Mortgage – Enforcement – Undue influence – Appellant persuaded by husband to agree to remortgage of matrimonial home to refinance husband’s debts – Husband having clandestine affair and later obtaining divorce – Respondent mortgagee seeking possession – Whether mortgage enforceable against appellant – Whether vitiated by undue influence of husband – Appeal allowed
The appellant, her husband and their children lived with her mother in a house that had been purchased in the joint names of the three adults. By the end of 2003, the husband had accrued substantial credit card debts and was unable to pay the interest due on them while also discharging the mortgage instalments and other family outgoings. He persuaded the appellant to agree to a charge over the property to secure a loan of £38,000 from the respondent mortgagee, claiming that this was the only way to avoid losing the family home and promising that he would make the repayments. The charge was granted in January 2004. By then, unknown to the appellant, the husband had started an affair. He subsequently left the appellant to live with the other woman and obtained a divorce.
Meanwhile, he lost his job and was made bankrupt. The appellant purchased his beneficial interest in the property for £1 but was unable to maintain the mortgage instalments. In 2008, the respondent brought possession proceedings. By then, the amount owing had risen to £59,624. The appellant contended that she was not bound by the charge because her consent to it had been obtained by undue influence or misrepresentation on the part of her husband. In the county court, the judge found that the respondent was fixed with constructive notice of any such undue influence or misrepresentation but that none could be proved on the facts. He held that although the appellant had faced a difficult choice, it was her decision to participate in the remortgage. He granted a possession order, together with a money judgment of £47,372 by way of enforcing the mortgage.
The appellant appealed. She contended that, inter alia, her husband’s concealment of his affair was a fraudulent misrepresentation, sufficient to justify the setting aside of the transaction, since it was a highly material fact that she needed to know to enable her to make an informed decision on whether to accede to his request.
Held: The appeal was allowed.
A finding of undue influence did not depend, as a necessary prerequisite, on a finding that the victim had not made her own decision or that her will and intention had been overborne. A conscious exercise of will could still be vitiated by undue influence: Drew v Daniel [2005] EWCA Civ 507; [2005] 2 FCR 365 applied. For an obligation of candour and fairness to be owed by the husband, it was necessary to show that the wife reposed trust and confidence in him. Although that usually meant trust and confidence in his conduct of the family’s financial affairs, the requisite trust and confidence could arise in the context of the impugned transaction: Royal Bank of Scotland v Etridge (No 2) [1998] 4 All ER 705 and Thompson v Foy [2009] EWHC 1076 (Ch); [2010] 1 P&CR 16 applied. The obligation of candour and fairness on the part of a husband, when proposing a risky financial transaction to his wife, was not confined to cases where the wife meekly followed her husband’s directions without question. The purpose of the obligation was that the wife should be able to make an informed decision, properly and fairly apprised of the relevant circumstances. In the context of a confidential husband and wife relationship, a distinction could be made between an inadvertent failure to disclose and a deliberate suppression of information: Royal Bank of Scotland plc v Chandra [2010] EWHC 105 (Ch) applied.
The appellant had reposed a sufficient degree of trust and confidence in her husband to give rise to an obligation of candour and fairness. That obligation, in connection with the husband’s request that she charge her interest in the property as security for his debts, called for him to disclose his affair. The appellant’s decision to accede to her husband’s proposal had been made in the hope of saving her family’s home from her husband’s creditors, as the basis for the continuation of a stable family life to which they would both contribute. That decision had been based on an assumption that her husband was as committed as she was to the marriage, to the family and to the preservation of their home life. However, he had already embarked on an affair that could potentially lead to the break up of the family and his withdrawal of emotional and financial support, which was what transpired. Accordingly, the affair was a material fact. The test of materiality was not a hypothetical question of whether disclosure would have affected the appellant’s decision, but involved an objective test best answered by asking whether a solicitor, consulted by the appellant for advice on the wisdom of the transaction, would have thought it relevant to know that her husband was, while asking for her unqualified trust, conducting a clandestine affair. That question could be answered only in the affirmative.
Simon Redmayne (instructed by Hatch Brenner, of Norwich) appeared for the appellant; Jeremy Lightfoot (instructed by Eversheds LLP, of Cardiff) appeared for the respondent.
Sally Dobson, barrister
