HSBC Bank Plc v Brown

By a claim form issued on 11 December 2012 HSBC Bank PLC (‘HSBC’) seeks an order for possession of the freehold property known as Myddle Farm, Haughton, Llandrinio, Llanymynech, Powys, Wales SY22 6SH (‘Myddle Farm’).

Mrs Catherine Mary Brown (‘Mrs Brown’) is the owner of Myddle Farm.

The basis of the claim is enforcement of a legal charge dated 26 September 2002 signed by Mrs Brown (‘the 2002 Charge’).

The essential non-standard terms of the 2002 Charge provide that Mrs Brown charges Myddle Farm as security for the ‘all money and liabilities’ indebtedness of Edward Allen Clemson Brown (referred to in the proceedings, and this judgment, as ‘Allen’) to HSBC. Allen is Mrs Brown’s eldest son.

At all material times, Myddle Farm has been occupied by Allen and his family as their home and the base from which they farm adjacent or nearby land on a small scale, and Mrs Brown has been living with her other son (referred to in the proceedings, and this judgment, as ‘Graham’).

It is common ground that Allen is indebted to HSBC and demands for payment have not been satisfied.

Mrs Brown defends HSBC’s claim on the basis that the 2002 Charge is unenforceable.

The argument at trial centred on whether HSBC is entitled to rely on a certificate of execution dated 1 October 2002 (‘the 2002 certificate of execution’) signed by Alun Jones (‘Mr Jones’), a partner in Harrisons Solicitors LLP (‘Harrisons’), as the solicitor giving independent legal advice to Mrs Brown. This, in turn, raises for consideration whether HSBC acted, as it contends it did, in accordance with the minimum requirements specified by the House of Lords almost a year earlier, on 11 October 2001, in eight appeals heard together and commonly cited and referred to collectively as Royal Bank of Scotland v Etridge (No.2) [2001] UKHL 44.

Mrs Brown denies that Mr Jones was her solicitor. She denies that he advised her about the 2002 Charge. In fact, she denies that she had even met Mr Jones in or before 2002. On this basis, Mrs Brown contends that the 2002 certificate of execution is not one given by her agent and that she is not liable under the 2002 Charge.

HSBC does not accept that Mr Jones was not Mrs Brown’s solicitor and contends that any shortcomings on the part of Mr Jones in advising Mrs Brown are outside both its knowledge and, in the light of the 2002 certificate of execution, its concern; in short, that they are matters between Mrs Brown and Harrisons.

Notwithstanding the stark factual issues, the trial was short. It lasted less than one day. This was the product of a number of unusual twists and turns over the course of these proceedings, including at trial. Three are important in setting the scene.

First, on 18 December 2013, and following an unsuccessful application to strike out Mrs Brown’s defence, HSBC issued a CPR Part 20 claim against Harrisons alleging that Harrisons had (1) falsely represented and warranted to HSBC that it had (a) met with and advised Mrs Brown as instructed by HSBC and (b) provided a certificate of execution which was true or (2) acted negligently in breach of HSBC’s Instructions and Guidance Notes for Solicitors (‘the I&GN’) when promulgating a false certificate of execution. The loss claimed was the value of Allen’s indebtedness, the implication being that it is irrecoverable if not secured by the 2002 Charge. Harrisons defended HSBC’s third party claim on grounds including limitation. Less than one week before the trial began HSBC discontinued its claim against Harrisons.

A knock-on effect at trial was that, although Mr Jones had made a witness statement for Harrisons and he attended at court on the morning of the trial lest he be called as a witness, he did not give evidence. HSBC did not wish to call Mr Jones as their witness and Mrs Brown wished to cross-examine him on the evidence he was expected to give. In consequence, at trial there was no evidence before the court from the solicitor who is alleged to have acted for Mrs Brown in relation to the 2002 Charge.

Secondly, and although HSBC’s solicitors attended court after discontinuing the third party claim against Harrisons but before the trial to revise the trial bundles, the documents in the trial bundles continued to include the pleadings, orders, witness statements and enclosures, and other documents relating to the third party claim. However, the parties’ counsel, Miss Rogers for HSBC and Mr Barrow for Mrs Brown, were careful not to rely on that material.

Thirdly, only one person - Graham - gave oral evidence. Graham’s evidence was confined to answering one additional question to supplement his witness statement. He was not cross-examined. Accordingly, his evidence is unchallenged.

There is no evidence from Allen.

