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.
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.
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.
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.
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.
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.
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.
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.