Bank of Scotland v Bennett
| Jurisdiction | England & Wales |
| Judgment Date | 1997 |
| Date | 1997 |
| Court | Chancery Division |
MR JAMES MUNBY, QC SITTING AS A DEPUTY HIGH COURT JUDGE
Property – matrimonial home in sole name of wife – guarantee signed by husband and wife for loan required by husband's company – wife being director of company but taking no active part in business – wife signing without receiving separate advice or being fully informed.
In 1990 the husband was a successful business man in well paid, secure employment. The husband and wife (the defendants) owned their home (the house) subject to a building society mortgage. With the help of a loan from an Investments Fund (SWIFT) and an overdraft to be secured by a floating charge over company property to the plaintiff bank and a personal guarantee the husband bought a company, intending it as a form of security for the couple's old age. He also transferred the house into the sole name of the wife to protect her from the personal guarantee he had given to the bank.
During the following year the husband planned to expand the company's factory, gave up his job in order to devote more time to the company, and raised considerable further sums from SWIFT. SWIFT now took a first charge on the company land and buildings ranking before the bank's floating charge, and the bank in its return required a second charge over the house (by then in the wife's sole name) and a joint guarantee by both defendants up to £150,000.
The joint guarantee was prepared by the bank, signed by the husband in Scotland and at his request sent to London for signature by the wife. Instructions for the charge over the house were sent by the bank to the husband's own solicitors (who had acted for the couple on the purchase of the house), the bank's letter stating that "as your firm already acts for the mortgagor, the bank expects that you will advise the mortgagor on the nature and effect of the legal charge ..." The wife was not, apparently, shown the subsequent letter from the solicitor, addressed to the husband and wife together, pointing out that the charge covered all liabilities to the bank, and that if "any of you (i.e. any of the occupants of the house) are uncertain about the nature and effect of what you are signing I must point out your right to seek independent legal advice before so doing". The husband and wife signed at the house of a friend. The wife had not been told of the recent further loan from SWIFT. Together with the husband she attended a London branch of the bank to sign the guarantee, but was given no advice on that document.
The company did not prosper. In due course the bank withdrew its support and appointed receivers. The husband lost heart. In 1995 he left the wife. The bank was now seeking to enforce the legal charge and the guarantee against the wife. The court accepted the wife's evidence to the effect that although she was a director and shareholder of the
company she had taken no advice part in the running of it until disaster struck; that the husband had put great pressure on her to sign the charge and that she had only signed charge and guarantee because she was very unwilling to jeopardize the marriage by refusing. She was not fully aware of what she was letting herself in for. Had she known of the SWIFT banking agreement and been able to receive advice from an independent person which explained exactly what she was doing she would not have given in to pressure. She had been looking for a good reason not to sign but was given none. Indeed, the husband told her if she did not sign he as well as the 100 employees would lose their jobs. She pleaded actual and presumed undue influence by the husband of which the bank had notice.
Held – (1) The husband had exerted undue pressure and influence to procure the wife's signature to the guarantee and the charge. The wife was not a free and voluntary agent. She did what she did not because she was persuaded that it was the right thing to do but because her will to resist was worn down. There was actual undue influence within the meaning of Bank of Credit and Commerce International SA v Aboody [1990] 1 QB 923.
(2) To establish a presumption of undue influence it was not necessary for a wife to show blind and unthinking acquiescence in everything her husband did. The presumption was not displaced merely because she exhibited some independence or required some degree of persuasion, where the husband was in a position to influence his wife. She never received such independent advice as might have displaced the presumption as against her husband.
(3) The transactions were clearly not to the financial advantage of the wife and the bank was put on inquiry both in relation to the guarantee and to the charge.
(4) The bank took no steps at all either to see that the wife had been properly advised on the guarantee or that her signature had been properly obtained. As for the legal charge, although the bank had made it clear that it expected the solicitors to ensure that the wife had proper advice, it had not taken reasonable steps to ensure that the wife knew of the SWIFT banking agreement which was crucial if she was to come to an informed decision.
The legal charge on the house and the guarantee would be set aside as against the wife.
NoteThe bank and the company were registered in Scotland. The charge was drawn in English form but the guarantee was drawn and executed in Scots form. It was accepted by both counsel that the validity and enforceability of guarantee and mortgage over the English house, and the adequacy of steps taken by the bank to see whether the wife's signature had been properly obtained fell to be determined under English domestic law. The court expressed no view on this.
Cases referred to in judgment:Allcard v Skinner (1887) 36 Ch D 145.
Banco Exterior Internacional v Mann[1995] 2 FCR 282; [1995] 1 All ER 936.
Bank of Baroda v Rayarel[1995] 2 FCR 631.
Bank of Baroda v Shah 3 All ER 24.
Bank of Credit and Commerce International SA v Aboody [1990] 1 QB 923; [1989] 2 WLR 759; [1992] 4 All ER 955.
Bank of Montreal v Stuart [1911] AC 120.
Barclays Bank plc v O'Brien and Another[1994] 1 FCR 357; [1994] AC 180; [1993] 3 WLR 786; [1993] 4 All ER 417.
Barclays Bank plc v Thomson[1997] 1 FCR 541.
Boyse v Rossborough (1857) 6 HLC 48.
CIBC Mortgages plc v Pitt[1994] 1 FCR 374; [1994] 1 AC 200; [1993] 3 WLR 802; [1993] 4 All ER 433.
Goldsworthy v Brickell [1987] Ch 378.
Goode Durrant Administration v Biddulph[1995] 1 FCR 196.
