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Should you hand over a copy of a will to an attorney under power?

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By Donna Cooper, Ethics4lawyers

Consider the following common ethical dilemma: You have a long standing elderly client whose adult son telephones to say that he’s moving his mother into a nursing home and would like to come in to collect a copy of her will from your office this afternoon. You know the adult son and you are aware of the fact that he is the sole attorney under power for his mother as well as the sole executor of her estate. He tells you that his mother has recently lost capacity and is not capable of managing her affairs. Should you hand over a copy of the will to him when he arrives this afternoon?

‘A power of attorney will not give automatic access to the principal’s will’

The solicitor owes a duty of confidentiality to the principal regarding the principal’s affairs, including a duty to maintain confidentiality over the contents of the principal’s will. The solicitor also holds the physical will document as baliee. The principal-attorney relationship (in common law jurisdictions) has its roots in agency, which is a fiduciary relationship created by equity. Whether or not the attorney (as agent for the principal) is exercising a valid power which is within the scope of the original instrument is the subject of this ethical dilemma.

‘The role of a representative is not an unregulated one nor is the representative’s power unfettered. Many jurisdictions have codified legal and ethical responsibilities such as obligations to act honestly and with reasonably diligence; to exercise powers according to the terms of the instrument and the ascertainable wishes of the principal; to avoid conflict transactions; to keep records; and to keep property separate.’

The Powers of Attorney Act 2014 (Vic) provides that a person ‘may authorise an eligible attorney to do anything on behalf of the person that the person can lawfully do by an attorney.’ There are limitations on this however, for instance, an attorney cannot vote in an election on behalf of a principle, or consent to the marriage of a principal, or make/revoke a will. Given the previously mentioned fiduciary duty of confidentiality owed by the solicitor to the principal regarding the principal’s will, the logical conclusion is then that the attorney is not entitled to see or deal with the principal’s will unless the principal has authorised it, or it is relevant to the management of the principal’s affairs.

The Powers of Attorney Act 2014 (Vic) relevantly states that –

s.21(2) If an attorney under an enduring power of attorney is making a decision about a matter on behalf of a principal who does not have decision making capacity in relation to that matter, the attorney must –

(a) give all practicable and appropriate effect to the principal’s wishes; and …

(c) act in a way that promotes the personal and social wellbeing of the principal, including by …

(iii) respecting the confidentiality of confidential information relating to the principal.

In the above scenario, the request for a copy of the will appears to be to ensure the attorney gives effect to the principal’s (testamentary) wishes by not selling an asset which may be specifically gifted in order to fund her nursing home stay.

Some solicitors may accept the explanation of the attorney and hand over the copy will without making further enquiries. This is not recommended. (A move by a client into a nursing home does not of itself indicate incapacity.)

Making further enquiries is particularly important when there is a suspicion that an attorney could be seeking to abuse their power in some way.

As Ken Aitken states in his classic article ‘Enduring Powers and Wills’:

‘The purpose for which a general or an enduring power of attorney is given is to enable the attorney to manage the principal’s affairs. Any exercise of the power not directed to that end, although it may fall within the language of the instrument, is nevertheless, ultra vires and ineffective.

The principal’s will does not normally have relevance to the management of the principal’s affairs. The attorney cannot alter or revoke the will or make a new will.

The request is [for production of the original will] on the face of it, beyond the power conferred on the attorney. It should be declined unless the attorney can justify the request by satisfying the practitioner that production or inspection of the will, or providing information about its contents, is required for the purpose for which the power of attorney has been granted, namely management of the principal’s affairs.

Inspection of the will or giving information about its contents may be justified where an attorney contemplates the sale of the principal’s assets and wishes to know whether any of the assets is the subject of a specific devise or bequest… The practitioner should judge whether the attorney’s requirements can be met by providing a copy of the will, permitting an inspection of it or providing information about its contents… Unjustified handing over of the will or disclosure of its contents may be a breach of the duty owed by the practitioner to the principal.’

This leaves the attorney with the following options:

  • To hunt around his mother’s house for a copy of the most recent will;
  • To make an application to VCAT for an order for production of a copy of the will (or its original) whereupon VCAT will likely require the attorney to produce a satisfactory reason for wanting it.

