England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM ORDER OF HIS HONOUR JUDGE ANTHONY
(Brighton County Court)

		Royal Courts of Justice Strand London WC2 Friday, 30th November 2001

1. LORD JUSTICE JONATHAN PARKER: This is an appeal against an order dated 30 January 2001 made by His Honour Judge Anthony, sitting in the Brighton County Court, whereby he dismissed the claims of the appellant, Greene King plc ("GK"), against the respondents Mr and Mrs Alan Stanley, the second and third defendants in the action. The action had earlier been discontinued as against the first defendants, Mr David Stanley, who is Mr and Mrs Stanley's son. By his order, the judge also declared that a Loan Agreement and Legal Charge dated 26 March 1993 and made between GK (1), David Stanley (2), and Mr and Mrs Stanley (3) whereby Mr and Mrs Stanley granted GK a legal charge over their home at 22 Normandy Lane, East Preston, West Sussex ("the Property") to secure a loan of £80,000 made by GK to David Stanley be set aside as against Mr and Mrs Stanley. I will refer to this Agreement and Legal Charge hereafter as "the Charge".
2. GK appears by Mr Dermot Woolgar of counsel; Mr and Mrs Stanley by Mr Clifford Darton of counsel.
3. By his judgment, to which I shall refer in detail later, the judge concluded (a) that Mr and Mrs Stanley had been released from liability under the Charge by virtue of the successful completion of an individual voluntary arrangement ("IVA") entered into between David Stanley and his creditors (including GK) pursuant to part VIII of the Insolvency Act 1986; and (b) that on the facts GK was fixed with constructive knowledge that the consent of Mr and Mrs Stanley to the granting of the Charge was procured by undue influence exercised over them by David Stanley, with the result that, on the application of the principles established by the House of Lords in Barclays Bank Plc v O'Brien [1994] 1 AC 200 and developed by the Court of Appeal in Royal Bank of Scotland v Etridge (no 2) ("Etridge") [1998] 4 All ER 705, the Charge was unenforceable against Mr and Mrs Stanley. Since the date of the judgment, those principles have been reconsidered by the House of Lords (see Etridge and a number of conjoined appeals, reported at [2001] 3 WLR 1021).
4. There are thus two quite separate issues on this appeal: first, as to the effect of the IVA ("the IVA issue"); and secondly, as to the enforceability of the Charge itself ("the Etridge issue"). To succeed on this appeal GK must succeed on both these issues.

THE FACTUAL BACKGROUND

5. I turn now to the factual background relevant to this appeal, and to the findings made by the judge. Mr and Mrs Stanley are now aged respectively 78 and 76. Since about 1988 they have lived at the Property, which they purchased with the aid of the proceeds of sale of a former Council house which they had purchased from the local authority. They have two children, David Stanley and a daughter. David Stanley is now in his mid-to late forties. He is married with three children. He was at one stage in the Metropolitan Police, but he left the police to pursue a career in catering. From about 1987 onwards he ran a number of public houses, one of which was a public house in Purley known as "The Dog and Duck" (subsequently re-named "Stanleys"). He also carried on a catering business. Initially, his business activities were sufficiently successful to enable him and his family to live in relative comfort.
6. In early 1992 David Stanley negotiated the purchase of the lease of The Dog and Duck (of which he was only the licensee), with a view to his obtaining a new lease in his own name. The purchase price for the lease was £80,000. Contracts were exchanged on 28 February 1992, with a contractual completion date of 10 April 1992. Completion did not take place, however, and it appears that later in 1992 the vendors served a completion notice on David Stanley and commenced an action against him for specific performance of the contract of purchase. In January 1993, with the purchase still uncompleted, David Stanley applied to GK for a loan of £80,000 to enable him to complete the purchase. It appears from the Free Trade Loan Request Form which GK required him to fill in that he had also applied for a loan to two other breweries. On 25 January 1993 GK agreed to lend David Stanley £80,000 over ten years, and that led in due course to the execution of the Charge, which was executed by Mr and Mrs Stanley on 9 March 1993 in the presence of a solicitor, a Mr Townend of Messrs Malcolm Wilson & Cobby.
7. Under the terms of the Charge David Stanley covenanted to repay the loan by monthly instalments over ten years (120 instalments). The loan was interest free so long as David Stanley complied with an obligation (in clause 5 (b)) to purchase minimum amounts of product from GK in each year. The Charge also contained default provisions and a provision for early discharge of the debt. By clause 6 of the Charge David Stanley covenanted to observe GK's trading terms and conditions from time to time in force. By clause 7, David Stanley charged The Dog and Duck as security for his obligations. By clause 18, Mr and Mrs Stanley charged the Property as additional security for all sums therein covenanted to be paid by David Stanley.
8. In early January 1993, that is to say some three months prior to the execution of the Charge by Mr and Mrs Stanley, David Stanley went to see Mr and Mrs Stanley to seek their agreement to granting a charge over the Property by way of additional security for the repayment of the expected loan from GK. The judge summarised Mr Stanley's evidence as to what occurred during David Stanley's visit as follows (at page 3G of the transcript):

"David's wife phoned up to say that David was on his way to see them, that he wanted something but not to worry, it was not money. David did arrive and indeed did want something. He wanted to borrow the house, or the deeds to the house, to facilitate his purchase of The Dog and Duck. Mr Stanley told me that he said in terms that he was intending to buy the freehold - he was already the licensee - with the intention that he would sell it. He explained that it was much easier to sell a pub if you had both the freehold and the licence, and that he expected to make a substantial amount of money. It might take 12-18 months or 18-24 months, the Stanleys differed in their recollections as to just the precise period of time given, but the loan would be repaid in that sort of time span. He did mention that if things went wrong they could lose the house, but he added that of course it would not come to that. The public house itself was to be the main security for the loan."

9. Mr Stanley's evidence was confirmed by Mrs Stanley, albeit she had taken a much less prominent role in the discussion, such as it was. The judge accepted Mr Stanley's account of the visit, saying (at page 5 B-E):

"I have anxiously considered the evidence of Mr and Mrs Stanley. Having done so, I am satisfied on the balance of probabilities that Mr Stanley is correct in his recollection. I find that David did tell him that he was buying the freehold with the intention of selling it on in a time scale of around 18 months. I accept also that he referred to the possibility of the house being lost but in effect also shrugged that off, saying it would not come to that, and I am also satisfied and find that David did not tell his parents that he was under huge pressure to complete and that proceedings seeking an order for specific performance had been issued, nor did he give any other details of the loan, such as that it was for £80,000 over 10 years. I find that he did tell his parents that the pub was to be the main security for the loan."

10. The upshot, as the judge found, was that Mr and Mrs Stanley agreed that David Stanley could "borrow the house", as they described it, and they there and then handed him the deeds (which were apparently kept in the house). On 15 January 1993 a valuer instructed by David Stanley valued the Property at £70,000 (Mrs Stanley was particularly disappointed by this valuation, as they had paid £83,000 for the Property when they purchased it a few years earlier).
11. During February 1993 correspondence took place between I. V. Heap (David Stanley's solicitors) and Stanley Tee & Co (GK's solicitors) in relation to the transaction, in the course of which I. V. Heap pointed out that the Property was owned not by David Stanley but by his parents, and that the draft agreement would need to be altered to reflect that.
12. On 5 March 1993 I. V. Heap arranged by telephone for Mr Townend of Malcolm Wilson & Cobby to advice Mr and Mrs Stanley of the implications of the proposed security and to supervise the execution by them of the Charge. On the same day I. V. Heap sent Mr Townend two copies of the Charge for execution by Mr and Mrs Stanley (two copies were required since Mr and Mrs Stanley were providing additional security for the loan). In their covering letter they said this:

"Re: Mr and Mrs A E Stanley - Legal Charge over 22 Normandy Lane, East Preston

We refer to our telephone conversation with your Mr Townend today and now write to enclose two copies of a form of Loan Agreement and Legal Charge which require to be signed by Mr and Mrs A E Stanley.

