Waste paper?

The brave new world. No paper missives. No paper dispositions. No paper standard securities. No paper charge certificates. No paper discharges. No paper land certificates. No paper Form 2s. No paper Form 12s. No paper anything: virtual everything. Virtual missives, virtual survey reports, virtual deeds, virtual forms, virtual settlement, virtual money. Sally Seller’s solicitor, Susie, sits at her screen surveying cyberspace. Barry Buyer’s solicitor, Bertie, sits at his. Also online is a cast of thousands, including Sally’s bank (for discharging the old security), Barry’s bank (for the new secured loan), the Registrar of Companies (for registration of company charges), the Inland Revenue (stamp duty land tax), the local authority (property enquiry certificates, comfort letters and so forth), the Keeper and no doubt the Pope. Sally and Barry themselves will be online too, virtually dating. And the Keeper? Well, in the brave new world the Land Register would be not merely paperless but largely humanless. What Barry Buyer’s solicitor would be communicating with would not be a human being but software.

Automated registration of title to land: ARTL.

Will it happen? If so, will it happen soon? If it is to happen, what might be needed in the way of legislation?

The current plans

At the moment, the pace is being set by the Keeper. Indeed, without fuss, and almost without anyone realising it, the journey to electronic conveyancing has already begun in that titles in the Land Register are already held in electronic form. A land certificate is merely a paper transcript of the electronic title sheet. The next step would build on that by allowing the transfer of electronic titles by electronic means. There would be two main elements in this reform. The first would be that digital deeds could be used instead of paper deeds. The second would be that the registration process itself would become almost humanless – automated – in certain types of case. But this would not happen in all types of case, but only in standard – vanilla flavour – transactions.

Each title sheet in the Register is divided into four parts: (A) Property, (B) Proprietorship, (C) Charges and (D) Burdens. The idea is that transactions involving changes to (A) or (D) would continue to be paper transactions handled by staff, because these are more complex. But of course most transactions involve changes only to (B) and (C), and so the vast bulk of transactions would be handled by the software – ARTL.

ARTL would be based on the principle of “tell me – don’t show me”. (“Me” is the Keeper.) At present, registration is a mix of “show me” and “tell me”. For instance, suppose the seller is the executor of the dead owner. At present, the Keeper will want to see the confirmation (or certificate of confirmation). But for many other things he will usually rely on the say-so of the applicant’s solicitor. It is up to him when to ask for evidence. But under ARTL everything would be “tell me”. Thus if the seller is (or claims to be) the registered owner’s executor, under ARTL the software would simply accept that assertion.

Missives are not the concern of the Keeper. If we are going to have paperless missives, someone else will have to push that forward. But the advent of ARTL would certainly increase the pressure for paperless missives.

Is legislation needed?

Clearly some of these changes need no legislation at all.

Some firms already promote digital communications – with their clients, with other firms of solicitors, surveyors, and so on. As far as pure communication is concerned, the law has never imposed any requirements of form. Some firms already have genuinely paperless files. When paper documents such as physical letters arrive they are scanned, and the paper itself is then binned, unless, of course, it is a formal document. It is likely that paperless files will become more common, and that this will happen not only because of firms’ own wish to boost efficiency but because of pressure from clients, banks, other professionals, who will increasingly expect to be able to communicate in this way.

But are there barriers which are not just natural conservatism? Yes.

Are dispositions required by law?

There is an argument that dispositions ceased to be necessary as a result of the Land Registration (Scotland) Act 1979, which says that the Keeper will register a title on production of such evidence as he regards as satisfactory. If that is right, simple email consent (no doubt protected by a digital signature) is all that is needed anyway. No legislation would be required. Moreover, since the logic of the Land Register is that title flows from the Register itself, once Barry Buyer is registered as owner, he is owner, and whether there was a disposition or not becomes irrelevant. Indeed, already some solicitors simply bin the disposition once the title has been registered.

The issues here are tricky, and more than one view of the law can be taken. But the cautious view is that matters are not so simple. The Requirements of Writing (Scotland) Act 1995 – which is later than the 1979 Act – says that writing is required for the transfer of land. And when it says “writing” it is fairly clear that what it contemplates is physical writing, whether on paper, parchment or the backside of a cow, and not digital writing. The result is that if the Keeper were to register Barry Buyer as owner without there being a physical disposition, the result could be that the Register would be inaccurate. (There is a view that even if that is so, it would not matter, because Sally Seller could not object. At this point the debate gets really complex.) Similar considerations apply to standard securities and other deeds that conveyancers know and love.

