England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CARLISLE COUNTY COURT
(Mr Recorder Narayan)

		Royal Courts of Justice Strand, London, WC2A 2LL
		4 December 2003

Lord Justice Jonathan Parker :

INTRODUCTION

1. This is an appeal by Mrs Gillian Hedworth against a possession order made by Mr Recorder Narayan on 1 February 2002, in the Carlisle County Court, in respect of a residential property known as Hause Farm, Martindale, in the Lake District. Permission to appeal was granted by Schiemann LJ on the papers on 11 June 2002.
2. The possession order was made in proceedings brought by UCB Group Ltd ("UCB"), claiming as chargee under a Legal Charge dated 20 December 1990 and made between UCB (under its then name UCB Bank plc) of the one part and Mrs Hedworth and her husband Mr Peter Hedworth of the other part, whereby Mr and Mrs Hedworth charged Hause Farm, which was held in their joint names, as security for all moneys at any time thereafter owing by them or either of them to UCB. Mr and Mrs Hedworth were the defendants in the proceedings. I will refer to the proceedings as "the UCB action" and to the Legal Charge as "the UCB Charge".
3. The UCB action was commenced as long ago as 7 August 1992. On 6 October 1992 a possession order was made, in the absence of Mrs Hedworth. Mrs Hedworth subsequently applied to set aside the possession order and to defend the proceedings, on the ground that her execution of the UCB Charge had been procured by undue influence and/or misrepresentation by Mr Hedworth. On 23 October 1995 Mrs Hedworth's application was allowed and the possession order set aside as against her. The possession order was not set aside as against Mr Hedworth, who was debarred from taking any further step to defend the claim. The UCB action accordingly continued against Mrs Hedworth alone.
4. The trial of the UCB action took place before Mr Recorder Narayan in December 2001. In his judgment, which was delivered on 1 February 2002, the judge, rejecting Mrs Hedworth's evidence, concluded that she had failed to discharge the burden of proving either undue influence or misrepresentation. He accordingly made a possession order.
5. Mrs Hedworth now appeals, contending that on the evidence before him the judge's conclusion cannot stand, and that the possession order should be set aside. She invites us to find that her execution of the UCB Charge was procured by undue influence and/or misrepresentation by Mr Hedworth, and that in consequence the UCB Charge is unenforceable against her.
6. UCB contends that the judge was fully entitled to conclude that Mrs Hedworth had not discharged the burden of proving undue influence or misrepresentation. Alternatively, should this court conclude that the judge's judgment cannot stand, UCB contends by its Respondent's Notice that it is nevertheless entitled to possession of Hause Farm on a number of alternative grounds. These grounds raise issues which were extensively canvassed before the judge but in relation to which he made no findings of fact and expressed no conclusions.
7. At the trial Mrs Hedworth appeared by Mr Geoffrey Zelin of counsel, instructed by Messrs Wholley Goodings. However, Wholley Goodings came off the record on 12 December 2002, pursuant to permission granted by the court, and on this appeal Mrs Hedworth appears in person. The appeal was listed for hearing in June 2003, but was adjourned on the basis that there appeared at that time to be some real prospect that Mrs Hedworth might be able to obtain legal representation. In the event, she has been unsuccessful in doing so.
8. UCB appears on this appeal by Mr Mark Wonnacott of counsel, who also appeared at the trial.

THE RELEVANT FACTUAL BACKGROUND

9. Mr Hedworth is a former solicitor. Prior to about 1986 he was a partner in Mincoff, Science & Gold. From about 1987 onwards he practised as a sole practitioner under the name Hedworths. In January 1997 he was sentenced to a term of six years' imprisonment for fraud, and struck off the roll of solicitors. In March 1997 he was made bankrupt.
10. Mr and Mrs Hedworth have been married for many years. They have two children. Before her marriage Mrs Hedworth qualified as a primary school teacher.
11. In 1985 Mr and Mrs Hedworth were living, with their children, at 27 Montagu Avenue, Gosforth, Newcastle-Upon-Tyne.
12. In December 1985 a group of five properties in Martindale, including Hause Farm (together "the Martindale properties"), were put on the market following the death of the owner, a Mrs Ethel Barraclough. Hause Farm was at that time subject to a tenancy agreement expiring in 1989. In April 1986 Mr Hedworth agreed, subject to contract, to purchase the Martindale properties from Mrs Barraclough's estate for a total consideration of £180,000. It was agreed between Mr and Mrs Hedworth that the properties, when purchased, would be held in their joint names as beneficial joint tenants. Their intention was that Hause Farm should become a holiday home for the family.
13. Mr Hedworth applied to the Whitley Bay branch of Barclays for a bridging loan to finance the purchase of the Martindale properties. Barclays valued Hause Farm (subject to the tenancy) at £43,000 and the five properties together at £180,000 (the price which Mr Hedworth had negotiated).
14. Initially, Barclays was unwilling to make a bridging loan. However, it changed its mind when informed by Mr Hedworth that he was about to inherit £50,000 from the estate of a friend, a Mr Sidney Kell.
15. By a facility letter dated 20 May 1986 Barclays offered Mr Hedworth a bridging loan of £190,000, but on terms (among other things) that it be granted a first legal charge over the Martindale properties (although initially it would accept an equitable charge in the form of a solicitors' undertaking to hold the deeds to its order), and that Mr Hedworth make a cash injection of the £50,000 which he was expecting to receive from Mr Kell's estate. Mr Hedworth accepted that offer. Barclays also requested that he make an additional cash injection of £10,000, but it did not make that a term of the bridging loan.
16. On 10 June 1986 Barclays opened a separate account for the bridging loan: account number 5439-6375 ("the bridging loan account"). On the same day, Mr Hedworth gave an undertaking to Barclays that on completion of the purchase of the Martindale properties he would forward the title deeds to his solicitor, Mr Gold of Mincoff, Science & Gold.
17. On 23 July 1986 Mr and Mrs Hedworth contracted to buy the Martindale properties for £180,000.
18. On 18 September 1986 Mr Hedworth drew down £132,906.75 of the bridging loan to enable the purchase to be completed.
19. Completion of the purchase took place on 26 September 1986. On completion, the Martindale properties (including Hause Farm) were conveyed by Mrs Barraclough's personal representatives into the joint names of Mr and Mrs Hedworth. The Conveyance contained an express declaration that Mr and Mrs Hedworth held the Martindale properties as beneficial joint tenants. The £132,906.75 withdrawn from the bridging loan account was applied in part payment of the purchase price of £180,000.
20. In March 1987 the deeds of the Martindale properties were forwarded to Barclays.
21. An internal memorandum of Barclays in April 1987 records that Barclays' Head Office had suggested that a legal charge be obtained over the Martindale properties.
22. By a Legal Charge dated 5 October 1987 and made between Barclays of the one part and Mr and Mrs Hedworth of the other part ("the Barclays Charge") Barclays took a first charge over the five Martindale properties (including Hause Farm) to secure "all moneys" from time to time owing to the Bank by Mr Hedworth (who is defined as "the Principal Debtor"). The Barclays Charge contains personal covenants by both Mr and Mrs Hedworth.
23. Mrs Hedworth did not receive independent advice before executing the Barclays Charge.
24. It is Mrs Hedworth's case that the Barclays Charge was never explained to her. In paragraph 17 of her witness statement dated 27 September 2001 she says this:

"On none of the occasions when I signed documentation at the Whitley Bay branch of Barclays was I given any explanation or advice by anybody from the Bank in connection with the nature, effect or contents of any document that I was asked to sign. I was simply directed to the place on an open page where I was to sign."

25. On 21 February 1989 the deeds of the Martindale properties were forwarded by Barclays to Mr Hedworth against his undertaking to hold them to Barclays' order. It would appear that this was done because Mr Hedworth was at that time considering putting the Martindale properties on the market.
26. In about October 1989 Barclays, concerned that it no longer had direct control of the title deeds to the Martindale properties, registered class C1 land charges in respect of the Martindale properties at the Land Charges Registry.
27. According to Mrs Hedworth, in or about January 1990 Mr Hedworth told her that he needed £100,000 urgently for the purposes of his business, and she agreed to the forced sale of antique furniture and pictures belonging to her which had been valued at approximately £250,000. Her evidence is that the forced sale realised some £110,000. In paragraph 28 of her witness statement she says this:

"My consent to the sale and Mr Hedworth's retention of the proceeds was only given in consideration of his agreement that all of his property interests and assets whether in his sole name or in our joint names would be transferred to me. I acted in reliance on Mr Hedworth's promise, allowing the items to be sold. .... At the time of the sale of the antiques Mr Hedworth told me that he would execute a Deed of Gift in my favour in respect of all the properties that he owned."

