![]() |
[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback] [DONATE] | |
England and Wales Court of Appeal (Civil Division) Decisions |
||
|
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> One Savings Bank PLC v Waller-Edwards (Rev1) [2024] EWCA Civ 302 (28 March 2024) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2024/302.html Cite as: [2024] 4 All ER 199, [2024] 2 All ER (Comm) 1050, [2024] EWCA Civ 302, [2024] 3 WLR 281, [2025] 1 P & CR DG3, [2024] WLR(D) 171, [2024] Ch 279 |
||
[New search]
[Context
]
[View without highlighting]
[Printable PDF version]
[Buy ICLR report: [2024] 3 WLR 281]
[View ICLR summary: [2024] WLR(D) 171]
[Buy ICLR report: [2024] Ch 279]
[Help]
Appeal No: CA-2023-001936 |
ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
CHANCERY APPEALS (ChD)
Mr Justice Edwin Johnson
HH Judge Mitchell (County Court at Bournemouth & Poole)
Strand, London WC2A 2LL |
||
B e f o r e :
LORD JUSTICE PETER JACKSON
and
LADY JUSTICE FALK
____________________
| ONE SAVINGS BANK PLC |
Claimant/Respondent |
|
| - and - |
||
CATHERINE WALLER-EDWARDS |
Defendant/Appellant |
____________________
Waller-Edwards)
Antonia Halker and John Ditchburn (instructed by Equivo Limited) for the Respondent/Claimant (the bank)
Hearing date: 29 February 2024
____________________
Crown Copyright ©
SIR GEOFFREY VOS, MASTER OF THE ROLLS:
Introduction
Waller-Edwards
by her then partner, Nicholas Bishop (Mr Bishop). That undue influence had in fact led to Ms
Waller-Edwards
remortgaging to the bank the property at Spectrum, 32B Beaucroft Lane, Wimborne, Dorset BH21 2PA (the property) that she jointly owned with Mr Bishop.
Waller-Edwards.
So far as the bank knew at the time of mortgage transaction on 24 October 2013, the mortgage advance of £384,000 was being used: (a) as to some £200,000 to pay off the previous mortgage, (b) as to some £40,000 (to pay off a £24,000 debt on Mr Bishop's car and £16,000 on his credit card), and (c) as to some £142,000 to purchase another property. These figures are not exact, but are taken from the trial judge's findings at [47]-[52]. The actual completion figures are somewhat different, but the differences are not material to what we have to decide.
Waller-Edwards
ultimately submitted that, in a hybrid non-commercial loan situation, the lender is put on inquiry unless the element of the transaction that is for the sole benefit of one of the borrowers is trivial. She contended that the judges below had been wrong to say, as in effect they had, that: (a) the court's task was to look at the transaction as a whole so as to determine whether it was, in substance from the lender's point of view, a surety case or a joint borrowing case, and (b) the question of whether an element of a transaction that was for the sole benefit of one of the borrowers put the lender on inquiry was one of fact and degree. In effect, Ms
Waller-Edwards
contended for a third category of hybrid case and submitted that, in every such case where the sole benefit element was non-trivial, the lender was put on inquiry. This, she said, was clear from the authorities, and provided a bright line rule, giving certainty and clarity to lenders and borrowers alike as to how they had to proceed. Compliance with the Etridge protocol was not onerous.
Waller-Edwards
permission to appeal limited to the question of the correct legal test in a hybrid case, where a loan is taken out for a variety of purposes. He said that: "If (as both judges [below] held) the legal test is a question of fact and degree, then permission to challenge the judges' evaluation of that question is refused". Accordingly, neither party sought to persuade us that, if a "fact and degree" evaluation had to be undertaken, the judges below had reached the wrong conclusion.
Essential background
Waller-Edwards,
when she was at a vulnerable period in her life, began a relationship with Mr Bishop, who was a builder then constructing three houses including the property. She lived at that time in her own mortgage-free property at 60 Pilford Heath Road, Wimborne (the Wimborne property) and had savings of some £150,000 and a small income. On 25 May 2012, Ms
Waller-Edwards
exchanged her Wimborne Property (then worth some £585,000) plus £150,000 for the property (expected to be worth some £750,000 when complete). By the time of the completion of that transaction, Ms
Waller-Edwards
had been persuaded to accept two charges on the property, namely an existing one to a Mr Higgins for some £78,000, and a second charge in her favour for the £150,000 she had handed over to Mr Bishop. Pending completion of the building of the property, Ms
Waller-Edwards
and Mr Bishop began living together in the Wimborne property with her two children and his one child. Later in 2012, the loan from Mr Higgins was increased and eventually replaced by another loan and charge in favour of Mr Higgins' company. The couple moved into the property before it was complete in September 2012. The declaration of trust that I have mentioned was also executed at some stage. In these transactions, a Mr Clake of Ellis Jones Solicitors, instructed originally for Mr Bishop alone, acted for him and for Ms
Waller-Edwards.
