A recent important legal decision by the House of Lords (Royal Bank of Scotland plc v Etridge and others, 11 October, 2001) has seen the introduction of new procedural ‘minimum requirements’ which banks and solicitors must satisfy in the future, when advising wives who offer to stand as guarantor or surety for their husband’s or their husband’s company’s debts by charging their interest in the matrimonial home. Failure to comply with the new requirements could leave banks unable to enforce their security.

The past few years have witnessed a flood of Court cases involving surety wives, as they are known, seeking to set aside charges, placed on their homes to secure their husband’s business debts, on the ground of undue influence from their husbands.

At present, banks simply have to bring home to surety wives the risks of the transaction and require them to seek legal advice. The bank then obtains written confirmation from the solicitor that the nature and effect of the documents have been explained to her in order to protect its position. Solicitors have criticised these present practices as failing to adequately protect either surety wives or the banks.

The decision in the Etridge case has been welcomed by both solicitors and banks for clarifying this controversial area of law. The new minimum requirements to be applied by both banks and solicitors are designed to be ‘clear, simple and practically operable’.

Now, a bank will be ‘put on inquiry’ whenever a wife offers to stand as guarantor for her husband’s debts. To avoid being deemed to have constructive notice of any undue influence, the bank must now follow certain steps. The main steps are that the bank must insist on the wife attending a private meeting with a bank’s representative at which it must be explained to her the extent of her liability as surety, warned of the risk of her home being repossessed and urged to take independent legal advice, and in exceptional cases, insist on her being separately advised from her husband.

The solicitor’s duties to the surety wife and bank have also changed. It is no longer for the solicitor to decide to veto a transaction if he suspects it is not in the wife’s best interests; the decision now lies with the wife. However, in order to assist the wife in reaching a decision, she should receive a ‘core minimum’ of legal advice, including an explanation of the nature and practical consequences of the documents, the details about the terms of her husband’s loan and the fact she has a choice. Solicitors can still act for both husband and wife, but must cease to act for the wife if a conflict of interest arises.

Another new feature of these requirements is that in order for banks to be able to rely on the solicitor’s written confirmation of advice, the bank must inform the wife that the purpose of the confirmation is to protect the bank from her later disputing her liability. Furthermore, to rely on the solicitor’s confirmation, the bank should send the solicitor any necessary financial information it holds.

The law may never be able to eliminate the risk of undue influence on surety wives. However, it is hoped the new minimum requirements will reduce the risk to a level that makes it proper for banks to continue to allow couples, with businesses, to use their homes to raise capital in this way

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