Authorised by section 8 order?

The Electronic Communications Act 2000, section 8 states that primary legislation can be amended by statutory instruments made under the Act for the purpose of promoting electronic commerce. The wording of section 8 is rather odd in many ways. But it is broad enough to allow a section 8 order to be made amending the 1995 Act so as to permit dispositions (and other deeds affecting title to land) to be digital rather than physical in form. This is significant, because it is obviously much easier and quicker to pass a statutory instrument than primary legislation.

No deeds at all?

Many take the view that deeds themselves should be got rid of, and that digital deeds are merely a half-measure, a mere relic of a physical system that the digital revolution is supposed to supersede. No half-measures: one should go all the way, and embrace the logic of the digital revolution.

There are three counter-arguments. The first is pragmatic. Getting rid of deeds would, at least for the time being, be a bridge too far. The leap would be too big for many people. The second is that there is also the worry that getting rid of deeds might entail changes to the law of a kind that might be extensive and hard to foresee. The third is that logically one cannot dispense with dispositions, since a disposition is definitionally merely a de praesenti consent to transfer. Any data packet consenting to transfer is (it might be argued) definitionally a disposition. The same would be true, mutatis mutandis, of other types of deed. The word “deed” is ambiguous. In one sense it is a set of written words. In another sense it is a consent or act of a certain type. The words are the body and the consent the soul. You can get rid of the body but you still need the soul. Any data packet that does the job of a deed is, it may be argued, a deed.

Is delivery needed?

There is an interesting argument to the effect that (a) the common law requires the disposition to be delivered, (b) digital deeds cannot be delivered, so (c) the common law excludes digital dispositions.

That argument might not signify much if the law were to be changed by primary legislation. Primary legislation can override common law. But a section 8 order is secondary legislation. Whilst a section 8 order can amend primary legislation, it cannot change common law. That limitation is clear from the way s 8 is worded.

The question of whether a delivered deed is a requirement of common law is actually an extraordinarily difficult one, with its roots deep in the subsoil of our system of private law. But the true analysis seems to be that whilst it probably is a common law requirement that a disposition must be delivered, a digital disposition can in fact be delivered. A physical deed is delivered to the disponee physically, and a digital deed is delivered to the disponee digitally. The underlying idea is essentially the same. Digital delivery to the disponee of a digital deed is not, we consider, some sort of constructive delivery, but real delivery. The specific means of delivery is new, but the core conception is unchanged.

Registration by software lawful?

There might be an argument that registration by software – ARTL – would be unlawful because in terms of the 1979 Act it is the Keeper’s responsibility to keep the Register (see, for example sections 1(2) and 6(1)). Although primary legislation could change that, a section 8 order could not. A section 8 order could authorise digital deeds, but could not bring about any fundamental change in the Keeper’s statutory responsibilities.

This argument needs to be taken seriously. Properly considered, however, it can be rejected – provided certain conditions are met. Direct digital access to the Land Register creates certain dangers. These are (a) incompetence and (b) fraud. So access would have to be limited to qualified persons – essentially solicitors. Solicitors have some knowledge of the law of Scotland. Solicitors are insured. And solicitors are subject to a system of professional regulation and discipline.

With ARTL the key idea is “tell me – don’t show me”. For instance, if the Form 2 is completed by a solicitor, and the solicitor says that the registered owner is dead and Sally Seller is the confirmed executor, it may be reasonable to accept that statement at face value. But what about DIY conveyancing, in which the assertions are made solely by Sally? Can one have reasonable confidence that Sally is honest? If she is honest, can one assume that she is familiar with the law and practice relating to the confirmation of executors? Could one trust accountants to know that, or bank employees? Or English solicitors? And confirmation of executors is just one example. There would be a serious danger that the Keeper would be acting contrary to his statutory responsibilities if he threw ARTL open to all and sundry.

In this connection the fact that title flows from the Register is particularly significant, for later detection that the data inserted by Sally Seller was wrong cannot change history: title will have passed to Barry Buyer. The transfer may or may not be reversible when the true facts come to light, but even if it is reversed the reversal will not be retrospective.

Of course, this view – that access to ARTL should be restricted – may not be popular with certain commercial interests, or with politicians or the consumer lobby, all of whom may regard it as an attempt to create or maintain a solicitors’ “monopoly”.

