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The High Court recently handed down two notable decisions which provide a helpful snapshot of the Court's approach to independent legal advice, and the continuing obligations placed on the parties involved. When taken together, the cases highlight the importance checking for undue influence, and where the responsibility for ensuring independence begins and ends, particularly from a lender’s solicitor’s perspective.
Absence of ILA and undue influence
In the case of Jewkes v Watson the Court set aside a deed of assignment on grounds of the undue influence exerted by a father over his two adult children, who received no independent legal representation (ILA). The deed assigned the father's business debts owed to Mr Jewkes to the children.
The Court accepted that the relationship between parent and child is one in which trust and confidence can give rise to presumed undue influence, applying the principles in Royal Bank of Scotland v Etridge (No 2).
- Crucially, the presumption was not rebutted
- No independent legal advice had been provided
- there was no evidence that the children had freely exercised independent judgment entering into the deed.
The Court also found that Mr Jewkes was on notice of the circumstances which could give rise to the undue influence, as
- He was aware that the assignees were Mr Watson's children
- The transaction was no benefit to them
- They had not taken ILA.
Although this was an assignment of debt rather than a charging arrangement, the Court determined it shared all of the relevant characteristics to apply the principles in Etridge, but the judge emphasised that extending the principles required caution. The case emphasises the importance of checking the facts giving rise to potential undue influence and, affirms that ILA remains one of the most reliable ways of rebutting any presumption of undue influence.
Limits of a lender solicitor’s responsibility
Contrastingly, the case of Saluja v Vyman Solicitors centred around whether liability could be imposed on the lender's solicitors for a fraud perpetuated by a borrower in circumstances where ILA had been sought.
The claimant argued that although ILA had been sought, the lender's solicitors had been negligent in accepting it as it had been provided by a solicitor with a connection to the borrower. It was argued this undermined the 'independent' aspect and should have been a red flag prompting further investigation.
This argument was rejected by the High Court. The Court again applied the principles of Etridge and confirmed that independence does not.
- Require the complete absence of a connection between the borrower and the solicitor giving ILA
- Does it require the lenders solicitor to query the professional judgement of the independent solicitor.
The Court held
- It is for the independent solicitor to assess whether it is appropriate to act in the circumstances
- The loss arose from fraud by the borrower, rather than from a breach of duty by the lender's solicitors.
This case creates an important boundary that the obligation to ensure the advice is independent sits with the advising solicitor, not with the lender's solicitor.
Key takeaways
When read together, these judgements re-iterate the fundamental importance of ILA, whilst drawing key boundaries as to where ILA obligations rest. For vulnerable parties, ILA remains a central safeguard and a powerful evidential tool for lenders in rebutting undue influence.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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