Clydesdale Bank Plc v Black
| Jurisdiction | Scotland |
| Judgment Date | 10 May 2002 |
| Date | 10 May 2002 |
| Docket Number | No 47 |
| Court | Court of Session (Inner House - Extra Division) |
EXTRA DIVISION
Cautionary obligations—Wife executing guarantee of husband's business debts and subsequent standard security—Whether standard security enforceable—Whether creditor acting in good faith
In 1994 a wife, having taken independent legal advice, granted to a bank a guarantee of her husband's business debts secured by standard security over their home. The bank sought to enforce the standard security against her. The wife defended the action on the basis that she had signed the guarantee without being aware of its true nature and under the undue influence of her husband. The bank argued that the defender had failed to make any relevant averments of undue influence and the bank had taken adequate steps to inform the wife of the nature of the obligation. The sheriff granted decree in favour of the bank and his decision was upheld by the sheriff principal. The wife appealed to the Court of Session and argued that (1) the sheriff principal had erred in holding that she had not relevantly averred undue influence and (2) the subsequently decided English case of Royal Bank of Scotland plc v Etridge (No 2), which set out the steps required to be taken by a creditor to establish its good faith, applied in Scotland, and these steps had not been taken. The bank argued that (1) there was no relevant case of undue influence and (2) whatever be the position in England, the issue in Scotland was whether the creditor acted in good faith and the requirements in English law set out in Royal Bank of Scotland plc v Etridge (No 2) that the nature of the deed be brought home to the person signing were derived from English rules of equity and were not applicable in Scotland.
Held (1) (per Lord Coulsfield and Lord Marnoch) although there were doubts as to whether the defender's pleadings on her knowledge of the transaction were relevant or frank, they were sufficient for proof on the question of undue influence (p 559–I, 567E–I 574–CD); but (2) there were no relevant averments by the defender that the pursuers had breached their duty of good faith because (per Lord Coulsfield and Lord Sutherland) the House of Lords decisions were an extension of the law and the pursuers had complied with the requirements of good faith and proper banking practice as understood in Scotland at the time of the transaction (p 566F, 573H) and (per Lord Marnoch) court decisions which affect the common law are by nature retrospective, but the decision of the House of Lords in Royal Bank of Scotland v Etridge did not touch on Scots law (p 569A, 570G) and appeal refused.
Royal Bank of Scotland plc v Etridge (No 2)WLR [2001] 3 WLR 1021 and Smith v Bank of ScotlandSC1997 SC (HL) 111commented upon.
Observed (per Lord Coulsfield) that the problems arising in relation to the question of whether the creditor has acted in good faith should be dealt with on a case by case basis and on established facts (p 566E–F)
Clydesdale Bank Public Limited Company raised an action in the sheriff court against Catherine Mary Black. On 20 July 1999, following debate, the sheriff granted decree de plano. The defender appealed to the sheriff principal who on 14 December 2000 refused the appeal. The defender appealed to the Court of Session.
Cases referred to:
Barclays' Bank plc v O'BrienELR [1994] 1 AC 180
Forsyth v Royal Bank of Scotland plc 2000 SLT 1295
Gray v BinnyUNK (1879) 7 R 332
Honeyman's Executor v SharpSC 1978 SC 233
Invercargill City Council v HamlynELR [1996] AC 624
Royal Bank of Scotland plc v Etridge (No 2)WLR [2001] 3 WLR 1021
Smith v Bank of ScotlandSC 1997 SC (HL) 111
The cause called before an Extra Division, comprising Lord Coulsfield, Lord Marnoch and Lord Sutherland for a hearing on the summar roll.
At advising, on 10 May 2002—
LORD COULSFIELD—[1] In this action, the pursuers and respondents are attempting to enforce a standard security granted by the defender and appellant over subjects at 150 East Clyde Street, Helensburgh and registered in the Land Register on 11 December 1996. On 16 April 1998, the pursuers served on the defender a calling-up notice requiring payment of certain sums, including a sum of £50,000 described as the principal amount due under a guarantee granted by the defender. Other sums were mentioned in the calling-up notice but they have now been paid or satisfied. In due course the present action was raised and a closed record was made up. The action was debated before the sheriff on 26 March and 27 April 1999 and on 20 July 1999 the sheriff granted decree in favour of the pursuers. The defender appealed to the sheriff principal who refused the appeal on 14 December 2000. The defender now appeals to this court.
