Some law practices may prefer to use an agent who is a subscriber on an Electronic Lodgement Network (ELN), rather than subscribing to an ELN operated by PEXA or Sympli.
Queensland Law Society wishes to alert law practices to the additional risks associated with using a subscriber agent on an ELN.
If using a subscriber agent, a law practice should consider:
Who is the subscriber agent and are they entitled to engage in legal practice in Queensland?
Is there a formal agreement with the subscriber agent? If not, how will disputes be resolved?
Where is the subscriber agent located?
Does the subscriber agent brief work out to other subscriber agents?
Has your client authorised the use of a subscriber agent?
What happens if a default occurs? If the law practice makes a claim and the law practice contributed to the default the Legal Practitioners’ Fidelity Guarantee Fund (Fidelity Guarantee Fund) may not pay the full amount of the claim. If the client who suffers the loss makes a claim the Fidelity Guarantee Fund may pursue the law practice for a contribution.
Will the transaction involve trust money? Who must account for the trust money and what records must be kept?
Have you directed your client to deposit money into the subscriber agent trust account? Will you have control or oversight of the trust money?
Have you considered the Lexon Risk alert for electronic conveyancing?
Have you read the ARNECC Guidelines on using an agent?
Some law practices may prefer to use an agent who is a subscriber on an ELN, rather than subscribing to an ELN operated by PEXA or Sympli.
Queensland Law Society wishes to alert law practices to the additional risks associated with using a subscriber agent on an ELN.
The Society has an obligation to prevent and detect defaults of trust money or trust property. A default is a failure of a law practice to pay or deliver trust money or trust property that was received in the course of legal practice by the practice, if the failure arises from an act or omission of an associate that involves dishonesty; or a fraudulent dealing with trust property.
An associate of a law practice is generally an employee of a law practice, either a legal practitioner or lay associate of the law practice.
If a person suffers a pecuniary loss because of a default, they may make a claim on the Fidelity Guarantee Fund.
If the law practice contributes to the loss, the Fidelity Guarantee Fund will seek a contribution from the law practice.
The appointment of a subscriber agent on an ELN increases the risk of default as the law practice does not have visibility within the ELN platform and trust money controlled by the law practice may need to be deposited in another law practice trust account.
It has also come to our attention that law practices are appointing agents without any type of agreement beyond the client signing the required ELN client authorisation form. Some law practices are also directing clients to deposit money in a trust account, other than the law practice trust account.
i. Who is the subscriber agent?
Subscriber agents in Queensland must be entitled to engage in legal practice in Queensland.
In Queensland conveyancing is the reserve of solicitors. Receipts may be shared with non-solicitors through the ILP model, but the business that received the payment for conveyancing services in Queensland must be a law practice.
A subscriber agent acts as the representative of the client on the ELN and the client must complete the Client authorisation form authorising the subscriber agent to:
(a) Sign documents on the clients behalf as required for the conveyancing transaction;
(b) Submit or authorise submission of documents for lodgement with the relevant Land registry; and
(c) Authorise any financial settlement involved in the Conveyancing Transaction; and
(d) Do anything else necessary to complete the Conveyancing Transaction.
Why is this different to paper settlements?
Previously, a law practice would engage a settlement agent to act on behalf of the law practice to carry out the transactional process of the conveyance. The settlement agent was not required to, and could not engage in legal work. When an ELN is used the client is authorising the agent to act on their behalf, this includes doing anything else necessary to complete the conveyancing transaction.
ii. Is there a formal agreement with the subscriber agent?
Some subscriber agents require a formal agreement between the law practice and subscriber agent, some do not. Law practices should consider the risks associated if there is no formal agreement or where the formal agreement increases the risk for the law practice.
iii. Where is the subscriber agent located?
If the subscriber agent is located outside of Queensland and a default occurs, jurisdiction may become an issue. If the default was caused by an associate of the subscriber agent, the claimant may need to consider whether Queensland is the relevant jurisdiction for a claim against the Fidelity Guarantee Fund. The rules for claims against the Fidelity Guarantee Funds vary from jurisdiction to jurisdiction.
iv. Does the subscriber agent brief work out to other subscriber agents?
Some subscriber agents brief work out to other subscriber agents. A law practice should consider whether this additional risk is acceptable.
v. Has your client authorised the use of a subscriber agent?
Do you have authority from your client to use a subscriber agent? The client authorisation form required for an ELN transaction may not be sufficient. If you are using a subscriber agent this form is signed by your client and the subscriber agent.
vi. What happens if a default occurs?
If a default occurs, either through the actions of an associate of the law practice or an associate of the subscriber agent, the knowledge of the client and the type of authority provided by the client will be considered as part of the claim process.
If the law practice has contributed to the acts giving rise to the default, the Society will seek a contribution from the law practice. If the law practice is the claimant the Fidelity Guarantee Fund may reduce the amount paid to the law practice if the law practice contributed to the loss.
vii. Will the transaction involve trust money?
If a law practice receives trust money, it must be kept in the law practice trust account, unless a provision of the Legal Profession Act 2007 (Qld) (Act) allows the trust money to be dealt with in another way (ie transit money).
The term receives is broadly defined in section 242 of the Act:
242 When money is received
(1) For this Act, a law practice receives money when—
(a) the practice obtains possession or control of it directly; or
(b) the practice obtains possession or control of it indirectly as a result of its delivery to an associate of the practice; or
(c) the practice, or an associate of the practice (otherwise than in a private and personal capacity) is given a power to deal with the money on behalf of another person.
(2) For this Act, a law practice or associate is taken to have received money if the money is available to the practice or associate by means of an instrument or other way of authorising an ADI to credit or debit an amount to an account with the ADI, including, for example, an electronic funds transfer, credit card transaction or telegraphic transfer.
If a law practice is authorised to deposit trust money into the subscriber agent trust account, the subscriber agent must hold the trust money exclusively for the person on whose behalf it is received and disburse the trust money only under a direction given by the person. This will usually be the client of the law practice.
The subscriber agent must provide a trust account statement to each person on whose behalf trust money, other than transit money, is held or controlled by the subscriber agent. If the money is held for the client of the law practice, the trust account statement should be directed to that client.
The law practice should refer to Trust Account Alert 2. If a default occurs, the Fidelity Guarantee Fund may find that the law practice controls the money held in an ELN source account as the law practice nominates and confirms the destination account.
viii. LEXON Risk Alert regarding ELNs
Law practices are referred to the LEXON risk alert regarding ELNs.
ix. ARNECC Guidance Note when using an Agent
Law practices should refer to the Guidance note 9 Instructing practitioner engaging a subscriber ( E-Lodgment subscriber https://www.arnecc.gov.au/wp-content/uploads/2021/08/mpr-guidance-note-9-instructing-practitioner-engaging-subscriber.pdf
For further information regarding trust accounting requirements practitioners are encouraged to contact the trust accounting team on:
07 3842 5908 managertai@qls.com.au