In Ontario, Don’t Take the Electronic Land Registers at Face Value

John R. Wood

Over recent years, rights of way have become a lightning rod for fundamental questions about the Ontario land registration system.

A recent example is MacIssac v. Salo, now going through the Ontario Court of Appeal. The Ontario Bar Association decided that the case was important enough for it to intervene in the appeal.

You may take many things from the case. Most important, perhaps, although the registers are well kept, don’t take them at face value. The decision could even be important for property rights in Ontario

You’re invited to read the summary of the case below, with its comments on the law. You’re encouraged to comment.

Facts

In MacIssac, a private road went from a public road through three properties. Instruments registered in land titles, and the registers, showed that the rights of way were over an area shown on a reference plan.

The private road had been an existing road, and the owner, who’d severed the properties and created rights of way, had intended the plan to show the existing road. The surveyors, who’d prepared the plan, had mistakenly omitted part of the existing road from the plan. On the property that was nearest to the public road, there was a dip in the road going around a large rock outcrop. It would have been hard to remove the outcrop. All the parties to the registered instruments had mistakenly believed that the plan showed the existing road, including the dip.

The owner of the property nearest to the public road had objected to heavy vehicles using the private road. She’d claimed that the other owners had no right to use the dip around the large rock outcrop.

Result

The Ontario Superior Court of Justice decided that the other owners had no right to use the dip around the large rock outcrop. The Ontario Land Titles Act was unyielding to the common understanding of all the parties.

It’s feared that the Ontario Court of Appeal may agree with this unjust result.

Law

Ontario has built electronic registration on the Ontario Land Titles Act. Although we assume that the register mirrors the current title, the entries can only have the effect that Act gives to them. The Act guarantees that some interests are free from others, by actually giving those interests. The Act can undermine an earlier guarantee when it mistakenly gives a later guarantee. Later rectifying a mistake can reverse a guarantee. And the entire system depends on compensation after a mistake, to back up its guarantees. The technology mustn’t blind us to the need to work through the provisions of the Act. Cases frequently raise fundamental issues for property rights in Ontario.

The Ontario Land Titles Act is basically a copy of an 1875 English Act. We’ve added many changes, most of which the Ontario government drafted exclusively for us. Because the English system has changed so much, our English sources consist of only two English Court of Appeal cases, and a few English books published before 1925. One of the cases, Attorney General v. Odell (1906), explains a lot of what follows.

We must first determine what the register shows and whether that’s mistaken. Then the Act requires us to answer four questions, in the proper order. What did the mistaken entry do to the title? Will the mistake be rectified? Will the land titles system compensate? And will anyone other than the system bear the loss? As to the first question, some comments on actual notice appear at end of this comment.

Mistake

In MacIssac, there’d been a mistake in the registered documents. Apart from the register, the parties had a right to have the documents rectified to correct the mistake. These comments assume that the effect of the register was to show that the right of way went over the large rock outcrop, rather than over the dip in the road. This would be rather than the register merely showing that there was a right of way in the documents, whatever those documents might turn out to mean. Based on this assumption, there’d clearly also have been a mistake in the register, raising the four questions.

The lower court accepted that, but for the Ontario Land Titles Act, the parties would have had a right to have the documents rectified to correct the mistake.

Four questions

The lower court should then have answered the above four questions as follows.

1. What did the mistaken entry do to the title?

Surprisingly, section 39 shows that the Act doesn’t guarantee an easement shown in the register. The section treats the entry only as a “notice” on the register for the subject-to land, and only as a cross-reference that “fact” on the register for the together-with land. Showing the easement in the electronic “thumbnail” description may be misleading. Where section 87 shows that a registered transfer guarantees the fee simple, “together with all rights,” that can only mean, with whatever rights exist. Section 78(4) seems to show that, when any instrument is registered, the Act guarantees the interest shown in the instrument. But it must mean that, when the process of registering an instrument is complete, the Act has done what it would normally have done for that kind of instrument.

If we don’t answer this first question correctly, we’ll be on the wrong track for the other three questions.

Without referring to the sections, the lower court mistakenly decided that the Act had guaranteed the easement shown in the register. In effect, the Act overrode the common understanding of all the parties.

Apart from section 39, in MacIssac, there were other reasons for deciding that the Act didn’t show that the easement was only over the road shown in the reference plan. Under section 140(2), the Act doesn’t guarantee boundaries. The transfers probably included an implied easement over the dip in the road, under the common law or section 15 of the Conveyancing and Law of Property Act. This implied easement would have been an “overriding right” under section 44(1)2 of the Ontario Land Titles Act.

MacIssac didn’t raise an issue over the “doctrine of deferred indefeasibility.” There was no issue, for example, over whether, where the Act could have given an interest, it didn’t do so because a document was a nullity.

As shown in the comments at end of this comment, the equitable doctrine of actual notice could have prevented a party from unconscionably taking advantage of the answer to the first question. In MacIssac, the owner of the property nearest to the public road, who’d claimed that the other owners had no right to use the dip around the large rock outcrop, might actually have known, before acquiring the property, that the other owners a right of way over the dip.

2. Will the mistake be rectified?

The Torrens systems in western Canada seem to treat an entry in the register as “sacrosanct,” but our streamlined conversions of land from registry to land titles have meant that the system may be correcting mistakes quite freely. Under our Act, the answer to the second question is between those extremes.

Where a mistake didn’t do anything to the title, the Act normally requires the mistake to be rectified (sections 158, 159 and 160). In MacIssac, since the answer to question 1 was that the Act didn’t do anything to the title, the mistake had to be rectified. This could have been done by filing a new reference plan and changing the registers to refer to it.

The Act also sometimes allows a mistake to be rectified, even where it did something to the title. Section 57(13) allows this where (a) there was, in the past, a void registered transfer or charge, or (b) where the mistake took title from a person who was then in possession or receiving the income. In these cases, a rectification will later take away an interest that the Act had previously mistakenly given. It does away with a need to decide whether the initial entry fairly determines the interests for all time. It’s right to have this kind of flexibility to deal with a mistake in a just and practical way, and with compensation. Before a decision on whether to rectify under section 57(13), the people affected have a right to be heard. Section 57(13) might be improved by removing (a) and changing (b) to protect a person who’s in possession or receiving the income in an orderly way when the register is rectified.

