A fund should not ask the firm that wrote its documents to judge them in a crisis. When a credit sours or a deal turns contentious, the first question is whether the documents do what the fund believed they did. If the firm answering that question is the firm that drafted them, the fund is asking its adviser to audit its own work: a position fiduciary law in Australia and England has condemned for half a century. This paper makes the case through the decided cases, sets out what a conflicted retainer actually costs, and closes with a practical bifurcation protocol for private credit and private equity investors.
At a glance
- The self-review conflict is structural, not a question of integrity. Authorship blindness, the incentive gradient and the witness problem operate on honest, competent firms.
- Where a firm knows, or ought to know, there is a significant risk that its earlier work was negligent, an own-interest conflict exists. The firm must disclose it and the client is entitled to independent advice.
- Documentation defects stay dormant until enforcement. OneSteel and Motors Liquidation show perfection errors surfacing only when insolvency practitioners attack the file.
- A conflicted retainer costs three ways: the lost adviser claim, the forced mid-crisis handover, and strategic advice that quietly bends toward validating the transaction record.
- Bifurcate in advance. Split the panel by function, commission an independent enforceability review at the first sign of stress, and audit perfection portfolio-wide.
Executive summary
When a credit sours or a deal turns contentious, the instinct of most funds is to call the firm that papered the transaction. They know the documents. They know the borrower. They are already engaged. It feels efficient. It is, in our view, one of the most consistently underpriced risks in private capital.
The first question in almost every enforcement, workout or post-completion dispute is whether the documents actually do what the client believed they did. If the firm answering that question is the firm that drafted them, ran the completion checklist, gave the enforceability opinion and made the registrations, the client is asking its adviser to audit its own work. Courts in both Australia and England have long recognised that this is a position no solicitor should occupy: where there is a real possibility that the adviser’s own earlier work is part of the problem, the adviser is conflicted, must say so, must recommend independent advice, and in most cases cannot continue to act. That is not cynicism about the profession. It is the settled architecture of fiduciary law, which assumes that even scrupulously honest professionals cannot reliably hold the scales between their own interests and their client’s.
This paper makes the case through the cases: English and Australian decisions in which it went badly wrong when one firm held both the transactional seat and the disputes seat, documentation failures that stayed invisible until enforcement, one at a cost of USD 1.5 billion, and the professional rules in both jurisdictions that ultimately force separation anyway, usually at the worst possible moment. It closes with a practical protocol for how private credit and private equity investors should structure their legal panels so that the review is independent before the crisis, not after the damage.
1. The moment: a maturing credit cycle meets an untested documentation stack
Australian private credit has grown into a market of roughly $200 billion, and its practices are now under sustained regulatory examination. ASIC’s commissioned review of the sector, Report 814: Private credit in Australia (September 2025, prepared by Nigel Williams and Richard Timbs), catalogued practices requiring improvement in four areas: conflicts of interest, fees and remuneration, portfolio transparency and valuation, and terminology. ASIC’s follow-on surveillance of 28 retail and wholesale funds, Report 820: Private credit surveillance: retail and wholesale funds (November 2025), identified weaknesses in governance, conflicts management, valuation and liquidity practices. Poor private credit practices are now a named ASIC enforcement priority for 2026, and the regulator’s June 2026 snap review of 52 local private credit funds reported early signs of credit deterioration spreading across the sector.
The commercial implication is simple. As the cycle turns, a large stock of loan documentation written in benign conditions, much of it by a comparatively small group of transactional firms, at speed, in a market competing aggressively on execution, is about to be stress-tested in workouts, receiverships, administrations and court enforcement for the first time. Much of the sector has never lent through a full downturn. Private equity faces the mirror image: slower exits, portfolio stress, earn-out and completion-accounts disputes, and warranty and indemnity claims that turn on how the sale documents were drafted and how claim notices were prepared and served.
Documents do not fail at signing. They fail at enforcement. The question every fund should ask now is: who will be reviewing ours when they do?
