IN THE SUPREME COURT OF JUDICATURE
QUEEN'S BENCH DIVISION
CHESTER DISTRICT REGISTRY
MERCANTILE COURT
HIS HONOUR JUDGE CHAMBERS QC
Wednesday 23rd January, 2002
B E T W E E N :-
- and -
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Mr. Graham Wood (instructed by Messrs. Barry
Macloskey) for the claimant.
Mr. Ben Hubble (instructed by Messrs. Weightmans) for the defendants.
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1. This is a case about undue influence. The claimant ("Mrs. McGregor") sues a firm of solicitors, Michael Taylor & Co., for failing to advise her in early 1995 that she had a potential claim against Barclays Bank Plc ("the bank") to set aside charges on various properties which included the matrimonial home "Fron Ganol" near Ruthin in Clwyd. She was a joint owner of that property.
2. From time to time Mrs. McGregor executed a total of eight charges over various parcels of land in which she held an interest. Technically I am concerned with charges executed on three occasions namely July 7, 1983, Jan. 11, 1985 and Feb. 2, 1990. That said, this is a damages claim that is confined to Fron Ganol which was charged in favour of the bank under an all moneys charge dated Jan. 11, 1985.
3. Initially there were proceedings against the bank but, in an earlier application, I struck those proceedings out as an abuse of process because they were inconsistent with possession orders that the bank had obtained in 1995 and which had never been challenged. There has been no determination of the issues which are now before me.
4. Mrs. McGregor puts the case that she would have made against the bank upon the following grounds: (a) that on each occasion that the charges to which I have referred were executed, Mrs. McGregor was invited by Mr. McGregor to attend the bank's branch office in Ruthin to sign some papers in relation to his business and that on each such occasion Mrs. McGregor was unaware that she was signing a legal charge upon the property in question that would represent her beneficial interest in the same and that on no occasion was she advised by the bank to seek independent advice upon the charge or as to the consequences of what she was doing. (b) that Mr. McGregor gave her the impression that no beneficial interest that she had in any such property was being charged and that, in any event, that was what she thought. (c) that she was subjected to the presumed undue influence of Mr. McGregor, as the bank well knew, so as to entitle Mrs. McGregor to have set aside the transactions that gave rise to such charges.
5. Before me there was an understandable concentration upon Mrs. McGregor's assertion that the understanding of herself and Mr. McGregor was that she was not signing away her interest in the matrimonial home in the event of default. I say this because that was the case that Mrs. McGregor set out in her statement and it was one where the defendants had the benefit of good evidence to the effect that Mr. McGregor was under no such misapprehension and the evidence of Mrs. McGregor on misrepresentation was unimpressive. However this narrow approach loses sight of the fact that an adverse determination on this aspect was not necessarily fatal to Mrs. McGregor's case.
6. The disposal of the wider issue depends heavily upon an analysis of the law to which I shall now come.
7. In early 1995 the law relevant to this matter was contained in the decision of the House of Lords in Barclays Bank plc v. O'Brien [1994] 1 A.C. 180.
8. The judgment of the Court is contained in the speech of Lord Browne-Wilkinson and, for present purposes, the most important passages are as follows:
Class 2: Presumed undue influence
... In Class 2 cases therefore there is no need to produce evidence that the actual undue influence was exerted in relation to the particular transaction impugned: once a confidential relationship has been proved, the burden then shifts to the wrongdoer to prove that the complainant entered into the impugned transaction freely for example by showing that the complainant had independent advice. Such a confidential relationship can be established in two ways. viz. ...
Class 2(A)
Certain relationships (for example solicitor and client, medical adviser and patient) as a matter of law raise the presumption that undue influence has been exercised.
Class 2(B)
Even if the is no relationship falling within Class 2(A), if the complainant proves the de facto existence of a relationship under which the complainant generally reposed trust and confidence in the wrongdoer, the existence of such relationship raises the presumption of undue influence. In a Class 2(B) case therefore, in the absence of evidence disproving undue influence, the complainant will succeed in setting aside the impugned transaction merely by proof that the complainant reposed trust and confidence in the wrongdoer without having to prove that the wrongdoer exerted actual undue influence or otherwise abused such trust and confidence in relation to the particular transaction impugned.
...
An invalidating tendency?
