Electronic conveyancing has shifted the responsibility of ensuring that a Caveat is based on a good and valid claim from the client to the PEXA user who certifies and lodges the Caveat.

This is the effect of a ruling by Justice Kunc in the first reported Australian decision dealing with electronic Caveats. He has put solicitors and conveyancers on notice that they may face professional misconduct action if they certify and lodge electronic Caveats without having a good and valid claim upon the property.

The decision is Guirgis v JEA Developments Pty Limited [2019] NSWSC 164 (26 February 2019) Supreme Court of New South Wales.

The Caveat

The parties were engaged in Family Court proceedings.

Mr Guirgis, the plaintiff in these proceedings, was the owner of a property which was subject to a Contract for Sale which was due to settle on 25 February 2019.

On 13 February 2019, Mrs Guirgis instructed her conveyancer to lodge a Caveat over the property on behalf of her company JEA Developments Pty Limited. The Caveat form was certified by her conveyancer on the PEXA form of Caveat.

The following details appeared:

Details Supporting The Claim: Outstanding loan

The Caveator, to the best of the knowledge of the [PEXA] Subscriber identified in the execution of this Caveat document, has a good and valid claim to the estate or interest claimed as specified in this Caveat.

Signed By: [The Conveyancer]       Signer Capacity: Practitioner Certifier

Mrs Guirgis acknowledged that she had caused the Caveat to be placed on the title of the Property as a tactic for the purposes of negotiation in the lead up to a Family Court hearing scheduled to take place on 25 February 2019. The purpose was to force the sale proceeds to be held in trust.

At the hearing of an urgent application to remove the Caveat, Mrs Guirgis admitted there was no written loan agreement, and there was nothing which gave her a mortgage, charge or any other interest in the Property caveated.

The Court ordered JEA Developments to remove the Caveat and to pay Mr Guirgis’ costs.

The conveyancer is the guardian at the gate

The Court turned its attention to the conveyancer’s conduct.

She gave evidence that this was the first caveat she had ever put on in her 10 years of practice as a conveyancer. She preferred people to do it themselves. In this case, she relented because Mrs Guirgis was an existing client. Mrs Guigis had phoned her at 10 o’clock at night and then at 6:00 am the next morning because she said she needed the Caveat to be lodged urgently to protect the money from the sale.  

With PEXA, clients no longer verify a Caveat by searing a statutory declaration and cannot lodge a Caveat because only people registered with PEXA can lodge a Caveat. Therefore, the conveyancer certified and lodged the Caveat herself.

Justice Kunc’s conclusion is worth quoting in full:

  1. As New South Wales’ conveyancing system moves to a completely electronic platform, the role of conveyancers, solicitors and others as persons qualified to prepare and lodge caveats becomes all the more important. Ordinary members of the public are, in practical terms, no longer able to lodge caveats without the intervention of a “Subscriber”, who in many cases will be a solicitor or licensed conveyancer. The requirement to give the requisite representations and certifications operates to confer on them the role of a guardian at the gate.
  2. Dealing with caveats takes up a considerable amount of time in the both the Equity Division’s Duty List and Real Property List. Although the Act contains compensation provisions in respect of caveats that have been improperly lodged, that compensation can only go so far to compensate a registered proprietor for the delay, stress and expense caused by a caveat that should never have been filed. The community also suffers because the Court’s time is taken up when it should not have been.
  3. I have no doubt that, in the present case, if the Conveyancer had made the proper inquiries, the Caveat would never have been lodged. This is probably one of the more egregious cases to have come to the Court’s attention. The Court readily accepts that in some cases whether or not a caveator has a “good and valid claim to the estate or interest claimed in the land” can be a question of considerable legal difficulty. However, in many cases it is not. This is one such case.
  4. The legislative and regulatory scheme which I have set out above assumes that the person making the various representations and certifications in an electronically lodged caveat has the requisite degree of knowledge and has approached their task with appropriate diligence. The Court and the community expect nothing less. A party who has suffered loss as a result of circumstances such as those in this case may be able to seek compensation under the Act and, like any other consumer, can complain about the conduct of a licensed conveyancer to NSW Fair Trading.
  5. In my respectful opinion, the Court also has a role to ensure the integrity of the operation of the laws relating to conveyancing to which the Court must give effect. Where it appears to the Court to be necessary, and after affording the person concerned procedural fairness, I see no reason why the Court should not draw matters such as the present to the attention of the appropriate authority for it to take such action as it thinks fit. As a result of the Conveyancer’s properly candid and contrite explanation, in the end that step was not required in this case

Comments – Solicitors and Conveyancers are on notice

This decision illustrates how much PEXA has changed conveyancing practice for Caveats.

In the paper-based Caveat system, it was the client requiring the Caveat who verified the Caveat. They verified the Caveat in a Statutory Declaration on the Caveat form in which they declared that they had a good and valid claim. It was the client who was responsible if the claim was not good and valid.

Now, it is the solicitor or conveyancer who as Certifier is responsible because they must certify the Caveat (the Registry Instrument) electronically to comply with the Certification Rules (NSW Participation Rules for Electronic Conveyancing (Schedule 3)), namely:

1.   The Certifier has taken reasonable steps to verify the identity of the caveator or his, her or its administrator or attorney.

2.   The Certifier holds a properly completed Client Authorisation for the Conveyancing Transaction including this Registry Instrument or Document.

3.   The Certifier has retained the evidence supporting this Registry Instrument or Document.

4.   The Certifier has taken reasonable steps to ensure that this Registry Instrument or Document is correct and compliant with relevant legislation and any Prescribed Requirement.

In this case, the conveyancer was fortunate to not be referred by the Court to NSW Fair Trading for disciplinary action.

But having given this warning, in the future the Court will likely refer solicitors and conveyancers to disciplinary authorities where they fail to meet the standard of care to be expected of a reasonably competent solicitor or conveyancer in the preparation of the Caveat.

In addition, the possibility exists that a Court might order that a solicitor or conveyancer pay the legal costs of the affected party who has had to remove the Caveat and also compensation for loss occasioned by the Caveat, if the Caveat does not have a good and valid claim.