Land Transfer Bill

on behalf of the Minister for Land Information: I move, That the Land Transfer Bill be now read a second time. This is an exciting piece of legislation that shows the Government’s commitment to Kiwi property owners, protecting them against injustice and providing for a simpler and a more modern way of undertaking land transactions. Parliament recently passed the Canterbury Property Boundaries and Related Matters Act, and the purpose of that legislation was to provide certainty about the exact location of legal property boundaries in areas where the Canterbury earthquakes had triggered significant ground shifts. This legislation gives those transacting in land anywhere in New Zealand greater confidence and certainty by modernising what are, really, quite outdated provisions in land transfer legislation, by making it more accessible and workable, and by introducing new measures to improve the security of property rights.

Can I commend the good work of the Government Administration Committee for its efforts in considering this bill, and I also want to thank those organisations and people who actually made submissions. The committee heard submissions from seven submitters. It had, in fact, received 13 written submissions. All of the submitters were generally supportive of the provisions in the bill but did have concerns with certain detailed aspects, and I will cover some of those matters now.

There was strong opposition to the requirements for mortgagees to verify the identity of mortgagors. Some submitters considered the new measures unnecessary because of the low incidence in this country of mortgage fraud and the existing requirements on lawyers and conveyancers to verify identity as part of conveyancing processes. Those submitters also opposed the related penalties, where failure to comply results in fraudulent execution of a mortgage. Having been advised of the potential for significant compliance costs for banks, the committee recommended removing these requirements and the related penalties from the bill.

I still think it is fair and reasonable to expect mortgagees to bear more of the responsibility if, through identity fraud, one of their customers is able to assume the identity of a registered property owner and unlawfully execute a mortgage over that person’s property. Currently, the Crown is liable for compensation for the value of the property in that situation, even though banks and other financial institutions are in the best position to determine whether a customer taking out a mortgage really is who they say they are. However, on balance, I agree with the committee that the current low-risk profile for identity-based mortgage fraud does not warrant interventions that would impose significant compliance costs on banks or, inevitably, their customers through this legislation.

If the risk of mortgage fraud in fact does increase, we need to be able to respond effectively, so I welcome the committee’s recommendation for mortgage fraud occurrence to be monitored on an ongoing basis to ensure that the absence of these requirements and penalties do not lead to unintended consequences. When the bill is enacted, the Minister is going to be asking officials from Land Information New Zealand to undertake this monitoring work.

Another area of concern for submitters was the new judicial discretion enabling the High Court, in limited circumstances, to order the alteration of the land titles register, where necessary, to avoid manifest injustice. There was support for this exception to the principle of indefeasibility in situations where a strict application of the principle would result in unfair outcomes—so, for example, where Māori freehold land is sold outside the whānau or hapū without having followed the requirements under Te Ture Whenua Maori Act 1993 to first offer the land to the preferred classes of alienees.

Some submitters thought the bill lacked certainty about when the exception to indefeasibility would apply and were concerned that the discretion might be used more frequently than was intended. The committee’s changes have addressed this concern by making it very clear that the threshold for manifest justice is very high and court orders can be made under these provisions only in exceptional circumstances when compensation cannot properly address the injustice. So I think these amendments appropriately balance the need for the certainty of property rights with the need to protect against unfair outcomes.

Improvements have also been made to the bill’s regulation-making provisions. In addition to the tax statement exemption regulations, a requirement has been added for the Minister for Land Information to review the regulations after 5 years. That review must include considering whether the exemptions should be shifted to the primary legislation. This reflects the principle that regulated exemptions should be subject to review.

In relation to the court’s discretion to adjust compensation for loss of an estate or interest in land, the power to regulate a formula to calculate market value increases has been removed and replaced with a discretion to have a second market valuation done at the date of judgment. This will make compensation provisions more workable. A transitional regulation-making power has also been added to the bill to assist the transition to the new land transfer system. This power will expire 3 years after the commencement of the provision. The bill as introduced would reduce the time frame in which a guaranteed title search must be obtained from 2 months to 10 days. In response to concerns from submitters, the 10-day period has been increased to 20 days.

Several minor technical amendments have been made to the bill to correct minor drafting omissions, support alignment of the bill with policy intent and practice, and improve clarity and certainty. These include the addition of an explicit reference to the Torrens system principle of maintaining integrity of title to estates and interests in land; amending the definition of land to clarify the policy intent that it should remain consistent with the definition in the Land Transfer Act 1952; adding a definition of paper instrument; amending the definition of electronic instrument to ensure that it covers all instruments in electronic form; and making changes to clarify that a cross-lease should be able to be varied only with the consent of all mortgagees, as a variation to one lease may, in fact, affect others.

Finally, I share the committee’s view that the policy issue of giving appropriately qualified and experienced legal executives the same instrument certification rights as lawyers and conveyancers is outside the scope of the bill. That is really an occupational regulation issue.

💬 Hon Ruth Dyson: But do you agree with it?

