Credit Lyonnais Bank Nederland NV v Burch
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE NOURSE,LORD JUSTICE MILLETT,LORD JUSTICE SWINTON THOMAS |
| Judgment Date | 20 June 1996 |
| Judgment citation (vLex) | [1996] EWCA Civ J0620-3 |
| Docket Number | CCRTF 95/1763/H |
| Court | Court of Appeal (Civil Division) |
| Date | 20 June 1996 |
[1996] EWCA Civ J0620-3
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE WILLESDEN COUNTY COURT
(Mr. Recorder Harrod)
Royal Courts of Justice
Strand, London WC2
Lord Justice Nourse
Lord Justice Millett
and
Lord Justice Swinton Thomas
CCRTF 95/1763/H
MISS K. PURKIS (instructed by Messrs. Blake Lapthorn & Co., Fareham, Hants) appeared on behalf of the Appellant Plaintiff.
MRS. Y. GREEN (instructed by Messrs. Beauchamps, London W1) appeared on behalf of the Respondent Defendant.
Thursday, 20th June 1996
This is a case in which it is sought to set aside a mortgage of residential property given as security for another's debt on the ground that it was procured by the undue influence of the debtor over the mortgagor of which the mortgagee had notice. Thus although the relationship between the debtor and the mortgagor was not that of persons living together but employer and employee, it may broadly be said to fall under Barclays Bank plc v. O'Brien [1994] 1 AC 180. At the same time the terms of the mortgage were so harsh and unconscionable as to make it hardly necessary for a court of equity to rely on that decision as a basis for avoiding the transaction.
It is convenient to start by stating those of the facts, as agreed or found by Mr Recorder Harrod in the court below, which are no longer in dispute. I can do so mainly in the learned recorder's own words. In 1982 the defendant, Helen Burch, then aged 18, began to work for companies controlled by an Italian national called Andrea Pelosi. He was ten years older than she and she trusted him. She knew him to be a successful businessman and visited his substantial house in Gerrards Cross and his large villa in Italy. Her links with him were close. In addition to working for him during the day, she did baby-sitting at his home in the evenings and visited the family at weekends and for holidays in Italy. By the summer of 1990 Miss Burch was working for a company called AP International Travel Ltd. ("API"), which carried on Mr Pelosi's tour operating business. It was a very demanding job and she was deeply involved in it. At that time she had almost no life apart from her work and was often there until 10 o'clock at night.
In 1985 Miss Burch, with the assistance of a mortgage from the Halifax Building Society, had acquired a lease for 125 years from 25th March 1970, at an annual ground rent of £25 rising to £45, of a second floor one-bedroomed flat and garage at 8 Cornerways, Sudbury Court Road, Wembley, Middlesex. In about June 1990, API being in financial difficulties, Mr Pelosi asked Miss Burch to put up her property as collateral security for its overdraft with the plaintiff, Credit Lyonnais Bank Nederland NV ("the Bank"). She agreed to do so.
In evidence before the recorder was an internal memorandum of the Bank from Mr David Herod, the manager of its London office, to Mr D. Jones, in which it was stated that API required a facility of £270,000 as opposed to the £250,000 they were then working to. Mr Herod added that the Bank was offered additional security in the form of a charge on Miss Burch's property, which was valued at £100,000 but was subject to a first mortgage of £30,000.
On 5th July the Bank wrote to Belmont & Lowe, solicitors, informing them that Miss Burch had agreed to grant a second legal charge over the property to secure the borrowing of API and asking them to act for it on its behalf in connection with the transaction. Enclosed with the letter was the Bank's standard form of third party legal mortgage. The letter stated:
"Miss Burch should, of course, be advised to take independent legal advice."
On 9th July Belmont & Lowe replied, accepting the instructions. The recorder thought that they had probably been suggested by Mr Pelosi to the Bank because they had offices in London EC1, close to his own place of business.
Also on 9th July, Mr Martyn Whaley, a partner in Belmont & Lowe, wrote to Miss Burch at 8 Cornerways, informing her that they had been instructed by the Bank in relation to the second legal charge over her home. He said:
"Strictly speaking our instructions are to act for the bank. We must advise you that you should take separate legal advice upon the documentation you will be asked to sign and the underlying reasons behind the request and of course the potential risks you may face. …
Finally although I am acting for the bank I feel I must mention to you the fact that the document that you are being asked to sign is unlimited both in amount and in time. Is this actually what has been agreed?"