If section 57(13) had applied in MacIssac, and if a transferee had received possession or begun receiving the income in an orderly way after registration of the transfer, the transferee should have been treated as in possession or receiving the income when the transfer was registered. Since the section is intended to protect the interest of a person in possession or receiving the income, it would have made no sense for it not to protect the buyer.

The lower court mistakenly assumed that the Act had guaranteed the right of way shown in incorrect reference plan. The court compounded the mistake by not dealing with the powerful right to rectify the register, with compensation, in section 57(13).

3. Will the land titles system compensate?

Where a mistake didn’t do anything to the title, the system doesn’t normally need to compensate. In MacIssac, the true cause of any loss wasn’t the mistaken entry in the register, but the fact that the reference plan was wrong. In MacIssac, since the answer to question 1 was that the Act didn’t do anything to the title, the system wouldn’t normally have had to compensate.

In the current section 57(13), the 2006 changes to the Act unadvisedly removed the critical words giving compensation. This was illogical and a court would need to make sense of the change.

The lower court didn’t deal with compensation.

4. Will anyone other than the system bear the loss?

Where a mistake didn’t do anything to the title, the system doesn’t normally need to compensate, and so the issue under the fourth question doesn’t arise. In MacIssac, since the answer to question 1 was that the Act didn’t do anything to the title, the issue didn’t arise.

Where this kind of issue arises, we’d routinely use the principles of unjust enrichment (including subrogation) to put the burden of the loss onto the person (including the system) that should justly bear the loss. But land titles laws may also move loss onto others. Moving the loss onto a person who’s claiming compensation can weaken the essential back up right to compensation.

Sections 57(1) and (3) of our Act used a Torrens section from the Australian state of Victoria, which might have put a personal liability on certain persons, without regard to unjust enrichment. Remarkably, in 1885, the drafters of our Act changed the Victoria section to say that the person was liable only for “what is just.” Despite that, our Act, like other land titles laws, doesn’t wholly reflect the principles of unjust enrichment. For example, recent changes try to move the loss onto those who don’t meet what the director of titles orders to be “due diligence” or who, as a group, choose to buy title insurance.

The lower court didn’t deal with who bears a loss for which the system compensates.

Actual notice

The Act can guarantee or give priority to an interest, even if a person receiving the interest had “actual notice” (for example, where section 87 shows the effect of registering a transfer). The Act rightly accepts that doing otherwise would be unworkable, because other people rely on the Act, and they have no reliable way to determine whether that person had actual notice.

The Act is subject to the equitable doctrine of actual notice. This can prevent a person, if the person had actual knowledge of a valid interest of another person before the person acquired an interest, from unconscionably taking advantage of the Act. Where the equity applies, it doesn’t prevent the Act from having given an interest or priority, but only affects a particular person.

The equity can come into play only when the effect of the Act, apart from the equity, is determined in the first place. It’s easier to see how the equity can apply where the interest of the other person hasn’t been registered at all (as in United Trust v, Dominion Stores (1977)). But all the interests in MacIssac had been registered.

As said, in MacIssac, the mistaken entry didn’t do anything to the title, and so no one could have been unconscionably taking advantage of the Act. Therefore, in MacIssac, the equity didn’t come into play.

In MacIssac, if the answer to the first question had been that the Act had guaranteed the right of way shown on the plan, free from a right of way over the dip, it would normally have triggered issues rectification, compensation and allocation of loss under the Act. This process or the result of it could have been unconscionable. Presumably, equity could then have come into play to counteract that, but it would have raised interesting issues. Equity would in effect have changed both the answer to the first question and pre-empted the Act from dealing in its own way with the other three questions. But, in MacIssac, since the equity didn’t come into play, it could only have been a hypothetical issue.

The lower court didn’t deal with the effect of actual notice.

Conclusion

After electronic registration, Ontario has moved into an almost exclusively land titles world. Like many other land titles laws, the Ontario Land Titles Act is basically good, but ancient and overlaid with changes, many of which were less well considered. Courts, the government and lawyers need to become much more familiar with the Act, and its policies. Then we’ll be able to assess whether electronic registration has brought all the benefits we hoped for.

Good modern examples of land titles laws are the English Land Registration Act 2002 and the 1993 Canadian Model Land Recording and Registration Act. Each has different good features. The U.S. seems to mistrust government-run land registration systems. Perhaps we need to be more astute.

The Ontario Court of Appeal has an opportunity to make an important decision on property rights in Ontario. It should show us how not take the electronic land registers at face value, and give us other important guidance.

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Comments

  1. Over recent years, rights of way have become a lightning rod for fundamental questions about the Ontario land registration system. A recent example is MacIssac v. Salo, now going through the Ontario Court of Appeal. As of 12:40 on December 21, 2012, the court hadn’t released its decision.

    In MacIssac v. Salo, an existing road dipped around a large rock outcrop. The land titles register referred to a reference plan showing that the road had no dip, but everyone knew of the dip. The trial court decided that the Ontario Land Titles Act was unyielding.

    The previous post said that, where there’s a mistake in the register, the Ontario Land Titles Act requires us to answer four questions, in the proper order. The first was, what did the mistaken entry do to the title?

    What follows in this post shows in more detail why the Act probably doesn’t guarantee an easement shown in the registers.

    Again, you’re invited to comment.

    Scheme of the Act

    The key feature of a land titles law is that it guarantees some key interests in land, by actually giving the interest, free from another interest. A person will then have the key interest, even if the person wouldn’t otherwise have done so.

    Under the Ontario Land Titles Act, we must look for words showing that the Act gives the key interest. For example, on first registration, section 45 “vests in the person so registered an estate in fee simple.” Or, when a transfer for value is registered, section 87 of the Act “confers on the transferee an estate in fee simple.” We probably cannot rely on the Act guaranteeing an interest, unless we find words of this kind that give the interest. (The original post explains the odd section 78(4).)

    For most interests, other than those that the Act guarantees, the system only shows that, if the interest is valid, an entry on the register protects it, and seems to give it priority. For priority, the land titles system would work like a registry system. The original Act didn’t govern priority between those interests. Many later additions deal with priority, often by saying that an entry in the register is “notice.” (Examples of the additions are sections 71(2), 72(1), 78(5), 111(5) and (7) and 119(5).)