[2] The defender is married to James Black who was formerly managing director of a company named DEM1 Limited. On 14 December 1994, James Black granted a guarantee of the obligations of the company in favour of the pursuers. On 14 October 1996, the defender signed a letter addressed to an officer of the pursuers at an address in Bearsden. The heading of the letter referred to “DEM1 account 194960 at Hillhead Branch” and, as originally typed, stated: “I write to confirm that I, Mrs. Catherine McGregor Black of Rockmount 150 East Clyde Street, Helensburgh am willing to grant a standard security over my home in favour of the above company. The amount of my liability under the standard security should be limited to £50,000.”
[3] In the letter as produced in process, the words “the above company” have been crossed out and the words “my husband James Black” substituted in manuscript. On 8 November 1996, the defender granted a guarantee, described as “Guarantee and Indemnity subject to the Consumer Credit Act 1974” in favour of the pursuers. The guarantee bore to be given in respect of the obligations of James Black under a loan account, the initial amount of which was stated as £150,000, but contained a provision that the grantor's liability was limited to £50,000 plus interest. The conditions of the guarantee, which are lengthy, are set out in twenty three clauses. On the last page of the document, after the final numbered clause which deals with governing law, the document contains the following passage: “IMPORTANT - YOU SHOULD READ THIS CAREFULLY. YOUR RIGHTS The Consumer Credit Act 1974 covers this guarantee and indemnity and lays down certain requirements for your protection. If they are not carried out the bank cannot enforce the guarantee and indemnity against you without a court order. Until the agreement between the bank and the debtor has been made, you can change your mind about giving the guarantee and indemnity. If you wish to withdraw, you must give WRITTEN notice to the bank which must reach it BEFORE the main agreement is made. Once it has been made you can no longer change your mind. Under this guarantee and indemnity YOU MAY HAVE TO PAY INSTEAD of the debtor and fulfil any other obligations under the guarantee and indemnity. (But you cannot be made to pay more than he could have been made to pay unless he is under 18.) However, if the debtor fails to keep to his side of the agreement the bank must send him a default notice (and a copy to you) giving him a chance to put things right before any claim is made on you. If you would like to know more about your rights under the Act you should contact either your local Trading Standards Department or your nearest Citizen's Advice Bureau. You should take independent legal advice before signing this guarantee and indemnity. The maximum which you may be required to pay is limited to the sums referred to at the beginning of this document. ACKNOWLEDGEMENT I/we acknowledge that, when this guarantee was presented or sent for the purpose of being signed by or on behalf of me/us there was also presented or sent one copy of this guarantee each for me/us to keep.”
[4] There is then a section, which is given emphasis by being enclosed in a box, which contains the following words: “This is a guarantee and indemnity subject to the Consumer Credit Act 1974. If the debtor fails to keep to his agreement with the bank YOU MAY HAVE TO PAY INSTEAD and fulfil any other obligations under the guarantee and indemnity. Sign only if you want to be legally bound by its terms.”
[5] The signature of the defender was placed on the document within the box immediately after the passage of text last quoted above. The document bears to have been signed on 8 November 1996 at Clyde Holme Road in the presence of two witnesses, Thomas Rooney, described as a motor mechanic of 45 Monks Road, Airdrie and R Taylor, an office manageress of 105 West Clyde Street, Helensburgh.
[6] On 14 November 1996, a firm of solicitors instructed on behalf of the defender wrote to a firm acting for the pursuers in connection with the standard security. Further correspondence followed, including a letter dated 22 November 1996 in which the defender's solicitors stated that they were sending the draft standard security back approved and asked to receive the engrossed deed for signature as soon as possible. On 22 November 1996, the solicitors acting for the pursuers wrote to Mr and Mrs Black stating, inter alia that they had been asked by the defender's solicitors to forward the standard security to be signed by them in favour of the bank. The letter contained instructions about signature and also stated: “You should contact your solicitors to discuss the legal implications of signing this document prior to doing so. We wish to make it clear that we are acting solely on the bank's behalf in this matter and can give you no advice as to whether indeed you should sign this document. We understand that your solicitors wish you to return the document to them as soon as it is signed.”
[7] The copy letter produced bears to be directed to James GW Black, Esq, with the words “to be uplifted”. The standard security itself bears to have been signed by...
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