HSBC’s evidence is largely contained in a short witness statement of Mr Mark Warburton, who is a senior manager in HSBC’s Commercial Recovery Unit and appears to have had no contemporaneous involvement. For that reason, HSBC served a hearsay notice in respect of his evidence on the ground that it goes predominantly to HSBC’s policy and procedure for taking security. HSBC’s other evidence is in the form of witness statements made by its solicitors in order to produce copy documents, including Allen’s bank statements covering the period 17 July 2005 to 1 January 2012.

Mrs Brown’s solicitors served a hearsay notice in respect of her evidence supported by a medical report from her GP and a supplementary medical report. She is now 86 years old and suffers from high blood pressure, rheumatism and chronic anxiety. HSBC did not take issue with the hearsay notice; Harrisons did, but on 2 December 2014 District Judge Griffiths ruled that Mrs Brown would not be not required to attend at trial to be cross-examined on her statement. The District Judge’s reasoning appears to have included that the trial judge would not be disadvantaged because Mr Jones’ evidence would be tested by cross-examination. HSBC attended at that hearing by a solicitor, so it would have been aware of the judge’s reasoning as well as the outcome.

At this point I emphasise that my findings of fact are made by reference to the evidence to which I have been referred and the inferences that may be drawn therefrom. The outcome of this case is necessarily constrained by being effectively a trial on paper, albeit with the considerable benefit of written and oral submissions from both counsel.

Mr Warburton’s evidence is that in 2002, as now, HSBC handled the taking of security centrally. Mrs Brown was known not to be a customer of HSBC and HSBC required her to obtain independent legal advice before entering into the 2002 Charge. HSBC’s procedure is to ask the surety to provide details of a nominated firm of solicitors. Upon receipt of a nomination, HSBC (1) writes to the solicitor enclosing : (a) the I&GN, (b) the security documents, (c) a certificate of execution for completion by the nominated solicitor at the conclusion of acting for the surety, (d) mortgage conditions, and (e) the facility letter(s) relating to the borrowing to be the subject of the security; and, (2) requires the solicitor to (a) meet personally with and identify the surety, (b) explain the content, nature, meaning and effect of the security to the surety, (c) comply with the I&GN and avoid or address the difficulties that arise on a conflict of interest, and (d) provide independent legal advice to the surety. The solicitor is required to witness execution of the security documents and, in due course, to complete and return a certificate of execution to HSBC (thereby certifying compliance with HSBC’s requirements and that there is no qualification to the advice given to the surety), and to return the duly executed security documents.

Addressing the 2002 Charge, Mr Warburton’s evidence is that

“[u]pon Mrs Brown informing [HSBC] that she would be seeking legal advice from Harrisons, [HSBC] sent its letter of instruction [with enclosures] to Harrisons on 30 August 2002”.

How Mr Warburton is able to give this factual evidence is unclear from his statement. He says that “[s]ave as otherwise stated, the facts set out … are within my own knowledge”, but he does not say that he had any contemporaneous involvement in retaining Harrisons or in obtaining the 2002 Charge and no document is produced to indicate when or how Mrs Brown informed HSBC that she nominated Harrisons as her legal advisers.

As to the documents, HSBC’s list of documents refers to a letter to Harrisons dated 30 August 2002. In fact there were two, both in standard form, a copy of each is in the trial bundle; one contains instructions to advise and act in relation to Mrs Brown’s security, the other contains instructions to advise and act in relation to a deed of consent and postponement (‘the DCP’) to be signed by Allen and his wife as the occupiers of Myddle Farm. The letter relating to Mrs Brown concludes with a list of enclosures including the I&GN and “Facility Letter (s)”. The I&GN at that time appears to have been a standard form dated December 2000. There is no copy of the relevant facility letter (one that would set out the facility offered to Allen and current in August/September 2002) in the trial bundle. The relevant facility letter, if there was one, is not expressly included in HSBC’s list of documents; it is presumably covered in HSBC’s unsigned disclosure statement, under the category of documents no longer in its control, by the description “[a]ny documents which have been lost or destroyed in the original course of [HSBC’s] activities”. By contrast, later facility letters, from 2003 onwards, are included in HSBC’s list of documents and copies are in the trial bundle. It is, therefore, reasonable to conclude that a search was made by HSBC for the relevant facility letter. Its absence is potentially relevant to the questions of whether Harrisons was in a position to and did advise Mrs Brown, and, if so, what advice was given to Mrs Brown.