Although there is no Class 2(A) presumption of undue influence as between husband and wife, it should be emphasised that in any particular case a wife may well be able to demonstrate that de facto she did leave decisions on financial affairs to her husband thereby bringing herself within Class 2(B) i.e. that the relationship between husband and wife in the particular case was such that the wife reposed confidence and trust in her husband in relation to their financial affairs and therefore undue influence is to be presumed. Thus, in those cases which still occur where the wife relies in all financial matters upon her husband and simply does what he suggests, a presumption of undue influence within Class 2(B) can be established solely from the proof of such trust and confidence without proof of actual undue influence .. [pp. 189D to 190E]
... in my judgment a creditor is put on inquiry when a wife offers to stand surety for her husband's debts by the combination of two factors: (a) the transaction is on its face not to the advantage of the wife; and (b) there is a substantial risk in transactions of that kind that, in procuring the wife to act as surety, the husband has committed a legal or equitable wrong that entitles the wife to set aside that transaction.
It follows that unless the creditor who is put on inquiry takes reasonable steps to satisfy himself that the wife's agreement to stand surety has been properly obtained, the creditor will have constructive notice of the wife's rights.
What, then are the reasonable steps which the creditor should take to ensure that it does not have constructive notice of the wife's rights, if any? Normally the reasonable steps necessary to avoid being fixed with constructive notice consist of making inquiry of the person who may have the earlier right (i.e. the wife) to see whether such right is asserted. It is plainly impossible to require of banks and other financial institutions that they should inquire of one spouse whether he or she has been unduly influenced or misled by the other. But in my judgment the creditor, in order to avoid being fixed with constructive notice, can reasonably be expected to take steps to bring home to the wife the risk she is running by standing as surety and to advise her to take independent advice. As to past transactions, it will depend upon the facts of each case whether the steps taken by the creditor satisfy the test ... [p. 196D-H]
9. Crucially, O'Brien indicated that (subject to establishing the requisite adverse nature of the transaction) all that a wife need do in order to establish the presumption of undue influence was to show that she "relied in all financial matters upon her husband and simply did what he suggested". Furthermore where the creditor had actual or constructive notice of this state of affairs and did not act as Lord Browne-Wilkinson prescribed, that creditor would be subject to whatever right the wife might have to set aside the relevant transaction. As stated above, the evidential threshold required to establish notice is materially lower than that needed to establish the presumption of undue influence.
10. As suggested by the passages that I have set out, the several elements upon which they concentrate were not conclusive of the extent of the rights and liabilities between the parties because -
... once a confidential relationship has been proved, the burden then shifts to the wrongdoer to prove that the claimant entered into the impugned transaction freely, for example by showing that the complainant had independent advice.
11. Nevertheless, O'Brien is not very helpful as to what constitutes undue influence in the present case, although the above passage appears to indicate a requirement for informed consent.
12. Difficulties encountered in the application of O'Brien were addressed in the further decision of the House of Lords in Royal Bank of Scotland plc v. Etridge (No. 2) [2001] 3 W.L.R. 1021. That authority set out a number of general principles in respect of this field and applied them, insofar as they concerned the past, to a number of different appeals that were disposed of at that hearing.
13. The authority includes speeches from all the members of the court, but the leading speech was that of Lord Nicholls of Birkenhead. Regardless of the confines of the doctrine of ratio decidendi, it is the totality of Lord Nicholls' observations that must be regarded as determinative of how the law now stands.
14. It is the defendants' case, ably argued by Mr. Hubble, that the effect of Etridge is that where there is a division of operations between husband and wife and the wife leaves her husband in charge of the couple's financial affairs, he does not abuse that trust if, without more, he requests her to charge her interest in the matrimonial home in order to further his business interests (the "trust me" situation).
15. In making his submission, Mr. Hubble relied upon the speech of Lord Scott of Foscote in Etridge. He maintains this to be consistent with Lord Nicholls' less specific approach and therefore to be adopted by Lord Bingham of Cornhill who expressly adopted Lord Scott's speech except where it might be thought to be in conflict with that of Lord Nicholls.
16. The analysis which follows is concerned to address Mr. Hubble's submission against the background of a full hearing of the facts of this case. Only in passing is it concerned with the manner in which Etridge rejected the categorisation employed in O'Brien in favour of the more general evidential approach which is one of the principal conclusions of that case.
17. In order to evaluate the submission, I think that one must start with the speech of Lord Nicholls.
18. Particularly relevant to the present case, Lord Nicholls said much more about the circumstances that constitute the exercise of undue influence than was said in O'Brien. The general principles are stated in paras 7 to 9 as follows:
7 ... If the intention (to enter into the transaction) was produced by unacceptable means, the law will not permit the transaction to stand. The means used is regarded as an exercise of improper or "undue" influence, and hence unacceptable, whenever the consent thus procured ought not fairly to be treated as the expression of a person's free will. It is impossible to be more precise or definitive. The circumstances in which one person acquires influence over another, and the manner in which influence may be exercised, vary too widely to permit of any more specific criterion.
