I often provide independent legal advice (“ILA”) to people living in HK who wish to obtain financing from financial institutions in Canada, sometimes for investment purposes and other times, to obtaining financing for their beloved family members studying or working in Canada. Since the documents are governed by Canadian law, they usually require a Canadian solicitor to provide ILA.
Clients often wonder why the meeting takes such a long time and why I ask so many questions. Here is why.
Purpose of ILA and who is the client
In most jurisdictions in Canada such as Ontario and British Columbia (as in Hong Kong and other common law jurisdictions), the purpose of the ILA is to give protection to financial institutions that fear challenges to the validity of the agreement based on the borrower’s or guarantor’s subsequent claims of undue influence, duress or lack of understanding. Financial institutions generally do not sign off on the financing documents until ILA has been properly given. Given the many potential ways to challenge the validity of the agreement, a solicitor needs to ask the right questions and based on answers to those questions, provide legal advice. Although the obtaining of ILA is the financial institution’s requirement, the solicitor only owes a duty to the client, not to the bank.
Wide areas that must be explored
In giving ILA, the solicitor’s obligation goes beyond explaining the legal aspects of the matter and assessing whether the client appears to understand the advice. The duty also requires an understanding of the individual’s personal circumstances, financial (current and future) prospects, health and family circumstances to ascertain if he/she is entering into the transaction with informed voluntary consent without pressure from anyone else and with the requisite mental capacity. Digging into the reasons for the transaction, the individual’s financial situation and relevant family dynamics or the characteristics of the parties involved may uncover critical information. Extra care also needs to be given to those who appear to be vulnerable (e.g. some elderly individuals) or who lack fluency in the English language. In Ontario, the Supreme Court has even identified “the client’s expectations arising from life in general” as a relevant factor in deciding whether the person entered into the transaction under undue influence (Brandon v. Brandon  O.J. No. 2986 (Ont. S.C.J.) affirmed on appeal)
When rendering ILA in the context of a mortgage, I generally cover the following areas (at a minimum):
- the nature and consequences of a mortgage
- the nature and consequences of a guarantee
- the effect of power and sale/judicial sale and foreclosure
- the effect of an action on the covenant and the liability for any insufficiency
- the consequences of his or her spouse’s default
- the possible consequences of failure to honour the financial obligations (loss of her or his house, business and all other property)
- the possibility of obtaining security for the financial obligations (loss of his/her house, business and all other property)
- that an indemnity will be worthless if the spouse declares bankruptcy
- the risks to the client if there is a breakdown of the marriage
- the availability of qualified advisors in other fields who might advise the client from a business/accounting/tax point of view
If you reside in HK and wish to have a confidential discussion about independent legal advice in the context of financing a Canadian investment or a loan, please feel free to contact our partner, Ms Eunice Chiu, at firstname.lastname@example.org, +852 2186 1885. Ms Chiu is an experienced disputes and private client solicitor, qualified to practise in Hong Kong and British Columbia, Canada.