28. She continues (in paragraph 28):

"During the subsequent week or so Mr Hedworth showed to me what I understood to be the transfer document. I was not given a copy and understood it was kept by Mr Hedworth at his office."

29. No such document has been produced, nor is there any copy of such a document in evidence. However, Mrs Hedworth relies on witness statements by a Mrs Mary Hunter (who was at the material time an assistant solicitor employed by Mr Hedworth) and a Ms Julia McVay (who was at the material time a legal secretary employed by Mr Hedworth) to the effect that they recall seeing such a document.
30. By early 1990 Barclays was pressing for repayment of Mr Hedworth's indebtedness, and Mr Hedworth began exploring the possibility of refinancing the indebtedness.
31. On 1 June 1990 a Mr Twelftree of Eastern Mortgage Centre wrote to Barclays confirming that he was presently arranging mortgage finance for Mr Hedworth in respect of three properties, one of which was Hause Farm. The other two properties (which were office properties) were a property known as Albion House, Fowler Street, South Shields, and a property at 2 Victoria Road, Hebburn, which Mr Hedworth had bought in about 1989, each of which was subject to a charge in favour of Barclays.
32. By letter dated 5 June 1990 Barclays, through its solicitors Robert Muckle, threatened to appoint receivers under the Law of Property Act 1925.
33. On 20 July 1990 Mr Hedworth applied to UCB for a loan of £420,000, representing 75 per cent of the current value of the three properties (i.e. Hause Farm, Albion House and Victoria Road). Hause Farm was described in the application form as: "2nd home for client and family". The loan was "to be used to replace an overdraft with Barclays Bank".
34. In an internal document, UCB's branch manager described the security offered as:

"Good security of two office premises and client's substantial second home".

35. In a schedule headed "Proposed Offer Letter Schedule", UCB described the purpose of the loan as:

"To restructure bank bridging facility and overdraft."

36. UCB agreed to Mr Hedworth's proposal, and by letter dated 20 August 1990 it offered Mr Hedworth a 25-year term loan of whichever should be the lower of £421,500 or 75 per cent of the total value of the three properties, secured by a first charge on each of the properties. The purpose of the loan was stated, once again, as:

"To restructure bridging facility and overdraft."

37. Mr Hedworth accepted this offer.
38. On 21 August 1990 Mr Hedworth wrote to Robert Muckle confirming the terms of the UCB offer.
39. On 3 September 1990 UCB wrote to Mr Hedworth's firm, Hedworths, as the solicitors acting for Mr Hedworth in the remortgage transaction, informing them that UCB had instructed Mr Whiteside of Dibb Lupton Broomhead & Prior ("Dibb Lupton") to act for it in the transaction.
40. By letter dated 25 September 1990, UCB agreed to increase the amount of the advance to the lower of £450,000 or 75 per cent of the total value of the three properties.
41. On 2 October 1990 Mr Danby, a legal assistant at Hedworths, wrote to Dibb Lupton confirming that Hedworths were acting for Mr Hedworth in the remortgage transaction.
42. By letter dated 11 December 1990 the terms of the UCB facility were varied at the instigation of underwriters, in that (among other things) the total advance was to be capped at £431,250. Mr Hedworth accepted these variations.
43. On 14 December 1990 Mr Whiteside (of Dibb Lupton) wrote to Mr Danby saying this:

"Please ensure that the terms and conditions of the Legal Charge relating to the property at Hause Farm are fully explained to Mrs Hedworth and that arrangements are made for her to have independent legal advice if she has any doubts as to the effect of this document."

44. On 20 December 1990 the remortgage transaction was completed. UCB advanced £428,110.45 to Mr Hedworth on the security of first charges over the three properties (including Hause Farm). The charge over Hause Farm (that is to say the UCB Charge) names Mr and Mrs Hedworth as "the Borrower". It is, once again, an "all moneys" charge. The signatures of Mr and Mrs Hedworth on the UCB Charge were witnessed by Mr Danby.
45. Mr Hedworth transferred the UCB advance to his office account at Barclays. Barclays in turn applied it in extinguishing the outstanding balance on the bridging loan account and in reducing (but not extinguishing) the remainder of Mr Hedworth's indebtedness. There is a dispute between UCB and Mrs Hedworth as to the precise amount of the balance on the bridging loan account at the material time. UCB puts the figure at £206,386.78; Wholley Goodings (in a letter dated 9 August 2002 to Halliwell Landau, UCB's solicitors) put it at £178,925.95. In the course of her submissions on this appeal, Mrs Hedworth went so far as to suggest that Barclays might have paid off the bridging loan out of the proceeds of realisation of other securities, but there is no evidence to support that suggestion.
46. On the same day (20 December 1990) Barclays executed a Deed of Release, releasing Hause Farm from the Barclays Charge.
47. In paragraph 36 of her witness statement Mrs Hedworth says this:

"On the 20th December 1990 the Barclays bridging loan account was repaid in full as were all other accounts with Barclays of Mr Hedworth save for part of a loan account in respect of [Fowler Street]. This occurred when net funds of £428,110.75 were advanced to Mr Hedworth by UCB. .... I signed the mortgage documentation over Hause Farm having been informed by Mr Hedworth that the purpose of the transaction was the provision of funds to replace the Barclays bridging loan for the purchase of the Martindale properties. I was informed neither of the amount being borrowed nor that [Fowler Street and Victoria Road] were also being taken as security by UCB. At that stage I was working on the basis that a Deed of Gift had been executed transferring those properties to my sole name in any event."

48. In paragraphs 40, 41 and 42 of her witness statement she says this:

"40. [The remortgage] transaction was dealt with by Robert Danby, an unqualified clerk employed by Mr Hedworth at Hedworths solicitors. .... Needless to say it will come as no surprise when I state that at no stage was it explained to me that I was becoming responsible for debts in excess of £430,000 nor did I understand from what was said to me by Mr Danby that it would not be in my best interests to proceed with this transaction. I had no comprehension that the effect of the transaction was that if there were any default in payment that I would end up not only losing this property but become responsible for major indebtedness. I can say categorically that Mr Danby never gave me any information or advice whatsoever as to the effect of the mortgage deed in favour of [UCB]. He told me simply, whilst procuring my execution of the deed, that the property Hause Farm was being remortgaged. I had no idea that this related also to a refinancing of Mr Hedworth's other indebtedness to Barclays and securities in respect of properties which I believed had been transferred to me.

41. If the circumstances of this transaction had been fully explained to me and if I had been afforded the opportunity of obtaining independent legal advice it is inconceivable that I would have executed a deed in favour of UCB. .... I have to state clearly now that if I had been advised by Mr Danby or indeed by anybody else that in executing the deed in relation to Hause Farm that I was assuming liability in respect of a debt [of] £430,000 plus, or indeed any debt greater than the amount which I actually thought at the time was attributable to Hause Farm, I would simply not have executed the charge deed. I would have immediately seen the risk which attached to me and my family.

42. I did not receive independent advice about this transaction. I was provided with no documentation which showed to me the amount which Mr Hedworth was actually borrowing and I did not know that he already had debts in that sum which I was being in effect asked to cover. Mr Danby was either unable or unwilling to advise me about the full extent of the obligations that I was entering into. .... I do not know whether he considered that I was fully acquainted with what was going on, but if that was the assumption that he made it was a very mistaken assumption. ...."