It may seem rather ‘over the top’ to require an attorney who appears to have the best interests of the principal at heart, to trot off to VCAT to obtain an order for production of a copy of the will. In some circumstances, a solicitor may be satisfied that there is no intended abuse of the power and may be satisfied that the request is a legitimate one made by the attorney. Queensland Law Society have suggested that a solicitor may in some circumstances, provide verbal advice to the attorney as to whether an asset is subject to a specific gift in the will, but notes that this may create more problems than it solves.

The Victorian Law Reform Commission in 2013 in its Succession Laws Report stated ‘the Commission believes an application to VCAT is more appropriate than giving the holder of the will a power to inform substitute decision makers about the content of a person’s will. A legal practitioner who holds a person’s will is doing so on a strictly confidential basis.’

The guidance provided by Ken Aitken in his article back in 1999 is still considered good advice now, in that the request by the attorney ‘should be declined unless the attorney can justify the request by satisfying the practitioner that production or inspection of the will, or providing information about its contents, is required for the purpose for which the power of attorney has been granted, namely management of the principal’s affairs.’ [Emphasis added.]

More recently, the Law Institute of Victoria’s Ethics Committee considered this issue in an Ethics Committee Ruling R4839 published in 2015:

‘A law firm acted for an elderly lady in various matters.  Over time, the client conveyed very sensitive and confidential information about her fractured family to her lawyers.  She subsequently lost capacity.  One of her sons held an Enduring Power of Attorney (Financial) and demanded that the lawyers release his mother’s “titles, documents, papers and files”. Initially this included her will, but the request for the will was withdrawn.  The certificate of title to her house was released to the attorney’s solicitors to ensure that it was not sold without his knowledge.  However, the demand by the attorney to release all of the other papers and files relating to his mother, including the will file, appeared to be beyond power.  The lawyers were of the opinion that their elderly client would never authorise them to directly release any information to any members of her family, given the sensitivity of the family relationships.  The attorney appeared to consider that his role as representative of his mother permitted him to stand entirely in the shoes of the mother and that he was entitled to instruct the lawyers to do anything that his mother might have instructed.

Ruling

In the opinion of the Ethics Committee and on the information presented

  • The lawyers’ fiduciary duty is to their former client, the donor. An attorney may represent the donor client, but the attorney does not replace the donor client in the client’s relationship with the lawyer.
  • The lawyers retain residual duties to ensure the protection of its former client’s confidential information.
  • The lawyers are entitled to refuse to release the papers, documents and files it holds on behalf of the donor as requested by her Attorney.  (This includes the will and the will file.)’

In 2013, the Law Institute of Victoria Council approved Powers of Attorney Guidelines (which currently require updating post the introduction of the Powers of Attorney Act 2014 (Vic)) but which relevantly state regarding this particular issue:

‘Practitioners who have been requested by the donor to hold his or her will for safe custody are sometimes requested by an attorney to hand over the original will to the attorney. Upon receiving such a request, the practitioner should confirm that it is the wish of the donor to hand over the will to the attorney. If the donor lacks capacity to instruct the practitioner, then, as a general principle, the practitioner should not hand over the original will to the attorney. However, where the practitioner considers that an attorney has made a bona fide request for a certified copy of the will, the practitioner should provide the attorney with either a certified copy of the will or relevant part of the will, or advice as to the content of the relevant part of the will.

For example: the sale by an attorney of a donor’s property which has been specifically devised under a will raises the question of whether or not ademption applies should the property be sold during the lifetime of the donor. For this reason, a request by an attorney for a copy of the donor’s will may be legitimate.’

In our view, a solicitor should review the executed power to see if it is valid and unrevoked (and ensure that there are no contrary conditions contained in the power) and whether it expressly allows the attorney to obtain a copy of the will. If so, then a copy may be provided. If not, then the solicitor should not simply hand over the copy without further verification from the principal-client herself.

If the solicitor determines (through his/her own personal enquiries) that the principal has in fact lost capacity, then this poses an ethical problem for the practitioner. In these circumstances, the duty of confidence over the client’s documents (as set out in Rule 9 of the Australian Solicitors Conduct Rules (‘ASCRs’)), including safeguarding the contents of the will, is the primary fiduciary duty of the solicitor, and must be balanced against the solicitor’s other fundamental ethical duties, namely the requirement to act in the best interests of the client as set out in rule 4.1.1.

