Scenario: The agent, in their usual flap, rings you urgently chasing the s32. The property is an apartment in Southbank plus carpark and storage unit. Putting together the 32 is no small ask. Three title searches, a 120 page subdivision, a 30 page Section 173 Agreement, 3 Owners Corporation Certificates, a residential lease and the usual property certificates. The vendors statement is a mere snip at 210 pages and the agent wants 5 copies. An added complication is your vendor client is an Australian ex-pat who lives in Hong Kong.

In the old days, everything was black ink on white paper, and filed in alphabetical order. And the Langley Collyers of this world loved it.

However, in our current environment, bountiful and obsessed with all that is digital, cyber and electronic, there is a decided cultural shift towards going paperless.
In fact it is now expected that data exchange, business deals and communication can occur virtually, any time and at any place.

While this change in attitude is particularly prevalent amongst the younger generation - those who were born into, or grew up in the so called Technological Age, the fact of the matter is, as a society we have all gone Digital. The abundance of communication tools like email, mobile phones, messaging, PDAs, and digital faxes have made us all obsessed with being ‘connected’, and instantly. And indeed why not. Time is saved, money is saved, and geographical distance is no longer a barrier.

The banking and finance industry is a prime example of one which has successfully embraced all that our Tech Age has to offer. From internet banking to EFT transactions, BPAY to internet share trading, an enormous proportion of business done by banks and financial institutions can now occur without the physical exchange of paper. If thousands of dollars can be transferred from one account to another with the click of a mouse, and then used to trade shares with another couple of clicks, why can this not occur for property settlement funds?

Unfortunately when it comes to technological innovation, real property transactions seem to be where the buck stops and not just on the settlement side.
Imagine a world where the ex-pat client from Hong Kong could do his due diligence and then sign the Vendors Statement with a few taps on the keyboard of his Blackberry. A few minutes later the purchaser e-signs for acceptance from his laptop in Dubai. Sale contracts are exchanged by efax, and in a few hours the signed contracts are in both the vendor and purchaser solicitors email inbox. This is not only feasible, but also legally sound.

Electronic signatures, they sound foreign and risky and fraught with the possibility for fraud. In actual fact, they are as valid, legally binding and secure as an internet banking transaction, or an online share trade. This article explores how digital signatures are currently being employed in the business community, how identity and trust may be established, and finally how it can be applied to the conveyancing industry.

Statute of Frauds1 - Instruments Act 1958 Section 126(1) requires a disposition of an interest in land must be in writing and signed. However, the lesser known subsection (2) declares that subsection (1) may be met in accordance with the Electronic Transactions (Victoria) Act 2000.

Ss 7-11 of the Electronic Transactions Act thus provides the legal framework supporting the validity of the Digital Signature by providing for compliance with the writing requirement by means of an electronic communication (s8).

A summary of the key provisions -

s7 Validity of electronic signatures - transaction is not invalid if it is wholly or partly by electronic communications
s8 Writing - electronic is a valid substitution for writing & the notion of consent
s9 Signatures - identity & methods and consent
s10 Production of the document - electronic document is a substitute for paper as well as considerations for the integrity of the information therein
s11 Retention of the information and the document - archive and retrieval

There are a growing and expanding body of competing commercial providers of electronic signature and signature automation solutions on the market. Furthermore, there are examples of global leaders such as GE and British Telecom adopting digital signing solutions for their customers for sales and revenue contracts. Adoption of digital signatures in the commercial arena brings and will bring general acceptance by consumers as a valid and common method of entering into contractual relationships.

First, there are many reasons why organizations are choosing electronic signatures over traditional methods, among them2:

Work-flow Efficiency - It’s faster for someone to click a button or enter a password than to route a document to them through inter office mail or courier.
Save Money - By going electronic, you eliminate the cost of paper, printing and courier services.
Document Integrity – Organizations publish vast amounts of material to the internet, but are now becoming increasingly concerned about what happens to those documents in cyberspace. It’s critical to reputations and revenue that documents are not modified to create a false or fraudulent impression of the organization.
Real-Time Visibility - By using E-Signing technology, you get visibility into not only your own contracts, but all of those of your team - be it a handful in a small medium business, or thousands of sales reps at an enterprise like British Telecom. Search, track, get reports - know the status of every deal, in real-time.
Make More Money - The easier you make it for your own customers to sign contracts, the more contracts you are going to get signed. If they are revenue contracts - then you make more money.
Automate Archiving and Storage – Access to a full, indexed repository of all your signed agreements. The greatest expense to an enterprise long term isn't in the contracting process itself, but in not having access to the contract when it's needed most - months or years down the road. With an E-solution, you can instantly search across 1000s of contracts in your company in seconds.

