The Minister of State, Ministry of Justice (Mr. Michael Wills): I beg to move,

May I start by saying how pleased I am that the Committee is under your sagacious guidance, Mr. Cummings?

The draft rules may sound arcane, but they go to the heart of one of the most important transactions that any of us undertake, which is the buying of our home. The draft rules are an important building block in creating a system of electronic conveyancing in England and Wales, as envisaged by the Land Registration Act 2002. By electronic conveyancing I mean the transfer and creation of interests in land by electronic documents, signed using an electronic signature, with electronic applications to register them, rather than by paper deeds, signed by hand, with paper applications for registration.

Conveyancing is still largely paper based. The joint Law Commission and Land Registry report, “Land Registration for the Twenty-First Century: A Conveyancing Revolution”, said of the Land Registration Bill, which was subsequently enacted with some small amendments as the Land Registration Act 2002, that its “most important single function” was

Electronic conveyancing was one of the main issues addressed in the preceding consultation document, and almost 80 per cent. of those who responded on the issue supported it in principle. The 2002 Act enabled the Land Registry to set up a land registry network to be used for electronic conveyancing. It provides that a person who is not a member of the Land Registry staff may have access to the network only if authorised by a network access agreement entered into with the chief land registrar. The draft rules make provision for network access agreements.

First, the draft rules identify three different forms of network access agreement, each of which must be in a standard form. The first form is a read-only network access agreement, which allows access to the network merely to retrieve information. To start with, it will be used by citizens to inspect documents in a transaction in which they are involved. Citizens will be given a code and a password, enabling them to access their transaction—and no other—on their own computer. The intention is that when they do so, they will be presented with the text of a simple network access agreement and asked to accept its terms, which will be similar to the terms and conditions or licence agreements for online services, with which I am sure hon. Members will be familiar.

The second form is a signature network access agreement, which will work in the same way as a read-only agreement, but will enable citizens to use an electronic signature to sign documents in the transaction to which they are party. The third form is a full network access agreement, which will be used by professional conveyancers to carry out transactions on the network.

Secondly, the rules set out a number of criteria for each type of agreement. The 2002 Act provides that if an applicant meets the criteria, the registrar must enter into the relevant network access agreement with that applicant. Thirdly, the rules specify certain provisions that must be included in each type of agreement. They are the more important provisions, being either those of particular concern to conveyancers, such as limitation of liability, or those that other parts of the rules assume will be found in the agreement.

Finally, the rules set out the grounds and procedure for the termination of a full network access agreement by the registrar. Read-only and signature network access agreements will have an automatic expiry time built in. The draft rules provide a mechanism for termination only by the registrar, not by the other party to the agreement. That is because the Land Registration Act itself provides that a person granted access by a network access agreement may terminate the agreement at any time by giving notice to the registrar.

The Act also contains a right of appeal to the adjudicator to Her Majesty’s Land Registry—a judicial officer established by the Act—against a decision of the registrar about entry into, or termination of, a network access agreement. Other rules, which are subject to the negative procedure, will be made and laid before Parliament to govern the procedure for such appeals.

The Information Commissioner’s office has been consulted on the rules and is comfortable with the measures that are being taken at this stage of design and development to minimise the data protection risks. It is pleased that the Land Registry has attached importance to data protection compliance in the development of the work and it will continue to provide advice and guidance as the work moves forward. The electronic signatures that will be provided by the Land Registry will comply with the Electronic Communications Act 2000, and the Land Registry itself will be the certifying authority for the purposes of the Act. The signatures will use what is known as public key cryptography, a well-established system that does two things. First, it confirms that a document has been signed with a particular person’s electronic signature and, secondly, it allows for the detection of any changes made after the document has been signed. A draft of the rules was made the subject of a public consultation in the first half of last year, and amendments have been made to the rules to take account of concerns expressed by respondents.

