A signed certificate of independent advice has long been the comfort document lenders reach for when a guarantee is on the table. Two certificates, a solicitor’s signature and a witnessed execution look tidy on file. The High Court unsettled that thinking in Stubbings v Jams 2 Pty Ltd [2022] HCA 6, handed down on 16 March 2022. For accountants, brokers and in-house counsel advising on guarantee structures, the case shows that a solicitor’s certificate obtained for loan purposes, however urgently, records that advice happened. It does not prove the advice was worth anything.
The facts behind Stubbings v Jams 2
Mr Stubbings was unemployed with no regular income. He owned two properties at Narre Warren, in Melbourne’s outer south-east, and wanted to buy land at Fingal. The borrower was Victorian Boat Clinic Pty Ltd, a company he solely owned which had no assets and had never traded. He guaranteed the loans. The lenders were private asset-based lenders, not banks.
The borrowing was expensive. The first mortgage loan of $1,059,000 carried interest at 10 per cent a year, rising to 17 per cent on default. A second loan of $133,500 carried interest at 18 per cent, rising to 25 per cent on default. The three security properties, being the two Narre Warren properties and the Fingal property, were valued at $1.57 million in total. The Narre Warren properties had a market value of about $770,000, leaving Mr Stubbings with equity of about $530,000.
An intermediary, Mr Zourkas, received a consultancy fee of $27,000. That figure was not written on the mandate when Mr Stubbings signed it. Once procuration fees paid to the lenders’ solicitors, the intermediary’s fee and other costs were taken out, Mr Stubbings was left with $6,959. The borrower defaulted on the third month’s interest, on 30 December 2015.
Both certificates were drafted by the lenders’ solicitor, and approval of the loans was conditional on their being signed and returned. The certificate of independent legal advice contained six questions for the guarantor. The solicitor, not Mr Stubbings, wrote in the answers, then signed as witness and to confirm that he had explained the documents. The separate certificate of independent financial advice was addressed to the lenders and recorded advice given to the borrower company. Neither certificate stated that Mr Stubbings had received financial advice as guarantor, and the financial certificate did not require the accountant to sight any financial documents.
What Amadio requires: disadvantage, knowledge, exploitation
The governing principle comes from Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447, decided on 12 May 1983. In Stubbings, the joint judgment of Kiefel CJ, Keane and Gleeson JJ described the three ingredients at [39]: a special disadvantage, the stronger party’s knowledge of it, and unconscientious exploitation. Their Honours were clear that these should not be treated as separate elements of a tort-style cause of action.
Special disadvantage, at [40], is something that seriously affects a person’s ability to judge their own best interests. The joint judgment drew on the circumstances identified by Fullagar J in Blomley v Ryan, which include poverty or need, sickness, age, infirmity of body or mind, illiteracy or lack of education, and a lack of assistance or explanation where it is necessary. No single factor settles the question. It is usually a combination.
The respondents did not dispute that Mr Stubbings was at a special disadvantage. The case turned on what the lenders’ agent knew and how that knowledge was used.
Why the certificates were not enough
The joint judgment held that an unequivocal finding of actual knowledge was not essential ([44] to [47]). What mattered was whether the agent’s appreciation of the disadvantage amounted to exploitation. The reasons describe Mr Jeruzalski, the lenders’ solicitor, as having a “lively appreciation” of the likelihood that the appellant would lose his equity because of his financial naivety and lack of means. His state of mind was attributed to the lenders.
The certificates came in for the hardest treatment. At [48] to [49], the joint judgment observed that nothing in them suggested the guarantor had turned his mind to how the loans would be serviced, or to how much more expensive they were than his existing bank borrowings. The “bland boilerplate language” and the inaccurate stated loan purpose allowed an inference of window dressing. The certificates could be seen as a precautionary artifice, designed to head off a finding of wilful blindness. They could not negate the agent’s actual appreciation of the danger. Where a lender deliberately distances itself from evidence of danger, deploying those artifices may itself point to an exploitative state of mind.
The primary judge found that the agent suspected the appellant had not received truly independent advice. The Court of Appeal set that finding aside, but Steward J held that it should not have been disturbed. Steward J also found that the lenders’ solicitors were wilfully blind, and characterised the system of conduct, at least in this case, as a deliberate device to frustrate equitable relief.