2. The structural problem: the self-review conflict
Auditing has a name for this. Professional independence codes for accountants (in Australia, APES 110) prohibit an auditor from reviewing their own work because of the ‘self-review threat’: the recognised risk that a professional will not appropriately evaluate a judgment they themselves made, however honest they are. The audit profession solved the problem structurally. You simply may not mark your own homework.
The legal market has no equivalent structural rule at the boundary between transactional and disputes work. Nothing stops a fund from asking its deal counsel to advise on enforcement of the very facility agreement, general security deed, intercreditor deed and PPSR registrations that firm produced. Yet everything that makes the self-review threat real for auditors is present, and often amplified, for lawyers in that position.
Authorship blindness. Drafters read their own documents as they intended them, not as a court will. The gap or the defective cross-reference is invisible to its author precisely because the author ‘knows’ what it means. Every experienced litigator has seen a clause that five careful transactional reviews did not question fall apart on its first hostile reading.
The incentive gradient. A firm advising on enforcement of its own documents has, at minimum, a reputational and commercial interest in the conclusion that the documents are sound. If a defect is arguably the product of negligence, the firm’s professional indemnity position is engaged, its insurer’s consent requirements constrain what it may say, and the retainer itself, often a valuable annuity relationship, is at risk. None of this requires dishonesty to distort judgment. The law’s response, as set out below, is that the lawyer in this position should not be judging at all.
The witness problem. In a contested enforcement or post-completion dispute, the deal team are not just former advisers. They are frequently material witnesses. What was said at completion, what the conditions-precedent trail shows, what was disclosed and when: these are questions the transaction lawyers may have to answer on oath. The conduct rules state the position in terms. Under rule 27 of the Australian Solicitors’ Conduct Rules, a solicitor who will be required to give evidence material to contested issues may not appear as advocate, and the solicitor and their firm must not continue to act for the client if doing so would prejudice the administration of justice. A fund that leaves enforcement with the drafting firm may find its chosen advisers conflicted out by their own evidence, mid-fight.
The narrow, dishonest tail. The overwhelming majority of Australian and English lawyers, confronted with their own error, will disclose it. The professional rules compel them to, and their insurers’ guidance walks them through exactly how. But the tail exists. In Legal Profession Complaints Committee v Chang [2022] WASC 145, disciplinary proceedings reached the Supreme Court of Western Australia after a practitioner made false and misleading statements to a former client while negligence allegations were on foot, telling the client the claim was with her insurers when no insurer had been notified at all. A fund’s protection against that tail cannot be trust alone. It has to be structure.
The argument for bifurcation does not depend on lawyers behaving badly. It depends on lawyers being human.
3. The war stories: five cases of holding both seats, or reviewing your own file
The argument is best made by the cases themselves, Australian and English, arranged not by jurisdiction but by the way each one went wrong. Two show latent documentation failures that stayed invisible until insolvency. Two show what happens when a firm is asked to deal with a problem connected to its own work. One shows the cost of the forced handover when the conflict finally surfaces.
Re OneSteel (NSW): the defect nobody saw until the administrators attacked it
In In the matter of OneSteel Manufacturing Pty Limited (administrators appointed) [2017] NSWSC 21, Alleasing had leased crushing plant and parts worth approximately $23 million to OneSteel. Its PPSR financing statements were lodged against OneSteel’s ABN rather than its ACN. When administrators were appointed, they pounced: a search against the ACN, the identifier the PPS regime prescribes for a corporate grantor, would not disclose the registrations. Brereton J held the registrations were seriously misleading and ineffective, the security interests were unperfected at the critical time, and they vested in OneSteel under s 267 of the PPSA for the benefit of creditors generally. No extension under s 588FM of the Corporations Act could save an interest that had already vested. Two digits’ difference in a registration field converted a secured financier into an unsecured creditor.
The point is not merely ‘register carefully’. It is that the defect sat dormant on the register for years, through the entire performing life of the lease, and was detected not by the parties or their advisers but by insolvency practitioners with every incentive to attack the file. Perfection defects, priority-deed misalignments, defective guarantee limitations and broken conditions-precedent trails behave exactly the same way: harmless until the one moment they are decisive.
