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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> First National Bank Plc v Achampong & Ors [2003] EWCA Civ 487 (31 March 2003) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2003/487.html Cite as: [2003] EWCA Civ 487, [2003] 2 P & CR DG11, [2003] NPC 46, [2004] 1 FCR 18 |
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COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE SHOREDITCH COUNTY COURT
(HIS HONOUR JUDGE COTRAN)
Strand, London, WC2A 2LL |
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B e f o r e :
and
Mr JUSTICE BLACKBURNE
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First National Bank plc |
Appellant |
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- and – |
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(1) Nano Kojo Adjei Achampong (2) Elizabeth Achampong (3) Anthony Owusu-Ansah (4) Lucy Owusu-Ansah |
Respondents |
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Smith Bernal Wordwave Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
Latiff Adenekan (instructed by Messrs S C Pelentrides & Co) for the Respondent
____________________
Crown Copyright ©
Mr Justice Blackburne:
Introduction
"…It is clear from the whole documentation and from the beginning to end of this story that the money was effectively borrowed for the business of Mr Owusu-Ansah and indeed eventually it went into his account in London, having got it via Mr Pallis and the Achampongs, into his account.
Everybody concerned knew this. The bank clearly looked to Mr Owusu-Ansah for the repayments. That is clearly accepted by him because before he went back to Ghana he paid a year in advance (£620 x 12) a cheque for £7,440 in early August and it seems sent that cheque to Mr Anders, the in-house solicitor, who was clearly acting for the bank.
There can be no doubt in my mind that whatever these documents say, everybody concerned, whether it was Mr Pallis or whether it was Mr Berg, whether it was Mr Anders and probably, though it does not matter, Mr Parrott - knew that the bank would look primarily to Mr Owusu-Ansah for repayments."
The issues
The judgment
"The facts all go one way. Mr Berg knew, and he said so in evidence, Mr Parrott knew and Mr Pallis knew that Mr and Mrs Achampong were husband and wife and that the property to be mortgaged to be used as security was their matrimonial home and jointly owned by them. They said so in evidence. It is obvious from the application forms and all the documents. Quite frankly, I do not see how it can be said that in this case the claimants were not put on inquiry. I hold that they clearly were on their own evidence."
"Clearly, it is not sufficient to say - as the bank do say - 'the other side had solicitors, we wash our hands of it'. Nor is it sufficient to say that because there were solicitors acting for the other side they had assumed that they would ask Mrs Achampong and the Achampongs to seek independent legal advice …"
The judge then referred to the steps which Mr Pallis took with regard to advising Mrs Achampong about the effects and consequence of executing a legal charge over the property and concluded, first, that Mr Pallis' role was "purely formal, to check their names and get them [the Achampongs] to come and sign" and, second, that, after the Achampongs had signed the legal charge but before the loan was paid over, there was what the judge described as a "flurry of action" but that this was "simply to indicate to the Achampongs as husband and wife that they should get independent legal advice vis a vis their position with Mr Owusu-Ansah". He said that there was nothing to suggest that Mr Pallis gave independent legal advice to Mrs Achampong or asked her to seek independent legal advice of a kind to bring home to her the risks of mortgaging the property and consequently of losing her home. He then said that "the bank did nothing at all and therefore I must decide that issue in favour of Mrs Achampong".
"I am certainly not prepared to grant the declaration sought by the claimant by reason of section 63 of the Law of Property Act 1925 in this proceeding."
He gave no reasons for this conclusion.
The grounds of appeal
The first ground of appeal
"87. These considerations point forcibly to the conclusion that there is no rational cut-off point, with certain types of relationships being susceptible to the O'Brien principle and others not. Further, if a bank is not to be required to evaluate the extent to which its customer has influence over a proposed guarantor, the only practical way forward is to regard banks as "put on inquiry" in every case where the relationship between the surety and the debtor is non-commercial. The creditor must always take reasonable steps to bring home to the individual guarantor the risks he is running by standing surety. As a measure of protection, this is valuable. But, in all conscience, it is a modest burden for banks and other lenders. It is no more than is reasonably to be expected of a creditor who is taking a guarantee from an individual. If the bank or other creditor does not take these steps, it is deemed to have notice of any claim the guarantor may have that the transaction was procured by undue influence or misrepresentation on the part of the debtor.
88. Different considerations apply where the relationship between the debtor and guarantor is commercial, as where a guarantor is being paid a fee, or a company is guaranteeing the debts of another company in the same group. Those engaged in business can be regarded as capable of looking after themselves and understanding the risks involved in the giving of guarantees."
