Dunbar Bank plc v Nadeem and another

Matrimonial home charged jointly to secure loan – Wife receiving no legal advice – Wife liable as joint mortgagor – Mortgagee seeking to enforce charge – Whether mortgagee taking reasonable steps to satisfy itself wife’s agreement properly obtained – Whether mortgagee having constructive notice of husband’s undue influence The first defendant, a solicitor, invested in properties acquired with the assistance of loans from the plaintiff bank. He was the sole lessee of the matrimonial home which he occupied with his wife, the second defendant. The lease on the property was due to expire at the end of 1996. He began to have problems paying interest instalments on the loans. He informed the bank that he hoped to ease his financial position by surrendering the lease on his home, negotiating a new longer lease and thereby obtaining a more valuable leasehold as security on which to borrow more money. The bank and the first defendant entered negotiations without the second defendant even though she was to be a joint lessee on the proposed new lease. The bank offered a loan facility of £260,000 on the security of a first legal charge over the matrimonial home. It was a term of the facility that £210,000 was to purchase the new lease and £50,000 was to pay outstanding interest owed by the first defendant to the bank. The bank instructed a solicitor to act on its behalf. The solicitor corresponded with the first defendant at his office and subsequently sent to him the charge which was to be executed by the defendants. The bank gave no instruction that the wife should be given separate legal advice. The documents were returned duly signed and purported to have been witnessed by a solicitor known to the first defendant. Subsequently the new lease and the charge in favour of the bank was concluded under which the second defendant, as a joint mortgagor, was liable in respect of any indebtedness to the bank, not only herself, but also for the first defendant. The bank sought to enforce the charge against both defendants. The first defendant did not defend the action. The second defendant claimed that the bank had failed to take reasonable steps to satisfy itself that her agreement had been properly obtained and that it accordingly had constructive notice of the first defendant’s undue influence, and therefore the charge as against her was to be set aside. She also submitted that the solicitor who had signed the charge documents had done so after he had signed them. Held The charge as against the second defendant was set aside. 1. The charge accurately recorded that the second defendant had signed in the presence of a solicitor. There was no evidence that the solicitor was being untruthful. Therefore the charge, as a deed, was valid. 2. Under the terms of the charge the second defendant had become liable for all the first defendant’s debts. Since the relationship between the defendants was one where there was trust and confidence and the transaction was clearly disadvantageous to the second defendant, the presumption of undue influence by the first defendant arose. There was nothing to rebut the presumption: see Barclays Bank plc v O’Brien [1993] EGCS 169. 3. The circumstances as a whole should have put the bank on inquiry. It had failed to take reasonable steps to ascertain whether the second defendant truly appreciated the significance of the charge and therefore it had constructive notice of the undue influence. 4. Accordingly the charge was to be set aside as against the second defendant on her making restitution of what she had received. She was to repay one-half of the £210,000 paid for the lease, not being required to make restitution of the first defendant’s share. John Cherryman QC and John Horan (instructed by Nicholson Graham & Jones) appeared for the bank; Leolin Price QC and Bernard Devlin (instructed by Rippon Pate & French) appeared for the second defendant.