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This page deals with:
Royal Bank of Scotland v Etridge
- the leading HL of decision in this area of the law.
A large number of post Etridge cases including ...
Yorkshire Bank plc v Tinsley
- which dealt with the situation of whether a lender was necessarily bound by the constructive notice of undue influence in respect of mortgages A and B when it obtained, ostensibly properly, a replacement mortgage C.
First National Bank v Achampong
where, although the charge was ineffective as against the wife because of undue influence it did create an equitable charge over the husband's interest which led to the bank obtaining an order for sale to get at his interest.
Royal Bank of Scotland v Etridge
Royal Bank of Scotland v Etridge (No 2)
 UKHL 43
The decision of the House of Lords in
Royal Bank of Scotland v Etridge (No 2)
, given on 11 October 2001, is now the leading case in this area of the law. The object of the decision, as stated by their Lordships, was to clarify the law and to make plain to banks, in a clear and simple way, what they should do to avoid problems in the future. However, in the Weekly Law Reports version, the decision runs to 95 pages. The leading judgment is given by Lord Nicholls (22 pages). Substantial speeches were also made by Lord Hobhouse (17 pages) and Lord Scott (47) even though the latter was in "full agreement with the analysis of the applicable principles of the law and with the conclusions expressed in the opinion of my noble and learned friend, Lord Nicholls of Birkenhead". Perhaps a certain level of irritation may be detected in the (short) speech of Lord Bingham who said: "While the opinion of Lord Nicholls and Lord Scott show some difference of expression and approach, I do not myself discern any significant difference of legal principle applicable to these cases, and I agree with both opinions. But if I am wrong and such differences exist, it is plain that the opinion of Lord Nicholls commands the unqualified support of all members of the House."
Our own bullet points are set out below. Citations are from the speech of Lord Nicholls. If you have the energy to read the case you may find others:
Whether a transaction is brought about by the exercise of undue influence is a question of fact.
However, where a person places trust and confidence in another person in relation to the management of his or her affairs and there is a transaction between them that calls for an explanation, undue influence will be presumed as a matter of evidence until rebutted. (Paragraph 14).
Small gifts will not call for explanation. However, to quote
Allcard v Skinner
: If the gift is so large as not to be reasonably accounted for on the ground of friendship, relationship, charity, or other ordinary motives on which ordinary men act, the burden is upon the donee to support the gift. (Paragraphs 22 and 29).
In the ordinary course a guarantee given by a wife in respect of her husband's business is not to be regarded as a transaction which, failing proof to the contrary, is explicable only on the basis that it has been procured by the exercise of undue influence by the husband. Wives frequently enter into such transactions. The wife will need to prove undue influence. (Paragraph 30).
Bank on inquiry
A bank is put on inquiry whenever a wife offers to stand surety for her husbands debts. (Paragraph 1038).
This principle applies between all others (e.g. homosexual partners, father and daughter, employer and employee) where the relationship between the surety and debtor is a non-commercial one (Paragraph 87).
Steps the bank should take
Lord Browne-Wilkinson had expressed the view that banks should in future hold a private meeting with the wife during which the position would be explained. However, in practice this has not occurred. Instead banks have relied upon certificates signed by solicitors.
At paragraphs 65 to 68 of the decision Lord Nicholls sets out the advice which a solicitor advising a wife can be expected to give as a core minimum including advice relating to the nature of the documents and the practical consequence these will have for the wife, the seriousness of the risks involved, the purpose of the facility, the amount of the facility, the fact that the amount and terms might be changed without reference to her. The advice should be given a face-to-face meeting in the absence of the husband.
The solicitor can be a person who is also acting for the husband. However: When accepting instructions to advise the wife the solicitor assumes responsibilities directly to her, both at law and professionally. These duties, and this is central to the reasoning on this point, are owed to the wife alone. If at any stage the solicitor becomes concerned that there is a real risk that other interests or duties may inhibit his advice to the wife he must cease to act for her. (Paragraph 74).
Confirmation from the solicitor that he has advised the wife is one of the banks preconditions for completion of the transaction. But it is central to this arrangement that in advising the wife the solicitor is acting for the wife and no one else. (Paragraph 77). The bank should take steps to check directly with the wife the name of the solicitor she wishes to act for her. (Paragraph 79).
