Dunbar Bank v Nadeem

JurisdictionEngland & Wales
JudgeLORD JUSTICE MILLETT,LORD JUSTICE MORRITT,LORD JUSTICE POTTER
Judgment Date18 June 1998
Judgment citation (vLex)[1998] EWCA Civ J0618-12
Docket NumberNo CHANF 97/0450/3
CourtCourt of Appeal (Civil Division)
Date18 June 1998
Dunbar Bank Plc
Plaintiff/Respondent
and
Maurice Nadeem
First Defendant
Zubaida Nadeem Second
Defendant/Appellant

[1998] EWCA Civ J0618-12

Before:

Lord Justice Millett

Lord Justice Morritt

Lord Justice Potter

No CHANF 97/0450/3

IN THE SUPREME COURT OF JUDICATURE

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM ORDER OF MR R ENGLEHART QC

Royal Courts of Justice

Strand

London WC2

MR LEOLIN PRICE QC and MR B DEVLIN (Instructed by Messrs Rippon Patel & French of London) appeared on behalf of the Appellant

MR J CHERRYMAN QC and MR J HORAN (Instructed by Nicholson Graham Jones of London) appeared on behalf of the Respondent

LORD JUSTICE MILLETT
1

On 7th November 1996 Mr Robert Englehart QC, sitting as a Deputy High Court Judge of the Chancery Division, made an order that upon the Second Defendant Mrs Zubaida Nadeem paying the sum of £142,791.05 on or before 7th February 1997 to the solicitors to the Plaintiff Dunbar Bank Plc ("the Bank") the legal charge dated 9th May 1991 made between the Bank, Mrs Nadeem and her husband Mr Nadeem (who was the First Defendant) should be set aside as between the Bank and Mrs Nadeem, and the Bank's application for possession of the property 152 Pavilion Road, London SW1 ("the property") should be dismissed. The Deputy Judge also ordered that in default of such payment by the specified date

2

there should be an immediate order for possession of the property, such order not to be enforced before 7th April 1997. The Deputy Judge made no order for costs as between the Bank and Mrs Nadeem

3

but he directed that the Bank should not be entitled as between itself and Mrs Nadeem to add its costs to the security. This direction took effect when, as was foreseeable, Mrs Nadeem was unable to make the payment specified in the order.

4

Both parties are dissatisfied with the order and appeal to this Court. By her appeal Mrs Nadeem contends that the Judge should have made an order setting aside the Legal Charge as between herself and the Bank without imposing any conditions. By its cross-appeal the Bank contends that Mrs Nadeem has not established a case for having the Legal Charge set aside.

5

The facts, which are unusual, can be stated as follows. The property is Mr and Mrs Nadeem's matrimonial home. They have lived there since 1982. Mr Nadeem formerly occupied the property under a lease for a term of 13 3/4 years from 25th March 1983 granted by the Cadogan Estate. He was the sole beneficial owner of the lease; Mrs Nadeem had no beneficial interest in it. By 1990 the lease had only some 3 years unexpired, though Mr Nadeem may have enjoyed security of tenure under the Rent Acts.

6

Mr Nadeem was a solicitor in sole practice. He also carried on business as a property investor. By the end of 1989 he found himself in financial difficulties. The properties which he owned had been acquired with the assistance of bank borrowings, both from the Bank and other secured lenders, and the onset of the recession was causing the value of their security to diminish. By mid-1990 he was having difficulty in meeting payments of interest on his borrowings. He had four loan accounts with the Bank in respect of which the Bank held a number of various properties as security. The total indebtedness on these accounts at the end of 1990 was approximately £1.267m and interest was payable at a rate of some £50,000 a quarter. All the accounts were repayable on demand. Mr Nadeem had also borrowed heavily from other sources, and he was indebted to other banks including National Westminster Bank.

7

At the beginning of 1991 Mr Nadeem was in arrears to the Bank for approximately £32,000 in respect of the interest payable in September 1990 and was unable to pay the £52,000 interest which had fallen due in December 1990. In the meantime, however, he had been offered the opportunity to acquire a longer lease of the property in place of his existing lease for a sum of £210,000. The new lease was to be for a term of 33 years from September 1990. It was valued by independent valuers at £400,000. For the surrender of the remainder of his existing lease, therefore, Mr Nadeem was in a position to acquire an extended lease of his matrimonial home at a price which was roughly £190,000 less than its estimated value.