HSBC’s letters to Harrisons of 30 August 2002 make clear that Harrisons were to act for Allen and his wife in relation to the DCP, for Mrs Brown in relation to the 2002 Charge, and for HSBC in relation to both matters.

Although there is no evidence as to Allen’s account with HSBC in August/September 2002, a facility letter dated 4 July 2003 refers to an agreed overdraft limit of £105,000. The gist of the evidence is that Allen’s overdraft facility was periodically increased. Thus, it is likely that in August/September 2002 the facility under discussion was not more that £105,000, and may have been a lesser sum.

HSBC’s evidence as to Allen’s account with HSBC over the period 17 July 2005 to 1 January 2012 shows a steady increase in overdraft balance from £157,922 to £255,808.51 on 1 January 2010 followed by a refund of interest on 23 March 2010 reducing the balance to £229,182.80. Over the 6½ year period covered by the available statements Allen’s income appears to have been negligible, and the major part of the increase in indebtedness is attributable to bank interest, charges and fees. The latest witness statement by HSBC’s solicitors gives Allen’s indebtedness as at 27 January 2015 as £306,509.03 and refers to the exhibited statements. However, the copy statements do not go beyond 1 January 2012 and appear to show the account frozen at that date. There is no explanation why the exhibited copy statements do not go back to the relevant period, namely August/September 2002, or forward to January 2015.

The documentary evidence also includes a number of internal HSBC reports reviewing Allen’s financial position and HSBC’s approach to his account. The first, of March 2006, refers to the importance (“essential”) of the farmer living on site at a working farm and refers to a refusal of planning permission to build a bungalow on part of the land which Allen had sought to accommodate his disability. Values are also given of indebtedness, and the security (O/D facility £180,000, value of 22 acres of farm land to the north east of Myddle Farm (‘the 22 acres’) £120,000, value of Myddle Farm £300,000, and HSBC’s loan to value ratio 80%). An internal report, one year later, notes that farming on such a small scale is not viable and that borrowing from HSBC is dependent on security and the sale of Myddle Farm. A further note made in about May 2008 records that repayment proposals had been requested of Allen since 2002 and that in 2008 HSBC was prepared to contemplate continuing Allen’s facility provided HSBC was granted a legal charge over other unencumbered land owned by Mrs Brown. The tenor of the note is that HSBC appears to have discussed charges over Mrs Brown’s property (Myddle Farm and two parcels of farm land, the 22 acres, which Mrs Brown charged to HSBC in relation to Allen’s facility in 1998 (‘the 1998 Charge’), and another adjacent parcel of 20 acres (‘the 20 acres’) which appears to be unencumbered) only with Allen. Apart from reference to a formal demand in February 2008, there is no mention of direct communications between HSBC and Mrs Brown.

Having regard to the facility letter dated 4 July 2003 and the indications of security value and lending ratio noted in 2006, it is reasonable to infer that in August/September 2002, HSBC was concerned that Allen’s borrowing might exceed the value of the security available under the 1998 Charge.

Mrs Brown has made two witness statements. The first, dated 8 July 2013, was in answer to HSBC’s application to strike out her defence; the second, dated 8 September 2014, is her statement for this trial. Many paragraphs are common to both statements. It is evident that neither statement is entirely in Mrs Brown’s own words or confined to matters within her own knowledge. In the first, she refers to a claimant’s obligations when applying to strike out a defence under CPR 3.4(2)(a); in the second, there is a statement of her view on the conflict of interest arising by reason of Harrisons representing both Allen and herself. I bear in mind that to an extent Mrs Brown’s statements were obviously crafted for her by her solicitors and that I am disadvantaged by not having had the benefit of seeing and hearing Mrs Brown give oral evidence. However, the great majority of Mrs Brown’s written evidence is factual and I accept that its import reflects her account of the facts and her instructions to her solicitors.

Dealing with events before 2002, Mrs Brown refers to Myddle Farm as having been the family home of herself, her husband and their children. Mr Brown died in a motor accident on 9 January 1970. He and Mrs Brown were then in their early forties and Allen was aged 16 years. Mrs Brown continued farming from Myddle Farm and Allen appears to have left school that summer and joined his mother in farming from Myddle Farm. Myddle Farm itself is a four bedroom farmhouse with surrounding garden and paddocks of some 3 acres. Mrs Brown left Myddle Farm in 1987 and went to live with her younger son, Graham. By then Allen was married with a family (reference is made to three children, all now adult) and he and his wife took over farming at Myddle Farm. In about 1992, surgery to Allen’s spine left him disabled and confined to a wheelchair. His wife and family took over the farming business under his supervision.