We confirm that we act for Mr D J Stanley in connection with his acquisition of the Dog and Duck Public House and Mr and Mrs Stanley are his parents who have agreed to put their property up as additional security for the loan which our client is obtaining from Greene King PLC.

We confirm that Mr and Mrs Stanley will contact you to make an appointment to call in and execute the Loan Agreement and Legal Charge and we would be grateful if you would advise them upon the implications of the document which they are signing as we confirm that at present, their property is free of Mortgage.

.....

Once you have seen Mr and Mrs Stanley and provided they have no objection to executing the Loan Agreement and Legal Charge, please return both copies to us as a matter of urgency together with your Account for settlement."

13. By letter of the same day (5 March 1993) I. V. Heap informed Stanley Tee & Co that copies of the documentation had been forwarded -

"to a solicitor local to our client's parents to advise them and obtain their execution thereto [sic]."

14. There is nothing in the evidence to indicate that the initiative in procuring that Mr and Mrs Stanley receive independent advice came from Stanley Tee & Co, and in the course of argument Mr Woolgar was content to accept that the initiative came from I. V. Heap.
15. Mr Stanley duly telephoned Mr Townend to make an appointment, and on 9 March 1993 (as the judge found) Mr and Mrs Stanley attended on Mr Townend in his office and signed the two copies of the Charge. There was, as the judge recorded, a "stark conflict of evidence" as to what happened on that occasion. In the event, the judge preferred the evidence of Mr and Mrs Stanley. He expressed his findings as follows (at page 9G - 10E of the transcript of his judgment):

"I find that the meeting was probably around 20 minutes in all. I find that Mr Townend did explain to the Stanleys that they were putting their house on the line, and that if their son defaulted on his obligations to repay the loan and any interest then they might lose their house. This, of course, they already knew because their son had told them, and so it is not surprising, in my judgment, that it has not stuck in their minds that they were so advised. One tends to remember being told something new rather better than being told something which one already knows.

I do not accept, though, that Mr Townend went through every clause of the agreement. I find that once he satisfied himself that the Stanleys knew the nature of the document, and of the risk they were running, he did not think it necessary to do more. To use his own words in evidence, they were not the borrowers. I do not accept that he explained to them the complicated calculations with regard to interest and barrellage, nor that he spelled out the amount of the loan or over what period it was to run. Thus, when Mr and Mrs Stanley came to sign the documents, they really knew no more than when they had come in, although they did know what might be thought to have been the most important aspect, namely, that if their son defaulted on the loan repayments they stood to lose their house."

16. Following the meeting, on the same day (9 March 1993), Mr Townend wrote to I. V. Heap enclosing the signed copies of the Charge together with a bill for his services in the amount of £50 plus VAT.
17. In his covering letter, Mr Townend said this (so far as material):

"We return herewith the form of Loan Agreement and Legal Charge, together with the duplicate, both of which have been executed by Mr and Mrs Stanley, our having explained to them the terms provisions and implications of the Document."

18. Given that Mr Townend's charge-out rate at that time was (as the judge found) £80 per hour, the judge regarded the bill for £50 as tending to confirm his findings as to the length and content of the meeting.
19. The next day (10 March) I. V. Heap settled the account, which was returned, receipted, by Malcolm Wilson & Cobby the following day.
20. In due course the Charge was also executed by GK and David Stanley, and was dated 26 March 1993.
21. Unfortunately the venture at The Dog and Duck did not prosper. David Stanley attributes its lack of success to the opening of a Tesco hypermarket nearby. By April 1997 he was substantially in arrears with payments under the Charge, and on 10 April 1997 GK called in the loan. However, GK did not at that stage take enforcement proceedings. In July 1997 David Stanley sold The Dog and Duck. On completion the net proceeds of sale, amounting to some £48,357, were paid to GK which in turn released its charge over The Dog and Duck.
22. By August 1998 David Stanley found himself insolvent and he instructed Messrs Radfords, insolvency practitioners. By this stage his only significant asset was a fund of some £50,000 representing the residue of the proceeds of sale of The Station Hotel in South Nutfield, of which he had taken a lease.
23. On 7 August 1998 Radfords telephoned Stanley Tee & Co and raised the possibility of an IVA. Stanley Tee & Co's initial response to this suggestion can be seen from an attendance note of what appears to be a later telephone conversation that day between Mr Redfern of Stanley Tee & Co and Mr Radford of Radfords. The attendance note reads as follows:

"DIR attg Radfords Insolvency Practitioners [telephoned] setting out our concerns as to the present position, in view of the fact that there appears to have been a preference with which we are not content. We also hold security in relation to the debt and unless there is to be repayment in full then it appears there is little point in us discussing matters further.

We would take instructions on anything they would write to us in DIR's absence, but otherwise matters must await DIR's return and we will have to consider whether we pursue possession proceedings or bankruptcy action against Mr Stanley."

24. On 13 August 1998 Radfords wrote to Stanley Tee & Co confirming that they had recommended an IVA, under which it was hoped that creditors would receive 20 to 25 pence in the pound: more, it was thought, than they would receive on a bankruptcy. In the course of that letter, Radfords said this:

"Of far more concern, however, is the question of the charge your clients hold over the property occupied by the aged parents of Mr Stanley. It is that aspect of the matter that he particularly wishes to discuss with your client, or yourselves. Clearly he is not in a position to repay the debt at present, or even to arrange a re-mortgaging. Nonetheless it should be possible to arrange for interest to be paid on the residual debt while an alternative solution to the matter can be found."

25. Radfords concluded by suggesting a meeting at which David Stanley would be present.
26. On 27 September 1998 Stanley Tee & Co wrote to Mr and Mrs Stanley making demand on them and threatening possession proceedings.
27. On 6 October 1998 Stanley Tee & Co wrote again to Radfords. In the course of that letter they said this:

"Our own enquiries lead us to believe that the security which our clients hold is more than sufficient to cover the outstanding indebtedness. Our enquiries reveal that the property is likely to have a value in the region of £90,000-£120,000.

Our client company hold a first charge on that property and that charge was granted after Mr and Mrs Stanley senior had received independent legal advice. The security was granted in conjunction with the original loan.

At this stage, we consider that our clients' debt is one which will be treated as secured under the terms of the original Loan Agreement and Legal Charge and we refer you to the definition of a secured creditor under 2.48 of the Insolvency Act 1986.

Our clients would quite clearly be prepared to enter into a moratorium agreement with the other creditors so far as part payment of their debt is concerned from the monies owing, subject to the full consent of all other creditors. In other respects, however, Mr Stanley clearly cannot formulate certain proposals for the discharge of the balance of the outstanding debt and it is difficult to understand the basis upon which Mr Stanley considers that our clients should await satisfaction of their liabilities having regard to the original security granted."

28. On 12 October 1998 a further telephone conversation took place between Mr Redfern and Mr Radford. Mr Redfern's attendance note of this conversation reads as follows:

"Attending Mr Radford [telephone] discussing matter once more. Fairly heated conversation in which he was angry that we were not cooperating but discussing the position that we had adopted. DIR however investigating his comments with regard to the position of secured creditor and accepting his position in relation to security for voting purposes which would give us a right to receive a share of the present monies that would part satisfy the outstanding liability. DIR to review matter with SR in respect of instructions."