Land certificates and charge certificates

A section 8 order could authorise the use of digital land certificates and charge certificates instead of paper ones. (Whether such certificates have a long-term future in land registration is another matter. For the present, the 1979 Act, section 5(2) and (3) requires their use and a section 8 order could not change that.)

Who would sign?

One of the largest issues is: who would sign? Digital deeds will need digital signatures. If members of the public have digital signatures, no problem. But it seems that it will be some time before digital signatures are widely held by the public.

If few people have digital signatures, then either (a) e-conveyancing is only for the few, or (b) everyone could use digital deeds but they would have to be digitally signed, on behalf of the party, by someone else who does have a digital signature: in practice, probably the party’s solicitor. Sally Seller authorises Susie, her solicitor, to sign for her. That means that Sally must sign a mandate. This would be, in some ways, a backward step, for it would replace one physical deed (the disposition) with two deeds (the paper mandate signed by Sally and the digital disposition signed by Susie). But unless and until digital signatures are widely used by the public there is no alternative. Such mandates may create all sorts of potential practical problems, the details of which will not be gone into here, except to say that there would have to be a robust system for ensuring that the deed is conform to the mandate, and that the mandate itself is preserved. Perhaps we need to have a vision similar to that shown in New Zealand where the government has provided every citizen with a digital signature.

One particular issue is of such importance that something must be said about it. Once upon a time remortgages were rare. Today, as everyone knows, remortgages make up a large proportion of the total business at Meadowbank House. Now in a remortgage borrowers can use their own solicitors. But most don’t, in order to keep costs down. So the only solicitor involved is the lender’s solicitor. In the digital future, the borrower may not have a digital signature. But how can the solicitor for the lender sign for the borrower? Is this not to act for both sides? In principle there is nothing to stop a borrower giving a specific mandate to the solicitor for the lender authorising that solicitor to adhibit a digital signature to a standard security on behalf of the borrower. This is merely a matter of authority and the law of agency. The Law Society of Scotland might consider it necessary to issue guidance on this question and the terms of any mandate should be carefully drawn (using plain language to prevent any possibility of misunderstanding) to avoid the implication that a solicitor/client relationship between lender’s solicitor and borrower exists.

Compulsory e-conveyancing?

Some would like to see e-conveyancing made compulsory. We would have reservations about that. But at all events, the legal point to be made is that such compulsion could not be effected by a section 8 order. The 2000 Act is quite clear on this: section 8 orders can only be used to permit. They cannot be used to compel. If e-conveyancing is to be made compulsory, that could be done only by primary legislation.

Other registers

There are no plans to change the Sasine Register. Of course, that register is gradually becoming of historical interest only. But there are, we understand, plans to change the Books of Council and Session, which is a register of great importance, even though it is not much used in residential conveyancing. The introduction of the Land Register has increased its importance to conveyancers somewhat, for it is sometimes useful to ensure that the deed itself is publicly registered, as happened with the Sasine Register.

At the moment the Books of Council and Session are regulated by section 6 of the 1995 Act, and like the rest of that Act it is pretty clear that only paper documents are contemplated. But this could be changed by section 8 order. The result would be that not only could digital deeds be registered, but the Keeper could issue digital extracts. But even if the registered deed were digital, the Keeper should still be required, if so requested, to issue a paper extract. The reason is that one can easily imagine circumstances where a digital extract might cause problems, as, for example, where one needed the extract as a court production in some faraway land where all documents are still paper documents.

Westminster or Holyrood?

All necessary legislation, whether primary or secondary, could be effected in Edinburgh under devolved powers. The only exception seems to be section 105 of the Consumer Credit Act 1974, which provides that “any security provided in relation to a regulated agreement shall be expressed in writing. Regulations may prescribe the form and contents of documents”. That seems to contemplate physical documents. So if there were to be primary or secondary Scottish legislation enabling standard securities to be done by digital deed, that legislation would not apply to standard securities in respect of regulated consumer credit agreements: the area of consumer credit is not devolved. However, the 1974 Act is subject to a general review at present.

Stamp duty land tax

Stamp duty on conveyancing deeds was abolished on 1 December 2003 and replaced by stamp duty land tax. It is said that the Inland Revenue is aware of ARTL and wishes to be co-operative. Of course, this area is reserved, not devolved. The Land Registration Act 2002 contains enabling provisions for e-conveyancing south of the border, so one hopes that there will be no insoluble problems as far as the Inland Revenue is concerned.