"78. In the ordinary case, therefore, deficiencies in the advice given are a matter between the wife and her solicitor. The bank is entitled to proceed on the assumption that a solicitor advising the wife has done his job properly. I have already mentioned what is the bank's position if it knows that this is not so, or if it knows facts from which it ought to have realised this is not so."
"80. …In respect of past transactions, the bank will ordinarily be regarded as having discharged its obligations if a solicitor who was acting for the wife in the transaction gave the bank confirmation to the effect that he had brought home to the wife the risks she was running by standing as surety."
Indeed, even when a solicitor, apparently acting for a wife, does give such confirmation to the bank, it may be that the bank is not protected. See for example the features envisaged by Lord Scott in National Westminster Bank v Amin [2002] UKHL 9 at paragraph 24.
"The furthest a bank can be expected to go is to take reasonable steps to satisfy itself that the wife has had brought home to her, in a meaningful way, the practical implications of the proposed transaction."
She referred to the Scottish case of Forsyth v Royal Bank of Scotland plc 2000 SLT 1295 in which it was held that a bank was entitled to infer from the fact that solicitors appeared to be acting for husband and wife in connection with the execution of a security over a jointly owned property to secure an advance in connection with the husband's business that the wife was properly advised as to the nature and consequences of the transaction. She referred also to a passage in the speech of Lord Clyde in Etridge (No 2) in which, after emphasising that the steps to be taken by a bank are essentially matters of banking practice for the banks themselves, that it was undesirable to be prescriptive about such matters and that the practices to be followed were not matters of ritual but sensible steps to secure that the personal and commercial interest of the parties involved were secured with certainty and fairness, Lord Clyde said this:
"95. …necessarily the precise course to be adopted will depend upon the circumstances. In the Scottish case of Forsyth v Royal Bank of Scotland plc 2000 SLT 1295 it appeared to the creditor that the wife had already had the benefit of professional legal advice. In such a case, it may well be that no further steps need be taken by the creditor to safeguard his rights. Of course if the creditor knows or ought to know from the information available to him that the wife has not in fact received the appropriate advice then the transaction my be open to challenge."
"115. Another consequence of using solicitors is the risk of confusion about what the solicitor's role is to be. The solicitor will normally have been instructed by the bank to act for it. The solicitor will often already be acting for the husband. The solicitor may not be acting for the wife at all, let alone separately and independently from the solicitor's other clients. Similarly, the solicitor's instructions may simply be to explain to the signatories the character and legal effect of the documents. This is a low order of advice which can be given solely by reference to the formal documents to be signed. It is also important to appreciate that the solicitor's role may simply be to witness a signature. Such a role involves no necessary relationship whatsoever between the solicitor and the signatory. Indeed they may have or represent conflicting interests. The solicitor may simply have been instructed by one party to see and be prepared to provide evidence that the relevant document was signed and delivered by the other party. Seeing that a solicitor has witnessed a signature itself means nothing. Even when a solicitor is instructed to explain the character and legal effect of a document, he will not without more concern himself at all with the interests of the wife or whether she is accepting the obligations freely and with knowledge of the true facts. Under these circumstances it is scarcely surprising, as the facts of these cases and many others show, that wives are still signing documents as a result of undue influence. The involvement of a solicitor has too often been a formality or merely served to reinforce the husband's wishes and undermine any scope for the wife to exercise an independent judgement whether to comply …"
Lord Hobhouse then went on to consider what steps a bank should take to protect itself. He continued:
Given the state of the authorities since the speeches in O'Brien and Pitt were delivered and the need to provide fresh guidance, I agree that your Lordships should adopt the scheme spelt out by Lord Nicholls. The central feature is that the wife will be put into a proper relationship with a solicitor who is acting for her and accepts appropriate duties towards her. Likewise the bank or the lender must communicate directly with the wife to the end that that relationship is established and that any certificate upon which it may seek to rely is the fruit of such a professional relationship." (emphasis added)
It is true that Lord Hobhouse was there endorsing Lord Nicholls' practical steps for future transactions. But the underlying theme is the need, as Lord Hobhouse put it, for the wife to "be put in a proper relationship with a solicitor who is acting for her and accepts appropriate duties towards her".
"167. In a number of cases a firm of solicitors has been acting for the husband in the transaction with the bank and has acted also for the wife in connection with the grant of the security to the bank. In many cases, the same solicitor acting for the husband and the wife has been asked by the bank to act for it in connection with the completion of the security. A number of questions arise - for instance
(1) Does the fact that, to the knowledge of the bank, a solicitor for is acting for the wife in the security transaction entitle the bank reasonably to believe that the solicitor will have given her an adequate explanation of the nature and effect of the security document she is to sign?
