Used as an opportunity to tackle the principles surrounding surety for a partners borrowing against a risk of property repossession, this House of Lords appeal took the opportunity to address Royal Bank of Scotland plc v Etridge (No.2), Barclays Bank plc v Harris, Midland Bank plc v Wallace, National Westminster Bank plc v Gill, UCB Home Loans Corporation Ltd v Moore, Barclays Bank plc v Coleman, Bank of Scotland v Bennett and Kenyon-Brown v Desmond Banks & Co; all of which, were at various stages of litigation.
In these instances, the wives of husbands both acting as individuals and owners of their businesses, offered themselves as surety for loans that notwithstanding payment, placed the wives’ interest in the matrimonial home in the hands of the lenders upon default.
As had become a feature of the courts, it had become common for those co-signatories to deny knowledge of that risk, and claim they were unduly influenced into signing, either through withholding of information, or misrepresentation by the husbands; whereupon recovery of funds through property repossession became almost impossible for the lenders in the absence of overwhelming evidence to the contrary.
Legal precedent for the requisite principles needed to secure repossession, are found in Barclays Bank plc v O’Brien; in which, it was stated that the bank or lender, is held accountable for disclosure to the co-signing party when (i) the wife is signing despite no financial gain on her part and (ii) the manner in which the husband has induced the wife’s assistance represents an inequitably wilful act that enables the wife to withdraw her acquiescence if needed.
Having taken this process a stage further, the House of Lords expressed that in such circumstances, the banks or lenders were to insist upon privately held meetings with just the wife; and that a full and comprehensive disclosure of her liabilities were to be explained by a representative of the bank before strongly advising her to seek independent legal advice prior to signing; whereas previous cases (including those below) allowed the lenders to rely upon mere solicitor referral, whose written confirmation of an explanation was sufficient enough to support a possession order.
Royal Bank of Scotland v Etridge (No.2)
Unlike the following cases, the wife’s claim of undue influence in similar circumstances, fell foul of insubstantial evidence and was dismissed both in the first hearing and in the Court of Appeal.
Having approached the claim under both ‘actual’ and ‘presumed’ undue influence, it was ultimately judged in favour of the bank, but not before caution was raised when attempting to exploit legal principles with questionable evidence.
Despite this outcome, the matter was presented to the House of Lords in the hope of preventable repossession, whereupon the appeal was unanimously dismissed.
Barclays Bank plc v Harris
In this matter, the wife again stood as surety for her husband’s company, however, the solicitor involved was not appointed by her, but did enjoy a close relationship with her husband.
Unaware as to the liabilities of her signing, the wife argued that she had been unduly influenced by her partner to sign the agreement; while the bank itself had never obtained written confirmation from the solicitors that they had fully explained the legal ramifications of her actions, yet were aware that the solicitors felt they had not provided clear enough instruction as to her responsibilities.
Having been heard as an interlocutory appeal, the bank had been supported, despite stark evidence to the contrary, and was now before the House of Lords for final judgment, where the appeal was unanimously upheld and the case referred for full trial.
Midland Bank plc v Wallace
In this interlocutory appeal, the lender was put on inquiry after the wife of the borrower stood as surety for her husbands debts, whereupon a solicitor was required to provide independent legal advice as to her liabilities, prior to her signing the document.
Under agreed legal principles, a solicitor must be appointed by the wife, or her husband, and act accordingly in order to remain party to the outcome of the agreement should the need arise.
Here, it transpired that the solicitor had acted alone, therefore the bank had a right to damages for breach of implied warranty of authority against the solicitor, but not the wife.
However, the Court of Appeal awarded in favour of the bank, thus being again challenged by the wife on grounds of undue influence, where the House upheld the appeal and referred the case for full trial.
National Westminster Bank plc v Gill
What began as a possible argument for misrepresentation, ended up failing under a claim of ‘actual’ undue influence, when the wife standing surety to a £36,000 loan was actually party to an advance of around £100,000, but one that demonstrated her approval and acquiescence.
This became fatal to her allegation, and thus was brought before the House of Lords, who again unanimously dismissed the appeal.
UCB Home Loans Corporation Ltd v Moore
Varying slightly, this interlocutory matter concerned the actions of both an insurance company and husband, that culminated in the bank agreeing to the loan, despite failing to check and receive confirmation that the signing wife had been made aware of her legal encumbrance.
Having induced his wife to sign the agreement through fraudulent means, the husband’s acting insurance broker never once communicated with the wife, while the lenders and the solicitors, equally failed to instruct or advise her accordingly.
At the point of this appeal, the House ruled that to establish full accountability, the case was required to go to trial.
Barclays Bank plc v Coleman
When a husband and wife who were both members of the Hassidic Jewish community, signed an agreement for monies secured to purchase property, the wife again acted as surety for the loan, despite a lack of knowledge as to the fullness of her legal obligation.
When heard at trial, she claimed that an elderly solicitor had been acting for her, but had failed to fully explain her liabilities as legally required.
However, when suing for breach of duty, it was established that the gentleman had since died, and so no proceedings on her part could be brought; but other issues remained in contention at the point of this appeal, which despite a degree of reservation, was wholly dismissed.
Bank of Scotland v Bennett
For loans secured against the survival of his company, a husband had again, coerced his wife into signing as surety for a substantial amount before the unavoidable collapse of the firm.
Having challenged the validity of the order for repossession, the wife argued that she had been victim to undue influence on the part of her husband, and that the bank had due notice of such impropriety.
The trial judge found in her favour before the Court of Appeal again upheld her claim, hence the final appeal by the bank in the House of Lords, who uniformly upheld the argument taken by the bank.
Kenyon-Brown v Desmond Banks & Co
On this occasion, the wife claimed undue influence in that she had reluctantly agreed to sign as surety for her husband’s debts at his suggestion, yet unaware that their jointly-owned home was at risk.
The wife also argued that she had received no prior legal advice from their acting solicitor, whereupon the solicitor provided legal certification to the bank claiming such advice had been given.
Unable to provide sufficient evidence at the Court of Appeal, the solicitor’s contention was then presented to the House of Lords, who upheld their appeal in full, while reminding the parties that:
“Banks and other lenders who take charges from surety wives are certainly purchasers of property rights. But they acquire their rights by grant from the surety wives themselves.”