Davies v Aib Group (UK) Plc
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE NORRIS |
| Judgment Date | 27 July 2012 |
| Neutral Citation | [2012] EWHC 2178 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: HC09C02181 |
| Date | 27 July 2012 |
[2012] EWHC 2178 (Ch)
IN THE HIGH COURT OF JUSTICE CHANCERY DIVISION
Royal Courts of Justice
The Rolls Building
Fetter Lane
EC4A 1NL
Mr Justice Norris
Case No: HC09C02181
Richard Coleman QC (instructed by Judge Sykes Frixou) for the Claimant
Jeremy Cousins QC (instructed by Moran & Co) for the Defendant
Hearing dates: 22, 23, 24, 27, 28, 29 February 2012 & 2, 5, March 2012
(Written submissions 7, 14 and 21 March 2012)
APPROVED JUDGMENT
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
On 15 June 2001 Christine Mary Davies ("the Claimant") signed the acceptance of a facility letter relating to a loan of £1,350,000 to be advanced by the Allied Irish Bank ("AIB") to herself and her husband ("Barry Davies") jointly ("the Personal Loan"). The Personal Loan was for the period of 15 years from first drawdown but subject to periodic review at the discretion of AIB. Barry Davies died on 20 September 2005. In proceedings commenced on 5 January 2010 the Claimant says that she accepted the facility of the Personal Loan because of the undue influence of her late husband. By amendment permitted during the trial she argues in the alternative that for technical reasons she incurred no obligation in respect of the Personal Loan.
The Claim Form alleged and alleges:—
"The Claimant's relationship with her husband was such that she feared abusive treatment if she disagreed with him concerning their financial affairs, which he controlled. Therefore, she did not enter into the Loan Agreements of her own free will, and her consent to them was vitiated by [Barry Davies'] undue influence. The [AIB] did not take reasonable steps to satisfy itself that the Claimant's agreement to the Loan Agreements had been properly obtained and that the Claimant had brought home to her, in a meaningful way, their practical implications and the risks involved."
In her original Particulars of Claim the Claimant simply alleged:—
"[Barry Davies] was liable to be violent if the Claimant did anything to antagonise him. The Claimant feared that he would turn violent if she disagreed with him about financial matters. Consequently the Claimant invariably would sign documentation that [Barry Davies] asked her to sign without raising questions, without applying her own mind to the matter and without exercising her own free will."
Barry Davies was a dealer in Oriental antiques who eventually incorporated his business as Barry Davies Oriental Antiques Ltd ("BDOAL" or "the Company"). In her Re-Amended Particulars of Claim (served immediately before the commencement of the trial) the Claimant enlarged upon this case in the following way (shorn of unnecessary detail):—
"[Barry Davies] was liable to be violent if the Claimant did anything to antagonise him. The Claimant feared that he would turn violent if she disagreed with him about financial matters. Further, the Claimant placed trust and confidence in [Barry Davies], who was a chartered accountant, in respect of the management of the family finances. [Barry Davies] did not keep the Claimant fully informed about the family finances. Consequently the Claimant sometimes would sign documentation that [Barry Davies] asked her to sign without raising, and receiving proper answers to, all questions necessary to obtain a proper understanding of what she was signing, without fully applying her own mind to the matter and without fully exercising her own free will. Such was the case with all documents confirming her agreement to the Personal Loan Agreements … At all material times the Claimant's understanding was that the Personal Loan Agreements and the loan advanced thereunder concerned lending by [the AIB] for the purposes of BDOAL, and that it was in respect of that lending that she was subject to liability under the Guarantee… of ….up to £1.45 million … The Claimant did not appreciate at any material time that (1) in addition to the sum of £1.35 million advanced jointly to [Barry Davies] and her under the Personal Loan Agreement for the purposes of restructuring BDOAL's finances [AIB] also lent or would be lending £1.38 million to BDOAL under the BDOAL Loan Agreement (2) the amount of the liabilities that she undertook to [AIB] by entering into the Guarantee and the Personal Loan Agreement was not, as she thought, £1.45 million (the amount of the Claimant's liability under the Guarantee) but £2.8 million (the amount of the liability under the Guarantee plus the amount of the liability under the Personal Loan Agreement)……"
The claim that the Personal Loan is vitiated by the undue influence of Barry Davis is clearly carefully thought out. The Claimant does not say that the facility letter that she signed was radically different in nature from the document that she thought it was: she advances no case of non est factum. The Claimant does not say that she was given misleading or inaccurate information about the contents of the facility letter: she advances no case of misrepresentation. The Claimant does not say that she was subject to some specific act of improper pressure or coercion: she advances no case of duress in equity. She says that she did not fully apply her own mind to the matter of the Personal Loan and that she was afraid to ask questions about the document for fear of abusive violence. She says she signed the Personal Loan in ignorance of the fact that the Guarantee which she also signed related to separate and concurrent lending to BDOAL.