On 16th July Mr Whaley telephoned Miss Burch and told her that he was unable to proceed until he received the title deeds from the Halifax Building Society. On the same day he wrote to her, referring to that conversation and his letter of 9th July. He said:
"Could I please ask you to let me have written confirmation that notwithstanding what I have said in my letter of 9th July you still wish to proceed in this matter and that you will be taking separate legal advice on the documentation involved.
I do not want to labour the point but you should be aware that the document you are being asked to sign is unlimited both in time and in amount and there is no provision or agreement so far as I am aware relating to you being released by the bank at any time in the near future.
I look forward to hearing from you."
On 17th July Mr Whaley wrote to Mr Pelosi, asking for £50 on account of search fees as quickly as possible. On 18th July Mr Pelosi replied, enclosing a cheque for £50 as requested. The letter ended:
"I would like to thank you for your kind co-operation, and I would be grateful if you could do your utmost to expedite the completion of this matter."
That letter was typed or printed on headed writing paper showing Mr Pelosi's business address in London EC1.
Also on 18th July, Miss Burch signed a typed or printed letter addressed to Mr Whaley, bearing her own address at 8 Cornerways. Although the recorder made no finding on the point, this letter appears to have been typed or printed on the same instrument as Mr Pelosi's letter of the same date. It reads:
"Thank you for your letter of 16 July, the contents of which I have noted.
With reference to your letter of 9 July, I would like to confirm that I am fully aware of the implication of offering my property as a collateral for the increased overdraft facilities made available by CL Bank Nederland to AP International Travel Ltd. I also understand that such guarantee is unlimited both in time and amount, and I wish to offer such guarantee on this basis.
I further understand from your recent conversation with Mr Pelosi that there is no objections to myself signing the necessary documents prior to the completion of your searches, and to this effect I would be grateful if you could call me on Tel 071 278 5319, to arrange a suitable time for me to come to your office."
The recorder found that Miss Burch had discussed Mr Whaley's letters to her of 9th and 16th July with Mr Pelosi and that he either prepared her reply of 18th July for her or told her the effect of what he wanted her to say.
On Friday 20th July Miss Burch went with Mr Pelosi to Belmont & Lowe's offices nearby and executed the legal charge. On Monday 23rd July Mr Whaley wrote to Miss Burch:
"RE: AP INTERNATIONAL TRAVEL LIMITED.
I refer to our meeting last week. I have now spoken to CL Bank Nederland in relation to the Charge and they have confirmed what I told you and that is to say that the Charge is both unlimited in time and in amount. The Charge is to back a facility granted to AP International Travel Limited which is reviewed yearly."
The transaction was completed on 3rd August, the legal charge being dated accordingly. By 10th August Belmont & Lowe's fees had been duly paid, either by API or by Mr Pelosi himself. On 12th October 1990 Belmont & Lowe wrote to the Halifax Building Society informing them that registration of the legal charge had been completed.
The legal charge, which was executed in the standard form sent by the Bank to Belmont & Lowe on 5th July, was made between Miss Burch as mortgagor of the one part and the Bank as mortgagee of the other part. The obligations assumed by Miss Burch were onerous in the extreme. The first part of clause 2 provides:
"[Miss Burch] HEREBY COVENANTS with the Bank to pay satisfy and discharge to the Bank on demand all such sums of money and liabilities whether certain or contingent which are now or at any time hereafter may be due owing or incurred by [API] to the Bank or for which [API] may be or become liable on any current or other account or in any manner whatever and whether alone or jointly with any other or others in partnership or otherwise and in whatever names style or firm and whether as principal surety or otherwise anywhere upon any account or in respect of bills of exchange cheques notes or other instruments drawn endorsed or accepted by [API] or for any other reason whatsoever together with interest to the date of repayment commission banking charges legal and other costs charges and expenses …"
Clause 3 provides for the Bank's costs, charges and expenses to be charged on the mortgaged property. By clause 4 Miss Burch charged the property by way of legal mortgage with the payment to the Bank of the principal money, liabilities, interest and other moneys thereby covenanted to be paid by her.
API's financial difficulties were not resolved and in due course it went into liquidation. By August 1992 Mr Pelosi's...
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