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ON 31 July in the Court of Appeal, Lord Justices Stuart-Smith, Millett and Morritt gave a seminal judgm- ent on wives' entitlement to rely upon Barclays Bank v O'Brien defences, in particular when previously advised by a solicitor (Royal Bank of Scotland v Etridge). Eight appeals were considered and the outcome shows the difficulty for wives in successfully relying on an O'Brien defence.
The judgment starts by recognising that the protection which should be given to a wife by providing independent legal advice has often proved illusory. It has regularly been perfunctory - limited to an explanation of documents and inadequate to dispel a wife's misunderstanding of a transaction's real extent and to ensure she entered into it in free will.
The judgment deals in detail with the duty of a solicitor called on to give independent legal advice to someone who may be subject to undue influence. But by virtue of s199(1)(ii)(b) of the Law of Property Act 1925, the bank is not affected by notice of anything its solicitor discovered unless he was acting for it at the time.
Only in exceptional cases will a bank be fixed with actual or constructive notice of wrongdoing. Where the wife deals with the bank through a solicitor, the bank is not ordinarily put on inquiry. Where she does not, it is normally sufficient for a bank to urge her to take independent legal advice.
Whatever capacity the solicitor takes when giving advice, he acts exclusively for the recipient. The bank is not fixed with imputed notice of what the solicitor learns when advising and is not required to question the solicitor's independence or the sufficiency of advice.
However, the bank cannot assume something that it knows or ought to know is false. If the bank has material information not available to the solicitor, or if the transaction is one into which no competent solicitor could properly advise the wife to enter, the bank will be fixed with constructive notice even if legal advice has been received.
This decision will be disappointing for wives defending possession proceedings by banks. Perhaps the House of Lords will reverse it. But the message to wives seems to be: sue your solicitor.