29. On 15 October 1998 Mr Redfern wrote to Mr Radford putting forward, without prejudice, the terms on which GK would be willing to support an IVA. In the course of the letter Mr Redfern said this:

"Notwithstanding our disagreement based upon our perspective of the historical issues concerning Mr Stanley's affairs, we accept the position which you are seeking to achieve.

Although we are appreciative of your aims, we do not believe that Mr Stanley is in a position credibly to produce a settlement within a reasonable time scale that will allow the security property to be wholly released.

Nonetheless, we are prepared to offer Mr Stanley a final opportunity to deal with matters on the basis of your canvassing subject to strict terms.

We invite you to consider with your client the following:

1. Mr Stanley confirms his agreement to us upon the amount of the outstanding indebtedness due to Greene King plc upon the basis set out in the statements recently forwarded to you, to which is to be added up-to-date interest and the costs of this firm in pursuing enforcement.

2. We accept that the monies available to Mr Stanley at present should proceed to be distributed amongst the creditors within an IVA which Greene King plc will support. Whilst we accept your interpretation of the Insolvency Act 1986 in relation to the treatment of a secured debt, we require express statements to be made and notice given to all creditors served with the IVA that Greene King plc do hold security in the form of a charge over Mr and Mrs Stanley Snr's property but that notwithstanding such, Greene King plc are to be allowed to vote in the IVA without prejudice to that further security.

3. Greene King plc will allow Mr Stanley a further period of 6 months from the IVA interim Order within which to discharge the balance of his indebtedness to Greene King plc in exchange for a release of their security over your client's parents' property. In the event that that security is not discharged within the period of 6 months, then we shall proceed with an action for recovery of possession.

Unfortunately we cannot see that Mr Stanley has any credible method of refinancing the full amount of the debt and we do object to the manner in which it is somehow suggested that enforcing the security which Mr Stanley offered is unreasonable because he had not anticipated it would be required. The security was given after Mr and Mrs Stanley Snr had received full and independent advice from a solicitor and if the security was never to be at risk, then it should not have been offered and provided."

30. On 14 October 1998 Mr Radford's solicitors, Messrs Paris Smith & Randall, wrote to Stanley Tee & Co confirming that they acted for Radfords. In the course of their letter they said this:

"We assume that you accept that Mr Stanley is an unsecured creditor of your clients but with your clients having third party security. Having regard to this, and to enable us to advise our clients fully, could we trouble you please to let us have a copy of all the relevant documentation relating to the third party security.

Once we have this, we can advise our client more fully and contact you further."

31. On 15 October 1998 Mr Redfern responded, saying this:

"We are not prepared to enter into protracted correspondence in connection with matters on behalf of our clients. Neither are our company clients prepared to be forced into agreement to an IVA having regard to the fact that our clients' debt is fully secured.

Mr Stanley's own solicitors and those of his parents have had full correspondence in relation to the security and he can no doubt provide full details to you if further information is required."

32. On the following day, Paris Smith & Randall wrote to Stanley Tee & Co saying that they were instructed by Mr Radford that Mr Redfern's without prejudice proposals were acceptable. They concluded:

"There is no need for protracted correspondence. We or our clients will notify you when the proposals are ready for the application. It would however be helpful if we had copies of the third party security. We will attempt to obtain these from Mr Stanley."

33. The above correspondence makes it abundantly clear that GK's support for the IVA was conditional on its security over the Property being preserved.
34. Radfords duly set about drawing up a proposal to form the basis on an IVA, and on 22 January 1993 the proposal was sent to Stanley Tee & Co. Essentially, the proposal was for the distribution among the creditors, pro rata, of the fund of some £50,000 referred to earlier. Appendix 2 contains details of David Stanley's debts. GK is shown as a creditor in the sum of £90,000, out of a total figure for creditors of £160,158 (ie 56.25 per cent of the total). The next largest creditor on the list is HM Customs and Excise in the sum of £16,000, in respect, no doubt, of VAT. Paragraph 8 of the proposal is headed "Guarantees and Secured Creditors". Subparagraph 8.1 states:

"Greene King have a guarantee from my parents secured by a charge on their house."

35. Paragraph 10 of the proposal provides that the duration of the IVA shall be one year, with discretionary power for the supervisor or nominee to bring it to an end earlier. By paragraph 14 of the proposal, it was proposed that the supervisor of the IVA should be Mr Carl Faulds of Radfords.
36. The proposal was subject to a set of Standard Conditions. Standard Condition 17 provides (so far as material) as follows:

"The debtor's obligations to creditors under the arrangement shall be at an end and all arrangement debts shall be deemed discharged only upon the issuing of a notice that the arrangement has been fully implemented in accordance with rule 5.29."

37. In due course Mr Faulds submitted a report to the court pursuant to section 256 (1) of the Insolvency Act 1986, stating that he was satisfied that the proposal contained all the information required by Rule 5.3 of the Insolvency Rules, and proposing that a meeting of creditors be convened, pursuant to section 257 of the Act, to consider the proposal.
38. Returning to the correspondence, on 26 January 1999 Mr Redfern of Stanley Tee & Co wrote to Mr Radford thanking him for sending a copy of the proposal. The letter continued:

"Whilst we discuss matters with our company clients, we would be grateful if you would confirm whether Mr and Mrs Stanley senior have been served with a copy of the proposal and whether or not they have indicated their views in respective of both the proposal and their continuing security.

We would be grateful if you would confirm whether or not Mr and Mrs Stanley senior have received any independent advice in relation to this matter.

We also await confirmation from your client the proposer Mr Stanley that he is proceeding into this arrangement on the basis that he accepts the full validity of the further charge which our clients hold and to which you have referred.

You will appreciate that we are not minded to advise our clients to formally approve the proposal if Mr Stanley should then seek to try and withdraw."

39. Mr Radford replied on 1 February 1999 pointing out that Mr and Mrs Stanley were not parties to the proposed IVA. He continued:

"I have had no contact with Mr and Mrs Stanley Snr. for the very good reasons that Mr D J Stanley is seeking to protect his parents. I imagine that they must have received independent advice when they gave a charge to your client. I have little doubt that they will seek advice if it becomes necessary for your client to make a claim upon them. As previously indicated, Mr Stanley hopes that the matter can be dealt with on a personal and gentle basis to avoid causing any unnecessary worry to his parents.

I regret I do not understand the fourth paragraph of your letter. I can, however, confirm that throughout our negotiations Mr Stanley has referred to the charge held by your client over his parents' home and, indeed, he refers to it in the proposal. I would like to think you agree that he could do no more.

I cannot imagine that Mr Stanley would, in your words `try to withdraw'. As will be apparent from the rest of this letter, he is anxious to help his parents to resolve the difficulties that he has placed upon them as soon as he is free of his liabilities under the voluntary arrangement. It follows therefore that the sooner it is in place and arrangements are in hand to tidy up the loose ends and distribute the funds to the creditors, the better it must be for your client."

40. It is quite clear from that letter that Mr Radford was well aware -as indeed he must have been from the earlier correspondence - that GK's support for the IVA was conditional on its reserving its rights to enforce its security against Mr and Mrs Stanley.
41. On 8 February 1999 Mr Redfern wrote again to Mr Radford, saying this:

"I will be appreciated that this IVA will succeed or fail having regard to the extent of our own clients' support.

In principle Greene King PLC are prepared to support the arrangement, as previously indicated, but we require a confirmatory letter from Mr Stanley that he accepts the validity of the Charge which our clients hold over his parents' property and that he personally accepts that there is no question of him raising any challenge in connection with the same.

We are aware that Mr and Mrs Stanley senior signed the Charge in the presence of an independent legal adviser and we are satisfied as to the validity of that security. We nonetheless wish for this personal confirmation from Mr Stanley before we proceed to lodge the proxy that you request.

