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Issues for directors in the shift to electronic land dealings

05 June 2009

Companies may need to review their delegated financial authorities to catch up with the implications of the shift earlier this year to mandatory electronic dealing through the Land Transfer Act regime.

Put simply, a governance breakdown could result in an inadvertent alienation of land which may prove very difficult to unwind because, in registered land dealings, the recipient takes indefeasible title regardless of any procedural defects – subject only to a few exceptions (such as, fraud). 

There is now a risk that a land dealing could go through without the board’s knowledge or the knowledge of a person to whom the board has expressly delegated authority through a formal power of attorney – as is often the case with larger corporates or corporates operating businesses which require a high volume of land dealings; for example, banks.    

Formerly paper instruments dealing with land had to be signed either by two directors, by an attorney in front of a witness or, where there was only one director, by that director in front of a witness.  Now the relevant document is not the instrument, which exists in electronic format only, but the Authorisation and Instruction (A&I) Form that the company gives to a lawyer to create and register the instrument.

While there were previously clear statutory provisions in the law regarding who was authorised to sign an instrument, there is no equivalent provision now for who is authorised to sign an A&I Form. 

This absence is difficult to fathom and may be due to a simple drafting oversight, as the logic which drove the earlier rules still pertains.  The A&I Form will lead to the creation of an instrument which, once registered, will be deemed to be a deed with all the consequent legal effects.  The ownership interest thus created will have indefeasibility and will not be able to be unwound on procedural or technical grounds.

The requirement that the paper instrument had to be signed by directors meant that the board was assured of some involvement in the matter.  The dealing had to be authorised at the most senior level (or by clearly prescribed delegated authority to attorneys via powers of attorney that were lodged with Land Information New Zealand).  That assurance no longer applies.

On the flip side, the lack of prescription creates the opportunity for directors to create administrative convenience.  When reviewing delegation of authority protocols, directors can decide where they wish responsibility to lie.

By default, corporates and lawyers have in practice treated A&I Forms as if they were a paper instrument and required two directors’ signatures.  But this may not be appropriate in all cases and may not suit non-executive or professional directors who have limited availability and may know little about the particular transaction in question. 

The important thing is to establish an authorised signatory or signatories and to prescribe clearly the parameters of their authority, as the lawyer receiving the A&I is required to verify the identity and authorisation of the person giving the instruction.   Directors who took comfort from the previous rules requiring that they or two of their fellow directors signed all land instruments should now ensure that that requirement is set out in the company’s internal governance procedures.

Unfortunately and, again, perhaps due more to omission than design, the exact steps which would satisfy the lawyer’s obligation are not specified in the legislation.  To fill the gap, the New Zealand Law Society and Land Information New Zealand (LINZ) have developed and published a series of guidelines and A&I Forms setting out what constitutes reasonable steps for verification.The two A&I Forms relevant to corporates which are provided in the guidelines are:

  • a public corporate client form (for listed companies, territorial authorities, and government departments).  This form simply requires the organisation to have its authorised signatories sign the form; and

  • a form for private corporate clients.  This form imposes a more elaborate procedure in that the signatures of the authorised signatories (including directors) must be witnessed, and photographic evidence provided of the signatory’s identity (photocopy of driver’s licence, passport etc).

Although these are guidelines only, there are strong imperatives on lawyers to enforce them rigorously.  This is because the lawyer is not only personally and criminally liable but is also at risk of having LINZ remove his or her ability to register instruments and of exposing himself or herself to claims under the Lawyers and Conveyancers Act and the Land Transfer Act. 

We consider that there is an argument that private companies should have access to the less onerous public client form where they have robust and clear authorisations and internal lines of authority in place.   We understand that LINZ and the New Zealand Law Society will be considering the matter.

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