Blockchain lessons from overseas
The Dreamvar case is still very much at the forefront of the minds of those involved in the property legal sector, not least with conveyancers, writes Graham Collier, senior associate at Mills & Reeve. Meanwhile, creeping into the consciousness of those same lawyers, is the concept that blockchain could be the future of property transactions.
Could embracing technological advances provide us with the answers we’re all looking for, and do we actually know what the question is yet?
For those who aren’t aware, the Dreamvar litigation arose out of the sale of a residential property by a fraudulent seller who had stolen the proprietor’s identity. My colleagues Niall Innes and Jacqui King from the Mills & Reeve insurance team emerged victorious acting for Winkworth, against whom the claim and appeal failed. The case revolved around the question of who should ultimately (regardless of their innocent involvement) be liable to a buyer in circumstances where the purported seller isn’t who they say they are – the seller’s solicitor, the buyer’s solicitor or the estate agents?
Dreamvar has sent shockwaves through the legal market, with the allocation of risk associated with conveyancing fraud now seeming to fall firmly on those instructed by the purchaser – despite the seller’s representative in a transaction being the only party responsible for ensuring that the person portraying themselves as the seller is in fact the seller.
It has been suggested that blockchain technology could combine the elements of co-ordination, security and trust that have fallen into doubt recently, alongside an ability to streamline what is, from the outside, seen as an often unnecessarily unwieldy and protracted process.
Creation of a private blockchain (to which only certain parties will have access to some data) would arguably be the next step in a digitisation process already underway at Her Majesty’s Land Registry – with blockchain acting as an infallible record of all agreed terms of a transaction and recording ownership.
This has already been trialled at the Swedish Land Registry in 2017, with the creation of smart contracts – signed digitally, and automatically verified. It is worth noting that this doesn’t amount to an interest in property being a tradeable asset in the manner of Bitcoin, but rather steps in to ensure that the process is followed and verified centrally – something that the UK Government have already sought to embrace by the introduction of the Government Gateway for access to Government internet-based services. There’s a ground-swell towards centralising verification of identity and, on the back of Dreamvar, that’s no bad thing.
In terms of streamlining, those with access to the blockchain could extend to banks, HMRC and amongst others – and the information contained within it could be sourced from search providers. The flow of centralised and verified information between parties will enable an increased efficiency in the due diligence post completion process.
That being said, we aren’t quite there yet. HMLR are some way from accepting electronically signed documents – they’re arguably lagging behind the Law Society’s position on scanned signed documents. The streamlining benefit will be very much dependent on which parties buy into the concept – on what basis would search providers forego their fees, and how would their information be updated.
A lot of work will also need to be done to establish how any digitised system will work in practice.
Sweden is currently working towards the third phase of their trial – a digitised transfer of land – so suggestions that we are on the cusp of a shift to fully digitised land transactions are premature.
Australia’s recently launched electronic exchange and transfer platform Property Exchange Australia, or PEXA, has been in the news recently as well, with access obtained to firms’ property transfer accounts and money syphoned off to unrelated accounts.
The blockchain would also only be as secure as its coding – with the structured nature being a drawback as well as a positive should there be any inaccuracies captured or added to the system. Some have suggested that all that the private blockchains amount to are a form of database, not new technology – with others suggesting that the current database provided by HMLR leaves little scope for benefit from implementation of a blockchain solution in England and Wales, with more value to be found in countries with less developed land ownership record systems.
It is also very much arguable that the role of the lawyer would also be far from redundant – as mentioned above, we’re several steps away from property becoming a commoditised item, transferable through ticking off a series of documents.
In all but the most straightforward transactions, due diligence will still need to be carried out to assess and advise on risk (in pulling together up to date search information, reviewing the title and considering replies to enquiries – with the Local Land Charges migration to HMLR showing how slow and disjointed a migration process can be), and to negotiate the terms of any transaction and agreement of who bears the brunt of the risk.
On the back of Dreamvar there is a definite desire to firm up the system, to achieve certainty, and to avoid liability on the part of legal representatives in fraudulent scenarios. Whether blockchain can provide that is yet to be truly tested in the property world, and its ability to speed up a very detail-driven process is yet to be seen.
- Graham Collier is senior associate at law firm Mills & Reeve