The issue of undue influence has been a matter which has troubled the courts for many years. However, following the House of Lords decision in Royal Bank of Scotland plc v Etridge (2001) ("Etridge"), most of the issues have been laid to rest. The Lords decided that where it can be proved that (1) the complainant placed trust and confidence in the other party in relation to their financial affairs and (2) there is a transaction which calls for explanation, the court can infer that in the absence of a satisfactory explanation, the transaction can only have been procured by undue influence.
If a wife provides security for her husband's debts this calls for an explanation and the lender is put on inquiry. The lender should take steps to ensure that the consent of the spouse to the charge is properly obtained and should recommend that the spouse seek independent legal advice. If a wife's consent has in fact been procured by undue influence, the bank may not rely on her apparent consent unless it has good reason to believe that she understands the nature and effect of the transaction. If a solicitor has been instructed to advise the wife and has provided written confirmation that they have advised her of the nature and effect of the transaction, then this will be a good reason.
In this case, the wife provided a charge to support her husband's borrowings. The lender acknowledged that it was on notice of the risks of the exercise of undue influence. The guidelines in Etridge had not been followed and as a consequence, the lender had constructive notice of any undue influence or misrepresentation practiced by the husband upon his wife that could be proved. So the court had to consider whether there had been undue influence or misrepresentation. The court found that there had been no oppression, no coercion, no bullying or threats and that the wife had neither been frightened nor intimidated by her husband when deciding to accede to his request. However, according to the Court of Appeal, the concealment of his affair from his wife did amount to the exercise of undue influence against her, sufficient to vitiate the mortgage between them. The lender was affected by such undue influence as had been proved to have occurred and so the mortgage was set aside.
This decision is interesting as it demonstrates a novel way in which undue influence can be established and importantly it serves as a reminder that where a lender is put on inquiry it should follow the recommendations suggested in Etridge.
Jayne Hewett v First Plus Financial Group Plc
[2010] EWCA Civ 312
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