Etridge: Guidelines for banks when taking security over the matrimonial home

Royal Bank of Scotland v Etridge (2001)

This case finally laid to rest the ghost of Barclays Bank v O’Brien and sets clear guidelines
which lenders must follow when taking security from a wife in respect of her husband’s debts.
The House of Lords found:

A bank is put on inquiry whenever a wife offers to stand as surety (giver of security) for her
husband’s debt (or vice versa), including cases when a wife stands surety for the debts of a
company whose shares are held by her and her husband, even when the wife is a director or
secretary of the company..

Although a bank must take reasonable steps to satisfy itself that a wife is aware of the
practical implications of the proposed transaction, it is not necessary for a bank to hold a
private meeting with her. Ordinarily, the bank’s duty will be discharged by relying on
confirmation from a solicitor acting for the wife that he has advised the wife properly.

Their Lordships provided guidance for solicitors when advising wives in such circumstances,
noting that the solicitor need not act for the wife alone, provided he is satisfied that it is in the
wife’s best interest and that it does not give rise to a conflict of interest.

A bank is entitled to proceed in the belief that a solicitor advising a wife has done so properly
unless it knows that that is not the case or it knows facts from which it ought to realise that is
not so.

In future a bank should take the following steps:

Communicate directly with the wife, informing her that for its own protection it requires written
confirmation from a solicitor acting for her, that the nature and effect and the practical
implications of the documents have been fully explained to her. The wife should be informed
that the solicitor may be the same solicitor as acting for husband, but should be asked if she
would prefer a different solicitor. The bank should not proceed until it has received a response
directly from the wife.

Neil’s comment: Banks use a standard letter to cover this and will ask the wife to name
her independent solicitor and include the fact that she will have to pay for the advice.

With the consent of its customer, provide the solicitor with the financial information he needs
to enable him to explain the husband’s financial affairs to the wife.

Neil’s comments: Banks use a standard letter to obtain the customer’s express
consent to reveal this information (duty of secrecy). The facility letter will usually
include all the relevant information e.g. the purpose of the facility, the amount, the main
terms (including duration) a warning that the bank may vary these arrangements
without reference.

Inform the wife’s solicitor if he believes or suspects the wife has been misled by her husband
or is not entering into the transaction of her own free will.

In every case obtain the wife’s solicitors’ written confirmation that they have advised the wife
in accordance with the above.

Finally their Lordships pointed out that these guidelines do not only apply to situations where
banks take security from wives but apply to every case where security is taken and the
relationship between the security giver and borrower is non – commercial.

CMS Cameron McKenna Law Now Press Release November 2001