Solicitors' Certificates and Guarantee Advice

If you missed our recent webinar on Solicitors’ Certificates and Guarantee Advice, the recording is now available.

In this practical session, Jamie McCallum, LPLC Risk and Prevention Manager and Accredited Property Law Specialist, explores common risks practitioners face when advising on guarantees and solicitor certificates. Drawing on real claim trends, Jamie covers:

• VOI requirements,
• the role of LIV forms, and
• practical strategies to help practitioners decide whether and when to act in higher-risk matters
  

We have included below responses to questions raised during the webinar that we were unable to address on the day.

Presented by: Jamie McCallum, Prevention and Risk Manager, LPLC and Accredited Property Law Specialist
CPD: 0.5 Professional Skills, 0.5 Substantive Law

Q: Can the guarantor provide a digital form of ID, such as a digital driver licence?

Yes, but you would need to follow the guidelines to properly check the veracity of the digital driver licence to ensure that it is not a fake. See checking digital driver licences | Service Victoria.

The requirement under rule 11.2 of the Legal Profession Uniform Legal Practice (Solicitors) Rules 2015 (Vic) (Solicitor Rules) is to verify identity using the verification of identity (VOI) Standard in Schedule 8 of the Australian Registrars' National Electronic Conveyancing Council Model Participation Rules (MP Rules), which requires face-to-face, in-person verification. The table in clause 3.4 of Schedule 8 of the MP Rules states “Australian drivers licence or Photo Card”.

Guidance Note 2 on the VOI under the Model Participation Rules states:

23: My Client has produced a digital driver licence or a digital photo card, rather than their plastic card. Would this satisfy the Verification of Identity Standard?

A23: A Digital Driver Licence (DDL) or Digital Photo Card (DPC) may satisfy the Verification of Identity Standard. However, as each Jurisdiction will have their own specific legislation supporting DDLs or DPCs it will be up to each Subscriber to ensure that the law in their respective Jurisdiction permits the use of DDLs or DPCs for verification of identity purposes. If permitted, Subscribers will still need to retain evidence of the DDL or DPC relied upon for seven years, such as a screenshot or other method that allows it to be copied and retained.

Further, we note clause 3 in Schedule 8 of the MP Rules states:

At the face-to-face in-person interview described in paragraph 2.1, the Identity Verifier must ensure that the Person Being Identified produces original Documents in one of the Categories in the following table, starting with Category 1.

The terms in the MP Rules are defined in the Electronic Conveyancing (Adoption of National Law) Act 2013 (Vic), which define “document” to include “any record of information that exists in a digital form and is capable of being reproduced, transmitted, stored and duplicated by electronic means.”

Q: What about VOI processed via a third-party digital application such as InfoTrackID? InfoTrack indicates that InfoTrackID is compliant with ARNECC.

Using a third-party application to perform a remote VOI on the client for the purposes of a solicitor's certificate would not comply with rule 11.2 of the Solicitor Rules and is not permitted.

For the purposes of a solicitor’s certificate, solicitors must identify the client in a face-to-face, in-person meeting, in accordance with schedule 8 of the MP Rules.

However, if the third-party identification application was used on a digital device of a solicitor to record the identification documents provided by the client during the face-to-face meeting, using that technology in those circumstances would comply with rule 11.2.

In contrast, third-party providers like InfoTrack can assist with VOI for conveyancing matters as, in most circumstances, they would fall within “reasonable steps” within the meaning of clause 6.5.1 of the MP Rules, but solicitor certificate identification requires face-to-face, in-person verification, in accordance with schedule 8 of the MP Rules.

Q: Is performing the VOI by video call permitted?

No.

Confirming the client’s identity by video call does not comply with rule 11.2 of the Solicitor Rules.

Q: Why does Certificate 4 say VOID?

We extracted this picture of Certificate 4 from the eLawforms website. When downloaded as a PDF, it does not say void.