    For an easement, if both the together-with land and the subject-to land are in land titles, the registers for both usually show the easement. But, for several reasons, the register for the subject-to land must govern. In practice, the registers misleadingly seem to show that the Act guarantees the easement.

    In light of the above, we can’t take the electronic land registers at face value. We must analyze the words of the Act. The system needs to know when it’s giving a guarantee. Owners need to know when they’re receiving a guarantee. And the whole process of rectifying a mistake, compensating, and determining who bears the loss, rests on whether the Act gave a guarantee.

    Actual notice

    The Ontario Land Titles Act guarantees a key interest in land (by actually giving the interest, free from another interest) and can give priority to an interest. It does so, even if the person receiving the guarantee or priority actually knows of the other interest. Logically, it must do so, because other people rely on the Act, and they have no reliable way to determine whether that person had actual notice.

    The Act is subject to the equitable doctrine of actual notice, and to fraud. These can prevent a particular person from unconscionably taking advantage of the Act, if the person had actual knowledge of the other interest of another person before the person acquired an interest, or acquired an interest through fraud. These don’t prevent the Act from having given the interest or priority, but only affect the particular person.

    Therefore, actual notice can logically operate differently at the above two levels. In the signal case of United Trust v. Dominion Stores (1977), the majority of the Supreme Court of Canada decided that the Act was subject to the equitable doctrine of actual notice. Remarkably, the highly respected Laskin C.J. dissented.

    The court didn’t make clear that actual notice could logically operate differently at two levels. In his learned and admirable analysis, Laskin C.J. was right at the first level that, “To import actual notice in a title registration system without its express preservation is to change the basic character of the system.” The majority were right at the second level that, “a cardinal principle of property law cannot be considered to have been abrogated unless the legislative enactment is in the clearest and most unequivocal of terms.”

    In this light, it could seriously undermine the Act’s guarantees if actual notice became a factor at the first level.

    Easements generally

    An easement is a key right, and the law treats it as such. The law allows it to be easily created and, once it’s created, the law protects it well. Under the Ontario Land Titles Act, an easement is an overriding right, which can exist, even if the register doesn’t show it (section 44(1)2).

    General rules for easements in key section 39

    Subsection (1) could apply to an easement only if it was an “incorporeal hereditament of freehold tenure enjoyed in gross.”

    Subsections (2) and (3) deal with cases where, when an easement is granted, the together-with and subject-to land are in different systems, one in registry and the other in land titles, and a grant creates the easement.

    Subsections (4) and (5) contain the general rules. (Subsection (5) seems to apply only where the easement is together with land being registered. But it must mean where the easement is together with registered land.)

    Subsection (4) deals with the entry in the register for the subject-to land. It shows that the land registrar may enter “notice” of the easement on the register for the subject-to land. Subsection (5) deals with the entry in the register for the together-with land, and shows that “the facts may be stated” in an entry on the register for the together-with land. Subsections (4) and (5) contain no words showing that, when the system makes the above entries, the Act gives the easement.

    Where the register shows an interest, and the Ontario Land Titles Act doesn’t guarantee the interest, the register usually shows the interest in a “notice.” The word “notice” shows, to a person looking at the register, that the Act doesn’t guarantee the interest.

    Where subsection (5) shows that “the facts may be stated” in an entry on the register for the together-with land, it doesn’t show that the Act guarantees the easement. The words, “the facts may be stated,” also reflect the fact that the entry in the register for the subject-to land is the key entry, not the entry (as a mere cross-reference) in the register for the together-with land.

    Subsection (4) allows the easement to be entered in the register for the subject-to land, where “the existence of an easement is proved.” Subsection (5) allows the easement to be entered in the register for the together-with land, where “title is shown to an easement.” In effect, the land registrar must enter a notice of an easement in both registers where the easement is shown to exist.

    It might seem contradictory for section 39 to require the register to show an easement, if the conditions in the section are met, but for the section then not to give the easement (that is, not to guarantee that the easement exists). This is especially so because an easement can be an important right going along with land. Unfortunately, the Ontario Land Titles Act is weak in not specifically guaranteeing the easement.

    Obviously, where the Act has given the ownership to the registered owner, and the registered owner later gives an easement, that goes a long way towards showing that the easement was valid. But it would be valid only indirectly, because the Act had earlier given the ownership to the registered owner, not because the Act then guaranteed the easement itself.

    The subject-to land is subject to an easement, because section 44 shows that an easement is an overriding right, even if the register doesn’t show it, unless the register expresses the contrary.

    Rules under section 39 when one property in registry when easement granted

    As said, subsections (2) and (3) deal only with cases where, when an easement is granted, the together-with and subject-to land are in different systems, one in registry and the other in land titles, and a grant creates the easement. However, even though subsections (2) and (3) use different words, they also probably don’t guarantee an easement.

    Subsection (2) applies where an easement over land in registry is granted for the benefit of land in land titles. Subsection (2) seems to say that the title to the easement may be absolute, qualified or possessory. This suggests, but doesn’t actually say, that the Ontario Land Titles Act guarantees the easement. It neither tracks other words in the Act that give an interest, nor reflects the fact that the Act doesn’t normally give an easement. It perhaps only reflects the fact that the together-with land may in fact have an absolute, qualified or possessory title.

    Subsection (2) doesn’t deal with the Ontario 40-year rule. For example, could the easement have expired after 40 years, unless the land titles owner had registered a notice of claim?

    Subsection (3) applies where an easement over land in land titles is granted for the benefit of land in registry. Subsection (3) doesn’t show in any way that the Act can guarantee the easement. Oddly, in light of subsection (2), subsection (3) doesn’t say that the title to the easement may be absolute, qualified or possessory.

    “Together with all rights”

    Section 45 of the Ontario Land Titles Act shows that, on first registration, the Act “vests” in the first registered owner an estate in fee simple in the land, “together with all rights, privileges and appurtenances.” Section 87 shows that when a transfer for value is registered, the Act “confers” on the transferee an estate in fee simple in the land transferred, “together with all rights, privileges and appurtenances.”