David T.C. Davies (Monmouth) (Con): Has the Minister had to receive outside legal advice to allow the changes to take place? If so, from where did that advice come?

Mr. Wills: I am happy to assure the hon. Gentleman that, of course, the Land Registry has taken outside legal advice from learned counsel on a range of measures. If he is really interested to know the source of that advice, I shall be happy to write to him with the details of which learned counsel were consulted.

Further details are given in the report on the responses to the consultation paper, copies of which have been placed in the Library. An electronic copy is available on the Land Registry’s website. The most common concern expressed by respondents related to the proposed provisions for limitations and exclusion of liability that the rules required to be included in network access agreements. As well as making some modifications to the draft rules to meet many of those particular worries, the Land Registry is in discussion with officials at Her Majesty’s Treasury about setting up a scheme under which ex gratia payments would be made to people other than professional conveyancers who suffer loss in the event of problems with the network caused by an error or fault on the part of the Land Registry. It would benefit the conveyancers’ clients—the actual sellers, buyers, mortgagors and so on.

When the rules are in force and the network is in place, electronic conveyancing by way of the network will be introduced in stages and, to start with, it will be piloted on a voluntary basis. It is, of course, necessary to have the rules in place before the first stages so that professional conveyancers can enter into network access agreements in readiness for undertaking transactions on the network.

Subject to the approval of the Committee, it is planned that, from the middle of this year, it will be possible for certain applications to be made through the network. The first stage of electronic conveyancing, which is planned to start by the end of this year, will involve electronic charges for use in remortgages and second mortgages of registered land. Further rules subject to the negative resolution procedure will make provision allowing for those charges to be created in electronic form using the network. They will also make provisions on how to go about transactions carried out by means of the network. Those further draft rules were the subject of a public consultation that ended in November last year.

In the second stage, which is not due to begin before the middle of 2009, the intention is to introduce other forms of electronic disposition, in particular the transfers of registered land. Again, additional secondary legislation under the negative resolution procedure will be required to allow for those dispositions to be effected electronically. It is unlikely that significant costs for conveyancers and their clients will be associated with network access agreements. In particular, no charge will be made by the Land Registry for entering into such agreements. The cost of network use will be recovered through the fee for each dealing carried out by means of the network.

The draft rules are the essential first step in establishing a Land Registry network to enable electronic conveyancing to move forward, and I commend them to the Committee.

Mrs. Eleanor Laing (Epping Forest) (Con): It is a pleasure for Opposition Members who are small in number in Committee, but large in quality, to serve under your chairmanship, Mr. Cummings.

I was pleased to hear the Minister’s full and serious account of why the statutory instrument is before us today. I was comforted, to an extent, by some of his explanations why certain things will be done as a result of the statutory instrument, if the Committee agrees to it.

The integrity of the Land Registry is vital. I remember examining title deeds when I was a young articled clerk. They were written on enormous sheets of paper in beautiful but unintelligible copperplate, and I had to try to work out what they meant. I expect that future generations of articled clerks will be happy that they do not have to do that, because we will have a more efficient, 21st-century Land Registry, and rightly so. It was interesting though; one could have written novels about the things that one found in those deeds, but that is irrelevant at the moment. We are in favour of bringing the Land Registry into the 21st century, and it is right that it should be electronic, but I have some concerns.

First, will the Minister tell us who was consulted before the provisions were brought before us? I am sure that the usual consultation process has been carried out, but it would be helpful to know who was involved, because there are many so-called stakeholders in such matters. I refer in particular to the Council of Mortgage Lenders. I know that the Minister has been in contact with the council, or it with him, because it forwarded me a letter that it wrote to him. I shall not take up the Committee’s time with going through every point that the council made, but I note that it represents a great many stakeholders.

I have chosen to discuss the council’s concerns because they reflect those of other stakeholders. Future purchasers and people who might, by chance, be involved in a conveyancing transaction once in a while will not have been in touch with the Ministry of Justice, because they will not be particularly concerned about the issue. Certain professional bodies will not be interested in it either, but the council represents large numbers of people who deal with such matters day in, day out.

