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Before going Guarantor….. make sure you are receiving adequate legal advice

It is now a standard requirement of any bank that a guarantor receive independent legal advice on the guarantee documents. The banks require the solicitor to sign a Legal Advice Certificate confirming the advice given.

The Queensland Supreme Court has recently handed down a decision which emphases the importance of receiving adequate legal advice in exchange for the solicitor signing a Legal Advice Certificate.

Mrs McIvor was an elderly woman with little formal education. Her son, a successful solicitor who gave up his practice of law to start a money lending business,  requested Mrs McIver sign various guarantees and mortgages in favour of Westpac Bank during 2002 and 2003.

Mr McIvor experienced a reversal of fortunes and Westpac sought to call upon the Guarantee provided by Mrs McIvor, and to exercise their powers under the mortgage in Mrs McIvor’s name.

Mrs McIvor issued proceedings against Westpac claiming that in the circumstances there was clearly a presumption of undue influence from her son, and Westpac was on notice of the exercise or possible exercise of undue influence by the plaintiff’s son.  Mrs McIvor claimed further that by virtue of the relationship between her and her son, she did not understand the substance and effect of the transactions and as a result it would be unconscionable for the bank to enforce the Guarantee and Mortgage.

Mrs McIvor had received independent legal advice from solicitors and the bank had been provided with an executed Independent Legal Advice Certificate in each of the transactions.

The court held that despite Mrs McIvor’s confessed absolute trust and confidence in Mr McIvor with respect to commercial matters and that he occupied a position of influence over her in such matters, Westpac was entitled to rely upon the Independent Legal Advice Certificate to rebut the presumption of undue influence.  The court also held that the bank was entitled to rely on the Independent Legal Advice Certificate to rebut any presumption that Mrs McIvor did not understand the purport and effect of the documents.

Let this be a warning for solicitors too. It can be too easy to sign the legal advice certificate after having only seen the client briefly and barely explaining the liabilities created by the documents.  Take care to ensure that your client knows exactly what he or she is getting into and the potential liabilities if the guarantee is called upon.

This decision emphasises the importance of the legal advice received prior to signing any guarantee documents. This legal advice certificate virtually provides the bank with insurance that the Guarantee document has been executed by the guarantor willingly after having received independent legal advice on the full force and effect of the document. The legal advice you get prior to signing a guarantee may be the most important piece of advice you ever receive so it is important that you receive thorough and comprehensive advice in exchange for the executed Legal Advice Certificate.  Do not take this lightly. Take the time to pay for a solicitor to sit down and explain the full meaning of the documents until you understand exactly what it is you are signing and the potential liabilities you could face, because after you hand over a Legal Advice Certificate, the banks and ultimately the courts will deem that you were fully aware of the full force and consequences of the documents you signed.

If you have been asked to be a guarantor for someone, contact one of our lawyers on 1800 621 071 or email info@attwoodmarshall.com.au to receive a thorough advice on the effects of the relevant documents before you sign anything!

If you would like more information or want to obtain the best possible chance of a successful outcome in your dispute, please contact our Commercial Litigation Department Manager, Amanda Heather on direct line 07 5506 8245, email aheather@attwoodmarshall.com.au or free call 1800 621 071.

We have an experienced dedicated Commercial Litigation team that practices exclusively in these areas.

Please click here to access our team brochure with details of our professional staff.

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Charles Lethbridge

Charles Lethbridge

  • Senior Associate
  • Commercial Litigation
  • Direct line: 07 5506 8240
  • Mobile: 0421 885 195