You act for the bank as well?

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Clients coming to New Zealand from the United Kingdom and Australia are often surprised that New Zealand lawyers can (and customarily do) act for both the client who is purchasing land and buildings and the Bank or other lending institution which is advancing the funding for the purchase. 

In the UK and Australia clients are used to their own lawyer acting for them on the borrowing aspect of the transaction and the purchase, while the Bank or other lending institution has a separate lawyer acting on its behalf in respect of the lending.

These overseas clients have sometimes suggested that there may be a conflict of interest if a lawyer acts both for the lender and the borrower, and the obligation to give unbiased independent advice to the borrower conflicts with the same duty owed to the lender.

The key to the situation is that the New Zealand lawyer will be acting for the lender on the basis of a limited retainer.

The legal position has recently been reviewed by the New Zealand Supreme Court in the case of GE Custodians v Bartle [2010] NZSC 146. The lawyer acting for Mr & Mrs Bartle, as borrower, was also acting as GE’s lawyer. The lawyer’s brief on behalf of GE Custodians was limited to investigating title to the security property, arranging signing of the documents, settling the mortgage advance and registering the mortgage. In other words the GE Custodian instructions only related to the administrative part of the transaction and the Supreme Court decision approved of that arrangement.

Justice Blanchard said in his decision:

“The lender is entitled to assume that a lawyer instructed by the borrower will not have accepted that instruction if any conflict of interest exists and so will give dispassionate advice on whether, and on what terms, the borrower should proceed with the transaction, including the borrowing. The lender is also entitled to assume that the advice given to the borrower by the lawyer is competent advice and that the borrower has chosen to enter into the transaction on a fully informed basis, and so that all risks associated with it have been pointed out.”

Clients coming from outside New Zealand can be reassured that New Zealand’s highest Court approves of the New Zealand method of dealing with lending and mortgage securities, which is both cost-effective and efficient.