LAND LAW Assignment - electronic conveyancing PDF

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electronic conveyancing...

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Introduction on the operation of the electronic conveyancing system in Victoria with specific reference to the registration of a fee simple a mortgage. (focuses on the operation of the system and policy issues in relation to land registration 700052061 INTRODUCTION

The goal of Sir Robert Torrens was to develop a secure and user-friendly system of conveyancing. 1 Digital innovations shaping the way society operates has since resulted in the creation of an electronic conveyancing system designed to facilitate the transfer of property transactions in a timely and cost-effective manner.2 This essay purports to introduce the concept of electronic conveyancing, with Part I focusing on the features of the electronic system. The specific requirements necessary to register property transactions are outlined in Part II. Finally, the implication of an electronic system on fraud and indefeasibility principles will be discussed in Part III and IV respectively. It transpires that while developing a digital conveyancing network carries significant benefits, it also requires a high level of control and constant adaptation to technology advances.

I.

ELECTRONIC CONVEYANCING

The Electronic Conveyancing National Law (ECNL), adopted in Victoria in 2013, 3 resulted in the creation of the digital platform known as PEXA (Property Exchange Australia), now compulsory for all available property transactions. The ECNL also established an electronic lodgement network (‘ELN’), as well as ‘operators of the network, subscribers, rules and the powers of the Registrars to implement and monitor the system.’4 A. Digital instruments The platform is designed to heavily reduce the exchange of paper-based documents by allowing parties to ‘convene inside an electronic workspace which contains documents for registration together with funds required to finalise the transaction’.5 The electronically lodged document approved by the Registrar will be as legally effective as the paper counterpart and will therefore 1 Rob Thomas, Lynden Griggs and Rouhshi Low, ‘Electronic conveyancing in Australia- is anyone concerned about security?’ (2014) 23 Australian Property Law Journal 1, 3 ; Elizabeth Mary Petsinis (n 5) 67.

2 Nikki Robinson and Angus Roy, ‘Who are you and how can you prove it? The evolving requirements for

verification of identity rules’ (2017) 21(5) InHouse Counsel 95, 95. 3 Electronic Conveyancing (Adoption of National Law) Act 2013 (Vic) (‘Electronic Conveyancing Act Vic’). 4 Sharon Christensen, ‘National Electronic Conveyancing- Outline of the National Law and Rules’ (2012) 27(3) Australian Property Law Bulletin 37, 39. 5 Elizabeth Mary Petsinis, ‘A land transfer registration revolution? Exploring the opportunities and limitations for implementing the blockchain in electronic land transfer transactions in Australia’ (2018) 27 Australian Property Law Journal 65, 73.

700052061 obtain the benefit of registration.6 Certificates of title are held as electronic folios (eCt) on the electronic system, evidencing the particulars written in it as well as the transactional history. 7 Subscribers are defined as authorised under a participation agreement to use an ELN to complete a transaction, and include such as lawyers, conveyancers and financial institutions.8 They must comply with the Model Participation Rules (‘MPR’) which have been developed by the Australian Registrar’s National Electronic Conveyancing Council (ARNECC).9 These MPR are adopted the Registrar of the State, and subject to regular updates.10

B. Digital signatures Digital signatures are rendered possible through a use of a ‘signing key’. This is used to authenticate the subscriber, and identify whether any alterations were made to the document since it was signed.11 Subscribers will require authorisation from their clients prior to signing and lodging any registry documents or completing any associated financial transaction.12 While the digital signature deems any law relating to the execution, signing, witnessing, attestation or sealing of documents to have been fully satisfied,13 the possibility that a subscriber would simply deny any responsibility for a fraudulent signature had to be addressed.

C. Attribution rules

6 Electronic Conveyancing (Adoption of National Law) Act 2012 (NSW) Appendix cl 9(1); Electronic Conveyancing Act Vic (n 3) s 4; Sharon Christensen (n 4) 38. 7 Russell Cocks and John Barry, ‘Electronic Conveyancing: Challenges for the Torrens system’ (2001) 8 Australian Property Law Journal 1, 6. 8 Electronic Conveyancing (Adoption of National Law) Act 2012 (NSW) (‘Electronic Conveyancing Act NSW’) Appendix cl 2.1. 9 Sharon Christensen (n 4) 37. 10Department of Environment, Land, Water and Planning (Vic), Registrar’s Requirements for Paper Conveyancing Transactions (Version 7, 11 July 2019) 4.2 ; Australian Registrars National Electronic Conveyancing Council, Model Participation Rules (Version 5 ,21 December 2018) < https://www.arnecc.gov.au/publications/model_participation_rules>. 11 Simon Libbis, ‘The development of e-conveyancing in Australia’ (2011) 26(1) Australian Property Law Bulletin 2, 4. 12 Electronic Conveyancing Act NSW (n 8) cl 10(2). 13 Ibid cl 9(3).

