Land Registration Bill [Lords]

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Mr. Wills: In speaking to amendment No. 64, I will also speak to the other amendments in the group: amendments Nos. 65, 66, 67, 68, 69, 85 and new clause 1. I will crave your indulgence, Mr. Illsley, to detain the Committee on this for a little while. As the hon. Member for Stone said, the amendments are technical and complex, but they are also fundamentally important and in many ways they go to the heart of the Bill.

The amendments relate to electronic conveyancing and, in particular, to the authorisation of electronic documents, their authentication by agents, remuneration for their creation and network access agreements. Much of the ground here has already been covered in another place, but it is such an important subject that it will bear some repetition.

Amendment No. 64 would, as the hon. Gentleman explained, remove the condition that each electronic signature to an electronic document in clause 91 must be certified. The concepts of electronic signature and certification are taken from the Electronic Communications Act 2000. The definitions there are wide and technologically neutral. Certification is, basically, any

    ''valid means of establishing the authenticity''

or ''integrity'' of the signed electronic document.

It is important to understand what we mean by that. The present probability is that the system of electronic signatures for electronic conveyancing will be some form of public key infrastructure. Electronic or digital signatures are something of a misnomer. They are not an electronic facsimile of a manuscript signature, but a block of information derived mathematically from the document being signed and a private encryption code or key unique to the individual who is going to sign or authenticate the document. A digital certificate is the means by which recipients of electronic messages can be assured of their provenance. The certificate associates a person or organisation with that person's unique but publicly available encryption code or key.

To cut a very long story short, under the system the originator uses a signing or private key to sign a message, then sends the complete message with its digital signature to the recipient. The recipient then uses a verification or public key to verify the origin of the message. As long as the originator has kept his private key secure, the recipient knows that the message came from the originator.

During implementation consultations, detailed discussions will need to take place with conveyancers and, no doubt, their insurers about measures that can practically be put in place to ensure key security. However, additional arrangements are needed to ensure that public keys are exchanged securely, and to assure recipients as far as possible that originators are indeed who they claim to be. To achieve that, third parties need to be introduced in order to act as certification authorities. Their role will be to vouch that a particular public key has been given to a particular individual. That assertion is made in

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another electronic document, the digital certificate, which is itself digitally signed by the trusted third parties and owner certification authorities.

The question arises of who such authorities might be. The Electronic Communications Act 2000 makes provisions for a statutory scheme of cryptography service providers, but so far it has not proved necessary to implement them. Nor are there are plans to do so, given the Government's support for the formation of a voluntary industry co-regulatory scheme for certification authorities, which was established as a limited company in April 2000. The Government have agreed that certificates issued under the scheme that meet their identification requirements can be accepted as satisfactory evidence of the identity of an originator in an electronic transaction with Government. Five different companies are now registered under the scheme and are undergoing the approval process. Those or future companies are likely to be the certification authorities for individuals who will themselves acquire electronic certificates.

As electronic conveyancing is at the forefront of e-commerce, it has wisely been assumed that the number of individuals who will themselves acquire digital signatures in the short term is likely to be comparatively small. That is why the Bill envisages the possibility that conveyancers will sign documents electronically on their clients' behalf. Although conveyancers could doubtless use one of the commercial certification authorities approved under the scheme, there is an obvious possibility that their professional regulatory bodies might think it appropriate to assist the profession by acting as the certification authority. A similar scheme is already operating in British Columbia, where the Law Society is the certifying authority.

During recent consultation on electronic conveyancing, 75 per cent. of respondents agreed that certification should be required, so the provision does not lack general support. Overall, response to certification as a condition was very positive. There were obviously concerns about how the system will work in practice, but that is hardly surprising given the system's present embryonic state.

The Law Society did express doubt about the workability of certification, but that view does not appear to be widely shared. It may have been influenced by the thought that only electronic signatures of solicitors can be trusted. From that point of view, electronic signatures themselves are unnecessary, but we think that too narrow an approach.