Q: Can the advice be given at the client's residence? If so, should Form 4 be amended accordingly?

Certificate 4 refers to giving advice at ‘your office’.

Rules 11.6 and 11.7 of the Solicitor Rules requires the solicitor providing the advice to use Certificate 4. We would not recommend amending this form. Given how many webinar participants queried this issue because they give advice somewhere other than their office, the LPLC will raise with it with the Law Institute of Victoria and request the Form be amended. Until that time, Certificate 4 says what it does.


Q: The Acknowledgement of Advice form requires "in office" advice. Is that because it was drafted before COVID? Why can't advice be done virtually? Can the form be amended to reflect meetings outside the office?

See above.

Q: Can records be electronic, or are originals required to be kept?

Electronic records are acceptable. Consider retaining records of the advice longer than 7 years (depending on the term of the loan/guarantee).

Q: If you have a regular client (e.g., a developer) whose identity you already know from years of dealings, can you just do remote VOI in those circumstances?

No. The law is unambiguous: face-to-face, in-person VOI is mandatory with no exceptions and no "reasonable steps" alternative for solicitors' certificate purposes. How well you know the client is irrelevant to this requirement.

Accordingly, VOI must be performed on the client in accordance with rule 11.2 every time a solicitor’s certificate is to be provided to a lender.

Q: Are there any slides or reading materials to accompany this session?

Yes. In addition to the slides, the LPLC has free resources on its website, including the checklist for solicitors' certificates, the template file note for a guarantee meeting, and the managing mortgage risk practice guide.

Q: If the borrower is a company and the guarantor is the sole director, can you still act for both?

Yes. The LPLC checklist specifically provides that you should advise the security provider without the borrower present "unless the security provider is the sole director of the borrower company."

In this scenario, we recommend documenting your thinking and letting the client know of the potential conflict and documenting their written informed consent for you to continue acting.

Q: If a husband and wife are the only directors of a company, does this need to be avoided?

Yes.

Under rule 11 of the Legal Profession Uniform Law Australian Solicitors’ Conduct Rules 2015 (Vic) (Conduct Rules), a solicitor and a law practice must avoid conflicts between the duties owed to two or more current clients. Whilst this conflict can be cured, in some situations, under rule 11.5.1 of the Conduct Rules by written informed consent, we do not recommend doing so in this context.

The safer view is that you should not provide guarantee advice to multiple guarantors, including husband and wife guarantors. The safest approach is for each party to receive independent advice from separate law firms.

Further, clause 5.2 of the LPLC Contract for Professional Indemnity Insurance for Solicitors (LPLC Policy) provides that a double excess will be payable where a solicitor acts in “Any matter or transaction in respect of which the Firm acted for or represented more than one party or interest.”

Q: Can you advise both the SMSF borrower company and a director guarantor where a personal guarantee is provided by someone who is both the member and trustee under a bare trust?

Leaving aside whether this practice complies with the limited resource borrowing arrangement rules (and we advise scoping your solicitor certificate retainer to only extend to advice on the guarantee, not compliance with any applicable superannuation legislation), in this scenario, we recommend documenting your reasoning as to how the conflict rules apply. A solicitor and a law practice must avoid conflicts between the duties owed to two or more current clients to the facts in front of you, letting the client know of the conflict and documenting their written informed consent for you to continue acting.

We note that clause 5.2 of the LPLC Policy would still apply to any claim arising out such advice, and in turn a law firm may be liable to double excess in this situation.

Q: If both spouses of an SMSF are members and asked to sign guarantees, is advising both a conflict of interest given the cost of independent advice?

The cost concern is understandable but does not override the conflict obligations in the Conduct Rules (exposing you to a misconduct allegation if not properly managed) or the application of clause 5.2 of the LPLC Policy (exposing you to a double excess) if a claim was made. Whether a conflict exists depends on whether the spouses have the same assets at risk and aligned interests.