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700052061 Attribution rules were created to support the integrity of the electronic conveyancing framework and remove the need to check the validity of every signature. 14 A document signed electronically will be deemed to be signed by the subscriber and binding on both the subscriber and person who authorised it.15 While the digital signature may be repudiated under certain circumstances, liability will nevertheless still be attributed to the subscriber in the event that a person with authority to sign, such as an agent or employee, acts fraudulently or negligently, an issue discussed further below. 16

II.

REGISTRATION

The PEXA system has provided a convenient network to digitally process not only legal instruments but also financial transaction including property transfers, mortgages, and caveats. 17 However, not all paper transactions have been eliminated and evidence of supporting documentation that is not lodged electronically must be kept for a period of seven years.18 A. Client Authorisation Prior to registering a fee simple, a client authorisation form must be completed. It represents proof of the authority given to the conveyancing representative acting on the client’s behalf to sign, lodge, and deal with all the relevant property transactions such as land transfers, mortgages and lodgements of caveats, as well as authorise financial settlements.19 A representative must not only take reasonable steps to verify their clients’ identity, it must also ensure the signature is that of the client.20 Further, reasonable steps must be taken to verify that clients have the right or authority to enter into the conveyancing transaction.21 This illustrates a shift of responsibility as clients no longer sign the relevant instruments themselves. Clients now rely on the representative that they have authorised to act carefully and diligently.

14 Sharon Christensen (n 4) 39. 15 Electronic Conveyancing Act NSW (n 8) cl 12(1). 16 Ibid cl 12(2). 17 Stephen Pallavicini and Marie Boustani, ‘Electronic conveyancing in NSW- an Introduction’ (2015) 30(3) Australian Property Law Bulletin 34, 35. 18 Department of Environment, Land, Water and Planning (Vic), Registrar’s Requirements for Paper Conveyancing Transactions (Version 7, 11 July 2019) 4.2 . 19 Ibid 8; Stephen Pallavicini and Marie Boustani (n 24) 35. 20 Department of Environment, Land, Water and Planning (Vic) (n 18) 8. 21 Ibid 3.2.2.

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700052061 In Trani v Trani (No 2) (2019) 59 VR 362, the Supreme Court of Victoria recently held in a conveyancer 15% liable for failing to comply with the identification requirements. The conveyancer signed the transfer of land on the false representation that a sister had authority to act on her brothers’ behalf. The fraud, in that case, would have easily been prevented had the conveyancer complied with these reasonable steps. B. Verification of identity The introduction of verification of identity requirements is a significant step towards preventing identity fraud. Therefore, prior to registering a fee simple and providing, if required, a paper certificate of title, solicitors or conveyancer must verify the identity of the client they are purporting to represent. 22 The Registrars’ rules provide that a subscriber must take reasonable steps to verify the identity of clients, mortgagors, and persons to whom certificates of title are provided, either through the verification of identity standard, or some other way that constitute reasonable steps.23 Schedule 1 of the Registrar’s rule provides the relevant document categories which would constitute reasonable steps. In Victoria, verification of identity requires a face-to-face interview in order for the verifier to correctly confirm the identity of the person being identified.24 The obligations extend further in case of a body corporate, whereby the verifier must not only confirm the existence of the body corporate, but also take reasonable steps to ensure the person being verified is authorised to sign on behalf of the body corporate.25 While these identity requirements do fall short of a ‘biometric scanning device’ which would provide additional accuracy and security, they provide a rigorous safety mechanism for identity fraud.26 Indeed, in Trani, a careful authority check would have resulted in a requirement to verify the brothers’ identity, and would likely have prevented the fraud that eventuated. C. Benefits

22 Ibid. 23 Ibid 3.12-3.13, sch 1. 24 Ibid sch 1 cl 2. 25 Ibid sch 1 cl 5; Perebo Pty Ltd v Wayville Residential Investments Pty Ltd [2019] SASC 35. 26 Rob Thomas, Lynden Griggs and Rouhshi Low, ‘Electronic conveyancing in Australia- is anyone concerned about security?’ (2014) 23 Australian Property Law Journal 1, 5.