Probably. Currently, land transfer instrument certification relies heavily on the regulatory oversight of practitioners, which is provided by the Lawyers and Conveyancers Act. Extending those certification rights to legal executives should not be considered in isolation from the consideration of the occupational regulation of lawyers and conveyancers.

I am confident the amendments recommended by the committee will improve the workability of the bill and clarify its scope and intent. I certainly think this is an important step in progressing the long-overdue update of the land transfer legislation. Before I commend the bill to the House, I am sure Mr Cunliffe will agree with me that this is an area that sounds like a geek’s paradise, but, really, it is fundamental to the way in which so many people act when purchasing houses or dealing with leases and instruments of that kind. So it is a very important piece of legislation—I see Mr Cunliffe nodding wisely and sagely—and that is why it is important that the legislation be updated on a regular basis, and that is why, with some joy and excitement, I have to say, I commend the bill to the House.

From one geek to another, it is really quite endearing to see Minister Finlayson taking such pleasure in his role and being both joyous and excited about the Land Transfer Bill. A word of advice to the Attorney-General—you really need to get out more. Labour supports this bill, and I know that if this were a Committee stage debate, Mr Assistant Speaker, you would be holding us to every comma in every clause, but it is an opportunity, at the second reading, to just note the why and the how, before we get into the detail of the what.

Labour supports this bill because it is a long overdue update of the land transfer mechanism and a restatement of some of the core principles that govern indefeasibility of title and our Torrens system of land registration. It is the second bill that I have had the pleasure of supporting in the House this evening, but it is also the second bill that has had its genesis in a review that has been conducted by either officials or an independent agency—in this case in 2010, and in the previous case in 2009. I would observe that the wheels on the Treasury benches are not turning quickly—either that or the Government is resting so firmly on its laurels that it has got down to that pile of long-awaited legislative reform that has hitherto been buried in the bowels of the Law Commission or some other worthy institution.

This bill did have its genesis in a Law Commission review in 2010. It was a good piece of work. It has been, I think it is fair to say, heavily engaged with by the legal and conveyancing communities, particularly with the conveyancing section of the New Zealand Law Society. I think it is a fair point to say that the committee that reviewed the bill, the Government Administration Committee, chaired by the Hon Ruth Dyson, took a great deal of notice of the submissions of the Law Society. And no doubt Crown Law itself was heavily engaged. So this might be—the Minister said a geek’s paradise; certainly a lawyer’s paradise.

Although it may not be perhaps the most contentious piece of law in the country, it certainly is very important because all of us—well, perhaps not myself because I do not currently own a property, but people who do own properties want to have certainty of title. That has been the fundamental principle that has guided the law—that people can rely entirely upon their land title because that supports the mortgage and that is terribly important to the banking industry. It is one of the fundamentals: we get up in the morning, we have our breakfast and we clean our teeth, and we go to work, and we just take it for granted. But it is important.

The law needed updating because it had three different Acts governing it, the earliest of which was written in 1952, which was not only before the internet but before the computer, and, certainly, now that we have the Landonline system at Land Information New Zealand, and we have the electronic passage of title, the law was several generations old. Labour is supporting this bill because in general terms we realise that this is a necessary update.

However, here is the real political context of the bill. Not only is it a worthy piece of detail heft that has been hauled from the basement, from 2010, but it is also a little bit of a dance of the veils. Everybody knows that the real issues around land transfer are the massive swathes of land that are being bought up by overseas interests, and that is not necessarily bad—

💬 Brett Hudson: Oh rubbish. Come back to planet Earth.

Before members opposite have apoplexy, let me finish the sentence. It is not necessarily bad to have foreign investment. We need foreign investment, but we want an on-to-it Land Information New Zealand and an on-to-it Overseas Investment Office. I challenge any member opposite to rise to their feet and give a 10-minute defence of the Overseas Investment Office, because every member of the Government benches knows what we know—that it is currently a wasteland that is barely functioning, that it is a wet bus ticket that cannot even do an internet search, and that in order to catch somebody out you have basically got to be wanted by Interpol. That is how bad that part of the land transfer system is.

But notwithstanding that piece of political context, the substance of this bill—rather aged, like a good wine, and certainly worthy of the Attorney-General’s detailed perspicacity—heads in the right direction. The bill updates the law and it allows for a reconsideration of issues like compensation, indefeasibility of title, identity verification, covenants in gross, withholding information on people’s safety, liability of estate administrators for certain costs, and issues around the adverse possession process. But I am going to concentrate, in the balance of my remarks, on the two or three major issues that the Government Administration Committee, so ably chaired by the Hon Ruth Dyson, considered in its extensive deliberations.

