Risk management

After EtridgeCases that make headline news often have little impact on day-to-day practice.

Not so with the recent House of Lords cases in which wives who gave security for loans to their husbands' businesses later claimed that they had only done so as a result of undue influence.In Royal Bank of Scotland v Etridge (No.

2), [2001] 4 All ER 449, the House of Lords defined the duties owed by both solicitors and banks much more clearly than before.

Note that the decision also applies to cases where anyone in a non-commercial relationship has offered to guarantee the debts of another - for example, parent and child.

If you are asked to advise anyone in this category, then think carefully:l Do you have the time and expertise to advise fully?l Can you act? A conflict of interest is a real possibility, especially if you also act for the borrower.l You will have to look at detailed financial information.

Do you have the skills required to interpret and explain this, or to advise on renegotiating the guarantee? Would you know if you needed to request more information?l Giving full advice in a case such as this requires several hours' work.

Who will pay your fee? What if your client decides not to guarantee the proposed loan - will your fees be paid at all?The House of Lords identified certain risk management steps, to which we have added some of our own.

In our view, these measures should be applied across the board, not just to mortgage guarantee work.l Open a separate file;l Send a retainer letter which clearly defines the terms of your relationship with the client, and which defines the limits of the work that you have agreed to carry out;l Give advice face-to-face.

In guarantee cases, see the client alone.

Asking the borrower to leave the room for a few minutes is unlikely to be good enough;l Ensure that you record both the instructions received and advice given in writing.

Confirm this by letter, asking your client to sign and return a copy confirming agreement to the proposed action;l Ensure that you have sufficient information about the matter, both for you to be able to give advice and for your client to make a decision.

If this information is not available, then advise your client of the risks of proceeding; l It is the client's decision, not yours - but if the transaction appears to be to their disadvantage, be doubly careful that you have both advised on this and kept a clear record of that advice;l Before providing a 'certificate' or other written confirmation to the lender, ensure that you have your client's consent - preferably in writing - to do this.Finally, do not make the mistake of thinking that because you have complied with these points, you will be safe.

You must look at all the circumstances and use your skill and judgement in each case.l This column was prepared by the St.

Paul risk management team.