12 March 2026
The legal and ethical issues for solicitors who provide Independent Legal Advice to both Borrowers and third-party guarantors
Written by Thomas Kanz
The provision of independent legal advice to parties in a loan transaction is a fundamental safeguard within the Australian legal system. legal advice helps ensure the borrower and guarantor fully comprehend the risks, obligations and consequences associated with the documents they sign. The manner in which advice is provided is regulated heavily by the Legal Profession Uniform Law, which establishes a high standard of care for legal practitioners.
A particularly sensitive scenario arises when a solicitor is obtained to act for both the borrower and a third-party guarantor. A third-party guarantor is a guarantor that is not legally related to the Borrower, typically a guarantor who is not a director of the borrower company. Such circumstances place the solicitor at the intersection of conflicting duties of loyalty and confidentiality, often creating a conflict of interest where potential professional negligence and ethical breaches are significant risks.
The Regulatory Framework: Rule 11 and the Uniform Law
The primary regulatory instrument governing these transactions in Victoria and New South Wales is Rule 11 of the Legal Profession Uniform Legal Practice (Solicitors) Rules 2015.
This rule applies when a solicitor is engaged to provide legal advice to a borrower, or a third-party guarantor, and the lender requires evidence of the advice being given. The objective of Rule 11 is to standardise the advice process and prevent lenders from shifting excessive liability onto solicitors through non-standardised forms or broad warranties. Rule 11 provides standardised forms for each jurisdiction that must be used when giving legal advice.
| LIV Form Title | Regulatory Schedule | Application |
| Australian Legal Practitioner’s Certificate 1 | Schedule 1 | Issued to the borrower. |
| Australian Legal Practitioner’s Certificate 2 | Schedule 2 | Issued to the third-party guarantor or surety. |
| Certificate by Translator/Interpreter | Schedule 3 | Mandatory where the client has limited English proficiency. |
| Form of Acknowledgment | Schedule 4 | Signed by the client and retained on the solicitor’s file. |
| Law Society of NSW Form Title | Regulatory Schedule | Application |
| Declaration by Borrower/Guarantor of a security interest | Schedule 1, 1A or 1B | Issued to the borrower |
| Declaration by third party Mortgagor, guarantor, surety, or indemnifier | Schedule 2 or 2A | Issued to the third-party guarantor or surety. |
| Interpreter’s certificate | Schedule 3 | Mandatory where an interpreter or translator is present when advice is given; interpreter details must also be recorded on the declaration. |
| Acknowledgment of Legal Advice | Schedule 4, 4A, 4B or 4C | Signed by the client and retained on the solicitor’s file only — must not be provided to the lender. |
The Ethical Dilemma of Dual Representation
The biggest challenge in providing legal advice to both a borrower and third-party guarantor is the inherit conflict of interest risks. Rule 11 of the Legal Profession Uniform Law Australian Solicitors’ Conduct Rules 2015 (ASCR) identifies that a solicitor and law practice must avoid conflicts between the duties owed to two or more current clients. When a solicitor represents both the borrower and a third-party guarantor, they are serving two clients with fundamentally conflicting interests.
The borrower’s primary interest is receiving the loan funds, which often requires the guarantee to be executed quickly. Conversely, the guarantor’s interest is to understand and potentially alleviate the risks associated with the guarantee. This may include the risk of losing their family home or other personal assets if the borrower defaults on the loan. This divergence of interest is worsened when the guarantor is a third party, who receives no direct commercial benefit from the loan.
Conflict of Loyalty versus Confidentiality
Practitioner duties include requiring lawyers to act in the best interests of their client and provide strong and unconflicted advice. However, this duty often clashes with the duty of confidentiality owed to other clients under Rule 9 of the ASCR.[2] For example, if a solicitor learns that the borrower is in a precarious financial position or that the intended use of the loan funds is high-risk, they have an obligation to disclose this information to the guarantor.
Yet, they are prohibited from doing so by the confidentiality they owe to the borrower. The Legal Practitioners’ Liability Committee (LPLC) suggests that in many cases, the damage is done before the lawyer even realises a conflict has arisen.[3] Even if both parties provide “informed consent” to the dual representation, the courts have held this to be a very high threshold to meet in practice.[4]
The Impact of Common Law and Equity: Amadio and Garcia
The requirement for independent legal advice is rooted in the equitable doctrines of unconscionable conduct and undue influence. The landmark case of Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 remains the definitive authority on unconscionable dealings in the context of guarantees. In Amadio, the High Court set aside a guarantee provided by elderly parents for their son’s business debts because the bank had unconscientiously exploited the parents’ “special disadvantage”.
The parents in Amadio had limited English and an incomplete understanding of their son’s desperate financial situation. The court held that where one party to a transaction is at a special disadvantage and the other party takes unfair advantage of that position, the transaction may be set aside. For solicitors, Amadio serves as a warning that a solicitor’s certificate that is merely provide but which does not reflect a genuine understanding by the client will not protect the transaction from being overturned.
The Protection of Volunteer Guarantors
The principles in Amadio were further refined in Garcia v National Australia Bank Ltd (1998) 194 CLR 395, which addressed the concept of the “volunteer” guarantor. Mrs. Garcia, a professional woman, signed guarantees for her husband’s business without fully realising they were secured by an “all moneys” mortgage over the family home. The High Court reaffirmed the rule in Yerkey v Jones, stating that it is unconscionable for a lender to enforce a guarantee against a spouse who did not understand the effect of the document and received no benefit from the transaction, unless the lender took steps to ensure the spouse received independent advice.