In 1998, Allen’s facility with HSBC was secured by the 1998 Charge, which is a first legal charge over the 22 acres. It is evident from the copy of the 1998 Charge in the trial bundle that Mrs Brown’s signature was, or purports to have been, witnessed by Mr Jones of Harrisons. Mrs Brown’s evidence is that she knew that Allen had an overdraft with HSBC and that he needed money to convert cowsheds into pig rearing units and she agreed that “this money could be guaranteed on some of the land”. The validity and enforceability of this charge is not put in issue. It does not follow that Mrs Brown accepts that the 1998 Charge is not open to attack had she been minded so to do.

Mrs Brown’s witness statements are emphatic that she did not meet with Mr Jones until 2006 or later, and that Harrisons did not attend upon her or provide any legal advice. Implicit in this evidence is a denial that Mrs Brown met or was advised by Mr Jones or Harrisons in relation to the 1998 Charge, a denial that Mr Jones witnessed her signing the 1998 Charge, and further equivalent denials in relation to the 2002 Charge.

Mrs Brown also denies having met or dealt with anyone at HSBC. She denies having informed HSBC that Mr Jones or Harrisons were her nominated solicitor.

Mrs Brown’s explanation of how she came to sign the 2002 Charge is that Graham collected it from Harrisons’ office, Graham brought it home and gave it to her, she signed it a couple of days later, and Graham returned it to Harrisons’ office whereupon Mr Jones must have added his signature as witness to her signature, completed the 2002 certificate of execution and sent the documentation to HSBC.

Mrs Brown’s evidence is corroborated by Graham in his unchallenged evidence. He explains that between 1988 and 2002 he had worked for Harrisons, as an outdoor clerk covering crown and county court matters and in the office dealing with office management and as a stand-in cashier. Based on his previous experience while working at Harrisons, Graham was not surprised to be contacted by Mr Jones’ secretary and asked to collect a document for signature by Mrs Brown and later witnessing by Mr Jones.

In her witness statement, Mrs Brown explains her knowledge of Allen’s financial affairs. She refers to Allen’s venture into pig farming as having failed because an outbreak of foot and mouth disease in 2000 required the quarantining of 1200 pigs for weeks during which time they grew too large for their pens and had to be destroyed on compassionate grounds. That left Allen with useless sheds, no compensation, and no income to pay off his overdraft.

Mrs Brown also refers to Allen having told her that he had approached HSBC to borrow more money to remove the sheds and landscape the area with a view to selling the farmhouse and getting planning permission to build a bungalow adapted for his disability, and that HSBC had refused further lending without more security. Mrs Brown refers to not being sure what HSBC wanted. She was concerned that living in a two storey house was impractical for Allen. Mrs Brown says in terms that :

“- although the house and land were still legally mine I hadn’t considered it to be mine for many years and I thought of it as being my son Allen’s to do with as he wanted and just took what he said as what was going to happen. Other than a couple of conversations we never really talked about [HSBC’s] requirements and I just took it as a matter between him and the bank as it was him who was borrowing the money, not me, and I had never met or had any dealings with his bank or the managers who he had been dealing with. It was always my understanding that this was going to be a short term borrowing to enable Allen to put the house and surroundings in to [sic] good order to go on the market to enable Allen to build a bungalow adapted for his needs from the sale proceeds”.

At trial, my attention was drawn to an invoice raised by Harrisons which is dated 8 October 2002 and is said to be the only invoice known to Mrs Brown. It is addressed to Allen and his wife and concerns professional charges for work done on their behalf, presumably the DCP. Mr Jones’ fee is of £100 plus VAT. This is said to represent less than 1 hour of Mr Jones’ time. There is no evidence of any fee being charged by Harrisons to Mrs Brown.

Mr Barrow, for Mrs Brown, also drew attention to the fact that the evidence does not include a copy of any letter from HSBC to Mrs Brown pre-dating the 2002 Charge and further that the I&GN apparently in use by HSBC in August/September 2002 was a version that pre-dated Etridge.

