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England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Chater v Mortgage Agency Services Number Two Ltd  EWCA Civ 490 (03 April 2003)
Cite as:  EWCA Civ 490
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COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE DUDLEY COUNTY COURT
London, WC2A 2LL
B e f o r e :
LORD JUSTICE RIX
LORD JUSTICE SCOTT BAKER
| Gweneth Mary Chater||Appellant|
|- and -|
|Mortgage Agency Services Number Two Limited||Respondent|
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)
Miss Nicole Sandells (instructed by Addleshaw Booth & Co) for the Respondent
AS APPROVED BY THE COURT
Crown Copyright ©
Lord Justice Scott Baker
This is the judgment of the Court.
The basic facts
The judge accepted his evidence and said:
"I can only observe that it seems to be clear that at no stage did he have a private discussion with Mrs Chater about the proposed transfer/mortgage or take, what on the face of it would have been, elementary precautions to ensure that her interests were safeguarded, something which even in 1990 ought to have been appropriate, not only from her point of view, but also I would have thought out of professional self interest."
The transaction was completed on 24 September 1990 and the main advance was paid by a cheque made out in the names of Mr and Mrs Chater, which Mrs Chater endorsed to him alone. Andrew Chater took the funds.
The judge made the following findings of fact:
(1) In many ways the appellant's evidence was unsatisfactory. He accepted her own counsel's description that it was "a ragbag of contradictions." At p20 he mentioned a number of inconsistencies in her evidence.
(2) He was not convinced she was as naïve as she would have him accept.
(3) She reposed trust and confidence in her son giving rise to a presumption of Class 2B undue influence as defined in Barclays Bank v O'Brien  AC 180, 189. We interpolate that this is now of course overtaken by Etridge (No.2).
(4) Her son had misrepresented the position to her and she relied on his misrepresentations. The judge did not, however, identify the misrepresentations.
(5) The loan application form suggested 'a range of possible scenarios' and it was 'at least a possibility for the bank to consider that undue influence could come into play as one of them'.
(1) (i) that she was unduly influenced to enter into the mortgage; or
(ii) that she was induced to enter into it by a misrepresentation;
(2) That the respondent was put on inquiry as to some equitable wrong; and
(3) That the respondent did not take reasonable steps and as a result was fixed with notice of the undue influence and/or misrepresentation.
"Proof that the complainant placed trust and confidence in the other party in relation to the management of the complainant's financial affairs, coupled with a transaction which calls for explanation, will normally be sufficient, failing satisfactory evidence to the contrary, to discharge the burden of proof. On proof of these two matters the stage is set for the court to infer that, in the absence of a satisfactory explanation, the transaction can only have been procured by undue influence. In other words, proof of these two facts is prima facia evidence that the defendant abused the influence he acquired in the parties relationship. He preferred his own interests. He did not behave fairly to the other. So the evidential burden shifts to him. It is for him to produce evidence to counter the inference which otherwise should be drawn."
"It is, in my opinion, the combination of relationship and the nature of the transaction that gives rise to the presumption and, if the transaction is challenged, shifts the onus to the transferee."
He regarded the presumption of undue influence in this type of case as having the same function as res ipsa loquitur in negligence cases. It recognises an evidential state of affairs in which the onus has shifted.
"Something more is needed before the law reverses the burden of proof. Something which calls for an explanation. When that something more is present, the greater the disadvantage to the vulnerable person, the more cogent must be the explanation before the presumption is rebutted."
He then went on to refer to this as the approach adopted by Lord Scarman in National Westminster Bank Plc v Morgan  AC 686, 703-707. Lord Scarman noted that whatever the legal character of the transaction, it must constitute a disadvantage sufficiently serious to require evidence to rebut the presumption that in the circumstances of the parties' relationship, it was procured by the exercise of undue influence. He then cited the following passage from Lord Scarman's speech at 704:
"The Court of Appeal erred in law in holding that the presumption of undue influence can arise from the evidence of the relationship of the parties without also evidence that the transaction itself was wrongful in that it constituted an advantage taken of the person subjected to the influence which, failing proof to the contrary, was explicable only on the basis that undue influence had been exercised to procure it." (Emphasis added.)