49. On 21 December 1990 Mr Danby wrote to Dibb Lupton confirming that the remortgage transaction had been completed. The letter contains no reference to any explanation of the UCB Charge having been given to Mrs Hedworth.
50. On 3 January 1991 Dibb Lupton wrote to Mr Danby asking for "the balance of the documentation". In his response dated 4 January 1991 Mr Danby purported to enclose a letter "confirming that the terms and conditions of the Legal Charge relating to the property Hause Farm were fully explained to Mrs Hedworth prior to execution". Although no dated letter to that effect has come to light, an undated letter to that effect was, as I understand it, disclosed.
51. In March 1992 the Law Society intervened in Mr Hedworth's practice.
52. On about 30 April 1992 Barclays made formal demand on Mr and Mrs Hedworth under the Barclays Charge.
53. On 25 May 1992 UCB made formal demand on Mr and Mrs Hedworth under the UCB Charge, in the sum of £443,894.56.
54. As noted earlier, on 7 August 1992 the UCB action was commenced and on 6 October 1992 a possession order was made in Mrs Hedworth's absence.
55. On 2 December 1992 Barclays commenced proceedings against Mr and Mrs Hedworth claiming possession of the remaining four Martindale properties as chargee under the Barclays Charge. I will refer to these proceedings as "the Barclays action".
56. On 8 February 1993 Mr and Mrs Hedworth served a Defence and Counterclaim in the Barclays action. By their Defence they contended firstly that it was at all material times intended by Barclays and by them that the Barclays Charge should secure only the bridging loan, and that it should not extend to other indebtedness of Mr Hedworth; in the alternative, that that was Mr Hedworth's intention and that they both signed the Barclays Charge in that belief; in the further alternative, that, given the earlier agreement that the charge should secure the bridging loan only, in presenting the Barclays Charge to them for signature Barclays acted inequitably and in the knowledge that they would not have executed the Barclays Charge if they had been aware of its "literal effect"; and in the yet further alternative, that in the premises Barclays made a representation by conduct that the terms of the Barclays Charge accorded with the terms of the earlier agreement. They further alleged that Barclays had at no time advised Mrs Hedworth that she should obtain independent legal advice before executing the Barclays Charge, and that in the premises the Barclays Charge is not binding on either of them.
57. By their Counterclaim in the Barclays action Mr and Mrs Hedworth claimed rectification of the Barclays Charge so as to limit the secured indebtedness to the bridging loan only. They also took issue with the figures, alleging that in any event Barclays had overcharged Mr Hedworth. On this basis they sought all necessary accounts and inquiries, and payment to Mr Hedworth of any balance found to be due to him.
58. The Defence and Counterclaim in the Barclays action contains no reference to the Deed of Gift to which Mrs Hedworth refers in her witness statement.
59. By its Reply and Defence to Counterclaim in the Barclays action, which is dated 6 April 1993, Barclays denied any agreement that the Barclays Charge should be limited to the bridging loan and denied liability for overcharging.
60. By his order dated 16 December 1993 in the Barclays action, District Judge Lancaster ordered that an account be taken of all Mr Hedworth's accounts with Barclays. In the event, however, that account was never taken since on 29 November 2001 (shortly before the commencement of the trial of the UCB action) Barclays consented to an order striking out the Barclays action.
61. I can now return to the UCB action.
62. By its Re-amended Particulars of Claim, UCB pleads that Mr and Mrs Hedworth are in default under the UCB Charge and claims possession of Hause Farm as chargee. In the alternative, should the UCB Charge be found not to be binding on Mrs Hedworth, UCB contends: (1) that the UCB Charge is nevertheless binding on Mr Hedworth in respect of his one half beneficial share in Hause Farm (on the basis of which it seeks an order for sale); alternatively (2) that it is entitled by subrogation to the rights of Barclays under the Barclays charge.
63. In argument before the judge, alternative contention (2) above was expanded to include a further alternative contention that even if the Barclays Charge is not binding on Mrs Hedworth, with the result that Barclays had no rights as chargee as against her to which UCB can claim to be subrogated, nevertheless UCB is entitled by subrogation to the rights of Barclays as the funder of part of the purchase price of the Martindale properties. UCB submits that in providing such funding (i.e. the bridging loan) Barclays became entitled by subrogation to the lien to which the vendors of the Martindale properties would have been entitled over those properties pending payment of the purchase price in full; and that in so far as the UCB advance was applied in repaying the bridging loan, UCB is in turn so entitled. These alternative contentions are raised once again in UCB's Respondent's Notice, to which further reference is made below.
64. By her Re-Amended Defence and Counterclaim in the UCB action, Mrs Hedworth denies that the UCB Charge is in any way binding on her, alleging that she joined in the UCB Charge in consequence of Mr Hedworth's undue influence upon her; alternatively in consequence of misrepresentations which he made to her. In paragraph 6 of the pleading she alleges that UCB was "upon notice of the said representation and undue influence". In the pleaded particulars of that allegation she alleges that:

".... the transaction was not on its face to the Second Defendant's financial advantage, the sole benefit of the same being the release of a charge on the premises, which charge could (and in the [event] actually was) voidable by the Second Defendant in any event."

65. In paragraph 7 of the Re-Amended Defence and Counterclaim Mrs Hedworth alleges that in or about January 1990 Mr Hedworth executed a Deed of Gift giving all his property interests to her. She further pleads that she acted to her detriment on the faith of Mr Hedworth's representation that he would execute a Deed of Gift in that she agreed to hand over the proceeds of sale of her antique furniture and pictures only in consideration of his executing such a deed. By her Counterclaim, she claims rectification of the UCB Charge on the footing that it was the common intention of herself and Barclays that the Barclays Charge should secure only the bridging loan.
66. By July 1993 Mrs Hedworth had instructed solicitors, Wilkinson & Maughan, to act for her generally. On 9 July 1993 Wilkinson & Maughan wrote to the solicitors who had intervened in Mr Hedworth's practice asking whether they were able to supply a copy of the Deed of Gift. The intervention solicitors replied on 16 July 1993 saying that Mr Hedworth had removed all his personal files and deeds prior to the intervention.
67. By his order dated 3 November 1995 Mr Recorder Rumbelow QC set aside the possession order made on 6 October 1992 in the UCB action as against Mrs Hedworth, debarred Mr Hedworth from taking any further step to defend the action, and ordered that until trial or further order any rent received in respect of Hause Farm be paid into a joint account.
68. The trial of the UCB action took place in early December 2001. It lasted some three days. In his written skeleton argument, Mr Wonnacott identified nine separate issues which arose for decision. Mr Zelin's written skeleton contains a similar list. In the event, the first issue on Mr Wonnacott's list (which related to a point taken by Mrs Hedworth as to the definition of 'the Borrower' in the UCB Charge) was not pursued by Mr Zelin. The remaining issues in Mr Wonnacott's list were these:

• Did Mr Hedworth procure Mrs Hedworth's signature to the UCB Charge by the exercise of undue influence?

• Did Mr Hedworth procure Mrs Hedworth's signature to the UCB Charge by making any misrepresentation?

• But for that undue influence or misrepresentation, would Mrs Hedworth have signed the UCB Charge? (This issue is not now pursued since UCB accepts that, in the light of the decision of this court in UCB v. Williams [2002] EWCA Civ 555, it is irrelevant.)

• Was UCB on notice, by reason of the nature of the transaction, of the risk that Mr Hedworth would procure Mrs Hedworth's signature by the exercise of undue influence or by making a misrepresentation?

• If so, did UCB take reasonable steps to ensure that Mrs Hedworth signed of her own free will?

• How was Hause Farm held beneficially immediately before the execution of the UCB Charge?

• If UCB's charge is not a valid first legal charge securing Mr Hedworth's indebtedness, is UCB entitled to possession by subrogation to the Barclays Charge, which was discharged out of the UCB advance?

• If Hause Farm was not held beneficially for Mrs Hedworth absolutely immediately before the UCB Charge was executed, ought there to be an order for sale in order to enable UCB to realise its charge over Mr Hedworth's beneficial share?

69. The judge heard oral evidence from a Mr Colcomb (on behalf of UCB) and from Mrs Hedworth. Each was extensively cross-examined. Neither Mr Hedworth nor Mr Danby was called to give evidence.
70. At the conclusion of the hearing the judge reserved judgment. As noted earlier, judgment was delivered almost two months later, on 1 February 2002.

THE JUDGE'S JUDGMENT

71. The judge delivered his short judgment orally. He began by observing that the burden of proving undue influence and/or misrepresentation lay on Mrs Hedworth; and that the standard of proof was the civil standard, i.e. the balance of probabilities.
72. The judge then briefly summarised certain aspects of Mrs Hedworth's evidence. He then turned (at page 6D of the transcript) to the allegations of undue influence and misrepresentation. I set out below the entirety of his judgment from this point onwards.

"On that first point, as I have said before, I deal with them together – the undue influence and the misrepresentation; as I have said, it is agreed that the burden of proof is on the claimant and it is the civil standard. On her behalf it was submitted that her evidence is unchallenged. It is not suggested she is lying and therefore the transaction took place. No one suggests it did not. I should find in her favour unless she is found to be lying.

