In Check Issue 78 | March 2018

27 March, 2018
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Cyber fraud – it can happen to you

No firm is immune from cyber-criminals and their fake emails. We are seeing an increase in attempts to steal money by hackers masquerading as either the client or the lawyer in fake emails. Below is a summary of two of our recent notifications.

The law firm duped

The firm acted for the vendors of a regional property sold for $295,000 with final settlement due in October.

Shortly before settlement, the firm emailed the client confirming payout details and requesting the client’s bank account details.

The client received the email and responded but the firm did not receive that response. Instead they received an email, purportedly from the client but actually from a hacker, setting out details of the account into which the net settlement proceeds should be paid.

Settlement occurred three days later and $110,000 was paid to the hacker’s bank account a further six days after that.

The following day the client phoned the firm to ask whether the property had settled and when they would receive the proceeds. On realising the earlier ‘email instructions’ were fraudulent, the principal’s secretary swiftly contacted the firm’s paying bank as well as the receiving bank into which the funds had been deposited. Fortunately, most of the money was still in the account and was able to be frozen by the bank and recovered. However, a claim was made against the firm for the small shortfall on the basis of a breach of trust in paying settlement money to an account the client had not authorised.

The client duped

The law firm acted for a purchaser of residential property. Their trust account details were provided in the initial engagement letter.

During the matter the client began receiving emails purporting to be from the firm but which were actually from a hacker. The client was asked to deposit $75,000 into the firm’s trust account and helpfully the email included the bank account details. The client responded to the email querying whether the account details were correct as they were different from the details previously provided. The hacker confirmed the new details to be correct and the funds were transferred to the new account and immediately transferred off shore.

The client had to find an additional $75,000 to settle.

What you can do

  • Understand – It can happen to you, no matter how big or small your firm is.
  • Identify – Don’t accept email requests to re-direct money on face value.
  • Verify – Call the sender personally to check authenticity. Use a number you know, not one suggested in the email.
  • Note – Make a file note that you made the call and confirmed the payment instructions.
  • Warn – Tell your clients they might also be targeted with fake emails purportedly from you and not to act on email payment directions without calling to check.
  • Double-check – Involve a second person in the process and don’t action payment requests without proof that Verify and Note steps above have occurred.

See our new client brochure, Cyber security – how to protect yourself for ways to help your clients understand these issues.


Changes to the Corporations Act on 1 July 2018

Changes to the Corporations Act 2001 about ipso facto clauses being unenforceable in new contracts will come into operation on 1 July 2018.
Ipso facto clauses that allow a party to terminate or exercise other contractual rights if the counterparty enters into an external administration will be stayed. For more information see our blog dated 23 February 2018, Contractual rights to be unenforceable when linked to insolvency events.


Vacant land tax – more reasons to get a land tax certificate

The new vacant residential land tax is something conveyancing practitioners should add to their checklist to consider when acting for either vendor or purchaser. Like existing land tax, this new tax is a charge on the land and an incoming purchaser will be liable for the tax if it is not paid by the vendor.

The land tax clearance certificate will be updated to include reference to the new tax. Practitioners acting for purchasers should always obtain their own land tax clearance certificate so the purchaser can rely on the amounts in the certificate if liabilities arise in the future as a result of tax default by the vendor. This protection is set out in section 96 of the Land Tax Act 2005 (Vic) and only applies if the bona fide purchaser for value obtains the certificate. It is not enough to rely on a copy in the section 32 statement.

The vacant residential land tax applies from 1 January 2018 to homes that were vacant for more than six months in the preceding calendar year in inner and middle Melbourne.

Land owners of vacant residential property are required to notify the State Revenue Office by 15 January every year. Failing to notify is a notification default and penalties may apply.

There are a variety of exemptions, most notably the land that is exempt from land tax as a principal place of residence will be exempt from the vacant land tax. The SRO website has information about the land tax, exemptions and how to notify.


Purchasers may have to withhold GST from 1 July 2018

Purchasers of real property will be required to withhold any GST payable by the vendor and remit it to the Australian Taxation Office from 1 July 2018 if the Treasury Laws Amendment (2018 Measures No. 1) Bill 2018 is passed. It is currently in the Senate.
If the Bill becomes law the relevant provisions will be in schedule 1 of the Taxation Administration Act 1953 (Cwlth). Firms will need to amend their standard contracts of sale of real estate to include a special condition to deal with the requirements. We have been informed a special condition should be available from the Law Institute of Victoria soon.

Firms that practice in property law need to watch for further information on it and when this new law comes into operation.


Common GST question

Our website has many GST FAQs you should check when you have a GST issue before you use our GST hotline enquiry service as the answers to many of the enquiries can be found in the FAQs.

Family Court orders

Q: Family Court orders have been made ordering my client receive a transfer of a half share in a commercial property. The current owners are the ex-spouse and another family member. Both are registered for GST and they charge GST on the rental they receive for the property. Is this transfer subject to GST?

A: There are two GST rulings relevant to your query:

  • GSTR 2001/4 – GST consequences of court orders and out-of-court settlements.
  • GSTR 2003/6 (Transfers of enterprise assets as a result of property distributions under the Family Court Act 1975 or in similar circumstances.

The ruling GSTR 2003/6 states that any matrimonial property distribution, whether by contested court order, consent order, financial agreement or informal agreement between spouses is not a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (Cwlth). This is because there is no consideration with sufficient nexus to the assets to satisfy the requirement in paragraph (a) of section 9-5.


Blogging for everyone

Our risk management blog started in September 2013. It is a quick reminder of a risk management lesson or alert about a new risk and keeps risk management at the forefront of your minds. Subscribers receive an email every Friday afternoon with a short snippet of the blog post to let them know what the topic is for the week.

In recent times we have replaced the blog on the first Friday of the month with a risk video bite for everyone. We hope you have found them useful.

We don’t want any one to miss out so from now on we will be sending the blog email to everyone on our In Check email list so you will always be in the loop about risk management.


What’s new on LPLC website

New client resources

File note – meeting to advise about a guarantee
Cyber security – how to protect yourself | Client brochure
Cost estimates | Client brochure

Updated client resources

A guide for executors
A guide for beneficiaries

Law Institute Journal articles

Use counsel wisely (January/February 2018)
Will it be right? (March 2018)

Risk video bites

Three new risk video bites were released.

Conveyancing
Personal injury litigation
Supervision

A new risk video bite will be posted on our website, LinkedIn,  Twitter and Facebook on the first Friday of every month and emailed to everyone who receives In Check. The email will replace the normal Friday blog email.


Risk Management seminars

Our Calendar of events is published on our website to help you plan your CPD year.

Our Regional Risk Management Tour kicks off on 1 May 2018 where we will be visiting some old and new towns throughout May this year – Milawa, Shepparton, Bendigo, Horsham, Ballarat, Warrnambool, Geelong, Sale, Warragul and Mornington. The sessions will be conducted by our new CEO Justin Toohey, our new head of claims, Jodie Potts and our most experienced claims solicitor, Alex Macmillan.


Changing your email address?

If you change your email address don’t forget to tell us so you will continue to receive our newsletters, emergency bulletins and seminar brochures.