LEGAL SERVICES COMMISSION (CHARGES ON LAND) AMENDMENT BILL

Second Reading

Adjourned debate on second reading.

(Continued from 27 September 2011.)

The Hon. G.E. GAGO (Minister for Regional Development, Minister for Public Sector Management, Minister for the Status of Women, Minister for Consumer Affairs, Minister for Government Enterprises, Minister for Gambling) (15:46): I do not believe there are any further second reading contributions, so I will make a few concluding remarks. First, I want to deal with two main questions asked in the debate, and then briefly conclude.

One of the questions asked by the Hon. Stephen Wade was: why not treat the charge as a mortgage only, rather than an encumbrance? The Attorney-General explained in detail why that is not appropriate in a letter to the Hon. Mr Wade on 22 September, and I will give an overview of what the Attorney-General has said.

Except in section 135A, part 12 of the Real Property Act (which deals with mortgages, encumbrances and discharges) treats mortgages and encumbrances equally, making no distinction between them, but section 135 applies to applies to encumbrances only. In securing legal assistance costs that cannot be quantified at a particular point in time and may fall due for repayment after the charged land is sold, the charge is more akin to an encumbrance than to a mortgage and corresponds in all respects with the kind of instrument contemplated by section 135A of the Real Property Act.

If section 18A is to be clarified by these amendments, then the careful wording used in the proposed section 18A(6a) (by which a charge is taken to be an encumbrance for the purposes of section 135A) should be retained. In relation to retrospectivity, the Hon. Stephen Wade and the Hon. Mark Parnell also queried why the bill should apply retrospectively. The Attorney-General has provided this response: the reason these amendments to section 18A should apply retrospectively is that they clarify the legal effect of section 18A, but do not change it.

The rule is that an amendment that simply clarifies the legal effect of a section but does not change it must apply retrospectively because the amendment is saying that this is, and always has been, the legal effect of the section. I understand that that is the custom and practice at present, and since the act has been in place, so this practice currently exists.

By specifically providing that amendments apply retrospectively, a transition clause, such as the one in this bill, announces that the law being amended has not changed and that these amendments simply clarify what has always been. If there were no transition clause to make the clarifying amendments apply retrospectively, or if the transition clause deliberately prevented the amendment applying retrospectively, as would be the case under the honourable member's proposed amendment, the bill will appear to be making changes to the legal effect of section 18A when in fact it does not. This could cause confusion when people read the act, particularly over time as the reason for the amendment is forgotten.

If the amendments did not state that they were to apply retrospectively, other mortgages, charges, purchasers and public officials may be misled into believing that the provisions of part 12 of the Real Property Act do not apply to the commissioner's charge. This could lead to the following situations: assume land that is owned by legally assisted person X has a pre-existing mortgage to Y registered on the certificate of title when the commission places a charge on the title. Another mortgage to Z is subsequently registered on the title. Y then exercises the power of sale and from the proceeds pays out itself and also the money owed to Z in the belief that Z's mortgage has priority over the commission's earlier mortgage.

Assume that after doing so there is nothing left—or not enough left to pay out the commission in full. Under section 136 of the RPA the purchaser from Y obtains a title that is clear of Y and Z's mortgages and the commission's charge. So there is the potential to actually lose money to the commission. In the alternative, assume that Z exercises the power of sale under its mortgage and pays out Y and itself in the belief that its mortgage has priority over the commission's charge: again there is nothing left to pay the commission. A certificate of title issues to the purchaser that does not mention the charge because the Registrar-General believes that the effect of section 136 is that the purchaser obtains a title that is clear of Y and Z's mortgages and the commissioner's charge, which in fact would only be clear of Y and Z's mortgages, and the debt to the commission is still payable.

In both scenarios the commission has lost the share of the sale proceeds that should have been received ahead of Z and no longer has security of charge registered on the title. The likelihood of this happening will be greatly reduced if the amendments apply retrospectively, because then there can be no doubt about the legal effect of the charges already registered over the land before these amendments commence. I do not believe we are trying to say that there is likely to be many of those sorts of circumstances. However, there could be some and that is a loss of revenue for the commission, which is unfair and should be avoided and prevented.

Briefly summarising the effect of the bill: when registered on the title of the charged land, the statutory charge secures the cost of legal aid by permitting the commission to recover those costs and deal with the charged land in the same way as would a registered mortgagee or an encumbrancee under the Real Property Act. If that were not the intended effect, there would have been no point in section 18A providing for registration of the charge under the Real Property Act.