Motors Liquidation (US): the USD 1.5 billion closing-checklist error
In the General Motors bankruptcy, it emerged that when GM paid off an unrelated synthetic lease facility in 2008, the closing documents mistakenly included a UCC-3 termination statement releasing the financing statement that perfected JPMorgan’s security for a separate USD 1.5 billion term loan. Drafts were reviewed by counsel on both sides; nobody caught it. The error surfaced only when GM filed for Chapter 11. In Official Committee of Unsecured Creditors v JPMorgan Chase Bank NA (In re Motors Liquidation Co) (2d Cir, 2015), the Second Circuit, applying the Delaware Supreme Court’s answer to a certified question, held the mistaken termination effective because it had been authorised, whatever the parties subjectively intended. The agent’s secured position on a USD 1.5 billion loan was lost to a paperwork error that had passed through multiple layers of professional review.
Gold v Mincoff (England): both seats, for years, and years of silence
In Gold v Mincoff Science & Gold [2001] Lloyd’s Rep PN 423, the same solicitors acted for their client on a succession of mortgage transactions over many years. The security documents contained all-moneys clauses that quietly extended his exposure to his partnership’s borrowings, and on transaction after transaction the firm failed to advise him of it. Because the same firm held both seats throughout, drafting each new mortgage and advising on the position the old ones had created, there was never a moment when fresh eyes read the file. The problem surfaced only at enforcement. Neuberger J held that when the firm came to prepare the later mortgages, a proper review would have led back to the earlier ones; the firm should then have told the client it might itself have been negligent and sent him to independent advisers. Its continuing failure to confront its own earlier work generated fresh, actionable breaches that kept the client’s claim alive against a limitation defence. But the deeper lesson is the years of silence that only an outside reviewer would ever have broken.
Atanaskovic Hartnell v Birketu (NSW): investigating a problem born inside the firm
In Atanaskovic Hartnell v Birketu Pty Ltd (2021) 105 NSWLR 542; [2021] NSWCA 201, an employed solicitor of the firm had defrauded two of the firm’s clients of more than $8 million, including by twice deceiving Deutsche Bank into transferring funds from the client’s bank account. The firm then accepted a retainer from the defrauded client to investigate the client’s rights against the bank: a matter in which the firm’s own vicarious liability for its employee’s fraud was obviously and inevitably going to be in issue. The firm’s retainer letter described the conflict as merely ‘potential’. Both Hammerschlag J at first instance ([2020] NSWSC 573) and the Court of Appeal disagreed: the conflict was actual and profound, fully informed consent had not been obtained, and the firm was denied recovery of its fees for the investigation work. The decision has been rightly read as a salutary warning: when a problem originates within the firm, the firm’s natural, even well-intentioned, instinct to fix it for the client is precisely the instinct that must be resisted.
Three features of Birketu deserve a fund’s attention. First, the firm did not set out to harm its client; the conflict operated anyway. Second, the client ended up appointing new solicitors mid-crisis, and the Court of Appeal noted that it was not in the client’s interests to incur costs that would be duplicated on the retainer of new solicitors. Third, characterising an actual conflict as ‘potential’ in a retainer letter did not save it. Any fund that has ever received a conflicts paragraph gently describing an obvious tension as theoretical should read the case in full.
