Bank of Scotland v Bennett
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE CHADWICK,SIR CHRISTOPHER STAUGHTON,LORD JUSTICE AULD |
| Judgment Date | 23 July 2004 |
| Judgment citation (vLex) | [1998] EWCA Civ J1221-25 |
| Court | Court of Appeal (Civil Division) |
| Date | 23 July 2004 |
| Docket Number | CHANF 97/0875/3 |
[1998] EWCA Civ J1221-25
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(MR JAMES MUNBY QC
(sitting as a Deputy High Court Judge))
Royal Courts of Justice
The Strand
London WC2
Lord Justice Auld
Lord Justice Chadwick
Sir Christopher Staughton
CHANF 97/0875/3
MR M HAPGOOD QC ( MR J DHILLION 21.12.98) (Instructed by Messrs Underwood & Co., London W1M 8LN) appeared on behalf of the Appellant
MR N YELL ( MR D BRIDGEMAN 21.12.98) (Instructed by Messrs Jenkin Evans., Reading RG1 1TT) appeared on behalf of the Respondent
This is an appeal against an order made on 7 February 1997 by Mr James Munby QC, sitting as a Deputy Judge in the Chancery Division, whereby he dismissed the claim of the Bank of Scotland, as mortgagee, to possession of property known as 15 Elthiron Road, Fulham, London SW6, and set aside the guarantee and legal charge on which that claim was based.
Introduction
2. The property is registered at HM Land Registry under title number 283050. It was transferred to Nigel Charles Bennett and his wife, Jane Christine Bennett, the defendants to this action, on or about 7 May 1986. It has, at all material times since that date, been subject to a charge ("the Halifax charge") in favour of Halifax Building Society to secure an advance of £100,000 or thereabouts which had been used to fund the purchase. By a transfer dated 5 September 1990 the property was transferred into the sole name of Mrs Bennett. At all material times thereafter Mrs Bennett has been the legal and beneficial owner of the property.
3. On 1 October 1991 Mr and Mrs Bennett executed a second legal charge in favour of the Governor and Company of the Bank of Scotland ("the Bank"). That charge was given to secure the obligations of Mr and Mrs Bennett under a letter of guarantee which they had executed on 12 August 1991. By that guarantee Mr and Mrs Bennett, jointly and severally, had guaranteed to the Bank payment (up to a limit of £150,000) on demand of all monies due to the Bank from Galloway Seafood Company Limited ("the company"). At the relevant time, Mr Bennett was a director of, and Mr and Mrs Bennett were the holders of shares in, the company.
4. On 8 October 1993, the Bank made formal demand on the company for repayment of monies advanced on overdraft; the demand being in an amount of £270,000 or thereabouts. Shortly thereafter, on 12 October 1993, the Bank appointed receivers of the company. On 27 October 1993, by letters addressed to Mr Bennett and Mrs Bennett separately, the Bank called for payment under the guarantee dated 12 August 1991 of a principal amount of £150,000 with interest of £3,575.22. That demand was not met.
These proceedings
5. The present proceedings were commenced by the issue of an originating summons on 11 April 1994. By that summons the Bank claimed payment of the principal sum of £150,000 with interest (then £7,794) alleged to be due under the letter of guarantee and the second charge; and possession of 15 Elthiron Road. The summons was supported by an affidavit sworn by a solicitor employed in the Bank's legal services department which exhibited copies of the letter of guarantee, the charge and the letters of demand and verified the state of the account. On 1 June 1994 Mrs Bennett swore an affidavit in answer to the Bank's evidence. After acknowledging the letter of guarantee, the charge and the letters of demand, she went on:
5.The current events arise out of the purchase by my husband of the shares in the company [ Galloway Seafood Company Limited]. Although I was a shareholder in the company I was deeply unhappy about his involvement from the outset. My husband left a very highly paid position with Remy Martin giving up a secure and substantial income. I was, in financial matters, completely reliant upon my husband and when the plaintiff required a guarantee to be executed by me I was extremely unhappy about it. Initially I protested and refused to give it. My husband told me that the company would collapse if I did not and I took a long time in deciding to sign the guarantee and did so only because I was under so much pressure from my husband. I genuinely believe that my marriage might flounder and, therefore, the family be separated if I did not help my husband. I only became a director of the company in 1993.
