Bank of Credit and Commerce International SA v Aboody

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
Judgment Date10 November 1988
Judgment citation (vLex)[1988] EWCA Civ J1028-3
Docket Number88/0871

[1988] EWCA Civ J1028-3





(Sitting as a Judge of the High Court)

Royal Courts of Justice


Lord Justice Slade

Lord Justice Balcombe


Lord Justice Woolf


Between by Original Action:
Bank of Credit & Commerce International
Societe Anonyme (Licensed Deposit Taker)
Respondents (Plaintiffs)
(1) Edward Aboody
(2) Doris Aboody
Appellant (Defendant)
And Between by Counterclaim:
Doris Aboody
Appellant (Plaintiff)
Bank of Credit and Commerce International
Societe Anonyme (Licensed Deposit Taker)
Respondents (Defendants)

MR. J. P. WADSWORTH Q.C. and MR. N.R. DAVIDSON (instructed by Messrs Richards Butler) appeared on behalf of the Appellant (Defendant in the action; Plaintiff on the Counterclaim).

MISS H.E. WILLIAMSON Q.C. and MR. A.J. TRACE (instructed by Messrs Stephenson Harwood) appeared on behalf of the Respondents (Plaintiffs in the action; Defendants on the Counterclaim).


This is the judgment of the court, to which all its members have contributed, on an appeal by Mrs. Doris Aboody from part of a judgment of Sir Joseph Cantley (sitting as an additional judge of the High Court), given on 30th September 1987. The plaintiff in the action was Bank of Credit and Commerce International Societe Anonyme ("the Bank"). The defendants were Mr. Edward Aboody and the appellant, who was and is his wife. A cross-appeal by the Bank from part of the judgment has not been pursued.


The proceedings arose out of six transactions (which we will call "the six transactions") comprising three guarantees and three charges of Mrs. Aboody's house, 1 Bridge Drive, Cheadle ("1 Bridge Drive") signed or made by Mrs. Aboody in favour of the Bank to secure the liabilities to the Bank of a family company called Eratex Ltd. ("Eratex") of which Mr. and Mrs. Aboody were directors and shareholders. These six guarantees and charges comprised:

  • (1) a Joint and Several Guarantee signed by Mr. and Mrs. Aboody in 1976 limited to £100,000 ("the 1976 Guarantee");

  • (2) a Joint and Several Guarantee signed by them and dated 17th July 1978 limited to £400,000 ("the 1978 Guarantee");

  • (3) a Joint and Several Guarantee signed by them and dated 26th September 1979 limited to £600,000 ("the 1979 Guarantee");

  • (4) an equitable mortgage by deposit of title deeds made on 7th December 1979 ("the 1979 Equitable Mortgage");

  • (5) a charge by way of Legal Mortgage dated 7th December 1979 ("the 1979 Charge"); and

  • (6) a Charge by way of Legal Mortgage dated 7th February 1980 ("the 1980 Charge").


References in this judgment to page numbers will be to the pages of the transcript of the judgment.


Eratex traded in imported textiles. At all material times it was to a greater or lesser degree in financial difficulties. The judge (at p. 39D) accepted that from beginning to end "Eratex was highly geared and overtrading—highly geared because of the high proportion of its borrowing against the company's own contribution to the enterprise, and overtrading because it was trading to an extent which its resources were insufficient to support with the result that its overdraft was constantly going into excess over the prescribed limits."


The final collapse of Eratex in May 1983 was accelerated by two additional factors. First, from 1979 to 1983, Mr. Aboody, together with others, not including Mrs. Aboody who was kept in complete ignorance, perpetrated a series of massive frauds on the Bank, to which we will again briefly refer later in this judgment. Secondly, between 1980 and 1982 Mr. Aboody caused Eratex to pay out sums in excess of £200,000 to a brother-in-law of his, Mr. Zalouf, who had devised what the judge (at p. 44D) described as a "hare-brained" scheme for making a large profit by selling land in Florida for development.


By 8th June 1983, as the judge found (at p. 129E) a debt of £888,051.71 was owing by Eratex to the Bank. In its action, which was instituted on 4th June 1983, the Bank joined Mr. and Mrs. Aboody as defendants, claiming a sum of £600,000 said to be due and owing to it under the 1979 Guarantee, plus interest. Mr. Aboody who had no possible defence to this claim, suffered judgment by default. However, Mrs. Aboody, who owned no assets of any substantial value except her house and home, 1 Bridge Drive, has throughout strongly contested the proceedings. She put in a defence and conterclaim by which, in its re-re-re-amended form, she challenged the validity of all three Guarantees and of the 1980 Charge on the grounds (among other grounds not pursued in this court, such as misrepresentation) that they had been obtained by the actual undue influence of her husband. No presumption of undue influence on his part was relied on. No undue influence on the part of the Bank itself was alleged.