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700052061 Electronic registration results in a significant reduction in paperwork, as parties are no longer required to lodge the certificate of title with the Land Titles office, instead relying on a digital version.27 All aspects of the transaction including lodging fees and stamp duty are also completed digitally.28 The lapse of time between settlement and registration is minimal, promoting buyer’s confidence that their acquired titles are indeed registered, and no prior proprietary interests have been claimed. The online settlement process has also removed the need for bank cheques, instead providing immediate transfer of funds, as well as the ability to log into the network from any location. 29 Further, the data stored in PEXA is verified against the registry system and automatically updated, eliminating human errors associated with the paper-based system. 30 The time-saving, financial benefits and accuracy of the electronic conveyancing system is evident, and to the advantage of buyers, seller, and professionals involved property transactions. However, no system is ever risk-free. Indefeasibility and fraud principles may still arise despite a stringent security system in place.

III.

FRAUD

The electronic system, restricted to subscribers with a digital key secured by a PIN, represents a great obstacle to potential hackers, which will likely significantly reduce fraudulent transactions by outsiders.31 An important implication of the electronic system is that clients are no longer required to sign the land title documents, rather they must authorise their chosen representative subscriber to sign on their behalf.32 In a manual registration system, the registered proprietor was required to keep their certificate of title safe33, whereas is the present electronic system, the subscriber must keep their digital signature safe, in order to protect the certificate of title.34 It is therefore evident that liability 27 Lisa Spagnolo, Ann Monotti, Christopher Lane and Sharon Rodrick, ‘The Mysterious s 74(5)’ (2020) 28 Australian Property Journal 75, 76; Terence Wong, ‘Electronic signatures- concepts and uptake- Part 2- High volume transactions’ (2015) 2(6) Australian Media, Technology and Communications Law Bulletin 90, 92. 28 Lisa Spagnolo, Ann Monotti, Christopher Lane and Sharon Rodrick, ‘The Mysterious s 74(5)’ (2020) 28 Australian Property Journal 75, 91. 29 Sharon Christensen and W D Duncan, ‘To tender or not to tender: When is a party ready, willing and able for electronic settlement?’ (2016) 25 Australian Property Law Journal 22, 23. 30 Russell Cocks and John Barry (n 7) 2. 31 Roushi Low, ‘From paper to electronic: Exploring the fraud risks stemming from the use of technology to automate the Australian Torrens System’ (2009) 21(2) Bond Law Review 107, 120. 32 Department of Environment, Land, Water and Planning (Vic) (n 18) 8.2. 33 See eg, 34 Roushi Low (n 33) 123.

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700052061 for fraud or negligence has heavily shifted towards subscribers themselves. Restricting the number of employees or agents (defined as signers) that are authorised to sign on the subscribers’ behalf, as well as stringent safe keeping practices should therefore be heavily considered.35 Verification of identity becomes incredibly relevant to curtail identity fraud which cannot be prevented by the electronic network itself. Fraud perpetuators will be required to forge the signature on the authorisation form itself rather than the land title instruments, therefore any inconsistencies should be identified prior to registration.36 However, client representatives may not have the necessary skills to recognise criminal activity such as the production of high-quality, fake identity documents, that are enabled through advanced technology. 37 A defrauded registered proprietor may, however, be entitled to indemnification to the value of the estate immediately prior to the amendment of the Register 38, provided that it was not caused by fraud or wilful neglect of the solicitor or conveyancer.39 At this stage, there is no admission of the PEXA network having been hacked, however, criminal access to the system through the fraudulent interception of emails has raised security concerns, which highlights the importance of due diligence by clients’ representatives working within an electronic network.40

IV.

IMPACT ON MORTGAGE INDEFEASIBILITY

A. Certification of mortgage

35 Ibid; Sharon Christensen (n 4) 39. 36 Roushi Low (n 33) 125. 37 Ibid 129. 38 Lisa Spagnolo, Ann Monotti, Christopher Lane and Sharon Rodrick (n 30) 94; Transfer of Land Act (n 39) s 87D. 39 Transfer of Land Act 1958 (Vic) (‘Transfer of Land Act’) ss 87D, 110(1)(3). 40 Simon Johanson, ‘MasterChef finalist caught in conveyancing hacker attack’ The Sydney Morning Herald (online June 22 2018) .

