Electronic property plan hits roadblock

ON Wednesday Tony Kelly thought the efforts of his top bureaucrats had finally achieved a breakthrough.

Kelly, the NSW Minister for Lands, had sent Warwick Watkins, the director general of his department, to Melbourne to sort out the feud that threatens to derail the establishment of a national system of electronic conveyancing.

The news appeared to be good. Kelly thought Victoria had returned to the fold and embraced the idea of a single national system -- the model favoured by the Australian Bankers Association, lawyers and non-lawyer conveyancers.

"There is no impasse. We are determined to get on and have a national system, and that is exactly what the ABA wants," Kelly said.

In the past few weeks, Kelly has been deeply involved in trying to smooth the way for a national e-conveyancing system. He has spoken to the ABA, Westpac and the Victorian minister responsible for e-conveyancing, Gavin Jennings.

"I had my director general go down and see his and they have agreed to move on. They have convened a meeting of all the directors general involved, to ensure they move forward."

Victorian officials, however, have a very different understanding of what came out of this week's talks, and it all came down to one word.

Jennings' spokeswoman said officials from the two states had agreed the goal was "a nationally consistent" system.

The word to watch is "consistent". It means the agreement between NSW and Victoria is at best incremental and at worst illusory.

A nationally consistent system, in the view of Jennings' spokeswoman, is a network of eight separate state-based e-conveyancing systems, preferably based on Victoria's Electronic Conveyancing Victoria (ECV) system.

"It is what Victoria has wanted all along," she said.

Despite that misunderstanding, there was some positive news from the talks. Kelly's office says Victoria has agreed to make the inner workings of its system available to NSW for assessment.

Until now, Victoria has only handed over a demonstration version of ECV and has been hanging on to the source code and supporting material. Victorian officials feared that NSW would simply examine their system and reject it. They have accused NSW of harbouring ambitions to control e-conveyancing nationally.

Victoria has been insisting on agreement in advance on the criteria NSW will use to assess ECV's viability. Kelly's office says agreement has been reached on that process and the next step will be when Victoria hands over the source code.

NSW and Victoria both say they want a national system, but the way forward will be complicated by Victoria's push for a federated structure.

Victoria has a lot at stake with ECV. The government has invested about $40 million in building the system and, those who have used it say it works well within the state.

The trouble starts at the border. The competing model for the national future of e-conveyancing -- a single seamless system -- enjoys the support of lawyers, banks and conveyancers. Together, these groups are the key private-sector parties with an interest in conveyancing. Without them, no e-conveyancing system can be viable.

Because of Victoria's different approach to the national future of conveyancing, the big banks are boycotting ECV. Unless they return, the Victorian system looks set to become a $40 million white elephant.

The state government knew about that risk long ago. Documents obtained by The Australian show that the state government was warned last December that its e-conveyancing system was incapable of being used as a single national system.

The warning was issued by independent consultants Daniel Brewer and Michael Bolton after the state government had spent $20 million on ECV.

The warning about the shortcomings of the Victorian system is recorded in the minutes of the organisation responsible for building the national e-conveyancing system, the National Electronic Conveyancing System (NECS), which consists of representatives of the state and territory governments, the Law Council, the Australian Institute of Conveyancers and the Australian Bankers Association.

NECS had commissioned an independent report on how ECV would fit into the planned national system being developed by NECS. Victoria developed ECV while part of NECS.

NECS has agreed to base the new national system, as far as possible, on the Victorian system. The minutes of the December meeting of the NECS steering committee show Victorian government official Genevieve Overell was present when the adverse report on ECV was discussed.

Brewer and Bolton found that the parts of ECV for settlement of conveyancing transactions "can be easily reused to meet the NECS requirements" for a single national system, but the shortcomings came to light when they examined the system's lodgment functions.

"It has been specifically designed for Victorian requirements and the underlying architecture is inadequate to satisfactorily meet the requirements of NECS for a national multi-jurisdictional system," the consultants said.