8

Mr Nadeem saw this as a means of helping to alleviate his financial difficulties. He approached the Bank to provide the finance for the acquisition of the new lease. The Bank was willing to agree in principle to advance £260,000 on the security of the new lease, of which £210,000 would be used to acquire the lease and £50,000 to "regularise" the four existing accounts. The Judge found that what was intended was bridging finance to help Mr Nadeem to make a profit by acquiring a valuable asset. Mr Nadeem had presented his proposition to the Bank as a means by which "his personal [debt] position will be greatly eased", and the Bank contemplated that the loan would be short-term and would swiftly be repaid by a re-mortgage or sale of the property. The short-term nature of the loan was confirmed in a subsequent letter of 3rd February 1992 from the Bank to Mr Nadeem in which the Bank stated:

"The purpose of the facility was to give you some time to have the property re-mortgaged."

9

All negotiations were conducted between Mr Nadeem and the Bank. At first Mrs Nadeem was not involved in the transaction at all. Before the end of 1991, however, Mr Nadeem informed the Bank that Mrs Nadeem was to acquire the new lease jointly with himself. The explanation which Mr Nadeem gave in evidence was that he thought that his wife should have an interest in the property as he himself was "getting on". This did not cause the Bank any concern, save that it required Mrs Nadeem's signature to the documentation. The negotiations continued to be conducted by Mr Nadeem alone.

10

The facility letter is dated 28th February 1991. It was addressed to Mr and Mrs Nadeem and was in the following terms:

"Dear Sir & Madam,

Loan Facility

Following discussions, we confirm that we are pleased to offer you a loan facility of £260,000 (Two Hundred & Sixty Thousand Pounds) or up to 65% of the valuation of the security specified in clause (4) below whichever is the smaller sum on the following terms and conditions:

(1) The purpose of the loan is to provide you with:

(a) £210,000 to enable you to purchase a 32 years lease over [the property] for £210,000. Your existing lease will be surrendered simultaneously on the date of completion.

(b) £50,000 to be used to pay outstanding interest payments on the account of Mr M Nadeem in our books."

11

The remaining terms of the facility letter made it clear that the outstanding balances of the loan were to be repayable forthwith on demand and that –

"The security for the loan will consist of a first legal charge over a [new] lease ….. over [the property]."

12

On 6th March 1991 Mr Nadeem returned the copy of the facility letter duly signed by himself and Mrs Nadeem. The Judge found:

"Although Mrs Nadeem did sign the letter, I have no doubt having heard and observed her giving evidence before me that she merely signed because her husband asked her to do so. She did not read the letter before signing and, if she had read it, she would not have understood it. She always signed all documents dealing with financial matters simply because her husband told her to sign. I doubt very much whether her husband gave her any explanation at all about the matter. At most, she would have understood that the document was something to do with the house."

13

Sometime before completion the Bank learned that National Westminster Plc was proposing to take a second charge over the new lease. The bank's consent was readily forthcoming to this, as the creation of a second charge ranking behind its own would not affect its security. It is unclear when the Bank first learned of the amount of Mr Nadeem's indebtedness to National Westminster Bank Plc. It was in fact some £560,000, but the Judge found that this may not have been known to the Bank until after the completion of its own security. The National Westminster Bank Plc took somewhat greater precautions before taking its security than did the Bank in the present case. It is not contended that Mrs Nadeem could successfully challenge the National Westminster's legal charge.

14

The transaction was completed on 9th May 1991 when the new lease was granted to Mr and Mrs Nadeem and charged by them to the Bank by an all moneys charge in the Bank's standard form. This purported to make each of the mortgagors jointly and severally liable for all moneys and liabilities owed by either of them on any account. On the face of it, therefore, Mrs Nadeem covenanted to be personally liable for and charged her interest with not only the £260,000 advanced to her and her husband to enable the property to be acquired and Mr Nadeem's accounts to be "regularised" but also Mr Nadeem's other liabilities to the Bank which were in excess of £1.267m.

15

The property market continued to decline. Mr Nadeem was unable to make interest payments when they fell due, or to re-mortgage the property, and on 22nd February 1994 the Bank made demand for repayment of the facility by letters addressed separately to Mr and Mrs Nadeem. The Bank demanded payment of the amount of the facility in the sum of £332,379.64, being the amount owed under the facility at the date of the letters. Mr and Mrs Nadeem defaulted. The Bank sought to enforce its legal charge, and Mrs Nadeem counterclaimed to have the legal charge set aside as against her for undue influence.

16

The Judge held:

17

(1) Mrs Nadeem had established a relationship of trust and confidence in her husband. She was...

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