Lord Nicholls then went on to reject the use of the label "manifest disadvantage" to this second ingredient necessary to raise the presumption. He pointed out that it was causing difficulty and was being understood and applied in a way not intended by Lord Scarman.
"The transaction will not be 'wrongful' unless it was procured by undue influence. Its 'wrongful' character is a conclusion, not a tool by which to detect the presence of undue influence. On the other hand, the nature of the transaction, its inexplicability by reference to the normal motives by which people act may, and usually will, constitute important evidential material."
"Although the general burden of proof is, and remains, upon [the appellant], she can discharge that burden of proof by establishing a sufficient prima facie case to justify a decision in her favour on the balance of probabilities, the court drawing appropriate inferences from the primary facts proved. Evidentially the opposite party will then be faced with the necessity to adduce evidence sufficient to displace that conclusion. Provided it is remembered that the burden is an evidential one, the comparison with the doctrine res ipsa loquitur is useful."
In her evidence she said of the meeting with Mr Terry:
"He said: 'I am going to insure Andy to make sure in case he is ill at any time, and he will be all right. So he has got no worries'."
When it was put to her what she had said in her second statement and she was asked:
"Were those the exact words Mr Terry used, or was that your version of what you understood him to say."
She replied: " Yes he said that".
A little later she said she did not think what would happen if her son did not pay the money back and that she did not realise the house was being transferred into joint names.
"Q: He did not say there was no chance of you losing your house at all, did he?
A: Yes he did.
Q: You can remember that quite clearly?
A: I do, I remember him saying that.
Q: Even though that is in 1990?
A: Yes. I remember that.
Q: Did he identify any other reasons when this insurance would be paid out other than illness?
A: No, I cannot think of anything else he mentioned really.
Q: So he only mentioned illness?
Q: You are familiar with mortgages because you had one with Dudley Borough Council?
Q: You presumably knew that if you could not pay Dudley Borough Council, they would have tried to sell your property?
Q: So although you say Mr Terry said there was no chance of you losing your home because of this insurance, how can that be right when all he said you were being insured against was your son being ill?
A: He said that in any case of Andrew not being able to pay this loan, then the insurance would pay for it.
Q: I have just asked you –
A: That is what he said, yes.
Q: You just said to me that all he mentioned was illness?
A: What else is there really, or I suppose if he died?
Q: It is a different thing if he died, yes.
Q: We have to be quite careful here because the words are quite important. You seem very comfortable by telling me that Mr Terry told you that if your son was ill then payment would be paid under the insurance?
Q: When I asked you, you said there was nothing else that he mentioned as being a reason why that insurance would pay you money. But then you are then also suggesting that in other circumstances you would also be okay because your home would not be repossessed. But that sort of insurance was not what Mr Terry said you were getting, was it; it was only in relation to illness?
A: He said that Andrew was fully insured, and I can't remember what he said now. I know he mentioned illness, but I can't remember what else he said."
"When interviewing the client(s) I would briefly discuss the conveyancing aspects of the matter and discuss in general terms the effect of the mortgage. I would probably mention during the course of the interview the amount that was being borrowed. As to the effect of the mortgage, I would point out that if the clients did not pay the mortgage company the payments when they fell due, the mortgage company would seek possession of the property and sell it. "
"…..I am certain that, having heard my explanation for the nature of this transaction, they were happy to sign the documents. I would not have been happy to allow them to sign had they not been happy to enter into the transaction, having had its potential effect explained to them."
The respondent on inquiry
"It is important that lenders should feel able to advance money, in run-of-the-mill cases with no abnormal features, on the security of the wife's interest in the matrimonial home in reasonable confidence that, if appropriate procedures have been followed in obtaining the security, it will be enforceable if the need for enforcement arises. "
"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 CIBC Mortgages plc v Pitt  1 A C 200."
The appellant's subsequent conduct
Order: Appeal Dismissed. Order as drawn by counsel.