Royal Bank of Scotland Plc v Etridge (No 2); Kenyon-Brown v Desmond Banks & Company (Undue Influence) (No 2); Bank of Scotland v Bennett; UCB Home Loans Corporation Ltd v Moore; National Westminster Bank Plc v Gill; Midland Bank Plc v Wallace; Barclays Bank Plc v Harris; Barclays Bank Plc v Coleman

JurisdictionEngland & Wales
CourtHouse of Lords
JudgeLORD BINGHAM OF CORNHILL,LORD NICHOLLS OF BIRKENHEAD,LORD CLYDE,LORD HOBHOUSE OF WOODBOROUGH,LORD SCOTT OF FOSCOTE,Lord Scarman
Judgment Date11 Oct 2001
Neutral Citation[2001] UKHL 44

[2001] UKHL 44

HOUSE OF LORDS

Lord Bingham of Cornhill

Lord Nicholls of Birkenhead

Lord Clyde Lord Hobhouse of Wood-borough

Lord Scott of Foscote

Barclays Bank PLC
(Respondents)
and
Harris (FC)
(Executor of Beryl IRIS Harris (Deceased) (Appellant)
Midland Bank PLC
(Respondents)
and
Wallace

and Another (AP)

(Appellant)
Royal Bank of Scotland
(Respondents)
and
Etridge
(Appellant)
National Westminster Bank PLC
(Respondents)
and
Gill

and Another (AP)

(Appellant)
UCB Home Loans Corporation Limited
(Respondents)
and
Moore

and Another (AP)

(Appellant) (Conjoined Appeals)
Governor and Company of the Bank of Scotland
(Respondents)
and
Bennett

and Another (AP)

(Appellant)
Kenyon Brown
(Respondent)
and
Desmond Banks & CO
(Appellants)
Barclays Bank PLC
(Respondents)
and
Coleman

and Another (FC)

(Appellant)
LORD BINGHAM OF CORNHILL

My Lords,

1

I have had the great advantage of reading in draft the opinions prepared by each of my noble and learned friends.

2

The transactions which give rise to these appeals are commonplace but of great social and economic importance. It is important that a wife (or anyone in a like position) should not charge her interest in the matrimonial home to secure the borrowing of her husband (or anyone in a like position) without fully understanding the nature and effect of the proposed transaction and that the decision is hers, to agree or not to agree. It is important that lenders should feel able to advance money, in run-of-the-mill cases with no abnormal features, on the security of the wife's interest in the matrimonial home in reasonable confidence that, if appropriate procedures have been followed in obtaining the security, it will be enforceable if the need for enforcement arises. The law must afford both parties a measure of protection. It cannot prescribe a code which will be proof against error, misunderstanding or mishap. But it can indicate minimum requirements which, if met, will reduce the risk of error, misunderstanding or mishap to an acceptable level. The paramount need in this important field is that these minimum requirements should be clear, simple and practically operable.

3

My Lords, in my respectful opinion these minimum requirements are clearly identified in the opinions of my noble and learned friends Lord Nicholls of Birkenhead and Lord Scott of Foscote. If these requirements are met the risk that a wife has been misled by her husband as to the facts of a proposed transaction should be eliminated or virtually so. The risk that a wife has been overborne or coerced by her husband will not be eliminated but will be reduced to a level which makes it proper for the lender to proceed. While the opinions of Lord Nicholls and Lord Scott show some difference of expression and approach, I do not myself discern any significant difference of legal principle applicable to these cases, and I agree with both opinions. But if I am wrong and such differences exist, it is plain that the opinion of Lord Nicholls commands the unqualified support of all members of the House.

4

In agreement with all members of the House, I would allow the appeals of Mrs Wallace, Mrs Bennett and Desmond Banks & Co and dismiss those of Mrs Etridge and Mrs Gill, in each case for the reasons given by Lord Scott. I would allow the appeal of Mrs Harris, bearing in mind that this is an interlocutory case, for the reasons given by Lord Hobhouse of Woodborough. I would allow the appeal of Mrs Moore and dismiss that of Mrs Coleman, in each case for the reasons given by Lord Scott.

