uncertainty.
Without an indefeasibility rule, the risks involved in land purchase would
be extremely high. Given our capitalist society, including the status of land
as a key asset for individuals, society as a whole benefits from indefeasibility
in that it achieves the high level of certainty required for decisions about
land purchase to be made by average members of society. Thus the aggregate
well-being of all individuals in our society appears to be enhanced by the
of indefeasibility rule. Applying the Kaldor-Hicks test, this rule appears
to be efficient in that the overall (net) benefit to society and registered interest-
holders outweighs the detriment suffered by the holders of unregistered
but registrable interests. Thus, indefeasibility of title appears to be justified

77
Transfer of Land Act 1958 (Vic) s 42(2).
108 Singapore Journal of Legal Studies [1999]
on economic grounds.

V. EFFICIENCY OF INDEFEASIBILITY WHERE FRAUD IS INVOLVED

While the indefeasibility concept has so far been justified in relation to

a system of ownership by registration, what about where fraud is involved
in the chain somewhere? In these circumstances people may be deprived
of their interest in land through a fraudulent, non-consensual transfer, in
favour of a later innocent transferee. Thus, the concept of indefeasibility
of title here has a detrimental effect on the defrauded former owner of the
relevant interest in the land.
This is essentially the trade-off for benefits of reducing prospective
purchasers’ information costs under the rule of indefeasibility of title. Without
a rule of indefeasibility, in the event of a fraudulently executed transfer,
the defrauded previous property-holder would retain their interest in the
land, while the innocent transferee must rely on a possible non-proprietary
right to compensation. However, under the indefeasibility rules, it is the
innocent (registered) transferee who retains the property, while the defrauded
previous property-holder is left only with a potential claim for compensation
under the Transfer of Land Act 1958 (Vic).
Of course, sections 42-44 of the Transfer of Land Act 1958 (Vic) contain
exceptions to indefeasibility in the case of fraud. It is these sections that
have led to the competing theories of immediate and deferred indefeasibility
which have battled for judicial preference as described above. The fraud
exception and the two competing indefeasibility theories only affect parties
affected by the fraudulent transaction. Once subsequent transactions are
registered, the transferee relying on the Register gains the benefit of
indefeasibility even under the theory of deferred indefeasibility. Hence, the
Transfer of Land Act 1958 (Vic) largely overrides the common law principle
of nemo dat in favour of indefeasibility of title. If immediate indefeasibility
applies, the non-consensual transferor has no opportunity to use the ‘fraud’
exception to the rule if the registered transferee is innocent, however a narrow
window of opportunity would exist if the deferred indefeasibility theory
were applied.

VI. COMPARISON OF IMMEDIATE AND DEFERRED INDEFEASIBILITY

In attempting to determine which of these theories is more efficient, it must

first be noted that each of the two competing indefeasibility theories clearly
benefit one of the parties concerned over the other. Under immediate
indefeasibility, the current innocent registered interest-holder prevails, while
under deferred indefeasibility it is the earlier registered interest-holder who
is restored. Obviously, therefore, neither theory theories makes both parties
at least as well off as they would have been without the relevant indefeasibility
SJLS The Duel between Immediate and Deferred Indefeasibility 109

rule, and hence neither theory can be justified on Pareto-efficiency grounds.