If the attorney is not able to satisfy the solicitor that his request for a copy of the will is for a purpose for which the power of attorney has been granted, in our opinion, the solicitor should decline to provide it. However, if the detail requested by the attorney is obviously in the best interests of the principal (ie the client) then giving the required detail may be justified under rule 4.1.1.

There may also be some merit for a solicitor to suggest to a will maker, at the time of making a will, that the will maker provide a written direction to the solicitor that, in the event of losing capacity, a copy of the will could be made available to the named executor(s) upon his/her/their written request.

This can be a tricky area to navigate, and the proper action in any given case will turn on its facts. We recommend obtaining some advice before taking any steps.

Other useful resources:

Seniors’ Rights Victoria, Assets for Care: A guide for lawyers to assist older clients at risk of financial abuse (2012).

https://assetsforcare.seniorsrights.org.au/assetsforcare/wp-content/uploads/Assets-for-Care.pdf

Tip Box

Donna Cooper is an Ethics Consultant with ethics4lawyers and an Australian Legal Practitioner. Donna was previously the Manager of the Ethics & Professional Practice Department at the Law Institute of Victoria and Secretary to the Law Institute’s Ethics Committee.

Donna enjoys assisting legal practitioners with their ethical challenges. ethics4lawyers is available to provide telephone or written ethics advice to lawyers and conveyancers. Call us on (03) 9098 8644 or email admin@ethics4lawyers.com.au.

De-regulated Contract of Sale of Land

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

What are the consequences of the sunsetting of the regulations prescribing the standard Contract of Sale of Land?

The Estate Agents (Contracts) Regulations 2008 reached their sunset date on 11 August 2018, pursuant to the Subordinate Legislation Act 1994. As a consequence, those regulations, and amending regulations in 2011 and 2014, are revoked. The standard form contract almost universally used in Victoria for the sale of land is described in those now revoked regulations as the ‘prescribed’ contract and the thought that the prescribed contract has now lost its regulatory basis would appear, at first glance at least, to be a worrying development.

However, fear not. The ‘prescription’ only relates to the form of contract to be used by a licenced real estate agent. It does not prescribe the form of contract that may be prepared by a legal practitioner or conveyancer.

Section 91 Estate Agents Act 1980 authorises the making of regulations specifying the form of contracts to be used by estate agents. For many years the Law Institute of Victoria developed a standard form contract that was adopted as the prescribed contract and printed in the Regulations for use by estate agents. In fact, estate agents, in real estate sales at least, rarely prepare their own contract and usually request a contract from the vendor’s legal practitioner or conveyancer. As the ‘prescribed’ form is acknowledged as a universally accepted form and is available without charge as a public document, it is the form in common use. Proprietary conveyancing programs are permitted to replicate the form prescribed in the regulations and the LIV and REIV sell their version of the form (with appropriate logos) to their members in print or digital form.

The revocation of the Regulations notionally leaves that minority of estate agents who choose to prepare contracts, rather than requesting them from legal practitioners or conveyancers, without a prescribed form of contract. But s 53A Estate Agents Act 1980 authorises agents to use contracts that are approved by a professional association within the meaning of the Legal Profession Act 2004 and the prescribed contract was so approved by the LIV before being prescribed in the Regulations and the revocation of the Regulation does not affect that approval, at least at present.

The short answer for estate agents concerned by this development is to stop preparing contracts and request contracts from the vendor’s legal practitioner or conveyancer. This, with respect, is simply good practice in any event.

The de-regulation has no effect on legal practitioners, who are free to adopt any form of contract, subject to other statutory constraints such as the Australian Consumer Law and Fair Trading Act 2012. Whilst the current contract does include a warranty in GC2 1 that the general conditions of the contract are identical with the general conditions prescribed in the Regulations, that warranty would appear to be unaffected by the revocation of the Regulations as proof of the form of the de-regulated contract will remain possible from parliamentary records. Thus, we can expect that the ‘prescribed’ contract will continue in general use into the near future.

Allowing the Regulations to sunset appears to have been a deliberate choice by the government. This may be due to a desire by the government to undertake wide ranging reform of the property law sector as a result of the Consumer Property Law Review 2016. That Review investigated a proposal to prescribe a form of contract of sale of land that would be obligatory for ALL sales, or at least to prescribe certain minimum terms that would be obligatory in all contracts. Whilst those proposals have not as yet seen the light of day, the decision to allow the Regulations to sunset without replacement indicates that changes might not be far away. Indeed, the government could have chosen to extend the Regulation for a further 12 months, but apparently decided not to do so.