In Etridge the House of Lords considered the obligations and rights of lenders and sureties where the surety is to provide security for the borrowing of another person who might be in a position to exert undue influence over the surety. The common situation, and that the subject of seven of the cases under appeal in Etridge, is that of a wife charging her interest in the matrimonial home to secure bank borrowing by her husband. The House of Lords was concerned to identify the minimum requirements necessary to protect the surety from granting a charge over property without fully understanding the nature and effect of the proposed transaction and that the decision whether to provide security was for the surety to take. Identifying the minimum requirements - which had to be clear, simple and practical to put into operation – was important not only for the protection of the surety but also in order to safeguard the public interest in having financial institutions willing to advance capital by way of loan secured by someone other than the borrower.

The circumstances where a borrower might exert undue influence over a proposed surety are not confined to husbands and wives or to similarly close personal relationships.

In a two party case, the question at the first stage, is how did the claimant come to be willing to enter the transaction? (Etridge [7]). Influence is, or at least may be, undue where the claimant is disposed to agree to the course of action proposed by the defendant by reason of their relationship and without regard self-interest or other relevant considerations. There is no exhaustive list of relationships or situations, nor is there a definitive test (Etridge [11]). Further, it is not essential that the transaction be shown to be to the disadvantage of the claimant (Etridge [12] and CIBC Mortgages plc v Pitt [1994] 1 AC 200).

In most cases, the starting point is that the party alleging undue influence bears the burden of proof. Each case will turn on its own facts and circumstances. Evidence relevant to this first question may include : the nature of the alleged influence, the parties’ personalities, their relationship, and the extent to which the transaction cannot be readily accounted for by the ordinary motives of ordinary people in that relationship. Proof that the claimant placed trust and confidence in the defendant in relation to the claimant’s financial affairs and that the transaction calls for explanation will normally suffice for undue influence to be inferred. The claimant has then discharged the burden of proof which shifts to the defendant (Etridge [13-14]).

That being said, there are exceptions that is cases where the law starts from the position that influence is to be presumed from the relationship itself. There is no exhaustive list of such relationships, but they include parent and child, trustee and beneficiary, and solicitor and client. Vulnerablility and dependency are features of this exceptional category or type of cases (Etridge [18]).

In the context of borrower, lender and surety, the modern law (since Barclays Bank plc v O’Brien [1994] 1 AC 180) has been and is that a lender might lose the benefit of security provided by a surety, and obtained in good faith, if the lender ought to have known that the surety’s concurrence had been procured by misconduct of a third party (usually the borrower) (Etridge [40]).

In O’Brien, the House of Lords held that in the context of husbands, banks and wives, a bank is put on inquiry when a wife offers to stand surety for her husband’s debts by the combination of two factors (1) the transaction is not on its face to the wife’s financial advantage and (2) there is a substantial risk in such transactions that, in procuring the wife to stand surety, the husband has committed a legal or equitable wrong that entitles the wife to set aside the transaction; put more shortly, in Etridge Lord Nicholls explained that this approach is not to be applied restrictively, rather a bank is put on inquiry whenever a wife offers to stand surety for her husband’s debts (O’Brien p.196, Etridge [44-46]).

Applying these principles to the context of borrowers, banks and sureties more generally, a bank is put on inquiry where (1) the transaction is not on its face to the surety’s financial advantage and (2) the relationship between the borrower and the surety is such that there is a substantial risk that, in procuring the surety to provide a guarantee or security, the borrower was in a position to and did exert undue influence. Although not a hair trigger, there is little resistance built into the firing mechanism.

As to the steps a bank should take with the surety, the House of Lords recognised that banks do not wish to meet with and inform or advise the surety at a private meeting. The solution is to arrange for the surety to be given independent legal advice. This is not to be geared at investigating whether the surety’s consent has or has not been procured by undue influence; such a course would be impractical, unduly expensive, and undesirable (Etridge [53]). The purpose of involving a solicitor is that the solicitor should be in a position to inform the bank that he has brought home to the surety the risks involved in the proposed transaction (Etridge [64]). There is no duty to save the surety from his/her own folly (Etridge [61]).

In practical terms, the bank instructs the solicitor but the solicitor should be chosen by the surety. The surety must therefore inform the bank of the chosen solicitor’s identity. There has to be a balance between independence on the one hand and practicality and avoidance of unnecessary expenditure on the other. The compromise is that the same solicitor may act for the borrower, the surety and the bank provided the solicitor is satisfied that he can give the surety the requisite advice fully, carefully and conscientiously; where the provision of that service may be inhibited, the solicitor is bound to cease acting for the surety (Etridge [74]) and, of course, so inform the bank.

