Undue influence – Husband and wife mortgaging holiday cottage – Bank instructed solicitor to advise wife before entering into transaction – Presumption of undue influence – Whether solicitor negligent and in breach of contract in failing to give adequate advice – Claim dismissed – Appeal allowed
The claimant and her husband were married in 1972. After their marriage she continued to work for her husband’s company and became a director and shareholder of the company and its subsidiary. On 7 April 1986 the claimant and her husband purchased a holiday cottage in joint names for £50,000, with the assistance of a £30,000 mortgage from a bank. In December 1987 a controlling interest in the company and its subsidiary was sold. In May 1988 the claimant and her husband moved into a new matrimonial home with the help of a £30,000 mortgage from National Westminster Bank plc (the bank). The defendant solicitor, which had acted on many occasion for the claimant’s husband and his companies, acted for them both in relation to the purchase. In 1989 the claimant’s husband negotiated to repurchase the controlling interest in the companies and borrowed moneys from the bank, secured by a second mortgage over the matrimonial home. Repayments were not made and the bank proposed that a second mortgage was taken out on the holiday cottage. The bank wrote to the defendant asking for confirmation that legal advice had been given to the claimant.
On 12 January 1993 the defendant saw both the claimant and her husband and advised on the second mortgage of the holiday cottage. The defendant recorded that the claimant was “happy to go along with [the mortgage] – doesn’t want me to go into it in detail… appeared to understand it fully and despite the terms of my warning to be totally unconcerned that the mortgage of property jointly owned by her would benefit her husband alone and be without limit”.
Subsequently, the claimant brought an action against the defendant for failure to give her adequate advice. The judge held that it had not been proved that the defendant had been negligent or that, if that claimant had been advised to go to another solicitor, she would have done so. He concluded that she was aware of what she was doing when she entered into the second mortgage, and wanted to do so notwithstanding the defendant’s warning. The claimant appealed.
Held: The appeal was allowed by a majority.
1. The statement of a solicitor’s duties in Royal Bank of Scotland plc v Etridge (No 2) [1998] PLSCS 239 had not gone beyond what had been previously been the law and could have been reasonably anticipated by a legal adviser: see Etridge v Pritchard Englefield unreported 28 April 1999. The court was to accept and apply the passage on independent legal advice at paras 19-26 in Etridge (No 2) (supra), which could not be disregarded in the light of Clark Boyce v Mouat [1994] 1 AC 428, since that case was not concerned with a situation where undue influence existed.
2. The previous long-standing relationship between the defendant and the husband did not mean that there was necessarily a real conflict of interest. The defendant could be regarded as acting in an essentially ministerial capacity in relation to the husband at the meeting on 12 January 1993: see Etridge (No 2).
3. In the circumstances, the defendant was on notice on 12 January 1993 that a relationship of trust and confidence existed between the claimant and her husband and that there might be undue influence within Class 2B as identified in Barclays Bank plc v O’Brien [1994] 1 AC 180. The defendant had assumed the obligation to advise the claimant and he knew that her receipt of legal advice was a precondition to her and the bank’s execution of the mortgage. Therefore, he owed the claimant duties as indicated in para 19 of Etridge (No 2).
4. Although the claimant had expressed disinterest in going into the matter in any detail and appeared totally unconcerned about the warnings the defendant had given, it had not been shown that she had positively refused or would, if it had been offered, have refused advice in the full width indicated as appropriate in Etridge (No 2). The defendant’s advice was very limited in time and scope, and did not begin to address considerations central to the appropriateness of the second mortgage and to the question of whether it was in her best interests, in their widest sense. Therefore, it could be concluded that the defendant had not fulfilled the duty that he owed to the claimant. The matter was to be remitted to the court for further consideration on the issue of causation.
Julia Smith (instructed by Neilson & Co) appeared for the claimant; Ben Hubble (instructed by Henmans, of Oxford) appeared for the defendant.
Thomas Elliott, barrister