I draw the Minister’s attention to the CML’s concerns about the provisions in schedule 1 that set out a requirement for potential applicants to enter into a full network access agreement, which the council feels will limit their members’ ability to do that. I understand the reasons for those concerns, and I am sure that the Minister is well able to allay my concerns on their behalf.

Mr. Wills indicated assent.

Mrs. Laing: I am delighted that the Minister will be able to allay those concerns, and I shall take up no more of the Committee’s time by expressing them further. It is important to know who has been consulted and whether the concerns of professional bodies have been considered.

My second concern, not surprisingly, is about data protection. We are talking about an enormous amount of important information about who owns which land and exactly where the boundaries are. All Members of Parliament deal with boundary disputes in their constituencies from time to time. Such disputes often involve asking whether the council, the health service or a private individual owns a piece of land. If a private individual owns it, there may be questions about which of their grandchildren has the right to say whether it may be used for housing, hospitals or playgroups.

An enormous amount of information is held by the Land Registry, and rightly so, but recent occurrences regarding the Government’s ability to hold data safely do not give me confidence that the way in which data are held and administered by public bodies is good or stringent enough. Various problems have arisen, and the Minister knows at least as much as I do about them, if not more. Information has been lost or sent to the wrong place—imagine the chaos. However, if the information in the Land Registry were lost or misused, it would be a total disaster for the whole basis of today’s system of land tenure in England and Wales.

Have all precautions been taken to ensure that there is back-up for every piece of data to be held under the system? What if something goes wrong? People make mistakes, no matter how careful they are or how stringent the rules. Systems sometimes fail—let us not even think about what British Airways and BAA are going through at the moment. However, they are dealing with a systems failure that will, we hope, be completely put right within a few weeks. If there was a systems failure of anything like that magnitude in the Land Registry, there would be chaos in how land is held. Millions of people would have a significant stake in what had gone wrong.

I am looking for assurances from the Minister that there is back-up, that proper systems are in place to ensure that data are carefully and properly held and that there will be safeguards against instances such as those of recent months—many people are concerned about how public bodies and public employees deal with data.

Having expressed those concerns, which I am sure that the Minister will be able to allay, I shall not take up the Committee’s time any further.

David Howarth (Cambridge) (LD): It is a pleasure to serve under your chairmanship, Mr. Cummings.

Like the hon. Member for Epping Forest, I stress the importance of the security and integrity of the Land Registry. The important point to grasp is that, in the law of England and Wales, registration is title. Registration is not merely a record or evidence of title—it is title. That makes the integrity of the register extremely important. I hope that the Minister is right about the instrument being an important step towards something that, if achieved, will be of great convenience, namely electronic conveyancing, because the reduction in transaction costs will be of great economic benefit. However, we must be aware of the risks of electronic transactions—risks faced throughout the entire economy as we put more and more of our transactions online.

I have only one policy query; then I have a couple of technical, legal comments, which I do not expect the Minister to answer, but I hope he will bring them to the attention of the appropriate officials. The policy query is a result of how consultation is undertaken these days. My guess is that the one group of people not to be consulted, because they are not represented by lobby groups or official bodies, is the small number of people who decide that they want to do their conveyancing themselves. My guess is that they did not take part in the consultation; indeed, at this point a lot of them do not know that they are in such a group, because if people do their own conveyancing, they do not do it many times during their life.

I would like assurance from the Minister that the form of the rules will not pose serious barriers to people who want to do their own conveyancing. Under the current structure of the rules, it seems that individuals will get access to the network only via a professional organisation or person. Full network access is for the solicitor or registered conveyancer, and individuals get access through that person or organisation. It would be a shame if setting up the rules on that assumption raised barriers to individuals who do their own conveyancing. I do not want the creation of the electronic network to cause a barrier to entry or a reduction in competition. People who do not want to pay lawyers or registered conveyancers, who want to do it for themselves, should be able to carry on doing so. That is my only query on the policy underlying the rules.