8 Equity identified broadly two forms of unacceptable conduct. The first comprises overt acts of improper pressure such as unlawful threats. Today there is much overlap with the principle of duress as this principle has subsequently developed. The second form arises out of a relationship between two persons where one has acquired over another a measure of influence, or ascendancy, of which the ascendant person then takes unfair advantage ...
9 In cases of this latter nature the influence one person has over another provides scope for misuse without any specific overt acts of persuasion. The relationship between two individuals may be such that, without more, one of them is disposed to agree a course of action proposed by the other. Typically this occurs when one person places trust in another to look after his affairs and interests, and the latter betrays this trust by preferring his own interests. He abuses the influence he has acquired. In Allcard v. Skinner (1887) 36 Ch D 145 ... Lindley LJ, at p. 181, described this class of cases as those in which it was the duty of one party to advise the other or to manage his property for him. In Zamet v. Hyman [1961] 1 W.L.R. 1442, 1444-1445 Lord Evershed MR referred to relationships where one party owed the other an obligation of candour and protection.
19. At para 12 of his speech Lord Nicholls emphasises that in respect of undue influence where the evidential presumption of undue influence is not relied on, disadvantage is not a necessary ingredient of the cause of action.
20. When dealing with the question of the evidential presumption at para 14, Lord Nicholls indicates what it is that is being presumed, namely that -
... the defendant abused the influence that he acquired in the parties' relationship. He preferred his own interests. He did not behave fairly to the other.
21. At para 20 when dealing with independent advice, Lord Nicholls makes the point that -
... a person may understand fully the implications of a proposed transaction, for instance a substantial gift, and yet still be acting under the undue influence of another.
22. At para 32 appears the "contra diagnosis". It reads:
A cautionary note
32 I add a cautionary note, prompted by some of the first instance judgments in the cases currently being considered by the House. It concerns the general approach to be adopted by a court when considering whether a wife's guarantee of her husband's bank overdraft was procured by her husband's undue influence. Undue influence has a connotation of impropriety. In the eye of the law, undue influence means influence that has been misused. Statements of conduct by a husband which do not pass beyond the bounds of what may be expected of a reasonable husband in the circumstances should not, without more, be castigated as undue influence. Similarly, when a husband is forecasting the future of his business, and expressing his hopes or fears, a degree of hyperbole may only be natural. Courts should not too readily treat such exaggeration as misstatements.
23. Before continuing, I think that I should say what I understand these passages to mean in the context of the present case.
24. That context is what I loosely described in argument as a "trust me" case. Of course Mr. McGregor did not use those words but the working assumption is that he simply asked Mrs. McGregor to go into the bank at Ruthin to sign some documents in connection with his business. For immediate purposes what Mrs. McGregor was told by the bank official before she signed is irrelevant.
25. In contrast with the circumstances giving rise to the evidential presumption of abuse, I do not think that Lord Nicholls is postulating a conditioned state of dependence in all matters financial. What is undue about the influence is not its existence but its use. It is the abuse of trust that is critical.
26. A loving relationship (at least on one side) may result in a single disastrous act of financial abuse even where the wronged party is also financially active in matters concerning the relationship. What will frequently (but not invariably) negate abuse is informed consent. The nature of the information required and the quality of the consent will depend on a variety of circumstances that are incapable of enumeration. Clearly the intelligence, experience in financial matters and freedom of decision of the assenting party are all relevant matters. In some households a form of shorthand may be useable. In others a detailed explanation will be necessary. The onus of clear explanation will increase in relation to the danger that the assenting party is being asked to undertake.
27. What I think to be clear from the speech of Lord Nicholls is that it is an abuse of trust for a party holding the influence necessary to found the cause of action, to obtain the benefit of a charge over an interest in property held by the subject of that influence without first making full disclosure of the nature of the liability to be assumed and the financial background against which that liability is being assumed.
28. In particular, I understand the speech of Lord Nicholls to preclude the acquisition, in consequence of influence founding a husband and wife relationship, of the benefit of a charge over the wife's interest in the matrimonial home in furtherance of the husband's business interests (however soundly based at that time) where there is no explanation of the kind to which I have referred. Even more must this be the case where the wife is financially unsophisticated and the charge unlimited both as to time and amount.
29. It follows that I do not understand Lord Nicholls to tolerate the "trust me" exercise of influence.
30. Assuming the speech of Lord Scott to be consistent with that of Lord Nicholls, it would certainly appear to be straining at its leash.
