UCB Corporate Services Ltd v Williams and others

Legal charge — Validity — Undue influence — Appellant executing charge over family home to secure indebtedness of husband’s business — Solicitor retained by appellant and husband witnessing signatures — Judge finding undue influence but charge still valid — Whether relevant to show that appellant would have signed anyway — Whether respondent entitled to assume transaction explained to appellant by solicitor — Appeal allowedThe appellant, C, was married to W, who was a partner in a garage business. The family home was subject to two charges in favour of NatWest, the first being a mortgage taken out to buy the property and the second securing all the liabilities of the partnership. In 1991, the partnership planned to extend its showroom in order to retain a franchise that it was in danger of losing. The respondent, UCB, offered to advance the necessary funds, the loan to be secured by a second charge, replacing that of NatWest, over properties owned by the partnership and over C and W’s home. Following brief advice from a solicitor, H, who was retained by W and C to witness their signatures, C signed the charge. The debt to NatWest under the second charge was paid off, and the remainder of the funds applied to the partnership. After running into severe financial difficulties, the partnership was dissolved and the partners were subsequently made bankrupt. In proceedings by UCB to enforce the charge, C contended that it was void, since her signature had been procured by undue influence and misrepresentation by her husband, of which UCB had had constructive knowledge. UCB submitted, inter alia, that even if the charge were void, C was still liable because UCB was subrogated to the rights of NatWest under the earlier charge. The judge found that there had been actual misrepresentation and undue influence by W. However, he held that the charge was none the less valid, since, on the evidence, C would still have signed the charge had she known all the relevant facts and been allowed to exercise her free will. He further considered that UCB had been entitled to assume, given that C had been represented by her own solicitor, that she would be properly advised, even though the solicitor acted for both borrowers. C appealed. Held: The appeal was allowed. 1. The judge’s finding that C’s signature had been procured by equitable fraud on the part of W, in terms both of undue influence and misrepresentation, was sufficient to found a right to set aside the charge as against W. C’s equity was based upon her having been deprived of the opportunity to make a choice, and W could not escape the consequences of his fraud by establishing that C would have acted in the same way had there been no fraud: CIBC Mortgages plc v Pitt [1994] 1 AC 200; [1993] EGCS 174 applied; Bank of Credit & Commerce International SA v Aboody [1990] 1 QB 923 not followed. Such matters would become relevant only if it were necessary to determine, for instance in a claim for damages, what loss C had suffered: Downs v Chappell [1997] 1 WLR 426 considered; Doyle v Olby (Ironmongers) [1969] 2 QB 158 distinguished. 2. It had been incumbent upon UCB to take reasonable steps to satisfy itself that H had advised C as to the nature and effect of the transaction, and it had taken no such steps: Royal Bank of Scotland v Etridge (No 2) [2001] 3 WLR 1021; [2001] 43 EG 184 (CS) applied. An honest belief on the part of UCB that C had been represented in the transaction by a solicitor was not sufficient, since it could not be assumed that the solicitor’s retainer extended to explaining to his client the nature and effect of the transaction: see Etridge per Lord Scott at para 168. H had not adequately explained the transaction to C, and, UCB, having failed to make any inquiry as to that matter, was fixed with constructive knowledge of C’s right, as against W, to have the charge set aside. Accordingly, it could not enforce that charge. The issue of whether it could claim to be subrogated to the earlier NatWest charge would be remitted to the judge. Geraint Jones QC (instructed by David W Harris & Co, of Pontypridd) appeared for the appellant; James Barker (instructed by Speechly Bircham) appeared for the respondent. Sally Dobson, barrister