Can a private banker witness a customer's deed?

Can a private banker witness a customer's deed?

Finance brief - October 2012

• Proposed changes to the registration of charges with Companies House
• Key Issues to be aware of when enforcing against Personal Guarantors
• Non-UK borrowers and issues of security, COMI, administrators and receivers
• Can a private banker witness a customer's deed?
• No faith in the enforceability of agreements to negotiate in good faith

We are often asked who can witness a signature to a deed. A number of key documents employed by private banks take the form of deeds, such as collateral agreements, debentures and guarantees, so this is a key procedural issue for lenders. Specifically, the issue often arises whether an employee of the bank can witness a deed.

The recent cast of Log Book Loans addressed this issue. In it, the Upper Tribunal (which has equivalent standing to the High Court) concluded that it is possible that an employee of a person benefiting from the grant of a deed (in that case, a bill of sale) could attest a signature. Having said that, it is obviously better if they are fully independent, particularly if there is any risk of a challenge on the basis of something like undue influence, where best practice would be that the customer takes independent advice before signing.

Overview

This subject of witnessing deeds was recently addressed within the context of bills of sale by the Upper Tribunal (Administrative Appeals Chamber) in the case of Log Book Loans Ltd v Office of Fair Trading [2011] UKUT 280 (AAC)(1). Specifically, the Upper Tribunal needed to decide whether a bill of sale was rendered void under the Bill of Sales Act 1878 and the Bill of Sales (1878) Amendment Act 1882 (the "Bills of Sale Acts") in circumstances where the execution by the grantor of the bill of sale was attested by an employee of the grantee, where the employee had negotiated, agreed and signed on behalf of the grantee (i.e. the lender) the credit agreement between the grantor (i.e. the borrower) and the grantee.

Conclusion

The Upper Tribunal concluded (by a majority) that it is possible that an employee of a person benefiting from the grant of a bill of sale could attest a signature.

In reaching its decision, the Upper Tribunal based its decision on a number of points. Most significantly within the context of the witnessing of deeds generally, they noted as follows:

• Companies cannot attest signatures, as attestation involves the witness being physically present and observing the execution.
• Where an agent acting for a company attests a signature, the attestation would either have to be treated as having been by the individual, or (if it was impossible to identify the witness, or his purported witnessing on behalf of the company was an indication of reluctance to give evidence himself) be treated as invalid. Similarly, a person cannot attest a signature as agent on behalf of another person. (We note that the rule remains that a party to a deed cannot witness it itself.)
• The requirement for a witness to be "credible" meant no more than "competent", and did not require the witness to be "independent". It was acknowledged by Parliament and the Courts at the time that even a wholly independent witness would not protect a borrower against factors such as economic duress, lack of understanding of the transaction, or rashness.