I have two technical legal points about how the rules have been drawn up. The rules give a basis for the agreements that will be drawn up later. I want to make two points about how that will be done, both of which relate to attempts to exclude liability—something that has been a vexed question throughout the consultation. The first point, in paragraph 13 of schedule 2, is about the liability of the registrar. It says that agreement shall include:

That is fine as far as contractual liability is concerned; it works under the existing Contracts (Rights of Third Parties) Act 1999. However, as a matter of technical law, and of the law of negligence, it is not possible to exclude entirely the possibility that actions by the Land Registry might be taken by the court as amounting to an assumption of responsibility. The current drafting of the paragraph makes that clear and says that the registrar is involved

Other things done by the defendant, not through an agreement but in their general activities, may give the impression to the outside world that they are assuming responsibility for the economic interests of people who lose because of negligence. That needs to be taken into account when the agreements are drafted. We should not attempt to go further than is possible, given how the law works.

The second technical point—all non-lawyers should go to sleep at this point.

Siobhain McDonagh (Mitcham and Morden) (Lab): How much will it cost us?

David Howarth: I am an academic lawyer so it costs nothing; it is free legal advice.

My second point has to do with the word “directly” in paragraphs 15 and 17. In both cases, the rules that I am talking about involve costs or expenses for harm arising directly from something that somebody else did, both in contract law and in tort. The problem with the word “directly” is that it has at least four meanings. Its meaning in contract law is different from its meaning in tort law, and within each of those there is dispute about what it means. I do not have time to go through exactly how that works—it takes about a term of lectures to explain. Suffice it to say that in tort and compensation law, the question is about whether “directly” has to do with the consequence of the intervening acts of other people, or whether it is simply about forseeability—what was foreseeable at the time. Some people think that it means one thing, some the other. In contract law there is a similar dispute—it is not quite the same—between those who believe the issue to be about what was foreseeable at the time, and those who think that it is about what was agreed.

I hope that the people who eventually draft the agreement will bear in mind that we cannot predict which of those various theoretical possibilities the courts will follow in 10 or 20 years’ time. I could tell them which theories are now popular in the courts or in academia, and which are supported in my own academic work, but I fear that would not be relevant to the practical problem, which is about how to draft the agreements so that they work over an extended period of time.

With those technical comments, and one serious policy question, I am, like the hon. Member for Epping Forest, happy for the measures to go through.

Mr. Wills: I am grateful to Members for their contributions.

I was asked about the number of consultations. There is a long list; I refer Members to the compelling document issued by the Land Registry, “e-conveyancing: A Land Registry Consultation Report”. I shall not try the patience of the Committee by reading out all the responses, but I shall generously donate that handsome tome to the hon. Member for Epping Forest at the end of the sitting and she can peruse at her leisure the list of all those consulted.

The hon. Lady raised important questions about the Council of Mortgage Lenders, and I very much agree with her comments about its importance in the process. It might help the Committee if I rapidly run through in a little more detail its concerns and our response to them.

The council has expressed concern that the draft rules would prevent fair access to the electronic conveyancing network. The Land Registration Act 2002 provides that the registrar must, on application, enter into a network access agreement with the applicant if the applicant meets such criteria as the rules would provide. The draft rules provide for six criteria. The concerns of the Council of Mortgage Lenders focus on two of them: the qualified persons criterion and the insurance criterion.

The council was worried about the registrar’s power to update network access agreements and there were concerns about time if the changes affected IT processes. In terms of the qualified person criterion, the concern relates to the interpretation of paragraph 1(1)(c) of schedule 1 to the draft rules, to which the hon. Lady alluded. The provision reads that the applicant is

Paragraph 1(2) defines a “qualified person” for the purposes of the paragraph to include solicitors, licensed conveyancers, barristers and notaries public. The intention is that in the case of a body corporate, other than a limited liability partnership, it is sufficient that the qualified person’s relationship to the body corporate is one of employer or member of staff or an officer of the body corporate.