31. The main passages for comment in the speech of Lord Scott are at paras 159 and 160. The two paragraphs read as follows:
159 Second, the passage cited [see Lord Browne-Wilkinson's description of Class 2(B) at para 8 above] appears to regard a relationship of trust and confidence between a wife and husband as something special rather than the norm. For my part, I would assume in every case in which a wife and husband are living together there is reciprocal trust and confidence between them. In the fairly common circumstance that the financial and business decisions of the family are primarily taken by the husband, I would assume that the wife would have trust and confidence in his ability to do so and would support his decisions. I would not expect evidence to be necessary to establish the existence of trust and confidence. I would expect evidence to be necessary to demonstrate its absence. In cases where experience, probably bitter, had led a wife to doubt the wisdom of her husband's financial and business decisions, I would not regard her willingness to support those decisions with her own assets as an indication that he had exerted undue influence over her to persuade her to do so. Rather, I would regard her support as a natural and admirable consequence of the relationship of a mutually loyal married couple. The proposition that if a wife who generally reposes trust and confidence in her husband, agrees to become surety to support his debts or his business enterprises a presumption of undue influence arises is one that I am unable to accept. To regard the husband in such a case as a presumed "wrongdoer" does not seem to me consistent with the relationship of trust and confidence that is part of every healthy marriage.
160 There are, of course, cases where a husband does abuse that trust and confidence. He may do so by expressions of quite unjustified overoptimistic enthusiasm about the prospects of success of his business enterprises. He may do so by positive representations of his business intentions, or of the nature of the security that he is asking his wife to grant his creditors, or of some other material matter. He may do so by subjecting her to excessive pressure, emotional blackmail, or bullying in order to persuade her to sign. But none of these things should, in my opinion, be presumed merely from the fact of the relationship of general trust and confidence. More is needed before the stage is reached at which, in the absence of any other evidence, an inference of undue influence can properly be drawn or a presumption of the existence of undue influence can be said to arise.
32. However the above comments may sit with the views of the other members of the House upon the question of the evidential presumption which was one of the main considerations in the appeal, it is to that question that they are directed. It is true that para 160 may give the impression that Lord Scott regards the exercise of undue influence to be confined to acts of oppression but that is only a matter of impression. Lord Scott was giving examples of actual undue influence when considering the presumption of undue influence.
33. The speech of Lord Hobhouse of Woodborough stands bereft of comment from the other members of the House. At para 106 he says:
The wife may well have trusted the husband to take for her the decision whether she should give the guarantee. If he takes the decision in these circumstances, he owes her a duty to have regard to her interests before deciding. He is under a duty to deal fairly with her. He should make sure that she is entering into the obligation freely and in knowledge of the true facts.
Although the passage is not free from difficulty, I understand it to mean that a wife may decide to delegate to her husband the decision as to whether she should give the guarantee but that her own decision so to delegate requires to be made with knowledge of the true facts. This view would seem to be at least within the spirit of Lord Nicholls' speech and a disavowal of the "trust me" approach as I have described it.
34. In the circumstances, I understand Etridge to have decided that the obtaining of a charge over a matrimonial home in the circumstances covered by the submissions of Mr. Hubble would constitute the exercise of undue influence. If the chargee was upon notice of those circumstances and did not take the steps set out in O'Brien, the charge could be set aside.
35. The above analysis is confirmed by a different approach.
36. In cases such as the present and where the complainant is alive, there must always be an explanation of the circumstances in which the charge was obtained. If, as I understand to be the effect of the speech of Lord Nicholls, a prima facie case arises in the circumstances alleged by Mrs. McGregor, that means that what is prima facie about the case is not the nature of its ingredients but the extent to which they are regarded as having been proved. The rebuttal lies in showing that the claimant's evidence is wrong either because it is inaccurate or because it is incomplete. It therefore follows that the ingredients necessary to prove the prima facie case are (except for the need to show the adverse consequence of the undue influence) no different from those required to establish a case of undue influence without any evidential presumption. (This element is, of course, distinct from those of notice and the negativing of notice.) The consequence is that the obtaining of a charge over a complainant's interest in her home by the use of the "trust me" approach constitutes the exercise of undue influence when there is that condition of financial trust described by Lord Nicholls and the complainant's evidence is undisplaced.
37. If the defendants were in breach of their duty of care to Mrs. McGregor by failing to advise her that she could have a case in respect of undue influence and if, on a balance of probabilities, Mrs. McGregor would have asserted that claim against the bank and if that claim had stood a real prospect of success, then Mrs. McGregor is entitled to damages for the loss of the chance of successfully pursuing that claim.
38. Apart from the rather unusual nature of some of Mr. McGregor's business activities, this case is sadly similar to many others.
