Barclays Bank Plc v O'Brien

JurisdictionUK Non-devolved
JudgeLord Templeman,Lord Lowry,Lord Browne-Wilkinson,Lord Slynn of Hadley,Lord Woolf
Judgment Date21 October 1993
Judgment citation (vLex)[1993] UKHL J1021-1
Date21 October 1993
CourtHouse of Lords
Barclays Bank Plc
O'Brien and Another (A.P.)

[1993] UKHL J1021-1

Lord Templeman

Lord Lowry

Lord Browne-Wilkinson

Lord Slynn of Hadley

Lord Woolf

House of Lords

Lord Templeman

My Lords,


For the reasons to be given by my noble and learned friend Lord Browne-Wilkinson I would dismiss the appeal.

Lord Lowry

My Lords,


I have had the advantage of reading in draft the speech prepared by my noble and learned friend Lord Browne-Wilkinson. I agree with it and for the reasons he gives I too would dismiss the appeal.

Lord Browne-Wilkinson

My Lords,


In this appeal your Lordships for the first time have to consider a problem which has given rise to reported decisions of the Court of Appeal on no less than 11 occasions in the last eight years and which has led to a difference of judicial view. Shortly stated the question is whether a bank is entitled to enforce against a wife an obligation to secure a debt owed by her husband to the bank where the wife has been induced to stand as surety for her husband's debt by the undue influence or misrepresentation of the husband.


The facts


The facts of the present case are very fully set out in the judgment of Scott L.J. in the Court of Appeal ( [1993] Q.B. 109). I will only state them in summary form. Mr. and Mrs. O'Brien were husband and wife. The matrimonial home, 151, Farnham Lane, Slough, was in their joint names subject to a mortgage of approximately £25,000 to a building society. Mr. O'Brien was a chartered accountant and had an interest in a company. Heathrow Fabrications Ltd. The company's bank account was at the Woolwich branch of Barclays Bank. In the first three months of 1987 the company frequently exceeded its overdraft facility of £40,000 and a number of its cheques were dishonoured on presentation. In discussions in April 1981 between Mr. O'Brien and the manager of the Woolwich branch, Mr. Tucker. Mr. O'Brien told Mr. Tucker that he was remortgaging the matrimonial home: Mr. Tucker made a note that Mrs. O'Brien might be a problem. The overdraft limit was raised at that stage to £60,000 for one month. Even though no additional security was provided, by 15 June 1987, the company's overdraft had risen to £98,000 and its cheques were again being dishonoured.


On 22 June 1987, Mr. O'Brien and Mr. Tucker agreed (1) that the company's overdraft limit would be raised to £135,000 reducing to £120,000 after three weeks (2) that Mr. O'Brien would guarantee the company's indebtedness and (3) that Mr. O'Brien's liability would be secured by a second charge on the matrimonial home.


The necessary security documents were prepared by the bank. They consisted of an unlimited guarantee by Mr. O'Brien of the company's liability and a legal charge by both Mr. and Mrs. O'Brien of the matrimonial home to secure any liability of Mr. O'Brien to the bank. Mr. Tucker arranged for the documents, together with a side letter, to be sent to the Burnham branch of the bank for execution by Mr. and Mrs. O'Brien. In a covering memorandum, Mr. Tucker requested the Burnham branch to advise the O'Briens as to the current level of the facilities afforded to the bank (£107,000) and the projected increase to £135,000. The Burnham branch was also asked to ensure that the O'Briens were "fully aware of the nature of the documentation to be signed and advised that if they are in any doubt they should contact their solicitors before signing".


Unfortunately the Burnham branch did not follow Mr. Tucker's instructions. On 1 July, Mr. O'Brien alone signed the guarantee and legal charge at the Burnham branch, the document simply being produced for signature and witnessed by a clerk. On the following day Mrs. O'Brien went to the branch with her husband. There were produced for signature by Mrs. O'Brien, the legal charge on the matrimonial home together with a side letter which reads:

"We hereby agree acknowledge and confirm as follows: (1) That we have each received from you a copy of the guarantee dated 3 July 1987 (a copy of which is attached hereto) under which Nicholas Edward O'Brien guarantees the payment and discharge of all moneys and liabilities now or hereafter due owing or incurred by Heathrow Fabrications Ltd. to you. (2) That the liability of the said Nicholas Edward O'Brien to you pursuant to the said guarantee is and will be secured by the legal charge dated 3 July 1987 over the property described above made between (1) Nicholas Edward O'Brien (2) Nicholas Edward O'Brien and Bridget Mary O'Brien and (3) Barclays Bank Plc. (3) That you recommended that we should obtain independent legal advice before signing this letter."