The first was the issue of mortgage fraud. The draft as introduced had the, perhaps, laudable aim of requiring mortgagees—in this case, the banks—to have taken reasonable efforts to satisfy themselves that the identity of the mortgagor, the borrower, was in fact real. That is particularly important in respect of overseas transactions. It is also important for the integrity of the law domestically. However, unsurprisingly the select committee room was full of the well-coiffed representatives of the banking industry who were at pains to point out that the transaction costs and the compliance costs of those obligations might, in some cases, be extensive. The committee took some note of those submissions and looked at the differences between Australia, which has introduced similar requirements, and New Zealand, which has an electronic Landonline system, and it decided on balance, universally around the committee table, that the costs of the measures were not yet demonstrated to be worthwhile relative to the benefits. The committee has adopted a wait-and-see approach, agreeing with submissioners that those clauses should be struck but urging the Government to take an active review to ensure that we do not get increasing levels of mortgage fraud.

💬 Denis O’Rourke: Not good enough.

The cynics amongst us—the member may choose to count himself amongst that throng—would say that a Government that cannot even maintain a register of foreign buyers or look through shell companies might not be the kind of Government that you want to keep tabs on the family silver.

💬 Denis O’Rourke: That is a good point.

The member might not be wrong. But, in an unbelievable show of generosity, the Labour Opposition is willing to give the Government a chance to prove itself, once again, in the eyes of the public to be the kind of Government that could do something like this in less than the 10 years it has taken to get this bill to the House. That was our view on mortgage fraud.

Manifest injustice: that is when somebody swindles somebody else and there is a tension in the law, if I can put it really simply, between the need to protect indefeasibility of title—when you have got it, you know you have got it—versus having some protections for people who are just out and out swindled. The committee wrestled with some very learned submissions from the Law Society and from our departmental advisers, none of whom is still in the Chamber to witness this exposition of the argument. On balance, the committee felt that there should be a high bar around not just fraud but a very high grade of fraud for it to be sufficient to overturn the historic principle of indefeasibility of title.

By consensus the committee worked its way to some amendments, which I am sure, with the Chair’s help, we will consider on a sentence by sentence, comma by comma, basis in the Committee stage of the debate. Compensation issues arise in that context. Time will not permit me to go into them, but when we get into the Committee stage we will go through the interface between manifest injustice, indefeasibility of title, and the compensation regime.

To sum up, this is a good little bill. It helpfully updates the law, some of which is even older than members opposite. But it has taken rather a slow track—a 2010 Law Commission review. It is a bit like the last bill on agricultural chemicals, with its 2009 review. Either the Government has not got anything better to do or it should learn to do these reviews a bit quicker. Thank you.

E Te Mana Whakawā Tuarua, mauri ora. In following on from the learned member David Cunliffe, who has resumed his seat, I want to thank him for outlining the Labour Opposition’s support for this bill. It is not, however, as the member described, a “small” piece of legislation—running to 220 pages—that we have in front of us. The Government Administration Committee gave this bill full consideration, and, as my learned and distinguished colleague the Attorney-General pointed out, the original Act that we are amending dates back to 1952. But, actually, the history of the system of landholding and tenure that we have in New Zealand goes back a little bit further than that and is quite interesting.

The Torrens system, to which New Zealand subscribes, is widely used throughout the Commonwealth. It is a system that allows title by registry rather than the registry of title. So in this bill, we have kept that at the very core of our system of land registry.

💬 Denis O’Rourke: He’s got the wrong speech.

And this is an important point to note, Mr O’Rourke, because when there is an administrative error in the land registry, particularly one committed by the State, it is very important that landholders have surety that they will be compensated for that mistake, and this bill does provide for that.

The Torrens system originated in our part of the world. It was actually developed by Sir Robert Torrens, who was the third Premier of the state of South Australia, when he introduced the Real Property Act 1858 there. And it has been developed to the point that, in New Zealand, we have a very high degree of surety around landholding, because we have a digital record now—we have abandoned the system of deeds and bound folios, and we have a very high-tech registry—that gives us great assurance that mortgages and landholdings are genuine.

So in listening to submissions that we heard from the Bankers’ Association, but also the Law Society, the select committee has suggested some alterations to the original text of the bill that are designed both to guarantee the surety of landholding and ensure that people who are transacting land transfers—people buying their first home, for instance, or people selling a property—do not face additional checks and identity checks that have already been completed by the banks because of the anti - money-laundering legislation that this Government has already passed; that unnecessary doubling up of having lawyers checking the work of other lawyers. That is what we in the select committee heard might happen with this bill as originally drafted. The amendments that are proposed are sensible. It is a very good bill, and I commend it to the House.

Mr Assistant Speaker, I hope you were not going to put the question so early in the debate.

The ASSISTANT SPEAKER (Hon Trevor Mallard): I was—I was.

I agree with the member who has just resumed his seat, Paul Foster-Bell: this bill is, although largely technical, quite substantial, and it has certainly engendered a lot of debate and consideration by the select committee. I want to commend all the members of the Government Administration Committee for the serious way that they considered the points that have been raised by submitters. They were not easy, because they were directly in conflict with the advice that we were getting from the officials on one particular point—that of mortgage fraud and the response that we should give to that. But on the rest they were less contentious but certainly really helpful submissions.