Explanations were given as to evidence which has not been adduced. I repeat that this defendant, Gillian Margaret Hedworth, is and has been, and certainly appeared to me to be, an intelligent lady who has and had qualified as a teacher. She had certainly been involved in the farming business – not for very long – but certainly she had some involvement in it. She certainly exercised her independent judgment in relation to the financial affairs of the family as she asserted in her affidavit that only on the basis that all of the first defendant's assets would be transferred to her by way of deed of gift is the basis upon which she allowed him, as it were, to sell her antiques.

She certainly displayed sound and/or lucky judgment, I suppose, in buying antiques. I do not think she said cheaply but certainly over the years she said they were worth, I think, £250,000 when they were sold, she asserts, by Mr Hedworth for £110,000.

In my judgment I find it is not likely that she would have simply gone into the office where Mr Danby apparently had this document opened at the particular page and simply signed it. She had already – upon her evidence – been pre-warned, as it were, about the judgment or lack of judgment of the first defendant, her husband, some months earlier, which had cost her, some would argue, £250,000 and that was money injected into the business.

I find that she would not have acted in the way she asserts she did in respect of Mr Danby and the signing of that document. The result of that is that in my judgment she would inevitably, in the circumstances she found herself in December 1990, with Mr Danby, have asked questions. The document was there to peruse if she wished. She was an intelligent lady who could obviously read and if there were any matters that she was suspicious of, she would have done.

To put it very shortly, in my judgment, rejecting as I do her evidence in respect of that matter, I find that she has not established on the civil burden of proof that there was any undue influence and/or misrepresentation by the first defendant in respect of the deed of December 1990.

It is unwise to continue, as it were, to make findings. I am conscious, however, that this matter has taken some three days and the parties have expended a lot of energy and research on the matter. On the other hand there may be, I know not, other allied actions where other tribunals have to make findings, so that I have to balance trying to assist the parties with not pre-empting any decisions by any other tribunals. On balance it appears to me wiser not to pre-empt any decisions by any other tribunals which may follow in other matters."

73. Thus the only issues which the judge decided were the first two of the issues in the above list, and the only findings of fact which he made related to those two issues. He made no findings of fact in relation to the remaining issues. In particular, he made no findings as to whether the Barclays charge was itself tainted by undue influence or misrepresentation, or as to whether (as Mrs Hedworth asserts) by virtue of a Deed of Gift executed by Mr Hedworth in about January 1990 she became the sole beneficial owner of Hause Farm.
74. The practical effect of the judge's limited approach is that if and to the extent that it is appropriate for us to address the remaining issues or any of them, we have to do so in the absence of any findings of fact. That is enough in itself to demonstrate how important it is for a judge at first instance to make clear findings on all those factual issues raised before him which, although they may not be directly relevant to his decision in the case, may nevertheless be regarded as relevant by an appellate court hearing an appeal from his decision. Otherwise there is a risk that the appellate court may have no alternative but to remit the case for a further hearing.

THE ISSUES ON THIS APPEAL

75. The primary issue which arises on this appeal is whether (as Mrs Hedworth contends) the judge's conclusion that she had failed to discharge the burden of proving undue influence and/or misrepresentation should in effect be set aside. If that conclusion stands, then Mrs Hedworth's appeal inevitably fails. If, on the other hand, we conclude that it should be set aside, then it will become necessary for us to address the further issues raised in UCB's Respondent's Notice.
76. Given that the judge made no findings of fact relating to those further issues, and with a view to avoiding the need for any retrial, Mr Wonnacott invites us to address those issues on the basis of the non-contentious facts and on the assumption that all Mrs Hedworth's contentious factual allegations are proved.
77. The Respondent's Notice puts forward five different, alternative or additional grounds for upholding the judge's order. Mr Wonnacott has not pursued ground 1, which raised the issue whether Mrs Hedworth would have executed the UCB Charge in any event, absent any undue influence or misrepresentation. As noted earlier, UCB accepts that in the light of the decision of this court in UCB v. Williams success on that issue would not assist it.
78. The remaining four grounds, which are put forward in the alternative, are as follows:

Ground 2: That the nature of the remortgage transaction was not such as to put UCB on notice of the risk of undue influence or misrepresentation.

Ground 3: That UCB is entitled to possession of Hause Farm by subrogation to the Barclays Charge.

Ground 4: That UCB is entitled to possession of Hause Farm by subrogation to the Barclays Charge even if Mrs Hedworth has (as she asserted in the Barclays action) a right to rectification of the Barclays Charge so that it secured only the balance from time to time owing on the bridging loan account.

Ground 5: That UCB is entitled to possession of Hause Farm by 'sub-subrogation' to the unpaid vendor's lien of the executors of Mrs Barraclough as vendors of Hause Farm.

79. Success for UCB on ground 2 would mean that the UCB Charge takes effect according to its terms as a fully valid security. Success on ground 3 would require a finding that the Barclays Charge was binding on Mrs Hedworth, and that accordingly it too took effect according to its terms as a fully valid security. Success on either of those grounds would mean that UCB has a charge over Hause Farm to secure the full amount of the UCB advance, together with interest and costs; the only difference being that under ground 2 the charge would be a legal charge, whereas under ground 3 the charge would be an equitable charge. Success on ground 4 would mean that UCB is entitled to an equitable charge over Hause Farm to secure only the outstanding balance on the bridging loan account as at 20 December 1990 – be that balance £206,386.78 (as asserted by UCB) or some lesser sum – together with interest from that date at the contractual rate (2.5 per cent over base from time to time) and costs. Success on ground 5 would mean that UCB has an equitable charge on Hause Farm to secure only £132,906.75 (the amount of the bridging loan) together with statutory interest and costs. Success on any of those four grounds would entitle UCB to an order for possession of Hause Farm, albeit that if UCB is found to be entitled to an equitable charge by way of subrogation, and the charge to which UCB is subrogated is itself an equitable charge, the order for possession will be consequential upon, and in aid of, additional relief in the form of a declaration of charge and an order for sale.

THE ARGUMENTS ON THIS APPEAL

80. Mrs Hedworth (very sensibly, if I may say so) based her submissions on a written skeleton argument prepared by Mr Zelin (and subsequently amended by him), together with a short supplemental skeleton argument also prepared by Mr Zelin. She has also placed before us a further written skeleton argument, together with a bundle of supporting material. In the course of her oral submissions, Mrs Hedworth elaborated on the points made in these written skeleton arguments. We are grateful to her for the courtesy and the care with which she did so.
81. As noted earlier, Mrs Hedworth's primary contention is that the judge's finding that she had failed to discharge the burden of proof of undue influence and/or misrepresentation cannot stand, and that we can and should substitute our own finding that Mr Hedworth was guilty of undue influence and/or misrepresentation as alleged.
82. She points out that no evidence was led by UCB to contradict her evidence as to undue influence and misrepresentation on the part of Mr Hedworth, and that there is accordingly no rational basis on which the judge could have rejected her evidence.
83. She also relies on the fact that in the UCB Charge her first name is misspelt (Gilliam rather than Gillian), and that the address of Hause Farm is also wrongly spelt (Hawtown instead of Howtown). She submits that, as she maintained in the course of her oral evidence at trial, had she read through the UCB Charge she would have picked up these typing errors; hence (she submits) the fact that they were not picked up supports her evidence that she never read through it, which in turn is consistent with her evidence that its effect was never explained to her.
84. She submits that in making his finding the judge ascribed no or insufficient weight to her unchallenged evidence that she had been with her husband since she was a teenager, and that she trusted him and relied on him in completely in dealing with her financial affairs. She further submits that, on the other side of the scales, the judge attached too much weight to the fact that she was a teacher and had been engaged in small farming business, and to the fact that the antique furniture and pictures which she sold had risen substantially in value.
85. Further, in so far as the judge may have taken account, in addressing the issue as to undue influence and/or misrepresentation, of the agreement reached between her and Mr Hedworth that in consideration of Mr Hedworth executing a Deed of Gift she would hand over to him the proceeds of sale of the antique furniture and pictures, she submits that it was not open to the judge to do so since he expressly declined to make any finding as to whether such a transaction took place.
86. Mrs Hedworth submits that, in any event, in expressing the view that she had exercised independent judgment in family matters, the judge took no account of her unchallenged evidence that the Deed of Gift had been suggested by Mr Hedworth. She relies in this connection on the judgment of Mr Recorder Rumbelow QC, when setting aside the possession order as against her. In the course of that judgment, the recorder said:

"An astute wife would at least have taken independent advice relating to the deed and ensured that it was registered. I consider that her conduct is consistent with a vague concept of desiring some protection for the large sum she had handed over, but that does not necessarily defeat her claim that she was generally influenced by her husband in business matters. She had, after all, reluctantly been persuaded to raise £110,000 by selling her family antiques.