LORD NICHOLLS OF BIRKENHEAD

My Lords,

5

Before your Lordships' House are appeals in eight cases. Each case arises out of a transaction in which a wife charged her interest in her home in favour of a bank as security for her husband's indebtedness or the indebtedness of a company through which he carried on business. The wife later asserted she signed the charge under the undue influence of her husband. In Barclays Bank Plc v O'Brien [1994] 1 AC 180 your Lordships enunciated the principles applicable in this type of case. Since then, many cases have come before the courts, testing the implications of the O'Brien decision in a variety of different factual situations. Seven of the present appeals are of this character. In each case the bank sought to enforce the charge signed by the wife. The bank claimed an order for possession of the matrimonial home. The wife raised a defence that the bank was on notice that her concurrence in the transaction had been procured by her husband's undue influence. The eighth appeal concerns a claim by a wife for damages from a solicitor who advised her before she entered into a guarantee obligation of this character.

Undue influence

6

The issues raised by these appeals make it necessary to go back to first principles. Undue influence is one of the grounds of relief developed by the courts of equity as a court of conscience. The objective is to ensure that the influence of one person over another is not abused. In everyday life people constantly seek to influence the decisions of others. They seek to persuade those with whom they are dealing to enter into transactions, whether great or small. The law has set limits to the means properly employable for this purpose. To this end the common law developed a principle of duress. Originally this was narrow in its scope, restricted to the more blatant forms of physical coercion, such as personal violence.

7

Here, as elsewhere in the law, equity supplemented the common law. Equity extended the reach of the law to other unacceptable forms of persuasion. The law will investigate the manner in which the intention to enter into the transaction was secured: 'how the intention was produced', in the oft repeated words of Lord Eldon LC, from as long ago as 1807 ( Huguenin v Baseley 14 Ves 273, 300). If the intention was produced by an unacceptable means, the law will not permit the transaction to stand. The means used is regarded as an exercise of improper or 'undue' influence, and hence unacceptable, whenever the consent thus procured ought not fairly to be treated as the expression of a person's free will. It is impossible to be more precise or definitive. The circumstances in which one person acquires influence over another, and the manner in which influence may be exercised, vary too widely to permit of any more specific criterion.

8

Equity identified broadly two forms of unacceptable conduct. The first comprises overt acts of improper pressure or coercion such as unlawful threats. Today there is much overlap with the principle of duress as this principle has subsequently developed. The second form arises out of a relationship between two persons where one has acquired over another a measure of influence, or ascendancy, of which the ascendant person then takes unfair advantage. An example from the 19th century, when much of this law developed, is a case where an impoverished father prevailed upon his inexperienced children to charge their reversionary interests under their parents' marriage settlement with payment of his mortgage debts: see Bainbrigge v Browne (1881) 18 Ch D 188.

9

In cases of this latter nature the influence one person has over another provides scope for misuse without any specific overt acts of persuasion. The relationship between two individuals may be such that, without more, one of them is disposed to agree a course of action proposed by the other. Typically this occurs when one person places trust in another to look after his affairs and interests, and the latter betrays this trust by preferring his own interests. He abuses the influence he has acquired. In Allcard v Skinner (1887) 36 Ch D 145, a case well known to every law student, Lindley LJ, at p 181, described this class of cases as those in which it was the duty of one party to advise the other or to manage his property for him. In Zamet v Hyman [1961] 1 WLR 1442, 1444-1445 Lord Evershed MR referred to relationships where one party owed the other an obligation of candour and protection.

10

The law has long recognised the need to prevent abuse of influence in these 'relationship' cases despite the absence of evidence of overt acts of persuasive conduct. The types of relationship, such as parent and child, in which this principle falls to be applied cannot be listed exhaustively. Relationships are infinitely various. Sir Guenter Treitel QC has rightly noted that the question is whether one party has reposed sufficient trust and confidence in the other, rather than whether the relationship between the parties belongs to a particular type: see Treitel, The Law of Contract, 10th ed (1999), pp 380-381. For example, the relation of banker and customer will not normally meet this criterion, but exceptionally it may: see National Westminster Bank Plc v Morgan [1985] AC 686, 707-709.

11

Even this test is not comprehensive. The principle is not confined to cases of abuse of trust and confidence. It also includes, for instance, cases where a vulnerable person has been exploited. Indeed, there is no single touchstone for determining whether the principle is applicable. Several expressions have been used in an endeavour to encapsulate the essence: trust and confidence, reliance, dependence or vulnerability on the one hand and ascendancy, domination or control on the other. None of these descriptions is perfect. None is all embracing. Each has its proper place.

12

In CIBC Mortgages Plc v Pitt [1994] 1 AC 200 your Lordships' House decided that in cases of undue influence disadvantage is not a necessary ingredient of the cause of action. It is not essential that the transaction should be disadvantageous to the pressurised or influenced person, either in financial terms or in any other way. However, in the nature of things, questions of undue influence will not...

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