Royal Bank of Scotland plc Etridge (No 2): Barclays Bank plc Harris: Midland Bank plc Wallace: National Westminster Bank plc Gill: Barclays Bank plc Coleman: UCB Home Loans Corporation Ltd Moore: Bank of Scotland Bennett: Kenyon-Brown Desmond Bankes & Co, HL 11/10/2001
These were appeals in eight cases, all arising in circumstances where a wife had charged her interest in her home as security for her husband's indebtedness. The court took the opportunity to set out guidelines that will have lasting implications both for banks and solicitors dealing with undue influence cases.
In Barclays Bank O'Brien (1993) the House of Lords held that a bank was put on inquiry of undue influence whenever a wife offered to stand security for her husband's debts. The House of Lords has now extended this to regard a bank as put on inquiry in every case where the relationship between the surety and the debtor is non-commercial. Once the bank is on notice, it has to alert the wife to the risk of the proposed transaction by asking her to a private meeting where she will be warned of the risk she is taking and urged to take independent legal advice. In exceptional cases the bank would have to insist the wife was separately advised. Lord Nicholls set out that the minimum requirements for that legal advice should be a face-to-face meeting in the absence of her husband and in non-technical language. The points to be covered include: the amount and terms of the loan; the amount of the husband's indebtedness; her financial means; letting the wife know she has a choice; and confirming that the solicitor can give confirmation of the conversation to the bank.
The bank should not proceed with the transaction until it has received confirmation from the wife. If the above steps are taken it will be difficult to show undue influence because the bank will be able to show that it has taken reasonable steps to avoid it.
Richard Mawrey QC of 2 Harcourt Buildings (Roger Henderson QC) and Simon Wheatley of 7 Bedford Row instructed by Collins for Etridge. Michael Briggs QC of Serle Court and Amanda Harington of 24 Old Buildings (Martin Mann QC and Alan Steinfeld QC) instructed by Fladgate Fielder for the Royal Bank of Scotland. Jules Sher QC of Wilberforce Chambers and Stephen Whitaker of 5 Fountain Court (Birmingham) instructed by Evans Derry Binnion for Harris. David Wolfson of One Essex Court instructed by Rowe & Maw for Barclays Bank. Jules Sher QC (as above) and Mark Lyne of 5 Paper Buildings (Richard King) instructed by Keppe Shaw for Wallace. Michael Briggs QC (as above) and Clive Jones of New Square Chambers instructed by Tarlo Lyons for Midland Bank. Jules Sher QC (as above) and Teresa Rosen Peacock of 3 Stone Buildings instructed by Bournemouth firm Baxter & Co for Gill. Michael Lerego QC of Fountain Court and Nicholas Briggs of Guildhall Chambers (Bristol) instructed by Osborne Clarke for National Westminster Bank. Jules Sher QC (as above) and Helene Pines Richman of 9 Stone Buildings instructed by Waller & Co for Coleman. John Jarvis QC of 3 Verulam Buildings and David Wolfson (as above) instructed by Nicholas Graham & Jones for Barclays Bank. Jules Sher QC (as above) and Bernard Devlin instructed by Richard Wilson & Co for Moore. Michael Briggs QC (as above) and Christopher Coney of 4 Paper Buildings (Lionel Swift QC) instructed by Copley Clark & Bennett for UCB Home Loans Corporation. Nicholas Yell of No 1 Serjeants' Inn instructed by Trevor Jenkin & Co for Bennett. John Jarvis QC (as above) instructed by Underwood & Co for Bank of Scotland. Jonathan Sumption QC of Brick Court Chambers and Ben Hubble of Four New Square instructed by Henmans for Desmond Banks & Co. Julia Smith of Gough Square Chambers instructed by Neilson & Co for Kenyon-Brown.
Farley Skinner (No 2), HL 11/10/2001
The House of Lords considered the position of a house buyer who was planning to purchase a property 15 miles from Gatwick Airport. The buyer had employed a surveyor to advise on whether the property was adversely affected by noise from aircraft. The surveyor negligently failed to ascertain that the property was close to a navigation beacon, over which aircraft would circle when the airport was busy.
The judge at first instance, following Watts & anor Morrow (1991), awarded the purchaser £10,000 for the distress and inconvenience of living in property adversely affected by aircraft noise. The majority of the Court of Appeal, following Knott & anor Bolton & ors (1995), held that the case did not fall within the exception in Watts, and set the award aside.
The House of Lords stated that the claim in this case was for breach of a specific undertaking important for the buyer's peace of mind. Watts was a case where a surveyor had negligently failed to discover defects in a property. There was no reason why the scope of recovery in the exceptional category within Watts should depend on the 'very object' of the contract as ascertained from its constituent parts. It was sufficient if an important part of the contract was to give peace of mind, to that extent Knott should be regarded as wrongly decided. The award of £10,000 was reinstated.
Atley Wright Yvonne Fay Johnson, CA 24/10/2001 Extempore
In this case a couple bought a property with a mortgage in 1966, which was registered jointly in their names. Five years later their relationship broke down and one of them moved out. The other one went to the US five years after that, but continued to send money to discharge the mortgage. In 1992, the mortgage was paid off, and in 1995 a dispute arose about whether the property should be sold.
The Court of Appeal upheld the court of first instance decision that the property should be sold. Having considered the factual evidence, the Court of Appeal felt it was unlikely that the party who went to the US would have intended to sign over his beneficial interest either verbally or in writing. Therefore, he would be entitled to his share in the proceeds of sale and the proceeds should be divided between the parties in equal shares, though as the party that went to the US had continued to pay the mortgage that should be taken into account and his share increased accordingly.
Colin Wright of 4 Field Court instructed by A Marcou & Co for the claimant. Johnson appeared in person.
JJ Harrison (Properties) Ltd James Peter Harrison, CA 11/10/2001
The Court of Appeal held that directors who disposed of a company's property in breach of their fiduciary duties were to be treated as having committed a breach of trust, and so were to be treated as constructive trustees of any property that came into their hands. The claim by the company was “an action to recover from the trustee property or the proceeds of property… previously received by the trustee and converted to his use”. Therefore, pursuant to Section 21(1)(b) Limitation Act 1980, there was no limitation period in respect of that action.
Robin Hollington QC of New Square Chambers instructed by Hammond Suddards Edge for the defendant. Anthony Mann QC of Enterprise Chambers and Christopher Parker of Maitland Chambers instructed by Herbert Smith for the company.