We would also wish to know that Mr and Mrs Stanley senior have been advised of the IVA and the basis upon which Greene King PLC continue to rely upon their security, notwithstanding their involvement in this IVA.

Once we have such confirmation we will respond promptly to you."

42. On 10 February 1999 Mr Faulds wrote to Stanley Tee & Co enclosing a copy of a fax dated 9 February 1999 from David Stanley stating that he did not dispute the validity of the Charge and that Mr and Mrs Stanley were aware of the proposal for an IVA. In that letter Mr Faulds also invited Stanley Tee & Co to confirm GK's acceptance of the proposal by completing a form of proxy, which he enclosed. Mr Redfern duly completed the form of proxy and returned it to Mr Faulds before the creditors' meeting, scheduled to take place the next day (11 February 1999). By its proxy, GK appointed the Chairman of the meeting (in the event, Mr Faulds) to act as its proxy, and instructed him to vote in favour of the proposal. In the space provided in the form for the insertion of any modifications required by GK, Mr Redfern had written:

"No modifications. The creditor continues to rely on third party security in addition to a claim in the IVA as creditor."

43. The creditors' meeting was duly held on 11 February 1999 (having been adjourned from 9 February 1999). In the event only four creditors voted (all by proxy). In favour of the proposal were GK (in the sum of £87,232.37) and one other creditor in the sum of £4,421.36: a total in value of £91,653.73. Against the proposal were HM Customs and Excise (in the sum of £16,000) and another creditor in the sum of £6,986.82: a total in value of £22,986.82. Thus the proposal was approved by a majority of approximately 80 per cent to 20 per cent. GK's debt accounted for some 76 per cent of the total in value of the creditors who voted on the proposal. Had GK voted against the proposal, it would inevitably have been rejected.
44. The IVA accordingly took effect in the terms of the proposal, without modifications.
45. In December 1999, while the IVA was still on foot, GK commenced the present action against (initially) David Stanley and Mr and Mrs Stanley claiming (as against David Stanley) payment of his outstanding indebtedness, and (as against Mr and Mrs Stanley) enforcement of the security. As mentioned earlier, the action was subsequently discontinued as against David Stanley.
46. On 10 April 2000 Mr Faulds notified creditors that the IVA had been fully implemented, thereby bringing it to an end. Thereupon, condition 17 of the Standard Conditions took effect and David Stanley was released from further obligations to the IVA creditors (including GK).

THE JUDGMENT OF HIS HONOUR JUDGE ANTHONY

The IVA issue

47. After reciting the factual background and making his findings of fact, the judge turned first (at page 13E of the transcript of his judgment) to the IVA issue. He began by noting the common law rule that a release of the principal debtor also releases the surety unless the creditor reserves his rights against the surety, and the distinction drawn in the authorities between a lease and a covenant not to sue. He then referred to the decisions of this court in Watts v Aldington (unreported, judgment handed down on 15 December 1993) and Johnson v Davies [1999] Ch 117. Relying on a dictum of Lord Justice Chadwick in Johnson v Davies that "one must look at the arrangement [ie the IVA] and nothing else in order to find the terms, if any, under which the debtor is discharged" (see ibid. page 138 A), the judge addressed the question whether, on its true construction, the IVA in the instant case had the effect of reserving GK's rights against Mr and Mrs Stanley notwithstanding the lease of David Stanley on the successful completion of the IVA. Addressing that question, the judge said this:

"I conclude that the parole evidence rule does apply here, and that I should look only at the terms, express or implied, of the IVA. The proposal was sent to all creditors. Greene King voted for the proposal, as I have said, using the words, `No modifications,' and then going on to indicate an intention to continue to rely on third party security. The Chairman of the creditors' meeting took that as indeed meaning no modifications, and the proposal was therefore accepted without modification. That proposal results, in my judgment, in the discharge or release of the debtor upon notice of the arrangement being satisfactorily completed, and I am not persuaded that there should be implied any term to the contrary.

Whatever view may be taken as to whether that would also have discharged a joint and several debtor or a joint debtor, the law certainly has not yet, in my judgment, moved so far away from the original position that the release of a debtor released in these circumstances does not release also the surety, who after all is not a primary debtor unlike joint and several or joint debtors. Whether one looks to see whether it is a release or a covenant not to sue, or whether one looks at the overall picture as contained in the IVA, in my judgment the same result obtains. It is very difficult to see how the release of the debtor following the conclusion of the IVA could possibly be considered a mere covenant not to sue, and I decline, if I need to, so to categorise it.

It is equally clear that the intention contained in the IVA, whatever may have been suggested in earlier correspondence, was that the debtor should be released once the arrangement had been successfully concluded, and if the suretyship were to survive, then of course he would be liable to be pursued by the surety and so would not be released at all. The policy considerations discussed by Lord Justice Chadwick at p.665 G and following, which I have already cited, are very much in point here.

There was ample room for Greene King to have tried to protect its position. It could have voted against the proposal, and, as by far the largest creditor, have defeated it. Even if not the largest creditor and unable to defeat the proposal, it could have gone to court and sought the revocation of the approval. Perhaps most easily though, Greene King could have inserted into the original loan agreement and legal charge a provision to the effect that their rights to enforce against the surety would survive any release of the debtor. Thus, in the event, I have come to the conclusion that the sureties in this case were discharged upon the successful completion of the arrangement."

The Etridge issue

48. After referring to O'Brien and to Etridge in the Court of Appeal, the judge turned first to the question whether there was a relationship of trust and confidence between Mr and Mrs Stanley and David Stanley "of such a nature that it is fair to assume that the wrongdoer abused the relationship in procuring them to enter into the transaction" (transcript page 22A). The judge found as a fact that there was such a relationship (see transcript page 23 F-G).
49. In making that finding, the judge made a number of subsidiary findings of fact, viz., that Mr and Mrs Stanley were "relativelynaive in financial matters" (transcript page 23 A); that by contrast David Stanley "showed rather greater financial acumen" (transcript page 23 B); that on two previous occasions they assisted him in financing his public house ventures, once by making a loan and the other by offering their then home as security; and that on each such occasion their trust had not been misplaced in that the loan had been repaid and the deeds returned (transcript page 23 D-E). The judge also found that, although they were willing to help David Stanley once again, Mr and Mrs Stanley needed the Property free of incumbrances in about two years' time, as they planned to use part of the equity in the Property to enhance their pension provision (Mr Stanley having unfortunately been a victim of the Maxwell pension fund fraud).
50. As to David Stanley's visit to his parents in January 1993, the judge said this:

"On this occasion though, as I have already found, their son did not live up to their high expectations. He did not tell them that he had tried to raise money from two other breweries. He did not tell them that he was many months in default in completing the purchase, and that he had been served with specific performance proceedings, but he did wrongly indicate that he was purchasing the freehold intending to sell it on relatively quickly at a profit so that they would have the house back and its deeds in time to carry out the transaction to secure a higher pension. He did not make it clear that it was a loan of £80,000 for 10 years, and so that it was highly unlikely that he could have repaid the loan that quickly.

I attach, though, no particular weight to his having told them in one breath that they could in theory lose the house and that in the next of course it would not come to that, for no doubt he did genuinely believe that he would be successful with the venture, even though he may have had difficulties in raising the money."

51. The judge expressed his conclusion on these aspects of the case as follows:

"In those circumstances, I do find that there is the presumption of undue influence and that David Stanley was guilty of wrongdoing in his misrepresentations."