The minutes of the December meeting state: "Michael Bolton's view was that, in relation to the lodgment stage, it would be better to start constructing a system from scratch than trying to build around the ECV system to accommodate other jurisdictions' unique requirements."

After receiving that report, Victoria's Overell suggested another opinion be sought "given that Victoria has invested $20 million in the project".

Others at the meeting were, however, concerned about delaying the establishment of a national system.

Victoria's system might be a good standalone system for one state but "it will not suit the banking or legal market to structure ECV for each jurisdiction, as we will end up with a number of similar systems but not one national system", they said.

One of the points made at the meeting after the adverse report on ECV was that "evolution of ECV into NECS is important and it has to be through political agreement, including paying Victoria fair compensation".

The minutes of the next meeting, in March, show that NECS chairman Les Taylor "explained that it had not been an easy time of late and that everyone has tried to take into account the Victorian situation, noting that he does not want anyone to lose money".

"However, he confirmed that it was the banks that said at the outset that they would not support eight different systems, and that gave impetus to the national project."

The minutes of other NECS meetings, also obtained by The Australian, show Victorian government representatives repeatedly committed themselves to the NECS business plan of a single national electronic conveyancing system.

The June minutes show that "Queensland undertook a joint study with Victoria to see if ECV could handle Queensland's requirements".

The study found that "the design and architecture of ECV would appear flexible enough to be modified to meet forseeable requirements of the jurisdictions and NECS".

However, Australian Bankers Association director Ian Gilbert raised concerns about the scope of that assessment. He "noted that the results of the Queensland testing were to find out the ability of ECV to be modified from a land titles perspective and not from the perspective of other stakeholders, such as the banks".

He told the meeting that the banks had "serious concerns" about the development of two disparate processes.

"This resulted in the banks deciding to suspend further participation with ECV until there is a clear single way forward," the minutes say.

"He expressed concern about material emanating from Victoria since April representing that the banks are working with ECV.

"The banks have not changed their position since 2004, when they stated that 'banks support a national electronic system that will deliver a seamless, interoperable, flexible, electronic settlement and lodgment system that can accommodate inter-jurisdictional differences'," the minutes say.

Within Victoria, ECV is intended eventually to deliver cost savings of up to $395 on each transaction, according to government estimates.

Those savings have been placed at risk not by any flaw in ECV but because Victoria still hopes to build a federation of ECVs nationally instead of a single system.

Even if public servants around the country find a network of ECVs attractive, the reality is that their opinions do not matter. The private sector is the key to conveyancing and the main players in the private sector want something that Victoria is not offering.

The banks withdrew from ECV in protest at Victoria's lack of co-operation with the push to establish a single national system.

To justify their investment in e-conveyancing, the banks want the same system rolled out nationally. They want to deal with one system, not eight.

The Victorian government has now manoeuvred itself into a position where it desperately needs the banks to return to ECV, but it is pushing ahead with plans that have driven the banks away.

Unless the deadlock is broken, ordinary Victorians look set to pay a high price. Without the banks, the state government's $40 million investment is at risk of remaining relatively idle because most transactions will still be paper-based.

Because the state government has also increased government charges on paper-based conveyancing by up to 32 per cent, Victorians will soon be familiar with the ECV effect, even if they never go anywhere near the system.

The fee hike was intended to drive transactions to ECV, but none of that will work unless the banks' concerns are addressed.

In the final weeks before the launch of the latest version of ECV, Victorian officials say they are talking to three banks attracted to the idea of eight separate e-conveyancing systems.

The state government is also involved in negotiations aimed at addressing the concerns of the Legal Practitioners' Liability Committee about the new system. Those concerns triggered a warning from the Law Institute of Victoria that it could not recommend solicitors' participation in the system.

If these talks fail, Victorians might soon be asking the state government why it spent $40 million building a system that few of those in the business of conveyancing are prepared to use.

Chris Merritt, Legal affairs editor | November 02, 2007 The Australian