Proper retention of the solicitor is a matter for the bank. The bank is required to take steps to check directly with the surety the name of the solicitor to be instructed and can only satisfy this requirement by communicating directly with the surety and obtaining the name of a solicitor of the surety’s choice. At this preliminary stage, the bank is also required to inform the surety that (1) for its 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, (2) the purpose of this requirement is to preclude the surety from subsequently disputing that the documents signed are legally binding. This is an essential preliminary step and a bank ought not to proceed with the transaction until it has received an appropriate response from the surety (Etridge [79(1)]).

As a further preliminary matter, and because of its importance to the surety giving informed consent to acceptance of the risks involved in providing security or a guarantee, it is expected, as a matter of routine, that the bank will provide the solicitor with financial information about the borrower so that the risks may be properly explained to the surety. The relevant information will vary from case to case, but should not be less than the borrower’s current indebtedness, the limit of any current facility, and the limit and terms of any proposed facility (Etridge [79(2)]).

The solicitor’s responsibility to the surety in the ordinary case where a bank has been put on inquiry, and where the surety has nominated a particular solicitor stems from the bank’s instructions. However, the solicitor is not the bank’s agent but becomes the surety’s agent upon being properly instructed.

The solicitor’s responsibility and the requirements set by Etridge ([64] – [67] and [73]) may be summarised as :

The above requirements, if complied with, enable the bank to accept, rely upon and, if need be, enforce the surety’s security and/or guarantee. In the ordinary case, and assuming that the solicitor has been properly retained, the bank is entitled to proceed on the assumption that the solicitor has done the job properly. Deficiencies in the advice given are a matter between the surety and the solicitor.

However, if the bank knows facts from which it ought to have realised that the surety has not received the appropriate advice, the bank will proceed at its own risk (Etridge [57]).

Undue Influence Miss Rogers, for HSBC, accepts, as the starting point, that the position of Mrs Brown as a surety is equivalent to that of the wife in the ordinary case referred to in Etridge. Mr Barrow, for Mrs Brown, submits the position of Mrs Brown and her son, that is the relationship being that of elderly parent and mature adult child, is different from that of cohabitees and is comparable to the exceptional category of special relationships referred to in Etridge. Mr Barrow does not identify a reason or circumstance rendering the relationship of elderly parent as surety / mature adult child as borrower exceptional in general or in this case. There is nothing intrinsic in such a relationship to take it out of the ordinary case. I reject Mr Barrow’s submission. It might well be different if such a surety was relevantly infirm or incapacitated or vulnerable, but that is not this case.

In August/September 2002, taking the position of Mrs Brown as proposed surety for a facility to her son Allen, there was no financial advantage to her in providing a legal charge over Myddle Farm. Allen was a long established customer of HSBC and HSBC would have been able to deduce, if it did not already know, that Mrs Brown was likely to be elderly. In addition, from its dealings with Allen as its customer, HSBC would have known that Allen had suffered a significant commercial set back in 2000 and that, due to his disability, he was anxious to rehouse himself.

As to what HSBC knew of Mrs Brown in August/September 2002, there is no evidence that HSBC had had any contemporaneous knowledge from her as to her circumstances, plans or intentions. There is a certificate of execution relating to the 1998 Charge signed by Mr Jones and dated 8 June 1998 confirming that he had attended on Mrs Brown and had given independent legal advice complying with HSBC’s then current I&GN; however, that is countered by Mrs Browns’ evidence as to when she met Mr Jones and both Mrs Brown’s and Graham’s evidence as to whether Mr Jones was in fact meticulous about witnessing the signature of clients executing charges. There is no evidence of direct communication between HSBC and Mrs Brown in 1998. Assuming for present purposes that the 1998 certificate of execution was properly given, it would not detract from HSBC’s obligations when seeking to obtain further security from Mrs Brown in 2002.

In August 2002, HSBC concluded that it was put on inquiry. In my judgment that conclusion was both sensible and correct.

Communications between HSBC and Mrs Brown Miss Rogers submits that HSBC wrote to Mrs Brown at Myddle Farm and that that was a reasonable course to take because its records and records available to it (public records) refer to Mrs Brown as being “of Myddle Farm” or “of Middle Farm”; Miss Rogers refers to the 1998 Charge by way of example.