One of the interesting things to note is companies have been adopting simple but effective e-signing technologies. What technology has achieved is a methodology whereby the consumer can e-sign a contract or a document without the customer ever formally applying for an electronic signature. Such accounts are created on the fly and evidence of identity is based on a combination of an email address, mobile phone numbers, credit cards etc.

An exchange of emails can create legal relations or a contract. Such cases although helpful are one off precedents. The real estate, conveyancing and mortgage industries are looking for industry wide solutions. Decades of practice has been built around paper contracts and the written signature. The new world will be electronic contracts and electronic signatures, not via a simple email exchange but via systematically applied electronic processes.

One of the key issues in embracing electronic alternatives will be about Identity. Effectively it is not "identity" alone, but it will be a combination of -
1. technology,
2. identity, and
3. trust.

The technology has to be simple for the industry and the consumer to use. The technology has to be robust. The technology solution has to be compliant with the legislative framework. And as is emerging there is no one single right technical answer, but there will be a combination of right answers.

Addressing Identity, an individual's identity is a catalogue of -

The list is not exclusive, but, all the above can be used individually or in combination to identify the individual. In applying electronic signature technology the above list can be useful in applying identity characteristics to the e-signature. A good example of this is when conducting an online bank transaction, your bank might SMS you a code to your mobile phone, without the code the transaction is void. Of course, opponents or skeptics of electronic commerce will raise the issue of fraud and identity theft. Yet currently there is no prescription for lawyers, conveyancers or estate agents to applying identity checks when taking instructions or exchanging contracts. There is however a push that identity checks should be consistently applied whether the transaction is paper or electronic. For example, the UK prescribes identity checks of occasional one off clients under the Anti Money Laundering regulations.

The sale of real estate culminating in the updating of the Land Registry records is facilitated by a series of steps or transactions which we call Conveyancing.

The series of steps are typically -

. Vendor Disclosure
... Contract
..... Mortgage
....... Settlement
......... Registration

Each step has its own rules and risk profile when it comes to applying an electronic regime in substitution of the current work practices. Again the precedent set in McGuren v Simpson could be applied to a simple exchange of emails between a vendor and purchaser in exchanging contracts and acknowledgement of receipt of the vendors statement. But this will not cut it on an industry wide scale and certainly does not satisfy the requirements of the Victorian Land Registry which are set out in Transfer of Land (Electronic Transactions) Act 2004

The application of Digital Signatures to Vendor Disclosure and the Contract provides an opportunity for the industry to trial and test this technology. This scope of the rest of this article however will be limited to discussions of application in these areas.

One of the laborious and repetitive tasks of any conveyancer is preparation of vendor statements. Vendor Statements can be problematic by their sheer volume given the size of some plans of subdivision and section 173 agreements. Digital technology solves a multitude of problems, including speed of delivery and execution without printing.

From the vendor's point of view, the manual signature on the Vendors Statement symbolises a mere verification or disclosure. From the purchaser's point of view, the signature is a mere acknowledgement. Thus, arguably electronic signatures facilitated by emails serve the same function, hence are just as reliable for the purpose of disclosure and authentication.

Further to the legislative framework, cases such as R v Moore; ex parte Myers permit a printed name of a party to sufficiently constitute a signature. In fact, the mere used of words without any other form of signature can be regarded alone as the writer's signature, described as the 'authenticated signature fiction' by the High Court in Irire v Saunders (!961) 104 CLR 149. More recently, an email containing the authenticator's name and an express acknowledgment was held to be an authenticated expression of a prior agreement in McGuren v Simpson.

A Melbourne based company 247legal3 has incorporated Digital Signature technology into its online conveyancing solution.

When the Vendor Statement has been completed in a digital format, the vendor will receive two emails. One, requesting the vendor to review the documentation, taking into account the possible consequences if the documents are wrong, misleading or incomplete. Two, the vendor will be requested to digitally sign a Digital Vendor Statement (DVS) coversheet directly referencing the full print version of the Vendors Statement.

