A bank was unable to rely upon a certificate of independent legal advice so as to enable it to enforce a charge given by a mother to secure the debts of her son. We have examined and commented on the practical implications of HSBC Bank Plc v Brown .
Mrs Brown was the freehold owner of Myddle Farm, Llandrinio (the ‘Farm‘). The Farm was occupied by Mrs Brown’s eldest son Allen and his family and Mrs Brown regarded it as belonging to Allen. Mrs Brown had ceased living at the Farm in 1987. On 26 September 2002, Mrs Brown entered into an “all monies” charge of the Farm to secure Allen’s borrowings from HSBC Bank Plc (‘HSBC‘). By January 2015, the borrowings stood at over £300,000. When HSBC’s demands for payment were not satisfied by Allen, HSBC sought a possession order in respect of the Farm. At or around the time of taking the charge, HSBC had received a certificate of independent legal advice dated 1 October 2002 (the ‘Certificate‘) signed by a solicitor, Mr Jones, to the effect that he had given independent legal advice to Mrs Brown. Mr Jones was Allen’s solicitor.
Mrs Brown’s defence was that the charge was unenforceable because HSBC had failed to act in accordance with the minimum requirements specified by the House of Lords in Royal Bank of Scotland v Etridge (No.2)  UKHL 44. Compliance with these would enable the bank to rely on security given by a third party individual chargor without fear of having been put on inquiry with regard to the existence of undue influence. Mrs Brown said she had not been contacted directly by either HSBC or Mr Jones before she signed the charge, and had not received any legal advice from Mr Jones. HSBC’s response was that the Certificate entitled them to assume that Mrs Brown had obtained independent legal advice, and that the shortcomings in Mr Jones’ advice were beyond their knowledge and were a matter for Mrs Brown and Mr Jones to resolve.
HHJ Simon Barker sitting in the Chancery Division held that, in order to satisfy the minimum requirements in Etridge, a lender must, amongst other things, communicate directly with the surety/chargor to obtain the name of a solicitor of their choice. At this preliminary stage, the lender must also inform the surety/chargor that:
- for the lender’s own protection it will require written confirmation from the solicitor so instructed to the effect that the nature of the documents and their practical implications have been fully explained; and
- the purpose of this requirement is to preclude the surety/chargor from subsequently disputing that the documents signed are legally binding.
HSBC’s records were incomplete, and so it had been unable to prove that it had fulfilled this requirement. HSBC was therefore unable to rely upon the Certificate, and the charge was not enforceable. The court also found that Mr Jones had failed to provide Mrs Brown with independent legal advice, notwithstanding the issue of the Certificate.
Steve Clark says:
Where a lender is taking third party real or personal security from an individual, it is not sufficient simply to pick up a certificate of independent legal advice from a solicitor. The ability to prove full compliance with all of the Etridge guidelines is required. Presumably, in principle, HSBC might have been able to sue the solicitors on the Certificate and they did indeed attempt to do so but the action seems to have collapsed due to limitation issues. The case does not deal with whether undue influence actually took place. This seems to have been presumed by counsel on both sides and the judge.