i) The head of the bank's underwriting department said that the bank's understanding was that the couple wanted to remortgage the jointly owned property in order to pay off an existing mortgage debt and purchase another property. The remortgage was a buy to let mortgage, in the sense that the payments due to the bank would be funded by letting out the property.
ii) The bank did not know that Ms
Waller-Edwards
owned 99% of the equity in the property or that £142,000 was intended by Mr Bishop to be going to Mr Bishop's wife in respect of her divorce settlement.
iii) The bank did know that the loan would pay off £20,000 in car finance and £19,000 for Mr Bishop's credit card. That was a condition of the mortgage offer.
iv) Mr Richardson told the trial judge that it was not uncommon for a joint application to be made to consolidate debts and for debts to be in one party's name, or greater debt to be attributable to one party than the other. In this case, Mr Bishop was the major wage earner, so it was not unusual that debts were in his name. The bank thought that Ms
Waller-Edwards
and Mr Bishop were in a relationship and had joint expenditure.
v) Box 42 of the mortgage application referred to an existing mortgage in the sum of £200,000, Mr Bishop's credit cards of £16,000 and Mr Bishop's unsecured bank loan of £24,000. We were shown that document after the hearing. It is notable that the boxes indicating which of those debts would be repaid by the remortgage transactions were not ticked for any of these three items.
Waller-Edwards
consented under Mr Bishops' undue influence. The mortgage was also subject to a condition that Ms
Waller-Edwards
and Mr Bishop would let the property within 30 days of completion, but this did not occur.
Waller-Edwards
and Mr Bishop terminated. Mr Bishop moved out of the property towards the end of 2014, and ultimately ceased paying the mortgage instalments. On 4 November 2021, the bank initiated these proceedings seeking possession of the property and the arrears.
Waller-Edwards
met Mr Bishop, she was the sole owner of her own unencumbered home, and had personal savings. By the time the relationship ended, the series of transactions engineered by Mr Bishop left her in a heavily mortgaged home, which she was not supposed to be occupying, with no personal savings and lacking the means to maintain the payments due. I entirely endorse the appeal judge's view of the sadness of this case.
Waller-Edwards,
he held at [136] that the only arguable one was Mr Bishop's car debt and credit card debt. At [137] he concluded:
The question in the end is whether the fact that the re-mortgage was, to a minor extent, in part, to repay Mr Bishop's credit debts should have put the Bank on inquiry. This is a matter of fact and degree but in the end, I do not accept that the fact that just over 10% of the total borrowing was to go to Mr Bishop's credit debts, tip[s] this case into one akin to a surety case.
Waller-Edwards.
Peter Jackson LJ suggested in argument, and I agree, that this formulation might be more accurate if it referred to a transaction that "might not be" to Ms
Waller-Edwards'
advantage. Ultimately at [111], the appeal judge concluded that the trial judge had correctly identified the question which he had to answer as one of fact and degree, and reached an answer to that question which was justified on the facts of the case, as he had found them.
The authorities
The doctrine of notice lies at the heart of equity. Given that there are two innocent parties, each enjoying rights, the earlier right prevails against the later right if the acquirer of the later right knows of the earlier right (actual notice) or would have discovered it had he taken proper steps (constructive notice). In particular, if the party asserting that he takes free of the earlier rights of another knows of certain facts which put him on inquiry as to the possible existence of the rights of that other and he fails to make such inquiry or take such other steps as are reasonable to verify whether such earlier right does or does not exist, he will have constructive notice of the earlier right and take subject to it.
Therefore where a wife has agreed to stand surety for her husband's debts as a result of undue influence or misrepresentation, the creditor will take subject to the wife's equity to set aside the transaction if the circumstances are such as to put the creditor on inquiry as to the circumstances in which she agreed to stand surety. …
Therefore in my judgment a creditor is put on inquiry when a wife offers to stand surety for her husband's debts by the combination of two factors: (a) the transaction is on its face not to the financial advantage of the wife; and (b) there is a substantial risk in transactions of that kind that, in procuring the wife to act as surety, the husband has committed a legal or equitable wrong that entitles the wife to set aside the transaction. It follows that unless the creditor who is put on inquiry takes reasonable steps to satisfy himself that the wife's agreement to stand surety has been properly obtained, the creditor will have constructive notice of the wife's rights.
