Electronic Fund Transfers JERRY B UDELL B A

Electronic Fund Transfers JERRY B. UDELL, B. A. , LL. B. Certified as a Specialist in Real Estate Law by the Law Society of Upper Canada judell@mctaguelaw. com Telephone: 519 -255 -4316 With assistance from: Adam Bulkiewicz, (H) B. A. , J. D. Student-at-Law abulkiewicz@mctaguelaw. com Telephone: 519 -255 -4340

DISCLAIMER • The opinions expressed within this presentation are the personal opinions of Jerry Udell and in no way reflect the opinions or views of the Law Society of Upper Canada. The Law Society is reviewing the issue and has not yet formed any view of whether or under what conditions these products may be used.

Introduction • Electronic fund transfers are coming! The present method of delivering funds to the offices of the purchasers lawyer is archaic!

Introduction • The hope is that in the future, electronic fund transfers will help us to progress from the era of the horse-and-buggy – to that of the jet airplane!

Introduction • Some service providers are proposing alternate electronic systems to facilitate the transfer of funds • Although a (possible? ) improvement over the existing model – they are far from perfect! • In terms of the actual movement of funds they don’t do anything you can’t do with your own electronic banking

Introduction • Under the new proposed model, lawyers will be able to release funds (from trust) to a third party service provider who will then release them to the appropriate parties • Ex. pay off mortgages, pay money to the seller, etc.

Introduction • With any new system, there may be a very real potential to run into problems • Careful planning and consideration of the various implications of the proposed new model can help us avoid situations like…. .

Introduction 1. Lawyers must direct their minds to potential issues that may arise when utilizing electronic fund transfers a) Lawyers must not allow the use of any service to compromise their professional responsibilities to a client

The Ultimate Question: • How do we utilize electronic fund transfers and uphold LSUC standards to protect both the public and the profession, while maintaining the highest standards of honesty and integrity?

Conflict of Interest • Lawyer’s have a professional responsibility to avoid conflicts of interest (Rule 3. 4 -1) • When subscribing to a particular electronic fund transfer service, lawyers must ensure that nothing within the agreement could give rise to a conflict. For example: a) Receiving incentives from the system operators – whether personally or to staff b) Exclusivity agreements requiring the lawyer to only utilize one system (even when it may be to the detriment of the client) c) Confidentiality agreements which prohibit lawyers from fully disclosing necessary information about the transaction to clients

Competence • LSUC Rules require lawyers to apply all relevant knowledge, skills, and attributes when representing a client (Rule 3. 1 -1) • Lawyers must ensure the use of a system and any associated abilities and/or restrictions do not compromise a lawyers ability to act competently

Confidentiality • The general principles of confidentiality and privilege as between a client and his/her lawyer still apply! • Lawyers must ensure that information submitted to any electronic fund transfer service is: a) done in accordance with the Rules b) not shared with third-parties c) does not compromise confidentiality and/or privilege between the client and his/her lawyer.

Confidentiality a) Be aware of disclosure requirements! • Some information disclosed may require consent from the client b) Consent MUST be: • Informed • Received in writing and/or confirmed in writing after sufficient disclosure

Financial Issues • Lawyers must ensure that funds received from clients are secure, and that client’s financial interests are protected • Lawyers must ensure that: • The electronic fund transfer system is secure and has appropriate access controls in place • There is an adequate trail of the movement of the $$ for audit purposes and in cases of dispute • There are safeguards in place to prevent funds from being dispersed without approval from the lawyer • The account where client funds pass through is creditor proof

General Considerations Although far from an inclusive list, lawyers should consider: • Is this REALLY electronic fund transfer - or just a conduit? • You still have to go to the bank or somehow get money to the service provider • You may have to send some of the money to the vendor’s lawyer personally (like cheques made payable to non-institutional lenders) • That is NOT electronic fund transfer

General Considerations • Does the client know that you are giving his/her money to someone else? • How will the funds be disbursed?

General Considerations • Potential timing issues • What happens if a mortgage is to be paid off and the service provider is late? • Who is responsible for penalties/interest charges? • Does your contract preclude you from suing if the service provider screws up? • i. e. can’t close a deal due to system failure

General Considerations • Additional expenses incurred by the client? • Does the client know how much it is costing? • Are the fees to be charged over and above what the client would normally incur? • If so – by how much? • Does the client know that couriering the money to the vendor or to an electronic fund transfer service provider will cost the same?

General Considerations • If there are non-institutional payees, does the client know that only part of the money goes into the system and the rest has to go to the vendor anyway? • How do you enforce an undertaking from the vendor to discharge an institutional mortgage if the vendor isn’t making a discharge payment?

General Considerations • How access to the system is controlled? • Do you know who is in control of system info? • The security of the funds in the system • Is the service provider funding stable should there be a theft or default? • Is the provider who you think they are? (i. e. not a shell company). • Is the service provider a deposit taking institution? • How will conflicts be avoided?

Things that scare me? • Is the service provider contractually bound to indemnify you and your client? • Are there limitations of liability in favour of the service provider? • Does the Provider require indemnity and save harmless provisions or assurances? • What insurance do you have to stand behind Law. Pro? i. e. Law. Pro Insurance is for claims from clients regarding professional services rendered NOT for claims for suppliers under contracts