Missives

The 1995 Act not only requires conveyancing deeds (e.g. dispositions) to be in writing. It also requires contracts relating to title to land to be in writing, and here of course we are talking mainly about missives. And as has been mentioned, when the 1995 Act talks about “writing” there can be little doubt that it means physical writing.

Article 9 of the E-Commerce Directive (2000/31/EC) provides that “member states shall ensure that their legal system allows contracts to be concluded by electronic means”. The deadline for transposition of the Directive was 17 January 2002. It seems that, thus far, Article 9 has not been transposed into Scots law. The article contains certain exceptions. One is “contracts that create or transfer rights in real estate [sic] except for rental rights [sic]”. What does this mean?

The French reads: “les contrats qui créent ou transfèrent des droits sur des biens immobiliers à l’exception des droits de location”. The German reads: “Verträge, die Rechte an Immobilien mit Ausnahme von Mietrechten begründen oder übertragen”.

The reason we give these versions is not only to show off. The fact is that different versions of EU legislation seldom say quite the same thing. Sometimes it is the English text that is the odd one out. And it must be borne in mind that the English text is usually done in terms of English law, so that for the Scots lawyer the real meaning is sometimes easier to get from another version. Although in theory all versions have the same authoritative status, in practice the three most important languages for EU legislation are English, French and German.

So what does the exception mean? There would seem to be three possibilities, in its application to Scots law.

(i) Place the stress on “contracts”. So it means missives. Well, missives are indeed contracts.

Objection: missives don’t create or transfer real rights. That is the task of deeds such as dispositions. Missives only bind the parties that they will create or transfer real rights.

(ii) Place the stress on “create or transfer rights in real estate”. (“Real estate” means immoveable property, as one can gather from the French and German texts.) So the exception is about deeds such as dispositions.

Objection: Deeds such as dispositions aren’t – in the usual sense anyway – “contracts”.

(iii) Or perhaps the exception covers both missives and deeds?

It is doubtful whether there is a single right answer. One suspects that the text of the Directive was not prepared quite as carefully as it might have been. However, it is worth noting that on the continent the word “contract” (contrat, Vertrag etc) has a slightly wider meaning than it does here, something like “consensual juridical act”. In that sense a deed such as a disposition is indeed a “contract”. That probably solves the mystery. The exception probably applies to deeds, such as dispositions, but does not apply to missives.

Which is fine. We can all relax: we have merely been in continuing breach of our Community obligations, by not allowing digital missives, since 17 January 2002. But we have probably not been in breach of any requirement to allow digital deeds: the Directive probably does not so require.

Even more mysterious however is the meaning of the exception to the exception.

The Directive says that e-transactions must be permissible. The exception is “contracts that create or transfer rights in real estate”. The exception to the exception is contracts that create or transfer “rental rights”. We do not know what that is supposed to mean. At this point once more the French and German texts prove valuable. The French term is droits de location and the German term is Mietrechten. Both terms simply mean “leases”.

So if the Directive is construed according to its French and German versions, and the mysterious English version is ignored, then the result is that the Directive does not allow us to require leases to be in paper form.

Primary legislation preferable?

E-conveyancing can, in our view, be introduced by secondary legislation. There is a case for saying that e-conveyancing does not involve matters of great principle but only technical issues and accordingly that it is entirely appropriate to deal with it by secondary legislation, especially as that could presumably be effected more quickly than primary legislation. In fairness, a case can be made for primary legislation. There are three reasons. The first is that the whole of the system of registration of title is in any case under review by the Scottish Law Commission, because, as is well known, the 1979 Act has not proved perfect and it is generally felt that an overhaul is needed. That project will need to be implemented by primary legislation. Joined-up thinking might suggest that the two projects be combined. The second reason is that e-conveyancing is a matter of public interest. A majority of Scotland’s housing stock is now in owner-occupation. The third reason is that there are limits to what can be done by secondary legislation, and it might be (depending on what is ultimately envisaged as to the details of the system) that some changes would be desired which would, or might, need primary legislation anyway. However our view remains that the changes required to bring ARTL into being can be made by secondary legislation. The choice is a matter of policy rather than a legal issue.

George Gretton (University of Edinburgh); Robert Rennie (University of Glasgow); Roddy Paisley (University of Aberdeen); Stewart Brymer (University of Dundee). The article is based on a paper presented by George Gretton at the Law Society’s “Nothing but the Net” conference in October 2003 (reviewed in the Journal, November 2003, p 40).