It would be fair to say that recent changes, including CGT and GST Withholding, have resulted in unwieldy Special Conditions being introduced into the LIV contract. Whether the deregulation of the contract and the other changes that may flow from the Review will result in other forms of contract becoming common is yet to be seen but the life of a property lawyer, despite widely held expectations to the contrary, is never dull.

Tip Box

  • ‘Prescribed’ contract regulations revoked.
  • Only affects estate agents.
  • Does not affect legal practitioners or conveyancers.

Lost trust deeds

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

Many properties are held in the name of Trustees. Having access to the original Trust Deeds can present problems.

Property lawyers often have to deal with properties owned by trustees, either corporate or individuals, and this adds another layer of complication to what is regarded by the public as the ‘simple’ process of conveyancing. Often the client is not even aware that the property is owned by a trustee, or at best has a minimal understanding of the consequences of such ownership. The process is complicated even further when the transactions involves a financier, which is often the case.

The concept of a trust has been around for centuries, but its impact on day to day transactions greatly increased in the 1970s and 80s when accountants decided that the trust concept provided substantial advantages for the average taxpayer, partly as an asset protection mechanism but principally as a tax-saving device by distribution of income within the family. Hence the prevalence of the ubiquitous Family Trust that seemed to push its way between the Average Joe (or Josephine) and their assets. In fact, the asset protection motivation was quickly dissipated by financiers requiring personal guarantees in respect of trust borrowings and the tax benefits were whittled away by the imposition of maximum tax rates on income directed to infants. But like a runaway horse, once mounted, it is difficult to get off a Family Trust.

The Family Discretionary Trust typically consists of a trust deed with extensive Trustee powers recited in standard form and then a Schedule setting out the particulars relevant to the particular trust. Such documents were often purchased ‘off the shelf’, much the same as company incorporation documents, and as they were a mechanism designed principally for tax minimisation, little regard was had to the niceties of trust law. Four copies of the Trust Deed would usually be executed, with the accountant, lawyer and client having a copy each and the fourth copy generally staying with either the lawyer or the accountant. It would be fair to say that the execution process might not always be carefully undertaken and some of the four copies might remain unsigned. From time to time financiers might seek copies of the Deed and a prudent lawyer, accountant or client would hopefully ensure that the original Deeds were held in safekeeping but, as is fitting for a document that was designed to record a fantasy, that was often not the case.

Forty or fifty years after these structures were put in place, problems are arising when the original documents cannot be found. The purpose of the documents were to record the Trustee as the legal owner of assets, both real estate and personal property such as bank accounts and shares, and when it comes time to deal with these assets the Trust Deed establishing the Trustees right to deal may need to be produced. This situation was considered by the Supreme Court in Application by South Melbourne Continental P/L 2018 [VSC] 398.

This was a typical situation of a small business established by a patriarch thirty-five years previously that had been conducted successfully over those years, held substantial assets and was now ‘operated’ by a son on behalf of the family. But the Trust Deed could not be found and this presented problems in dealing with the assets and the business generally. The Supreme Court has a number of powers relating to trust property, including Order 54 Supreme Court (General Civil Procedure) Rules 2015 and an ability to make orders under the Trustee Act 1958. However, the Application was unsuccessful as the McMillan J. was not satisfied that all possible attempts to locate the Trust Deeds had been carried out and it may be concluded from the judgment that the powers vested in the Court will not be made available without extensive evidence relating to the original terms of the Trust Deed and the attempts to locate the documents.

This outcome may be contrasted with the successful Application in D.R.McKendry Nominees P/L 2015 [VSC] 560 where an argument based on the presumption of regularity, that does not appear to have been argued in South Melbourne Continental, was successful. A similar argument found favour with McMillan J. in a case concerning a lost Superannuation Deed in Re Thomson 2015 [VSC] 370.

Supervised legal practice – A new podcast from By Lawyers and LEAP

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Many small firms have lawyers on the team who are still in their first two years of practice and therefore subject to a condition on their practising certificate that they may only engage in supervised legal practice.

Join our Senior Consultant and Editor Brad Watts and LEAP National Marketing Manager Claire James for a discussion on the ways in which proper supervision is important for both the firm and for junior lawyers and how it can be an essential element of running a successful small law firm, as a means to ensure delivery of high quality client outcomes and a vital risk management tool.

