What are the 2016 verification of identity provisions for non electronic land transactions in Victoria?

Further to my post about Verification of Identity on 17 December 2014, there is now a proposal to require the same level of verification for paper transactions as well as electronic transactions.

For consistency between paper and electronic conveyancing, Land Victoria has introduced a new verification of identity process for any paper instrument or dealing lodged with Land Victoria.

Lawyers, mortgagees and conveyancers must take reasonable steps to verify a client's identity. 

The Verification Process Simplified

A person must have their identity verified if they are a party to a paper dealing to be lodged with Land Victoria. 

The verification process comprises three key elements:

1.   Verification of a person's identity

2.   Verification that the person is a legal person

3.   Verification that the person has the right to enter into the transaction.

The Verification Of Identity Interview may be with the lawyer, the mortgagee or with a third party Identity Agent authorised by them. 

At the Interview, the client must produce original identification documents (Identity Documents) to formally verify their identity (Acceptable forms of identity documents include a passport, driver's licence and a birth or citizenship certificate).

The person conducting the interview is required to take a copy of these documents, which will be retained for nine years from the date of the Interview.

Once completed, an Interview remains current for two years.

Verification of Persons Overseas

Presently there is no formal process to verify the identity of a person residing out of Australia. I expect that Australian Consular Officials may be called upon to undertake this task (more details below).

More than one Paper Dealing

Standard sales and acquisitions of land generally involve more than one paper dealing to complete the land transaction. For example, a purchaser of land who borrows money to pay for the purchase will be need to sign a mortgage and a land transfer. 

In that case, both the purchaser's lender and the purchaser's lawyer will have separate verification requirements that will need to be satisfied. 

I would expect that the lawyer and the lender would co-ordinate their efforts to minimise unnecessary duplication of the Interview process.

Who May Perform the Verification of Identity?

The lender, a lawyer or a third party Identity Agent authorised to undertake the verification (such as Australia Post) may conduct the Interview.

Mortgagees may use reasonable steps or safe harbour procedures to identify mortgagors in all jurisdictions for both paper and PEXA mortgages.

ARNECC Participation Rules – version 3

1.   Verification Of Identity is required for all PEXA dealings as specified in Model Participation Rules version 3.

2.   Mortgagees must take ‘reasonable steps’ to identify mortgagors (see previous blog on this issue). 

3.   If a Subscriber (such as a panel lawyer) is lodging mortgages on behalf of mortgagees, the Subscriber must be reasonably satisfied that the mortgagee has taken reasonable steps to verify the identity of each mortgagor – cl 6.5.1(b).  As a result, Subscribers will need to ask mortgagees what steps are taken.  This enquiry can relate to the procedure used by mortgagees as distinct from asking for details of the steps taken on a case by case basis.

4.   The rules prescribe a ‘safe harbour’ procedure that can be used called the ‘Verification of Identity Standard’ – cl 6.5.2.  This standard requires the mortgagee or an approved ‘Identity Verifier’ (such as lawyers, finance brokers and Australia Post) to conduct a face-to-face interview.  If documents containing photographs are produced, the mortgagee or Identity Verifier must be satisfied that the person being identified is a reasonable likeness to the person in the photographs – Schedule 9.

5.   Often mortgagees will not know whether a mortgage will be registered through PEXA or paper. As a result, mortgagees normally also need to comply with the rules for paper dealings.  It is therefore good news that paper and PEXA processes should be aligned from May 2016.

6.   There is no safe harbour prescribed for Verification Of Identities conducted overseas.  However, ARNECC and the Department of Foreign Affairs and Trade (DFAT) have developed a new arrangement to assist. The VOI service will be provided by an Australian Embassy, High Commission or Consulate – see MPR Guidance Note #2 – Verification of Identity (Updated).  The service can be used for both electronic and paper conveyancing.

Procedures

1.   Verification Of Identity for paper dealings now applies to most dealings for land located in Victoria.

2.    Evidence supporting the Verification Of Identity must be retained for seven years from the date of lodgement of the mortgage.

3.    In Victoria, mortgages lodged through PEXA are void if the mortgagee ceases to retain a copy of the mortgage signed by the mortgagor – s 74(3) Transfer of Land Act 1958.  The copy can be retained electronically.  PEXA mortgages can also be signed electronically.

4.    Mortgagees who title insure should ensure that their insurer’s cover will apply given the process used for VOI.

Conclusion  

It seems that we are edging ever closer to the day when all conveyancing transactions will be conducted electronically. For now, it seems that the requirements for conducting paper and electronic transactions are being aligned, to the point where eventually the procedures will be identical. Then, the inevitable question will be: "Do we need paper transactions any more?"

WG Stark 

Hayden Starke Chambers

Are there any recent cases in 2016 about PPS leases and the PPSA?

Hammerschlag J in the Supreme Court of New South Wales recently considered the impact of the Personal Property Securities Act 2009 (Cth) ("the PPSA") in Forge Group Power Pty Ltd (In Liquidation) (Receivers and Managers Appointed) v General Electric International Inc [2016] NSWSC 52. 

