Notice from the Law Society
28 June 2018
In light of recent publicity surrounding the e-conveyancing email fraud affecting PEXA subscribers, the Law Society of NSW wishes to inform members of the profession that Lawcover insures against such fraud.
While individual matters will depend on the facts of the case and the terms and conditions of the relevant policy, the following should provide some reassurance about the extent of your insurance coverage if you hold a relevant insurance policy with Lawcover.
It is important to note that:
- Lawcover’s professional indemnity insurance (PII) policy covers third-party losses arising from an alleged e-conveyancing error, where the lawyer is at fault.
- Lawcover’s group cyber risk policy is focused more on a law practice’s costs and expenses arising from a cyber event (as defined in the group cyber policy) and loss of business income directly arising from a cyber event.
Lawcover has been aware of this type of email fraud for some time. Lawcover reiterates its warning to law practices to be aware of, and prepared for, the risks of email impersonation fraud and follow steps to avoid becoming a victim or an unwitting participant in fraudulent activity.
Further information is available at www.lawcover.com.au/cyberriskinsurance/pdf/cyber-fraud-reassurance.pdf.
We also note that PEXA has announced new initiatives to address fraud, including the announcement of a consumer guarantee, and stricter controls around new or modified user accounts. Further information is available at www.pexa.com.au/news/pexa-introduces-consumer-guarantee.
The Law Society acknowledges that this issue holds significant interest for both the public and the profession. As such, the Law Society has written to the Minister for Finance, Services and Property, The Honourable Victor Dominello MP, to express the profession’s concerns, and will be meeting with him and other key stakeholders to consider any required action, including legislative protections, to ensure any outstanding concerns are addressed.
We will keep the profession updated in this regard.
The term “electronic conveyancing” refers to a conveyancing transaction where practitioners have elected to settle electronically through the electronic platform provided by Property Exchange Australia Limited (PEXA). The representatives of the parties and their financiers participate in an electronic workspace, where:
- registry instruments are prepared and electronically signed (transfer, mortgage, discharge/release of mortgage);
- duty may be paid as a settlement disbursement;
- the balance of the purchase money and its disbursement are agreed;
- the documents to be lodged for registration are checked pre-settlement at NSW Land Registry Services (NSW LRS);
- at the agreed settlement date and time, provided the documents are in order for registration, the balance of purchase money is paid and proceeds of settlement are disbursed; and
- the relevant registry instruments are electronically lodged for registration (which usually follows that same day).
Electronic conveyancing does not cover the whole of the conveyancing transaction; just the preparation for and execution of settlement and registration. In relation to the settlement itself, the platform is essentially a virtual settlement room.
Mandatory transition to electronic conveyancing
The transition timetable to electronic conveyancing was announced by the NSW Government on 28 February 2017. This follows the earlier announcement in July 2016 of the NSW Government’s intention to accelerate the transition to electronic conveyancing. There are a number of important milestones in the timetable, allowing for a step by step transition, including:
• From 1 July 2018, a caveat can only be lodged electronically; paper caveats will not be accepted for registration.
• Stand alone transfers must also be lodged electronically from 1 July 2018.
• By 1 July 2019, any conveyancing transaction that can be lodged electronically must be lodged electronically.
The timetable for the mandatory transition to electronic conveyancing is available on the Office of the Registrar General’s website.
The principal legislation, first enacted in NSW and then replicated in participating States and Territories, is the Electronic Conveyancing National Law (ECNL).
The national regulatory framework for electronic conveyancing was developed by the Australian Registrars' National Electronic Conveyancing Council (ARNECC), a body comprised of the Registrars from all Australian States and Territories.
Two sets of Rules have been made pursuant to the ECNL:
- the Model Participation Rules (MPR), which govern the relationship between the electronic lodgement network operator (ELNO) and participants in the system, such as lawyers; and
- the Model Operating Requirements (MOR), which govern the relationship between the ELNO and the land title registries.
The activities and responsibilities of lawyers using electronic conveyancing are primarily governed by the ECNL and the MPR, but it should be noted that further refinements of the MPR and MOR are continuing.
Once adopted by a particular jurisdiction, the MPR and the MOR become the Participation Rules, and the Operating Requirements, respectively. Not all jurisdictions have the same version of these requirements and rules operating at the same time - it depends upon the system readiness and the process of adoption in that jurisdiction. Find out the Participation Rules and Operating Requirements in a particular jurisdiction.
In NSW, version 4 of both the Participation Rules and the Operating Requirements have been adopted by the NSW Registrar General and commenced operation on 27 May 2017.
For a practitioner to conduct the client’s conveyance using the electronic platform, the client must first provide written authorisation in the form of a Client Authorisation, a prescribed form in Schedule 4 of the MPR.
Through the Client Authorisation, the client expressly authorises the signing of documents on its behalf, the lodgement of documents such as transfers for registration, the financial settlement of the conveyance and anything else necessary to complete the transaction.
See further the Guidance Note on Client Authorisation issued by ARNECC.
Verification of Identity
In conjunction with the Client Authorisation, taking reasonable steps to identify the client is a keystone of electronic conveyancing. Schedule 8 of the MPR contains the Verification of Identity Standard (VOI Standard). Compliance with the VOI Standard ensures that a practitioner will be deemed to have taken reasonable steps to identify the client, that is, have the benefit of “safe harbour”. The advantage of safe harbour is the practitioner avoids the evidentiary burden of establishing he or she took reasonable steps in identifying his or her client.
The verification may be undertaken by the practitioner or may be provided by an Identity Agent. There are a number of commercial providers of verification of identity services. Practitioners need to be aware of the express contractual terms of these agreements, particularly any limits placed on the liability of the Identity Agent.