(2) If so, are there, in the ordinary case, ie where there is no special reason for the bank to suspect undue influence or other impropriety, any other steps that the bank ought reasonably to take?
(3) If the answer to question (1) is 'yes' and to question (2) is 'no', does the fact that the solicitor is also the husband's solicitor and is acting for the bank in arranging for completion of the security bar the bank from relying on the solicitor's role in acting for the wife?"
"168. As to question (1), the duty of a solicitor towards his client is, in every case, dependant on the instructions, express or implied, that he has received from his client. A solicitor acting for a client in connection with a proposed transaction under which the client is to become surety or give security for the debts of another will not necessarily have instructions to advise the client about the nature and effect of the transaction. In most cases such instructions, if not express, would, I think, be implied; but it is at least possible that the circumstances of the solicitor's retainer would not require him to give such advice. So, in my opinion, knowledge by a bank that a solicitor is acting for a surety wife does not, without more, justify the bank in assuming that the solicitor's instructions extend to advising her about the nature and effect of the transaction …
171. A bank, proposing to take a security from a surety wife for whom a solicitor is acting, requires, first, confirmation that the solicitor's instructions do extend to advising her about the nature and effect of the transaction. Subject to that confirmation, however, the bank is, in my opinion, entitled reasonably to believe that the solicitor will have advised her on the matters to which I have referred and, accordingly, that she has had an adequate explanation and has an adequate understanding of the transaction. …
174. If the solicitor is acting also for the husband, his role presents a little more difficulty. It is, after all, the existence of the risk of undue influence or misrepresentation by the husband that requires the bank to be reasonably satisfied that the wife understands the nature and effect of the transaction. If there is some particular reason known to the bank for suspecting undue influence or other impropriety by the husband, then in my view, the bank should insist on advice being given to the wife by a solicitor independent of the husband (see Lord Browne-Wilkinson in O'Brien at p197). But in a case in which there is no such particular reason, and the risk is no more than the possibility, present in all surety wife cases, of impropriety by the husband, there is no reason, in my opinion, why the solicitor advising the wife should not also be the husband's solicitor. In the ordinary case, in my opinion, the bank is entitled to rely on the professional competence and propriety of the solicitor in providing proper and adequate advice to the wife notwithstanding that he, the solicitor, is acting also for the husband." (emphasis added)
"305. The Court of Appeal agreed with Judge Holden that Quiney & Harris's knowledge that they had given Mrs Moore no advice about or explanation of the legal charge could not be imputed to UCB. They agreed that there was nothing, in the circumstances, to put UCB on inquiry: per Stuart-Smith LJ: 'It was not necessary for [UCB] to give instructions to the solicitors to do what was already their duty; nor was it necessary to require certification that that has been done.'"
Lord Scott then observed that UCB was or should have been aware of a risk that Mrs Moore's apparent consent to the transaction might be tainted by undue influence or misrepresentation and that it was not to the point that Mrs Moore had never instructed the solicitors since UCB did not know that that was so. Moreover, he said, UCB were entitled to take the mortgage application form, containing Mrs Moore's signature, at its face value. Lord Scott then said this:
"307. But the problem is that UCB did not know what Quiney & Harris's instructions were and had no reason to assume that their instructions extended to giving Mrs Moore advice about the nature and effect of the legal charge. The instructions may have been no more that to agree the form of the security documents and make arrangements for them to be executed. Quiney & Harris gave UCB no indication that they had given Mrs Moore any such advice and in fact they had not done so. In my opinion, therefore, on the evidence as it now stands UCB failed to take reasonable steps to satisfy itself that Mrs Moore understood the nature and effect of the legal charge."
"The lender did not obtain any assurance that the wife had received independent advice before signing. It is the wife's case that she received no advice at all. This is a disturbing case. It may turn out (if there is a trial) that the wife is an unreliable witness and that her case cannot be accepted. But, for present purposes, the lender's case has to depend wholly upon an estoppel arising from her having signed the application form in blank and, it is argued, an inference that she had been separately advised as an independent client by the solicitor. I do not believe that this is sound basis for disposing of this case without a trial. The true facts need to be known. She was the victim of misrepresentation; the solicitors purported to act on her behalf without any authority to do so; the only document which the lender saw did not suggest anything other than a joint retainer; the lender never checked the position with the wife or sought any confirmation that she was being separately advised." (emphasis added)
(Lord Clyde agreed that Mrs Moore's appeal should be allowed but gave no separate reasons for saying so.)