A case of this sort was first advanced in solicitors' correspondence in June 2006, when the Claimant's then solicitors wrote
"She had previously only believed her liability as far as borrowing was used for the Company was concerned, was limited to her personal guarantee of the Company's borrowings. Our client does not recall two separate borrowings that appear to have taken place in June 2001, in relation to which … there appears to have been no logical explanation. We are therefore concerned as to whether our client was deliberately misled by her late husband into believing there was only one borrowing in relation to the finances of the Company".
The question is whether that case (described in opening as "a deeply held conviction") has been made out and, if made out, whether it entitles her to have the Personal Loan set aside and her apparent liability to AIB (in the sum of £940,000 already paid and in respect of the unpaid outstanding balance of £100,340) set aside.
Much of the evidence and argument in this case was concerned with the Claimant's understanding of the family's financial obligations to AIB, and with the steps which AIB took to ensure that the Claimant entered into the Personal Loan freely and in knowledge of the true facts. But that is not the true focus of an application to set aside a transaction upon the ground of undue influence. As it was put by Lord Eldon in Hugenin v Baseley (1807) 14 Ves 273 at 300
"The question is not whether she knew what she was doing, had done, or proposed to do, but how the intention was produced"
People are perfectly entitled to enter into financial transactions without fully understanding them if that is their free choice. The doctrine does not protect against folly, but against victimisation. Likewise, any shortcomings in the processes and procedures of AIB may well create the opportunity for undue influence to be exercised and to go undiscovered. But it is not sufficient for the opportunity to be established. It must be proved that the opportunity was taken. As it was put in Daniel v Drew [2005] EWCA Civ 507 at [36] per Ward LJ:—
"… in all cases of undue influence the critical question is whether or not the persuasion or the advice, in other words the influence, has invaded the free volition of the donor to accept or reject the persuasion or advice or to withstand the influence. The donor may be led but she must not be driven and her will must be the offspring of her own volition, not a record of somebody else's. There is no undue influence unless the donor if she were free and informed could say "This is not my wish but I must do it…."
In the instant case the Claimant accepts that the burden lies upon her to prove undue influence without the benefit of any presumption. The provision of the Guarantee (and of security to support it) has not been the subject of any challenge. As to the Personal Loan, it is accepted by Mr Coleman QC (as he became during the course of the trial) that the entry of a joint loan obligation is the sort of transaction which husbands and wives frequently enter into, and that there are good and sufficient reasons why wives are willing to do so, despite the risks involved for themselves and their families: see Royal Bank of Scotland v Etridge [2002] 2 AC 773 [28] – [30].
What is it that the Claimant must establish? The answer is: some legal or equitable wrong committed by Barry Davies which caused the Claimant to enter the Personal Loan. The identification of the legal or equitable wrong must, of course, take into account the context of the relationship of trust and confidence which commonly subsists between a married couple. The high degree of trust and confidence and emotional interdependence which normally characterises the marriage relationship does provide scope for abuse: and the law recognises this reality. But it also acknowledges that "undue influence" has a connotation of impropriety. Statements or conduct by a husband which do not pass beyond the bounds of what may be expected of a reasonable husband in the circumstances should not, without more, be castigated as undue influence. See generally Etridge (supra) at [32] and [36]. As was said by David Richards...
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