I want to just go back to the genesis of this bill, which was developed in consultation between the Law Commission, Crown Law, and the New Zealand Law Society, which produced a report in 2010 that included a draft bill, which is often the practice of the Law Commission. The Ministers at the time were the Hon Simon Power and the Hon Maurice Williamson, so it is a bit of shame that neither of them is able to take a call in the House tonight on this debate, because they did the work, basically, and are not here to take the credit. I know that the Hon Simon Power now works for Westpac in a very senior position, but I am not sure what the Hon Maurice Williamson is doing now.

💬 Hon David Cunliffe: I thought he was still here.

Is he still here? Still in Parliament? OK, well, there you are—there you are. He may, if that is true, be able to take a call in the House. I certainly have not heard him asking questions in the House lately, but perhaps tonight is the opportunity to remedy that, or maybe in the Committee stage.

As I said, this is a largely technical bill. The Attorney-General, when he made his excellent contribution—I have very rarely heard anyone speak with such passion and detailed knowledge about a bill that is as dry as the Land Transfer Bill, but he certainly started this debate off with style and flair. But the point that he made was that even though it is largely technical—and I agree with that—it is fundamentally important to some of the principles that we have held for many years in New Zealand, around, particularly, the security of information, of purchase, and of title in regard to land transfer. So the principles remain the same; what we were doing was making the bill a bit more modern, a bit more responsive to the way that we do transactions now, certainly more accessible, but looking at potential for illegal activity that may not have been available for people to exercise when the original legislation was developed.

The most substantive amendment is around the indefeasibility of title, and it provides limited grounds for compensation and redress in case of fraud. We certainly had a lot of debate at the select committee about that. Paul Foster-Bell, in his contribution, mentioned the very strong submissions from the banking industry. We had the Bankers’ Association as well as individual banks that completely disagreed with the proposals that were in the original legislation. They explained how much additional compliance cost would be incurred, which caused us a little bit of concern, I must say, but then when they explained that the entire increased compliance costs would then be loaded back on to the individual customer of the bank, we decided that we wanted to make really sure that the additional costs that we would be imposing by the legislation were in fact justified.

The comparison between the New Zealand and the Australian systems is not apples with apples; it is apples with pears. They have an entirely different system there, and we, in the end, decided that we would delete those two provisions—I think it was 54 and 57 in the original bill—because they were unnecessary. So we agreed with the representation from the banking industry, but we did also note that mortgage fraud is something that we need to keep an eye on. We had had a strong alert from the officials. It was in the legislation as proposed by the Law Commission, Crown Law, and the New Zealand Law Society. These are not people you can dismiss lightly. They have given these issues a lot of considered thought. So we want to just keep an eye on that, to make sure that if, on balance, we were wrong, we are able to address it quite smartly in future legislation.

💬 Denis O’Rourke: Were wrong—were wrong, too.

Were wrong? Oh, well I am looking forward to the contribution from Mr O’Rourke. Unfortunately, New Zealand First does not have a representative on the Government Administration Committee, but it would be my view that the select committee would welcome the contribution of a New Zealand First member on any of these bills, or on other bills that you are interested in, because we want to get it right, actually. And if you think we made an error, we would be interested in hearing that, and we might have a chance to address it in the Committee stage.

💬 Denis O’Rourke: Yes, indeed.

You may receive a visit from the Bankers’ Association tomorrow morning, I would suggest. They made pretty strong submissions to the select committee.

It is a real pleasure to say that the consideration that we gave this bill at the Government Administration Committee has, in my view, improved it both in some technical areas and in some quite big policy areas. It is, largely, a technical bill. I would have liked some inclusion in the bill of the obvious deficiencies that my colleague the Hon David Cunliffe referred to in the Overseas Investment Office. It has a very poor track record of vetting investment approvals. Our party, through Official Information Act requests, has uncovered not just one but many examples of incompetence, which has left New Zealand looking quite poor, actually, in terms of the robustness of our procedures. I wish that the bill had had more attention to the Overseas Investment Office, because I think that with the same level of consideration that we gave to the Land Transfer Bill with that inclusion, then some of the matters that are clearly in the too-hard basket for the Government could have been addressed.

The Official Information Act has actually become a bit of a laughing stock. It needs some serious attention. I know that the current Minister is not up to that job. I would invite the Attorney-General to apply the same amount of passion as he demonstrated tonight for the Land Transfer Bill to amendments that clearly need to be made, particularly in the vetting and the competence and the integrity of the Official Information Act. I think he is just the man to do it. On that note, I look forward to the other contributions that are going to be made to this bill and to its progress through the House.

It is a pleasure to rise in support of this, the Land Transfer Bill, in its second reading. I think there is no disagreement at all across the House that the Government holds an incredibly important role in dealing with land transfers—

💬 Denis O’Rourke: How does he know?

—and ensuring New Zealanders can have confidence in their property rights. Mr O’Rourke might have something to say in a few minutes’ time, and it will be well informed given that neither he nor any of his colleagues actually sat on the Government Administration Committee! But New Zealand First opinions are like belly buttons; everyone has got one.

