Solicitor’s certificates remain the source of many misconceptions by clients and practitioners.
Solicitor’s certificates are being provided in an increasing variety of situations from bank guarantees to binding financial agreements. Despite the prevalence of such forms, clients still don’t always understand their significance. Among the common client misconceptions about certification:
- This is like have a passport application witnessed
- I just have to sign in front of a solicitor
- This is just a boring ‘form’, an administrative nicety
- It’s not about my financial bottom line.
In the context of mortgage and loans or guarantees, solicitors’ certificates are the lender’s means of transferring risk to the practitioner and its insurer. The practitioner is poised for liability if the security provider can challenge the certificate. It is simply a measure of protection for the bank or lender. In the event of a default, it ensures the borrower/guarantor and the solicitor who provided the certificate will be in the gun.
Some practitioners take the view that certification is one of those services they just have to perform, but, as George Gershwin pointed out, ‘it ain’t necessarily so’.
LPLC recommends that practitioners provide solicitor’s certificates only for existing clients and to be wary and meticulous with certificates you do decide to provide. Given the burgeoning incidence of mortgage fraud, there are obvious risks associated with offering this service to people you do not know. Remember that if you have concerns about the client or the transaction, you can always say ‘No’.
If you do decide to witness documents and provide a certificate of explanation, LPLC recommends that a new file be opened to deal with the matter and that a detailed attendance note is kept as well as copies of the relevant documents and any forms of identification obtained from the client.
The Australian Legal Practitioner’s Certificates 1 & 2 are available on LPLC’s website in the Learning From Amadio practice risk guide, Appendix One (and may be purchased from the LIV bookshop). It is important that practitioners ensure the wording of certificate presented matches these recommended forms. Some lenders alter the certificates in order to expand the warranties being made by the legal practitioner. We have even seen certificates where the practitioner is being required to provide financial advice to the client. Practitioners do need to scrutinise the wording of the certificate closely to ensure that it does not certify neyond the giving of advice as to the general nature and effect of the documents to be signed.
In the family law context, certification is required for binding financial agreements. This shifts any risks associated with the invalidity of an agreement onto the legal practitioner. Strict compliance with the form of certification prescribed under section 90G of the Family Law Act 1975 (Cth) is necessary to create a valid, enforceable agreement. The practitioner is required to provide advice about the ‘advantages and disadvantages’ to the party making the agreement. For more discussion of the risks see the LPLC practice risk guide Focusing on Family Law May 2005.
A similar regime for de facto couples is slated to come into effect in December 2008. The Relationships Act 2008 (Vic) provides a new mechanism for de facto couples to register relationship agreements. The validity of a relationship agreement depends upon a solicitor certifying in terms that the party signing has received independent legal advice and that the certificate is endorsed on, annexed to, or otherwise accompanies the agreement
The Franchising Code of Conduct requires at clause 11(2) that before a franchise agreement is entered into the franchisor must receive from the prospective franchisee:
(a) A signed statement that the prospective franchisee has been given advice about the proposed franchise agreement or franchised business, by any of:
- an independent legal adviser,
- an independent business adviser
- an independent accountant.
The Code of Conduct contemplates that either an independent advisor sign a statement or, failing that, the prospective franchisee acknowledges in writing that they have received advice or elected not to seek advice.
There appears to be no standard form of certificate in relation to franchise agreements. LPLC has seen many and varied forms, some in extremely expansive terms and well beyond the provision of legal advice. We recommend that if you do give a certificate, you limit it to wording similar to that in the LIV/ABA approved form of legal practitioner’s certificate for mortgagees and guarantors – i.e. limiting your certification to having given advice as to the general nature and effect of the franchise agreement.
- Explain the general nature and effect of the documents in hand.
- Photo identification is essential to circumvent mortgage and loan fraud.
- If the client’s English is limited, use an independent interpreter.
- If there is more than one security provider, advise each separately.
- Advise a surety mortgagor or guarantor in the absence of the borrower.
- Ask why the security provider wants to provide the security and record the reason.
- Be clear that you are not providing financial advice.
- Charge appropriately.
- Open a separate file and keep full file notes: who what where when etc and of the advice you give your client.
- Confirm your advice in writing