52. The judge then turned to the question whether the execution of the Charge was to the manifest disadvantage of Mr and Mrs Stanley, concluding that it plainly was. The judge continued:

"So it is for Greene King to rebut the presumption, if they can. There is nothing in the evidence which leads me to doubt the presumption itself, nothing which suggests that the Stanleys did not act as they were asked because of the trust and confidence they had in the financial acumen of their son. So the claimants have to rely on the independent legal advice which the defendants received from Mr Townend."

53. Returning, then, to his findings concerning Mr Townend, the judge said this:

"On my findings of fact, Mr Townend was not fully informed of the material facts, as he did not know the nature and reasons for their son's indebtedness, something he said himself it would have been prudent for him to know, and something that would have made him think that they were not as well informed as he had believed, and he would have asked them to be more careful. He did not know the contents of the trading terms and conditions and he attempted at one stage to suggest that he thought the Stanleys were aware of them, which suggests strongly to me that on reflection he thought this was something they ought to have known about. The lack of knowledge of the precise terms of the lease I do not regard as necessarily material, but the other defects in the information available to him mean that in my judgment he was not fully informed of the material facts. Further, he did not give a proper explanation of the document, limiting himself to satisfying himself that they appreciated that they were putting their house up as security for the loan their son was taking out in connection with his purchase of the public house and that they appreciated that if things went wrong and the loan was not repaid, they could lose their home."

54. After further reference to Etridge in the Court of Appeal, the judge said this:

"Whatever the potential consequences of strict reliance on what is proposed in the first part of that extract, whereby if the contract is one which could not sensibly be advised as one to be entered, it would seem to be virtually impossible for it to be entered, because the lender will be fixed with actual knowledge that the solicitor regards it as one which is only being insisted on because of undue influence, it is in my judgment clear that Mr Townend failed to live up to what is expected of a solicitor giving the advice in both paras. 19 and 20.

Much of the judgment in the Etridge case is then taken up with considering in what circumstances a lender may rely on the fact that he has been told that independent advice has been given. But it is common ground in this case that Greene King never were told that advice had been given, only in advance that it was intended that independent advice would be given. Realistically, Mr Woolgar seemed prepared to accept that if in fact the advice given was not adequate, Greene King remain fixed with constructive knowledge of the undue influence and such is indeed, in my judgment, the case.

It follows that the defence of undue influence also succeeds, it being established that there was presumed undue influence and wrongdoing by David Stanley, leading to a contract which was manifestly disadvantageous to the Stanleys, the presumption is not rebutted by showing that there was adequate independent legal advice, and so Greene King are fixed with constructive knowledge of the undue influence.

On both heads of the Defence which were pursued, then, I have come to the conclusion that they are well founded. The claim must be dismissed, and the defendants are entitled to suitable declarations or orders requiring the vacation of the legal charge over their property."

55. Following delivery of the judgment, the judge was requested to deliver a supplemental judgment addressing the issue whether, had proper advice been given by Mr Townend to Mr and Mrs Stanley, they would nevertheless have gone ahead and executed the Charge. The judge acceded to that request. In his supplemental judgment, the judge dealt with the issue as follows:

"As considered in my judgment, the advice from Mr Townend was deficient in that it did not address the issues of the amount of the loan, its period, the fact that only a lease was being purchased rather than the freehold; and further in that Mr Townend was himself not in possession of all material facts he needed in order to give full advice. Thus he had not seen the trading terms and conditions, he did not know the extent of or reasons for the indebtedness of David Stanley or that he had approached two breweries before Greene King, nor, crucially, how desperate and under pressure David Stanley must have been because of the specific performance proceedings. I do not consider that the trading terms and conditions would, in the event, have made any difference to the Stanleys. I am not satisfied that if they had known the amount of the loan was £80,000 that it would have deterred them once it was made plain to them that their liability was limited to whatever the value of their house was. However, if told that only a lease was being purchased and that the loan was for 10 years, given that they were anxious for a quick return of the deeds so that they could seek to increase their pension by parting with a significant share in their house on reaching their 70th birthdays, and particularly also if told of David's financial pressures and difficulties, I find that at the very least they would have gone back to David for further information and had to reconsider. Further, if Mr Townend had followed the strictures of Lord Justice Stuart-Smith in Etridge, to which I referred in my judgment, about declining to act further in cases where no one sensibly could have been advised to enter the agreement and bearing in mind his own evidence to the effect that if he had known about David's position he would have told them to be even more careful, then it would seem to follow that unless they were completely insensitive to advice, which I do not accept was the case, they must at the very least have thought again and upon more mature reflection, would, as I find, on a balance of probabilities have changed their mind about proceeding.

I am not persuaded that causation is an element to be considered in undue influence cases, but in the event that the Court of Appeal holds that it is, those are my findings of fact."

THE GROUNDS OF APPEAL

The IVA issue

56. By paragraph 1 of its amended grounds of appeal GK contends that in the light of the incontrovertible evidence of GK's statement, communicated to Mr Faulds and to David Stanley, that its support of the IVA was conditional on its reserving its rights against Mr and Mrs Stanley under the Charge, the judge was wrong to conclude that the IVA released Mr and Mrs Stanley from their obligations thereunder.

The Etridge issue

57. By paragraph 2 of its amended grounds of appeal, GK contended that the judge was wrong to conclude that the defences of misrepresentation and undue influence succeeded.

THE IVA ISSUE

The arguments

58. It is convenient to refer first to the submissions made of Mr Darton (for Mr and Mrs Stanley), since his primary submission raises a fundamental point which is not expressly addressed in the judgment and which, if correct, would conclude the IVA issue in his favour without the need to consider the particular facts of the instant case.
59. Mr Darton's primary submission is that under the general law a creditor cannot preserve his rights against a surety on the release of the principal debtor unless there is a term in the contract of surety which entitles it to do so.
60. Mr Darton submits that it is of the nature of a contract of surety that, absent any express provision in the surety contract entitling it to do so, the creditor cannot unilaterally (for example, by coming to some arrangement with the debtor to which the surety is not a party) override the surety's contractual rights, one of which is the right to pay off the creditor and enforce the creditor's contractual rights against the principal debtor. Mr Darton also relies on the well-settled principle that the release of the principal debtor will, without more, discharge the surety (see Holme v Brunskill (1877) 3 QBD 495).
61. Mr Darton submits that in this respect a surety is in a materially different position to a co-debtor. On that basis he seeks to distinguish the authorities relating to co-debtors, including Watts v Aldington. He submits that those authorities did not address the peculiar characteristics of a surety contract, where the primary obligation is that of the principal debtor and where the surety has its own contractual rights against the creditor.
62. Mr Darton points to the prejudice which might be suffered by a surety if, absent any provision in the surety contract entitling it to do so, the creditor were entitled to release the debtor but at the same time reserve its rights against the surety. He reminds us that on the judge's findings in the instant case Mr and Mrs Stanley did not know about the IVA.
63. If and in so far as it may be necessary (contrary to his primary submission) to have regard to the facts of the instant case, and in particular the IVA, Mr Darton submits that, given its statutory nature, the court ought not to have regard to any surrounding circumstances but should focus exclusively on the terms of the IVA itself. He submits that the judge was correct to adopt this approach, and that the decision in Johnson v Davies provides support for it.
64. Adopting that approach, Mr Darton submits that there is no express term in the IVA which amounts to a reservation of GK's rights against Mr and Mrs Stanley, and he further submits that there is no basis for implying any such term.
65. He submits that, in any event, any intention on the part of GK to reserve its rights against Mr and Mrs Stanley required to be communicated to the other creditors, and that it was not sufficient that the existence of those rights was expressly referred to in paragraph 8.1 of the proposal.
66. He submits that GK's proper course (his primary submission being that it was GK's only course) was to insist on the inclusion in the Charge itself of a provision enabling it to reserve its rights under the Charge on a release of David Stanley. Had that been done, no prejudice or injustice to Mr and Mrs Stanley could have resulted.
67. Mr Woolgar submits that Mr Darton's primary submission is contrary to principle and to authority. He submits that there is no relevant distinction in this context between a surety and a co-debtor, and he referred us to statements in authoritative text books to the effect that a creditor may reserve his rights against a surety on the release of the principal debtor, and to the authorities there referred to. Thus, the learned editors of Chitty on Contracts, 28th edn, state (in paragraph 44-069) that one of the qualifications on the general rule that release of the principal debtor will release the surety is -

"where there is a reservation of the creditor's rights against the surety at the time of discharging the debtor."

