Property Law – Etridge – was it worth the wait?

By : PJ Kirby, Michelle Stevens-Hoare

The HL judgment in the Etridge case was finally handed down on 11 October. Digesting the 375 paragraphs is a massive task. PJ Kirby and Michelle Stevens-Hoare have compiled a summary of salient points with reference to paragraph numbers.

The HL judgment in the Etridge case was finally handed down on 11 October. Digesting the 375 paragraphs is a massive task. Hopefully this summary of salient points with reference to paragraph numbers will be helpful to you. We have not focused on the professional negligence aspects in this piece since there is ample material dealing with the position between mortgagee and mortgagor. Essentially Etridge does not cast doubt on O’Brien (99) but gives guidance as to how O’Brien should be applied in practice.

Undue influence

1. If a wife alleges that she entered into the transaction as a result of undue influence it is for her to prove it. There is no presumption of undue influence in a matrimonial situation save in the sense that there may be an shift in the evidential burden of proof where:-(i) the complainant reposed trust and confidence in the other party and (i) the transaction is not readily explicable by the relationship of the parties.(21).

2. A key point highlighted by the House of Lords in Etridge is that undue influence should not be readily found. Persuasion by a reasonable husband does not equate to undue influence and a degree of over optimism as to the future prospects of his company does not amount to negligent misstatement.(32,245). A wife supporting her husband’s business is more a sign of a healthy marriage than undue influence (159, 182, 245). Undue influence is a relatively unlikely explanation. Pressure to sign does not necessarily equate to undue influence (162).

3. Undue influence is something that must be established on the evidence at the end of a trial and not simply presumed (106).

4. A presumption of undue influence may arise from the combination of the relationship and the nature of the transaction but it only has the effect of shifting the onus of proof to the bank (158).

5. Closer consideration should be given as to whether the wife has actually pleaded allegations of undue influence or other legal wrongs (245).

The bank on inquiry

6. A bank is put on inquiry whenever a wife offers to stand surety for her husband’s debts. (44).

7. A bank will also be put on inquiry if the bank is aware of a relationship (whether heterosexual or homosexual) whether or not it involves cohabitation.(47). This can extend to all non-commercial relationships (87).

8. CIBC v Pitt [1994] 1 AC 200 remains good law – the bank will not be put on inquiry where the loan is being made to husband and wife jointly for their joint purposes (48).

9. The bank will still be put on inquiry where the wife is to be the surety for the debts of a company in which she has shares or is a director. (49) This clarifies a previously unclear point.

What must the bank do?

10. Take reasonable steps to satisfy itself that (i) the wife has brought home to her the practical implications of the proposed transaction (54) and (ii) she understands the nature and effect of the transaction she is entering into (147, 164-5).

The bank’s duty of disclosure

11. In order for a wife to have an informed understanding she may need to know the extent of the indebtedness as well as the amount of any new loan (189, 346).

12. Creditor should disclose such details. Husband by asking wife to stand surety gives implied authority to bank to disclose otherwise confidential information (190).

13. If a husband expressly refuses to allow disclosure of information this will be a factor indicating extra risk of undue influence. Bank must insist on advice from a solicitor independent from husband (190).

To what extent can the bank now rely on confirmation from a solicitor that he has advised the wife appropriately?

14. Normally the bank can rely on such confirmation (56) but in order to do so the bank should:- (i) check directly with the wife who she wishes to act for her (79(1));(ii) ensure the solicitor has the financial information he needs in order to advise the wife (79(2)); (iii) in exceptional cases where it suspects the wife may have been misled by her husband or to have been unduly influenced advise the solicitor of the facts giving rise to that suspicion (79(3)); (iv) have confirmation from the wife that the solicitors are acting for her (127); (v) have confirmation from the solicitors that they are acting for the wife and that their instructions extend to advising on the nature and effect of the transaction (168, 171); (vi) not know facts from which it ought to have realised that the wife has not had appropriate advice (57) (Lord Hobhouse did not think a wife who signs an unlimited guarantee can have been independently advised! (113)); (vii) have confirmation from the solicitor that he has advised the wife (77, 175)

15. Query whether reasonable belief by the bank that a solicitor is acting for wife and has given advice is enough – yes says Lord Scott, no says Lord Hobhouse. Lord Scott probably preferred on the count back! Also see Lord’s Scott judgment on the particular facts of the Etridge case (para.s 224-7).

16. Normally the bank is entitled to assume that the solicitor has done his job properly (78, 171).

17. Mere evidence that a solicitor witnessed the wife’s signature will no longer be sufficient (115).

18. Confirmation that the solicitor has explained the charge but where there is no confirmation that the solicitor was acting for the wife will not be sufficient (125).

19. In relation to past transactions the solicitor’s confirmation can normally be relied on if the effect of the confirmation is that the solicitor has brought home to the wife the risks she runs by standing as surety (80) though Lord Hobhouse considers that the guidance given by Lord Nicholls at (79) applies to past transactions also (100).

20. Remember that if the solicitor fails to give proper advice and fails to give the necessary confirmation to the bank the wife cannot succeed if the court can be satisfied that she would have signed anyway (213) Similarly if the wife would have signed even without the misrepresentation or undue influence (223).