I do not think there is any debate at all that this current land title registration system is somewhat outdated. The principal Act dates back some 60 years. The principles behind it, as sound as they might be, and the legislation that it fed from dates back, perhaps, 100 years or more earlier than that. Much of the language is archaic, complex, and, quite frankly, difficult to understand, which some people might ascribe to many speeches that are actually delivered in this Chamber from time to time. However, now is the right time to do something about it.

We look at what was placed in front of the committee to consider. One of the most simple yet, perhaps, not quite so easy things to execute was how we deal with a system that is based on processes that date back at least 60 if not 100 years, and how we make them relevant to the way that business is transacted in so many spheres today. The key to that was: how do we deal with electronic documents and electronic transfers? It is a pleasure to be able to report back to you and to the House that the bill as it was written up and as the committee has assessed it will now support the ability to conduct business if not quite in the latest part of the 21st century, then at least in something akin to it.

Along the way, of course, the committee heard submissions from a number of parties. There was not 100 percent agreement on all facets of that, and it has been noted that the Bankers’ Association had a few things to say. It is with great pleasure I stand alongside my colleagues and note that we did agree to remove clauses 54 and 55, a unanimous decision. There is no need to layer more compliance effort and costs on New Zealanders as they transact property changes.

There is not much more to say other than that this is a bill that is long overdue. It is one that I hope will sail through the House, through the next couple of stages, and will make it through to enactment in a very short period of time. I commend this bill to the House.

Tēnā koe, Mr Assistant Speaker. Thank you. Well, it is a very long time since I did land law at university, and it was quite an interesting exercise being part of the Government Administration Committee and taking another look at those fundamental principles of our land registration system. I do congratulate Hon Ruth Dyson, who is chair of that committee, on the very collegial way in which it was chaired, and I think that is why we are seeing a fair degree of unanimity on the bill, though New Zealand First may differ.

I think the bill, as others have said, is a modernisation, a simplification, and a bringing of the paper-based registration system into the digital age, in recognition that our land transfer system, our registration system, is now done electronically, unlike places like Australia where, I understand, there is still a fair degree of paper-based transfers. It is a big bill, it is a substantial bill, but those principles of the Torrens system stay intact. They are that the register of lands that describes and records the ownership of estates and interests in lands is found in the one place; is accurate, so that people do not have to go elsewhere to find out the key facts relating to title; and provides security of ownership. That indefeasibility is a fundamental part of that, so once a transaction has been registered it cannot be set aside except in the case of fraud. Of course, it is this certainty that allows people to have transactions involving land with the degree of certainty as to what they are doing—they are buying land that they understand they can buy; those transactions are properly registered; the State guarantees the accuracy of those transfers, of those rights; and there will be compensation if there has been an error in the way that the system operates.

As others have said, there were quite substantial submissions from bankers on clause 54, I think it was, pointing out that those changes in relation to mortgage fraud, where someone was pretending to be the mortgagor or to have the authority of the mortgagor, and the requirements around verification of identity, were going to create major compliance costs for the bank, and that the changes were, in fact, going further than the identity verification rules in other legislation. Bankers said that in the system of e-dealings there are already quite robust identity standards on conveyancers, that currently banks rely on solicitors and rely on the conveyancers, and that these new requirements, which were originally proposed, would have significant compliance costs because the banks would be needing to double-check what the conveyancers had done.

Those submissions were quite convincing. I would like to acknowledge the Minister here, who actually let the select committee get on with its work, consider the submissions, and make a decision here rather than taking that authority, as we see with a number of other bills, which are being done by a Minister rather than allowing a select committee to make a choice.

One of the other areas where there were a lot of submissions was around the issue of legal executives and the New Zealand Institute of Legal Executives calling for fellows of the institute to be allowed the authority to certify instruments for registration where they were undertaking that work under the supervision of a lawyer. I think there will be a number of disappointed legal executives, because it was the committee’s decision, even though there were a lot of submissions supporting the legal executives from a number of law firms, that what was required here was actually a change to the legislation around lawyers and conveyancers—employment legislation or professional legislation—rather than to this bill. So it was seen as an issue that was outside the scope of the bill and that the lawyers and conveyancers legislation should be amended instead.

One of the other issues was around manifest injustice, and the concerns of the Law Society and others was that while recognising the importance of providing compensation where there had been an error in the operation of the registration system, we must ensure that this was very clearly defined so that you did not get an undermining of indefeasibility by giving the court a wide power to undo registered ownership. Here the advice of officials was that the case law showed that there was a very high threshold to allowing situations of manifest injustice and allowing compensation, and that the select committee actually tighten the provisions here. It does have a very high threshold so that concept of indefeasibility is protected.

