Bank Melli Iran v Samadi-Rad
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE MORRITT,LORD JUSTICE ROCH,LORD JUSTICE NEILL |
| Judgment Date | 04 May 1995 |
| Judgment citation (vLex) | [1995] EWCA Civ J0504-5 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | CHANI 94/0410/B |
| Date | 04 May 1995 |
[1995] EWCA Civ J0504-5
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Before: Lord Justice Neill Lord Justice Roch Lord Justice Morritt
CHANI 94/0410/B
MR. S BUCKHAVEN appeared on behalf of the Appellant (Instructed by Gervaise-Jones and Sons, Edgware, Middlesex.)
MISS H. WILLIAMS QC AND MISS S THOMAS appeared on behalf of the Respondent. (Instructed by Stephenson Harwood, St Paul's Churchyard, London.)
4th May 1995
This is an appeal of the Defendant from the order dated 9th February 1994 of Mr Robert Walker QC, as he then was, sitting as a deputy High Court Judge of the Chancery Division.
The Defendant, to whom I shall refer as "the Wife", was and is the sole registered proprietor of 8 Lytton Close, Hampstead Garden Suburb, London, NW2. By a legal charge dated 22nd May 1989 the Wife charged that property to the Plaintiff Bank as security for all moneys or liabilities then or thereafter owing on any account and in any manner whatsoever by Dalesid Limited. Dalesid Ltd, to which I shall refer as "the Company", was incorporated in England in 1985 and carried on business as a property development company. Its directors were Mr Hamid Samadi-Rad, to whom I shall refer as "the Husband", and a business colleague of his called Khosrow Behbehani. The Husband, Mr Behbehani and an architect called Mr Parvardin were the only shareholders.
The reason why the legal charge was granted to the Bank was to provide additional security for a loan facility allowed by the Bank to the Company of £1.2m for the purpose of enabling the Company to buy property situate and known as 152-154 Curtain Road, London, EC2. The Bank made clear to the solicitors for the Company that it required the Wife to be independently advised and requested the production on completion of the loan of a letter from such adviser to the effect that the Wife had been so advised. A letter dated 1st June 1989 from Child & Child, signed by Rosemary Farman an associate solicitor with that firm, to that effect was provided to the Bank in due course but after all the relevant transactions had been completed.
The Company defaulted. By a letter dated 30th July 1992 the Bank demanded repayment from the Company of the sums then due amounting to more than £1.75m. Such demand was not complied with and by a letter dated 20th October 1992 the Bank demanded payment by the Wife of £1.818m representing principal and interest then due. This demand was not complied with either and on 2nd December 1992 the Bank instituted these proceedings by Originating Summons seeking an order for possession so that the legal charge might be enforced by sale with vacant possession. Application was made under RSC Ord.88 for a summary order to that effect.
Affidavits in opposition to that application were sworn by and on behalf of the Wife to the effect that her execution of the legal charge had been improperly obtained by the undue influence of the Husband and by misrepresentations made by the Husband to the effect that the legal charge was limited in amount to £140,000 and in time to that required for a "short term arrangement". It was contended that the Bank had constructive notice of both these invalidating causes. The summons for a summary order was dismissed by Deputy Master Weir on 29th March 1993 when directions were given for further evidence and discovery of documents. The Bank appealed and the appeal came before Mr Walker QC.
The judge accepted that the Wife had not established an arguable case of undue influence and that there was no arguable case for misrepresentation as to the duration of the charge. However he decided that it was arguable that the execution of the charge had been procured by a misrepresentation made by the Husband that the charge was for a limited amount, namely £140,000 and that the Bank had constructive notice of that assumed misrepresentation. The consequence of these findings was that the Bank was not entitled to a summary order for possession to enforce the charge according to its terms.