The President of the NSW Law Society recently highlighted the importance of senior practitioners meeting their supervisory obligations to junior practitioners who are subject to the restriction of supervised legal practice in their first 2 years. This podcast discusses the factors which impact – and sometimes impede – proper supervision in small legal practices and how the By Lawyers guides and precedents can help firms comply with their supervision requirements.

The podcast covers the general supervision requirements and also looks at some specific By Lawyers precedents which can assist firms with their supervision obligations, such as Retainer Instructions and To Do lists.

Oh, and with some help from John Grisham, we also learn why Australian lawyers are better than American lawyers!

 

A full description of the sale and purchase process – Conveyancing – NSW

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By Lawyers is pleased to announce the publication of new reference materials within our Conveyancing Guides which provide a full description of the conveyancing process for both sale and purchase. These descriptions provide details on the procedure to follow when conducting a sale or purchase, using the precedents available in the By Lawyers Conveyancing (NSW) Guides, together with LEAP and InfoTrack.

The full descriptions follow the typical progression of a residential sale or purchase and include screen shots to assist with the procedural aspects of running the matter in LEAP. These descriptions are not intended to be a substitute for our comprehensive Conveyancing commentaries, or the detailed Matter Plans and To Do lists provided in our Guides – rather they are intended to be complementary, providing the user with more detailed explanations on the very practical aspects of running a conveyancing matter from start to finish.

Areas covered include:

  • How to open a file;
  • How and when to order quality and title searches;
  • How to create the contract with the correct order of documents;
  • How and when to enter matter information into LEAP;
  • Arranging an exchange;
  • Completing settlement figures and directions – adjusting council rates, water, sewerage, strata.
  • Preparing for settlement – both paper and electronic.
  • Post-settlement procedure.

While these new resources are ideally suited to those with little or no hands-on experience with conducting conveyancing matters, they will also be of benefit to those unfamiliar with running conveyancing matters in LEAP, or who need to step in and conduct a conveyancing file for another team member who is on leave.

Another great advantage provided by these full descriptions is the ability to delegate conveyancing tasks to junior staff and have them understand the conveyancing process without having to direct them every step of the way.

Like all of the practical resources in the By Lawyers Conveyancing Guides, these new reference materials provide firms not currently taking on conveyancing work the ability to do so easily.

Practice management for small law firms

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Practice management is both one of the most important and one of the most frequently neglected aspects of being a lawyer. The imperatives of doing the clients’ work too often mean that practice management takes a back seat and the future direction, expansion and profitability of the firm becomes an afterthought.

The 11 Habits of highly successful small law firms is an article by Richard Hugo-Hamman, the Executive Chairman of LEAP Legal Software, who has been helping small law firms to make more money for over 25 years. This very informative and inspirational article was recently published on LinkedIn and Richard has kindly permitted us to reproduce it within the Reference Materials folder in the By Lawyers Practice Management guide.

The article contains numerous valuable insights for anyone running a small law firm or thinking of doing so. Richard draws on his enormous international experience to distil the key habits that define highly successful small law firms.  In summary he concludes that:

  1. They are efficient;
  2. They enjoy practising law;
  3. They employ smart people and treat them really well;
  4. They have selected areas of law they like and focus on them;
  5. They dedicate time to building the firm as a business;
  6. They are early adopters of technology;
  7. They confront the challenges of getting paid and solve them;
  8. They have standard processes and procedures in place for all matters;
  9. They make compliance a natural consequence of running a firm well;
  10. They become experts in customer service;
  11. They understand their finances.

We highly recommend reading Richard’s article, which calls upon you to ACT!

Victoria – deregulated Contract of Sale

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Consequences of the deregulated Contract of Sale of Land

What were the regulations?

The Estate Agents (Contracts) Regulations 2008 (‘regulations’) reached their sunset date on 11 August 2018. Consequently, those regulations and the amending regulations in 2011 and 2014, are revoked. The regulations bound estate agents, but not legal practitioners and conveyancers.

Legal practitioners and conveyancers may prepare contracts of sale of land in any form, and such contracts, provided they satisfy formal requirements, will be enforceable. The regulations on the other hand required estate agents to prepare contracts in the ‘prescribed form’, unless an agent used a form of contract prepared by a legal practitioner or conveyancer.

