Independent legal advice—the pitfalls for lenders (HSBC Bank Plc v Brown)

What practical lessons can be learnt from the judgment in HSBC Bank Plc v Brown? Emma Knight, a barrister at 13 Old Square Chambers, believes the case highlights the importance of lenders complying with the minimum requirements identified in RBS v Etridge.

Original news

HSBC Bank Plc v Brown [2015] EWHC 359 (Ch)

What was the background to the case?

On 26 September 2002, Mrs Brown signed a legal charge in respect of her freehold property, Myddle Farm, securing ‘all money and liabilities’ owed to HSBC by her eldest son, Allen (the charge). Before the charge was entered into, HSBC had received from Mr Jones, a solicitor purporting to act for Mrs Brown, a signed copy of a certificate of execution confirming that Mr Jones had explained the terms of the charge, provided independent legal advice and witnessed Mrs Brown’s signature.

It was undisputed that Allen was indebted to HSBC and had failed to satisfy demands for payment. Accordingly, by way of its claim, HSBC was seeking to enforce the charge by seeking possession of Myddle Farm.

What were the legal issues that the court had to decide?

The main issue for the court was whether the minimum requirements identified by the House of Lords in Royal Bank of Scotland v Etridge (No 2) [2001] UKHL 44, [2001] All ER (D) 156 (Oct) had been complied with, such that HSBC was entitled to enforce the charge against Mrs Brown and obtain possession of Myddle Farm.

Why did these issues arise?

This central issue arose because Mrs Brown had provided security for the borrowing of her son, Allen, in circumstances where:

• the transaction was not, on its face, to Mrs Brown’s financial advantage, and

• there was a substantial risk that, in procuring Mrs Brown to provide the charge, Allen was in a position to, and did, exert undue influence over his elderly mother

What were the main legal arguments put forward?

Mrs Brown sought to argue that her relationship with her eldest son gave rise to a presumption of undue influence and HSBC had failed to comply with the minimum requirements imposed on it by Etridge, because she had not been contacted by HSBC or Mr Jones at all prior to signing the charge.

HSBC argued that, as per its standard procedure, it had:

• contacted Mrs Brown