When the Agent introduces a Buyer they may request digitally signing the Digital Vendor Statement coversheet acknowledging receipt and completing the process. The DVS Coversheet will then have the digital signatures of the Vendor and the Buyer endorsed.

From the vendor's perspective, the system relies on trust and identity. The lawyer will ID the vendor and there is generally a series of email dialogues between the lawyer and the vendor. Secondly, the agent will ID the buyer as well as collect a deposit. Thus the duality of ID and trust are achieved. The system includes a fully comprehensive audit trail and document storage, which means that there is no need to print off documents which will invariably end up in an archive box.

The system also provides for online preparation and delivery of Vendors Statements and contracts. That is to say, the sale documentation is provided to client and agent without a single page having to be printed, faxed or exchanged.

It will only be a matter of time for digital signing technology is applied to the exchange of real estate contracts. Digital methodologies can be applied to the age old rules of offer, acceptance, consideration, execution etc.

Change will bring about -

automating the contracting processes
digital execution of the Contract by vendors and buyers
new level of industry standards to the real estate contract
sharing of contract data on industry, company and individual levels

The process that starts with a vendor listing his property for sale and ends with the updating of the land registry, the contract plays a pivotal role. For the industry to transform itself, the legal and real estate practitioners needs to embrace change. A core function is the acceptance of digital signatures as applied to the contract of sale.

The life cycle of a contract goes through several stages:

1. adoption of a template, preferably an industry standard (which in Victoria has just occurred);
2. preparation by the lawyer of the initial preliminary contract form;
3. negotiation of the contract terms, by the estate agent;
4. execution by the vendor and the buyer;
5. distribution to various parties, including the buyer's lender
6. providing copies to revenue authorities
7. archiving and retrieval

The Contract process can be automated on an industry scale. Our firm, Hayton Kosky is using an online automated process to prepare the Vendors Statement and Contract of Sale which engages the lawyer, the estate agent, as well as the vendor and the buyer. We would like to see other lawyers, conveyancers and estate agents getting involved, asking questions and personally being prepared for change. Our personal experience has proved there are clear internal efficiencies to be gained, and as for clients they are quick to adopt to change and welcome the efficiency & speed of the digital process.

It is hard to envisage the government's electronic conveyancing initiatives really succeeding unless the total conveyancing process is also transformed. The end to end process will need to see the complete cycle of vendor disclosure, contract, mortgage, settlement and registration be a seamless digital / electronic process for all stakeholders and parties, and that includes the client.

If as an industry we don't change then we will continue to see unnecessary administration costs, delays in closing transactions, blown deals, unpleasant surprises after closing, disputes, and missed deadlines.

In pre-writing times, transferring title of land was marked by a ceremonial performance4, such as handing over a piece of earth, in front of witnesses. The publicity of the dealing coupled with the symbolic act showing an intention to convey reduced the likelihood of fraud or mistake, and meant that ownership of each estate in a community became a matter of common knowledge. The first improvement to this primitive system was the establishment of a public record kept by a local authority, documenting each transaction. With changes to the social and commercial environment (expanding population, more numerous and complex land dealings), came the need for a more sophisticated registry. This lead to the development and eventual change to the Registration of Deeds and then Title by Registration (Torrens) system. Clearly the time has come again to embrace change.

If the legal profession resists its' need for a transformation then it is not unlikely that it will miss the boat. Inevitably others will step in, whether they be national or multi-national companies who can effectively service clients, bypassing the lawyer. The internet is changing the landscape in every industry and conveyancing is just one industry well suited to the new web 2.0 technologies. Changes to the environment in which we practice cannot be ignored, especially as conveyancing is no longer the preserve of lawyers it once was. It is vital for the profession to recognise current market demands, capitalise on the technological resources so readily available and ensure that we are the ones to write the next page in the book of Land Registration.

Authors:

Jaci Wang Articled Clerk - 2008 Hayton Kosky Lawyers

Brett Hayton Director / Lawyer 247legal.com.au

1. Statute of Frauds and Perjuries 1677

2. Source
Adobe http://blogs.adobe.com/security/2008/02/so_what_is_an_electronic_signa.html
EchoSign http://blog.echosign.com/page/2/

3. 247legal.com.au

4. Land Registration - Encyclopaedia Britannica

Back to Top