National Westminster Bank plc v Amin and another

Parents mortgaging home to secure son’s loan – Bank seeking to realise security – Wife claiming undue influence – Whether lender took reasonable steps to ensure agreement of wife to postpone her interest in property was properly obtained – Whether lender having constructive notice of undue influence – Application to strike out wife’s defence and counterclaim dismissed – Appeal allowed The defendant and her husband were muslims who arrived in England from Uganda after being forced to leave by President Amin in 1972. Their children were brought up in the UK. In 1980 they bought a property for £18,000 from Birmingham City Council and were registered as joint proprietors. In 1988 one of their sons, a qualified civil engineer, sought a loan of £30,000 from the plaintiff bank for purchasing machinery. He offered to provide security in the form of an assignment of interest of a life policy and by his parents executing a mortgage over their house. On August September 26 1988 the bank’s solicitor wrote to the son’s solicitor requiring a legal charge over the house to be executed. The son’s solicitors replied by a letter dated December 2 1988 that read: “I refer to your letter of 26 August and enclose the executed legal mortgage. I confirm that I have explained terms and conditions to [the defendant and her husband].” Subsequently, the son defaulted on the mortgage and the bank brought proceedings against the defendant whose husband had died shortly before. She served a defence and counterclaim denying any liability to the bank and claiming undue influence, exercised by son against her and her husband, of which the bank had constructive notice. The bank sought possession of the property. The plaintiff applied for the defence and counterclaim to be struck out as disclosing no reasonable defence. The decision of a district judge to dismiss the application was affirmed by a judge. The bank appealed relying on the subsequent decision of Royal Bank of Scotland v Etridge[1998] PLSCS 239. The defendant contended that the bank had not taken reasonable steps to ensure that she was properly advised about the legal charge, bearing in mind, inter alia, that she neither spoke nor read English. Held The appeal was allowed. 1. The decision in Royal Bank of Scotland v Etridge [1998] PLSCS 239 was intended to provide clear guidance on how to deal with cases where the issue was whether the lender had constructive notice of undue influence said to be exerted between husband and wife, or as between other relationships such as between child and parents. 2. Where a lender sought to enforce his rights over a security, the question of whether or not the lender had constructive notice of undue influence depended on how it appeared to the lender when it entered into the transaction. It was highly undesirable that the validity of a transaction should depend on the wording of a letter from a qualified solicitor. In fact the certificate signed by the son’s solicitor on September 1988 could not have been clearer and it conformed to the bank’s requirements that the terms and conditions of the legal charge had been explained. The bank had not been obliged to make further inquiries as to whether the defendant and her husband had understood the implication of the charge. Accordingly, the judge should have struck out the defence and counterclaim as showing no reasonable prospect of success. Anthony Cottle (instructed by Reston’s, of Warrington) appeared for the plaintiff; Paul Diamond (instructed by Bhomra & Co, of Birmingham) appeared for the defendant. Thomas Elliott, barrister