"We refer to your attendance at our offices on 22nd July 1989 when you signed the mortgage deeds in relation to the re-mortgage with First National Bank.
As we advised we have previously written to you on 21st July and we handed a copy of that letter to you when you attended on 22nd July. We feel you should receive independent legal advice on the question of this re-mortgage. This means that you should attend at a solicitors and discuss the documents you have signed.
We would also strongly suggest that it is in your interest to safeguard the monies which we understand you are handing to Mr Owusu by way of the re-mortgage. We will not hand the money to Mr Owusu until we have confirmation that you have considered this letter and decided whether or not you are seeking independent legal advice."
"We refer to our attendance at your office this morning to sign a life policy document and further to your advice to us in respect of the monies which we are handing to Mr Owusu-Ansah as per re- mortgage of the above property.
We sincerely have decided that both have understood every document signed and confirmed freely in handing over the monies to Mr Owusu-Ansah without any prejudice."
"We wish to confirm that the net amount of £50,000 … ie the total amount of £51,5000 less £1500 being administrative expenses due to the bank being borrowed from the First National Bank should be paid to Mr A K Owusu-Ansah."
"I am satisfied that I took all reasonable steps to ensure that Mr and Mrs Achampong knew the consequences of what they were signing and knew the implications thereof. I did see them in person. I did write to them and advise them to enter into a separate agreement with Mr Owusu-Ansah, and if necessary, to take further independent legal advice. I treated them as my clients and Mr Owusu-Ansah as someone who introduced them to me."
The judge did not accept that assertion. Instead he concluded:
"There is nothing to suggest that Mr Pallis gave independent advice to Mrs Achampong or asked her to seek independent legal advice of the kind required to bring home to her the risk of mortgaging the property and consequently losing her home …
In my judgment, she [Mrs Achampong] is quite right in saying in her evidence that what advice she got was simply directed not at the risk of losing her home or of seeing a solicitor to advise her independently or separately from her husband, but simply the consequences of what could happen in a situation where Mr Owusu-Ansah was the primary borrower and the manner in which they should protect themselves."
The second ground of appeal
The third ground of appeal
"Nor am I prepared to make an order of sale under section 14 of the Trusts of Land and Appointment of Trustees Act 1996. It is accepted that the power under section 15 is discretionary. I do not accept for one moment that it is (as submitted by Ms Hayes) 'unfair to the claimant to condemn it to go on waiting for its money with no prospect of recovery from the borrower'.
The fact remains that the bank started these proceedings in 1993 with a debt of some £63,000 which because of their own inaction has allowed it to rise to some £180,000. A sale would deprive Mrs Achampong of her home and the home of her children and grandchildren, with one handicapped child. She has paid some
£13,000 off the original debt when she was threatened with the loss of her home. As for Mr Achampong and Owusu-Ansah, money judgments had been obtained against them, the amounts to be assessed. I have no evidence whatever that there is no prospect of recovering from them.
I therefore refuse to exercise my discretion under section 15 even if I had power to do so …"
"(a) the intentions of the person or persons (if any) who created the trust,
(b) the purposes for which the property subject to the trust is held,
(c) the welfare of any minor who occupies or might reasonably be expected to occupy any land subject to the trust as his home, and
(d) the interests of any secured creditor of any beneficiary."
"31. Prior to the 1996 Act the courts under s30 of the Law of Property Act 1925 would order the sale of a matrimonial home at the request of the trustee in bankruptcy of a spouse or at the request of a creditor chargee of a spouse, considering that the creditors' interest should prevail over that of the other spouse and the spouse's family save in exceptional circumstances. The 1996 Act, by requiring the court to have regard to the particular matters specified in s15, appears to me to have given scope to some change in the court's practice. Nevertheless, a powerful consideration is and ought to be whether the creditor is receiving proper recompense for being kept out of his money, repayment of which is overdue (see Mortgage Corporation Ltd v Lewis Silkin (25 February 2000, unreported)). In the present case it is plain that by refusing sale the judge has condemned the bank to go on waiting for its money with no prospect of recover from Mr and Mrs Bell and with the debt increasing all the time, that debt already exceeding what could be realised on a sale. That seems to me to be very unfair to the bank.
32. … Mr de la Rosa also pointed to the bank's delay in the prosecution of the present proceedings, during which time the debt owed to the bank has increased. But it hardly lies in Mrs Bell's mouth to complain, given that she has had the benefit of continuing to occupy the property without paying any interest to the bank, which largely funded the purchase of the property."
Lady Justice Arden: