England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE BRISTOL COUNTY COURT
(Mr Justice Neuberger)

		Royal Courts of Justice Strand London WC2
		Monday, 26th March 2001

1. LORD JUSTICE HENRY:I will ask Sir Christopher Staughton to give the first judgment.
2. SIR CHRISTOPHER STAUGHTON:Cherrytree Finance Limited appeal against the judgment of Mr Justice Neuberger in the Bristol County Court on 24th March 2000. They were the defendants in an action brought by Mrs June Fry, as I shall call her, although at the time this action was begun she was Mrs Wright, and her name has changed again subsequently.
3. Her husband, Mr Fry, died on 24th January 1994. She had a daughter and a son. The daughter had married a Mr Scott. Not long after the death of her husband, two months or thereabouts, she was approached by her daughter, Mrs Scott, with a proposal that money be borrowed on the security of the house where she lived at 47 Telcroft Close, Corsham, Wiltshire. The loan was to enable Mr Scott to buy shares in a company called Impact Windows and to become a director of the company, which was his employer. At first, Mrs Fry resisted this proposal; but eventually, at the third or fourth time of asking, she agreed. On the application of Mrs Fry and Mr Scott, a loan was granted by Cherrytree Finance in the sum of £23,387 secured on the property of Mrs Fry at 47 Telcroft Close.
4. The judge in this action made findings as follows:

(1)that there was actual undue influence upon Mrs Fry from Mr and Mrs Scott and misrepresentation from Mr Scott;

(2)that this was a material factor in Mrs Fry's decision to apply for a loan and execute the mortgage;

(3)that Cherrytree Finance Limited had constructive notice of undue influence, although not of misrepresentation; and

(4)that Cherrytree Finance did not do sufficient to dispel the effect of undue influence, of which they had constructive notice.

The loan was granted on 7th October 1994 in the form of a cheque for £21,000. The balance of £2,387 was paid to an agent who had introduced Mr Scott to the lenders. It had been agreed between Mrs Fry and Mr Scott that he would pay the instalments required (as it seems to me, of interest and capital, although the judge only says interest). That was calculated at 18.9%, amounting to £498.27 per month. The finance company was prepared to accept a concessionary rate, as they described it, of 12.9%, leading to a payment of £381.34 per month if payments were made on time.

5. The loan was paid, in effect, as I shall explain, to Mr Scott. It was not used by him to buy shares in Impact Windows. His evidence was that the company would not let him do that because he had nine outstanding county court judgments. In part, it went to discharging the monies owing by Mr Scott under those judgments. The balance was lent to Impact Windows without the purchase of any shares.
6. Initially the documentation was prepared on the basis that the address of Mrs Fry and Mr Scott was 52 West Park Road, Corsham. That was the house where Mr and Mrs Scott lived, and it was already mortgaged for 100% of its value. But later the documentation was changed so that the property to be mortgaged was 47 Telcroft Close.
7. Some important points emerged from the documents. The application form for the mortgage was filled in as follows. Under the heading "Finance Required" and the word "Purpose", were written the words "Raise capital". The applicants were described as:

"Darren Wayne ScottDate of Birth:8.8.61

Joint/Spouse: June FryDate of Birth: 24.6.38

Present Address: 52 West Park Rd, Corsham, Wiltshire."

8. Under the heading "Employment Details", the applicant's employer was described as "Impact windows - Corsham, Wiltshire". The "Joint Applicant's Employer" space was not filled in. Under "Details of Property Offered as Security", was entered "47 Telcroft Close, Corsham, Wiltshire" (that is to say, Mrs Fry's house). Mr Scott's income details were given as £2,500 per month. For Mrs Fry, the entry was £432 per month. Under "Applicants Personal Status", there was the question, "Have you ever had any judgments recorded against you, or made arrangements with creditors, or declared bankruptcy?", to which the answer given was "Yes". It then said, "If yes, explain", to which the answer given was, "To be cleared by ourselves from the loan advance".
9. Another form was sent to them which required certification:

"that the only occupiers of the property at 52 West Park Road, Corsham, Wiltshire SN13 9LU are:-

NameAgeSexRelationship

DARREN WAYNE SCOTT

JUNE FRY"

10. That form was filled in later. The property to be mortgaged at 52 West Park Road had been crossed out and replaced by 47 Telcroft Road. So, too, the property for which a certificate was required was now described as 47 Telcroft Close. Both Mr Scott and Mrs Fry signed the document. They entered nothing in the box about their respective ages, sex and relationship.
11. A letter dated 11th August 1994 (which was probably prepared by a Mr Shaw, who, it would seem, was the agent who introduced Mr Scott to Cherrytree Finance) was in these terms:

"Dear Sirs,

Please accept this our irrevocable declaration that if the above loan completes we would like you to make the cheque payable to Mr Darren Wayne Scott as a matter of convenience as we do not hold a joint account.

Trusting this meets to your satisfaction.

Thank you in advance for your urgency and co-operation in this matter and if you have any questions please call us."