The problem that this bill seeks to overcome is that section 18A does not spell out that effect in so many words. In some cases this has resulted in mortgagees selling the charged land and not paying out the charge. The amendments in this bill clarify the legal effect of a section 18A charge under the Real Property Act by cross-referencing section 18A to the relevant sections of the Real Property Act 1886. The aim is to prevent any further confusion about the legal effect of the charge and so avert this risk to the recovery of legal assistance costs.

The amendments do not change the legal effect of the statutory charge. Because the amendments simply clarify the law, they must apply retrospectively. If the amendments did not apply retrospectively it may appear that the amendments do change the legal effect of the charge and the very confusion that has occurred in the past is likely to occur again. With those few words I commend the bill to the house.

Bill read a second time.

Committee Stage

In committee.

Clause 1.

The Hon. S.G. WADE: I would like to respond to the minister's comments in relation to the letter from the Attorney-General, at this stage only in relation to the encumbrance. I can confirm that we did receive a letter, and we appreciate the short summary by the minister—which is shorter than the Attorney's letter—and I can indicate to the committee that the Law Society has also had similar communication and agrees with the Attorney-General that the approach in the bill is appropriate.

Clause passed.

Clauses 2 to 4 passed.

Schedule 1.

The Hon. S.G. WADE: I move:

Page 3, lines 3 and 4—Delete

'apply, after the commencement of section 4, in relation to charged land whether the charge was created before or after that commencement' and substitute:

only apply in relation to a charge on land created after the commencement of section 4.

I would like to briefly respond to the minister's comments. It would be fair to say that both the government and the opposition are of the view that this bill does not affect the legal rights of people; indeed, it clarifies the legal rights of people vis-a-vis the Legal Services Commission. However, in the Liberal Party we have a strong view—and we have had it for many years—that retrospectivity clauses, in other words clauses that legally bind a provision to have retrospective effect, should only be used in rare cases when it is strongly necessary.

The necessity the government is suggesting in this case is clarity. Clarity can be achieved in other ways. You can put in marginal notes that say (whatever the word is in parliamentary counsel terms) that this provision does not affect the legal rights pre-existing. However, if the opposition and the government are wrong for whatever reason and the substantive provisions do cause an effect, cause a change to the legal rights, the government's option of putting the clarifying within the substantive provision affects the legal rights of South Australians. We believe that is inappropriate. We believe you are entitled to act by the law at the time you make a transaction, and that you should not be adversely affected by subsequent acts.

I appreciate that the minister made some comment about rules and customer practice; I do not know exactly to what she is referring, but I can assure the committee that the custom and practice of the Liberal Party is to be very suspicious of retrospective clauses and only to support them when there is a strong case for them. Mere clarification is not sufficient, so we will be moving this amendment.

The Hon. G.E. GAGO: The government opposes this amendment. I have already, I think, outlined in considerable detail—

The Hon. S.G. Wade: Sorry. Actually, Ann Bressington wasn't here. She might want to listen.

The Hon. G.E. GAGO: I could go through those two scenarios again, Ann, but I do not think it would be particularly clarifying. However, the simple—

Members interjecting:

The Hon. G.E. GAGO: Pardon? I guess the threshold reason for the government opposing this is that the rule is that an amendment that simply clarifies the legal effect of a section—which is what this bill is doing, it is a clarifying effect—but does not change it must apply retrospectively because the amendment is saying that this is and has always been the legal effect of this section.

That has been the custom and practice in the past. It has always been in place that these fees are paid. It has been in place since the time that this bill has been in place. It is well established in the industry. No-one is disputing that. There is some ambiguity from time to time—not often, but from time to time. This amendment helps close that loophole once and for all, but it only has a clarifying effect. It does not actually change what is applying.

The Hon. S.G. WADE: I hope it is not closing a loophole because that would suggest it actually does something and we think it is only clarifying. Just for my edification, could the minister clarify, when she says, 'the rules and the customs and practice', is she referring to the rules and customs and practice of parliamentary counsel? What are the 'rules' and the 'must'? That is what I am wondering. I suppose I am asking that in the context that our parliamentary party, since time immemorial, has not had that customary practice.

The Hon. G.E. GAGO: I have been advised that the rule that I refer to is in fact a very general legal policy principle that is considered to be a common-sense principle by people like parliamentary counsel who draft laws. I understand it is a fairly well-established practice.

