When a wife mortgages her interest in the family home as security for her husband’s liabilities, the mortgagee runs the risk that she could subsequently ask for the transaction to be set aside on the grounds that she entered into the mortgage as a result of undue influence, or a misrepresentation. Consequently, lenders normally ensure that spouses are legally advised before committing themselves.
What advice should solicitors give in such circumstances? Padden v Bevan Ashford [2011] EWCA Civ 1616; [2012] PLSCS 10 emphasises that their task is an important one and that solicitors must ensure that their clients fully understand the risks involved before deciding to proceed.
The Court of Appeal’s decision reminds us that practitioners must ensure that their client is in possession of all the facts, that she understands the nature, effect and potential consequences of the transaction, and that she is not being unduly influenced by her husband. The points that practitioners must cover with their clients are set out, in detail, in Royal Bank of Scotland plc v Etridge (No 2) [2001] UKHL 44; they provide a useful checklist for solicitors to follow.
The discussions should take place at a face-to-face meeting, in the absence of the husband. Practitioners will need to explain, in plain language, why they have become involved and that the mortgagee will rely on their involvement to counter any subsequent challenge to their security. Practitioners must check that the wife wishes to instruct them and obtain any information required to enable them to advise. They may then have a further role to play if the wife wishes to negotiate; for example, to cap or reduce her liability under the mortgage, or to ensure that the mortgagee calls on other securities first.
Did the law firm do enough to discharge their duty of care to their client? She had insisted on a short meeting, after walking in off the street without an appointment. The solicitor who saw her advised her not to sign the security documents and did not charge for the advice given. The wife made it clear that she intended to proceed and subsequently signed the mortgage documentation in the presence of another solicitor at the same firm, in the company of her husband.
The trial judge dismissed the negligence claim against the law firm, but the Court of Appeal has ordered a retrial. It ruled that the trial judge had been over-impressed by the wife’s apparent determination to proceed with the transaction and by the fact that the advice not to proceed had been given in a short, free session. The solicitor should have advised her client that a hurried meeting was inappropriate. The transaction was too risky and important and there was not enough information. It was also unlikely that it would enable the wife to achieve her aim, which was to save her husband – who had stolen money – from prison.
The case will send shivers down the spines of practitioners. It highlights the dangers of taking short cuts when giving legal advice, even though the advice is given free of charge.
Allyson Colby is a property law consultant