It has been argued that the phrase

means that only if the qualified person is an officer of the body corporate can the body corporate meet the criterion. We do not accept that argument. We believe that the effect is to widen the criteria in the case of bodies corporate, to include officers. The phrase

is used to make it clear which officers are being referred to.

Schedule 1 to the Interpretation Act 1978 provides that

By virtue of section 23(1), the provision applies to subordinate legislation, so the effect of the first part of paragraph 1(1)(c) is, as was explained in the consultation paper on the draft rules on page 63, that the applicant must be

The provision had a slightly different form in the consultation paper as it did not refer to staff or a limited liability partnership, but that is not relevant for present purposes.

It has also been suggested that the Interpretation Act 1978 does not apply because the provision contains a contrary intention. That is not the case because, as I have explained, the provision is including officers not imposing a limitation. Any other interpretation would not be sensible because it would involve treating bodies corporate differently from other persons. The provision does not apply to an officer of a limited liability partnership because paragraph 1(1)(b) of schedule 1 provides that the criterion is met if a limited liability partnership has at least one member who is a qualified person. As the hon. Lady will recognise, that will almost certainly be the case in almost every circumstance that I can imagine.

I turn to the insurance criterion, which is that an applicant should, subject to exceptions, have professional indemnity insurance or its reasonable equivalent. The Council of Mortgage Lenders considers that the provision could be a barrier for lenders. However, we have included it because, at least in the short and medium term, requiring—subject to exceptions—that the applicant for a full network access agreement meets the criterion that they, or certain other persons, hold professional indemnity insurance, or a reasonable equivalent if not required by indemnity rules, will help to secure adequate insurance against potential liabilities in connection with use of the network. The liabilities covered are likely to be mainly in respect of their own clients. Longer term, there may be a need to provide for insurance to meet liability to third parties, including the registrar—for example, for breach of contract—but it is difficult to see how insurance could be obtained at a reasonable premium until the network is running and there is evidence to support a claims history and trends are available.

However, paragraph 3(2) of schedule 1 exempts certain applicants from meeting the indemnity insurance criterion. That provision was added when the Land Registry’s consultation brought to light difficulties that the criterion might create for certain applicants, such as lenders. I understand from the Land Registry that it looks unlikely that reasonably equivalent indemnity insurance will be available to lenders or any of their qualified persons at least for a while, which means, of course, that it will be impracticable for them to meet the criterion. In those circumstances, at least where they are of such size that they are likely to be able to meet any liability arising from their use of the network, it is reasonable to assume that lenders will be able to satisfy the requirements of rule 3(2). The test in 3(2) is an objective one—it is not, as some have suggested, a matter of the registrar’s discretion. I hope that provides the hon. Member for Epping Forest with some reassurance.

The hon. Lady raised some crucially important questions about data protection, which I want to address in some detail. First, it is important to recognise that there are no such things as secure systems—whether paper or electronic—in all circumstances. There is no absolute guarantee. However, I accept her concerns and those raised by the hon. Member for Cambridge—the integrity of the Land Registry is fundamental. We cannot be too vigilant in data protection. I assure the Committee that the Land Registry places enormous importance on that. I will briefly run through the protections that have been put in place, because it is important for the Committee to hear them.

The network will be a closed system. Schedule 5 to the Land Registration Act 2002 provides that a person outside the Land Registry can

a network access agreement. It goes on to provide that rules may prescribe the criteria that applicants must meet before the Land Registry has to enter into a network access agreement. That is what the rules do, so there is already a first hurdle to get over.