68. To the same effect is O'Donovan and Phillips' The Modern Contract of Guarantee, at page 305, where the following statement appears:

"The result is that any agreement between creditor an debtor (whether worded as a covenant not to sue or as a release) which contains a clause preserving rights against the guarantor is effective for that purpose."

69. Mr Woolgar submits that the possibility of a release of the principal debtor coupled with a reservation of the creditor's rights against the surety is inherent in the nature of a surety contract; it is, he submits, an everyday aspect of commercial life.
70. Turning to the facts of the instant case, Mr Woolgar submits that the judge misunderstood Lord Justice Chadwick's reference in Johnson v Davies to looking at the IVA "and nothing else". He submits that what Lord Justice Chadwick was referring to in the passage in question was the statutory nature of an IVA, in the context of the proposition (which he rejected) that because of its statutory nature an IVA was in a special category and was not to be equated with an extra-statutory contract or consensual arrangement.
71. Mr Woolgar submits that there was no basis upon which the judge could have been justified in excluding from his consideration the correspondence between Stanley Tee & Co and Radfords (referred to earlier in this judgment). He submits that that correspondence provides clear evidence of GK's reservation of its rights against Mr and Mrs Stanley, and of the fact that the reservation was communicated by Radfords to David Stanley.

Conclusions on the IVA issue

72. In my judgment Mr Darton's primary submission that under the general law in the absence of a provision in the contract of surety entitling him to do so a creditor cannot reserve his rights against the surety on the release of the principal debtor is contrary to principle and authority.
73. In the first place, I can for my part see no relevant distinction in this connection between the position of a suety and that of a co-debtor, and it has long been accepted that on the release of a co-debtor the creditor may reserve his rights against the other co-debtors.
74. The thee authorities cited in Chitty on Contracts, by way of afootnote (footnote 12) to the passage in the text to which I referred earlier, namely Kearsley v Cole (1846) 16 M&W 128, Bateson v Gosling (1871) LR CP 9, and Cole v Lynn [1942] 1 KB 142 CA provide, in my judgment, clear support for conclusion stated in the text that one of the qualifications to the general rule that the release of the principal debtor discharges the surety is -

"where there is a reservation of the creditor's rights against the surety at the time of discharging the debt." (See ibid para 44-069).

75. In Cole v Lynn the Court of Appeal was concerned to determine the true meaning and effect of a deed of arrangement between the principal debtor and his creditors which purported to reserve the creditors' rights against any sureties. Sureties who had made payment under their guarantee claimed to be indemnified by the principal debtor. The principal debtor claimed that the effect of the deed of arrangement was similar to bankruptcy, and that the sureties had accordingly lost their rights to indemnity.
76. The court held that the sureties' rights to indemnity were dependent on the true construction of the relevant provision in the deed of arrangement. Giving the judgment of the court, Lord Justice Clauson said (at page 146):

"This point of construction was raised as long ago as 1846 in the Court of Exchequer in Kearsley v Cole on a deed which is indistinguishable for the material purpose from the present. In delivering his judgment, Parke B laid it down clearly that a proviso such as that with which we have to deal not only rebuts what would otherwise be implied, namely the release of the surety as against the creditor, but also prevents the rights of the surety against the debtor, that is, the right to indemnity, being impaired, for, as Parke B points out, the consent of the debtor that the creditor shall have recourse against the surety is impliedly a consent that the surety shall have recourse against him, the debtor. This point, his Lordship says, must be considered as settled. We have been referred to a number of cases, but to none which throws doubt on the emphatic language used by Parke B. It may be that this decision of the Court of Exchequer is not binding on this court, but we could hardly now, ninety-five years afterwards, overrule a decision of that court on such a matter as this, even if we felt (which we do not) any doubt about its correctness."

77. In Perry v National Provincial Bank [1910] 1 Ch 464 Cozens-Hardy MR said (at page 471):

"It is important to distinguish clearly between the rights of a surety under an ordinary contract of suretyship not containing any special provisions and the rights of a surety where the instrument creating the suretyship contains certain special clauses. It is elementary law that in a simple case of principal and surety the surety is discharged if the creditor gives time to the principal [debtor] or does certain other acts; and, a fortiori, if the creditor releases the principal debtor, of course the surety is released too. There are a certain number of acts which will not release the surety if, when the act in question is done, there is a reservation of rights against the surety."

78. Cozens-Hardy MR then went on to consider the position where the suretyship contract contains a special provision preserving the surety's liability.
79. In the passage which I have just quoted, as I read it, Cozens-Hardy MR expressly recognised the possibility of a release of the principal debtor coupled with a reservation of rights against the surety.
80. True it is that, as Mr Darton submitted, the basis for the general rule that the release of the principal debtor, without more, discharges the surety is that the release of the principal debtor interferes with the surety's right to pay off the debt and sue the principal debtor (see Mahant Singh v U Ba Yi [1939] AC 601, 606 per Lord Porter), but the authorities to which I have referred establish that that right takes effect subject to any reservation by the creditor of its rights against the surety at the time of the release. The reason why it does so is that the surety's right to sue the principal debtor remains unaffected by the release of the principal debtor since, as the Court of Appeal made clear in the passage from its judgment in Cole v Lynn quoted above, in accepting the release subject to the reservation the principal debtor impliedly consents to the surety's rights against him remaining on foot notwithstanding the release.
81. On the footing, therefore, that it was open to GK in the instant case to release David Stanley whilst reserving its rights against Mr and Mrs Stanley, I turn to the facts of the instant case in order to determine whether GK effectively reserved such rights.
82. In the first place, I accept Mr Woolgar's submission that the judge was in error in excluding from his consideration the clear statements made by Stanley Tee & Co to Radfords (and communicated by Radfords to David Stanley) to the effect that GK's support for the IVA was on the basis that in supporting the IVA it reserved its rights against Mr and Mrs Stanley. The judgment of Lord Justice Chadwick in Johnson v Davies, and in particular his reference (at page 138A) to looking at the arrangement "and nothing else", do not, as I read them, provide any warrant for the approach which the judge adopted. I accept Mr Woolgar's submission that in the passage in question Lord Justice Chadwick is addressing, and rejecting, the argument that the statutory nature of an IVA gives it a special status, with the consequence that a provision which would, in a non-statutory arrangement, amount to a release of a co-debtor, does not have that effect when it is contained in an IVA. I do not read Lord Justice Chadwick as saying that, in applying the general law to the provisions of an IVA, the court is to adopt any approach other than that which it would adopt in construing any non-statutory consensual arrangement; indeed, as I read his judgment, he is saying affirmatively that that is the approach which should be adopted. Thus, having concluded that one must look at the arrangement, "and nothing else", in order to find the terms (if any) under which the debtor is discharged, Lord Justice Chadwick continues (at page 138B):

"Unlike the earlier legislation, section 260 (2) of the Act of 1986 does not purport, directly, to impose the arrangement on a dissenting creditor whether or not he has agreed to its terms; rather, he is bound by the arrangement as the result of a statutory hypothesis. The statutory hypothesis requires him to be treated as if he had consented to the arrangement. The consequence, as it seems to me, is that the legislature must be taken to have intended that both the question whether the debtor is discharged by the arrangement and the question whether co-debtors and sureties are discharged by the arrangement were to be answered by treating the arrangement as consensual; that is to say, by construing its terms as if they were terms of a consensual arrangement between the debtor and all those creditors who, under the statutory hypothesis, must be treated as being consenting parties."

