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President: The burden of client identity

Cite as: July 2012 86 (07) LIJ, p.4

Extra risk For Lawyers will increase conveyancing costs.

In my 16 years of legal practice as a principal I have had a number of junior lawyers start at my firm. Early on I provide them with a summary of what we expect. I have always stressed that the first question they must ask is who it is that we are being asked to act for – that is, the precise legal entity, including full names, ACN, ABN, and trustee capacity.

After that, the client filtering process begins. Often, like driving a car, the process becomes instinctive. Notwithstanding, we still need to turn our attention to the process every now and again.

We do already have an obligation to ensure that we know who we are being asked to act for, and that the person before us is, in fact, that person or has authority to act on behalf of that person.

Failure to do this may currently amount to negligence.

In relation to land conveyancing, there is a push to impose absolute liability on lawyers who have incorrectly verified identity even if this is as a result of third party fraud and all reasonable steps have been taken.

If you are acting in a conveyance of land, providing an independent solicitor certificate under a guarantee etc., you must currently make reasonable efforts to identify that the person signing the documents is, in fact, the person they purport to be.

If dealing with the sale of a Victorian water share, the Victorian Water Register requires that a solicitor must certify the client’s identity and sign a certificate indicating that sufficient original documentation of certain classes has been verified by the client.

Normally we do this by taking a photocopy of an original valid passport and a current photo identification such as driver’s licence, boat licence or shooter’s licence. A passport and one photo ID is normally sufficient for the 100 points required to enable a vendor to sell a Victorian water entitlement.

It should be noted that unlike land titles, Victorian water shares do not come with a duplicate certificate of title, so identity is not easily assumed by custody of that document (not that it should be assumed anyway).

It may, at first, then seem unsurprising that client identification verification will be a key requirement under the National Electronic Conveyancing System (NECS).

National E-Conveyancing Development Ltd (NECDL) and the Australian Registrars’ National Electronic Conveyancing Council released consultation papers ( seeking to impose absolute liability on solicitors as part of their intergovernmental agreement to facilitate the implementation and ongoing management of the regulatory framework.

The LIV and the Law Council of Australia (LCA) have been very vocal in raising concerns that the state registrars and NECDL are attempting to shift the risks of identity fraud from the registries onto lawyers.

The registrars may say that this is required as it will be the solicitor “signing” the document with an electronic key on behalf of the client.

If allowed to proceed, this shift of risk from the Land Registry to the lawyer would be monumental. As it currently stands, a lawyer who is negligent may be pursued. However if the lawyer takes all reasonable steps to confirm the identity of a party and is defrauded because of false documents or because they are relying on a third party to verify the document, then the lawyer would, arguably, not be liable.

Client identification verification is a real issue where clients are in remote areas or overseas. In these instances, it is not possible to have a lawyer within Australia certify identity and certify that the original documents have been sighted.

The thought of having to view the original of a publicly listed company’s register of directors or minute book, each time they are engaged in a transaction, should have brought home the ludicrous consequences of the proposal put forward under the consultation papers. Some lawyers may refuse to take the risk associated with dealing for overseas clients, even where consular officials purportedly certify the documents. Also, lawyers may choose not to take the risk if Australia Post representatives or police officers verify identity.

Shifting the risk obligations onto lawyers by making them absolutely liable for any identity fraud will increase the cost of conveyancing in Australia and the premiums associated with that risk.

The justification with respect to NECS does not explain the recently stated push by the state registrars of title seeking that lawyers take absolute responsibility for client identification verification when dealing with transfers “in paper”, that is, under the current conveyancing model.

The LIV and the LCA are continuing to make submissions in relation to the risk shifting but, regardless, we expect to see a substantial increase in conveyancing fees as a result of the burden shifting from the various state governments to the legal profession.

The Legal Practitioners’ Liability Committee also put in a submission opposing the risk shift to lawyers. Land Victoria and the CEO of NECDL also met with me on 23 May. While I am confident that the Land Registry and NECDL now better understand the issues involved and the strength of our conviction, we will now need to see how this translates to amendment to the National Electronic Conveyancing model rules.

The LIV remains concerned that the federal government will impose further obligations on us when it comes to the next tranche of the anti-money laundering legislation.


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