I therefore hold that there is evidence of circumstances giving rise to the presumption of undue influence, which has not been rebutted."

87. As to misrepresentation, Mrs Hedworth submits that in concluding that she would have "asked questions" of Mr Danby, the judge failed to take account of the fact that there was no reason to believe that Mr Danby would have been any more helpful had she done so. She submits that there was no evidence that Mr Danby was aware of the contents of UCB's facility letter, the extent of Mr Hedworth's indebtedness (if any) to Barclays, the way in which Barclays intended to allocate the UCB advance between Mr Hedworth's various accounts, or the fact that Barclays intended to retain a charge over the remaining Martindale properties.
88. Mrs Hedworth points out that the court heard no evidence from Mr Danby in rebuttal of her own evidence as to what happened when she went to Hedworths' offices to execute the UCB Charge.
89. Finally, so far as the evidence is concerned, she submits that the judge gave no or insufficient weight to the fact that Mr Hedworth was (as is now known) a dishonest man.
90. Accordingly Mrs Hedworth submits that on the evidence the judge ought to have found that she was the victim of undue influence and/or misrepresentations by Mr Hedworth; and that, the judge having failed to make findings to that effect, this court should do so.
91. Mrs Hedworth also submits that the judge misdirected himself in law as to the burden of proof, in that the relationship between herself and Mr Hedworth at the material time was in all material respects equivalent to that of solicitor and client, and as such gave rise to an irrebuttable presumption of undue influence. She points out that it was her pleaded case that Mr Hedworth was at the material time a sole practitioner, and that (via his firm, Hedworths) he was acting for her in the remortgage transaction.
92. Mrs Hedworth goes on to submit that, applying the principles approved by the House of Lords in Royal Bank of Scotland plc v. Etridge (No 2) [2002] 2 AC 773, UCB was put on inquiry as to the risk of undue influence and/or misrepresentation since the purpose and effect of the UCB advance was to refinance not merely the bridging loan but also Mr Hedworth's indebtedness to Barclays arising out of his business dealings. She submits that the terms of the UCB advance were not more advantageous than the terms imposed by Barclays, taking into account (among other things) the cost of maintaining a life assurance policy. She submits that the instant case falls within the ambit of the decision of the House of Lords in Barclays Bank plc v. O'Brien [1994] 1 AC 180.
93. On that basis, Mrs Hedworth submits that since UCB did not take the precautionary steps identified by the House of Lords in Etridge (No 2), the UCB Charge is liable to be set aside as against her.
94. As to grounds 2, 3 and 4 of the grounds set out in UCB's Respondent's Notice, Mrs Hedworth submits these grounds can have no relevance, save to the extent that the Barclays Charge was discharged out of the UCB advance. She submits that the copy of her Re-Amended Defence and Counterclaim which was before the court was defective in that it omitted a number of subparagraphs in which she denied that this had occurred. In support of this denial she submits (among other things) that the witness statement of Mr Colcomb contained inaccuracies in this respect which were not corrected, and that in addition to the UCB advance Barclays were also paid £407,000 from the proceeds of sale or the remortgaging of assets which she owned solely or jointly with Mr Hedworth. As noted earlier, there is no evidence to support this contention.
95. Mrs Hedworth also submits that there is evidence that Barclays knowingly assisted Mr Hedworth in connection with improper dealings by Mr Hedworth with moneys in Hedworths' client account, and that that is a further reason why the Barclays Charge was not binding on her.
96. She submits that UCB is in no better position than Barclays to establish that Mr Hedworth had any net indebtedness to Barclays on 20 December 1990; that Barclays was unjustly enriched at her expense; and that she would have been entitled to a restitutionary remedy against Barclays which she could have set off against any sums owing by her to Barclays.
97. In so far as questions of subrogation arise, she submits that she had a right to set aside the Barclays Charge as against her, and that any subrogated interest of UCB took effect subject to that right since UCB plainly had notice of it.
98. She further submits (adopting, once again, the submissions of Mr Zelin in his skeleton arguments) that there is in any event no room for subrogation where the party seeking to be subrogated has obtained a valid security, albeit one which may be liable to be set aside. She submits that there is a material distinction between void and voidable transactions, and that the UCB Charge was merely voidable. Hence, she submits, it was a valid charge unless and until set aside. In support of this submission, she relies on Burston Finance v. Spierway [1974] 1 WLR 1648 at 1652A-1653B per Walton J and Capital Finance v. Stokes [1969] 1 Ch 261 at 279 per Harman LJ. She submits that to the extent that the decision of this court in Castle Phillips Finance v. Piddington [1995] 1 FLR 783 ignores the distinction between void and voidable transactions, it was per incuriam. She accordingly submits that UCB cannot succeed on grounds 3 and 4 in its Respondent's Notice.
99. As to ground 5 ('sub-subrogation') she submits that for the same reason Barclays was not subrogated to the unpaid vendor's lien since when it took the Barclays Charge it received all it had bargained for, and that similar considerations apply to the UCB Charge. Accordingly, she submits, no question of sub-subrogation arises.
100. Mr Wonnacott submits, relying on a dictum of Lord Brandon in Rhesa Shipping Co SA v. Edmonds (The Popi M) [1985] 1 WLR 948 at 955-6, that a trial judge is not bound to accept the evidence of one side or the other: there remains the possibility of deciding the case on the burden of proof.
101. He took us in detail through the judgment, submitting that the judge's reasoning appears sufficiently on the face of the judgment. He submits that the judge was fully entitled to reject Mrs Hedworth's evidence; and that, having done so, his conclusion that she had failed to discharge the burden of proof logically followed.
102. As to the burden of proof, Mr Wonnacott took us to the transcripts of the hearing in order to demonstrate that Mr Zelin had argued the case below not as one which gave rise to an irrebuttable presumption of undue influence (category 2A in O'Brien) but as one which gave rise merely to a rebuttable presumption which shifted the evidential burden (category 2B in O'Brien).
103. Turning to grounds 2 to 5 in the Respondent's Notice, Mr Wonnacott submits (in support of ground 2) that the remortgage transaction in the instant case did not involve any obvious disadvantage to Mrs Hedworth, and that UCB was not put on inquiry as to the risk of undue influence or misrepresentation. In the instant case, he submits, the purpose of the UCB advance was to refinance, on more advantageous terms, an existing joint debt to Barclays in relation to a loan to finance the purchase of property. UCB was, he submits, rescuing Mr and Mrs Hedworth from imminent repossession of their jointly owned second home by refinancing a pre-existing joint borrowing.
104. He accordingly submits that the instant case is in all material respects on all fours with CIBC Mortgages plc v. Pitt [1994] AC 180, and as such is not the type of case with which the House of Lords was concerned in Barclays Bank v. O'Brien and in Etridge (No 2). In support of this submission, he cites Scotlife Home Loans v. Hedworth (1996) 28 HLR 771 and Leggatt v. National Westminster Bank [2001] 1 FLR 563 at 577.
105. Taking grounds 3 and 4 (subrogation and rectification) together, Mr Wonnacott submits that – even assuming in favour of Mrs Hedworth that she had an equity as against Barclays to rectify the Barclays Charge so as to limit the secured indebtedness to the balance outstanding for the time being on the bridging loan account – the Barclays Charge was a valid charge because it was a term of the bridging loan that Barclays would be provided with a first legal charge if required, and the bridging loan was in fact applied in part payment of the purchase price of the Martindale properties.
106. In support of this submission he cites Abbey National Building Society v. Cann [1991] 1 AC 56. He submits that until the decision of the House of Lords in Cann there were thought to be three stages in a purchase of a freehold property using mortgage moneys: the first stage was the transfer of the fee simple to the purchaser; the second stage was the vesting in the purchaser, for a short moment in time (a scintilla temporis), of the fee simple free from any charge; the third stage was the charging of the fee simple by the purchaser in favour of the chargee. The effect of Cann, he submits, is that the second stage never occurs. Everything happens at the same time, with the result that all that the purchaser ever receives from the vendor is an equity of redemption, and the chargee receives his proprietary interest direct from the vendor without it ever passing through the purchaser. He submits that whilst the purchaser may have some right to avoid the personal covenants in the charge, he does not have any right to avoid the charge as a security (that is to say to require the security interest to be re-vested in him) because it was never vested in him in the first place. In short, he submits, the purchaser cannot recover what was never his in the first place.
107. He submits that if and in so far as Mrs Hedworth had an equity as against Barclays to rectify the Barclays Charge so as to limit the secured indebtedness to the balance outstanding for the time being on the bridging loan account, that would not affect the validity of the Barclays Charge as a security; it would merely limit Barclays' right of recovery under her personal covenant.
108. Turning to the position of UCB, Mr Wonnacott submits that UCB is entitled to possession of Hause Farm by subrogation to the Barclays Charge because (1) the Barclays Charge was on any footing a valid charge (see above); (2) it was a term of UCB's advance that UCB would be granted a first legal charge over Hause Farm (which would be released from the Barclays Charge); and (3) UCB's advance was in fact so applied.
109. He submits, relying on Piddington, that there is no relevant distinction for present purposes between void and voidable transactions.
110. He cites the Privy Council decision in Ghana Commercial Bank v. Chandiram [1960] AC 732 for the proposition that in paying off the outstanding balance on the bridging loan account UCB must be taken to have intended to keep the Barclays Charge alive in the event that the UCB Charge might prove for any reason to be invalid or ineffective.
111. As to ground 5 ('sub-subrogation'), Mr Wonnacott submits that the general principle is that where a lender advances money to be applied in payment or part payment of the purchase price on completion of a sale of land, and the advance is so applied, the lender is entitled by subrogation to the lien which the vendor would have had if the price (or the relevant part of it, as the case may be) had remained unpaid. He submits, relying once again on Piddington, that where such a lender obtains the security for which he has bargained then the lien is lost; but that if the lender does not receive the security for which he bargained – e.g. if he obtains only a voidable security – then he is deemed to keep the lien alive. Thus, he submits, if (contrary to his earlier submissions) the Barclays Charge was voidable at the instance of Mrs Hedworth, Barclays is deemed to have kept the unpaid vendor's lien alive; and UCB, having discharged the bridging loan, is entitled to be subrogated to that lien.
112. In making his submissions on the alternative grounds raised by the Respondent's Notice, Mr Wonnacott accepts that if the UCB Charge is not binding on Mrs Hedworth but UCB succeeds in establishing either an entitlement to subrogation in respect of the balance on the bridging loan account only (under grounds 3 and 4) or an entitlement to 'sub-subrogation' under ground 5 in respect of the £132,906.75 applied in part payment of the purchase price for the Martindale properties, UCB would not seek to claim any further relief from the court. Hence limited success for UCB on one or other of the subrogation issues would in practice obviate the need for any retrial.