However, we accept that personal data will be kept on the network. It is important to remember that the Land Registry has, for many years, held databases that include personal data. It is not an entirely new obligation created by the provisions. Security will be protected in several ways. First, there are the criteria for being an applicant with whom the registrar is obliged to enter into a full network access agreement. The first criterion is that, except in the case of a Department, the applicant is a qualified person, such as a solicitor or as a staff member, employee, partner or officer who is such a person. That criterion, and the Department exception, take account of the need for confidentiality of data kept on the network. Qualified persons and civil servants are subject to disciplinary and regulatory codes, which will usually be breached if private information is not kept confidential.

The third criterion is demonstrating to the reasonable satisfaction of the registrar an ability to comply with the system and security requirements set out in the agreement. There is then the fact that the grounds for termination of the full network access agreement include the subscriber—the applicant with whom the registrar enters into such an agreement—ceasing to be a person who meets all the criteria for entry into such an agreement. That would include the subscriber no longer being or employing a qualified person or failing the systems and security requirements.

Furthermore, under the terms of a full network access agreement not to be prescribed by the rules, but which we shall be drafting soon, the subscriber may authorise members of staff to use the network on his or her behalf. However, those users will only have a level of access commensurate with their qualification and experience, and subscribers will be obliged to supervise such users. The latest draft of the full network access agreement provides that each party warrants that when using the network, it will fulfil its obligations under the data protection legislation in respect of the management and processing of personal data and it will not divulge any personal data received by it to any person.

It is also important to register the fact that, because of the importance attached to data protection, the Land Registry consulted the Information Commissioner’s office at an early stage and has taken its views fully into account. It is satisfied with the steps that have been taken to minimise data protection. There will continue to be close contact with that office precisely to ensure that the concerns voiced by the Committee will be addressed.

Hacking is another issue. Obviously, data are vulnerable from various sources and the Land Registry takes that very seriously. All its information systems meet the international security management standard ISO 27001, and they are also subject to a comprehensive and robust auditing and monitoring process. The Land Registry commissions independent penetration testing firms to attack its information systems, using the latest hacker techniques. It is a continuing process because such techniques develop month by month. Any weaknesses that are detected are dealt with in priority order. There is then retesting to ensure that no residual weakness is present. Those penetration attacks will be applied to the electronic conveyancing network when it is established.

I hope that I have reassured members of the Committee about the importance that is attached to data protection in such matters. The Committee will be aware that after the regrettable incidents that came to light at the end of last year the Government have set up several reviews to look further at processes within Departments and elsewhere. Any lessons from those reviews will be taken into account by the Land Registry as it moves forward.

The hon. Member for Cambridge referred to the important matter of do-it-yourself conveyancers. He was right to do so, and I congratulate him on his concern about a small number of people for whom the process is extraordinarily important. I hope that I can reassure him by saying that paragraph 7 of schedule 5 to the Land Registration Act 2002 imposes on the chief land registrar a duty

the Act does not say “or she”, but it should—

It is, therefore, the registrar’s intention to make such a provision in due course. He will certainly have to do so before electronic conveyancing can be compulsory—we have no plans for that, but it would have to be case if there were such plans.

At this early stage, the electronic conveyancing system is still being introduced incrementally. It will be some time before the full range of transactions can be carried out on the network and, for the time being, all of them can continue to be carried out on paper. At this stage, the Land Registry’s energies are best devoted to building the basic system and increasing the range of transactions that can be carried out electronically. The assistance that the Committee wants for do-it-yourself conveyancers is not a priority now, but they will be catered for at a later stage of the incremental development.

I thank the hon. Member for Cambridge for his generous donation of free legal advice—as he told my hon. Friend the Member for Mitcham and Morden. I shall be asking officials to consult him on the technical matters that he raised. In the meantime, I am grateful to him for his advice.

I hope that my answers, although slightly lengthy, have reassured members of the Committee on the points on which they sought reassurance, and that we can now move forward to an important stage in the development of electronic conveyancing.

Question put and agreed to.

Resolved,

Committee rose at nine minutes past Three o’clock.