What does the deregulation mean?

The revocation of the regulations notionally means that the minority of estate agents who chose to prepare contracts are left with no prescribed form of contract. However, s 53A of the Estate Agents Act 1980 authorises agents to use contracts that are approved by a professional association, within the meaning of the then applicable Legal Profession Act 2004. The prescribed contract was approved by the Law Institute of Victoria (LIV) and the revocation of the regulation does not affect that approval. The current version of the LIV contract includes a warranty in GC 2.1 that the general conditions of the contract are identical with the general conditions prescribed in the regulations. That warranty would appear to be unaffected by the revocation of the regulations.  Thus, we can expect that the prescribed contract will continue in general use into the near future.

What are the alternatives to the prescribed contract?

Whether the deregulation of the contract will result in other forms of contract becoming common is yet to be seen. It would be fair to say that special conditions created to accommodate recent changes, including CGT & GST withholding, have resulted in the LIV contract becoming unwieldy and the use of alternative contracts increasing.

The By Lawyers contract is ready and waiting

The By Lawyers Contract of Sale of Land for Victoria was introduced on 1 March 2018 and its use has been increasing steadily among Victorian legal practitioners and conveyancers. The By Lawyers contract covers CGT & GST withholding in simple terms, without the need for Special Conditions, and has a number of other advances over the LIV contract which further simplify the conveyancing process.

Some of the compelling reasons to use the By Lawyers contract include:

  • it is co-authored by Russell Cocks, who has brought to the task 40 years of hands-on Victorian conveyancing experience and Guy Dawson of By Lawyers, arguably the most widely read legal author in Australia today; and,
  • the By Lawyers legal and editorial teams ensure the By Lawyers contract is always up to date with any changes in the law or practice.

For further information you can read the related post Seven reasons to use the By Lawyers contract.

The By Lawyers Contract of sale of Land is available to LEAP users and can also be accessed through the By Lawyers website by subscribing to the Conveyancing Guide.

Sheriff – Enforcement procedure

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

The Sheriff for the State of Victoria performs an important function within the Court system, providing an ultimate enforcement procedure for judgments obtain in the Courts.

The Sheriff has been around for a long time. Fans of Robin Hood generally disparage his work but without an ultimate enforcer, Court judgments risk becoming pyrrhic. As an arm of the judicial process, the Sheriff has considerable power to influence the lives of citizens and is liable to review by the Courts. It would be fair to say that the traditional sale process adopted by the Sheriff gave the impression of a preference to the rights of the judgment creditor over the rights of the judgment debtor and appeared to be based on a policy of realising the judgment debtor’s property at all costs, indeed often at great cost to the judgment debtor.

Cases in 2011 and 2012 in the Supreme Court critically analysed the role of the Sheriff and promoted a more proactive role for the Sheriff in analysing the sale process to ensure a fairer outcome for the judgment creditor. This, on at least one occasion, led to the Sheriff’s auction being conducted on-site, rather than at the Sheriff’s Office and an enthusiastic crowd making multiple bids. (see LIJ columns in September 2011 & June 2013) Reform of the sales process had been called for as long ago as 1982, recognising a need for the process to become more transparent by adopting a more commercial focus and perhaps contracting out the auctions to a panel of licenced estate agents.

But Sheriff’s auctions labour under some unique difficulties:

  • the Sheriff has no right to access the property during the sales process to allow for inspection;
  • indeed, the Sheriff has no right to access the property on the day of the auction and cannot guarantee possession to the purchaser after the auction;

Additionally, the Sheriff only sells the interest of the judgment debtor, meaning that the purchaser takes the property subject to any encumbrances, and the Sheriff is not obliged to hand over the duplicate Certificate of Title (or its electronic equivalent). Given that the purchaser must secure registration of the Transfer from the Sheriff before the writ for possession expires, it can be seen that a purchaser from the Sheriff takes a considerable risk and the Sheriff has developed a formula to take account of this risk.

Hoskin v Griffin (The Sheriff) [2018] VSC 216 revealed that the Sheriff’s process involves a 25% discount being applied to the value of the subject property to take account of these difficulties. The problem with that case is that the starting point, the valuation obtained by the Sheriff, was too low to begin with and the application of the 25% discount to this low value meant that the sale was defective.