12. That was signed by Mr Scott and Mrs Fry. So there Mr Scott was asking that the cheque be paid only to himself. However, the finance company declined to agree to that and they sent a cheque payable to them both. What happened then was that a building society account was opened in their joint names, the cheque was paid in and the money was then paid out by cheque payable to Mr Scott alone.
13. On 10th May 1996, which was nearly two years later, Mrs Fry received a default notice. It transpired that Impact Windows had failed and Mr Scott had lost his job. He could no longer make the instalment payments and over £6,000 was owing to the finance company. Mrs Fry paid that amount in order to preserve her property, and has continued to pay the instalments ever since. She brought this action for an order rescinding the mortgage as between herself and the finance company. The judge decided in her favour on the grounds already set out briefly.
14. On appeal today, Mr Carter, for the finance company, has argued that the judge was wrong on three counts. First, he submitted that the actual undue influence relied on did not justify setting aside the mortgage; secondly, that the finance company did not have constructive notice of the grounds which are now relied on; thirdly, that what the finance company did was sufficient to dispel the effect of constructive notice.
15. As to the first of those submissions, the sufficiency of the undue influence and misrepresentation relied on, the judge mentioned the two leading cases on this topic, which we have also been referred to today, Barclays Bank plc v O'Brien [1994] AC 180 and CIBC Mortgages plc v Pitt [1994] AC 200.
16. There was no dispute, as I see it (or, at any rate, there is no dispute now) as to the primary facts which the judge found. I refer to some extracts from his judgment on this topic. He said: "First, the claimant had recently lost her husband, with whom she had lived in matrimonial harmony for some thirty years or more, and on whom she had depended in all financial matters. She was unacquainted with commercial affairs, and I am satisfied that, although she may have had discussions about mortgage repayments in relation to what was due to the Council with her husband from time to time, she did not appreciate that failure to pay the Council could have resulted in the Council taking possession of their house."
17. That was a reference to the period some time previously when the house was mortgaged to the Wiltshire County Council.
18. He continued:

"It is true that she had not stayed at home all her life. She had worked, but the nature of her jobs were such that I am satisfied that they would not have given her any insight whatever into commercial matters. She was a dinner lady at a school, she covered tennis balls at home, she filled motor cars with petrol at filling stations.

Secondly, after her husband's death the claimant had relied on Mr and Mrs Scott. ... they both accepted that, particularly during the period following the death of her husband, the claimant had placed trust and confidence in them and that she was dependent on them in relation to financial affairs. I should also say that it appears from the evidence that, apart from her son, who was of no assistance in, and ignorant about, commercial matters, the claimant had no one else to turn to for advice."

19. Pausing there, I would say that for a recently widowed lady to mortgage forthwith the house in which she lived, which, so far as we know, was her only asset, would seem to be a matter that would normally raise inquiry.
20. The judge said:

"Thirdly, I accept the evidence of the claimant that she signed the various documents, which she undoubtedly did sign, without reading them; she was told by Mr Scott - possibly by Mrs Scott, but certainly by Mr Scott - where to sign and she signed. It is fair to say that her recollection is not particularly good. She obviously saw the booklet because she signed it in two places, but she did not recollect seeing it."

21. That was a booklet produced by the finance company called "Customer Care". One could perhaps say that it also should have been called "Company Care", because it was no doubt motivated with the thought of convincing people that the company had made sure she understood what she was doing. The judge continued:

"However, I consider that that is not particularly surprising, especially if she did not read the booklet. She simply had a number of documents put before her by Mr Scott, and she signed them without either noticing what they were or appreciating what their effect or nature was.

... she struck me as an honest witness and nothing she said was internally inconsistent."

22. Then he said:

"... so far as misrepresentation is specifically concerned, Mr Scott did not intend to invest the whole of the £21,000, or even £20,000, in Impact, only £15,000."

23. That was his evidence: that he had told her that he was going to invest it all in Impact Windows. The judge said:

"There was another misrepresentation, in my view, in that the claimant was told that the term of the mortgage would only be five years. It is clear that the term of the mortgage was fifteen years, it is clear that Mr Scott was aware of this, and it is clear that Mr Scott confirmed to the claimant that it would only be for five years. ...

There is also the fact that the claimant was told, and I accept that she was told, that `there was no way that she would lose her house', and that the shares which Mr Scott was to acquire in Impact could always be sold to repay the loan. Those sort of assurances given to anyone who was remotely financially sophisticated would, in my judgment, be of little, if any, assistance to that person in establishing a misrepresentation. However, to someone such as the claimant, who was wholly inexperienced in matters of this sort - she did not even know what was meant by the term `security', and had no idea what shares were - this sort of assurance would have given her confidence, and unjustified confidence, about her position."

24. A little later, he said:

"It is right to refer to the fact that, as I have already said, the claimant was introduced to solicitors, Forester and Forester. I am satisfied that the only purpose she was put in touch with those solicitors, and the only purpose for which she visited them, was to ensure that the title to Telcroft Close was sorted out following her husband's death. In due course she was registered as the sole proprietor. She was not put in touch with Forester and Forester by Mr Scott for the purpose of consulting them about the mortgage, nor, I am satisfied, was it suggested to her that she could or should consult them about the mortgage, save insofar as the suggestion was made by the defendant in the various places in the documentation to which I have referred."