6. I was also under great pressure to sign the legal charge over the property according to my husband "on pain of splitting up the family". The legal formalities in relation to the charge were dealt with my husband's solicitors, Messrs Dickinson, Manser & Co of Poole, Dorset.
7. The guarantee was actually signed at the offices of the plaintiff in the Haymarket. An appointment had been arranged with a Mr Ian Geddes for the signing. I was given no advice whatsoever. The signing was done very quickly. The legal charge was signed on October 1st 1991 and witnessed at the house of a friend. Once again I did not receive any independent legal advice as to the nature and effect of the legal charge that I was being asked to sign.
8. The effect of signing the legal charge was to put the family home at risk, something which I had previously refused to countenance. I was in no position to assess the liability of the company, being completely reliant on what I was told by my husband. I received no direct financial benefits from signing the guarantee and legal charge.
9. At the very outset I told my husband that I was very reluctant to countenance placing our home at risk. Giving the guarantee to the plaintiff and signing the legal charge on my home was not to my financial advantage. It was wrong for him to pressurise me to do so. I was not fully aware of what I was letting myself in for. Had I been able to receive advice from an independent person which explained exactly what I was doing I would not have given in to the pressure. The plaintiff took no steps whatever to advise me to take independent legal advice. Had I done so I would not be facing these proceedings.
6. Mrs Bennett expanded on that evidence in a second affidavit sworn on 5 May 1995. She explained that her husband had told her that the purchase of the company was intended as a form of security for their old age and that it would not be necessary for him to leave his employment at Remy Martin in order to run it. Her immediate concern, on hearing of the proposal, was that the matrimonial home at 15 Elthiron Road should not be used to secure any kind of loan to the company; and she was assured that that would be unnecessary. Shortly thereafter, the property was transferred into her name because, as she said, her husband had received advice from the manager of his own bank (not the plaintiff bank) that this should be done to provide a measure of security for her and her children. She concluded:
9. I only signed a guarantee and legal charge because of the pressure that was placed upon me by my husband. I was very unwilling to jeopardise our marriage by refusing the sign the guarantee and legal charge, although I now realise that the plaintiff failed in its duty to ensure that the nature and effect of these transactions was explained to me and that I had the opportunity to take independent advice before taking the step which would jeopardise the matrimonial home.
It is plain, from that evidence, that Mrs Bennett was relying on a defence to the Bank's claim based on the principles identified in the decision of the House of Lords in Barclays Bank plc v O'Brien [ 1994] AC 180.
7. On 11 May 1995 an order was made against Mr Bennett for payment of the sum of £124,039.60; that being the sum then due to the Bank under the guarantee of 12 August 1991 after giving credit for recoveries. Shortly thereafter Mr Bennett left the matrimonial home. He and his wife have remained separated, although not formally, since that date. He took no further part in these proceedings.
8. The Bank's claims against Mrs Bennett for payment and for possession of the property came before Mr Munby QC for hearing in November 1996. Mrs Bennett was cross-examined on her affidavit evidence. The only other evidence before the Judge was that contained in affidavits sworn by solicitors on which there was no cross-examination. The Judge accepted Mrs Bennett's evidence as "entirely frank and truthful". In particular, he accepted her evidence as to the pressure that had been put on her by her husband. He said this (at page 27 B-C in his written judgment):
I accept Mrs Bennett's evidence as a frank, truthful and accurate and balanced account of the way in which she was treated by her husband. Having had the opportunity of seeing her give vidence and being cross-examined at some length, I have no hesitation in accepting her as having been an entirely frank and honest witness who moreover, in my judgment, was not given to over-statement or exaggeration. In many small details her evidence had the ring of evident truth. It carried conviction. The picture which she painted was, as it seems to me, both fair and accurate.
9. The Judge held that Mrs Bennett's signature to the guarantee and to the second charge were procured by the exercise by Mr Bennett of actual undue influence. He held, also, that the circumstances were such as to put the Bank on inquiry; and that the Bank had failed to take reasonable steps to satisfy itself that her apparent consent to the guarantee and to the charge had been properly obtained. The Judge set aside both the guarantee and the second charge.
The scope of this appeal
10. The Bank does not appeal against...
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