Returning to the Kaldor-Hicks concept of efficiency, one needs to weigh
up the relevant benefits and detriment to all parties – non-consensual transferors,
transferees and society in general – under each of the indefeasibility theories.
Under immediate indefeasibility, there can be complete confidence in
the system of title by registration for any transferee innocent of any fraud
in the transaction. This carries the benefits of minimising transaction costs
for transferees and also the public welfare benefits discussed above. The
trade-off is, of course that all current owners of property are subject to
the risk of losing their rights in that property in a non-consensual transfer,
without any right to take action even where the transaction is discovered
before a subsequent transfer occurs.
Conversely, deferred indefeasibility of title reduces the risk of current
property owners losing their interest through a non-consensual transfer by
essentially giving them time to discover the transaction and to regain title
before a subsequent transfer occurs. However, the trade-off is that society
would lose the benefits of indefeasibility associated with certainty as any
prospective transferee would bear the risk that their transaction may involve
some fraud and hence would not gain indefeasibility upon registration.
As for much economic analysis, comparison of the two competing
indefeasibility theories essentially reduces to the question of ‘who can best
bear the risk?’. Under immediate indefeasibility, the current owner bears
the risk of losing their property, whereas it is the transferee who bears the
risk under deferred indefeasibility.
Assuming the current owner and the transferee are equally risk-averse,
one needs to examine whether either party can reduce their risk (and at
what costs). Under immediate indefeasibility, a current owner could reduce
their risk by ensuring safe-keeping of the duplicate Certificate of Title (and
the Duplicate Mortgage in the case of a mortgagee). This minimises the
chance of fraudulent transactions occurring. However, the transferee could
also reduce their risk by conducting investigations into the purported transferors
in an attempt to identify any fraud. This would increase the chances of
detecting any fraud and help minimise the risks to an innocent transferee
that otherwise exist under deferred indefeasibility. It appears that the costs
to the current owner in reducing their risk by validating the bona fides
of people to whom they allow access to the title documents would usually
be cheaper than the costs of transferees in validating identities of signatories.
Thus, it seems that current owners are in fact usually best placed to reduce
the risks in the most cost effective way, and therefore that immediate
indefeasibility is more efficient than deferred indefeasibility.
However, given the extent of possible duplicity and forgery, it seems
apparent that neither party is able to completely avoid the relevant risk
involved by taking the above action. Therefore, in addition to the costs
110 Singapore Journal of Legal Studies [1999]

involved in risk-reduction, consideration must also be given to whether either

party is in a better position to bear the ultimate price of the risk should
the fraud still occur. While some readers may have sympathy for the typical
family facing the risk of losing their major asset, and there may also be
a general perception that any bank involved is more able to bear both risk-
reduction costs and any costs in ultimate deprivation of their interest, such
sympathetic feelings have no role in economic analysis. Furthermore, closer
consideration of the possible scenarios reveals that any combination of parties
is possible. The sympathy-endearing family may be the non-consensual
transferor, and a bank may be the transferee as was the case in both Chasfield’s
case78 (deferred indefeasibility applied) and Vassos’ case79 (immediate
indefeasibility applied)), or the sympathy-endearing ‘family’ may just as
likely be the transferee, while the non-consensual transferor is another
‘family’ or even a mortgagee under a fraudulent discharge of mortgage
(as was the successful mortgagee in Ellis’ case80 under deferred indefea-
sibility).
While the concept of a means-tested immediate/deferred indefeasibility
rule may appeal to those with a strong sense of equity, current and potential
owners of land in Victoria need a rule that is certain and universal in
application. It would be totally unworkable to suggest different rules for
different parties or circumstances. Since there can be no general conclusions
as to whether a non-consensual transferor or an innocent transferee can
best bear the costs of being deprived of their interest in the land, we must
revert to considering which party can best bear the risk. One must recall
the considerable benefits to society arising from the indefeasibility concept,
and add to this the general rule that it is less costly for owners to safe-
guard their title documents than for prospective transferees to gather enough
information to rule out fraud. With these considerations in mind, the authors
contend that it is in the interests of society as a whole for the risk be borne
by current owners as potential non-consensual transferors rather than innocent
transferees. Hence, while indefeasibility is not absolute (registered propri-
etors who are parties to the fraud are excluded), application of the immediate
indefeasibility theory appears to be more strongly justified on economic
grounds than deferred indefeasibility.