Evans v Hughes Fowler Carruthers (England): the forced mid-crisis handover
In Evans v Hughes Fowler Carruthers Ltd [2025] EWHC 481 (Ch), the firm was acting for Ms Evans in matrimonial financial proceedings before Mostyn J while simultaneously acting for the judge’s own wife in her divorce from the judge. Material then surfaced through that second retainer, disparaging comments by the judge about the firm and its leading counsel, which put the trial judgment in doubt and put the firm’s own position in play. Conflicted, the firm and leading counsel could not advise Ms Evans on the challenge; she instructed new solicitors and new leading counsel, the trial judgment was set aside, and the case was fought again before a different judge. Years later, when the firm sued her for unpaid fees, the High Court reinstated her negligence counterclaim, which had been summarily dismissed below, holding it properly arguable that the firm had come under a duty to advise her of a possible claim against itself. The standard the court applied is the one every fund should memorise: the duty to speak can arise where the firm knows, or ought to know, that there is a significant risk, not a certainty, a significant risk, that its earlier advice or conduct was negligent. At that point an own-interest conflict exists, the client is entitled to independent advice, and in many cases the firm cannot properly continue to act.
None of these cases required dishonesty. All of them involved competent institutions and competent advisers. Together they illustrate the central claim of this paper: the transaction file is a litigation risk asset, and the people least equipped to assess it dispassionately, or to keep acting once it is in question, are the people who built it.
4. What the courts and regulators say, in one page
The principle behind these cases has been settled in both jurisdictions for half a century. In Australia, Street CJ said it in Law Society of New South Wales v Harvey [1976] 2 NSWLR 154: where the solicitor’s interest conflicts with the client’s, the solicitor must act in perfect good faith and make conscientious disclosure of everything that might influence the client. Where continuing to act will, or may, bring the two into conflict, it will be a rare case in which the solicitor should not at least advise the client to obtain independent legal advice. That passage was considered and applied by the Court of Appeal in Birketu, and it is the whole of this paper’s thesis, stated by a Chief Justice in 1976. The Court of Appeal was careful not to overread Harvey: its wider statements were confined, the first proposition being that some conflicts are so profound that the rule’s objective can only be achieved by the solicitor not acting at all. That measured reading cuts no ice for present purposes. A firm assessing the enforceability of its own documents sits squarely within the principle, not at its margins. Rule 12 of the Australian Solicitors’ Conduct Rules puts the duty in modern form: a solicitor must not act where the client’s best interests conflict with the solicitor’s own. And Lawcover’s guidance to the NSW profession on responding to mistakes is blunt: when a mistake emerges, give the client the facts, advise independent legal advice, and recognise that once interests diverge, continuing to act is not appropriate.
England reached the same place by the same road. In Spector v Ageda [1973] Ch 30, Megarry J held that a solicitor must put all relevant knowledge at the client’s disposal, and one unwilling to do so should not act for him. A solicitor with an adverse personal interest should refuse the retainer and persist in that refusal even under client pressure. Ezekiel v Lehrer [2002] Lloyd’s Rep PN 260 and Cutlers Holdings Ltd v Shepherd & Wedderburn LLP [2023] EWHC 720 (Ch) frame the trigger of the duty to advise on the firm’s own possible negligence: it bites when the firm knows or ought to know of the problem, precisely the perception that authorship blindness degrades. And the English regulator has drawn the hardest line of all: under the SRA Codes a solicitor cannot act where there is an own-interest conflict or a significant risk of one, and, unlike a conflict between two clients, this one cannot be cured by consent.
The practical consequence for a lender or sponsor is the one Evans and Birketu make vivid. When the conflict crystallises mid-enforcement, the compliant firm must down tools and send you elsewhere at the precise moment speed matters most. And the same logic extends beyond fraud to the subtler, more common scenario this paper is really about: a drafting or process failure within the firm. If the enforceability of the security package the firm wrote is genuinely in doubt, the firm’s interest in the answer is engaged in exactly the way the fiduciary duty prohibits. The client is entitled to advice from someone whose only interest is the client’s recovery, including, where it arises, advice that the transaction advisers themselves may be a defendant worth pursuing. Bifurcation in advance simply pre-positions the resource the law will force you to find anyway.
5. What the conflicted retainer actually costs
It is worth being concrete about the downside, because the costs are not hypothetical and they compound.