CONCLUSIONS

113. I address first the primary issue as to whether the judge's conclusion that Mrs Hedworth had failed to discharge the burden of proving undue influence and/or misrepresentation by Mr Hedworth can stand, or whether this court should in effect set it aside.
114. Whilst I have considerable sympathy with the judge, whose expertise does not lie in this area and who was faced with potentially difficult and complex issues involving the application of equitable principles with which he was not especially familiar, nevertheless I cannot avoid the conclusion that his judgment is so superficial and perfunctory that his conclusion cannot stand.
115. The judge concludes (transcript p.7C-F) that "it is not likely" that Mrs Hedworth would have simply gone into Mr Danby's office and signed the UCB Charge; that "she would inevitably .... have asked questions" of Mr Danby; and that "if there were any matters that she was suspicious of" she would have read the document. Those were undoubtedly findings which were open to him to make on the evidence, but in making them (and in thereby rejecting Mrs Hedworth's uncontradicted, if not unchallenged, evidence to the contrary) he was, in my judgment, required to give a proper explanation of his reasons for doing so. This, in my judgment, he completely failed to do. As a result, one is left to deduce from elsewhere in the judgment what were the factors which led him to his conclusion. In my judgment that in itself amounts to a failure to discharge his judicial function.
116. Moreover, when one considers the various aspects of the evidence to which the judge expressly refers in his judgment, it is difficult to see how they led him to the conclusion he reached. The fact that Mrs Hedworth is an intelligent lady who had had some (minor) involvement in a farming business and who had once qualified as a teacher says little as to whether her signature on the UCB Charge was procured by undue influence or misrepresentation by her husband. Nor is the fact (assuming it to be the fact) that she agreed to sell antique furniture and pictures and to hand over the proceeds to her husband on the basis that he would execute a Deed of Gift in her favour of very much assistance in this context. On the other side of the scales, the judge does not expressly accept or reject Mrs Hedworth's evidence that she trusted Mr Hedworth in all matters relating to their financial affairs, nor does he in terms take account of the undoubted fact that Mr Hedworth has been found to be dishonest in his business dealings. Finally, the judge does not say in terms whether he considered that Mrs Hedworth was lying, or that her recollection was faulty. So on the face of the judgment it is, as I have said, difficult to see how the judge reached his conclusion that Mrs Hedworth had not "established on the civil burden of proof that there was any undue influence or misrepresentation" by Mr Hedworth.
117. In my judgment, therefore, the judge's conclusion cannot stand. It follows that there will have to be a retrial unless UCB persuades us that it is entitled to succeed on one or other of the grounds contained in its Respondent's Notice. I accordingly turn to the Respondent's Notice.
118. As noted earlier, Mr Wonnacott addressed the issues raised by the Respondent's Notice on the basis that even if the facts are taken at their highest in Mrs Hedworth's favour, nevertheless UCB is still entitled to possession of Hause Farm as chargee. I accordingly proceed on that basis in considering his submissions on those issues.

Ground 2 in the Respondent's Notice

119. In paragraph 48 of his speech in Etridge (No 2), Lord Nicholls said this:

"48. As to the type of transactions where a bank is put on inquiry, the case where a wife becomes surety for her husband's debts is, in this context, a straightforward case. The bank is put on inquiry. On the other side of the line is the case where money is being advanced, or has been advanced, to husband and wife jointly. In such a case the bank is not put on inquiry, unless the bank is aware the loan is being made for the husband's purposes, as distinct from their joint purposes. That was decided in CIBC Mortgages plc. v. Pitt ...."

120. In Pitt, the purpose of the loan, so far as the plaintiff lender was aware, was to discharge an existing mortgage on the matrimonial home of Mr and Mrs Pitt, which was in their joint names, and to purchase a holiday home. The leading speech was given by Lord Browne-Wilkinson, with whom the rest of their Lordships agreed. In the course of his speech, Lord Browne-Wilkinson said this (at p.211C-D):

"What, then, was known to the plaintiff that could put it on inquiry so as to fix it with constructive notice?

So far as the plaintiff was aware, the transaction consisted of a loan to husband and wife to finance the discharge of an existing mortgage on [the matrimonial home], and as to the balance to be applied in buying a holiday home. The loan was advanced to husband and wife jointly. There was nothing to indicate to the plaintiff that this was anything other than a normal advance to husband and wife for their joint benefit."

121. It is clear, therefore, that the relevant inquiry is as to the state of mind of the lender at the material time and in particular as to his understanding of the purpose of the advance.
122. In Scotlife, on which Mr Wonnacott relies, the claimant lender claimed possession of 27 Montagu Avenue as chargee under a legal charge granted by Mr and Mrs Hedworth. Mr and Mrs Hedworth filed Defences contending that the claimant had agreed to replace the secured loan and to waive its remedies for default under the charge. The claimant contended that the defence was misconceived. The District Judge declined to make a possession order, and gave directions. The claimant appealed to the circuit judge. By the time the appeal was heard Mrs Hedworth had amended her Defence to plead that the claimant's charge was unenforceable against her since it had been procured by Mr Hedworth's undue influence, of which the claimant had constructive notice. The judge allowed the claimant's appeal and made a possession order. Mrs Hedworth appealed to the Court of Appeal. At the hearing of the appeal, Mrs Hedworth sought to adduce additional affidavit evidence to the effect that if the appeal were allowed she would re-amend her Defence to allege that the claimant's advance was applied in discharging existing charges which had themselves been procured by the undue influence of Mr Hedworth, of which the claimant had constructive notice. The claimant conceded that if Mrs Hedworth's Defence were amended to include such allegations it would no longer be appropriate to strike it out.
123. Dismissing Mrs Hedworth's appeal, Neill LJ said this (at p.781):

"I appreciate that counsel for Mrs Hedworth would argue that the fact that a loan by way of mortgage is to be applied for the redemption of prior mortgages does not necessarily establish that the remortgage is to the wife's advantage because .... the mortgages redeemed may themselves have been procured by undue influence. I am not persuaded, however, by this argument. Indeed, it seems to me that it is contrary to the reasoning in Pitt.