25. The judge concluded on this point:

"Bearing in mind these factors, it seems to me that viewed as a whole the claimant's case is made out on misrepresentation and undue influence. On undue influence, the various factors I have mentioned, taken together, satisfy me that, because of the relationship between the claimant and her daughter and son-in-law, because of her vulnerability immediately following her husband's death, because of her commercial ignorance and because of the misrepresentations made to her and because this arrangement was plainly to her manifest disadvantage in that she was putting up her house as security for money which was to be used and enjoyed by Mr Scott and, indirectly, to some extent at any rate, by Mrs Scott, alone, this was a transaction which was procured by undue influence."

26. Then the judge said:

"The degree of pressure exerted on her by sheer words and actions was comparatively slight."

27. A little later, he said:

"Nonetheless, it would be wrong to over-emphasise the pressure. On its own, the pressure in the present case would be too little to justify a finding of undue influence. It is the combination of factors to which I have referred which satisfy me that there was (to quote from the passage in Allcard v Skinner cited with approval in Etridge):

`Some improper conduct, some coercion from outside, some over-reaching, some form of cheating and, though not necessarily in every case, some personal advantage obtained.'

As to the misrepresentation, the combination of misrepresentations which I take into account in supporting the claim of undue influence also justify, taken on their own, the contention that the claimant entered into the mortgage in reliance on misrepresentation. ...

Taking all the misrepresentations I have identified together, I have reached the conclusion that she would not have entered into the mortgage if they had not been made. In those circumstances, I am satisfied that the claimant succeeds on both limbs of the first point."

28. In my judgment, Mr Justice Neuberger was fully entitled to reach that conclusion. It was for the most part a matter which the judge had to determine and with which we should not interfere unless the material before him could not justify such a conclusion. In my judgment, it could justify that conclusion, and so I would not accept the submission that the judge was wrong on that point.
29. I now turn to the second point: whether the finance company had constructive notice of the grounds upon which there was undue influence. We have to look at this, as the judge did, from the point of view of the finance company and what they knew. First, they knew of the disparity between the ages of Mrs Fry and Mr Scott. She was born in 1938 and he, according to the form, was born in 1961, so that she was 23 years older than him. Her husband had died very recently. No compelling reason - I might say, no sensible reason - for her mortgaging her house at that point in her life had been put before the finance company. She and Mr Scott, if one looked at the form which she signed, were living together in the same house, and it would seem that there were no other occupants of that house. The box for them to fill in their relationship had not been filled in. The mortgaging of her house would appear to have been of no benefit to her if, as had been requested, the money was to be paid to Mr Scott. The reason given for that course, the fact that they had no joint account, seemed somewhat slight; and, indeed, so it proved, as the cheque which was made payable to both of them was speedily and easily converted into a cheque payable to Mr Scott. Why should Mrs Fry want to enter into this transaction - particularly as it was at an extravagant rate of interest, no doubt because Mr Scott's credit record was not good?
30. The judge found:

"They were asking for a loan which required a rate of payment, which, if paid on time, was slightly less than the total monthly income of the claimant, or, if not paid on time, was substantially in excess of her total monthly income. They were also asking for a loan which could not be repaid until this lady, with a low income and uncharged property, who was not being asked to have the money paid to her, would be aged 71."

31. There was enough there to make any prudent lender see the need for inquiry. There should have been a strong suspicion at least that Mrs Fry did not understand what transaction she was entering into; or, if she did understand it (and it is said by the finance company that she did), that she was subject to pressure she could no longer resist. I would again dismiss the argument on the notice point.
32. There remains the third point: whether the finance company did enough to dispel the effect of notice. They repeatedly said in the documents which they produced and which they required to be signed by both Mrs Fry and Mr Scott that she ought to get independent advice; that she might lose her home, and so forth. But she says that she did not read that: the documents were just put before her by Mr Scott to sign. The judge believed her in that, and we cannot interfere with his decision on that point.
33. In the case of Barclays Bank v O'Brien there is this passage in the speech of Lord Browne-Wilkinson at p.196:

"... for the future in my judgment a creditor will have satisfied these requirements if it insists that the wife attend a private meeting (in the absence of the husband) with a representative of the creditor at which she is told of the extent of her liability as surety, warned of the risk she is running and urged to take independent legal advice."

34. That refers to a wife, but the requirement of what is needed to dispel constructive notice must surely be the same whether the person is a wife, a friend or has any other connection with the borrower. At p.198 Lord Browne-Wilkinson said:

"The only further substantial step required by law beyond that good practice is that the position should be explained by the bank to the wife in a personal interview. I regard this as being essential because a number of the decided cases show that written warnings are often not read and are sometimes intercepted by the husband. It does not seem to me that the requirement of a personal interview imposes such an additional administrative burden as to render the bank's position unworkable."

35. On that ground I reject the third argument also. I would therefore dismiss this appeal.
36. LADY JUSTICE HALE:I agree.
37. LORD JUSTICE HENRY:I also agree. The appeal will be dismissed.
Order: appeal dismissed with agreed costs in the sum of £2,451.09. (Order does not form part of approved Judgment)