30 July 2012
Important new decision on undue influence ~ Mrs Christine Davies v AIB
The case deals with many important principles which affect the relationship between sureties and bankers, especially in respect of undue influence and estoppel. The judgment was handed down on 27th July 2012 by Norris J.
Mrs Davies claimed that a loan connected to related mortgage transactions entered into in 2001 should be set aside because she had been unduly influenced by her late husband when she agreed to take on personal liability for the loan with her husband for approximately £1.3m, in addition to liability as a guarantor in respect of her husband's company's debts, also for about the same sum. She complained that Mr Davies had failed to make proper disclosure to her of the full extent of the liabilities she was assuming and that she had only been aware of the guarantor liability which was secured by the mortgage. Although the Bank had required her to be independently advised as to the guarantee and the related mortgage, it had not required her to be advised about the personal loan which was also secured by the mortgage. She maintained the personal loan monies were to be used, at least in substantial part, for the company's benefit. Over the course of several years the personal loans were very substantially increased in amount and the new total borrowings were identified in facility letters.
Norris J held that even though the Bank had not required Mrs Davies to be independently advised as to the personal loan in 2001, her plea of undue influence failed and that she was bound by the loan agreement secured by the mortgage which she executed, in particular because:
(i) Mr Davies, through his company, had provided to Mrs Davies' independent solicitor all information relevant to the transactions in 2001, so that it could not be said that Mr Davies was guilty of breach of an equitable duty to his wife.
(ii) Mrs Davies was estopped from disputing her liability to the Bank under the 2001 transactions because she had subsequently accepted extended facilities which clearly recorded the totality of her liabilities.
The case is very significant in setting limits to the availability of a plea of undue influence in suretyship cases, and cases where wives take on liabilities for their husbands' debts or their husbands' companies' debts. Bankers should of course be careful to ensure that they follow House of Lords guidance given in RBS v Etridge, but if the guidance is not followed, the court will still scrutinise the transaction to see whether the person setting up a plea of undue influence really has been a victim of impropriety. Where the surety/wife has subsequently taken on further borrowing with the same lender, it may not be possible to re-open an earlier transaction.
Jeremy Cousins QC, leading John Brennan of St Philips Chambers, Birmingham, successfully represented the bank in this case.