In these circumstances the Bank contended and the judge accepted that the Wife should only be allowed to contest the claim on the basis that her signature was procured by the misrepresentation as to the amount for which the charge was security if she acknowledged that the Bank was entitled to a valid security for the limited sum of £140,000. He made an order accordingly. The Wife appeals contending that she should have unconditional leave to defend the claim in its entirety. The Bank cross-appeals claiming that there is no arguable case that it had constructive notice of any equity in the Wife to have the charge set aside so that the order for possession in its favour should be unqualified.
Since the decision of Mr Walker QC in this case the question whether the Court has jurisdiction to impose terms that the chargor should admit a charge to the extent of that which he thought that he had granted has been considered and decided in the negative by this court in TSB v Camfield (1995) 1 WLR 430. Counsel for the Bank, whilst reserving the right to challenge the decision in the House of Lords if leave to appeal is granted, accepts that there are no grounds on which that case can be distinguished from this. It follows that the decision is binding on us with the consequence that, subject to the cross-appeal, the appeal should be allowed thereby refusing a summary order for possession unconditionally and remitting the matter for trial before a judge in accordance with the directions already given.
That however is not an end to the matter for there remains the cross-appeal of the Bank. The Bank contends that the judge was wrong to determine that it had constructive notice of the fact that the execution of the charge by the Wife had been procured by the misrepresentation of the Husband that the liability thereunder was limited to £140,000 for the Bank had taken reasonable steps to satisfy itself that the Wife's agreement to the charge had been properly obtained. On this point also there have been subsequent decisions of this Court which counsel for the Wife accepts, prima facie, conclude the cross-appeal in the Bank's favour. But he contends that there are grounds for distinction on the facts.
For the purpose of considering those contentions it is necessary to describe in greater detail how matters appeared to the Bank and what steps it took. At the outset it is necessary to emphasise that the Wife does not challenge the finding of the judge that her claim based on undue influence is unmaintainable on her own evidence. Thus the only relevant claim is that to set aside the charge as having been induced by misrepresentation. The misrepresentation is alleged to have been innocent. That such a claim is arguable in law is demonstrated by the decision of the House of Lords in Barclays Bank v O'Brien (1994) 1 AC 180. In his summary at page 198 Lord Browne-Wilkinson stated
"Where one cohabitee has entered into an obligation to stand as surety for the debts of the other cohabitee and the creditor is aware that they are cohabitees:
1. The surety obligation will be valid and enforceable by the creditor unless the suretyship was procured by the undue influence, misrepresentation or other legal wrong of the principal debtor.
2. If there has been undue influence, misrepresentation or other legal wrong by the principal debtor, unless the creditor has taken reasonable steps to satisfy himself that the surety entered into the obligation freely and in knowledge of the true facts, the creditor will be unable to enforce the surety obligation because he will be fixed with constructive notice of the surety's right to set aside the transaction.
3. Unless there are special exceptional circumstances, a creditor will have taken such reasonable steps to avoid being fixed with constructive notice if the creditor warns the surety (at a meeting not attended by the principal debtor) of the amount of her potential liability and of the risks involved and advises the surety to take independent legal advice.
I should make it clear that in referring to the husband's debts I included the debts of a company in which the Husband (but not the wife) has a direct financial interest."
In relation to paragraph (3) Lord Browne-Wilkinson had earlier pointed out, at page 196, that in the case of transactions occurring before that decision it would depend on the facts of each case whether what the Bank had done satisfied the test.
As the Bank accepts there was, arguably, a misrepresentation made by the Husband as to the effect of the charge. That charge was by way of surety for the obligations of the Company to the Bank and the Husband was a director of the Company. Thus unless the Bank took reasonable steps to satisfy itself that the Wife entered into the obligation freely and in knowledge of the true facts it will have constructive notice of the misrepresentation entitling the Wife to set aside the charge. The question is whether it did.
In the dealings between the Bank and the Company each party instructed solicitors. Stephenson Harwood acted for the Bank and Child & Child for the Company. The Bank was concerned...
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