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700052061 Registration of a legal mortgage through the PEXA system is comprised of two components. Firstly, a paper instrument is signed by, or on behalf of the mortgagor if authorised. Then an electronic version is lodged for registration.41

The mortgagee must not only have signed and be in possession of the written mortgage, but also certify that a mortgage has been granted by the mortgagor, that is in the same terms as the mortgage lodged for registration.42 If the mortgagee is represented, the representative will sign the mortgage and make those certifications.43 Further, the certifier must be satisfied that the mortgagee it represents has taken reasonable steps to verify the identity of the mortgagor. Compliance will ensure the registered digital mortgage is legally enforceable.44

B. Indefeasibility

The principle of immediate indefeasibility on registration is a fundamental component of the Torrens System.45 The principle is not undermined by the electronic system, although it is now intricately connected to verification of identity requirements.46 Fraud, in relation to the registration of a fee simple, remains an exception to indefeasibility. 47 However, an aggrieved mortgagee may no longer be able to rely on fraud to enforce their interest in the relevant estate.48

41 Shannon Davies, ‘When the register is not everything’ (2015) 24 Australian Property Law Journal 327, 330. 42 Department of Environment, Land, Water and Planning (Vic) (n 18) sch 4, 5; Transfer of Land Act 1958 (Vic) (‘Transfer of Land Act’) s 74(1A). 43 Department of Environment, Land, Water and Planning (Vic) (n 18) 9.3. 44 Ibid Certification Rules 5. 45 Breskvar v Wall (1971) 126 CLR 376 ; Gerard Cassegrain Pty Ltd v Cassegrain (2015) 316 ALR 111; Sam Boyle, ‘Fraud against the registrar: ‘Why the De Jager line of authority is incorrect, and how unfairness in the Torrens system caused it to arise’ (2015) 25 Australian Property Law Journal 305, 311. 46 Roushi Low and Lynden Griggs, ‘Immediate indefeasibility- Is it under threat?’ (2011) 19 Australian Property Law Journal 222, 224. 47 Transfer of Land Act 1958 (Vic) (‘Transfer of Land Act’) s 42; Gerard Cassegrain Pty Ltd v Cassegrain (2015) 316 ALR 111 [106]. 48 Natalie Skead and Penny Carruthers, ‘Fraud against the registrar- An unnecessary, unhelpful and perhaps, no longer relevant complication in the law on fraud under the Torrens System’ (2014) 40(3) Monash University Law Review 821, 849.

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700052061 The express reference to reasonable steps in relation to identity verification has been implemented in the Transfer of Land Act 1958 (Vic).49 Compliance with the verification of identity requirements will not disturb the indefeasibility of a registered mortgage, as recently held by the Supreme Court. 50 On the other hand, failure of a mortgagee to take reasonable steps to verify that the authority and identity of the person registering, or transferring a mortgage, is identical to that of the registered proprietor securing the debt, as well as complying with certification rules above, may render the mortgage void or incapable of registration.51 The Registrar retains this discretion, despite the fraud not being capable of being brought home to the mortgagee.52 This illustrates the importance placed on the rules and procedures of the Registrar to maintain the integrity of the electronic conveyancing system.

CONCLUSION The legal framework supporting the electronic conveyancing system has aimed to streamline conveyancing into a simple, secure and cost-effective process benefiting not only legal practitioners and financial institutions, but each society member involved in property transactions. 53 Achieving this goal was imperative in a digital era where ‘land transfer and secure property ownership is a critical component of the economic infrastructure’.54 Th system, whilst very secure, is not infallible, and no doubt fraudster will find new opportunities to act.55 The liability having shifted heavily towards the subscribers themselves illustrates the need for rules and procedures, with particular emphasis on identity verification, to be strictly and diligently complied with. Failure to comply may disturb the indefeasibility of a mortgagee’s interest and may render a subscriber personally liable for fraudulent or negligent transaction.

49 Transfer of Land Act (n 42) s 87A-B. 50 Perebo Pty Ltd v Wayville Residential Investments Pty Ltd [2019] SASC 35 [44]. 51 Transfer of Land Act (n 39) ss 87B(3)-(4). 52 Lisa Spagnolo, Ann Monotti, Christopher Lane and Sharon Rodrick (n 30) 77. 53 Elizabeth Mary Petsinis (n 5) 73. 54 Rob Thomas, Lynden Griggs and Rouhshi Low, ‘Electronic conveyancing in Australia- is anyone concerned about security?’ (2014) 23 Australian Property Law Journal 1,1. 55 Natalie Skead and Penny Carruthers, ‘Fraud against the registrar- An unnecessary, unhelpful and perhaps, no longer relevant complication in the law on fraud under the Torrens System’ (2014) 40(3) Monash University Law Review 821, 852.

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700052061 Whilst at this time, fraudulent incidents have not been linked to the electronic network itself, there is no doubt that the present regulatory requir...