40. … The law imposes no obligation on one party to a transaction to check whether the other party's concurrence was obtained by undue influence. But O'Brien has introduced into the law the concept that, in certain circumstances, a party to a contract may lose the benefit of his contract, entered into in good faith, if he ought to have known that the other's concurrence had been procured by the misconduct of a third party.
41. There is a further respect in which O'Brien departed from conventional concepts. Traditionally, a person is deemed to have notice (that is, he has 'constructive' notice) of a prior right when he does not actually know of it but would have learned of it had he made the requisite inquiries. A purchaser will be treated as having constructive notice of all that a reasonably prudent purchaser would have discovered. In the present type of case, the steps a bank is required to take, lest it have constructive notice that the wife's concurrence was procured improperly by her husband, do not consist of making inquiries. Rather, O'Brien envisages that the steps taken by the bank will reduce, or even eliminate, the risk of the wife entering into the transaction under any misapprehension or as a result of undue influence by her husband. The steps are not concerned to discover whether the wife has been wronged by her husband in this way. The steps are concerned to minimise the risk that such a wrong may be committed.
42. These novelties do not point to the conclusion that the decision of this House in O'Brien is leading the law astray. Lord Browne-Wilkinson acknowledged he might be extending the law: see [1994] 1 AC 180, 197. Some development was sorely needed. The law had to find a way of giving wives a reasonable measure of protection, without adding unreasonably to the expense involved in entering into guarantee transactions of the type under consideration. The protection had to extend also to any misrepresentations made by a husband to his wife. In a situation where there is a substantial risk the husband may exercise his influence improperly regarding the provision of security for his business debts, there is an increased risk that explanations of the transaction given by him to his wife may be misleadingly incomplete or even inaccurate.
43. The route selected in O'Brien ought not to have an unsettling effect on established principles of contract. O'Brien concerned suretyship transactions. These are tripartite transactions. They involve the debtor as well as the creditor and the guarantor. The guarantor enters into the transaction at the request of the debtor. The guarantor assumes obligations. On the face of the transaction the guarantor usually receives no benefit in return, unless the guarantee is being given on a commercial basis. Leaving aside cases where the relationship between the surety and the debtor is commercial, a guarantee transaction is one-sided so far as the guarantor is concerned. The creditor knows this. Thus the decision in O'Brien is directed at a class of contracts which has special features of its own. That said, I must at a later stage in this speech return to the question of the wider implications of the O'Brien decision.
The threshold: when the bank is put on inquiry
44. In O'Brien the House considered the circumstances in which a bank, or other creditor, is 'put on inquiry.' Strictly this is a misnomer. As already noted, a bank is not required to make inquiries. But it will be convenient to use the terminology which has now become accepted in this context. The House set a low level for the threshold which must be crossed before a bank is put on inquiry. For practical reasons the level is set much lower than is required to satisfy a court that, failing contrary evidence, the court may infer that the transaction was procured by undue influence. Lord Browne-Wilkinson said ([1994] 1 AC 180, 196):
'Therefore in my judgment a creditor in put on inquiry when a wife offers to stand surety for her husband's debts by the combination of two factors: (a) the transaction is on its face not to the financial advantage of the wife; and (b) there is a substantial risk in transactions of that kind that, in procuring the wife to act as surety, the husband has committed a legal or equitable wrong that entitles the wife to set aside the transaction.'
In my view, this passage, read in context, is to be taken to mean, quite simply, that a bank is put on inquiry whenever a wife offers to stand surety for her husband's debts.
45. The Court of Appeal, comprising Stuart-Smith, Millett and Morritt LJJ, interpreted this passage more restrictively. The threshold, the court said, is somewhat higher. Where condition (a) is satisfied, the bank is put on inquiry if, but only if, the bank is aware that the parties are cohabiting or that the particular surety places implicit trust and confidence in the principal debtor in relation to her financial affairs: see Royal Bank of Scotland Plc v Etridge (No 2) [1998] 4 All ER 705, 719.
46. I respectfully disagree. I do not read (a) and (b) as factual conditions which must be proved in each case before a bank is put on inquiry. I do not understand Lord Browne-Wilkinson to have been saying that, in husband and wife cases, whether the bank is put on inquiry depends on its state of knowledge of the parties' marriage, or of the degree of trust and confidence the particular wife places in her husband in relation to her financial affairs. That would leave banks in a state of considerable uncertainty in a situation where it is important they should know clearly where they stand. The test should be simple and clear and easy to apply in a wide range of circumstances. I read (a) and (b) as Lord Browne-Wilkinson's broad explanation of the reason why a creditor is put on inquiry when a wife offers to stand surety for her husband's debts. These are the two factors which, taken together, constitute the underlying rationale.
