Execution requirements of security documents.

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Dunbar Assets Plc v Lenney, Chancery Division District Registry (Newcastle) [2014]
Bank of Scotland Plc v Waugh & Ors [2014] EWHC 2117 (Ch) (21 July 2014)

The recent, unrelated cases of Dunbar Assets Plc v Lenney ("Dunbar case") and Bank of Scotland Plc v Waugh & Ors ("BOS case") serve as useful illustrations of the execution requirements of security documents, and the consequences of not sticking to the rules.

In the BOS case, the bank provided a loan to the Waughs secured by a first legal charge over a property owned by the Waughs. Though the charge document was signed on behalf of the borrower, the borrower's signature had not been witnessed.  

The borrower successfully argued that the charge did not comply with section 1(3) of the Law of Property (Miscellaneous Provisions) Act 1989 which requires a validly executed deed to be signed by an individual in the presence of a witness. The court ruled that, as the charge was not validly executed as a deed, the charge was void for the purposes of conveying or creating a legal estate in in accordance with section 52 of the Land Registration Act 2002. The borrower was entitled to apply to the Land Registry to have the charge affecting the title to the property cancelled. The charge took effect as an equitable mortgage only (but the court did give summary judgment in favour of the bank in respect of the monies due to it from the borrower).

The Dunbar case concerned a failure to witness a guarantee. The court confirmed that this failure did not affect the validity of a guarantee and the lender was entitled to enforce the guarantee against Mr Lenney.

Mr Lenney had argued, among other things, that he had not ever even met the person who purported to have witnessed his signature. The court was satisfied on the facts that Mr. Lenney had not met the witness but the court went on to consider the whether the guarantee had still been properly attested by the witness and, if not, what were the consequences?

The court confirmed that the point of a written guarantee is to comply with the requirements of section 4 of the Statute of Frauds which renders unenforceable any guarantee unless there is some memorandum or note of it in writing signed by the guarantor. A deed is not required. If, as Mr Lenney asserted, the witness did not witness his signature, that did not invalidate the contract of guarantee evidenced by the document which Mr. Lenney had signed.

Further, the court referred to the principle set out in Shah v Shah [2001] EWCA Civ that, even if a deed were necessary, there is no policy which requires the person attesting the signature to be present when the document is signed.