The bank must provide the solicitor with the financial information that he needs for the purpose of advising the wife. (Paragraph 79). (The perception already is that a husband will have to be prepared to disclose every detail of his financial affairs to his spouse if the loan is to proceed Daily Telegraph, 19/11/01, Spouses put spanner in the works).
These steps apply to future transactions. In respect of the past 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 the confirmation to the effect that he had brought home to the wife the risks she was running by standing as surety. (Paragraph 80).
Who were the solicitors acting for
National Westminster Bank plc v Amin
 UKHL 9
Application by the bank to strike out a defence based upon undue influence. The defendant and her deceased husband, who only spoke Urdu, gave a second charge over their home to secure the borrowings of their son. They attended a solicitor and signed the usual certificate to the effect that he had explained the charge. The HL held that there was sufficient doubt as to whether the solicitor was acting for the bank or D and her husband and in the absence of any evidence that the solicitor could speak Urdu sufficient doubt that he could have given a proper explanation. The case should go for trial.
Wife would have signed anyway
UCB Corporate Services Ltd v Williams
 EWCA Civ 555
Even though the judge found that the wife would have signed the charge had she known all the relevant facts and exercised her own free will she was still entitled to have the charge set aside as against her husband who had used undue influence and misrepresentation. Further, the lender failed to take reasonable steps to satisfy itself that the solicitor, who witnessed the signatures on the charge, had given the wife of the borrower advice about the nature and effect of the transaction. Charge set aside.
Lloyds TSB Bank plc v Holdgate
 EWCA Civ 1543
In 1977 husband and wife entered into a charge over the matrimonial home to support his business. The amount was unlimited. W claimed undue influence and that H had misrepresented that the sum secured was limited to £5,000. The charge had been signed in the presence of a solicitor but the exact terms of the solicitors retainer were not clear. In 1996 H and W separated and subsequently the bank sought possession. The judge held that W had no real prospect of successfully defending possession proceedings commenced by the bank; that the decision of HL in
was of no assistance to her. The CA held that the judge was wrong and that the case should go to trial. A bank is put on inquiry whenever a wife stands surety for her husbands debts. It was up to the court at trial to decide whether or not the bank had taken the necessary steps to ensure that the risk that she would be running as a surety had been brought to her attention.
"... the mere involvement of a solicitor was not necessarily to be equated with an advisory role. A solicitor may have an 'execution only' role, in which case he will not have concerned himself with the interests of the wife, such as the present applicant, or with the question whether she is accepting the obligations, which she accepts, freely and with knowledge of the true risks and facts". (Mance LJ, para 23).
"The facts in the present case have not yet been found. It is clear that the bank was aware that Mr and Mrs Holdgate had solicitors because [in a witness statement] there is the statement that the bank had asked what solicitors were instructed by Mr and Mrs Holdgate in connection with signing the charge. It is not apparent that the bank had any further knowledge than the answer to that. It is at least arguable, and it could be put more strongly, that the mere fact that the bank had ascertained that solicitors were acting for Mr and Mrs Holdgate was not enough to show that the bank had satisfied Lord Browne-Wilkinson's test of taking steps to bring home to the wife the risks that she was running by standing as surety." (Peter Gibson LJ).
Standard clause that advice given
Bank of Scotland v Hill
 EWCA Civ 1081
Solicitor instructed by husband and wife, and by the bank to report on title. The report contained a standard clause confirming that all joint borrowers or owners had received independent advice. The bank was entitled to rely upon that confirmation. It was not necessary for the bank to have given specific instructions to the solicitor to ensure that the wife received independent advice.
Mother and son
Mortgage Agency Services Number Two Ltd v Chater
 EWCA Civ 490
Son persuaded mother to transfer her house into joint names and take a loan subject to a mortgage. The money was for his business. However, the purpose of the loan was stated on the application form as being a "purchase". The charge was executed in the presence of a solicitor retained jointly by mother and son.
: There was undue influence by the son. However, the lender was not affected by it. The application was a joint loan and there was nothing that put the lender on enquiry as to the problem. There was nothing on the documents to suggest the true purpose of the loan and the fact that the two borrowers were mother and son was insufficient to put the lender on enquiry.