So it has been a very technical bill, and, like others, I would also like to encourage the Government to deal with the major issue in this area of land transfer, which is the sale of land to overseas investors. The Government has really been sitting on its hands here. It has been pretending that business as usual is continuing when that is not the case. We have had the major collapse in dairy payouts and the effects of this on a debt-ridden industry. With the high level of debt in the dairy sector, with dairy pay-outs going so low, with the Reserve Bank predicting that in an industry that has a debt liability of around $48 billion, 44 percent of those loans being non-performing, what will happen? People will want to quit their properties. So New Zealand is facing the prospect of a double disaster—not only the dairying slump flowing through to the rest of the economy but also the Government’s very lax rules on the sale of land to overseas interests, meaning that we are at risk of large tracts of very productive land being sold off overseas.

National’s dairy strategy has not only been a personal disaster for a lot of families, as well as for the environment, and is not only putting families at breaking point but is going to be a long-term disaster for our country if we lose a lot of land to overseas interest. The Government has got to take responsibility for this, because although Land Information New Zealand (LINZ) leads in terms of our land transfer system—the registration system, Landonline; and the electronic transfers—here, the other part of LINZ, the Overseas Investment Office, is totally hopeless. We need a major law change to rule out the sale of productive land overseas. They have done that in China, in Switzerland, in Canada, in Argentina, in Thailand, in Japan, in Ireland, and in India, but we do not do it in New Zealand. The Government needs to change the law so that we can get overseas investment through long-term leases rather than the sale of productive land. That is the major change to our land transfer system that we need to have following on the heels of this one, but under this Government we are not going to get that.

In my first reading speech on this bill I expressed pleasure to see such an important and comprehensive piece of legislation begin the enactment process, because it would, as many others have said, update a very old land transfer system. I said then that I was very happy with the three main elements of the bill: the avoidance of fraud, the cancellation of registrations where that was necessary for some good reason, and for better provision for compensation—again, where that was necessary. I now still have the same level of approval for the bill as it was then.

I am concerned by some of the changes that have been recommended by the Government Administration Committee. I would say, at the beginning, that I do approve of all of the recommendations that it has made, but there are two very important exceptions to it. The first objection I have—and people will not be surprised to hear this—is the recommendation for the deletion of clause 54. That is the clause that would impose new requirements for mortgagees to take reasonable steps—and I emphasise the word “reasonable”—to verify the identity of the mortgagor and the authority of the person executing on behalf of the mortgagor. Those are very sensible and basic requirements, which would go a long way to assist with avoiding both fraud and mistake. People often forget about mistakes. It would avoid both of those things. Where a person does not have the authority to encumber a property on behalf of a mortgagor, or where a person is not actually the mortgagor at all, it is very important that there be robust provisions to prevent that sort of mistake or fraud from happening.

The most common situations in which you see this is where a trustee or an agent acts without authority, or where one of more than one interested proprietor purports to sign on behalf of them all. Many of us have seen cases where those sorts of things happen, and they need to be avoided. Where is the best place to avoid them? It is at the beginning, when the registration takes place in the first place. That is why clause 54—as it was originally in the bill; as originally introduced—is actually so important. Clause 54(1) would have only required ordinary best practice by requiring verification of a mortgagor’s identity and their authority to sign. Clause 54(2) would have allowed the registrar to set the standards for that—they need not be oppressive, difficult, or burdensome standards. Clause 54(4) would have required documentary evidence of the steps taken to comply to be kept—again, nothing terribly burdensome about that. As I say, these are very sensible and basic requirements that banks should be required to do—and, in the ordinary course of business, would be doing—anyway.

The reasons given for deletion, in my opinion, are utterly inadequate and unconvincing, and they are these: “sufficient protections already exist”, but nobody has said in the supporting documentation to this bill what those already existing sufficient protections are, because there are not any. There is little or nothing in the way of existing protections in this respect. Secondly, it said that mortgage fraud is unlikely, given the Landonline system now used. Well, that is not the issue. Yes, we do have a low level of fraud in this country, but those occasions where fraud does occur are still important, and where we can avoid them we should be doing so. Thirdly, it is said that the costs of compliance would be too high and disproportionate to the benefit. What a load of nonsense that is. The requirements in clause 54 need not be burdensome, need not be costly, and could be done in the ordinary course of business with little or no difficulty whatsoever.

I say that, in fact, no other protections actually really exist that could replace these provisions. I say that these provisions are appropriate and desirable, and that they are actually beyond reasonable objection. I say that the low incidence of fraud is not a reason to delete this clause; indeed, it simply reinforces the need to reinforce best practice by making these appropriate steps mandatory instead of voluntary. That is all it is about.

I take with a huge grain of salt any criticism by banks and other institutional lenders that these requirements either would be excessive or might increase costs, when all they would do is require the continuation of normal, good, professional standards—nothing more. Frankly, it is a little bit like the pot calling the kettle black for banks to object to these provisions when, from them, you see sheets of small print and other bureaucratic procedures that would rival the worst bureaucracies in the world. It is the banks themselves that do all that—they create all of that stuff, and that is the stuff that causes costs for people who sign mortgages. That is the stuff that causes the delays and causes the difficulties. It is not the sort of sensible provision that you see in this bill. So the banks can take a running jump, as far as I am concerned, with their objections about this, because, in fact, those objections are vacuous and they can do this without any difficulty whatsoever.