The lost claim. In a shortfall scenario, the client’s professional negligence claim against its transaction advisers can be one of the most valuable recovery assets on the table, frequently backed by substantial professional indemnity insurance when the borrower group is worthless. A drafting firm advising on its own enforcement will never table that claim, will rarely be capable of even seeing it, and every month it remains unidentified erodes limitation. Gold v Mincoff shows both sides of this coin: the client there was saved because the later failures to advise created fresh causes of action, but no lender should be relying on that kind of doctrinal rescue.
The mid-crisis handover. As Evans and Birketu both illustrate, when the conflict crystallises the compliant firm must stop. The client then changes horses mid-stream: new firm, cold file, duplicated fees, lost weeks. And this happens during a standstill negotiation or a contested receivership, when lost weeks are lost value.
The shaded strategy. Short of any identifiable defect, a conflicted adviser’s strategic advice bends, imperceptibly and without bad faith, toward courses of action that validate the transaction record: settle rather than test the clause in court; restructure rather than enforce; characterise the loss as market misfortune rather than examine the file. The client never sees the road not taken, which is what makes this the most insidious cost of the three.
The private equity variants. For sponsors the same anatomy appears in warranty claims, earn-outs and completion accounts. English courts construe contractual claim-notice provisions strictly. In Teoco UK Ltd v Aircom Jersey Ltd [2018] EWCA Civ 23, warranty claims worth millions failed at the threshold because the notices did not adequately identify the claims as the sale agreement required. Where the notice was drafted by the same firm that drafted the sale agreement, who tells the client candidly whether the failure lay in the notice, the clause, or both? A sponsor asking its deal counsel to run a warranty claim under that firm’s own sale agreement is running the identical self-review conflict as the lender enforcing its own firm’s security.
6. Answering the obvious objections
‘The deal team knows the documents best.’ They know what the documents were meant to do. Enforcement turns on what the documents actually do when read hostilely, and a fresh, forensic, adversarial read is precisely what an author cannot perform on their own text. Familiarity is real, but it is familiarity with intentions, and intentions are inadmissible.
‘Separate counsel is more expensive.’ Measured against the Birketu outcome, irrecoverable fees plus duplicated work plus a mid-crisis handover, or against a single missed adviser claim, the marginal cost of independent enforcement counsel is a rounding error. Disputes-only firms also carry cost structures built for contested work rather than transaction-market rates.
‘It will damage the relationship with our deal firm.’ In practice, bifurcation protects that relationship. If the documents are sound, independent confirmation strengthens the lender’s negotiating hand and vindicates the drafting firm with a credibility its own self-assessment could never have. If the documents are not sound, the issue is going to surface anyway. The only question is whether it surfaces early, managed by independent advisers, or late, in the worst possible forum. The relationship argument also has the law exactly backwards: as Hope JA observed in Law Society of New South Wales v Moulton [1981] 2 NSWLR 736, the deeper the client’s trust in a solicitor, the greater the need for independent advice when a conflict may arise. A decade of successful deals together is a reason for the check, not a substitute for it. And the deal firm keeps doing what it does best: amendments, consents, refinancings, new money.
‘Our firm would always tell us.’ Most would. The professional rules require it and the insurers coach it. But the duty only bites when the firm knows or ought to know of the problem, and authorship blindness means the honest firm frequently never reaches that threshold at all. The protection you need is not against dishonesty. It is against the limits of self-perception, and no engagement letter can contract those away.
‘The conflict can be waived.’ Sometimes, in Australia. But a waiver is a legal defence, not a substitute for unconflicted judgment, and it is a defence the law firm bears the onus of establishing. In Maguire v Makaronis (1997) 188 CLR 449, the High Court confirmed that fully informed consent is what negates what would otherwise be a breach of fiduciary duty, that its sufficiency is a question of fact in all the circumstances, and that there is no precise formula which will determine in all cases whether it has been given. Birketu shows how demanding the standard is even for sophisticated commercial clients. And in England the question does not even arise: under the SRA Codes there is no consent exception to the prohibition on acting in an own-interest conflict at all. A fund offered a waiver should hear the offer for what it is: a request that the client absorb a risk the law would otherwise place on the firm.