83. Nor do I regard it as necessary that any reservation of rights against the surety should be included as a term of the arrangement itself. In my judgment, the court must look at all the circumstances, including the dealings between the parties which led to the IVA, in order to determine whether there has been an effective reservation of such rights. In the instant case the correspondence between Stanley Tee & Co and Radfords, coupled with the proxy form, is, in my judgment, conclusive as to the existence of such a reservation.
84. In the circumstances, the judge's reliance on the parole evidence rule was, in my judgment, misplaced. To apply that rule in the instant case would be to approach the IVA in blinkers; and the effect of applying it would be to exclude the very evidence which establishes the existence of the reservation.
85. In any event, it seems to me that the reservation became part of the IVA when the existence of GK's rights against Mr and Mrs Stanley was expressly mentioned in paragraph 8.1 of the proposal, in compliance with the requirement of Rule 5.3 (2) (d) of the Insolvency Rules that the proposal must state (among other things) "whether any, and if so what, guarantees have been given of the debtor's debts by other persons". In my judgment the statement in paragraph 8.1 of the proposal that "Greene King have a guarantee from my parents secured by a charge on their house" effectively put the creditors on notice of, to put it at its lowest, the possibility that GK intended to preserve its rights against Mr and Mrs Stanley; although, realistically, it is difficult to see how the other creditors could have been in any doubt that GK would wish to retain its security over the Property. Had any of the other creditors wished to do so they could have taken steps to investigate the position further, but in the event none did.
86. In my judgment, therefore, the judge was wrong to conclude that the IVA had the effect of releasing Mr and Mrs Stanley from their obligations under the Charge.

THE ETRIDGE ISSUE

The arguments

87. At the start of his submissions Mr Woolgar referred us to a passage in the judge's judgment in which he impliedly expresses a degree of sympathy for Mr and Mrs Stanley and queries why GK is seeking to enforce its security against them. The passage in question is to be found at page 13A-B of the transcript. It reads as follows:

"It has not been made clear why a large public company of brewers has decided to seek to make homeless a couple in their late seventies instead of simply sitting on their charge and waiting until such time as the Stanleys are no longer occupying the house, having either through death or through inability to cope in their own home vacated it. Perhaps it is pour encourager les autres, but whatever might be through of that unexplained decision, I of course have to apply the law to the facts as they are, whether by agreement or as I have found them."

88. Mr Woolgar criticised the judge for having included that passage in his judgment, which, said Mr Woolgar, had left his clients with a sense that the judge was not approaching the issues with an open mind. I must say at once that I can see no basis whatever for Mr Woolgar's criticism. In the passage in question the judge was going out of his way to make clear that whatever sympathy he might feel for Mr and Mrs Stanley, whose home was at risk, and whatever doubts he might have as to the need for enforcement proceedings against them, he was not going to be deflected from the task of applying the law to the facts as he found them. As I see it, the judge is to be commended for having expressed in his judgment what might well have been in mind of any judge trying this case. Accordingly I say no more about Mr Woolgar's first point.
89. Mr Woolgar then turned to the findings made by the judge, starting with his finding of a relationship of trust and confidence between Mr and Mrs Stanley and David Stanley (transcript page 23F-G). Setting this finding in the context of the speeches of the House of Lords in Etridge, Mr Woolgar accepts that the existence of such a relationship is one of the factors which, taken together with other factors, may result in a presumption of impropriety in the sense of an evidential shift in the onus of proof. He submits that the evidence at trial did not disclose a relationship of trust and confidence or "ascendency" on the part of David Stanley (see per Lord Nicholls at paragraph 11). He does not, I think, submit that there was no evidence at all on which such a finding could be based (a submission to which I would in any event have given short shrift); rather, he submits that in addressing the issue of fact as to whether a relationship of trust and confidence existed the judge adopted too focused an approach. He submits that the particular factors to which the judge referred, eg, the relative naivete of Mr and Mrs Stanley in financial matters as compared with David Stanley, and the two previous occasions on which they had provided financial assistance to David Stanley, were not in themselves sufficient to warrant the inference that a relationship of trust and confidence existed between them.
90. Mr Woolgar turned next to the judge's finding of "manifest disadvantage". He points out that, in the light of what the House of Lords has said in Etridge, that test is no longer regarded as apposite (see, eg, per Lord Nicholls at paragraphs 26 and 29), and that the appropriate inquiry in the instant case is whether the execution of the Charge "calls for explanation" (see per Lord Nicholls at paragraph 14). He submits that it does not. He relies on paragraph 22 of Lord Nicholls' speech, in which Lord Nicholls approves Lord Justice Lindley's dictum in Allcard v Skinner that:

" ..... 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."

91. Lord Nicholls went on to refer to Lord Macnaghten's reference in Bank of Montreal v Stuart to "immoderate and irrational" transactions.
92. In the instant case, Mr Woolgar submits, the execution of the Charge can reasonably be accounted for by the family relationship, and there is nothing immoderate or irrational about it.
93. As to the judge's findings in relation to impropriety, Mr Woolgar points out that the judge has made no express finding of undue influence. Rather, he has proceeded on the footing that it is sufficient that there is a "presumption" of undue influence. He submits that the judge's findings of misrepresentation on the part of David Stanley, coupled with his finding (in his supplemental judgment) that had Mr and Mrs Stanley been properly advised they would not have executed the Charge, have to be analysed separately. So analysed, he submits that they amount to no more than mere non-disclosure. In particular, he submits that the fact that (as found by the judge) David Stanley told Mr and Mrs Stanley that he was buying a freehold, when in fact he was acquiring a lease, was immaterial. What mattered, he submits, was the degree of risk which Mr and Mrs Stanley were to run. He submits that their perception of the risk was that it was slight: their son had a good track record and it was a "good deal".
94. Mr Woolgar further submits that, on the available evidence, there was nothing false about David Stanley's representation that he intended selling The Dog and Duck in about 18 months. The fact that the loan was for 10 years was not inconsistent with such an intention. In any event, he says, it was a representation of intention, not of fact or opinion.
95. Finally, so far as the misrepresentations are concerned, Mr Woolgar submits that there was no evidence before the judge on which he could find that David Stanley represented that The Dog and Duck was to be the main security for the loan.
96. As to causation (the subject of the judge's supplemental judgment) Mr Woolgar makes a frontal attack on the judge's finding that had they been properly advised Mr and Mrs Stanley would not have executed the Charge. He submits that a reading of the transcript of the oral evidence at the two-day hearing leads inevitably to the opposite conclusion.
97. Turning to the position of GK, Mr Woolgar accepts that if, (contrary to his earlier submissions) the execution of the Charge involved actual impropriety, then GK was put on inquiry as to the existence of the risk of impropriety, since the transaction was "non-commercial" (see per Lords Nicholls at paragraph 87). The question then is whether GK took appropriate steps to bring home to Mr and Mrs Stanley the risk they were running in executing the Charge and to advise her to obtain independent advice (see paragraph 50 per Lord Nicholls). As noted earlier, Mr Woolgar accepts that there is no evidence that GK played any part in arranging for Mr and Mrs Stanley to be advised by Mr Townend. Nor, for that matter, is there any evidence that GK took any step to confirm that independent advice had been given or to inquire as to the result of that advice. Mr Woolgar reminds us, however, that the events in question took place before publication of the speeches of the House of Lords in O'Brien.
98. As to the adequacy of the advice given to Mr Townend, Mr Woolgar submits the judge was wrong to find that it was, in effect, no more than perfunctory. He refers to the judge's finding that Mr Townend explained to Mr and Mrs Stanley -

"that they were putting their house on the line, and that if their son defaulted on his obligations to repay the loan and any interest then they might lose their house" (transcript page 9G-10A).