    Where the Ontario Land Titles Act gives the fee simple “together with all rights,” it gives only the rights that exist, and doesn’t give any specific right. It also can’t show that the fee simple isn’t subject to such a right, by expressing “the contrary.”

    As shown above, section 39 doesn’t guarantee an easement. The general words, “together with all rights” probably don’t work together with section 39 to give an easement that the register shows.

    As shown above, if both the together-with land and the subject-to land are in land titles, the register for the subject-to land governs the easement. In the register for the together-with land, the words, “together with all rights,” can’t affect the issue of whether the easement is valid or to what interests the easement is subject.

    The Ontario Land Titles Act is based on the English Land Transfer Act 1875, and the above sections are similar to those in the English Act. In The Land Transfer Acts, 1875 and 1897 by Brickdale and Sheldon, Stevens and Sons, Limited, 1899 edition, the authors confirm the above interpretation. See pages 152 and 153, note (n), especially the second last paragraph of that note.

    For a transfer, the Act added the words, “and as to such rights, privileges and appurtenances, subject also to any qualifications, limitation or encumbrance to which the same are expressed to be subject in the register, or…” These words don’t affect the meaning, for several reasons. Among them are that the words didn’t appear in the equivalent section of the English Land Transfer Act 1875, and that the added words shouldn’t affect the overall scheme of the Act. The words don’t appear in the equivalent section that shows the effect of first registration.

    The added words go on to say, “or where such rights, privileges and appurtenances are not registered, then subject to any qualification, limitation or encumbrance to which the same are subject at the time of the transfer.” Those words imply that the earlier added words only apply where the “rights, privileges and appurtenances” are “registered.” The word, “registered,” must imply that the earlier words could apply only where the Act guaranteed an interest.

    Other issues

    Although the Act probably doesn’t guarantee an easement shown in the registers, many assume that it does, and the form of the registers encourages that assumption. The Ontario Law Reform Commission’s 1971 Report on Land Registration assumed this, by saying on page 14: “The record includes an affirmation of the existence and ownership of interests—the fee simple and charges, and some leases and easements.”

    If the Ontario Court of Appeal were clearly to decide that the Act does guarantee an easement, it would be a welcome decision for owners. It should rest on a full analysis of the words, rather than being merely assumed (as in Syvan (2006) and Kendrick (2012)).

    The court would then need to deal with other issues in this case. One would be whether, under section 140(2), the Act guaranteed the boundaries of the right of way. Another would be whether the transfers included an implied right of way over the dip in the road, under the common law or section 15 of the Conveyancing and Law of Property Act. This right of way easement would have been an “overriding right” under section 44(1)2 of the Ontario Land Titles Act.

    In this case, perhaps the court might decide that the only easement was one that the Act guaranteed, and that the Act guaranteed that its boundaries were those shown in the reference plan. Then the court should deal with the important issue of rectifying the mistake, and the court might comment on compensation and who should bear the loss.

    If the court decides that the Act doesn’t guarantee an easement, the Act should probably be reformed, for both past and future easements. In particular, for electronic land registration, the database should be correct, complete and current, rather than requiring historical searches. For past easements created in registry, the reform would raise issues under the Ontario 40-year rule, especially where conversions contrary to Ramsay (2005) often mistakenly seemed to deny that those easements were valid.

  2. For many years, Land Registry Ontario and the Ontario Bar Association have had an extraordinary influence on Ontario’s land registration systems. The achievements of Land Registry Ontario in electronic registration have been remarkable. The OBA has made valuable contributions to real estate law.

    However, we in Ontario urgently need to deepen our knowledge of our land registration laws and of good land registration policy.

    As previous posts show, rights of way have become the lightning rod for fundamental questions about Ontario’s land registration systems. A recent example is MacIssac v. Salo , which is now going through the Ontario Court of Appeal.

    Electronic land registration

    Ontario has moved to an electronic land registration system. Electronic registration is basically an electronic database of land title information. A computer can automatically accept a registration, and can automatically put the new data correctly into the land database.

    Electronic registration works best in land titles. For electronic registration, the Ontario government converted about 5 million properties from registry to land titles. It sensibly did so using a streamlined process, but assumed a trust to compensate for any mistakes.

    The changes have required much effort by Land Registry Ontario and lawyers, and have caused a major upheaval.

    Ontario 40-year rule in registry

    For many years, LRO and the OBA have fought to require the owner of an interest in land in the registry system to register a formal notice of the possible interest every 40 years. LRO’s effort started with badly-drafted 1981 changes to the Ontario 40-year rule. The OBA’s effort included its 1995 intervention in the Supreme Court of Canada appeal in Fire v. Longtin, which LRO and the OBA later misinterpreted.

    Owners and most lawyers had long accepted the common sense position that the chain of title could show a possible interest, without the need for the formal notice. In a good judgment in Ramsay in 2005, the Ontario Court of Appeal confirmed this. (My 1995 article in (1995), 45 R.P.R. (2d) 35 presaged this decision.)

    In response, a leading OBA protagonist, Craig R. Carter, attacked the ruling. (See 2005 CarswellOnt 2660
    32 R.P.R. (4th) 161.) In an omnibus consumer protection Act in 2006, the Ontario government tried, with the OBA’s approval, to reverse the ruling and to rewrite the past history of titles.

    (The Ontario 40-year rule is partly, but naturally, retroactive, in that the rule and a change to it can cause a change in title on or after the rule or change takes effect. But it isn’t wholly, and unnaturally, retroactive, in taking away an interest as of an earlier date.)

    One purpose of the reversal must have been to take away rights to compensation for mistakes in conversions. The reversal would have been an attack on the rule of law and the courts. It would also indirectly have attacked rights to compensation under the land titles system.

    Fortunately, the attempt should prove to have been unsuccessful. Unless there’s a “good and sufficient chain of title” for a person’s interest, a conflicting interest can’t end. But LRO takes the position that the changes were effective and wholly retroactive, and many holders of easements suffer as a result. (See LRO’s Bulletin 2007-02.)

    Land titles

    Under the land titles system, owners rely on a statutory guarantee of title, backed up by compensation. The land titles system requires owners to put great trust in the law and in the government.

    Because Ontario has run its land registration systems well, the systems rarely make mistakes. However, a mistake can always happen, even where the system isn’t at fault. The decisive test for a land titles law is how it deals with a mistake.