In fact the Burnham branch gave Mrs. O'Brien no explanation of the effect of the documents. No one suggested that she should take independent legal advice. She did not read the documents or the side letter. She simply signed the legal charge and side letter and her signature was witnessed by the clerk. She was not given a copy of the guarantee.


The company did not prosper and by October 1987 its indebtedness to the bank was over £154,000. In November 1987 demand was made against Mr. O'Brien under his guarantee. When the demand was not met, possession proceedings under the legal charge were brought by the bank against Mr. and Mrs. O'Brien. Mrs. O'Brien seeks to defend these proceedings by alleging that she was induced to execute the legal charge on the matrimonial home by the undue influence of Mr. O'Brien and by his misrepresentation. The trial judge, Judge Marder Q.C., and the Court of Appeal rejected the claim based on undue influence: on the appeal to this House the claim based on undue influence is not pursued. However the judge did find that Mr. O'Brien had falsely represented to Mrs. O'Brien that the charge was to secure only £60,000 and that even this liability would be released in a short time when the house was remortgaged. On those findings of fact, the trial judge granted an order for possession against Mrs. O'Brien holding that the bank could not be held responsible for the misrepresentation made by Mr. O'Brien.


The decision of the Court of Appeal


The Court of Appeal (Purchas, Butler-Sloss and Scott L.JJ.) reversed his decision. The leading judgment in the Court of Appeal was given by Scott L.J. who found that there were two lines of authority. One line would afford no special protection to married women: the rights of the creditor bank could only be adversely affected by the wrongful acts of the principal debtor, the husband, in procuring the surety's liability if the principal debtor was acting as the agent of the creditor in procuring the surety to join or the creditor had knowledge of the relevant facts. I will call this theory "the agency theory". The other line of authority detected by Scott L.J. (which I will call "the special equity theory") considers that equity affords special protection to a protected class of surety viz. those where the relationship between the debtor and the surety is such that influence by the debtor over the surety and reliance by the surety on the debtor are natural features of the relationship. In cases where a surety is one of this protected class, the surety obligation is unenforceable by the creditor bank if (1) the relationship between the debtor and the surety was known to the creditor (2) the surety's consent was obtained by undue influence or by misrepresentation or without "an adequate understanding of the nature and effect of the transaction" and (3) the creditor had failed to take reasonable steps to ensure that the surety had given a true and informed consent to the transaction. The Court of Appeal preferred the special equity principle. They held that the legal charge on the O'Brien's matrimonial home was not enforceable by the bank against Mrs. O'Brien save to the extent of the £60,000 which she had thought she was agreeing to secure.


Policy considerations


The large number of cases of this type coming before the courts in recent years reflects the rapid changes in social attitudes and the distribution of wealth which have recently occurred. Wealth is now more widely spread. Moreover a high proportion of privately owned wealth is invested in the matrimonial home. Because of the recognition by society of the equality of the sexes, the majority of matrimonial homes are now in the joint names of both spouses. Therefore in order to raise finance for the business enterprises of one or other of the spouses, the jointly owned home has become a main source of security. The provision of such security requires the consent of both spouses.


In parallel with these financial developments, society's recognition of the equality of the sexes has led to a rejection of the concept that the wife is subservient to the husband in the management of the family's finances. A number of the authorities reflect an unwillingness in the court to perpetuate law based on this outmoded concept. Yet, as Scott L.J. in the Court of Appeal rightly points out, although the concept of the ignorant wife leaving all financial decisions to the husband is outmoded, the practice does not yet coincide with the ideal [1993] Q.B. 109, 139. In a substantial proportion of marriages it is still the husband who has the business experience and the wife is willing to follow his advice without bringing a truly independent mind and will to bear on financial decisions. The number of recent cases in this field shows that in practice many wives are still subjected to, and yield to, undue influence by their husbands. Such wives can reasonably look to the law for some protection when their husbands have abused the trust and confidence reposed in them.


On the other hand, it is important to keep a sense of balance in approaching these cases. It is easy to allow sympathy for the wife who is threatened with the loss of her home at the...

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