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Speech by the Secretary for Housing, Planning and Lands, Mr Michael Suen, in resuming the second reading debate of the Land Titles Bill in the Legislative Council

 

Following is the speech by the Secretary for Housing, Planning and Lands, Mr Michael Suen, in resuming the second reading debate of the Land Titles Bill in the Legislative Council today (July 7):

President,

 

I would like to begin by paying tribute to all those whose unfailing efforts and contributions have brought to fruition the resumption of Second Reading of the Land Titles Bill in this Council today. In particular, I wish to thank the Chairman of the Bills Committee, the Hon Margaret Ng for her leadership and resolve in the scrutiny of the Bill. My appreciation also goes to Members of the Bills Committee who have dealt with matters of great legal complexity and significant economic importance in the 39 Bills Committee meetings over the past 15 months.

 

I would also like to thank the Law Society, the Bar Association, the Consumer Council, the Hong Kong Institute of Surveyors, the Heung Yee Kuk, the Real Estate Developers Association, the Hong Kong Association of Banks and other interested parties who have given their time and advice to help bring the benefits of title registration to Hong Kong.

 

The Land Titles Bill was gazetted in December 2002 after years of consultation - this being the second Bill on title registration introduced into this Council. The fact that major changes to the present Bill have since been proposed, considered and agreed is a reflection of the importance attached to this legislation. It also signifies the difficulties and the genuine desire in striking an acceptable balance among a wide variety of interests. Whilst the discussions of the Bills Committee have not caught much of the public's attention so far, the enactment of the Bill should be highly welcomed by the community as title registration will give greater security to property interests and simplify conveyancing procedures.

 

Major Proposals

 

President, I will now turn to the major proposals in the Bill.

 

Conversion mechanism

 

One of the challenging issues that we have grappled with is the problem of 'conversion', i.e. how to transfer 2.5 million properties from the existing deeds register onto the Title Register without cutting off existing rights unfairly, without incurring great public expense in re-examining title, without adversely affecting the operation of the property market and without imposing new liabilities on solicitors. The Bill gazetted in 2002 proposed a gradual conversion mechanism, under which existing properties can be brought under the title registration system voluntarily at any time or upon sale. As deliberations progressed in the Bills Committee, this mechanism was found to have insuperable difficulties arising mainly from the liability that solicitors would face in the issuance of certificates of good title.

 

A new scheme of 'daylight conversion' has since been developed and has won the acceptance of parties concerned as a reasonable way forward. Under this approach, a number of measures which have been tried and tested in other jurisdictions have been melded together with our own proposals to create a conversion mechanism that addresses our own unique situation. The daylight conversion mechanism has the following main features.

 

First, at the commencement of the Ordinance, all new land will come immediately under the Title Registration system. I want to emphasize that by 'new land' we mean more than just previously undeveloped land let out by auction or tender. With few exceptions all land covered by a new Government lease issued after a surrender will be 'new land' within the meaning of the Ordinance. The exceptions are simply where a new lease amounts to no more than a variation of the period, terms or area covered by the old lease.

 

Second, after commencement of the Ordinance, all land under an existing Government lease and all properties on that land will remain under the deeds registration system laid down in the Land Registration Ordinance for a designated period. In the Bill, this period is given as twelve years. Twelve years is generally considered to be a sufficiently long period within which to give notice of the impending change to all owners or claimants of interests in land. Various parties have proposed that there should be a mechanism to vary the length of the period should experience after the initial operation of the Ordinance indicate the need either to reduce or to extend the period. We have accepted the Bills Committee's recommendation, and Clause 101 now provides the power to amend the schedule in which the period is specified.

 

Third, major amendments to the Land Registration Ordinance are now proposed to the Bill to introduce two new mechanisms whereby persons who can claim interests in property can have those interests protected against the risk of their loss on conversion to the title registration system.

 

The first mechanism is a 'caveat'. This will provide a simple way for a claimant to an interest that is created by a matter which is currently not capable of being registered under the Land Registration Ordinance to give notice of his claim. This notice will be preserved on the conversion of the property, appearing as a 'non-consent caution' on the Title Register.

 

The second mechanism is 'caution against conversion'. This is a tool that any claimant to the title to a property can use if he wants his claim to be settled before the property is converted to the title registration system. As long as such a caution is in place, conversion is prevented. Given its powerful effect, the 'caution' will be valid for only 12 months, provided that the Court may extend its validity by no more than another 12 months. If the claimant has not commenced legal action to determine his claim within the period of validity, the 'caution' will lapse and the property will be converted. Conversely, if the claimant has commenced the necessary legal action, conversion of the property will be deferred until the action has been settled. The Title Register will reflect the state of ownership and interests in the property determined by the outcome of the Court action.

 

Fourth, the compulsory applications for conversion on sale and the opportunity to apply for voluntary conversion allowed under the gradual conversion mechanism are removed. This is necessary in order to dispense with the cost and risks associated with certificates of good title, or the costs and time involved were the Land Registry to undertake investigation of title on behalf of applicants.

 

Under the daylight conversion mechanism, a person who can claim an interest in a property is given ample time and means to protect that interest. Once a purchaser for value has acquired the property after conversion, however, he gains the certainty that as registered owner, his title is guaranteed. This means that all persons dealing with the property after conversion can rely on the Title Register, bringing greater certainty and simplicity to the conveyancing process.