See further the Guidance Note on Verification of Identity issued by ARNECC.
Documents such as the transfer and the financial settlement statement are digitally signed in the electronic workspace using a digital certificate. A law practice Subscriber must obtain a digital certificate. The Subscriber Administrator then appoints the practitioners that will be Signers for the practice. Each Signer must then have his or her identity verified before being provided with a “Child” digital certificate. Signers are authorised to digitally sign registry instruments and the financial settlement statement. It is critical that digital certificate hardware and passwords are kept secure at all times.
Electronic certificate of title
As it is not possible to provide a paper certificate of title in an electronic workspace for settlement, a new approach is required. The shift to an electronic Certificate of Title (eCT) has already begun and by 1 July 2019 any remaining paper certificates of title will be cancelled.
ARNECC have also published Guidance Notes on other key concepts including:
• Right to Deal,
• Retention of Evidence and
• Compliance Examinations.
Electronic Conveyancing contains a number of newly created terms and acronyms. Some of the most important ones are:
ARNECC - Australian Registrars' National Electronic Conveyancing Council: A body comprised of the Registrars from all Australian States and Territories.
ELNO - electronic lodgement network operator: The party operating the electronic platform. The first ELNO is PEXA.
MOR - Model Operating Requirements: The rules governing the relationship between the ELNO and the land title registries.
MPR - Model Participation Rules: The rules governing the relationship between the electronic lodgement network operator (ELNO) and participants in the system such as lawyers.
PEXA - Property Exchange Australia Limited: The company providing the electronic platform and the electronic platform system itself.
Subscriber: A person or entity authorised to conduct electronic conveyancing transactions using the ELNO on behalf of a client, such as solicitors or conveyancers, or on their own behalf, such as financial institutions and government agencies.
PEXA is both the company providing the electronic platform and the electronic platform system itself. As at 1 January 2018, PEXA is the only electronic lodgment network operator (ELNO) operating in NSW.
The company PEXA was formerly known as NECDL and, like ARNECC, has its genesis in an Intergovernmental Agreement signed by participating jurisdictions.
PEXA, the company, is limited by shares and its key shareholders are the Victorian, New South Wales, Queensland and Western Australian Governments, as well as the ANZ Bank, Commonwealth Bank, National Australia Bank, Westpac, and Macquarie Capital, together with the Link Group and the Little Group.
Information about how to register with PEXA is available on PEXA’s website.
Additional useful information can be found in the PEXA Community.
Apart from understanding the regulatory framework and signing the PEXA documentation, significant preparation work will need to be done by practitioners wishing to participate in electronic conveyancing.
Arrangements will need to be made for verifying the identity of the Subscriber and its Signers, obtaining digital certificates from PEXA or Symantec, registering the firm’s trust account with PEXA and designating staff members for the various roles required within the PEXA system. This includes the appointment of a Subscriber Administrator to manage the issue, maintenance and revocation of the firm’s digital credentials for use with electronic conveyancing, among other duties. This is a vital role as the misuse of a firm’s digital credentials may leave the firm liable for the consequences.
• The Office of the Registrar General’s website
• Preparing your practice for e-conveyancing by Mark Swan, March 2015 LSJ, pages 92-93
The Contract for the Sale and Purchase of Land has since the 2014 Edition included clause 30 to assist the profession engage in electronic conveyancing. To purchase the Contract for the Sale and Purchase of Land go to the ECOS portal.
Civil liability for electronic conveyancing work undertaken by a law practice will be covered by the Lawcover professional indemnity insurance policy if it arises from the provision of a legal service by the law practice. However, cover does not extend to liability arising from a dispute with PEXA, such as over a term of any agreement or other arrangement entered into with PEXA, that is not in connection with the provision of a legal service by the law practice. "Legal service" commonly means services provided to clients in Australia or outside Australia.
A law practice will also be covered if engaged as an Identity Agent and a Verification of Identity check is performed in the provision of a legal service to a client, notwithstanding the client in this instance is another law practice.
Entitlement to indemnity for a claim under the Lawcover professional indemnity insurance policy is always subject to the terms and conditions of the policy current at the time the claim is made.
Can I use my existing trust account for PEXA?
Practitioners can use an existing trust account for PEXA transactions provided the trust account is registered with PEXA. Purchaser clients will no longer be able to provide practitioners with additional funds for settlement by providing a bank cheque for settlement. All funds for settlement must be provided electronically through the electronic workspace. View further details for registering your trust account with PEXA.
For practitioners who do not have a trust account, PEXA will provide a PEXA Source Account for deposits to be made by purchaser clients directly. Note that clients must deposit the funds so that cleared funds are available in the PEXA Source Account not less than 3 business days before the date of scheduled settlement.
Will my trust accounting obligations be satisfied using PEXA?
The PEXA platform will provide a printable record of the transactions undertaken on the practitioner’s trust account and the PEXA Source Account. These printable records must be retained as part of the trust account records for the matter.
See “Electronic Conveyancing - A Trust Money Perspective”, prepared by the Trust Accounts Department of the Law Society.
• Greater assurance and protection for parties that dealings will be registered almost immediately after settlement, avoiding the risk inherent in delays
• Reduction of risk associated with using cheques for settlement
• Reduction in time and cost spent chasing mortgagees (both discharging and incoming) and other parties, with the increased transparency of parties’ readiness to settle through the workspace
• Elimination of the time and cost involved in instructing staff or agents and their attendance at physical settlements and lodgement at land registries
• Multiple updates as to any activity on the title post exchange
• Less reliance on payout figures provided on the morning of settlement with the workspace facilitating an agreed range for the payout figure
• Access to pre-settlement lodgement checks, reducing post-settlement requisitions from NSW LRS
• Immediate distribution of the proceeds of sale post-settlement.