By Jen McMillan -
Since 1996 there have been rules in place in New South Wales in relation to the evidence that a solicitor for a lender may require from a borrower or guarantor in relation to the legal advice provided to them.
The relevant current rule is Rule 11 of the Legal Profession Uniform Legal Practice (Solicitors) Rules 2015(Practice Rule 11) and solicitors for borrowers or guarantors are not permitted under that rule to provide certificate evidence about the explanation and legal advice given to their client. Instead the only evidence which may be provided is a declaration by the borrower or guarantor in the form which may be found on the Law Society website.
Given that Practice Rule 11 and its predecessors have been in existence for nearly 30 years it is extraordinary that we still hear of instances of lenders requesting the provision of a certificate from the borrower’s or guarantor’s solicitor.
Solicitors for lenders must avoid drafting documents that breach Practice Rule 11
Practice Rule 11 not only restricts the actions of solicitors advising borrowers or guarantors—it also places obligations on lawyers acting for lenders. Under Practice Rule 11.8 a solicitor acting for the lender must not aid, abet, counsel or procure any other solicitor to provide evidence otherwise than in conformity with the Practice Rule. Preparing or providing documentation such as a solicitor’s certificate that impliedly or expressly requires a solicitor to confirm advice was given will fall foul of this rule. Doing so may also breach section 39 of the Legal Profession Uniform Law, which prohibits inducing another to breach professional obligations.
Interstate lenders must be made aware that Practice Rule 11 applies in New South Wales
While Victoria has a similar rule to NSW, other states differ significantly. Lawyers acting for lenders must ensure their clients understand these differences, especially when dealing with cross-border transactions. Failure to do so can lead to confusion and potential non-compliance.
Solicitors for borrowers and guarantors must comply with Practice Rule 11 and put the interests of their clients ahead of the interests of the lender
The relative bargaining power of a lender and borrower can be very uneven, and prior to 1996 this led to many lenders requiring solicitor’s certificates with a view to relying on them in the event of default. But it is a fundamental ethical duty for a solicitor to act in the best interests of their clients. Conduct Rules 12 and 27 prohibit solicitors from acting where their interests conflict with those of the client. If a third party seeks to rely on a solicitor’s advice, it may place the solicitor in direct conflict with the client, especially in disputes. This is particularly relevant in multi-party loan arrangements or family-related guarantees, where conflicts are common. Practice Rule 11 is designed to protect the solicitor-client relationship and prevent solicitors from becoming witnesses against their own clients.
Compliance with Practice Rule 11 is in the best interests of both the client and the solicitor.
Lawyers insured by Lawcover should also be aware that contractual undertakings which expand their liability may fall outside the scope of their professional indemnity insurance. This includes declarations or certificates that go beyond what is legally required or professionally appropriate.