39. Before her marriage Mrs. McGregor trained as a musician. Later she taught music. In 1970 she married Mr. McGregor. After that she helped her husband in an antique shop that he owned in Ruthin. She had nothing to do with the financial side of matters. At that time Mr. McGregor's main business activity was that of a timber importer. After her son, Roland, was born in 1972, Mrs. McGregor ceased all but very occasional activity in the shop. From the end of 1972 her life was purely domestic.
40. Huw was born in 1976 and Iolo in 1987.
41. Initially the family lived in Maes Gwyn, Pwllglas. In 1974 they acquired Fron Ganol. Mrs. McGregor did not know how much the property cost but an educated guess suggests something in the region of £20,000. The property was acquired in the joint names of Mr. and Mrs. McGregor.
42. Very close to Fron Ganol was a derelict cottage called Pen-y-Fron. This was conveyed into the sole name of Mrs. McGregor. There is no suggestion that Mrs. McGregor was involved in this decision and she always regarded the property as that of her husband to do what he liked with. In fact he restored it and the cottage was used for housing staff who helped in Fron Ganol. Pen-y-Fron was sold in 1989. Mrs. McGregor never saw any of the proceeds.
43. In the meantime and from time to time Mrs. McGregor executed charges.
44. In December, 1974 she charged Fron Ganol to the Derbyshire Building Society for £10,000 and to the Norwich Union Insurance Co. for £5000. The defendants accept that this was probably in connection with the funding of the purchase of Fron Ganol.
45. In February, 1975 Pen-y-Fron was mortgaged to the Midland Bank Ltd. together with some land adjoining Fron Ganol. These mortgages were vacated in about May, 1983.
46. On July 7, 1983 Pen-y-Fron was charged to the bank together with the parcel of land to which I have referred.
47. On Jan. 11, 1985 Fron Ganol was charged to the bank.
48. On Feb. 2, 1990 a plot of building land in Greenfield Road, Ruthin was charged to the bank.
49. Mr. Hubble says that this means that Mrs. McGregor knew a charge when she saw one. I am prepared to accept that this was so but I do not see how this can help the defendants. So far as the charges that did not relate to Fron Ganol were concerned, she was probably entirely indifferent as to their contents. At least insofar as the bank is concerned, Mrs. McGregor was given the information to which I shall shortly come. However, I hold that at no relevant time was Mrs. McGregor ever informed of the risks that she ran in giving any of the charges, particularly that over Fron Ganol, except by the bank in the pleasantly formulaic way to which I shall come. Nor, in respect of Fron Ganol, was she told anything of the business background to the requirement for that charge.
50. At this point I should say something of my impression of Mrs. McGregor and the glimpses that the evidence afforded me of Mr. McGregor.
51. For the most part, in and out of the witness box, Mrs. McGregor courteously wore the weary mask of drained emotion. There was warmth when her children were mentioned and a momentary animation when she described her husband. Very tall, confident and generous, he has her heart.
52. I have reservations about Mrs. McGregor. They go mainly to the case that she seeks to make as to her understanding of the position in respect of the proceeds of the sale of Fron Ganol. Despite her continued reliance upon this version of events in Court, I thought that she came across as an essentially truthful witness. Her general honesty was exemplified by the fact she volunteered having seen and read a letter dated Feb. 13, 1995 that had been written to her husband by the defendants. That letter contained the defendants' best hope of showing that the question of undue influence had been brought to her attention.
53. The unsatisfactory nature of her evidence came in the attempt to show that when the charge over Fron Ganol was obtained, Mrs. McGregor thought that the giving of the charge would not affect her interest in the property and that at various times Mr. McGregor had said that this was so. For reasons to which I shall come, Mr. McGregor was never under that impression and I do not think that he would have actively misrepresented the situation when he was perfectly able to get everything that he required from his wife without resorting to such means. His was a classic betrayal of trust.
54. I hold that just as he had done before and would do again, Mr. McGregor asked Mrs. McGregor to go to the bank and sign some documents to help him with his business. I further hold that when the charge over Fron Ganol was signed, Mrs. McGregor had no idea of the financial side of Mr. McGregor's business activities except to the extent that they appeared to provide a very comfortable existence.
55. Just as he had on July 7, 1983 so on Jan. 11, 1985, Mr. Norman Davies, the bank's assistant manager in Ruthin, was responsible for the execution of the charge that Mrs. McGregor gave. This latter was the charge over Fron Ganol.
56. Mr. Davies gave evidence. He was entirely frank and helpful. Although without any direct recollection of his meetings with Mrs. McGregor, to me he re-enacted what he thought would have been said by him at the meeting on Jan. 11. It was as follows:
This is the document that requires your signature. The document covers the property known as Fron Ganol. The property is in the name of yourself and Mr. McGregor. The bank is seeking to take a charge to secure borrowing against your property. If it happens that Mr. McGregor experiences difficulty, the bank will have a legal right to sell the property in your names and to use the proceeds from the sale of the property to repay the borrowing.