Burden of proof
Dailey v Dailey
 UKPC 65.
A wife who asserts undue influence must prove it - so says the Privy Council The Court of Appeal (of the Eastern Caribbean States) was wrong to overturn the judge's factual finding that there had been no undue influence and no presumption of undue influence.
Yorkshire Bank plc v Tinsley
 EWCA Civ 816
This case raised a new point whether a lender was necessarily bound by the constructive notice of undue influence in respect of mortgages A and B when it obtained, ostensibly properly, a replacement mortgage C.
In 1988 Mr & Mrs Tinsley bought the matrimonial home with the benefit of a joint mortgage from the Halifax Building Society. In 1988 Mr Tinsley obtained a substantial business loan from Yorkshire Bank plc, secured by a second, all monies charge (the 1988 mortgage) over the matrimonial home. In 1990 Mr Tinsley re-mortgaged the home to secure a loan from the Confederation Bank. The Halifax mortgage was discharged, and Yorkshire Banks 1988 charge was replaced by a further charge (the 1991 mortgage) ranking second after the Confederation Bank. By 1992 the marriage was in difficulty and in 1994 as part of the divorce proceedings it was arranged that the matrimonial home would be sold and a flat purchased for Mrs Tinsley. It was initially intended that Mr Tinsley would redeem the mortgages on the matrimonial home and that Mrs Tinsley would take the flat free of charge, however Yorkshire Bank insisted that it obtained security over the flat. The transaction completed in December 1994. The Confederation Bank charge was discharged and Mrs Tinsley signed a new all monies charge (the 1994 mortgage) in favour of the Yorkshire Bank over the flat, ostensibly following advice from an independent solicitor (who happened to be one of Mr Tinsleys golfing partners!). In October 1997 Yorkshire Bank served a demand for repayment upon Mr and Mrs Tinsley for 286,348.29 and in 2001 commenced proceedings for possession of the flat. The case came before HHJ Moseley QC sitting at the Warrington County Court. One of the principal issues for determination was whether, if the 1988 and 1991 mortgages were (amongst other things) voidable for undue influence, the 1994 mortgage was also voidable because it was a replacement of or substitute for the voidable mortgages of 1988 and 1991. The judge held that the 1988 and 1991 mortgages were voidable for undue influence but that her success on those mortgages could not be transferred to the 1994 mortgage being on an entirely different property. Mrs Tinsley appealed. The bank did not contest the finding of undue influence in respect of the 1988 and 1991 mortgages.
Lord Justice Longmore, giving the leading judgment of the Court (with whom Peter Gibson and Rix LJJ agreed) noted that as far as he was aware, this was the first case in which the Court of Appeal had to consider the enforceability of a subsequent mortgage in the circumstances of an earlier voidable mortgage. He therefore dealt with the point both as a matter of principle, and from the limited authorities. As a matter of principle, he held:
"If a mortgage or guarantee is voidable for undue influence as against a husband and against a bank, a replacement mortgage, even if undue influence is not operative at the time of such replacement, will itself be voidable, at any rate if the replacement mortgage is taken out as a condition of discharging an earlier voidable mortgage. This should be the case even if there is a new contract rather than a mere variation of an old contractOf course if a replacement or substitute mortgage is made with a different lender, that different lender cannot be deemed to be aware of matters of which the first lender is deemed to be aware. But if the lender is the same there is no reason why the constructive notice should invariably be deemed to have disappeared when the earlier mortgage is discharged."