    In the above omnibus Act in 2006, the Ontario government also made ill-considered amendments to the Ontario Land Titles Act. These tried to deal with public concern about fraud. They also attacked or fell short on rights to compensation.

    In Lawrence in 2007, the Ontario Court of Appeal rightly confirmed that the Ontario Land Titles Act uses an outdated “doctrine of deferred indefeasibility.” Cases going back over a century had established this. The Ontario government intervened in the appeal. Although the decision was right, the court’s reasons were less so, due partly to LRO’s poor arguments.

    In MacIssac v. Salo, an existing road dipped around a large rock outcrop. The land titles register referred to a reference plan showing that the road had no dip, but everyone knew of the dip. The lower court decided that the Ontario Land Titles Act was unyielding.

    In the Torrens land titles systems, used in western Canada and Australia, perhaps the register would guarantee a right of way and its boundaries, and perhaps the register couldn’t be corrected. A Torrens lawyer might be surprised that it could be otherwise in Ontario.

    The Ontario Land Titles Act is based mainly on old English legislation, and is more pragmatic. The Act probably doesn’t guarantee a right of way. Even if it does, it doesn’t guarantee boundaries. (See the paper by William D. Snell, Ontario’s Examiner of Surveys, for The Six-Minute Real Estate Lawyer 2012, on November 21, 2012.) And, even if the register gave title, the register could often later be rectified to take that title away, with compensation. Earlier posts explain the above.

    OBA and Land Registry Ontario

    The OBA quickly realized that the trial judgment in MacIssac v. Salo was wrong, and intervened in the appeal to the Court of Appeal. Ontario lawyers have known for many years that the Ontario Land Titles Act is subject to an equitable doctrine of actual notice. (See the 1977 Supreme Court of Canada decision in United Trust v. Dominion Stores. The OBA intervention seems to have relied mainly on this doctrine. LRO seems to have worked with the OBA in the intervention. (See the paper by Craig R. Carter for The Six-Minute Real Estate Lawyer 2012, on November 21, 2012.)

    Unfortunately, if the intervention was based mainly on the equitable doctrine of actual notice, it probably did little justice to the scheme of the Ontario Land Titles Act. The intervention seems to have been motivated by a wish to justify correcting the registers, without much thought to when people can rely on them, to compensation, or to the process.

    I appealed to members of the OBA real property executive to arrange for the court to receive further arguments. The OBA responded that there was no need for the OBA to do so. I had made a similar appeal to LRO, with no response.

    There seems to have been little learned writing about the Ontario Land Titles Act. In 1976, one writer concluded that the Act was “an unfortunate hotch-potch of ill-matching sections drawn from widely different sources.” (See the 1976 article, Indefeasibility of Title in the Canadian Context by Marcia Neave of the University of Melbourne, Australia. In fact, the Act is basically good, but it is old and has often been amended, sometimes less wisely.

    The Ontario Court of Appeal might decide MacIssac v. Salo simply on the ground that, even if the Ontario Land Titles Act could guarantee a right of way, the Act wouldn’t guarantee the boundaries. That would allow the register to be rectified, without compensation, by substituting a new plan showing the dip in the road. Unfortunately, a lack of good arguments could lead to the court being unwilling to guide us on the other important issues.

    Conclusions

    We in Ontario trust in our land titles system, rather than in title insurance. As we enter fully into the world of land titles, and as we pioneer electronic registration, we need deeper understanding and vigilance.

    In light of the case, we should do the following:

    • We should urgently develop a much deeper understanding among lawyers and Land Registry Ontario of our land titles system. We must be better prepared for inevitable challenges.

    • We shouldn’t intervene in cases. It would be better to make a deeper understanding available to all.

    • We should resolve not to amend the laws without full prior expert study and full prior public consultation. The 2006 changes show in many ways extreme dangers in amending the laws without these.

  3. As the previous three posts show, rights of way have become the lightning rod for fundamental questions about Ontario’s land registration systems. The Ontario Court of Appeal decided the case that has been the subject of these posts, on February 19, 2013, in MacIsaac v. Salo. It also decided a related case on January 14, 2013 in 719083 Ontario Limited v. 2174112 Ontario Inc..

    The former decision was probably right in the result, but mistaken in some of the reasons. The latter decision was right in the result, but mistaken in the reasons.

    The cases raise fundamental issues for property rights in Ontario. The land titles system requires owners to put great trust in the law and in the government. The decisive test for a land titles law is how it deals with a mistake.

    You’re invited to comment on this and previous posts.

    Facts and result in 719

    The builder of a condominium had sold 5 units to a first buyer, but mistakenly hadn’t transferred one of those units. Many years later, the builder had 88 unsold units (some of which were rented), and sold all its remaining units to a second buyer. The builder mistakenly also transferred to the second buyer the unit that the builder had sold to the first buyer. Neither the builder nor the second buyer had intended to include that unit in the second sale. There’d been a single price for the 88 units, but the buyer had taken a separate transfer of each unit (in order to reduce land transfer tax), and had allocated the single price among all 89 units.

    The buyer under the first sale had at all times been in possession of the one unit that the builder had mistakenly not transferred to that buyer.

    Under the Ontario Land Titles Act, the Ontario Superior Court of Justice ordered that the registers be rectified to return the one unit to the first buyer. The Ontario Court of Appeal confirmed this.

    Facts and result in MacIsaac

    In MacIssac, a private road went from a main access through two properties. Instruments registered in land titles, and the registers, showed that the rights of way were over a strip shown on a reference plan.

    The private road had been an existing road, and the owner, who’d severed the properties and who’d created rights of way, had intended the plan to show the existing road. The surveyors, who’d prepared the plan, had mistakenly omitted part of the existing road from the plan. On the property that was nearest to the main access, there was a dip in the road going around a large rock outcrop. It would have been hard to remove the outcrop. All the parties to the registered instruments had mistakenly believed that the plan showed the existing road, including the dip.

    Peggy Salo, the owner of the property nearest to the main access, had objected to heavy vehicles using the private road. She’d claimed that the other owners had no right to use the dip around the large rock outcrop.

    The Ontario Superior Court of Justice decided that the other owners had no right to use the dip around the large rock outcrop. It said that the Ontario Land Titles Act was unyielding to the common understanding of all the parties.