If the cost of separate advice is genuinely prohibitive, that is a matter for the clients to resolve, not a reason for the solicitor to act in a conflict situation or expose themselves to a double excess.

Q: For a director-guarantor for their borrowing company, the Certificate includes "The borrower was not present during my interview with the guarantor." Is this an issue when the director is also the borrower?

No, because the borrower is the company.

Q: Why does Solicitor's Certificate 4 on eLawForms allow the form to be sent for remote signing?

eLawForms' functionality does not align with the legislative requirements for solicitor certificates. The Rules require in-person execution and face-to-face VOI. The fact that the platform enables remote signing does not make it compliant. Using that functionality for solicitor certificate purposes would not satisfy rule 11, and would expose the solicitor to the same risks as any other non-compliant process.

Q: What incentive is there for a lender to agree to several liability rather than joint and several liability in a guarantee?

From a lender's perspective, there is generally very little incentive, as joint and several liability gives maximum recovery flexibility, allowing the lender to pursue any one guarantor for the full amount. A lender would only accept several liability if it was a commercial concession necessary to secure the deal, or if the guarantors' combined several obligations still adequately covered the loan exposure. The push for several rather than joint and several liability would need to come from the guarantors (and their advisors) in negotiations.

Q: Is there a way to give solicitor's certificates if the client cannot attend a face-to-face meeting?

No.

Q: Are we required to provide the client with a copy of the LPLC template file note, in addition to the written advice?

It is not a strict regulatory requirement, but providing a copy to the client has real evidentiary value. It makes it very difficult for the client to later assert that no proper explanation was given. The LPLC file note template includes a checkbox for "Copy of file note given to client," which signals this is recommended best practice.

Q: How do you handle a potential client who says they don't want to sign the guarantee but feel they have to for family reasons?

Your obligations are to advise the client fully on the consequences, document any stated reluctance in your file note and written advice, consider whether there is duress or undue influence that should be expressly addressed, and strongly recommend independent financial advice.

Importantly, you should not sign the certificate if you have real concerns about whether the client is acting without a proper understanding or is signing under duress or undue influence.

Q: For clients whose first language is not English, but who can understand English reasonably well, how do we determine if a translator is required?

The test is whether the client genuinely understands the advice being given. If there is any doubt about comprehension, particularly given the complexity of guarantee and mortgage documentation, an independent interpreter should be used.

If you yourself speak the client's language, you don't need a separate interpreter, but you may be asked to verify your language proficiency if the certificate was ever challenged.

Err on the side of caution: a certificate challenged on the basis that the client didn't understand is a significant claim risk.

Remember to fill in the relevant parts of the Certificates 2 and 3 in respect of the interpreter.

Q: If a translator is needed, must all loan documents and written advice be translated, or only key documents?

The obligation is to ensure the client understands the advice, not necessarily that every page of every loan document is formally translated.

Best practice should also include a full translation of any letters of advice to the client to ensure that the client has a proper understanding on the nature of the guarantee before they sign the guarantee documents.

Q: Why did the profession agree to solicitors becoming responsible for these certificates while being paid very little compared to lenders and their solicitors?

Solicitors' certificates are, in effect, a mechanism for lenders to spread and transfer risk to solicitors (and their insurers). Whether the profession "agreed" is debatable, it evolved as standard commercial practice, and lenders have leverage in requiring it as a condition of lending. Solicitors should charge appropriately for the work involved and not be pressured into signing certificates for inadequate fees.

Q: What happens when the lender's solicitor advises that FaceTime execution and ID verification can be done?

You should decline.

Rule 11.8 of the Solicitor Rules expressly prohibits a solicitor from aiding, abetting, counselling or procuring another solicitor to provide evidence otherwise than in conformity with rule 11 of the Solicitor Rules. Schedule 1, section 39 of the Legal Profession Uniform Law Application Act 2014 (Vic) also makes it an offence — up to 100 penalty units — for anyone (including a lender's solicitor) to induce a law practice or practitioner to breach the Uniform Law or professional rules.