Hall v Hall (1868) LR 1 P & D 481.
Halifax Mortgage Services Ltd v Stepsky[1996] 1 FCR 107; [1996] Ch 207; [1996] 2 WLR 230; [1996] 2 All ER 277.
Massey v Midland Bank plc[1995] 1 FCR 380; [1995] 1 All ER 929.
Midland Bank plc v Serter[1995] 3 FCR 711.
Mumford v Bank of Scotland, Smith v Bank of Scotland [1996] 1 FLR 344.
Mutual Finance Ltd v John Wetton & Sons Ltd [1937] 2 KB 389.
National Westminster Bank plc v Morgan [1985] AC 686; [1985] 2 WLR 588; [1985] 1 All ER 821.
T (An Adult: Medical Treatment), Re[1992] 2 FCR 861; [1993] Fam 95; [1992] 3 WLR 782; [1992] 4 All ER 649.
Tufton v Sperni [1952] 2 TLR 516.
Turner v Barclays Bank plc[1997] 1 FCR 151.
Williams v Bayley (1866) LR 1 HL 200.
Wingrove v Wingrove (1885) 11 PD 81.
Andrew Clutterbuck for the bank.
Nicholas Yell for the wife.
MR JAMES MUNBY, QC.This is a claim by the governor and Company of the Bank of Scotland ("the bank") to enforce a guarantee ("the guarantee") dated 12 August 1991 and a legal charge ("the charge") dated 1 October 1991, both executed in favour of the bank by Nigel Charles Bennett ("Mr Bennett") and his wife Jane Christine Bennett ("Mrs Bennett"). The guarantee was a guarantee up to a maximum of £150,000 of all liabilities to the bank of a company, Galloway Seafood Company Limited ("the company"), of which Mr and Mrs Bennett were, at all material times, shareholders. The charge was a second legal charge of a freehold property at 15 Elthiron Road, Fulham, London ("the house"), which was their matrimonial home, though at the date of the charge it was registered in Mrs Bennett's sole name. The house was at all material times and still is subject to a first legal charge to the Halifax Building Society.
The company was registered in Scotland. It carried on its business at Newton Stewart, which is in south-west Scotland, and banked with the bank's branch in Dumfries, which is also in Scotland. The charge, relating to land in London, was naturally drawn in English form and was executed in London. But the guarantee, although executed in London, was drawn in Scots form and executed with the formalities required by Scots law. Mr Andrew Clutterbuck of counsel, who appeared for the bank, and Mr Nicholas Yell of counsel, who appeared for Mrs Bennett, were, however, agreed that nothing turns on any of this. It was common ground between them that the validity and enforceability of both the guarantee and the charge, and, in particular, the adequacy or otherwise of the steps taken by the bank to satisfy itself that Mrs Bennett's signature to the guarantee and the charge had been properly obtained, fall to be determined by English domestic law and
not by Scots law, which appears to be significantly different: see the decision of the Inner House in Mumford v Bank of Scotland, Smith v Bank of Scotland [1996] 1 FLR 344. I express no view either way as to the correctness of the approach adopted by counsel, a matter on which I heard no argument.
The relevant English law was laid down in the well-known decisions of the House of Lords in Barclays Bank plc v O'Brien and Another[1994] 1 FCR 357 and CIBC Mortgages plc v Pitt[1994] 1 FCR 374 and has subsequently been elaborated in a number of equally well-known decisions to which I must refer in due course. They are, in chronological order, Goode Durrant Administration v Biddulph[1995] 1 FCR 196, Massey v Midland Bank plc[1995] 1 FCR 380, Banco Exterior Internacional v Mann[1995] 2 FCR 282, Bank of Baroda v Rayarel[1995] 2 FCR 631, Midland Bank plc v Serter[1995] 3...
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
...found in Mrs Bennett's favour on the undue influence issue. He found, first, that Mrs Bennett had established actual undue influence [1997] 1 FLR 801, 827: "In my judgment the pressure and influence which, as I have found, Mr Bennett exerted on his wife both to procure her signature to the ......
-
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
...much earlier stage in his judgment [transcript page 3] when referring to Bank of Scotland v Bennett, then unreported but now reported at [1997] FLR 801, he recognised the distinction between influence which was permissible and influence which was undue. But the only pressure or influence on......
-
Bank of Scotland v Bennett
...obtained by improper conduct on the part of her husband. It followed that the appeal would be allowed. Decision of Mr James Munby QC ([1997] 3 FCR 193) reversed. Cases referred to in judgmentsBank of Baroda v Rayarel[1995] 2 FCR 631, CA. Bank of Credit and Commerce International SA v Aboody......
-
Bank of Credit and Commerce International Sa and Another v Nasir Hussain and Another
... ... particular surety places implicit trust and confidence in the principle debtor in relation to her financial affairs." (see Royal Bank of Scotland v. Etridge [1998] 4 AER 705 at 719 per Stuart-Smith, Millett and Morritt LJJ). The burden of showing this is on the party seeking to set up ... So far as authority is concerned, it is sufficient to advert to the recent case of Bank of Scotland v. Bennett [1999] 1 FLR 1115 where the Court of Appeal drew n o distinction in this respect between the principles applicable to a case of actual undue ... ...
-
How to combat business failures
...managing director ofan international division earning him £100,000 a year toconcentrate fully on his business. Bank of Scotland v Bennett[1997] 1 FLR 801 at p. 808.(4) Mr Bennett decided to expand his company's factory to meetstringent EEC hygiene regulations as the existing plants couldfai......