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Law Mutual Risk Alert
The PEXA Guarantee

As you may be aware, on 3 August 2018, PEXA announced a “Residential Seller Guarantee” (the PEXA Guarantee). The PEXA Guarantee operates in limited circumstances to ensure payment of funds to a seller where there has been a certain type of fraudulent activity that has compromised the PEXA process. Details of the PEXA Guarantee are on PEXA’s website with FAQs (click here for link). In summary the Guarantee has a limited scope and only covers: 

  • ‘vendor funds’ (amount paid into fraudster’s account)
  • residential 
  • limited consequential loss
  • up to $2m

There are significant exclusions from the PEXA Guarantee. It does not cover mortgage payments, rates, taxes and property outgoings, conveyancer fees and any loss where there is any dishonest or fraudulent conduct by the practitioner.

The claim form for the PEXA Guarantee is required to be completed by both the seller and the practitioner/subscriber within three (3) business days of the fraudulent transaction. PEXA does have a discretion to extend that time period.

Upon payment under the PEXA Guarantee, PEXA will retain a subrogated right to recovery from any negligent party.

From Law Mutual’s perspective there is nothing, of themselves, in the PEXA Guarantee or the claim form that would jeopardise an Insured’s entitlement to indemnity under the Law Mutual insurance arrangements in the event of a seller, having suffered a fraudulent loss, wanting to seek redress from PEXA via the PEXA Guarantee.

In order for practitioners to minimise the chance or size of a successful claim against them and to ensure that they comply with their professional obligations, upon becoming aware of probable fraudulent activity leading to funds not being received by the relevant parties to a transaction, practitioners should undertake the following steps:

  1.  Alert both the disbursing and receiving banks immediately – use the phone and follow up with written confirmation.
     
  2. Inform PEXA immediately.  PEXA has stated it will contact the banks as well and may be able to get action taken more quickly to stop any withdrawal of misappropriated funds.
     
  3. Inform the client about the PEXA Guarantee.  The three (3) business day time limit means this must be done immediately, even if the practitioner has a conflict in continuing to advise and represent the client in the transaction.
     
  4. At the same time as steps 1 – 3 above are being taken, the practitioner must address whether there is a conflict of interest. The relevant conduct rule in Western Australia under the Legal Profession Conduct Rules 2010 is Rule 15 Subrules (2) & (3) set out below:

    (2) A practitioner must avoid conflicts between the interests of a client and the interests of —
                    (a) the practitioner; or
                    (b) the practitioner’s law practice; or
                    (c) an affiliate of the practitioner.

    (3) A practitioner must not provide, or agree to provide, legal services to a client if the practitioner knows or ought reasonably to know that the interests of a person referred to in subrule (2)(a) to (c) may conflict with the interests of the client.

    There is a high risk of a conflict arising for the seller’s practitioner where a seller has a claim under the PEXA Guarantee. This is because one of the requirements for the application of the PEXA Guarantee is that the seller’s practitioner has approved the settlement notwithstanding that the seller’s bank account details have been changed by the fraudster. The approval of the settlement in those circumstances may expose the practitioner to a claim of negligence and create an interest for the practitioner which conflicts with their duty to the seller. If there is a conflict (or even just a potential conflict) the practitioner must recommend the client seek urgent independent advice.
     
  5. Even where the practitioner considers there is the potential for a claim against them, the practitioner can complete Part B of the claim form to the extent that the information required is within their knowledge. However, the practitioner should make it clear to the client that they are completing the claim form only as a certifier of facts and they are not acting for the client in making a claim under the PEXA Guarantee.
     
  6. While the practitioner needs to understand the scope and claim procedures of the PEXA Guarantee such as to be able to inform the client about it, when there is the potential for a conflict the practitioner should not provide any further advice in relation to the PEXA Guarantee or the processes, but rather send the seller off to obtain separate, independent advice.  The practitioner could also provide the client with a copy of PEXA’s FAQs or refer the client to PEXA’s web page in that regard.
     
  7. Notify Law Mutual of the potential for a claim as soon as possible including providing it with a copy of any completed PEXA claim form.

Important Disclaimer 
This alert is provided by way of guidance only; it is not intended to be and should not be regarded as legal advice. Practitioners should make themselves fully aware of the scope of the PEXA Guarantee and any processes under it. Likewise, practitioners should familiarise themselves with their obligations under the Legal Profession Conduct Rules 2010. 

 
 

Contact Law Mutual (WA)

Level 4, 160 St Georges Terrace, Perth WA 6000
PO Box Z5345, Perth WA 6831
Telephone:  (08) 9481 3111   |   Facsimile:  (08) 9481 3166
Email: info@lawmutualwa.com.au   |   Website: www.lawmutualwa.com.au

 
The Law Society of Western Australia
Level 4, 160 St Georges Terrace, Perth 6000
Phone: (08) 9324 8600   |     Fax: (08) 9324 8699
E: info@lawsocietywa.asn.au  | W: lawsocietywa.asn.au

Disclaimer: Law Mutual (WA) News is an information service of the Law Society of Western Australia. The information provided does not constitute legal advice and members should consult the Government Gazette, relevant statutes and other source documents as appropriate. Reasonable steps have been taken to protect our mail servers and web pages via the use of anti-virus software but all customers are advised to take all necessary steps to ensure that their own systems are virus protected. The Law Society of Western Australia does not accept responsibility for any loss or damage sustained as a consequence of any virus transmission.

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