    The Ontario Court of Appeal ordered that, under the Ontario Land Titles Act, the registers should be rectified to show that the road went around the large rock outcrop.

    The mistakes and the law, apart from the Ontario Land Titles Act

    In 719, the second buyer was directly bound by the personal claim for equitable rectification of the mistake.

    In MacIsaac, it seems that the owner, who’d severed the properties, had transferred the properties in the following order:

    1. He’d transferred the first property to persons other than the current owner. This transfer must have created a right of way over the first property for the second and third property.

    2. He’d transferred the second property to the current owners, the MacIsaacs, in 1990. This transfer must have created a right of way over the second property for the third property.

    3. After both the above transfers, he’d transferred the third property to the current owner, Johansen, in 2000.

    The persons in 1 had transferred the first property to the current owner, Peggy Salo, in 1992. So Peggy Salo hadn’t been a party to either of transfers 1 and 2 that had created the rights of way over her property, or to the sale agreements that had led to those transfers. (The order of transfers in 1 and 2 might have been reversed, but the results would have been similar.)

    Apart from the Ontario Land Titles Act, Peggy Salo might have become bound by the true intent of the transfers in the following ways:

    1. Section 13 of the Ontario Land Registration Reform Act says that a transfer has the same effect for all purposes as if executed under seal (see Friedmann Equity Developments v Final Note Ltd..

    2. We might simply interpret the deeds that had created the rights of way by saying that they gave effect to the intent. In light of where the road was, we’d be saying that the deeds must have meant to give the rights of way over the existing road. This would be obvious to all the parties, if they’d made a full search, even to Peggy Salo as a successor.

    3. In any event, the deeds that had created the rights of way might have included an implied right of way over the road, under section 15 of the Ontario Conveyancing and Law of Property Act, or under the common law. This implied easement would have been an “overriding right” under section 44(1)2 of the Ontario Land Titles Act.

    4. There might only have been an equitable right to rectification of the deeds, and Peggy Salo might have been bound by some kind of notice of that right? If so, perhaps constructive notice was enough.

    5. If there was only an equitable right to rectification of the deeds, it might have created an unregistered interest in the land. If so, when Peggy Salo received the deed of her property, she might have had enough actual notice of this interest to make it unconscionable for her to rely on her deed?

    If 2 applied, most of the issues under the Ontario Land Titles Act would fall away. As the registration merely gave notice of the right of way (as shown under section 39), it wouldn’t change the meaning of the deeds. When the registers were changed, it would merely confirm what the court decided the deeds meant.

    The Ontario Court of Appeal seems to have accepted 2. The court said that it had been argued that “this case involves a classic example of a mistake in the documentation of acknowledged common intention.” The court said, “It is clear that all of the parties, including the Salos, believed that the plaintiffs had the benefit of the right of way for purposes of accessing their respective properties and that this right of way was delineated by the gravel road that crossed the Salos’ property.” The court decided that “the question whether the respondent, Ms. Salo, had actual notice of an interest in land that varied from the registered interest before she purchased the property does not need to be answered…” The court didn’t refer to 3.

    I prefer 2 and 3, perhaps treating a deed as speaking to all concerned, in light of the apparent circumstances. These comments assume that, apart from the Ontario Land Titles Act, Peggy Salo was bound by the true meaning of the deeds.

    Ontario Land Titles Act

    The previous three posts explain the Ontario Land Titles Act in more detail. Briefly, when there’s a mistake in the register, the Act requires us to answer four questions, in the proper order. What did the mistaken entry do to the title? Will the mistake be rectified? Will the land titles system compensate? And will anyone other than the system bear the loss?

    The Ontario Land Titles Act works with other laws. For example, those laws may affect the issue of whether there’s been a mistake that gives rise to the above four questions. Those laws may affect the rights of a particular person under the results of the four questions. Or, where the land titles law doesn’t give an interest, an interest may depend on those laws. We must both answer the four questions that the Act requires us to answer, and consider the effect of other laws on those answers.

    Unfortunately, in both cases, the Ontario Court of Appeal was mistaken on the first question: What did the mistaken entry do to the title? In both cases, the courts said that, where the Ontario Land Titles Act gives an interest to a purchaser for value, it does so only if the purchaser is “bona fide” and “without notice.” The mistaken reasons followed misstatements in Durrani v. Augier (2000).

    Where the Ontario Land Titles Act gives an interest, it does so regardless of whether the person receiving the interest is bona fide and without notice. This must logically be so, because successors to the person receiving the interest will rely on the Act having given the interest. The successor has no reliable way to verify whether the particular person receiving the interest was bona fide and without notice.

    The words of the Act make this perfectly clear. For a transfer, section 87 says:

    “A transfer for valuable consideration of land registered with an absolute title, when registered, confers on the transferee an estate in fee simple in the land transferred, together with all rights…”

    The section says nothing about “bona fide” or “without notice.”

    However, under laws outside the Act, a particular person may be unable to take the benefit of an interest that the Act has given (or of any land titles compensation for the interest). This can happen, for example:

    A. Where the particular person would benefit from the person’s own fraud.

    B. Where the particular person had actual knowledge of a valid interest of another person before the particular person acquired the interest, and it’s unconscionable for the particular person to take the benefit.

    C. Because the Act doesn’t free the particular person from a personal claim relating to the interest. Examples would be equitable rights to rectification or subrogation, a trust or an agreement to resell.

    Of course, when the Ontario Land Titles Act later gives an interest to a successor, the Act can protect that successor. But the Act illogically wouldn’t protect a prior successor, to whom the law hadn’t given an interest (like a tenant) and who’d relied on the original registration.

    As to C above, the Act not freeing a person from a personal claim against that person, the following quote, in United Trust and from Re Skill and Thompson, reflects this:

    “The Land Titles Act is not an Act to abolish the law of real property; it is an Act far more harmless in that respect than in some quarters seems to be imagined, at times, at all events, when the wish is father to the imagination. It is an Act to simplify titles and facilitate the transfer of land; and, doubtless, greater familiarity with it will tend to remove a good many false notions regarding its revolutionary character.