57. I accept that Mr. Davies would have spoken in the above terms.
58. As Mr. Hubble readily accepted, the above version of events would have placed the bank in an immediate difficulty. First, it must have known that Mrs. McGregor was the wife of Mr. McGregor and it was therefore on notice as to any equity arising in consequence of undue influence. Second, the bank did not advise Mrs. McGregor to seek the advice of a solicitor in respect of the transaction and was therefore in no position to negative that notice.
59. Mrs. McGregor was therefore in a position to seek to set aside the charge either upon the basis that her habitual dependence upon Mr. McGregor in financial matters had led her into a transaction of a nature so contrary to her interests that it required to be justified or that she was, as a concluded fact, the victim of undue influence.
60. Of course nothing happened before disaster struck.
61. The clouds seem to have gathered at about the time of the last charge in February, 1990. By this time Mr. McGregor had changed what had been a hobby of his into a major business interest. The business involved dealing in military equipment that was no longer of current use; much from the time of the Second World War. It does appear that when the 1990 charge over the building land was obtained, Mr. McGregor told his wife that it was needed to help fund these activities in respect of imports from Portugal.
62. Quite what it was that led to Mr. McGregor's ultimate financial downfall in late 1994 is not entirely clear, but he had been in severe difficulties for over a year before that. It appears that a big buyer had not honoured his contract after much money had been spent.
63. By this time, Mrs. McGregor had been without funds for many months.
64. Demands were made by the bank in respect of the overdrawn accounts of each of the McGregors on Oct. 12, 1994. Mr. McGregor was £711,722.99 overdrawn. Mrs. McGregor was £55,839 overdrawn.
65. When giving her evidence Mrs. McGregor was adamant that during the events of late 1994 and early 1995 she did not know the amount of her husband's indebtedness. That she knew disaster had struck was evident from the fact that for some time she had accepted that Fron Ganol would have to be sold. While this knowledge is of no immediate relevance to the existence of any cause of action, it struck me as having relevance as to how the couple dealt with its financial affairs. In the end (and to my continuing surprise) I am satisfied that there was no such detailed discussion.
66. On Jan. 9, 1995 the bank obtained judgment against Mr. McGregor in the sum of £717,722.99. Judgment against Mrs. McGregor was obtained in the sum of £56,495.67. Writs of fieri facias were issued against the couple. It was this that galvanised Mr. McGregor. While Mr. McGregor had long since faced the threat of losing his land, the threat of the loss of the military equipment seems to have been another matter. Although the suggestion seems to have been that he was motivated by the fear of breaching the government licence under which he held the equipment, I doubt whether this was the whole reason for his activity.
67. At all events, on Jan. 17, 1995 Mr. McGregor came in from the street to seek advice from the defendants. He saw Mr. Howard.
68. Although Mr. Howard is not qualified, the parties are agreed that I should equate his duty of care to that of a high street solicitor. I think that the parties are also agreed that one should regard the duty of a high street solicitor as being akin to that of a medical general practitioner. I shall adopt that course.
69. The consequence is that Mr. Howard's duty involved him in two ways. First, he had to exercise reasonable skill and care in the discharge of those matters which would ordinarily be his to handle. Second, he had to use reasonable skill and care in spotting those matters that came within his retainer but were beyond his skill to handle. Mr. Howard was well aware of both these duties.
70. Mr. Howard gave evidence. He was an engaging and scrupulously honest witness. When first involved in this claim his potential lack of recollection had been transformed by recalling Mr. McGregor's unusual line of business.
71. Mr. Howard made a detailed attendance note. It shows that what he was specifically asked to deal with was the levying of execution upon the military equipment. But, as appears from a standard letter of retainer dated Jan. 17, 1995, the defendants were also retained by Mrs. McGregor. Furthermore, Mr. Howard accepted in his evidence that, whether initially or shortly afterwards, the defendants were retained in respect of the possession proceedings that the bank had started on Jan. 13, 1995.
72. Correspondence suggests that at this time Mr. McGregor was attempting to conclude a deal for the supply of equipment from a Czech manufacturing interest to purchasers in Nigeria in the sum of US$126,000,000 out of which he hoped to obtain a commission of US$1,300,000. The evidence of the deal is sparse. For the purposes of this case that does not matter. What is relevant is that I accept the bank's case that until well into 1995, Mr. McGregor thought that he would pull off the deal and repair his (and his wife's) position with the bank.
