LAW REPORT v 15 November 1996 Bank's solicitor advised borrower's wife

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Barclays Bank plc v Thomson; Court of Appeal (Lord Justice Simon Brown, Lord Justice Waite, Lord Justice Morritt) 7 November 1996

A bank lending money to a husband and wife on the security of a mortgage over their home was entitled, in satisfying itself that it had taken reasonable steps to ensure that the wife's signature had not been obtained by undue influence, to rely on a solicitor's assurance that he had properly advised the wife of the possible consequences of the transaction, even though the same solicitor was also acting for the husband and the bank itself. Knowledge of any deficiency in the advice given by the solicitor was not, therefore, to be imputed to the bank.

The Court of Appeal allowed an appeal by Barclays Bank plc, reversed the decision of Judge Foley on 4 October 1995, and restored that of District Judge Ing on 21 March 1995, refusing Jennifer Thomson's application to set aside an order giving the bank possession of her home, following non- payment of a loan secured on the property.

Ali Malek QC (Eversheds, Cardiff) for the bank; Miles Croally (Clement Jones & Co, Bangor) for Mrs Thomson.

Lord Justice Simon Brown said that in July 1990 Barclays obtained a legal charge over Mrs Thomson's family home to secure the borrowing on her and her husband's joint account. When the loan was not repaid, the bank sought possession of the home.

Mrs Thomson, relying on Barclays Bank v O'Brien [1994] 1 AC 180, claimed that the loan transaction had been to her manifest disadvantage and she had been subject to undue influence or misrepresentation by her husband. The critical question was whether the bank was fixed with constructive notice of this undue influence or misrepresentation.

The bank had instructed a firm of solicitors, Gwyn James & Co, to register the legal charge. It also asked them to explain the legal charge to Mrs Thomson "so that she is fully aware of what she is signing". Gwyn James & Co wrote back:

We have explained the full content of the legal charge to Mrs Thomson

and she is aware of what she has

signed and that the property is being used to secure borrowing on the joint bank account.

Mrs Thomson said that she and her husband had gone together to see Gwyn James, who also acted for her husband's business. At one point Mr James had asked Mr Thomson to leave the room, and in his absence warned her: "You know that by signing this you are allowing your house to act as security for your husband's business." He did not explain that the charge was in effect unlimited as to both amount and period. Had this been explained to her, she would not have entered into the charge.

Mrs Thomson argued that the bank had constructive notice of her husband's presumed or actual undue influence over her, since, in advising her as to the effect of the charge, Gwyn James & Co were acting as the bank's solicitors and agents, not hers. Knowledge of any deficiency in that advice was to be imputed to the bank so as to disentitle them from relying on the solicitors' assurance.

The bank acknowledged that in none of the other recent undue influence cases had the assurances relied on by the lenders been provided by their own solicitors, but contended there was no basis in logic or law why this should make any difference.

His Lordship concluded there was no reason why a bank, perhaps conscientiously instructing solicitors to give independent advice to a signatory who might otherwise go unadvised, should thereby be disabled from relying on the solicitors' certificate that such advice had been properly given.

There was nothing in this case to distinguish it from Massey v Midland Bank [1995] 1 All ER 929, Banco Exterior Internationale v Mann [1995] 1 All ER 936, Bank of Baroda v Rayarel [1995] 2 FLR 376, Midland Bank v Serter [1995] 1 FLR 1034 and Halifax Mortgage Services v Stepsky [1996] 2 WLR 230. The bank was equally entitled to rely on Gwyn James & Co's assurance here, as had been the lenders to rely on the various certificates and declarations given by solicitors in all those cases.

Paul Magrath, Barrister