The Hon. M. PARNELL: It is certainly a very complex area of law that we are debating because if the opposition is correct and we have an alteration of legal rights retrospectively, then it is something to be opposed. If the government is correct—and, in fact, we have a clarification of the legal rights that everyone has always assumed was the case—then it is not retrospective and, therefore, there is less of a case for cutting out what appears to be the retrospective clause.

I guess just to get this in clear context, we are talking about people who have received legal aid; they have not been able to pay. The Legal Services Commission has put a note on their certificate of title saying, 'The owner owes $5,000', and, as I understand it, the expectation has always been that that particular charge, on the face of it, would mean what it says, which is that the Legal Services Commission will not agree to the property being sold until they get their money back and that will be a condition for them releasing the charge—or like a caveat, as the Hon. John Darley and I were just discussing before.

The problem, as I understand it, is more to do with the relative order of things on the title and the fact that the Legal Services Commission runs the risk of missing out on getting its money in the appropriate order because of a potential way of interpreting these charges. As I understand it, that is the problem.

So, perhaps the common-sense test that we could apply is: would anyone think that that was the case? Would they act on that as the case? Would someone loan money to a person, look at the title and say, 'I see there is one of those Legal Services Commission charges on the land. I reckon I can get around that, and therefore it is safer for me to loan money because I reckon my mortgage will take priority over that'? If people are modifying their behaviour to take advantage of what might be a lack of clarity or a loophole, which was a word that was used, then that puts it back into the category of retrospectivity because people are actually making decisions and we are changing the law on them.

I have to say, despite the Hon. Stephen Wade's efforts here, I am not entirely convinced that this is a true retrospective clause that truly alters the legal rights of the parties. By parties we are talking about the Legal Services Commission who want their money and other people who might have loaned money against the property and, therefore, have mortgages or other charges. So, unless there is something new or I have entirely missed the point here, I am not inclined to support the amendment at this stage.

The Hon. S.G. WADE: Yes. I think I might resort to the Law Society's letter rather than argue on my own. The Law Society on this matter says that the transitional provision in the bill, which is the schedule we are talking about:

...seeks to make the changes retrospective and to apply to LSC charges created before or after the commencement of the amendments. In the Society's view, such retrospectivity would be unfair—

in other words, the Law Society opposes this—

to mortgagees or encumbrancees who have existing registered interests that are subject to LSC charges. The amendments made by this Bill will have the effect of entitling the LSC to a distribution of sale proceeds under Section 135 of the RPA in priority to subsequent mortgagees and encumbrancees. That entitlement does not exist at present. Existing mortgagees and encumbrancees should be entitled to rely on the legal position as it was at the time they registered their mortgages or encumbrances. They may have advanced loans or incurred other detriment on the basis that their entitlement to sale proceeds would not be postponed to a prior LSC charge, as is the current position.

Accordingly, in our opinion, the amendments should not be retrospective but should only apply to LSC charges registered after the date of the commencement of the amendments.

The Hon. M. PARNELL: I thank the Hon. Stephen Wade for reading that out. At the heart of it, I think, is an assumption which I find difficult to believe in practice. That assumption would be that a bank, for example, knew that there was a difficulty with the Legal Services Commission's ability to get their money and that they either loaned more, or even loaned at all, on the basis of an understanding of this difficulty with the Legal Services Commission charge.

I will bet you that no lender has done that. If any lender has done that, then let them come forward. Let a bank or a building society come forward and say, 'Yes, we regularly see these Legal Services Commission charges and we know that we can sneak in ahead of them; therefore, we lend more money than we otherwise would.' I just cannot conceive that that has happened, and if it has not happened then I do not think that anyone has been disadvantaged and that this is, as the minister has said (on her advice), a clarification rather than a substantial alteration of rights. So, I am still not supporting the amendment.

The Hon. G.E. GAGO: I put on the record that the Hon. Mark Parnell's summary of the effect of the bill and the amendment is correct. It is an extremely succinct summary, so thank you for that. It is also consistent with the advice that we have received from the Crown.

Amendment negatived; schedule passed.

Title passed.

Bill reported without amendment.

Third Reading

The Hon. G.E. GAGO (Minister for Regional Development, Minister for Public Sector Management, Minister for the Status of Women, Minister for Consumer Affairs, Minister for Government Enterprises, Minister for Gambling) (16:12): I move:

That this bill be now read a third time.

Bill read a third time and passed.