Electronic Conveyancing: Victoria Takes the First Step

By Spatial Source on 13 May, 2010

CHRISTINA UELTZEN

Stage two of Victoria’s ambitious e-conveyancing system was launched in Melbourne on 16 November. It allows for electronic transactions for financial property settlement, the lodgement of land transfer and mortgage documents, as well as the discharge of mortgage documents with Land Victoria.

Far from basking in public approval, however, Victorian officials are ducking for cover. The system – which the Victorian government hoped would become a benchmark for a similar national scheme – has been branded a white elephant in local media reports.

The reports claim that Victorians will now be faced with an increase in conveyancing fees of up to $40 per transaction, to pay for what they called the ‘failed e-conveyancing project’. Even worse, there were suggestions that a national system was in trouble because the banks had withdrawn their support.

The story goes back to 2005, when the Australian states reached a joint agreement to establish a national system. They established the National Electronic Conveyancing System (NECS) steering committee – comprising representatives of all jurisdictions, financial institutions, conveyancers, solicitors and brokers – to push for a nationwide model.

The NECS model calls for the investment of almost $60 million into the establishment of a national bureaucracy to operate a central system that will conduct electronic property transactions across the country.

Meanwhile, the Victorians have proceeded with the development of their own system. As the first state to have brought a full e-conveyancing system to operational status, they are keen to get the system adopted by the other states.

In November 2005, Rob Hulls, who was then the Minister for Planning in Victoria, promised that: ‘over time, electronic conveyancing will reduce the need for conveyancers, solicitors and bank staff to meet in one room to complete a property settlement’.

‘When you consider that more that one million properties valued at more than $220 billion are sold across Australia each year, it makes sense to have a national system.’

But, he warned: ‘commitment from states and territories – as well as the banks – is crucial to ensure the system can deliver benefits, including significant savings to property vendors and purchasers‘.

In a nutshell, the e-conveyancing system does what paper based conveyancing does – except that whenever possible, transactions will be made electronically.

There can be little doubt Victoria would like to see its model being applied on a national scale. It would help its own system work better. But the executive director of NECS, Simon Libbis, has scotched any suggestions that the Victorian system is a pilot system for the national one.

There is little disagreement about the need for support from the banks. ‘But the banks will only support the Victorian system if it is going to be part of a national system’, said Libbis. ‘Therefore Victoria has a strong interest in pushing its system as being suitable for the national one.’

‘However, none of the four major banks will support the Victorian project. They have support from a few of the minor players, but that doesn’t leave a lot of transactions.’

The problem is exacerbated by arguments among state bureaucrats. It is not clear whether the software that underpins the Victorian scheme is suitable for national use.

The Queensland and New South Wales bureaucracies are testing it. The Queenslanders have completed the process, but there has been a delay in the assessment process in NSW.

Warwick Watkins, the director general of the Department of Lands in NSW, refused to comment on the reasons for the slow response.

Libbis put the delay in NSW down to Victoria’s insistence on setting rules for the way the software was tested. There was a meeting to resolve the issue in late November, but whether differences between the states had been resolved was not clear at press time.

The situation is further complicated by the fact that NECS is an unincorporated entity, which means that it cannot issue contracts. This includes the employment of staff and the testing of software. Thus the Victorian government has decided to issue its own contracts in relation to NECS.

Queensland did not have this problem since it was testing for its own purposes, not for NECS, Libbis said.

Peter Harris, the secretary of the Department of Sustainability and Environment in Melbourne, where the Victorian e-conveyancing system was developed, says the matter appears to be largely a question of ideology – of what constitutes a national e-conveyancing system.

‘One the one hand you have people who would prefer a private model – where commercial parties such as banks make a profit from it. Others would prefer a government operated system.’

Harris blamed the poor reputation of the Victorian model on a misunderstanding of the status of the two e-conveyancing proposals. He said it was unfair to compare the already operating Victorian system ‘with a preliminary, incomplete paper-only model touted as the national road map’.

He said that according to the draft funding model agreed by the steering committee, NECS would collect almost half a billion dollars in fees in its first ten years of operation.

‘Predictably, a number of individuals and organisations involved in NECS have become convinced that only this proposal can achieve a nationally consistent EC environment.

‘However, despite more than two years of meetings, the NECS Steering Committee is yet to formally endorse even a single document in the ‘road map’ suite, and remains no closer to delivering its EC system than it was in 2005.

‘The fundamental difference of approach centres on whether EC is an industry or jurisdictional system. Victoria’s EC platform offers all jurisdictions a simple and cost effective means to conduct electronic property settlements. Furthermore, it was developed with extensive industry input.

‘The proponents of NECS argue that the jurisdictions have a responsibility to fund and develop a system to support the mortgage industry. This argument ignores the fact that property settlement remains a function of government and relies on the exchange of information between land registries and revenue offices. Electronic financial settlement is made possible by EC, not the other way around.

‘One of the obstacles confronting the proponents of the NECS ‘industry model’ is the proposal to charge government agencies to use the system. Consequently, land registries and revenue offices would be required to pay fees to NECS, passing on payments that they currently receive without additional cost. This violates the principle of lowering costs to consumers, and has been formally rejected by the Commissioners for State Revenue.

‘The banking industry seeks a single national system to maximise the returns to its member banks. This is an understandable objective within an industry system.

‘However, such a system presupposes the harmonisation of legislation and conveyancing practice across all jurisdictions. Experience indicates that such a process could be expected to take more than a decade.

‘It would also require some transfer of sovereignty to the Commonwealth and agreement on a wide range of matters. This would leave consumers waiting many years for the system and its commensurate benefits.’

When asked for comment on the subject, the Australian Bankers Association takes a careful public stance. Its chief executive, David Bell, merely admitted to taking part in discussions.

So, is it fair to say that the Victorian system has failed, or that the cost of conveyancing fees will increase to pay for it?

Apparently not. Some transactions in the second stage of the system will be more expensive, but only for those that are paper-based. In fact, these fees were increased to encourage people to use the electronic system.

Both systems will still be used. It will take a considerable amount of time for consumers to adjust to the new electronic system.

From a national perspective, it is clear that overall, all Australian states are in favour of a national e-conveyancing system. The controversy appears to have been mostly limited to whether or not the Victorian e-conveyancing model is suitable for a national system.

‘Officially, all jurisdictions appear to be fully committed to e-conveyancing ’, Libbis said.