This “volunteer” status is a key distinction for third-party guarantors who are not directors of the borrower. Because they receive no “substantial benefit” from the loan, unlike a director who may benefit from the company’s increased liquidity, the court views them as inherently more vulnerable to pressure or misunderstanding. The presence of a solicitor’s certificate is often the lender’s only defence against a claim that the guarantor did not act of their own free will.
The above in Context
In this context, a solicitor does not avoid potential liability merely by signing independent legal advice certificates for both the borrower and the guarantor stating that advice was provided. The existence of a certificate is not determinative. A practitioner may still be exposed to challenge where the advice was not in fact independent, where conflicts of interest were not properly managed or avoided, or where the advice given was insufficient to enable the client to properly understand the nature and risks of the transaction.
Solicitors’ certificates operate as supporting evidence only, they are not conclusive proof that independent legal advice was competently given or understood. The risk of inadequate advice and unmanaged conflict is significantly heightened where the same solicitor acts for both the borrower and a third-party guarantor
The LPLC identifies risk mitigation as a key consideration when issuing a solicitor’s certificate, and recommends that practitioners consider, where appropriate, ‘Only acting for one guarantor and not acting for both the guarantor and the borrower’.[5] Providing independent legal advice is a process that requires time and careful documentation. The Legal Practitioners’ Liability Committee recommends a multi-day approach to ensure the advice is thorough and the client’s understanding is verified.[6]
The Three-Day Advice Cycle[7]
Providing independent legal advice is a process that requires time and careful documentation. The Legal Practitioners’ Liability Committee recommends a multi-day approach to ensure the advice is thorough and the client’s understanding is verified.
A typical best-practice process for a solicitor’s certificate involves three distinct stages:
- Day 1: Document Intake and Initial Review: The solicitor receives the full suite of documents from the lender and conducts a conflict check. They review the terms for unusual features, such as high default interest rates or broad indemnity clauses.
- Day 2: Written Advice: The solicitor prepares and sends a detailed letter of advice to the client, explaining the nature of the loan, the guarantee, and the specific assets at risk.
- Day 3: Face-to-Face Meeting and Execution: The solicitor meets with the client in person to verify their identity and test their understanding of the written advice. This meeting must be conducted without the borrower present to ensure the client is acting of their own free will.
Conclusion: The Path Forward for Practitioners
The provision of independent legal advice to a third-party guarantor is one of the most high-risk activities in legal practice. The intersection of the Legal Profession Uniform Law, the ASCR, and the Banking Code of Practice creates an environment where the solicitor’s role is not just to witness a signature but to act as a protector of the guarantor.
It is clear that lawyer’s dual representation of the borrower and non-director third-party guarantor is a practice that should be avoided. The difference in interests is too great, and the risk of conflicting duties is too high to be safely managed through informed consent alone. By maintaining professional independence, utilising the prescribed LIV forms, and following a rigorous advice process that includes private interviews and detailed records, solicitors can fulfill their ethical obligations while protecting themselves and their clients from the devastating consequences of an improvident guarantee.
References
Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447
Garcia v National Australia Bank Ltd (1998) 194 CLR 395
G E Dal Pont, Lawyers’ Professional Responsibility (Thomson Reuters, 7th ed).
Law Institute of Victoria, ‘Ethics Ruling Number R5026’< https://www.liv.asn.au/ethicsrulingdetail?RulingNum=R5026>.nt-get-caught-in-the-rush>.
Legal Practitioner liability Committee, ‘Solicitor’s certificates for Guarantors: Don’t get caught in the rush’ (Web Page) < https://lplc.com.au/resources/lplc-article/solicitor-loan-certificates-for-guarantors-do
Legal Practitioners Liability Committee, ‘Conflicts in acting for multiple parties’ (Web Page) <https://lplc.com.au/resources/lplc-article/conflicts-in-acting-for-multiple-parties>.
Legal practitioners’ liability Committee, ‘Keeping out of the Line of fire: Managing Conflicts of Interest’
Law Institute of Victoria, ‘Ethics Ruling Number R4605 < https://www.liv.asn.au/ethicsrulingdetail?RulingNum=R4605>.
Legal Profession Uniform Legal Practice (Solicitors) Rules 2015
Legal Profession Uniform Law Australian Solicitors’ Conduct Rules 2015
Yerkey v Jones (1939) 63 CLR 649
[1] Legal Profession Uniform Legal Practice (Solicitors) Rules 2015 s 11.3-11.8
[2] ‘A solicitor must not disclose any information which is confidential to a client and acquired by the solicitor during the client’s engagement to any person who is not—
9.1.1 a solicitor who is a partner, principal, director, or employee of the solicitor’s law practice, or
9.1.2 a barrister or an employee of, or person otherwise engaged by, the solicitor’s law practice or by an associated entity for the purposes of delivering or administering legal services in relation to the client.
[3] Legal Practitioners Liability Committee, ‘Conflicts in acting for multiple parties’ (Web Page) <https://lplc.com.au/resources/lplc-article/conflicts-in-acting-for-multiple-parties> .
[4] Legal practitioners’ liability Committee, ‘Keeping out of the Line of fire: Managing Conflicts of Interest’
[5] Legal Practitioner Liability Committee, ‘Solicitor’s certificates for Guarantors: Don’t get caught in the rush’ (Web Page) < https://lplc.com.au/resources/lplc-article/solicitor-loan-certificates-for-guarantors-dont-get-caught-in-the-rush>.
[6] ibid.
[7] ibid.