99. He submits that in all the circumstances that advice was adequate to bring home to Mr and Mrs Stanley the risk they were running in executing the Charge. He also suggests that in view of the judge's finding that the meeting lasted about 20 minutes, there must have been some discussion of the details of the transaction.
100. Mr Woolgar submits that there was no basis upon which the judge could accept parts of Mr Townend's testimony and reject other parts. At the very least, he submits, the judge ought to have found that Mr Townend advised Mr and Mrs Stanley about the amount and duration of the loan, and that if they were not happy they should not sign.
101. Mr Darton stresses that GK's contentions on the Etridge issue involve a challenge to findings and inferences of fact made by the judge in what is manifestly a most careful and thorough judgment. He submits that those findings and inferences ought not to be the subject of review in this court.
102. On that footing, Mr Darton submits that GK's case on the Etridge issue fails at the first hurdle since in the light of those findings and inferences there was actual impropriety in the execution of the Charge in respect of which GK was put on inquiry, and no step was taken by GK to satisfy itself that the risks were brought home to Mr and Mrs Stanley. Further, in so far as GK might be entitled to rely on the advice given by Mr Townend, that advice was, on the judge's findings, materially defective.
103. As to causation in the context of misrepresentation, Mr Darton reminds us that for a claim based on misrepresentation to succeed it is not necessary for the claimant to establish that the misrepresentation was the sole cause of his entering into the transaction in question: it is enough to establish that it was a material factor in his decision to do so. He submits, in any event, that the judge's finding that had they been properly advised Mr and Mrs Stanley would not have executed the Charge is unassailable in this court.

Conclusions

104. In the first place, I accept Mr Darton's submission that there is no basis on which the judge's findings of fact in this case (whether they be findings of primary fact or findings by way of inference from primary fact) can be challenged in this court. There was, in my judgment, ample evidence to support each of those findings. Furthermore, in its approach to the facts the judge's judgment is, if I may respectfully say so, a model of care, thoroughness, and clarity.
105. It follows that GK's challenge to the finding of a relationship of trust and confidence fails for that reason. I should say, however, that that finding appears to me to be a virtually inevitable finding on the evidence before the judge.
106. As to whether the execution of the Charge was a transaction which called for explanation (a question which the judge did not in terms consider), it seems to me that plainly it did. Quite apart from the fact that it was their home, the Property was Mr and Mrs Stanley's only significant asset. To put it up as security for a business venture by David Stanley was, it seems to me, to confer a gratuitous benefit on David Stanley far beyond that contemplated by Lord Justice Lindley in the passage from his judgment in Allcard v Skinner referred to earlier.
107. Accordingly, on the facts found by the judge there was an evidential presumption of impropriety.
108. However, that presumption is not a substitute for a finding of (actual) impropriety, it is merely a step ont he way to the making of such a finding. As Lord Scott explains (in paragraph 219 in Etridge) in the context of undue influence:

"It is a presumption which arises if the nature of the relationship between two parties coupled with the nature of the transaction between them is such as justifies, in the absence of other evidence, an inference that the transaction was procured by the undue influence of one party over the other. This evidential presumption shifts the onus to the dominant party and requires the dominant party, if he is to avoid a finding of undue influence, to adduce some sufficient additional evidence to rebut the presumption. In a case where there has been a full trial however, the judge must decide on the totality of the evidence before the court whether or not the allegation of undue influence has been proved. In an appropriate case, the presumption may carry the complainant home. But it makes no sense to find, on the one hand, that there was no undue influence, but, on the other hand, that the presumption applies ..... A finding of actual undue influence and a finding that there is a presumption of undue influence are not alternatives to one another. The presumption is, I repeat, an evidential presumption. If it applies, and the evidence is not sufficient to rebut it, an allegation of undue influence succeeds."

109. It was accepted by Mr Woolgar (rightly, in my judgment) that the principles explained in Etridge are not confined to undue influence, but apply to any kind of equitable wrong, including misrepresentation. Lord Hobhouse makes this clear in paragraph 103, where he says this:

"The division between presumed and actual undue influence derives from the judgments in Allcard v Skinner. Actual undue influence presents no relevant problem. It is an equitable wrong committed by the dominant party against the other which makes it unconscionable for the dominant party to enforce his legal rights against the other. It is typically some express conduct overbearing the other party's will. It is capable of including conduct which might give a defence at law, for example, misrepresentation."

110. See also paragraph 223, where Lord Scott specifically addresses an allegation of misrepresentation made by the defendants, concluding (in paragraph 224) that:

"[t]here was, therefore, nothing, no undue influence and no misrepresentation, to which constructive notice could attach."

111. Returning to the findings in the instant case, it is the case that the judge did not make an express finding of (actual) undue influence, and it may be, therefore, that he was wrongly treating the presumption of undue influence as an alternative to a finding of actual undue influence. However, it is not necessary to consider this aspect further, given the judge's clear findings of misrepresentation.
112. I reject Mr Woolgar's submissions to the effect that on analysis the misrepresentations found to have been made by David Stanley were either immaterial or no more than mere non-disclosure. In my judgment they were highly material, in that they must inevitably have led to Mr and Mrs Stanley having a false impression as to the degree of risk which they were running and as to the possible duration of that risk. In other words, on the findings of the judge it is clear that (to use Lord Scott's expression: see paragraph 223) in explaining the transaction to Mr and Mrs Stanley, David Stanley, for whatever reason, planted a materially false impression on them as to the extent and duration of the risks they would run if they went ahead and executed the Charge.
113. As to causation in the context of misrepresentation, I can, as I have already indicated, see no basis for challenging the judge's conclusion to the effect that the misrepresentations were an effective cause of Mr and Mrs Stanley's decision to execute the Charge.
114. I turn next to the position of GK.
115. As already noted, there is no evidence that GK took any steps at all to ensure that the risks involved in executing the Charge were brought home to Mr and Mrs Stanley or that they were advised to seek separate advice. Even allowing for the fact that the events in question took place before publication of the speeches of the House of Lords in O'Brien, it seems to me that that fact alone is enough to establish constructive knowledge of the impropriety.
116. But even assuming that GK is entitled to take advantage in this connection of the steps which I V Heap took, and of the advice given by Mr Townend, the manifest and serious deficiencies which the judge found to exist in the advice which Mr Townend in fact gave, and his own lack of information about the transaction, seem to me to put paid to the argument that the giving of that advice is an answer to the allegation of constructive knowledge.
117. For those reasons, I conclude that the judge was right to set aside the Charge.

RESULT

118. In the result, for the reasons I have given I would dismiss this appeal.
119. MR JUSTICE CRANE: I agree.
120. LORD JUSTICE TUCKEY: I also agree.
Order: Appeal dismissed with the costs. Sir - Page 31 - in the first full paragraph of my copy of your note someone has handwritten the name "David", but you did not use the name in judgment. In the following paragraph, sixth line down, query word "of". Mr Woolgar drew attention to page 24 of his draft judgment in last paragraph suggesting the words "risk of" should appear so reading "on inquiry as to the existence of the risk of".