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Baroness Scotland of Asthal moved Amendment No. 6:

The noble Baroness said: My Lords, in moving Amendment No. 6, I shall speak also to Amendments Nos. 15 and 17 to 20. They are all drafting amendments.

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Amendments Nos. 6 and 15 correct Clause 82 and paragraph 6 of Schedule 6 respectively. The intention is that the rules to be made under Clause 82(1) may provide for determination of a freehold estate to be dependent on the meeting of registration requirements rather than for the effect of determination to be so dependent. The remaining four government amendments are of greater substance and bring the procedures for restraint orders in four criminal statutes into line with the Bill.

Where a restraint order is made under the Criminal Justice Act 1988, the Drug Trafficking Act 1994, the Terrorism Act 2000 or the International Criminal Courts Act 2001, and it affects registered land, it can currently be protected by means of a caution against dealings or, if the situation warrants, an inhibition. The Bill abolishes cautions against dealings and inhibitions. As restraint orders under the statutes affected prohibit dealings with the land, the appropriate mechanism under the Bill will be a restriction. I beg to move.

On Question, amendment agreed to.

Clause 91 [Electronic dispositions: formalities]:

Baroness Buscombe moved Amendment No. 7:

    Page 33, line 15, after "certified," insert—

"( ) each electronic signature was made by, or with the authority of, the person whose signature it purports to be,"

The noble Baroness said: My Lords, the amendment is designed to encourage the Minister to reassure conveyancers of their position in regard to electronic signatures where the signature is misused.

The system needs to be secure to retain the confidence not only of the public in their house-buying processes but of commercial enterprises and inward investors buying factories and offices in England and Wales. Therefore, individuals, firms and companies should not be liable where authority was not given.

There are no available secure operating systems for personal computers, and the security risks to which they are vulnerable are notorious. The risk of surreptitious copying of security information from a personal computer, or its subversion to carry out transactions other than those apparent to, and intended by, the user, are risks which firms of solicitors are in no position either to eliminate or to bear.

For these reasons, we would regard it as unacceptable for conveyancers to carry the risk of their electronic signature keys being obtained and misused by third parties. The use of presumptions in statutory terms and their contractual equivalents should, in our view, be ruled out by clear statutory language, as we have proposed, the effect of which should be that it is for the relying party to prove that a disputed signature was made by, or with the authority of, the purported signatory.

If technology is developed which can effectively eliminate the risk of the user being impersonated, then relying parties will find their burden of proof easy to discharge. We believe that currently available technology is very far from succeeding in this

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objective, even having regard to proposals for the use of smart cards or biometric identifiers. Relying parties face real risks in accepting electronic signatures, which may amount to undetectable forgeries, but it would be wrong as a matter of policy to allow them to solve the problem by transferring the risk to purported signatories.

Where relying parties are major institutions, such as the Land Registry, other government agencies or financial institutions, they are far better placed than firms of solicitors and licensed conveyancers to promote the development of technology to eliminate the risks. That is a further reason for ensuring that they continue to carry those risks.

In essence, will the Government reassure us today that, in the event there is a mistake on the Land Registry as a result of the misuse of an electronic signature, the Land Registry will indemnify the solicitor or licensed conveyancer against the losses incurred as a result of that mistake, and that the right to recourse will not be pursued by the Land Registry against the solicitor or licensed conveyancer concerned unless they are at fault? Further, can the Minister confirm that the onus of proof would be on the Land Registry to show fault? I beg to move.

Baroness Scotland of Asthal: My Lords, I understand and sympathise with the concerns expressed about the possible consequences of unauthorised misuse of electronic signatures, which is the issue that lies behind the amendment.

Two aspects need to be considered. First, if a transaction were completed and registered on the basis of an unauthorised electronic document, there could be grounds for rectification of the register and for indemnity from the Land Registry for the victim. Secondly, a conveyancer who has acted in accordance with the arrangements for access to the network, and who has taken the sensible steps needed to preserve the system's security, should not bear the liability for harm caused by careless, malicious or criminal action taken by others. I am very happy to give the reassurance that the noble Baroness seeks.

These practices are no more than the application to electronic transactions of established principles that already apply to transactions in paper form. Under the present law and under this Bill, where indemnity is paid, the Land Registry has rights of recourse analogous to rights of subrogation against the wrongdoer. When the then Land Registration Bill was passing through the House in November 1996, the noble Baroness, Lady Trumpington—who, regrettably, is no longer in her place—said on behalf of the then government that,

    "it is neither the practice nor the intention of HM Land Registry to resort to its rights of recourse against those who are neither fraudulent nor negligent. It"—

that is the power of recourse—

    "is a power that will continue to be used only in bad cases".—[Official Report, 18/11/96; col. 1166.]

This practice will continue.

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That Bill became the Land Registration Act 1997. I am happy to confirm that the principles which have guided the Land Registry in relation to the paper system will continue to operate in the new world of electronic conveyancing.