73. Mr. Howard rightly informed Mr. McGregor that there was no point in challenging the judgments. They decided that the best course was to try to buy time. On Jan. 17, 1995 Mr. Howard faxed a letter to the bank's solicitors that was designed to execute their plan. Mr. Lewis of the bank's solicitors responded on the same day. Mr. Howard's attendance note records a sensible conversation in which Mr. Lewis expressed certain fears of the bank and told Mr. Howard that possession proceedings were "in the pipeline". The indication was that the time that the legal action would take to bite would be sufficient for negotiations to take place.
74. On Jan. 18, 1995 Mr. McGregor came to see Mr. Howard bringing with him four possession summonses including one in respect of Fron Ganol. The return date was Feb. 22, 1995. The two men decided to leave matters for a little in order to see whether Mr. McGregor could conclude his Nigerian deal. Mr. McGregor also said that he had spoken to his wife and told her to expect the worst.
75. On Jan. 28, 1995 Mr. McGregor wrote a letter to Mr. Howard in response to latter's request for an update. The letter dwelt upon Mr. McGregor's business interests and seemed to indicate that the presence of the weapons upon the land at Fron Ganol might operate to obstruct possession which would involve a breach of the licence requirements. Mr. Howard seemed satisfied with the reply.
76. On Feb. 11, 1995 Mr. McGregor wrote to Mr. Howard. He said that he enclosed "documents relating to the repossession of Fron Ganol by Barclays Bank". These appear to have included two letters each dated Dec. 2, 1994 and addressed to the bank. One was signed by both Mr. and Mrs. McGregor. It contained the passage; "Bronwen has said from the beginning that they could sell our home to clear her debt, and a considerable portion of my own". The second letter was signed by Mrs. McGregor alone and contained the passage:
As far as I am concerned, I gave my approval for our home to be sold over a year ago, in order to eliminate my borrowing, and to lower my husband's outstanding debt.
77. The letter of Feb. 11, 1995 contained paragraphs setting out Mr. McGregor's views on the value of Fron Ganol and concern as to the status of his military equipment. It closed with the following paragraph:
You may remember that I asked you about Bronwen's half of Fron Ganol going to clear her debt in the first instance, can you tell us if this is possible, now you have the offending document in hand. It seems very rough on her if this cannot be done, particularly in view of the rate of interest on this account, which was imposed without consultation, by the bank.
78. Both the above letter and an attendance note dated Feb. 13, 1995 indicate that by this time Mr. Howard had a copy of the charge over Fron Ganol. He was perplexed because the charge was an all moneys charge by which Mrs. McGregor charged Fron Ganol not only in respect of Mr. McGregor's borrowings from the bank but also her own. Given that Mr. McGregor had executed a similar charge, he could not understand how the chargors could regulate the way in which the proceeds of sale should be used.
79. More important for present purposes, is the fact that all the extracts that I have set out appear to recognise the fact that the proceeds of Mrs. McGregor's interest in Fron Ganol could be used towards the discharge of Mr. McGregor's debt. Particularly is this so with the letter of Feb. 11.
80. On Feb. 13, 1995 Mr. Howard wrote to Mr. McGregor a letter which contained the following paragraphs:
As far as your wife's share in the property is concerned, the simple fact of the matter is that the Bank are entitled to enforce their Judgment and to utilise any security that they have in the enforcement of the Judgment. Obviously, they hold security over the property and land and are therefore entitled to possession in order to sell the land/property by way of enforcement of the debt. Presumably when you took out your mortgage in respect of your own account, your wife also signed the relevant documentation. On the other hand, if you are stating that your wife was not aware of the fact that your account had been secured on the property/land, then this puts a different complexion on the matter. However, I doubt that this was the case, as the Bank are usually quite pedantic in ensuring that any spouse who has an interest in the property (or indeed any other adult occupying the property) is aware of the security being offered for the loan facility.
Furthermore, there is also a Judgment against your wife in respect of the debt due from her which the Bank are entitled to enforce.
81. As I have said, Mrs. McGregor told me that she had seen and read the letter. She was unable to explain why she had not responded to Mr. Howard at the time. I think that the reason for this is that at the time her concern was the one set out by Mr. McGregor in his letter. She wanted her debt to be discharged from the proceeds of sale. This would mean that (unlike Mr. McGregor) she would not be made bankrupt. In fact she never has been.
82. I think that over the years Mrs. McGregor has come to hold a belief that squares with her stated acceptance of the sale of the property but asserts a claim to the balance of her interest after the sale. That said, I am not at all clear that the wording of the letter was such as to put someone who held the rather arcane view of events for which Mrs. McGregor contends upon notice of the need for a response.