Background

The dispute arose out of the installation near Port Hedland, Western Australia, of four model TM 2500+ mobile gas turbine generator sets (“the Turbines”) as part of a temporary power station established by Regional Power Corporation (“Horizon Power”).

Under a written Design Build Operate and Maintain Contract dated 23 January 2013, Horizon Power retained the plaintiff, Forge Group Power Pty Ltd (in liquidation) (receivers and managers appointed) (“Forge”), to design the power station and supply, construct, test and commission all equipment installed.

On 5 March 2013, Forge, in turn, entered into a written contract for Rental of Power Generation Equipment and Supply of Associated Services (“the Lease”) with the first defendant, General Electric International Inc. (“General Electric”), under which General Electric agreed to rent the Turbines to Forge for a fixed term, and provide to Forge certain services including the installation, commissioning and demobilisation of the Turbines.

On 11 February 2014, not long after the Turbines had been installed, pursuant to s 436A of the Corporations Act 2001 (Cth), Forge appointed voluntary administrators. On 18 March 2014, Forge went into liquidation. 

The PPSA

As readers will know from previous posts, the PPSA establishes the Personal Property Securities Register (PPSR). 

Security interests may be “perfected” on the PPSR by registration, giving those interests priority. 

General Electric failed to register its interest in the Turbines on the PPSR. 

If General Electric’s interest in the Turbines was a ‘security interest’, there was no dispute that the security interest became vested in Forge immediately before administrators were appointed (s 267(2)), meaning that General Electric ‘lost’ its interest in the Turbines (which had a value of approximately $60m). 

The ultimate question for the Court’s determination was whether the PPSA was engaged. 

This in turn required the court to determine whether the Lease was a 'PPS lease'.

General Electric claimed the Lease did not have to be registered on the PPSR on two separate bases:

• First, it was not regularly engaged in the business of leasing goods (s.13(2)(a) makes this an exception to the requirement for registration); and
• Secondly, the Turbines had become fixtures (s.8(1)(j) provides that an interest in fixtures is not subject to the PPSA).

Regularly engaged in the business of leasing

As there were no relevant Australian cases on point, the Court referred to various Canadian and New Zealand authorities. Based on those authorities, the Court decided that the question was whether or not, at the material time, leasing goods was a proper component of General Electric’s business.  Regarding the word “regular”, the Court concluded that ‘the correct approach is to recognise that frequency or repetitiveness of transactions is a factor relevant to, and in an appropriate case may be the critical factor in, the assessment of whether the leasing business being engaged in is regular.’

The Court decided that:

• Whether a person is regularly engaged in the business of leasing goods, consideration should be given to activity wherever it occurs, not only in Australia.
• The test applies when the lease was entered into.
• When the lease was entered into and at all material times after that, General Electric was regularly engaged in the business of leasing goods in Australia.

The Court went on to say that engaging in the business of leasing is a concept of wider reach than merely entering into leases.  For example, a business that does not actually enter into any leases could still be considered to have regularly engaged in leasing if it has the infrastructure, ability and willingness to enter into leasing transactions.

Fixtures

The court’s view was that the words “affixed to the land” in the definition of fixtures in s 10 of the PPSA means 'affixed according to common law concepts'. 

The PPSA did not introduce a ‘bespoke’ meaning of ‘affixed’, being a non-trivial attachment (General Electric’s argument).

Common law factors generally taken into account when trying to determine if something has been ‘affixed to the land’ are as follows:

• whether removal would cause damage to the land or buildings to which the item is attached;  
• the mode and structure of annexation;  
• whether removal would destroy or damage the attached item of property; and 
• whether the cost of removal would exceed the value of the attached property.  

The terms of the Lease made it clear that the Turbines were not designed to be affixed to land in a way that would give rise to them being considered a fixture. 

The following factors assisted the court to conclude that the turbines were not fixtures:

• the turbines were designed to be demobilised;  
• the power station was only a temporary power station; and 
• Forge was contractually obliged to return the turbines at the end of the rental term.   

Conclusion

The court decided that the lease of the Turbines by General Electric to Forge constituted a PPS lease. As General Electric did not register its interest on the PPSR, due to s.267(2) of the PPSA, General Electric’s interest in the Turbines vested immediately before the appointment of the administrators in Forge.

The insignificant cost of registration, compared to the loss of a $60m security in this case, confirms the overall importance of registering PPS leases and the significant consequences of failing to do so. 

The decision also provides some insight into how the courts will analyse several sections of the PPSA.

W G Stark

Hayden Starke Chambers

Solicitor's Certificates - Tips and Traps 2016

Yesterday, I presented a paper to the annual Leo Cussen Centre for Law 'Property Law Intensive' entitled: "Solicitor's Certificates - Tips and Traps". 

A copy is available from: 
Leo Cussen - see www.leocussen.vic.edu.au and 
Greens List - see www.greenslist.com.au

W G Stark
Hayden Starke Chambers