7. A bifurcation protocol for private capital
What follows is the framework we recommend funds adopt, and that the most sophisticated institutional credit investors already operate in substance.
- Split the panel by function, not by matter. Appoint disputes, enforcement and workout counsel who take no drafting mandates from you, alongside your transactional panel. Independence should be structural, not negotiated deal by deal.
- Commission an independent enforceability review at the first sign of stress. Watchlist entry, first covenant waiver request or first missed payment should trigger a documents-and-perfection review by the disputes firm: security package, guarantee limitations, intercreditor and priority arrangements, conditions-precedent trail, PPSR registrations against the correct identifiers. Cheap while the credit is still performing; existential once it is not.
- Audit perfection portfolio-wide, not credit by credit. OneSteel-class defects are systematic: an error in one registration process usually repeats across the book. A periodic independent PPSR audit is among the highest-return risk spends available to a credit fund.
- Route all workout and enforcement instructions to independent counsel by default. The drafting firm can and should remain involved for consents, amendments and documentation of the restructured position, under the direction of counsel with no stake in the original file.
- Harden your engagement letters. Require immediate written disclosure of any own-interest conflict or significant risk of one, the standard applied in Evans and Cutlers Holdings, together with delivery of the complete transaction file within a fixed number of days of request. Do not accept conflicts language that pre-characterises foreseeable tensions as merely potential; Birketu shows what courts think of that. And be precise about scope, because courts will hold you to it in both directions: in the City Garden litigation, a substantial fiduciary-conflict award against solicitors who had acted for a property developer while also acting for its lender ([2023] NSWSC 1498) was overturned on appeal precisely because the general retainer was held not to extend to the loan transaction in question (Gerrard Toltz Pty Ltd v City Garden Australia Pty Ltd (in liq) (No 2) [2024] NSWCA 232). Protections you assume you have are only as wide as the retainer you actually documented.
- Treat adviser claims as portfolio assets. In any shortfall analysis, require independent counsel to advise expressly on claims against professional advisers to the transaction, including limitation positions, before releases are given in any restructuring or settlement. Standstill and settlement deeds routinely include broad releases; make sure you are not releasing your own recovery.
- Plan privilege from day one of stress. Investigative work on documentation adequacy should be commissioned by independent counsel for the dominant purpose of anticipated litigation, so the fund controls the analysis and its disclosure, rather than having the sensitive assessment reside in the files of a firm that may become a defendant.
- Reflect service-provider conflicts in fund governance. ASIC’s Report 820 identified conflicts management as a sector weakness, and conflicts frameworks sit squarely within its 2026 enforcement priorities. A documented policy on the independence of enforcement counsel belongs in the same governance framework as valuation and related-party policies. It is also the kind of discipline institutional LPs increasingly ask about in diligence.
“Governance stack” reads as informal technology jargon; “governance framework” is the conventional term in this legal/compliance register.
8. Conclusion
The case for bifurcation is not an attack on transactional lawyers. It is an application, to legal services, of a principle every investor already applies everywhere else in the value chain: the person who built the thing does not get to be the person who inspects it. Auditors cannot audit their own work. Valuers cannot value their own positions. The law of England and Australia has said for half a century, from Spector v Ageda and Law Society of NSW v Harvey through to Evans v Hughes Fowler Carruthers, from rule 12 of the Conduct Rules to Atanaskovic Hartnell v Birketu, that solicitors cannot judge their own files either. The only open question is whether a fund builds that separation deliberately, in calm conditions and on its own terms, or has it forced upon it by a conflict crystallising in the middle of an enforcement.
As the Australian private credit market moves through its first genuinely tested cycle under an activist regulator, the funds that will enforce fastest, recover most and answer their investors most confidently are the ones whose documents have already been read by lawyers with nothing to defend.
Frequently Asked Question
Further Information
For further information about private capital enforcement, self-review conflicts, independent enforceability and PPSR reviews, and bifurcation of transactional and disputes counsel, please contact the author of this article.