VII. DOES THE ASSURANCE FUND AFFECT THE ARGUMENT?

As a final matter, the authors note that in considering the relative economic
merits of immediate and deferred indefeasibility, so far only a brief reference

78
Supra, note 12.
79
Supra, note 20.
80
Supra, note 6.
SJLS The Duel between Immediate and Deferred Indefeasibility 111

has been made to the Consolidated Fund. The Transfer of Land Act 1958
(Vic)81 provides an opportunity for innocent victims of fraudulent registered
transfers to lodge a claim against the assurance fund, and to this extent,
it may be inaccurate to omit this from the equation involving the parties’
risks under deferred and immediate indefeasibility. However, in the state
of Victoria, the position in regard to compensation is far from satisfactory.
In Victoria no indemnity is payable from the assurance fund where the
“claimant, his solicitor or agent caused or substantially contributed to the
loss by fraud neglect or wilful default”.82 This puts the victim at a considerable
disadvantage and the uncertain availability of compensation somewhat clouds
the issue of assessing the superiority of either doctrine.
Since the concept of indefeasibility appears to be mainly justified in
terms of the net benefits to society, then it seems obvious that society as
a whole should compensate the innocent victim. The advantages to society
from the existence of the indefeasibility concept itself, as discussed above,
outweigh the potential cost to society in compensating the victims of the
occasional case of loss of title through fraudulently executed registered
transfers. If adequate compensation were available to the victims, then
indefeasibility would satisfy both the Pareto and Kaldor-Hicks tests of
efficency. Bearing in mind the difficulty in calculating the true value (in
terms of utility) of the proprietary interest to the ‘victim’ concerned, the
existence of such compensation could perhaps tip the balance towards
deferred indefeasibility being more efficient than immediate indefeasibility.83
However, the question of whether this right to indemnity under the
Transfer of Land Act 1958 (Vic) is too narrow is an issue beyond the scope
of this article. Given the wording used in section 110, the question still
comes down to which of the parties can best bear the risk; here, the risk
of needing to make a claim against the assurance fund for possibly unavailable
or inadequate ‘compensation’.

VIII. CONCLUSION

The competing theories of deferred and immediate indefeasibility have had

a long and complex duel for judicial application in Victoria. Considering
the most recent cases, immediate indefeasibility certainly seems to be strongly

81
Section 110.
82
Transfer of Land Act 1958 (Vic) s 110(3)(2).
83
See Law Reform Commission of Victoria, Report No 12: The Torrens Register Book, 1987
para 16. The Victorian Law Reform Commission’s recommendation that deferred indefeasibility
should predominate was based upon the premise that monetary compensation would always
be available to the innocent transferee.
112 Singapore Journal of Legal Studies [1999]

winning the ‘battle’ at present. However, there is always the possibility

that deferred indefeasibility may once again be ‘raised from the dead’,
whether by the judiciary or by parliament.
In this article, the authors canvassed the legal and economic arguments
for each theory. While the legal arguments perhaps seemed to weigh more
strongly against immediate indefeasibility, many of those argument could
be raised almost equally against deferred indefeasibility too. However, the
purpose of this article was not to determine whether indefeasibility of title
should exist at all, but rather, given that it exists, which of the two competing
versions was more strongly justifiable. Applying economic analysis to the
problem, leads the authors to conclude that indefeasibility of title for land
under the Torrens system can be economically justified on efficiency grounds,
and it is the theory of immediate indefeasibility rather than that of deferred
indefeasibility that carries the stronger economic justification.

ROBIN EDWARDS*
JENNIFER O’REILLY**

* BJ, LLM (Monash); Barrister & Solicitor of the Supreme Court of Victoria; Associate
Professor, Department of Business Law and Taxation, Faculty of Business and Economics,
Monash University, Australia.
** BSc DipEd (Melb); LLM (Monash); Barrister & Solicitor of the Supreme Court of Victoria;
Lecturer, Department of Business Law and Taxation, Faculty of Business and Economics,
Monash University, Australia.