After a lengthy trial, during which he heard 33 days of very detailed evidence, the judge delivered a very full and careful judgment covering 137 pages of transcript, to which we pay grateful tribute. In the result, the judge found actual undue influence on the part of Mr. Aboody proved in respect of each of the six transactions. He also found that, in causing Mrs. Aboody to enter into each of them by the exercise of undue influence, Mr. Aboody was at the time acting as the agent of the Bank to procure her consent to join in the transactions and execute the relevant documents. However, in the light of the decision of the House of Lords in National Westminster Bank v. Morgan [1985] A.C. 686, he held that "manifest disadvantage" to the complaining party must be shown before a transation will be set aside for undue influence, whether he or she seeks to do so on the grounds of actual or presumed undue influence. On a meticulous examination of the facts of each of the respective transactions, he was not satisfied that manifest disadvantage to Mrs. Aboody had been proved as to any of them. He therefore gave a monetary judgment for the Bank in its claim against her.


The amount of this claim however, fell to be substantially reduced because of a cross-claim by Mrs. Aboody. The security taken by the Bank included a pledge over goods of Eratex. The Bank had arranged for these goods to be held to its order in the custody of a warehouse. As the result of a series of ingenious frauds on the part of Mr. Aboody and two of the warehousemen from 1979 onwards, large quantities of the goods on pledge to the Bank had over the years been removed from the warehouse without the Bank's knowledge or consent. The judge held that the Bank was in breach of a duty to Mrs. Aboody to take reasonable care to preserve those goods and that she was entitled to be relieved from her guarantees to the extent to which loss of the security of the pledged goods was established—a loss which (at p. 129E) he calculated, on the basis of the evidence before him, as amounting to £873,308.


By the time that the order giving effect to the judge's judgment came to be drawn up, 1 Bridge Drive had been sold and a sum (which we are told amounted to £184,000) representing the net proceeds of sale together with interest thereon, stood to the credit of a deposit account in the names of the respective solicitors of the Bank and Mrs. Aboody.


By his order the judge declared that the 1976, 1978 and 1979 Guarantees and also the 1980 Charge were valid and enforceable. He ordered Mrs. Aboody to pay to the Bank the sum of £26,460.58, representing a sum of £14,743.71 (calculated as explained at pages 125–129) plus interest. He ordered an enquiry as to (a) the likely cost of the realisation of the stock which ought to have been present at the warehouse, and (b) what further sums were due and owing to the Bank pursuant to each Guarantee. He also ordered that the sum of money standing to the joint account of the two firms of solicitors be released to the Bank.


The Bank served a notice of cross-appeal, by which in effect it challenged the judge's finding that Mrs. Aboody was entitled to be relieved against her guarantees to the extent to which loss of the security of pledged goods was established. However, in the event this cross-appeal has not been pursued. Miss Hazel Williamson, Q.C., on behalf of the Bank, has explained to us that, while it strongly disputes the correctness of this part of the judge's judgment. Mrs. Aboody's financial position is such as not to make it worthwhile for it to pursue this claim. In all the circumstances, we were, told, it is not the intention of either party to pursue the inquiry directed by the judge's order.


In the event, the issues which have been argued on this appeal have been the following. On behalf of Mrs. Aboody it has been submitted that the learned judge's decision was wrong and the appeal should be allowed on the grounds that

  • (1) a party who proves that a transaction was induced by the actual exercise of undue influence is entitled to have it set aside without also proving that the transaction was manifestly disadvantageous to her ("Issue (1)");

  • (2) in any event, each of the six transactions was manifestly disadvantageous to her ("Issue (2)");


On behalf of the Bank submissions, supported by a respondents' notice, have been made to the effect that the judgment should be affirmed on the additional grounds that

  • (3) on the evidence, no actual undue influence in law has been shown to have been exercised by Mr. Aboody over Mrs. Aboody in respect of any of the six transactions, save the 1980 Charge, as to which it is now admitted ("Issue (3)");

  • (4) even if there was behaviour by him capable of amounting to actual undue influence in law, it did not on the...

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