Sri Lanka: Future of land registration

Are we ready to operate with a foreign law known as the Torrens Law (Bim Saviya)? The knowledge necessary for land owners to own land under the new law is given in the following article written by a barrister of the Honourable Society of the Middle Temple and a Solicitor of the Supreme Court of England and Wales. Anecdotes used in this article are experiences from practice

by Priyanga Boschmans

In England and Wales, ownership of property is presently registered electronically. There are no deeds or documents held at the Land Registry. Transferring ownership of a property can be done at a click of a button. Is the legal profession and courts ready, to prevent land fraud?

England and Wales adopt the Torrens System. Under the Torrens System, the State guarantees legal title and once ownership of a property is registered, the title is ‘indefeasible’ or cannot be challenged. Once your name is on the title register to a property, you are the legal owner even if you acquired the property through fraud. It is a state backed guarantee that the owner is the genuine owner. The Torrens system did away with the deeds system where a seller had to produce a chain of deeds to prove ownership.

There is no doubt that the digital title registration system is efficient and makes commercial sense; proving and transferring ownership of a property can now be done at a click of a button. Many clients are disappointed and sometimes baffled to hear that there are no bundles of dusty deeds held at the Land Registry!

However, there are several cogs working in the background for the machine of digital title registration system to work. This is a non-exhaustive list and each of these are further explained below.

Firstly, the honesty, integrity and responsibilities placed on lawyers. Secondly, professional indemnity insurance which all practising solicitors must have in place to compensate loss suffered by a client.

Thirdly, all Land Registry employees are well trained to manage the Torrens law and the different areas of fraud and actively work in the prevention of fraud. Despite the checks and balances, when fraud does occur, the Land Registry has a compensation fund to compensate victims.

The Land Registry has purportedly prevented 279 fraudulent registrations with a combined value of 133.4 million pounds (equivalent to Rs. 31 billion) in the last decade. Notwithstanding, property fraud has increased hugely and the Land Registry has paid out approximately 58 million pounds (equivalent to Rs. 13.4 billion) in indemnity payments to defrauded owners in the last decade.

In order to ensure the honesty and integrity of lawyers, there are independent regulatory bodies which regulates lawyers; the Bar Council regulating barristers and the Solicitors Regulations Authority (SRA) regulating solicitors. These bodies are largely funded by practising lawyers who must pay a compulsory annual fee. The annual fee varies on seniority but on average the fee range from £300.00-£2500.00 per annum.

There are strict and robust regulations all solicitors must comply with. The regulations are lengthy and complex. Any breach of the regulations results in sanctions; lawyers can be fined tens of thousands of pounds and in the case of dishonesty is often struck off the role.

The regulations are not limited to the professional sphere and extend to the private life of the lawyer. Recently, a member of parliament who was also a solicitor was struck off as a solicitor for lying to avoid a road traffic conviction for speeding. The Solicitors Disciplinary Tribunal panel said she had “failed to behave in a way that maintains the trust in lawyers”. A case in point that lawyers are expected to have strong moral compass.

The courts have made clear that the standard of honesty required for solicitors is that they may be “trusted to the ends of the earth.” Solicitors are fined and/or struck of by the SRA on a regular basis.

Often, law firms have a designated compliance officer whose sole job it is to ensure compliance of the myriad of regulations. Take client money as an example, all client money must be kept in a separate designated bank account. Client money, down to the last penny must be accounted for and only be used to provide a regulated service. Conversely, solicitors must comply with Money Laundering Regulations and are responsible for ensuring that client money received does not originate through fraud, drug trafficking etc.

Secondly, solicitors must have professional indemnity insurance to cover a claim in relation to loss suffered by a client. The annual premium various but a mid-sized firm pays on average around £45,000 per annum for professional indemnity insurance.

Solicitors are responsible in ensuring the seller is the genuine owner. Verifying the passport and proof of address is not enough. Fraudsters impersonate the owners, obtain false ID, and even change their names to the true owner’s name! Solicitors often get caught up in the middle, having acted for the fraudsters without their knowledge and in good faith with all compliance checks being carried out.

In a widely known recent case, the law firm acting for the buyer, Mishcon De Reya was landed with a one million pound fraud bill! Digital conveyancing can run at a dizzying pace and this law firm got caught up with a fraudulent seller of an expensive property London. The seller was in fact the tenant and a fraudster. The Law firm appealed the decision and the case went up to the Court of Appeal in 2018, the case of Dreamvar (UK) Ltd. v Mishcon De Reya.

The facts of the case are as follows: fraudulent people posed as sellers of a property in London worth about one million pounds. They instructed estate agents and genuine buyers were found. The fraudulent sellers and the genuine buyers each instructed their own solicitors. The sale went ahead but before registration at HM Land Registry, the fraud was discovered. The fraudsters and the purchase monies disappeared. The buyers took action to recover the purchase monies by claiming against the solicitors.

The result in the High Court was that Mishcon de Reya (as the buyer’s solicitor) was held liable. Mishcon de Reya appealed to the Court of Appeal.

The Court of Appeal decision in Dreamvar can be summarised as follows: the buyer’s solicitor, Mishcon de Reya was found to have acted honestly and innocently in carrying out their duties; they were not found negligent and were not liable to their buyer client in contract or tort. However, the solicitor was ordered to pay compensation to the buyer client for the loss they suffered.

The electronic title registration system was introduced with the aim of cutting out out-dated bundles of legal documents and to make it easier to prove the owner of a property. Whilst many of the reforms have been beneficial, an open electronic register has encouraged fraudsters to take advantage of the system. You can obtain office copies (equivalent of a full set of title deeds) online on the Land Registry website. Anyone can access the register and can find out who owns a property.

An obvious solution could be to adopt the standard of proof of identity when selling a property similar to that the Government requires for issuance of a passport and having biometric photograph on the register. This will of course increase cost and time which does not sit with the ‘everything in an instant’ and ‘as cheaply as possible’ culture we live in, in this digital age