Husband and wife charging home to support guarantee to Lloyd’s – Husband replacing guarantee and increasing amount guaranteed – Wife receiving no legal advice about increase in charge – Whether wife induced by undue influence to enter into charge – Whether charge enforceable against wife – Whether wife entitled to recover money proceeds paid to Lloyd’s – Judgment for the plaintiff
In 1986 the plaintiff and her husband, D, purchased a property on the Isle of Wight. D was an underwriting member of Lloyd’s and a charge was created on the property to support a guarantee of £125,000 given to Lloyd’s by the Manufactures Hanover Trust (‘MHT’) in respect of D’s potential liabilities to Lloyd’s. The charge was subsequently increased to £150,000. In 1989 D decided to replace the MHT guarantee with the defendant’s endowment linked guarantee scheme. The defendant sent to D’s solicitor a letter enclosing a form of legal charge and of undertaking for execution. The charge was to be for £225,000. The solicitor was not aware of the increase in the sum to be guaranteed and in the belief that the charge in favour of the defendant was only substituting the MHT charge he did not give the plaintiff any advice in relation to the transaction. The plaintiff signed the charge at home, unwitnessed and the transaction was duly completed. In 1992 the marriage broke down and there was considerable pressure on the plaintiff and D to sell. The plaintiff issued proceedings and claimed that her husband had procured her signature by undue influence and that the defendant had constructive notice thereof and she sought a declaration that the charge in favour of the defendant was not enforceable against her beneficial interest in the property. Under protest the plaintiff agreed to allow the property be sold and for the proceeds of sale to be dealt with as though the charge was effective. Of the net proceeds of sale £45,298.25 was paid to the defendant and £180,043 to Lloyd’s in discharge of the guarantee.
Held Judgment was given for the plaintiff.
1. The increase in the charge significantly increased the chance of the plaintiff losing her home and that outweighed any marginal advantages of the defendant’s scheme over the MHT scheme. Therefore the charge was manifestly to the plaintiff’s disadvantage and the presumption of undue influence arose.
2. The defendant had not properly instructed the husband’s solicitor because it had failed to supply him with the knowledge that the new charge supported a guarantee which had been increased by £75,000. Further, the defendant had not taken steps to see that advice was given to the plaintiff, having only sent the form of charge to the solicitor requiring it to be completed and executed. The defendant therefore had constructive notice of the undue influence. (see Barclays Bank plc v O’Brien [1994] 1 AC 180)
3. The defendant had asserted and sought to exercise the right which it did not have, namely to require the plaintiff’s interest in the property to be applied in discharge of the defendant’s charge. The plaintiff was entitled to half that sum which had been paid to Lloyd’s. (see Fraser v Pendlebury (1861) 31(2) LJ PC 1 (distinguished)).
Nicholas O’Brien (instructed by Robinson Jarvis & Rolf, Ryde) appeared for the plaintiff; Gilead Cooper (instructed by the solicitor to Norwich Union Life Insurance Society) appeared for the defendant.