In particular, the Land Registry also accepts that the burden lies with it to satisfy itself that there has indeed been a "bad case" of fraud or negligence before seeking recourse against a conveyancer. The proper security precautions that will be needed when electronic conveyancing is introduced will have to be discussed with conveyancers and their professional bodies when drafting the network access agreements, which will also have to be approved by Parliament.

I have repeatedly made it clear that the Government are determined to work with stakeholders to develop robust and secure electronic conveyancing systems. But having said that, I do not believe that the amendment is either timely or necessary. It is untimely because the details of electronic conveyancing and electronic signatures have not yet been worked out. Only the most generic conditions should be included in Clause 91(3). It is unnecessary because, if such a condition were to prove necessary—which I doubt—it could be added under the rule-making power in Clause 91(3)(d). I hope that in the light of my reassurance and the comments that I have made the noble Baroness will feel able to withdraw the amendment.

Baroness Buscombe: My Lords, I thank the Minister for her very full and reassuring response. I have pleasure in withdrawing the amendment. I beg leave to do so.

Amendment, by leave, withdrawn.

[Amendment No. 8 not moved.]

4 p.m.

Baroness Buscombe moved Amendment No. 9:

    Page 46, line 10, leave out from "occupation" to end of line 11.

The noble Baroness said: My Lords, in moving this amendment, I shall speak also to Amendment No. 14.

These amendments were debated at some length in Committee and again on Report. Again, after much thought and discussion, we want to urge the Minister to reconsider this point.

A person in actual occupation of land who possesses an interest under a trust of land is entitled by virtue of his occupation to protection in respect of that interest. Paragraph 2 of Schedule 1 and paragraph 2(a) of Schedule 3 withhold that protection if the person in actual occupation is entitled to an interest under a strict settlement. When we moved the amendment in Committee and on Report, we saw no justification for the discriminatory treatment of the beneficiary under the strict settlement, and we see none now.

We accept that under the existing legislation interests under strict settlements do not constitute overriding interests. But, as the Law Commission points out in paragraph 2.69 of its Third Report on Land Registration of 1987, the distinction in the treatment of beneficiaries under strict settlements and

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beneficiaries under trusts for sale—now trusts of land—was probably unintended and was in principle unjustifiable. In the recent consultative document (at paragraph 5.63) the Law Commission and the Land Registry both "readily accept" that rights under strict settlement should be capable of existing as overriding interests. We agree wholeheartedly with that view.

As I said on Report, there is a further important consideration to which the Law Commission adverts in its 1987 report. The strict settlement was the classical type of landed settlement designed to preserve family estates from generation to generation, and in this context the need to protect the beneficial interest of persons in actual occupation will seldom, if ever, arise.

However, one of the consequences of the 1925 legislation—one that was not appreciated at the time—has been the unintentional and informal creation of strict settlements in circumstances where the machinery of the Settled Land Act 1925 is inappropriate and often not properly implemented. It is in this context that the exclusion of beneficiaries under strict settlements who are in actual occupation of land is capable of operating unjustly.

I make no apology for adopting an example similar to the one that I used on Report. A widow entitled to a life interest in the former matrimonial home under the will of her husband will be entitled to protection if in actual occupation only if the property was subject to a "trust for sale". In the absence of this magic formula—which may well have been omitted in a home-made or informal will—the widow will be entitled to no protection. When she is evicted, it will be cold comfort to her to know that she is one of the "comparatively few people" who will be affected by the abandonment of the Law Commission's recommendation to extend the protection to persons in her position. The fact that a widow under a strict settlement unintentionally created by a home-made will is one of a diminishing band is not a good reason for depriving her of the protection that the law accords to someone with almost identical rights under a trust of land.

At the risk of detaining the House further, perhaps I may offer a second example to amplify the point. A man of modest means whose main asset is an ex-council house bought under the right-to-buy legislation makes a home-made will stating: "I will give my house to my wife for her lifetime and after her death to my son and I appoint my son my executor". He dies before 1997, so there is an accidental strict settlement, and the son, without legal advice, and therefore without the error being spotted, takes a grant of probate and gets himself registered as proprietor without any restriction on his powers of disposition being entered. After the new land registration legislation comes into force, the son, living with his mother following a divorce, mortgages the property for an advance to start up a business. He tells the bank, "My father left me the house, but of course I let my mother stay there", and the bank accepts that—unwisely perhaps, but such things happen.

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Let us suppose that the son's business then goes bust, as so often happens, and the bank seeks possession with a view to selling the property. The mother would have been safe if the land had been held on trust for sale/trust of land, but as the Bill stands she has no defence to the possession claim, because her interest is under a Settled Land Act settlement, and her occupation of the property does not suffice to make it binding on the bank. A mortgage is more likely to create a serious problem than a sale, because even if the mother is not actually consulted on a proposal to sell, she will find out about it on completion and be able to do something then; whereas a mortgage may well not come to light until after the money has been lost and/or the son has absconded. I beg to move.

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