The recent decision of the Bermuda Court of Appeal in Keimon Lavan Lawrence v. HSBC Bank Bermuda Ltd  CA (Bda) Civ 10, clarifies the steps required by lenders to protect themselves from a claim of undue influence in relation to loan transactions.
The appeal in this case followed the decision of the Supreme Court not to set aside two default judgments entered against Keimon Lawrence and his father, Keith James. The judgments held that Mr Lawrence and Mr James should pay HSBC Bank Bermuda Ltd $3,609,666 million, together with interest, charges and costs, under the terms of a guarantee given by both men for a loan made by the bank to The Fitz Group Ltd (the driving force behind which was Alexander “Jerry” Ming, a friend of Mr James). Mr Lawrence and Mr James had put up their jointly-owned property in Warwick as security for the loan, which subsequently fell into default. The Court also declined to grant the defendants an injunction restraining the Bank from selling the Warwick property.
The Court of Appeal found that HSBC Bank Bermuda had failed to take adequate steps to ensure that Keimon Lawrence was not acting under the undue influence of his father, Keith James, when he agreed to put up his half of the house as security for the loan. In his judgment, the President of the Court of Appeal, Sir Christopher Clarke, identified several requirements that a lender should meet in order to protect itself from any later claim of undue influence.