Whether or not it was reasonable for HSBC to write to Mrs Brown at Myddle Farm, (1) no evidence that HSBC actually did write to Mrs Brown at Myddle Farm in 2002 was drawn to my attention; (2) even if it did, there is no evidence that the correspondence reached Mrs Brown or that she replied, by letter or otherwise, to HSBC (as she would have had to do in order to nominate a solicitor); and, (3) in 1998, had HSBC complied with the procedure envisaged by the House of Lords in O’Brien there would probably have been a personal meeting between Mrs Brown and an HSBC official in 1998 or at any rate, and at the very least, HSBC would have communicated directly with Mrs Brown and would have known and have a record of where Mrs Brown lived (with Graham, not at Myddle Farm).

As to how, in 2002, HSBC came to regard Mr Jones as Mrs Brown’s nominated solicitor, the most likely explanation is that Allen so stated either in 2002 or in 1998 or both, and HSBC was confident that that was so because it had Mr Jones’ certificate of execution in relation to the 1998 Charge.

Preliminary steps to be taken by HSBC I have not been referred to any evidence from which I can reasonably conclude on the balance of probabilities that HSBC informed Mrs Brown that (1) for its own protection it required her to nominate a solicitor who would, after advising her, provide HSBC with written confirmation that the nature of the 2002 Charge and its practical implications had been fully explained to her, and (2) the purpose of this requirement was to prevent Mrs Brown from subsequently disputing that 2002 Charge is legally binding. Quite apart from the absence of documentary evidence, I observe that Mr Warburton makes no reference to any such step being taken by HSBC; His evidence is

“… [HSBC] required Mrs Brown to obtain independent legal advice prior to entering into the [2002 Charge].

[HSBC] asks the proposed security provider for details of their nominated firm of solicitors”.

Communication of the purpose underlying the requirement that a surety obtain legal advice is an essential preliminary step and HSBC ought not to have proceeded with the transaction until it had taken that step and received an appropriate response from Mrs Brown. Communication of the purpose is no mere technicality or formality; it puts the surety on notice of the seriousness of the transaction and drives home the reason for requirement that the surety is to obtain independent advice

As a further preliminary step, HSBC was required, as a matter of routine, to furnish the nominated solicitor with information that would enable the solicitor to explain the financial risks to be assumed by the surety. On the basis that Mr Jones was the nominated solicitor, the available evidence is that the 30 August 2002 letter of instruction to Harrisons expressly refers to enclosures as including “Facility Letter (s)”. The file copy letter of instruction in evidence is in a standard form and is not tailored to the particular case; nor is there any annotation of the list of enclosures on HSBC’s copy to indicate that the list accurately reflected the enclosures actually sent to Harrisons. I am in a position to and do conclude that it is possible that a copy of the then current facility letter was included. However, it is very surprising that no such letter is in evidence, and no less surprising that there is no evidence as to the then current state of Allen’s account with HSBC, particularly given that there are two witness statements filed on behalf of HSBC exhibiting copy bank statements relating to Allen’s account going back to 2005. On the evidence to which I have been referred, I am not in a position to find that it is probable that HSBC enclosed a copy of the then relevant facility letter with its instruction letter to Harrisons of 30 August 2002. It follows from this that unless Harrisons asked for more information from HSBC, and there is no evidence of this, Mr Jones would not have been in a position to advise Mrs Brown in accordance with the core minimum requirements set by the House of Lords in Etridge.

Mr Jones’ / Harrisons’ responsibility The minimum steps to be taken by the solicitor as specified in Etridge are relevant notwithstanding that Harrisons are no longer a party to the proceedings and notwithstanding that in the ordinary case shortcomings on the part of a solicitor in advising a surety do not impact adversely on the bank’s rights against the surety. This is because the non-compliance on the part of Mr Jones alleged by Mrs Brown goes to the questions of whether (1) he, or Harrisons, was or could reasonably have been taken by HSBC to be her solicitor, (2) even if so, HSBC ought to have realised that Mrs Brown had not received the appropriate advice, and (3) this is a case where the surety would have proceeded with the transaction come what may.

If I accept the evidence of Mrs Brown and Graham, I must find as a fact that Mr Jones failed to take any of the steps and failed to give the core minimum advice specified in Etridge and summarised at paragraph 52 above of this judgment.

One of the enclosures referred to in HSBC’s letter of instruction to Harrisons relating to Mrs Brown is the 2002 certificate of execution. This was signed by Mr Jones, dated 1 October 2002, and returned to HSBC. In so doing, Mr Jones confirmed :

“(a)

That I attended [Mrs Brown] and explained the terms of, and gave independent advice on, [the 2002 Charge], enclosed with your instructions.