The judgment debt arose as a result of failure to repay a mortgage of $165,000 in 2015. By the time the judgment debtor had unsuccessfully sought to contest the judgment, costs and interest had more than doubled the debt to $380,000 in 2017. The Sheriff had obtained a valuation from the Valuer-General in 2015 of $450,000 and a fresh valuation in 2017 of $475,000. The Sheriff then calculated the reserve for the auction by applying the 25% discount, to achieve a figure of $340,000, but increased it to $380,000 in view of the judgment debt. The purchaser at the Sheriff’s auction, held in the Sheriff’s Office, made one bid, equal to the reserve and purchased the property. Evidence before the Court established that the true value of the property was at least $700,000. This meant that the purchaser had acquired the judgment debtor’s equity of around $300,000 for free. The Court concluded that the sale process had failed to obtain a fair price and was therefore in breach of the Sheriff’s duty to the judgment debtor. Unravelling the consequences of that finding was left to another day.

There is little doubt that the judgment debtor made some poor decisions during this unhappy episode. A simple debt more than doubled, opportunities to resolve the dispute were ignored and multiple representatives were engaged. The Sheriff faces a difficult task of balancing the rights of the debtor and creditor and it appears that in this case he was dealt a bad hand by the valuation. But if the Sheriff had have accepted the judgment debtor’s valuation of $700,000, the 25% discount would have resulted in a reserve of $525,000 and it is likely that a prospective purchaser, facing all the problems associated with buying from the Sheriff, would have been reluctant to take the risk. This would have resulted in a second Sheriff’s auction without reserve, an evil criticised in the 2011 & 2012 cases.

The call for meaningful reform, now 35 years unanswered, remains.

Tip Box

•Sheriff’s sales are a necessary evil

•Sheriff’s sales involve risks for purchasers

•Reform is overdue

Subdivision – Off the plan sales – Sunset conditions

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

Off-the-plan sales are a common feature of Victorian conveyancing. The fact that the contract cannot be settled until the plan of subdivision is registered at Land Victoria means that the settlement date is uncertain. Sunset conditions in off-the-plan contracts are meant to bring some certainty to the settlement date.

Section 9AE(2) Sale of Land Act allows a purchaser to end an off-the-plan contract if the plan of subdivision is not registered within 18 months of the date of the contract. This is consumer protection legislation designed to allow a purchaser to end a contract which may have, objectively, gone too long. A purchaser may not, 18 months after signing a contract, still wish to proceed with the purchase. However, it is important to recognise that this is a right, not an obligation so the purchaser may choose to continue with the contract, and that the statutory right is limited to the purchaser and does not extend to the vendor.

The Act recognises that the 18-month sunset period is a statutory default period and allows the parties to agree to a different period, however it has been held that the vendor cannot unilaterally alter that sunset period (Solid Investments Aust. P/L v. Clifford [2010] VSCA 59). Contracts often provide a longer sunset period, sometimes up to 60 months, and regularly give to the vendor the contractual right to end the contract, in addition to the purchaser’s statutory right, which cannot be removed.

The purchaser has very little control over the plan approval process and must adopt a largely passive role, awaiting the happy news (hopefully) from the vendor that the plan has been approved and that settlement is due 7,10, 14 or 21 days after approval, depending upon the formula adopted in the contract. On the other hand, responsibility for obtaining approval of the plan falls almost entirely upon the vendor and this, by default, means that the vendor is able to influence the timing of registration and hence the time for settlement. If only the purchaser had the right to terminate if the plan is not registered within the sunset period, then the conduct of the vendor would be less likely to be particularly significant, but the practice of granting the vendor the contractual right to terminate if the sunset date passes opens up the possibility that the vendor can affect the outcome of the contract by action, or more particularly, inaction.

By definition, there will be a delay between contract and settlement, sometimes a considerable delay. As a consequence, market forces may have had an effect on the value of the property and in a rising market, as we have enjoyed for two decades or more, this means that the property is likely to be worth more, sometimes remarkedly more, when the sunset period expires. The temptation for the vendor to allow the sunset date to pass and then terminate the contract may in such circumstances be strong as the vendor will then remain the owner of a property which is much more valuable than the contract price. The flip side is that the purchaser misses out on a property that they have long waited for.