On the facts, Longmore LJ noted that the bank did require the 1994 charge to be granted as a condition of the release of the earlier charge. The significance of this perhaps otherwise alarming decision is put into context by Peter Gibson LJ. Counsel for the bank (rightly) submitted that it would be intolerable if banks, on applications for every re-mortgage, had to ascertain whether previous mortgages were tainted by undue influence or any other defect, of which it was not actually aware. Peter Gibson LJ held:
"I would be reluctant to reach a decision which would cause significant practical difficulties for lenders in property transactions, but I am not persuaded that we are doing any such thing in allowing this appeal. It is rightly not suggested that a lender should be put on inquiry about previous transactions to which the lender is not a party. But if the same lender was the mortgagee in the prior voidable transaction and requires the discharge of the prior mortgage and the grant to it of a new mortgage, I can see no sufficient objection to holding the new mortgage taken in substitution for the earlier mortgage also to be voidable. The lender should know from its own records whether or not it protected itself in the earlier mortgage transaction, If for some reason it does not know I do not see why it should not be able to protect itself in much the same way as the law now requires lenders to do in order to avoid being on constructive notice of an equitable wrong to a wife by taking steps to ensure that the wife receives independent advice on the transaction into which she is to enter with the lender:
Barclays Bank plc v OBrien
 1 AC 180 and
Royal Bank of Scotland plc v Etridge (No.2)
. The transaction in a case such as the present necessarily includes the discharge of the prior mortgage, and it will be for the independent adviser to give advice about that."
Mrs Tinsley's appeal was accordingly allowed.
Mortgage lawyers are somewhat sceptical about the well-worn judicial phrase this should not cause significant practical difficulties for lenders in property transactions, but in this case, Peter Gibson LJ is probably right. The only way to overcome any earlier defect, of which the lender may have constructive notice, is to follow the guidelines on independent advice in Etridge. Had Mrs Tinsley been properly advised, the undue influence in relation to the earlier mortgages would have come to light and the bank would not have got away with a further charge over the flat. She could then have insisted on recovering half the proceeds of sale of the matrimonial home free of the voidable charges.
Daniel v Drew
 EWCA Civ 507
"..in all cases of undue influence the critical question is whether or not the persuasion or the advice, in other words the influence, has invaded the free volition of the donor to accept or reject the persuasion or advice or withstand the influence. The donor may be led but she must not be driven and her will must be the offspring of her own volition, not a record of someone else's. There is no undue influence unless the donor if she were free and informed could say 'This is not my wish but I must do it'" (Ward LJ, para 36).
This principle applies to both forms of undue influence, ie actual and presumed undue influence. The trial judge was not wrong to take account of the claimants vulnerability when determining that there had been actual undue influence.
The threat of legal action can, in limited circumstances such as where it is made to a vulnerable elderly person, amount to duress and be taken into account in determining whether or not there is undue influence (para 40).
Non-disclosure by husband of extra-marital affair
Hewett v First Plus Financial Group Plc
 EWCA Civ 312
Where a wife reposes trust and confidence in her husband, he owes her an obligation of candour and fairness. His deliberate concealment of an affair at a time when he required her to execute a mortgage over the matrimonial home to refinance his debts was a highly material fact. The lender having failed to comply with the
guidelines was affected by his conduct.
H and W were the joint legal and beneficial owners of a property, subject to a mortgage. By 2003 H had run up credit card debts and was unable to service the mortgage. He had also started an affair, which he concealed from his wife. H proposed to refinance the credit card debts by obtaining a re-mortgage from the lender to which W reluctantly agreed. The re-mortgage was completed in 2004. W subsequently found out about her husband’s affair, which led to their divorce. H also lost his job and was made bankrupt. Although W was able to purchase H’s interest in the property from his trustee, she was unable to service the mortgage and the lender commenced possession proceedings.
H’s concealment of his affair amounted to undue influence, sufficient to vitiate the re-mortgage transaction between them. W reposed trust and confidence in her husband, sufficient to give rise to an obligation of candour and fairness owed to her. A wife in such circumstance should be able to make an informed decision (with or without the benefit of independent advice) properly and fairly appraised of the relevant circumstances. H’s affair was plainly a material fact calling for disclosure. The question whether H’s affair was a material fact calling for disclosure was to be decided by an objective test rather than by asking the hypothetical question whether disclosure would have made all the difference to W's process of decision making. For example, would a solicitor, consulted by Mrs Hewett for advice about the wisdom of the transaction, have thought it relevant to know that her husband was, while asking for her unqualified trust, at the same time conducting a clandestine affair? The Court of Appeal thought that the answer was obvious!
Having failed to comply with the guidelines set out in
Royal Bank of Scotland Plc v Etridge (No.2)
 UKHL 44 the lender took with constructive notice of the husband's impropriety.