I agree that the penalties in clause 54(5), as they were, were unnecessary and should be deleted, given that clause 54(6) would be sufficient in terms of enforcement by empowering the registrar to require a mortgagee to show how the requirements of clause 54(4) would be met. In my view, that would be sufficient, and a penalty clause would be unnecessary. So New Zealand First says that clause 54 should be reinstated, and during the Committee of the whole House stage I will be submitting a Supplementary Order Paper (SOP) for that purpose.

The other objection is to the amended clause 57 by the insertion of clause 57(3). As we know, clause 57(1) provides for cancellation of a registration where it would be “manifestly unjust” to maintain it. I disagree with Eugenie Sage when she says that that is a wide provision. It is not; it is a narrow one. “Manifestly unjust” is a high bar. It is quite narrow in its application and it would be a difficult one to meet, but it is appropriate. However, new clause 57(3) is wrong, because it prevents an order for cancellation unless the court finds in the negative—that compensation could not “properly address the injustice”.

If the standard of the term in clause 57(1) for manifest injustice is met—that high standard is met—then the applicant should be able to get cancellation, unless the court finds that it would be unjust to do so for some very good reason. So that would mean that a defendant would have the burden of proof to show that resort to cancellation would be unjust. It should not be necessary for an applicant for such an order to show that compensation would not “properly address the injustice”. That should be not necessary, and I do not even really know—and nobody else would either—what the words “properly address the injustice” could possibly mean. That introduces uncertainty and is totally unnecessary. The burden of proof is completely wrong, and it should be the other way round. In fact, clause 59 already exists to provide for compensation where that is applied for.

So New Zealand First will, during the Committee of the whole House stage, seek by way of SOP to delete clause 57(3) because it is actually quite wrong and operates against the true thrust of clause 57. It should be possible for a person to get cancellation and not just compensation where they have shown that there is manifest injustice. It is as simple as that. I do not know why the provision has been put the way it is. The burden of proof is completely wrong; it should be the other way round, as I have said. This is a relatively easy fix. I hope people on both sides of the House will see that it needs to be fixed and will support New Zealand First when that SOP is put forward the next time the opportunity arises.

I will take a very brief call on this, the second reading of the Land Transfer Bill. It is definitely time that the legislation was updated. The Land Transfer Act itself, of course, is over 60 years old, and it contains some provisions that are actually over 100 years old, so it was definitely time to update it.

I just want to address one important point in the bill that took a fair bit of the Government Administration Committee’s time. There was a lot of debate. We sought significant advice on it, and in the end the committee came to a unanimous decision that it was going to be better to remove clauses 54 and 55—delete both those clauses. Of course, clause 54 requires mortgagees to verify the identity of mortgagors, and clause 55 makes related changes to the title obtained by a transferee of a mortgage. Ultimately, we felt that, really, it was a solution looking for a problem, and we were very concerned that all it was going to generate was more compliance costs. Of course, when people are looking to get into, especially, their first home or property, the last thing that we should be doing is adding something into a bill that was going to create additional cost and compliance costs for them. So on the committee we felt unanimously that it was a very good decision for us to delete clauses 54 and 55. I am very happy to have taken a call. Thank you.

I will take a brief call on the Land Transfer Bill. We are very lucky in New Zealand to have the Torrens system of land registration, which was brought to Australasia, actually, by Mr Torrens—first to Adelaide and then to New Zealand. It gave us a rational way for the registration of interests in land, and it ensures that we have got a very, very simple and reliable way of recording interests in land. Anyone who has ever worked in the United Kingdom will know that even now, so many years after we have had the Torrens system of land registration in New Zealand—it is probably more than a century now—they have still got unregistered interests in land in the United Kingdom, which means that buying and selling property in the United Kingdom is very complex and far more expensive than it is in New Zealand. And even after you have gone through that more complex and more expensive system, it is more risky because there can be unregistered interests in land that prevail against a purchaser who buys a property.

In New Zealand you can rely upon the title, in the absence of fraud, as being proof that what you think you are buying is what you are buying in terms of its title restrictions. If there is any restriction on your title—any mortgage or any easement over the land that you are buying—then it should be on the title, and if it is not there, it will not bind you. And if it is not there because someone makes a mistake somewhere in the Land Transfer Office and you buy a property not knowing of that mistake, it is not your problem. You still get clear title, and it is the Government, through the fees that it collects when we each register a transfer of title—when we buy a property or take out a mortgage, or something like that, there is a fund that is created that compensates people for their loss. But the person who has purchased without knowledge of that defect does not suffer, and it is a fantastic system.