New South Wales has recently responded to a number of examples of vendors ending contracts in these circumstances by requiring the vendor to seek consent, either from the purchaser or the Court, before ending such a contract. Victoria, on the other hand, has relied on a firmly recognised obligation of “best endeavours” on the part of the vendor to ensure that vendors are not able to unscrupulously take advantage of the unexpected delay in obtaining approval of the plan of subdivision beyond the sunset date. This obligation was firmly established in Etna v. Arif [1999] VSCA 99 where, upon it being proven that the vendor had effectively stopped trying to get the plan approved during the sunset period, the Court order specific performance of the contract notwithstanding that the sunset period had expired when the vendor finally did obtain approval.

This view was confirmed in Jessup v. Fremder [2001] VSC 100 where a purchaser was able to obtain an order for specific performance even where no particular sunset date was referred to in the contract, the Court finding that a ‘reasonable period’ was to be implied. Joseph Street P/L v. Tan [2012] VSCA 113 held that a vendor might even be required to enter into a s.173 Agreement to secure registration of the plan so that the sunset period could be satisfied, notwithstanding that construction (if applicable) had not been completed. In an unreported interlocutory judgment in April 2018 the Supreme Court imposed an injunction on a vendor who sought to terminate upon the expiration of the sunset period where the purchaser alleged that the vendor had failed to use best endeavours to obtain approval of the plan.

These decisions do not mean that a vendor will never be able to rely on the expiration of the sunset period to terminate, but they do indicate that the vendor bears a heavy burden to prove to the Court that the vendor has used best endeavours and that the sunset period has expired notwithstanding those best endeavours.

Tip Box

•purchasers have a statutory right to avoid if the sunset period expires

•vendors may have a contractual right to avoid, but must use best endeavours to achieve registration

A brief explanation of the move to e-conveyancing – PEXA settlements

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Electronic conveyancing is coming

The conduct of a sale and purchase up to and including exchange can and will remain unchanged for some time as practitioners adapt to conducting matters electronically using emails and software that is currently being introduced into the market.

It is in fact possible today to prepare, submit, negotiate, sign and exchange contracts without the use of paper. Those practitioners interested in joining this move away from paper will find the means to do so within the By Lawyers conveyancing guides.

Electronic settlement has already arrived

However, the focus of this explanatory paper is the electronic settlement process – currently available via PEXA, but soon also via SYMPLI, a joint venture of Infotrack and the ASX.

So, how does PEXA work?

The PEXA process that follows exchange requires all participants in the transaction to have been identified, be registered and have a PEXA digital certification that entitles them to transact electronically in what is known as a ‘workspace’.

A workspace in the electronic conveyancing platform is opened by the vendor, or failing the vendor any other party, for each transaction and a date and time for settlement is entered. When the workspace is created the vendor ‘invites’ all other parties to the workspace via PEXA.

The workspace is where the transaction occurs. As the transaction progresses, each party can add, remove or amend their information in the workspace.

Whilst such matters as requisitions and settlement adjustments are completed outside the workspace, they can be uploaded to the workspace and made visible to a party of choice. For instance, a discharge authority might be made visible to the vendor’s discharging mortgagee only.

The vendor and purchaser sign a paper Client Authorisation allowing their practitioner to sign for them, as it is the practitioner who has the authority through their Digital Certificate to sign for clients. Therefore, the Client Authorisation is a critical document and must be retained for 7 years as they may be audited.

Outgoing and incoming mortgagees make their arrangements for settlement without input from practitioners. Payment directions are communicated by entry into a Financial Settlement Schedule which contains tabs for Source Funds and Disbursements.

Each party to the transaction completes their tasks prior to the nominated settlement time and for settlement to take place as planned, the Settlement Schedule must balance, the source funds must be available, and all documents must be signed.

How does settlement occur?

The workspace is locked automatically once everything is ready. This triggers title verification and movement of the source funds into a holding account. A final search is not required as the workspace will not lock if there are title impediments to registration.

Settlement occurs exactly as scheduled and title documents are lodged and registered, and the settlement funds disbursed in accordance with the Financial Settlement Schedule. The settlement process is automatic and completed in about 15 minutes which sees cleared funds transferred and title registered.

Note settlement can be cancelled at any time prior to the locking of the workspace.

The way of the future

 

The electronic settlement process is remarkably efficient and easy once you get used to it. As it seems inevitable that electronic settlements – and ultimately electronic conveyancing – will become standard practice, it is well worth becoming familiar with it and its really not so hard to do. By Lawyers conveyancing guides can assist you.

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