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The Aftermath of O'Brien: Carte Blanche for Banks, Cartes Jaunes for Solicitors?

Published online by Cambridge University Press:  01 March 1999

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Extract

The decisions of the House of Lords in Barclays Bank plc v. O'Brien [1994] 1 A.C. 180 and CIBC Mortgages plc v. Pitt [1994] 1 A.C. 200 sought to balance the legitimate commercial interests of banks and other lenders against the rights of spouses (usually, and hereafter for purposes of exposition, wives) or cohabitees in residential property, where the wife had been induced to accede to the transaction by the borrower's undue influence, duress or misrepresentation. This balance, necessary, in Lord Browne-Wilkinson's words, so that “a law designed to protect the vulnerable does not render the matrimonial home unacceptable as security to financial institutions”, was largely to be achieved by application of the doctrine of notice. A wife could therefore successfully resist attempts to recover possession where the bank had actual, constructive or imputed notice of her equity to set its charge aside. Constructive (and imputed) notice begs two questions: when will a bank be put upon enquiry, and what level of enquiry will be reasonable? O'Brien indicated that a bank should warn the wife, in a personal interview, of the amount of potential liability she was undertaking, of the risks involved, and of the desirability of obtaining her own independent legal advice. Experience since O'Brien has shown a reluctance by banks to conduct personal interviews, which would, they feel, carry greater risks. The practice adopted has been to refuse to complete the loan transaction until the wife has in fact obtained independent legal advice, proof thereof being made by the production of a certificate to that effect to the lender. The eight conjoined appeals in Royal Bank of Scotland v. Etridge (No. 2) [1998] 4 All E.R. 705 consider, at great length, the meaning and significance of “independent legal advice” in this context, and its consequential impact on the enforceability of security by a bank. Rather like O'Brien, Etridge seeks to provide clear guidelines and to facilitate a workable banking practice so that the likelihood of litigation against banks is substantially reduced. Where O'Brien failed, Etridge may well succeed. At its most basic level, it is good news for banks, and very bad news for solicitors.

Type
Case and Comment
Copyright
Copyright © The Cambridge Law Journal and Contributors, 1999

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