Put your refusal in writing, point to these provisions if necessary, and do not let urgency around funding be used to pressure you into non-compliance.

Q: Does anything change if the borrower is a self-managed superannuation fund (SMSF) or a company?

The fundamental obligations under the Solicitor Rules, Conduct Rules and LPLC Policy (as discussed above) remain the same, but the conflict analysis is more complex (the guarantor's interests as individual versus their interests as director/trustee need to be carefully considered).

SMSF certificates carry additional risks because lenders sometimes include broad certifications about Superannuation Industry (Supervision) Act 1993 (Cth) compliance that go well beyond what a solicitor may be able to certify; and the LPLC recommends not signing those documents unless you are engaged to advise to specifically do so and have knowledge of the facts being certified.

Q: If the mortgagee insists you do VOI for it, how do you say no without delaying the client's funding?

The materials are clear that acting as the mortgagee's VOI agent is something you should not do.

It is the lender's own obligation under section 87A of the Transfer of Land Act 1958 (Vic) to verify the identity of the mortgagor, and it is not the borrower/guarantor's solicitor's job.

You can explain this politely but firmly: you have conducted VOI for your own client as required by rule 11.2 of the Solicitor Rules, but the lender's VOI of the borrower is the lender's responsibility, and note that acting as the lender’s agent puts you at risk of paying a double excess under your professional indemnity insurance. Put your position in writing promptly so that any funding delay cannot be attributed to you.

Q: Would advising against signing the guarantee reduce risk to the solicitor?

It helps, but it is not a complete shield. Advising the client strongly against signing — and recording that advice clearly in your file note — may help to demonstrate that you fulfilled your duty to advise on the "obvious practical implications" of the transaction (per Provident Capital Ltd v Papa [2013] NSWCA 36).

However, if the client signs the guarantee documents anyway and later suffers loss, the question becomes whether your overall advice and the certificate process were compliant. The real risk reduction comes from thorough advice, comprehensive file notes, proper VOI in accordance with Solicitor's Rules 11.2, use of the correct LIV forms, and ensuring that the client genuinely understood the nature and potential consequences of the guarantee before signing.

Q: For clients overseas in urgent situations, is the face-to-face meeting mandatory or just recommended?

Strict compliance with rule 11 of the Solicitor Rules is mandatory and there are no exceptions.

Accordingly, solicitors should decline to provide a solicitor’s certificate where rule 11 cannot be complied with, and in doing so the lender may have to consider not obtaining a solicitor’s certificate from the guarantor.

Q: Will a file note recorded immediately after the meeting be suitable evidence?

A contemporaneous file note made immediately after the meeting is good evidence, provided it is comprehensive. The LPLC checklist sets out what advice the file note should contain: who was present, the duration, what was said and by whom, the advice given, how the client's understanding was tested, and the client's responses.

A file note made during the meeting is marginally stronger, but an immediately post-meeting note is well-recognised as reliable. What will not suffice is a file note reconstructed days later or one that is vague about what was actually said and understood.

We recommend protecting yourself through both a file note and written advice and providing the initial written advice ahead of the meeting.

Q: Is it reasonable to complete a VOI via Zoom for a known client overseas, even though it does not technically meet the Rule?

No. Doing so does not comply with rule 11.2 of the Solicitor Rules.

Q: If remote advice is allowable, can the LIV certificates be amended to reflect remote delivery?

Remote VOI is not permitted for a solicitor's certificate. And the solicitor’s certificate should not be amended.

Q: With banks providing documents via DocuSign, is this a potential risk?

Yes.

With digital signing, there is a risk that the client accidentally signs the guarantee documents prior to your meeting with the client in accordance with rule 11.

Under the LIV Solicitor’s Certificate 2, you are certifying that you gave the advice to the client, and that the client understood the advice and the nature of the guarantee, and before the client signed the guarantee documents.