Banco Exterior Internacional SA v Thomas and Another
| Jurisdiction | England & Wales |
| Judge | THE VICE-CHANCELLOR,LORD JUSTICE ROCH,LORD JUSTICE POTTER |
| Judgment Date | 31 July 1996 |
| Judgment citation (vLex) | [1996] EWCA Civ J0731-6 |
| Docket Number | No. CCRTF 95/0491/C |
| Court | Court of Appeal (Civil Division) |
| Date | 31 July 1996 |
[1996] EWCA Civ J0731-6
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE MAYOR'S AND CITY OF LONDON COURT
(RECORDER ROSS MARTYN)
Royal Courts of Justice
Strand
London WC2
The Vice-Chancellor
(Sir Richard Scott)
Lord Justice Roch
Lord Justice Potter
No. CCRTF 95/0491/C
MR. HAZEL WILLIAMSON QC & MR. T. JEFFERIES (Instructed by Messrs Eversheds, Norwich, NR1 4DX) appeared on behalf of the Appellant
MR. CHARLES FALCONER QC & MR. M. SMITH (Instructed by Messrs Keene Marsland, London, E1 7LT) appeared on behalf of the Respondents
This is an appeal against the judgment of Mr. Recorder Ross Martyn given on 2 November 1994 in the Mayor's and City of London Court.
The plaintiff in the action, and appellant before us, is Banco Exterior Internacional SA ("the Bank"). The point at issue is whether or to what extent the Bank was entitled to rely on and enforce, first, a Guarantee dated 12 February 1985 under which Mrs Patricia Dempsey guaranteed the liability to the Bank of a Mr John Patrick Mulchay (up to a limit of £75,000 plus interest and costs) and, second, a Legal Charge signed by Mrs Dempsey on the same date, 12 January 1985, but dated 7 June 1985, whereby she charged her residence, 4 Arran Mews, Crossland Avenue, Ealing, as security for the payment to the Bank of Mr Mulchay's indebtedness.
The Bank's action to enforce the Guarantee and the Legal Charge was commenced against Mrs Dempsey by Originating Summons dated 28 October 1988. Mrs Dempsey died, however, on 15 August 1992 before the action had been brought to trial. An order to carry on against her executors was made on 5 January 1983. They, therefore, were the defendants when the trial took place and are the respondents before us. Following Mrs Dempsey's death, 4 Arran Mews was, by agreement between the Bank and the executors, sold. The Bank's claim under the Legal Charge became, therefore, transferred to the proceeds of sale.
The executors' defence to the Bank's action is, very summarily stated, as follows::
(i) Mrs Dempsey was induced by Mr Mulchay's undue influence to agree to provide security (in the form of the Guarantee and the Legal Charge) for the overdraft facility that the Bank was willing (if it obtained the security) to allow him;
(ii) The Bank was, in the circumstances of the case, on notice of that undue influence;
(iii) The Bank, accordingly, was not entitled to enforce its security.
The judge held that the undue influence had been proved. He held that the bank did not, at the time the Guarantee and Legal Charge were signed, have notice, actual or constructive, of the undue influence. However he went on to hold that certain events that took place in April 1988, some three months after the Guarantee and the Legal Charge had been signed, did put the Bank on notice of the undue influence. He held that the Bank could not rely on the Guarantee and Legal Charge in respect of overdrawings by Mr. Mulchay after April 1988. For reasons that I will later explain he thought, however, that the bank were entitled to £30,000 out of the proceeds of sale.
In this appeal the Bank has challenged the judge's conclusion that undue influence had been established and has challenged his conclusion that the events of Aril 1988 put the Bank on notice of any undue influence. The executors have served a respondents' Notice challenging the judge's conclusion that prior to the signing of the documents the Bank did not have constructive notice of undue influence and challenging the decision regarding the £30,000.
Accordingly, it is necessary for me to describe the facts of the case with some care.