Having said that, I should make it clear that we do not underestimate the very real challenges that the Land Registry and practitioners face in adopting, and adapting to, electronic conveyancing. I am confident, however, that both the Land Registry and forward looking practitioners who are eager to provide the best services for their clients will work constructively with the Government to develop a system that works. That is in everyone's interests, and in the light of those comments I hope that the hon. Gentleman feels able to withdraw the amendment.

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I turn to amendment No. 85. The hon. Member for Stone mentioned the Australian precedent. I appreciate that the Commonwealth of Australia's Electronic Transactions Act 1999 expressly restates Australian common law in relation to the attribution of communications. However, in this Bill, which relates to land registration rather than e-commerce in general, we have adopted a different approach. We have left the general law alone and dealt with only the specifics of land registration. I also note that the Australian statute provides a default position from which the parties may derogate, and that it is concerned with the question of who is bound, rather than whether an electronic communication is acceptable. For those reasons, I do not think that it provides a compelling precedent.

Amendment No. 85 seems to imply that different consequences should flow from the creation of an unauthorised electronic document than flow from the creation of an unauthorised paper document. Such a distinction is completely unacceptable. It is fundamental to the protection of consumers and businesses that established principles of law that already apply to paper transactions should apply to electronic documents.

To explain how the Bill deals with the concern about unauthorised electronic documents that the amendment seeks to address, we should consider—briefly—the story of Mr. Smith, a go-ahead but rather careless conveyancer acting for the seller of Swindon Fields, which, as members of the Committee will remember from previous encounters, is a prime piece of registered land. Mr. Smith intends to transfer the land electronically. He has the details of his electronic signature clearly posted on his office wall. Unfortunately, his senior clerk is the dishonest Mr. Creep, who uses Mr. Smith's signature to authenticate the transfer as agent for the seller. The transfer is then registered at the Land Registry and the purchase moneys disappear into a bank account somewhere else in the world.

As a result, Mr. Smith's client is no longer the owner of the land; the owner is someone who has not paid Mr. Smith's client for it. That is not as it should be. The way to remedy the situation is to apply the long-established principles of rectification of the register and indemnity. Rectification and indemnity allow the Land Registry or the courts to put matters right by applying the general law in a way that is fair to all parties involved. Swindon Fields—the example that I cited—might be the buyer's home, and if so it is unlikely the register would be rectified. Instead, it is likely that the seller would be indemnified by the Land Registry, even though the registry had done nothing wrong.

The remedies of rectification and indemnity are two of the greatest advantages of registered land over unregistered land, and they will apply in the electronic world. Of course, having paid the seller, the registry could then exercise its right of recourse against Mr. Smith, whose carelessness is the root of the problem. As a matter of practice, the registry would do so only if Mr. Smith had been negligent or fraudulent. Innocent,

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competent practitioners have nothing to fear. If they have acted in accordance with the terms of their network access agreement and have taken the sensible steps needed to preserve the system's security, they should not bear the liability for harm caused by the careless, malicious or criminal actions of others.

As indemnity is paid by the Land Registry, we can be confident that the terms of network access agreements will be constructed in a way that will minimise the opportunity for fraudulent behaviour. In creating the terms for these agreements, the registry will, as always, work with conveyancers to create a system that is acceptable to the registry, and to practitioners and their insurers. The rules relating to network access agreements will, of course, be subject to an affirmative resolution procedure.

I have repeatedly made it clear that the Government are determined to work with stakeholders to develop robust and secure electronic conveyancing systems. We believe that that is the way ahead, rather than amendment No. 85. When the same amendment was moved by the Baroness Buscombe in the House of Lords, she stressed the need for conveyancers, consumers and businesses to have confidence in the robustness and security of the electronic conveyancing system. That is right, and the Government are confident that it will be achieved. Equally right is the likelihood that no system will ever be completely fraud-proof. Where we part company with Opposition Members is that we do not conclude from the fact that solutions have not yet been designed that they can never be designed or that practitioners cannot be expected to bear any liability for the use, or abuse, of their own electronic signatures.

10.30 am

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Prepared 13 December 2001