Although in principle the charge would be set aside, it was common ground that it operated as an equitable charge on H’s share, which W had acquired from his trustee. The question whether and to what extent the lender would be entitled to enforce the equitable charge under s 14 Trusts of Land and Appointment of Trustees Act 1996 would be remitted to the trial judge.
Personal loan - husband and wife
Davis v AIB Group (UK) Plc
 EWHC 2178 (Ch)
A wife’s claim to set aside a facility letter and personal loan was dismissed as she had not been able to prove actual undue influence.
Mrs D sought to set aside a facility letter for a personal loan on the ground of undue influence by her husband. The facility was for a loan of £1.35m from AIB to Mr and Mrs D jointly (as trustees of a trust fund). AIB also extended a borrowing facility of £1.45m to Mr D’s company for which Mr and Mrs D provided joint and several guarantees and provided mortgages over their jointly owned properties. The total facility of £2.8m replaced facilities of £2.6m provided by Barclays Bank Plc.
Mrs D’s claim was that she felt compelled to sign whatever her husband put in front of her for fear of violence, and that AIB had not taken reasonable steps to satisfy itself that her agreement to the personal facility had been properly obtained. There was no challenge to the provision of the guarantee or mortgages.
The court found in favour of AIB on the facts of the case. Mrs D bore the burden of proving undue influence as she did not have the benefit of any presumption. This had to be established by direct evidence of the exercise of improper influence. Since there was no evidence that AIB had actual notice of any wrongdoing, Mrs D had to establish constructive notice which involved two questions:
Whether AIB was put upon enquiry, and
What steps it should have taken.
The High Court pointed out that Mrs D understood the borrowing arrangements and signed facility letters and renewals of them. Mrs D had the benefit of her own solicitor’s advice, which had brought home to her the existence of the facilities and her own personal liability. Her willingness to enter into the facilities had not been brought about by any wrongdoing on Mr D’s part. He had a genuine desire to see that Mrs D had proper advice. He never subsequently sought to conceal the facilities.
Although decided on its own facts, this case does usefully demonstrate the court’s current approach to a claim of actual undue influence by a wife against her husband. The judgement emphasises that these cases are not principally concerned with the wife’s level of understanding of the transaction (although it will be relevant). Having regard to
Hugenin v Baseley
(1807) 14 Ves 273, the question is not whether she knew what she was doing but how that intention was produced. People are perfectly free to enter into transactions without fully understanding them if that is their free choice. The doctrine does not protect against folly but against victimisation.
Creation of equitable charge over "guilty" party's interest in favour of bank
First National Bank plc v Achampong
 EWCA Civ 487
This is a very important case. The husband and wife executed a charge over their joint property to support the husband's business loan. The bank was put on inquiry because of the non-commercial relationship between the husband and wife. The solicitor who dealt with the matter did not confirm to the bank that he had given the wife independent advice and on the facts the court held that the bank had failed to take sufficient steps to avoid notice of the undue influence.
applied. However, the CA held that the legal charge, although ineffective as against the wife, did create an equitable charge against the husband's beneficial interest and, if necessary, severed any joint beneficial tenancy (s63 of the Law of Property Act 1925 and
Ahmed v Kendrick
(1967) 56 P&CR 120); and that there should be an order for sale under
s14 of the Trusts of Land and Appointment of Trustees Act 1996
. One of the factors to which regard should be had is "the interests of any secured creditor of any beneficiary" (s15(1)(c)).
"The effect of refusing a sale is to condemn the bank to wait - possibly for many years - until Mrs Achampong should choose to sell before the bank can recover anything. In the meantime its debt continues to increase. .. I regard it as plain that an order for sale should be made. Prominent among the considerations which lead to that conclusion is that, unless an order for sale is made, the bank will be kept waiting indefinitely for any payment out of what is, for all practical purposes, its own share of the property. While it is relevant to consider the interest of the infant grandchildren in occupation of the property, it is difficult to attach much if any weight to their position in the absence of any evidence as to how their welfare may be adversely affected if an order for sale is now made. It is for the person who resists an order for sale in reliance on section 15(1)(c) to adduce relevant evidence." (para 62 and 65).
: Note how important it is to adduce evidence to counteract the bank's argument that a sale should take place to release its money.
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