The statutory angle: Gordon J on system and pattern
Gordon J held that the lenders’ system of conduct also contravened s 12CB of the ASIC Act. The joint judgment found it unnecessary to decide that question. Her Honour noted that the provision extends to a system of conduct or pattern of behaviour, whether or not a particular individual is identified as having been disadvantaged. Applying ASIC v Kobelt, special disadvantage of an individual is not a necessary component. At [76] she observed that conduct can be unconscionable even where the innocent party is a willing participant, and that the real question is how that willingness was produced.
The system she described included lending only to companies so the National Credit Code did not apply, requiring an individual guarantor secured by real property, a maximum loan-to-value ratio on first mortgage loans of typically two-thirds, no income inquiries, no credit checks, no inquiry into the actual loan purpose, dealing only through intermediaries, and a deliberate avoidance of knowledge about the guarantor’s circumstances.
What lenders and their advisers should take from the decision
The scope matters. The appellant conceded that asset-based lending is not in itself unconscionable, and nothing in Stubbings means every guarantee supported by a certificate will fail. The lesson is about substance. Piper Alderman’s commentary suggests inquiries a prudent lender would make, including the guarantor’s ability to repay and exit strategy, and their fitness to act as guarantor in light of financial literacy, education, hardship and business experience. That list is the firm’s gloss, not a checklist laid down by the Court.
Independence is the other pressure point. The Australian Solicitors’ Conduct Rules 2015 address conflicts of duty between current clients in Rule 11, which regulates when one firm may act for parties whose interests are adverse. Where the same solicitor or an intermediary’s chosen adviser acts across the borrower, the guarantor and the lender, the value of any certificate is open to attack.
Guarantees also carry their own traps that a certificate does not neutralise: all monies clauses can extend security well beyond the facility you think you are backing, and joint and several liability can leave one signatory exposed for the whole debt. A collateral mortgage over a guarantor’s own property raises the stakes further.
Guarantor protections in the Banking Code of Practice
Regulatory expectations have shifted as well. ASIC approved the Australian Banking Association’s updated Banking Code of Practice on 27 June 2024, and the 2025 Code took effect on 28 February 2025. As reported by Hall & Wilcox and Ashurst, the 2025 Code requires member banks to take reasonable steps to meet a prospective guarantor before accepting a guarantee, with the borrower absent from that meeting. Exceptions apply, including where the guarantor or their lawyer confirms that independent legal advice has been received, for certain director, trustee and partnership guarantors, and where an existing guarantor accepts an extension. The Code binds subscribing ABA members, so non-bank and private lenders sit outside it.
Standard certificate forms are widely used across the profession, and the Queensland Law Society’s independent solicitors certificate is one published example for third party guarantors and surety mortgagors.
Practical points when a certificate is needed
Several features of the Stubbings file are recognised risk markers. The intermediary directed the guarantor to the solicitor and accountant who provided the certificates. The solicitor completed the guarantor’s answers. There was no inquiry into income, assets or purpose. The certificates contained no substantive information about the guarantor’s position or the advice given. The primary judge found that, as far as the lenders’ solicitor was concerned, the certifiers would only be paid if the loans proceeded, leaving them no incentive to withhold the certificates. The Court of Appeal rejected that inference, but Steward J held that it should not have been disturbed.
A properly handled certificate looks different. The client attends in person, provides current government photo identification, and answers questions about the transaction. The loan and guarantee documents are reviewed. Advice is given in writing and explained verbally. Identity is verified, signatures are witnessed, and the certificate is issued. When you need to book guarantor legal advice in Victoria, the face-to-face requirement is not a formality to work around. For clients under time pressure, fixed-fee appointments are available with a two business day turnaround, or same day by arrangement.
Guarantee documents carry consequences that outlast settlement day, and the outcome in any dispute will depend on the particular facts. If you are signing as a guarantor, or you advise clients who do, it is worth obtaining independent legal advice before anything is executed. Contact our team to discuss your circumstances, or submit an enquiry and we will respond promptly.