Mrs Dempsey was, in 1985, forty six years old. Her partner of many years, Mr Dempsey, had died in 1982. Prior to his death she had carried on a small retail business, a dress shop, in premises owned by Mr Dempsey and adjacent to those in which he carried on his own business. Mr Dempsey died without having made testamentary provision for Mrs Dempsey. The residence they occupied was in their joint names and passed to Mrs Dempsey by virtue of survivorship but, thereapart, none of his estate passed to her. Her straitened financial circumstances obliged her to cease carrying on the dress shop business. She sold the residence and with the proceeds purchased a smaller residence, namely, 4 Arran Mews. The capital left over after the purchase of 4 Arran Mews provided her with a small income.
Mrs Dempsey's difficulties brought about by the death of her long-standing partner were added to by the discovery in 1983 that she was suffering from cancer. This cancer was the cause of her death in 1992.
In 1983 Mrs Dempsey met Mr Mulchay. He was some six years younger than she was. They became friendly. The judge recorded, and I should do so as well, that although a relationship of close friendship developed between them their relationship was neither a romantic nor a sexual one.
Mr Mulchay was in business as a dealer in secondhand motor cars. By November 1984 he had been a customer of the Bank for about a year and was allowed an overdraft of up to £4,000. He had in mind plans to expand his car dealing activities but for that purpose required additional capital. The Bank made it clear to Mr Mulchay that additional overdraft facilities would require suitable security to be provided. So Mr Mulchay suggested to Mrs Dempsey that if she would guarantee his borrowing and provide her house as security, he, in return, would pay her a regular income. The evidence regarding this arrangement, which was never recorded in writing, left unclear the exact terms that were agreed. It was certainly agreed that a regular sum should be paid, but it is not clear whether it would be £500 per calendar month or £125 per week. In his evidence Mr Mulchay referred on occasion to £150 per week. There was also some agreement under which Mr Mulchay would pay various household and other bills for Mrs Dempsey. The judge found that:
"… the regular payment was to be of the order of £500 a month, and … any payment of bills were recoverable by Mr Mulchay from Mrs Dempsey, so far as they had not been debited against the regular payments …"
The arrangement between Mr Mulchay and Mrs Dempsey having been agreed upon, the Bank agreed to allow Mr Mulchay an overdraft of £70,000 supported by Mrs Dempsey's guarantee (limited to £75,000) and by a legal charge of 4 Arran Mews securing Mr Mulchay's indebtedness (up to the same limit). The Bank's records show that they placed a value of £120,000 on 4 Arran Mews. Very shortly before 12 February 1985, Mrs Dempsey and Mr Mulchay visited the Bank and discussed the proposed transaction with Mr Guirao, the manager of the Bank's Spitalfield branch at which Mr Mulchay kept his account. Mrs Dempsey was not a customer of the Bank. Mr. Guirao told Mrs Dempsey that she would have to go to a solicitor independent of the Bank for the solicitor to explain to her the nature and effect of the Guarantee and Legal Charge that it was proposed she should sign.
The Bank had a standing practice that a third party proposing to provide security in support of a loan by the Bank to a customer would be required to go to an independent solicitor to be advised about the nature and effect of the proposed transaction. This very sensible practice preceded the decision of the House of Lords in Barclays Bank Ltd v. O'Brien [1994] 1 A.C. 180. The wisdom of the practice was endorsed by the judgments in that case. The Bank's Spitalfield branch had an arrangement with a local solicitor, Mr David Bishop, that it would refer to him individuals who did not have solicitors of their own to whom they would prefer to go. So Mr Guirao referred Mrs Dempsey to Mr Bishop. Mr Guirao was not told about the collateral arrangement under which Mr Mulchay was to pay a regular income to Mrs Dempsey. Of that the Bank knew nothing.
On 12 February 1985, Mrs Dempsey visited Mr Bishop at his office. Mr Mulchay accompanied her. Mr Bishop could not recall whether Mr Mulchay had been present while he advised Mrs Dempsey but he said, in evidence, that his "normal practice … would be not to have anybody else in the room, other than the person signing." Mrs Dempsey had with her the Guarantee and Legal Charge that she was being asked to sign. She signed both documents in the presence of Mr Bishop. Mr Bishop witnessed her signature and on each document added the words: "In the presence of the undersigned who prior to the execution hereof explained the nature and effect of this [Guarantee] [Legal Charge] which Mrs Dempsey appeared to fully understand." Mr Bishop, when questioned about the occasion, understandably could not recall any details, but there is no reason to doubt that Mr Bishop did advise Mrs Dempsey as to the "nature and effect" of the two documents or to doubt that Mrs Dempsey fully understood his advice. Mr Bishop did not, on the other hand, give Mrs Dempsey any advice as to the wisdom of her agreeing to provide the requested security. He did not seek to discover why she was willing to do so. He was not told and knew nothing about the collateral arrangement for Mr Mulchay to pay a regular income to Mrs Dempsey.