    Its main purpose is to assure the title to a purchaser from a registered owner; but, surely, it is not one of its purposes to protect a registered owner against his own obligations…”

    The English Law Commission Report, Land Registration for the Twenty-First Century, a Consultative Document, 1998, contains a good discussion of all these issues. See paragraphs 3.39 to 3.50, especially footnote 154.

    To condense all the rules into one rule, by adding “bona fide” or “without notice” to the one rule, will usually lead to the same result and seem simpler. But it weakens the Act’s guarantees and can be imprecise. More important, it’s contrary to the Act and illogical.

    Reasons in the cases

    In 719, the Ontario Court of Appeal decided as follows:

    • The court rightly decided that the second buyer was bound by the claim for equitable rectification.

    • The court mistakenly decided that the Act didn’t give the fee simple to the second buyer, because the second buyer wasn’t bona fide. The court should have decided that, under section 87, the Act did give the fee simple to the second buyer. But the court should have decided that the particular second buyer couldn’t take the benefit of this, because the second buyer was still bound by the personal claim for equitable rectification.

    In MacIsaac, the Ontario Court of Appeal decided as follows:

    • The court decided that, under section 140(2), the Act didn’t guarantee boundaries. This would have been right, if the Act had given the rights of way.

    • The court rightly decided that, under section 159 of the Act, the court could rectify the register to give effect to the true meaning of the transfers that had created the rights of way. This was so because of section 140(2) and even though section 159 is “Subject to any estates or rights acquired by registration under this Act.”

    However, in MacIsaac, the Ontario Court of Appeal gave added reasons that were mistaken:

    • The court mistakenly assumed that the Act could have guaranteed the rights of way. The court mistakenly based this on section 78(4). As said in the original post, section 78(4) seems to show that, when any instrument is registered, the Act guarantees the interest shown in the instrument. But it must mean that, when the process of registering an instrument is complete, the Act has done what it would normally have done for that kind of instrument. As shown in an earlier post, section 39 shows that the Act doesn’t guarantee an easement, but the court didn’t refer to this key section.

    • The court then mistakenly said that the Act could have given the rights of way, only if the holders had been bona fide and without notice. If the Act could have given the rights of way, the court should have said that the Act would have done so regardless of whether the holders had been bona fide and without notice. But, as shown above, the Act couldn’t have given the rights of way. The court didn’t refer to the key section 87 set out above, which shows the effect of a transfer.

    These added reasons weren’t needed for the decision. The court decided that it was irrelevant whether Peggy Salo had actual notice. The court may not have given all of the added reasons as reasons for its decision. Where not, they’d only be comments (or obiter dicta).

    In an earlier post, I suggested that the Ontario Court of Appeal might decide MacIssac v. Salo simply on the ground that, even if the Ontario Land Titles Act could have given the right of way, the Act wouldn’t guarantee the boundaries. Unfortunately, the court chose also mistakenly to say how the Act could have given the rights of way.

    The court rightly suggested that the Ontario Bar Association had wrongly “conceptualized” the issues, but the court then mistakenly agreed with the OBA in its added mistaken reasons above. The proper conceptualization is to answer the above four questions under the Act, in order, and to consider the effect of other laws on those answers.

    Comments

    In the best decisions on the Ontario Land Titles Act and its predecessors, the English Land Transfer Acts 1875 and 1897, the courts seek to understand the scheme of the Acts, by referring to the key sections. The decision of the Supreme Court of Canada in United Trust v. Dominion Stores (1977) was such a decision.

    In that case, key words in the majority’s decision were those that in effect accepted the dissenting reasons of Laskin C.J., that the Act gave the interest, but added in effect that the transferee couldn’t take the benefit of that interest:

    “It is the appellant’s argument that the enactment of the Torrens land titles system in the Province of Ontario made applicable in that province the main theory of a Torrens title registration system, to wit, the absolute authority of the register, and that it is the effect of such a principle that actual notice, no matter how clearly proved so long as encumbrances do not appear on the register, does not affect the clear title of the purchaser for value. I am ready to agree that this is a prime principle of the Torrens system and that it has been referred to as such by various text writers which I need not cite in support thereof.” [The majority then went on to deal with the equitable doctrine of actual notice.]

    In 719 and MacIsaac, the courts didn’t seek to understand the scheme of the Ontario Land Titles Act, and didn’t even refer to the key sections (including section 57(13), dealing with rectification). The Ontario Bar Association (and, through it, Land Registry Ontario) intervened in the case. But neither helped the court to understand the scheme of the Ontario Land Titles Act or referred to the key sections.

    We in Ontario prefer general concepts, like the mirror, curtain and insurance principles, or the bona fide purchaser without notice, or the doctrine of deferred indefeasibility. We don’t seek to understand the scheme of the Act, and we don’t apply the key sections of Act. We don’t say what “bona fide” means. We often don’t even say that “without notice” means “without actual notice.” We don’t answer the first of the four questions correctly, and we barely consider the third and fourth questions: Will the land titles system compensate? And will anyone other than the system bear the loss?

    The two Ontario Court of Appeal decisions in 719 and MacIsaac are among many recent decisions on the Ontario Land Titles Act. All seem in various ways to show that we in Ontario must urgently develop a much deeper understanding of our land titles system. We can’t leave it all to the courts. We should also resolve not to amend the laws without full prior expert study and full prior public consultation.

  4. As previous posts show, rights of way have become the lightning rod for fundamental questions about Ontario’s electronic land registration system.

    On August 15, 2013, the Supreme Court of Canada refused leave to appeal an Ontario Court of Appeal decision about rights of way.

    This leaves Ontario with disappointingly little guidance on how well Ontario’s electronic land registration laws guarantee property rights in Ontario. The events around the case show that Ontario urgently needs a deeper understanding of those laws.

    As usual, you’re urged to comment.

    Case

    On February 19, 2013, the Ontario Court of Appeal decided the case that has been the subject of these posts, MacIsaac v. Salo,.

    For those who may not have followed these posts, in MacIsaac, a private road went from a main access through two properties. Instruments registered in land titles, and the registers, showed that the rights of way were over a strip shown on a reference plan.

    The private road had been an existing road, and the owner, who’d severed the properties and who’d created rights of way, had intended the plan to show the existing road. The surveyors, who’d prepared the plan, had mistakenly omitted part of the existing road from the plan. On the property that was nearest to the main access, there was a dip in the road going around a large rock outcrop. It would have been hard to remove the outcrop. All the parties to the registered instruments had mistakenly believed that the plan showed the existing road, including the dip.