(b)

That I witnessed the signature of [Mrs Brown].

(c)

That I am a Solicitor, Legal executive or Licensed Conveyancer authorised to sign on behalf of the firm detailed below”.

I set out the terms of the 2002 certificate of execution because (a) and (b) require a solicitor, in this case Mr Jones, to confirm by signature that independent advice complying with HSBC’s instructions, which included the I&GN, had been given at a meeting with Mrs Brown and that Mrs Brown’s execution of the 2002 Charge was personally observed by Mr Jones.

The certificate of execution signed by Mr Jones in relation to the 1998 Charge included the same terms (and some further terms).

It is no light matter to assert that a certificate of execution has been falsely given by a solicitor. It is even less so to make such a finding without hearing from the solicitor. However, the unchallenged evidence before me is that Mr Jones did not always personally observe the execution of documents he signed as a witness and that he did not do so in relation to the 1998 Charge or the 2002 Charge. Mr Barrow wished to cross-examine Mr Jones to this effect. It was open to HSBC to call Mr Jones as its witness but that did not happen, notwithstanding that Mr Jones was present in court at the commencement of the trial. There is a cogent explanation for Mrs Brown’s non-attendance at trial, which HSBC had accepted and which had been the subject of a pre-trial order at a procedural hearing. Also of relevance is the evidence of the fee charged by Harrisons in 2002 (£100 plus disbursements in respect only of Allen, no fee charged to Mrs Brown and no evidence as to any/the charge to HSBC). On this basis I have no reason to do other than accept the evidence of Mrs Brown and Graham as reliable. It follows that I find that Mr Jones did not witness Mrs Brown’s signature on the 2002 Charge (I am not required to make a finding in relation to the 1998 Charge, but if a finding had been required it is clear what it would be).

Although it is a surprising thing for a solicitor who accepts an instruction to attend upon and give independent advice to a surety to fail so to do, on the evidence before me, that is what happened in this case.

Miss Rogers submits that even if that is so, it is nothing to the point because Mrs Brown’s evidence is unequivocally to the effect that she regarded Myddle Farm as Allen’s and she would have done with it whatever he wished. On the face of it, that is so; but, Mrs Brown was entitled to receive the independent advice of a solicitor. Had that happened, the points for discussion with Mrs Brown would have included : whether it was necessary or appropriate for HSBC to obtain additional security; if so, whether it was necessary or appropriate that that should have been over Myddle Farm rather than the 20 acres; whether, if Myddle Farm was to be the security, HSBC should also retain the 1998 Charge; whether, notwithstanding Allen’s circumstances, Mrs Brown might need to have recourse to the capital locked up in Myddle Farm; and, whether there was some realistic alternative option. I accept that had such discussion taken place the outcome might have been the same, but I am not in a position to conclude that professional advice would probably have made no difference at all.

In particular, and having regard to the available evidence as to the likely level of Allen’s borrowing in 2002, the value of the 22 acres and Myddle Farm in 2006 and the fact that the 20 acres (which, being adjacent to the 22 acres is likely to be of proportionately comparable value) was unencumbered, it is difficult to understand why it would be appropriate for HSBC to take an unlimited (albeit second to a modest charge in favour of the Halifax Building Society) charge over Myddle Farm as well as retaining the 1998 Charge or, if the 1998 Charge was to be retained, why a charge over the 20 acres would not have sufficed in 2002.

However, the real point is that neither HSBC nor Mr Jones/Harrisons took the appropriate steps to ensure that Mrs Brown did receive independent legal advice. Had HSBC’s failure at the preliminary stage nevertheless resulted in advice conforming to the minimum requirement specified in Etridge being given to Mrs Brown, there might have been a basis for contending that as things turned out HSBC’s failures, although not merely technical, had been overcome or marginalised and were forgiveable rather than fundamental and vitiating. But that is not what happened.

In my judgment, HSBC failed to take the necessary preliminary steps to protect itself and to constitute Mr Jones/Harrisons as Mrs Brown’s agent thereby entitling HSBC to rely on the 2002 certificate of execution. That being so, HSBC ought to have realised – and may fairly be taken to have realised – that Mrs Brown had not received the appropriate advice, that is advice conforming to the core minimum requirements specified in Etridge. In consequence, HSBC proceeded at its own risk.

In terms of formal result, I dismiss HSBC’s claim for possession, declare that the 2002 Charge is unenforceable and order that it be delivered up to be cancelled.