83. The letter is the high water mark of the defendants' case. With his usual candour Mr. Howard told me that the letter was not addressed to the question of undue influence but that of unilateral mistake. Nevertheless he felt that his words were enough to show that he had done what was needed by way of inquiry as to the former.
84. Unfortunately Mr. Howard's position suffered from three fatal flaws. The first was that, although he said that he knew of the decision in O'Brien, it was clear that he knew nothing relevant of its contents. The description that he gave me of undue influence was devoted to overt oppression. In it covert breach of trust played no part. The potential significance of Mrs. McGregor's status went unmentioned, as did the burden upon the bank to advise consulting a solicitor. The second flaw was that Mr. Howard saw no need to take a "case history" in order to evaluate the situation. He felt that the burden was upon the client to volunteer any necessary information. While it is obviously for the client to give an untutored account of events, it is hard to see how one ignorant of the law of undue influence can be expected to volunteer information in the absence of relevant questioning. The third flaw was that Mr. Howard was content to receive all the information that he needed from the person who exercised the undue influence. He told me that he did have undue influence in mind, but concluded from his contact with Mr. McGregor that there was no reason to suspect any such thing.
85. I find that in early 1995 a high street solicitor should have been conversant with O'Brien and that the present case was typically one that should have been investigated with O'Brien in mind. The letter of Feb. 13, 1993 in no sense constituted an adequate investigation of the situation. If the investigation had been made, a reasonably competent high street solicitor would have advised Mrs. McGregor that she had a strong chance of coming within Class 2(B), that the bank was on notice as to her equity and its failure to advise her to seek the advice of a solicitor meant that the notice had not been negatived.
86. Mrs. McGregor received no such advice and on Feb. 22, 1995 uncontested possession orders were obtained.
87. Mr. McGregor fought a rearguard action. He disputed the value of Fron Ganol and asserted the imminence of his business deal; but to no avail. The property was sold for £315,000, possession was taken and Mr. McGregor was made bankrupt.
88. The defendants assert that on a balance of probabilities, Mrs. McGregor would neither have sought independent advice if the defendants had suggested it nor sought to set aside the charge over Fron Ganol. They say that Mr. McGregor would not have wished to antagonise the bank because he wanted time to pull off his deal without being made bankrupt. I disagree. I make the pragmatic assumption that Mr. McGregor has always exercised a high degree of control over Mrs. McGregor and, ignore for the moment, how a Court might view the effect of such control if known to the bank. It is my view, on a balance of probabilities, that what would have prevailed with the McGregors was the survival of Mrs. McGregor with a substantial nest egg (possibly £90,000) and no bankruptcy.
89. The next step is to evaluate the chance in percentage terms. The parties are agreed that I can go no further at present.
90. In this regard two questions arise. The first is to consider my approach when I have had some of the evidence that there would have been at the trial but not all of it. The second is how I should approach advent of Etridge.
91. I shall deal with Etridge first.
92. As a matter of chronology I think that the notional setting aside case ("the case") would have been dealt with at first instance before Etridge was heard in the Court of Appeal but I do not think this matters. This is because although there are critical distinctions between O'Brien and Etridge they are not relevant to this case.
93. Whether it would have been a "Class 2(B)" case or a "rebuttable evidential assumption or prima facie" case, the nature of the inquiry into Mrs. McGregor's dependent status would have been the same. So would have been the inquiry into notice and into negativing of notice. Finally, although the question of the nature of undue influence received more attention in Etridge than it did in O'Brien, this was not a "revelation" of the law in any artificial sense. The law was what it had always been and available to those who looked. The novelty in Etridge was real but lay elsewhere.
94. It seems to me that the evaluation of the facts must depend upon each case. In this case I have seen both Mrs. McGregor and the relevant officials. I find it hard to think that the bank held documents that would have changed things. Nobody has made the suggestion in any specific sense, despite the earlier involvement of the bank in this case and the ability of the defendants to seek an order for the production of bank documents.
95. For reasons that I have already given, whether by establishing a prima facie position that there was no means of rebutting or the straightforward proof of undue influence, I think Mrs. McGregor to have had a very strong chance of making her case under that head. It is hard to see how Mrs. McGregor could have lost on either the issue of notice or the bank could have won on the issue of defeating that notice.
96. No doubt some discount must be made for the vagaries of fortune. Mr. Wood, Counsel for Mrs. McGregor, has put the chance at 75 per cent. and I am prepared to assess it in that amount.
97. I find that breach of duty by the defendants caused to Mrs. McGregor to lose a 75 per cent. chance of setting aside the charge of her interest in Fron Ganol.