 

The changes to the conversion mechanism entails major amendments to the Bill. I will later be moving Committee Stage Amendments (CSAs) to:

 

i) delete various clauses or parts thereof which relate to the 'gradual' conversion mechanism;

 

ii) introduce a new part 2B to deal with registration of new land;

 

iii) introduce a new Schedule 1A to deal with the conversion of existing land; and

 

iv) introduce a new Schedule 3 on amendments to the Land Registration Ordinance.

 

Rectification and Indemnity

 

The whole purpose of the Title Register is to give certainty. As a safeguard against fraud and to correct unintended errors there are provisions to rectify the Register. The Bill also puts in place indemnity arrangements to protect innocent parties who suffer a loss due to an error or omission in the Register. The main issues that have been raised on the provisions on rectification and indemnity include:

 

i) the acceptability of a cap on the indemnity in cases of fraud;

 

ii) the extent of the Court's discretion; and

 

iii) the position of the Solicitors' Professional Insurance Fund.

 

To ensure public confidence in the title registration system, a self-financing Indemnity Fund will be established, drawing recurrent contributions from a levy on registration. The Land Registry Trading Fund will also stand behind the Indemnity Fund in respect of any loss due to the error or omission of the Land Registry. In order to keep the levy rates at an affordable and predictable level for all parties, the Administration has maintained that there must be a cap on the liability of the indemnity fund in fraud cases. This will be set initially at $30 million per case. Currently, over 99% of property transactions fall below the value of the cap and will therefore be fully covered by the indemnity arrangement. Subject to the Finance Committee's approval, we propose to arrange a stand-by Government loan facility of $150 million for the Indemnity Fund to meet claims before a reserve is built up.

 

I would like to respond to the view that the cap on indemnity in fraud cases is unconstitutional. As the Hon Margaret Ng has noted in her speech, this issue has been discussed extensively. The Administration position has been clearly set out. Our legal advisers have confirmed to us that the new scheme does not amount to deprivation of property and the cap is therefore fully consistent with the Basic Law. The need to call on the Indemnity Fund only arises in cases where, as a result of fraud, there are two innocent parties claiming the same property. Under existing law, one will get the property, the other will be left with nothing unless he is able to trace and recover assets from the fraudster. Under the Land Titles Bill, the innocent party left without the property will be eligible to claim for an indemnity. This gives innocent parties greater protection.

 

Some parties have questioned the acceptability of the proposed cap as a matter of principle. Having carefully considered the matter, the Administration remains of the view that the cap complies with legal obligations. In examining the implications of the cap, however, we have noted that there were circumstances under the original proposals which, in certain types of fraud cases, an innocent owner can be placed in a worse position than under the existing law. We have undertaken that in such cases, an innocent owner should be given the same protection as under existing law. I will shortly introduce a CSA to Clause 81(3) of the Bill to this effect.

 

I will also introduce CSAs to amend other parts of Clause 81 to narrow down the discretion of the Courts, so as to give owners and purchasers greater certainty on how claims will be treated by the Courts when there are innocent parties involved. This is in response to Bills Committee members' requests, arising from representations by the Law Society and Bar Association.

 

I note that REDA continues to have some concerns as to whether the amendments to clause 81 and 81A achieve the intended effect. It is an area where very careful balance is needed to ensure that affected parties are neither disadvantaged nor given undue advantage. While we believe that the amendments we are proposing have achieved the required balance, we will continue to discuss this matter with REDA and other parties to address any remaining doubts. I will note that the reservations over clause 81 raised by the Hon Abraham Razack have been addressed in the CSA I will propose to this clause later.

 

As a result of the powers given to the Indemnity Fund to recover losses against parties who were responsible for such losses, particular concerns have been raised regarding possible double claims against the Solicitors' Professional Insurance Schemes. I will be moving CSAs to delete Clause 82(5) and to amend Clause 86 to remove any such grounds for concern. I understand that the Law Society may consider making further amendments to the rules governing their Professional Insurance Schemes.

 

I will also move other CSAs to amend the rectification and indemnity provisions arising from changes to the conversion mechanism and to clarify certain matters, in particular the operation of the Indemnity Fund.

 

Organization of the Bill

 

The Bills Committee has made a wide range of helpful suggestions to improve the Bill. The Law Draftsman has also done a remarkable job in carrying out an extensive overhaul of the whole Bill to simplify the language and ensure consistency between the remaining provisions and the new clauses. I will be moving a substantial number of CSAs to give effect to these drafting changes.

 

Closing Remarks

 

Over the past few months, a lot of work has gone into revising the Bill to reflect the changes I have just highlighted. Much has been achieved and I am grateful that there is now strong support for passage of the Bill.

 

I appreciate that much further preparatory work and education is needed before registration is brought into effect. I can assure Members that this will be done diligently. The Registrar and his staff have already begun to arrange for this work to be done in partnership with all professional bodies concerned.

 

Finally, President, I would like to thank again the Chairman and members of the Bills Committee for all their good work and perseverance. Although it is not common practice to pay public tribute to the hard work put in by our civil service colleagues, I do feel that this is one of those rare occasions which calls for such recognition of the contribution of the Government team led by the Land Registrar. The introduction of title registration is a landmark development of land law in Hong Kong. With the enactment of the Bill, Hong Kong will be well placed to gain the benefits of a title registration system under which persons dealing in property enjoy a level of certainty, security and efficiency in their transactions that matches the highest standards available elsewhere in the world. Title registration will be conducive to making Hong Kong a better place to own a home and to do business.

 

I hope Members will support the Bill and the CSAs which I will propose later on.

 

Thank you, President.

 

 

 

 

Ends/Wednesday, July 7, 2004

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