The court has to find an equilibrium between the proper protection of the rights of a wife who may be the victim of actual or presumed undue influence on the one hand and on the other hand the furtherance of ordinary business transactions involving mortgages of a matrimonial home in the joint ownership of a husband and wife. The decision in Pitt .... demonstrates that a transaction which involves a remortgage with the application of any surplus funds to a purpose which is to the apparent benefit of the husband and wife would not normally arouse suspicion.

In the present case I think the correct approach is to consider what would have been the position had Scotlife been alerted to the fact that these monies were to be applied (save for a very small fraction) to the redemption of earlier mortgages. On this basis, I consider that Scotlife would have been entitled to treat the transaction as an ordinary business transaction. .... As I see it, Scotlife had no reason to question the validity of these earlier mortgages."

124. I respectfully agree with Neill LJ's observation that a transaction which involves a remortagage with any surplus funds being applied for a purpose which is to the apparent benefit of husband and wife would not normally arouse suspicion. Equally, I have no difficulty in accepting that it may be that, if the issue were properly tried, the instant case would be found to be on the Pitt side of the line, and that the conclusion would accordingly be that UCB was not put on inquiry as to the risk of undue influence and/or misrepresentation in relation to the Barclays Charge. However, I cannot accept Mr Wonnacott's submission that that conclusion must inevitably follow, no matter what findings of fact may be made at a retrial; nor do I read Neill LJ's judgment in Scotlife as laying down any proposition of law which would preclude a proper investigation of the facts in the instant case. In my judgment the issue as to whether UCB was put on inquiry by reason, among other things, of the (assumed) voidability of the Barclays Charge is an issue which can only be addressed once the factual background has been fully investigated and all relevant findings of fact made.
125. Nor do I derive any assistance from the decision of this court in Leggatt v. National Westminster Bank, on which Mr Wonnacott also relied in this connection. In Leggatt it was not alleged that the original charge, later replaced, was tainted by undue influence; rather, it was alleged that as a matter of construction the original charge had not extended to the husband's partnership liabilities whereas the replacement charge did so. On that basis, it was contended on behalf of the appellant wife that it was manifestly to her disadvantage to execute the replacement charge and that the bank was accordingly put on inquiry as to the risk that the replacement charge had been procured by undue influence. Dismissing the wife's appeal, this court held that the original charge was, as a matter of construction, effective to secure the husband's partnership liabilities. However, it also made clear that even if the original charge had not had that effect it was still to the wife's advantage to execute the replacement charge since had she not done so the partnership business would have collapsed and the bank would have taken steps to enforce guarantee which she had earlier given. This decision was based to a material extent on the facts found by the trial judge, and as such it does not seem to me to provide any assistance in the instant case.
126. I would accordingly reject ground 2 in UCB's Respondent's Notice.

Grounds 3 and 4 in the Respondent's Notice

127. In considering these grounds, the assumed facts (an expression which is intended to include undisputed facts) are (a) that Mrs Hedworth had a right as against Barclays to rectify the Barclays Charge so as to limit the secured indebtedness to the amount outstanding on the bridging loan account from time to time; (b) that her execution of the Barclays Charge was procured by the undue influence and/or misrepresentation of Mr Hedworth; (c) that UCB was put on inquiry as to such undue influence and/or misrepresentation; and (d) (as is conceded by Mr Wonnacott) that UCB did not take the precautionary steps identified by the House of Lords in Etridge (No 2).
128. As noted earlier, the effect of (a) above is to limit UCB's possible recovery to the amount outstanding on the bridging loan account as at 20 December 1990 (be it £206,386.78 or some lesser sum), plus interest and costs.
129. The combined effect of (b), (c) and (d) above is that the Barclays Charge was unenforceable against Mrs Hedworth and she had a right to set it aside as against her; in other words, that the Barclays Charge was voidable at her instance. However Mr Wonnacott submits, relying on Abbey National Building Society v. Cann, that as a matter of conveyancing the Barclays Charge was a valid charge, and hence enforceable against Mrs Hedworth notwithstanding the (assumed) existence of her right to set it aside. The argument is ingenious, but in my judgment it is wrong. The relevant question, in my judgment, is not whether, as matter of conveyancing machinery, Mrs Hedworth became at any stage in the process of completing the remortgage transaction the legal owner of Hause Farm unencumbered by the UCB Charge: a question which, applying Abbey National v. Cann, must be answered in the negative. Rather, the question is whether the UCB Charge is itself voidable at her instance. If Mr Wonnacott's argument were right, the result, as it seems to me, would be that the UCB Charge effectively takes priority over Mrs Hedworth's (assumed) right to set it aside, thereby negativing that right. To my mind, that would be an absurdity.
130. I turn next to the submission made by Mr Zelin in his written skeleton argument (and adopted by Mrs Hedworth) that there is no room for subrogation where, as Mr Zelin puts it, "the claimant actually gets a valid security that is subsequently rendered ineffective", and that "a voidable transaction is good until it is set aside".
131. In my judgment, however, a security which is voidable ab initio – that is to say which is, from its inception, liable to be set aside – cannot sensibly be described as "a valid security that is subsequently rendered ineffective". A security which is voidable ab initio is, by definition, unenforceable from its inception as against the party having the right to set it aside. Hence it is, from its inception, ineffective as a security. In my judgment, nothing that was said by Walton J in Burston Finance v. Speirway, or by Harman J in Capital Finance v. Stokes casts any doubt on these (to my mind) uncontentious propositions. Indeed, the passages in those judgments on which Mr Zelin relies seem to me positively to endorse them. Thus, Walton J's reference in Burston Finance v. Speirway (at p.1652H-1653A) to "a security which is, from its inception, either wholly void or otherwise completely unenforceable" seems to me plainly to include voidable, as well as void, securities. Likewise, when saying in Capital Finance v. Stokes (at p.279E) that the vendor had "obtained all that he bargained for" since he had been granted "the stipulated legal charge", Harman LJ was referring to a legal charge which was void against a liquidator or creditors for non-registration: that is to say a charge which was fully enforceable when made. At p.279G Harman LJ said:

"It was argued for the vendor that what he contracted to get was a valid legal charge, and that he has not received because the company in default of its obligation under section 95 [of the Companies Act 1948] did not register the charge with the result that it became ineffective on winding up. I do not accept this argument. The charge was effective when made and, although it was the purchaser's duty to register, it was open to the vendor himself to remedy the defect at the purchaser's expense."

132. In my judgment, there is a clear distinction for present purposes between a charge which is voidable from its inception and one which is valid (i.e. fully enforceable) when made but which may become void at some future date unless registered. The charge in Capital Finance v. Stokes was in the latter category. Plainly, a lender who has bargained for a valid security and has received only a security which is voidable from its inception has not obtained all that he bargained for. By contrast, as Harman LJ held, where such a lender receives a security which is valid (i.e. fully enforceable) when made and will remain so if registered, he has obtained all that he bargained for.
133. I would accordingly reject grounds 3 and 4 in the Respondent's Notice.

Ground 5 in the Respondent's Notice

134. The assumed facts in relation to ground 5 in UCB's Respondent's Notice are these: (1) that the Barclays Charge was voidable (the combined effect of assumed facts (b), (c) and (d) under grounds 3 and 4); (2) that out of the Barclays advance, £132,906.75 was applied in part payment of the purchase price for the Martindale properties; (3) that the UCB advance was applied (among other things) in repaying that sum to Barclays; and (4) that the UCB Charge is voidable.
135. On these assumed facts, UCB contends that Barclays, having received an ineffective security (see above), was entitled to the lien over Hause Farm to which the vendors of the Martindale properties would have been entitled had £132,906.75 of the purchase price remained unpaid; and that UCB in its turn, having repaid that sum to Barclays, is entitled – by 'sub-subrogation' – to stand in Barclays' shoes and thus to enforce the lien.
136. At the outset, it is to be noted that, on the assumed facts, the entirety of Barclays' contribution to the purchase price of the Martindale properties (i.e. the whole of the £132,906.75) was repaid by UCB to Barclays. Hence there can be no question of Barclays retaining any entitlement to an unpaid vendor's lien in respect of any of the Martindale properties.
137. The issue, therefore, is whether UCB is entitled by 'sub-subrogation' to the lien which Barclays would otherwise have had.
138. In Ghana Commerical Bank v. Chandiram Lord Jenkins, delivering the judgment of the Privy Council, said this ([1960]AC at p.745):

"It is not open to doubt that where a third party pays off a mortgage he is presumed, unless the contrary appears, to intend that the mortgage shall be kept alive for his own benefit: see Butler v. Rice [1910] Ch 277."