The Guarantee signed by Mrs Dempsey was in an unexceptionable form, common for bank guarantees. It was expressed to be "in consideration of the Bank making or continuing advances or otherwise giving credit or affording banking...
To continue reading
Request your trial
-
Royal Bank of Scotland Plc v Etridge (No 2); Kenyon-Brown v Desmond Banks & Company (Undue Influence) (No 2); Bank of Scotland v Bennett; UCB Home Loans Corporation Ltd v Moore; National Westminster Bank Plc v Gill; Midland Bank Plc v Wallace; Barclays Bank Plc v Harris; Barclays Bank Plc v Coleman
...opinion, be held to the contract (see Commission for the New Towns v Cooper (Great Britain) Ltd [1995] Ch 259, 277-280 and Banco Exterior Internacional SA v Thomas [1997] 1 WLR 221, 229). But what if there had been no actual knowledge of the third party's undue influence or misrepresentat......
-
Barclays Bank Plc v Boulter
...v Mann [1995] 1 AER 936: Massey v Midland Bank Plc [1995] 1 AER 929 and TSB Bank Plc v Camfield [1995] 1 AER 951; Banco Exterior Internacional S.A. v. Thomas [1997] 1 WLR 221.) The question of notice usually arises in County Court proceedings brought by a bank or other creditor for possess......
-
Royal Bank of Scotland plc v. Etridge et al., (2001) 280 N.R. 58 (HL)
...for the New Towns v. Cooper (Great Britain) Ltd., [1995] Ch. 259, refd to. [para. 144]. Banco Exterior Internacional SA v. Thomas, [1997] 1 W.L.R. 221, refd to. [para. Seaton v. Heath, [1899] 1 Q.B. 782, refd to. [para. 185]. Hamilton v. Watson (1845), 12 Cl. & F. 109, refd to. [para. 1......
- Ismail bin Mohmad v Ismail bin Husin
-
Table of cases
...Banco Exterior Internacional v. Mann, [1995] 1 All E.R. 936 (C.A.) ................ 211 Banco Exterior Internacional v. Thomas, [1997] 1 All E.R. 46 (C.A.) ............... 211 Bank of Baroda Ltd. v. Punjab National Bank Ltd., [1944] A.C. 176 (P.C.) ................................................
-
VITIATING FACTORS IN CONTRACT LAW — THE INTERACTION OF THEORY AND PRACTICE
...936; TSB Bank plc v Camfield[1995] 1 All ER 951; Bank of Baroda v Rayerel[1995] 2 FLR 376; and Banco Exterior International SA v Thomas[1997] 1 WLR 221. For local decisions, see eg, the Singapore Court of Appeal decision of Malayan Banking Berhad v Hwang Rose[1997] 2 SLR 1. 220 [1994] 1 AC ......
-
Men Behaving Badly: An Analysis of English Undue Influence Cases
...277 Stuart: Bank of Montreal v. Jane Jaques Stuart & Another [1911] AC 120Thomas: Banco Exterior Internacional SA v. Thomas and another [1997] 1 All ER 46Virdee: Scottish Equitable Life plc v. Virdee [1999] 1 FLR 863 05Auchmuty (bc/d) 5/17/02 8:46 AM Page 281 AUCHMUTY: UNDUE INFLUENCE CASES......
-
Barclays Bank v O’Brien Revisited: What a Difference Five Years Can Make
...Exterior Internacional SA vMann [1995] 1 All ER 936; Bank ofBaroda vRayarel [1995] 2 FLR 376; Banco Exterior Internacional SA vThomas [1997] 1 All ER 46;National Westminster Bank vBeaton (1998) 30 HLR 99.8 n 2 above, 196.9 n 7 above, 943.10 The 1997 Code of Banking Practice, sponsored by th......