This bill actually does not do much to change that system. It is really housekeeping legislation, which is necessary periodically, and it says in the explanatory note that this is to change terminology to update it towards electronic forms of transactions rather than paper-based records, but in reality we have already been using electronic records very effectively in New Zealand for more than a decade—for a long time. So I do not think this legislation is all that contentious.

Can I say to Denis O’Rourke, whose opinion I respect, that I disagree with him in respect of the deletion of clause 54 of the bill, which the select committee agreed unanimously should be deleted. I have been a solicitor in a law firm, witnessing mortgages. You know, they are a dime a dozen—it is meat and potatoes for lawyers—and you do not have to ask people for their driver’s licence or their passport or, on behalf of the bank, get some other complicated form of identification in order to witness someone’s signature on a mortgage document. It has not been problematic. Why would we—if it has not been problematic—impose more duties upon banks that would be passed on to their lawyers, which would further complicate conveyancing and increase the transaction costs of people who were buying and selling properties and taking out a mortgage if there is no need for it? If we had a problem with widespread identity fraud, we would have to revisit that as a country, because in respect of the costs upon the system that we all bear through the land transfer system that I have referred to where there is an error on the register—for example, if someone forges a mortgage—those costs would become too large and we would have to revisit that as a Parliament. But we would do that then rather than imposing costs now. So I actually agree with the Government Administration Committee that it got that right in excluding that.

In terms of the judicial discretion that is introduced to allow an exception to the principle of indefeasibility of title—I will just explain what that is; I have talked about that briefly already. If you get title and you have not done anything fraudulent, then you can rely upon that title as being what it shows on its face, and if someone else has got some interest that is legitimate that is adversely affected by that, they still cannot knock you off the title. You have got an indefeasible title. This bill introduces an exception to that rule against indefeasibility of title, a new one. There has always been an exception for instances of fraud. If someone acts fraudulently in order to gain an interest on the register of titles to the detriment of someone else, of course they should not be able to benefit from their fraud and rely upon the title they got fraudulently. That has always been an exception to the rule against indefeasibility of title and should always be so.

But we are introducing in this legislation another exception to the rule for indefeasibility of title, and that is where it is manifestly unjust to stick to the principle of indefeasibility of title, and where compensation is not sufficient. There are a couple of points to be made on that. Firstly, actually, on this point I think Denis O’Rourke may be right in respect of his complaint in respect of clause 57(3). I do not think it is an especially large point, but I will concede that he might be right that there should not be that second layer of test. If it is found to be manifestly unjust to stick with the rule of indefeasibility of title, then maybe there should not be an additional test as to whether compensation would suffice. But I think that is a secondary point.

My concern when I listened to the Minister in respect of his contribution, the Hon Chris Finlayson, the Attorney-General—he made reference to cases where it could be unjust to accept indefeasibility of title where the Māori Land Court has incorrectly determined that someone should succeed to property or purchase property where someone else, according to the Māori Land Act, had a higher or perhaps a right to inherit that should have prevailed over the person who got title. I think we have got to be really careful there that we do not introduce a different standard of conduct in respect of Māori land compared with other land. I would have thought that it would be in the interests of Māoridom to actually have pretty firm rules about indefeasibility of title for transactions relating to Māori land as well. So I will, at the Committee stage, be seeking some assurance from the Minister that we have not opened the gate too broadly in respect of another exception to indefeasibility of title in respect of Māori land.

My final point is that one of the, I think, good changes here is to give more flexibility to the courts when assessing the compensation that is payable to someone who has, effectively, lost their interests to a later purchaser without fraud because the later purchaser gets an indefeasible title, but is entitled to compensation for their losses. We are introducing flexibility as to when the dates for calculation of the loss should be based, not necessarily the dates when the loss was caused, but perhaps a later date with they are seeking compensation. If you have a look at the ridiculous price inflation that we have had in land in Auckland recently, if your compensation was out by a couple of years and you had lost a title to a property and you were compensated at a value that was 2 years earlier, you could get that compensation and not be able to purchase a comparable house in Auckland, and that would be unfair. So I think it is good that we are allowing some flexibility for the date of calculation of loss.

It is a pleasure to rise to take a short call on this Land Transfer Bill. As members have previously mentioned, this bill is the Government’s response to the recommendations from the Law Commission’s 2010 report A New Land Transfer Act. The recommendations were aimed at modernising, simplifying, and consolidating the land transfer legislation for enhanced clarity and accessibility.

As I was listening to Mr David Parker I appreciated his explanation in regard to the indefeasibility of title. I found it really, really interesting because it triggered a memory from childhood, an old story that my elders used to tell about the fraud that happens with land transfer. The story, basically, to cut a long story short, is about a shyster who sells the Han River during winter, pretending that it was land, and when the frozen river actually thawed there was no land to own. So I remember my elders telling me to always check the title, always make sure there is actually land under that ice before you purchase.

Land is the principal source of wealth and wealth generation in New Zealand, and the land transfer system is critical to the ongoing functioning of the economy. It is really important for New Zealanders to have security. I commend this bill.

Bill read a second time.