47. The position is likewise if the husband stands surety for his wife's debts. Similarly, in the case of unmarried couples, whether heterosexual or homosexual, where the bank is aware of the relationship: see Lord Browne-Wilkinson in O'Brien's case, at p 198. Cohabitation is not essential. The Court of Appeal rightly so decided in Massey v Midland Bank Plc [1995] 1 All ER 929: see Steyn LJ, at p 933.
48. As to the type of transactions where a bank is put on inquiry, the case where a wife becomes surety for her husband's debts is, in this context, a straightforward case. The bank is put on inquiry. On the other side of the line is the case where money is being advanced, or has been advanced, to husband and wife jointly. In such a case the bank is not put on inquiry, unless the bank is aware the loan is being made for the husband's purposes, as distinct from their joint purposes. That was decided in [Pitt].
49. Less clear cut is the case where the wife becomes surety for the debts of a company whose shares are held by her and her husband. Her shareholding may be nominal, or she may have a minority shareholding or an equal shareholding with her husband. In my view the bank is put on inquiry in such cases, even when the wife is a director or secretary of the company. Such cases cannot be equated with joint loans. The shareholding interests, and the identity of the directors, are not a reliable guide to the identity of the persons who actually have the conduct of the company's business.
Is the lender put on inquiry unless the element of the transaction that is for the sole benefit of one of the borrowers is trivial?
Waller-Edwards'
counsel finally alighted in argument. He pointed out that such a test for the kind of transaction in this case would, as I have said, give certainty, and would reflect the low threshold of risk enunciated in the passages I have already cited from O'Brien and Etridge. The question is whether that is the right test for a case such as this which is to be drawn from the authorities. In my judgment it is not.
Waller-Edwards
on the facts, and there is no appeal on those matters (see [122]-[138] of the trial judge's judgment). The trial judge and the appeal judge dealt with the case, as we must, on the basis that the only matter that might have put the bank on inquiry was the fact that the transaction entailed paying off some £40,000 of debts in the sole name of Mr Bishop. The evidence established that this was not an uncommon situation (see [14(iv)] above).
Waller-Edwards
has not been given permission to appeal the factual findings of the courts below. Accordingly we must accept that, if the test is as the judges below said, they were right to decide that looking at the transaction as a whole, the fact that some 10% of the advance was to be used to pay debts in Mr Bishop's sole name did not, as a matter of fact and degree, turn the transaction from a joint borrowing case (where the bank was not put on inquiry) to a surety case (where it would have been put on inquiry).
Waller-Edwards's
counsel submitted to us, that Etridge was an extension of O'Brien. But it was not the extension which he submitted it was. He argued that Etridge imposed a lower threshold for when a case was properly to be regarded as a surety case. In fact, the lower threshold that Etridge imposed, beyond O'Brien, was as to the inquiries that were necessary into the nature of the relationship between the borrowers. Lord Browne-Wilkinson said famously in O'Brien that "a creditor in put on inquiry when a wife offers to stand surety for her husband's debts by the combination of two factors: (a) the transaction is on its face not to the financial advantage of the wife; and (b) there is a substantial risk in transactions of that kind that, in procuring the wife to act as surety, the husband has committed a legal or equitable wrong that entitles the wife to set aside the transaction". Subsequent cases had been confused as to how these factors, if regarded as tests, might be satisfied. Lord Nicholls put the matter to rest in Etridge by saying that "this passage, read in context, is to be taken to mean, quite simply, that a bank is put on inquiry whenever a wife offers to stand surety for her husband's debts" (my emphasis). In other words, there was a low threshold for the risk that was required, because in every case where a wife (or other borrower in a relationship) stood surety for the debts of a husband (or another borrower in a relationship), the bank was put on inquiry. Neither Lord Nicholls (in that passage in Etridge) nor Lord Browne-Wilkinson (in O'Brien) was addressing the question of whether a particular transaction was properly to be regarded as a surety case in the first place. That much is clear from [45]-[47] of Lord Nicholls in Etridge.
Waller-Edwards
advances. Even her proposed test would introduce some uncertainty. There would still be arguments as to whether a particular percentage was or was not "non-trivial". Moreover, it is not always easy for a bank to know whether particular debts are truly for the sole benefit of the person in whose name they stand. How was the bank to know, in this case for example, what benefit each party had derived from either the car or the credit card?
Conclusions
LORD JUSTICE PETER JACKSON:
Waller-Edwards had in fact experienced.
LADY JUSTICE FALK: