Verify identity to avoid a claim

15 July, 2016

Practitioners need to take reasonable steps to verify the identity of clients in order to avoid claims, as well as comply with common law obligations and Victoria’s electronic conveyancing Participation Rules. Firms should have clear policies dictating how these requirements are to be satisfied, even where the client is known to the firm. Policies on verification of identity should be adhered to without exception, as illustrated by the following claim.

The client entered into an agreement to borrow money from a private lender. Several months later the lender offered to advance further money and extend the repayment date on the basis the borrower’s uncle gave a personal guarantee including a certificate signed by an independent lawyer.

The borrower subsequently attended his practitioner’s office and asked the practitioner to provide the certificate. When the borrower produced the guarantee for signing, the practitioner saw it was not in the name of the borrower. The practitioner queried this and the borrower said the name was an alias he sometimes used. The practitioner was aware that the borrower had used other aliases in previous transactions and accepted the explanation.

When the borrower subsequently went bankrupt, the lender sought to enforce the guarantee. The borrower’s uncle rightly denied signing the guarantee. Consequently the lender claimed it could not recover the debt as a result of the practitioner witnessing a guarantee not signed by the borrower’s uncle.

The practitioner should not have taken the client at his word regarding the name on the guarantee. Instead the practitioner should have required the client to show photo identification or documentary evidence of the use of the alias to ensure the person executing the guarantee was in fact the intended guarantor. The practitioner could also have contacted the lender to verify the identity of the intended guarantor.

This claim is an example of how easy it is for a guarantee to be forged, even where the borrower is known to the practitioner. It illustrates why clear and comprehensive firm protocols for verification of identity are necessary and should not be waived in the face of pressure from an established client.


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