    Peggy Salo, the owner of the property nearest to the main access, had objected to heavy vehicles using the private road. After she’d found out about the mistake in the plan, she’d claimed that the other owners had no right to use the dip around the large rock outcrop.

    The Ontario Superior Court of Justice had decided that the other owners had no right to use the dip. It said that the Ontario Land Titles Act was unyielding to the common understanding of all the parties.

    The Ontario Court of Appeal ordered that the registers be rectified to show that the road went around the large rock outcrop.

    The Ontario Court of Appeal rightly gave, as its main and narrow reason, that, under section 140(2) of the Ontario Land Titles Act, the Act didn’t guarantee boundaries. So the Act allowed the court to order the register to be rectified under section 160, because doing so didn’t interfere with a right that the Act had guaranteed. (It would be rectified without compensation for the value of the affected right.)

    Comments

    The decision confirms that the Ontario Land Titles Act sensibly doesn’t guarantee the description of land. Boundaries still depend on where they’re first firmly put on the ground. (In MacIsaac, this wasn’t really the issue; the issue was that that, where they’d first been put on the ground, wasn’t where the parties had intended them to be.) A mistake in the register over boundaries can be rectified without land titles compensation.

    The real property section of the Ontario Bar Association, with the support of Land Registry Ontario and its Director of Titles, had intervened in the case. They’d based their position mainly on their understanding of the equitable doctrine of actual notice. The court rightly suggested that they’d wrongly conceptualized the issues. However, they had also rightly referred to section 140(2) on boundaries.

    On March 20, 2013, and after the Ontario Court of Appeal decision, the Ontario Bar Association gave a presentation on Rectification Resurrected.

    The decisive test for how well a land titles law guarantees property rights is how well it deals with a mistake in the register. A mistaken entry raises four basic questions.

    1. What did the mistaken entry do to the title? This case should have discussed the key section 39, which shows that, unfortunately, the Ontario Land Titles Act doesn’t guarantee a right of way. Neither the OBA nor the court referred to this section.

    2. Will the mistake be rectified? No discussion of rectification can be complete without referring to section 57(13), which gives a right to rectify the register, with compensation, where the Act has guaranteed an interest. Neither the OBA nor the court referred to this section. Even the OBA’s presentation on Rectification Resurrected didn’t refer to this important section. As previous posts show, the section will eventually need to be modernized.

    3. Will the land titles system compensate? Neither the OBA nor the court referred to this issue. As the OBA’s presentation on Rectification Resurrected didn’t refer section 57(13), which gives a right to rectify the register with compensation, it also didn’t cover compensation for rectification. Unfortunately, Ontario’s 2006 changes to the Act unadvisedly removed from the section the critical words giving compensation. This was illogical and either the change needs to be corrected or a court would need to make sense of the change. The 2006 changes showed a misunderstanding of the section in other ways.

    4. Will anyone other than the system bear the loss? For example, if the system were to compensate a person through the front door, but were able to move the burden of a loss onto the person through the back door, the Act’s essential guarantees of title, backed by compensation, could be meaningless. Neither the OBA nor the court referred to this issue.

    Rectifying the register

    Ontario will need to understand section 57(13) the Ontario Land Titles Act. This section gives an important right to rectify the register, with compensation, where the Act has guaranteed an interest. It does so mainly where a mistake wrongly took an interest away from a person that was then in possession or receiving the income. (Earlier posts discuss this section.)

    For Land Registry Ontario, the words, “mistake” and “compensation,” have unpleasant associations. But, as MacIsaac shows, there can be a mistake through no fault of the land titles system. And one basic land titles insurance principle shows that good compensation is the key to back up the guarantees of title in any good land titles system. There can be no serious discussion of how well the Ontario electronic land registration system protects property rights, without using those words.

    When the Ontario Bar Association does turn its mind to section 57(13), may I suggest the following to all members of the real property section and other leaders?

    • Start with finding out what the section truly and logically means, not what you want it to mean. Go first for scholarship, not politics.

    • Look at the history and purpose of the section, at the English Court of Appeal decision in Attorney-General v. Odell (1906), and at a modern version of the section in Schedule 4 to the English Land Registration Act 2002.

    • Look at the Act as it was before Ontario’s 2006 changes. Don’t be misled by Land Registry Ontario’s misunderstanding of the section in those changes. Don’t try to justify those changes, but try to make good logical sense of them. Stop any further changes to the section—in light of all of these posts, these changes would almost certainly be ill-advised.

    • Actively involve lawyers and the public in the interpretation. Don’t, at any time, let Land Registry Ontario or the anyone else take control or push an unbalanced agenda.

    • Be aware that a land titles system depends on trust in the government. Be aware that Land Registry Ontario can act as a stakeholder, and can easily become defensive or be driven by budget.

    • Aim to ensure that Ontario’s electronic land registration system protects property rights in Ontario. This would be a win-win: good for the Ontario Bar Association, lawyers, owners and Land Registry Ontario.

    In a handout for the Ontario Bar Association’s presentation on Rectification Resurrected, Craig R. Carter said that the Ontario Bar Association had been “entirely successful” and had “achieved exactly what it intervened to achieve.” Instead of this negative and defensive approach, how much better would it have been if the Ontario Bar Association had said something positive and upbeat like the following? “Ontario’s electronic land registration laws protect property rights in Ontario. We need a better understanding of those laws, old and new. The Ontario Bar Association dedicates itself to this. We encourage debate, and seek to involve and educate all lawyers and the public.”

    Perhaps the OBA might use Slaw to encourage a dialogue.

    Conclusion

    Ontario has been a leader in land registration, and its electronic land registration system is a remarkable achievement. For electronic land registration, Ontario has put virtually all land into its land titles system. The cases and writings show that Ontario urgently needs a deeper understanding of both its land titles system and of good modern land titles law and policy. The lack of a good understanding of Ontario’s land registration laws endangers property rights in Ontario in many ways. The deeper understanding will show that, if Ontario is to continue to be a leader in land registration, Ontario needs to improve the Ontario Land Titles Act and its electronic registration laws.