Wife receiving independent legal advice prior to signing loan facility agreement secured by property – Wife claiming undue influence – Whether wife’s opportunity to receive independent advice sufficient to rebut constructive notice of undue influence – Judge dismissing bank’s claim for possession – Appeal allowed
In 1987 the respondent (W) purchased 15 Moorland Gate, Christchurch Road, Ringwood (the property) for £120,000. Her husband (H) held no interest in the property. In August 1989 H and his son (S), entered into a joint venture through a company called Ventlute Ltd. S was already involved in a company called Perfectbuy Ltd. To fund their new venture, H and S sought an overdraft facility of £225,000. H asked W to offer the property as security for a loan of £10,000 for Ventlute Ltd. W agreed. The bank however, required an all moneys charge over the property and S’s home, which it offered by way of a facility letter, sent in September 1989, to be countersigned by H, S and W. The letter provided for an overdraft of £225,000 for Perfectbuy Ltd and £10,000 for Ventlute Ltd.
The bank, appreciating that W held no interest in either company, wrote to her solicitor, enclosing the legal charge and requesting that independent legal advice be offered to W before she signed the document. Subsequently, H and W attended a meeting with the solicitor, who explained both the nature of the legal charge and the fact that it was to be unlimited, up to the value of the property. The facility letter was signed and returned to the bank, although the respondent claimed that she had signed the document thinking that her property was at risk to the extent of £10,000. The solicitor informed the bank that it had given independent legal advice to W and, in October 1989, the bank made the overdraft facility available.
In due course, repayments were not made and, in 1993, the bank commenced proceedings against W for possession. W asserted that she had signed the legal charge as a result of H’s misrepresentation and/or undue influence, of which the bank was fixed with constructive notice. The judge held, inter alia, that the bank had constructive notice of undue influence that had been exercised over W, and that the case was so exceptional that the bank was not entitled to assume that the solicitor had advised her properly. Accordingly, he held that the bank had not discharged the presumption of the constructive notice and that its claim was to be dismissed. The bank appealed.
Held: The appeal was allowed.
The judge had been entitled to conclude that W had signed the charge under H’s undue influence. Accordingly, the bank was to be regarded as having had constructive notice of the respondent’s equity, subject to not having taken sufficient steps to rebut the presumption. This was a fairly commonplace situation, in which a wife was using a property to secure a business venture being undertaken by her husband. The exception to the general rule that a lender relieved itself of constructive notice by instructing a solicitor to give a wife independent legal advice, only arose where no competent solicitor would advise the wife to enter into the transaction. That was not so in the instant case and, accordingly, the appeal was to be allowed. Royal Bank of Scotland plc v Etridge (No 2) and other appeals [1998] 4 All ER 705, applied.
John Jarvis QC and Richard Brent (instructed by Salans Hertzfeld & Heilbronn) appeared for the appellant; Geraldine Andrews (instructed by Steele Raymond, of Bournemouth) appeared for the respondent.
Thomas Elliott, barrister