139. In Piddington the application of this principle was further considered by the Court of Appeal. In that case the wife charged the matrimonial home to Lloyds to secure the husband's indebtedness. The husband subsequently agreed with Barclays for the indebtedness to be refinanced. Unbeknown to the wife, the husband and an accomplice forged the wife's signature on a transfer of the matrimonial home into joint names and on a remortgage. When Barclays pressed for repayment, the husband applied to the claimant, which agreed to make a loan. The claimants' loan was applied in paying off the husband's indebtedness to Barclays, including that part of Barclays' indebtedness which arose from its having paid off Lloyds. The husband defaulted in repaying the claimant's loan, and the claimant commenced proceedings against the husband and the wife claiming possession of the matrimonial home on the basis that it was entitled to be subrogated to Barclays. At first instance, the judge held (among other things) that Barclays was entitled by subrogation to the Lloyds charge and that the wife was bound in respect of so much of the secured indebtedness under the Barclays charge as derived from the payment by Barclays to discharge the Lloyds charge (a sum of £4735.39).
140. The wife appealed, on the ground (among other things) that the conditions for subrogation were not satisfied.
141. By its Respondent's Notice, the claimant contended that it was entitled to be subrogated to the Lloyds charge in respect of the £4735.39 paid to Barclays out of the claimant's loan. Counsel for the claimant submitted that, under the principle of subrogation, the claimant was entitled to step into the shoes of Barclays, which (to the extent of £4735.39) was in turn entitled to step into the shoes of Lloyds and thus to enforce the Lloyds charge.
142. The Court of Appeal accepted that submission, and declared accordingly. The leading judgment, with which Sir John May and McCowan LJ agreed, was given by Peter Gibson LJ. After citing the passage from the judgment of the Privy Council in Ghana Commercial Bank v. Chandiram quoted above, Peter Gibson LJ continued (at p.790E):

"The principle is best exemplified by the facts of Butler v. Rice. In that case, the wife was the owner of a Bristol property and a Cardiff property subject to a £450 charge in favour of a bank with whom the title deeds had been deposited. The husband asked the plaintiff to lend him £450 to pay off the mortgage. The plaintiff thought that the Bristol property belonged to the husband and did not know of the Cardiff property. He agreed to advance the money on having a legal mortgage for £300 on the Bristol property and a guarantee of £150 by the husband's solicitor who was to hold the deeds for the plaintiff. The wife knew nothing of the transaction. The money was paid, the charge to the bank discharged and the deeds of the Bristol property held by the solicitor as stakeholder. The wife refused to execute a mortgage in favour of the plaintiff. He sued the wife and her husband and the solicitor for a declaration that he was entitled to a charge on the Bristol property [for] £450 and interest.

Warrington J, at p.282, referred to:

'.... the well-known equitable doctrine that if a stranger pays off a mortgage on an estate he presumably does not intend to discharge that mortgage, but to keep it alive for his own benefit.'

He held that it must be presumed that the plaintiff wanted to keep the bank's charge alive in his own favour, that the fact that the wife had not requested the plaintiff to make the payment and did not know of the transaction was immaterial, that the fact that he intended to take a different security did not affect the question, and that he was entitled to a charge on the Bristol property for £450 and interest."

143. Peter Gibson LJ went on to conclude that Butler v. Rice remained good authority. Later in his judgment, Peter Gibson LJ referred to the House of Lords decision in Orakpo v. Manson Investments Ltd [1978] AC 95, and to the speeches of Lords Diplock, Salmon and Keith in that case, as demonstrating that subrogation "embraces more than a single concept in English law".
144. Later in his judgment, Peter Gibson LJ said this (at p.C):

"I do not think it is open to this court to reinterpret the Butler v. Rice line of authorities in the way which [counsel for the wife] would have us do in the light of the approval of the broad principle laid down in such cases and approved in decisions binding on us. I feel it right to add that for my part, given that the court in a case like the present is having to choose between allocating a loss, either to the innocent mortgagor or to the innocent provider of the moneys, I do not regard it as unjust that in accordance with Butler v. Rice the loss should fall on the mortgagor who otherwise takes a windfall benefit. I say that despite the fact that, as [counsel for the wife] rightly stressed, the wife in the present case had no contract with [the claimant], was not the principal debtor, knew nothing of the transaction under which [the claimant] lent money to the husband and has never ratified the discharge of the mortgage on the property.

[Counsel for the wife] also advanced the further argument that it would be an unwarranted extension of the Butler v. Rice principle if [the claimant] were to be held entitled to step into the shoes of Lloyds by what he called sub-subrogation. For my part, I see no conceptual difficulty in this. As the judge held, Barclays was entitled to the Lloyds security by subrogation when Barclays discharged the debt to Lloyds, thinking that it was to obtain an effective security for its own money. When [the claimant] discharged the debt to Barclays, thinking that it was obtaining an effective security for its own money, it became entitled to the same security as Barclays [had]. I would, therefore, hold that by subrogation [the claimant] became entitled to the same security as that held by Barclays, [that] is to say the Lloyds charge."

145. Peter Gibson LJ went on to reject an alternative argument advanced on behalf of the claimant based on imputed consent on the part of the wife. In support of this alternative argument, counsel for the claimant cited Equity and Law Home Loans Ltd v. Prestidge [1992] 1 WLR 137. However, at p.794B Peter Gibson LJ made it clear that he rested his decision entirely on Butler v. Rice.
146. I regard Piddington as clear authority that what I may call the Butler v. Rice principle applies in the instant case, with the consequence that (assuming the Barclays charge to be voidable at the instance of Mrs Hedworth) Barclays must be taken to have intended to retain and keep alive any security rights to which it was entitled in the absence of an effective security, and, by parity of reasoning. UCB is in turn entitled to be subrogated to those rights.
147. Further, if I may respectfully align myself with Peter Gibson LJ, I too am unable to see any conceptual difficulty in subrogation at one remove (as it were), provided that the requirements for subrogation are otherwise met. Those requirements are essentially flexible requirements, designed to be adaptable to varying factual situations. As Lord Salmon put it in Orakpo (at p.110):

"The test as to whether the courts will apply the doctrine of subrogation to the facts of any particular case is entirely empirical. It is, I think, impossible to formulate any narrower principle than that the doctrine will be applied only when the courts are satisfied that reason and justice demand that it should be."

148. In my judgment, in the instant case reason and justice do so demand. To deny UCB an entitlement to be subrogated to the lien to which Barclays in turn became entitled on financing part of the purchase price of the Martindale properties would produce a windfall benefit for Mrs Hedworth. In that respect, the instant case is on all fours with Piddington, and the same result should follow.
149. I would therefore accept UCB's contentions under ground 5 in its Respondent's Notice.

RESULT

150. I would allow the appeal in part, in that I would declare that UCB is entitled to an equitable charge on Hause Farm to secure £132,906.75, together with interest and costs, and I would grant appropriate relief to enforce that security (including an order for possession of Hause Farm).

Lord Justice Longmore:

151. I entirely agree with everything which Jonathan Parker LJ has said and with his decision to uphold ground 5 of the Respondent's Notice. I was at one time concerned that, if as Mrs Hedworth submitted, Barclays retained charges on the Martindale properties other than Hause Farm, there might arguably have to be an apportionment, as against UCB, of the value of the unpaid vendor's lien to which we are holding that UCB are "sub-subrogated". But reflection convinces me that this cannot be so. The unpaid vendor's lien, which would have been discharged if Barclays had received an unassailably valid mortgage, was a lien which could have been enforced against any one of the Martindale properties for the full amount, including Hause Farm. Since UCB, by their payment to Barclays, have discharged Barclays' rights to enforce against Hause Farm to the extent of the purchase price of all five Martindale properties, UCB's rights can be no less than Barclays were and they must, therefore, now be entitled to an equitable charge on Hause Farm to secure £132,906.75 being Barclays' contribution to the full price of £180,000. The amount of interest remains to be determined.

Lord Justice Kennedy:

152. I also agree with the judgment of Jonathan Parker LJ.
Order: Appeal allowed in part; further orders as per draft minute of order. (Order does not form part of the approved judgments)